viernes, 15 de diciembre de 2017

Ireland extends deadline for filing first country-by-country reports

Irish Revenue has issued an eBrief that extends the upcoming filing deadline for country-by-country reports for calendar year 2016 to 28 February 2018.
Source & more info: Deloitte

Dbriefs Bytes - 15 December 2017

Angola establishes Transfer Pricing Unit

On 25 September 2017, Angola’s Ministry of Finance issued Order no. 678/17 establishing the Transfer Pricing Unit.

Main changes
In order to ensure and control compliance with the requirement to submit transfer pricing documentation, in accordance with number 5 of article 12 of Presidential Decree no. 147/13 of 1 October, approving the Large Taxpayers Statute, the Angolan Tax Authorities (ATA) have established the Transfer Pricing Unit (TPU) which integrates the Large Taxpayers Directorate, through publication of Order no. 678/17, on 25 September 2017.

In addition to ensuring and controlling compliance with the delivery of transfer pricing documentation, the TPU will be responsible for proceeding with transfer pricing audits to monitor compliance of controlled transactions with the arm’s length rules for taxpayers covered by the Angolan transfer pricing regime (i.e., those included in the Large Taxpayer List, with a turnover at the end of the fiscal year of at least 7 billion Kwanzas1).

The TPU is also going to provide support and the necessary clarifications to these taxpayers in order to ensure greater levels of compliance with the associated obligations, as well as ensuring information sharing and interaction regarding the transfer pricing regime with the other Services, Directions or offices of the ATA or other entities with which the ATA cooperate on transfer pricing matters.

Source: EY

jueves, 14 de diciembre de 2017

Belarus’s Ministry of Finance submits draft law amending transfer pricing rules for comment

On 22 August 2017, the Ministry of Finance of the Republic of Belarus uploaded the draft law “On Introducing Additions and Amendments to Certain Laws on Tax and Accounting Issues (Draft Law)” to its site1 for comment. The Draft Law envisages amendments to the transfer pricing (TP) rules effective from 1 January 2018. These amendments aim to more closely align the Belarussian TP legislation with internationally acceptable TP principles.

Related parties
The Draft Law broadens the list of cases where parties are recognized as related, to include, among others, the relationship of founders if they are spouses, blood relatives or in-laws, as well as an adopter or adoptee, guardian or ward, and the direct/indirect interest of each of the related founders in an entity is no less than 20%.

Controlled transactions
The list of controlled transactions has not changed significantly in comparison to the current list. The current list includes:

  • Transactions related to the sale/purchase of immovable property and housing bonds
  • Both domestic transactions and cross-border transactions are subject to transfer pricing control. No threshold is set for such transactions.

Transactions with related parties or residents of offshore jurisdictions. This group includes the transactions related to:

  • Foreign trade with related parties or residents of offshore jurisdictions (offshore residents), according to the list approved by the President of Belarus
  • Foreign trade with related parties or residents of offshore zones involving independent intermediaries with no substantial functions ( intermediary transactions)
  • Transactions with Belarusian-related parties (including intermediary transactions) exempt from corporate income tax due to the application of special taxation regimes or similar

The aforementioned transactions are subject to control only if their value with each counterparty exceeds BYN100,000 (approximately US$50,000) in a calendar year (net of indirect taxes)

Large transactions
Foreign trade transactions (1) of large taxpayers or (2) with strategic goods are considered subject to transfer pricing control if their value with each counterparty exceeds BYN1 million (approximately US$500,000) in a calendar year (large transactions).

The list of large taxpayers is published by the Ministry of Taxes and Duties of Belarus. The list of strategic goods is published by the Government of Belarus and includes, among other items, petroleum and petroleum products, potassium chloride, and timber.

Self-adjustments of the tax base
As of 2018, in the event that a taxpayer self-adjusts the corporate income tax base due to application of the arm’s-length principle, the Draft Law includes the following provisions on late payment interest:

  • Late payment interest shall not accrue if the additional tax payment is made before the deadline set for payment of the annual tax (currently, the deadline for annual corporate income tax (CIT) payment is 22 March of the year following the tax period).
  • Late payment interest shall be reduced by 50% if the additional tax payment is made before the deadline set for payment of the annual tax for the tax period following the tax period for which an amended tax return was provided.

In all other cases, transfer pricing related late payment interest equals 1/360 of the National Bank’s refinancing rate (0.0306% per day effective from 18 October 2017).

With respect to transfer pricing penalties, the rules remain the same as in 2017; in the case of a tax audit, the penalty at 20% of the underpayment of tax as a result of a transfer pricing adjustment is applied and transfer pricing documentation does not provide for any penalty protection.

Reporting period
Currently, the tax authorities are entitled to audit controlled transactions for transfer pricing purposes on a quarterly basis, which means that taxpayers have to test controlled transactions on a quarterly basis. With new rules, the tax authority would be entitled to undertake a transfer pricing audit only on an annual basis.

Transfer pricing methods
Comparable Uncontrolled Price (CUP) Method
The current rules appear to give an external comparable data priority over a taxpayer’s own (internal) comparable data. According to the new rules, the internal comparable data is given priority.

Resale Price Method
Unlike the current law, the Draft Law establishes the priority of the Resale Price Method over other methods (including CUP) whereby goods are bought in a tested transaction and then resold without being processed in a transaction between unrelated parties.

For the purposes of applying the Resale Price Method, the Draft Law requires testing the reseller’s gross margin and using it as the profit level indicator, provided comparability of the gross margin may be established in a controlled transaction and in third party transactions.

In the event that the data comparability may not be established, other TP methods should be used that are subordinate to the Resale Price Method.

Cost Plus Method
The Draft Law specifies that for the purposes of the Cost Plus method application, testing of the seller’s/service provider’s gross return on costs is required.

Similarly to the Resale Price Method, in the event data comparability may not be established, other TP methods should be used that are subordinate to the Cost Plus Method.

Transactional Net Margin Method
The current law does not specify how a tested party should be selected in a controlled transaction. It may also be interpreted that only a Belarusian taxpayer may be selected as a tested party.

With the new rules, a tested party will be that party in a transaction, with respect to which a transfer pricing method (or a combination thereof) can be applied in the most reliable manner, for which the most reliable comparables can be found, and which complies with the following requirements:

  • Performs the less complex functions in the tested transaction
  • Assumes lower economic (business) risks than the other party in the tested transaction
  • Does not possess intangible assets which materially influence the level of the profit margin

If neither party to a tested transaction complies with the requirements established hereby, the party to the tested transaction that is most compliant with the aforementioned requirements should be chosen for the comparability analysis.

Profit Split Method
The Draft Law introduces a residual profits split analysis in addition to the contribution analysis currently set forth by the law.

Selection of transfer pricing method
The Draft Law entitles a taxpayer to use a combination of two or more methods for determining the conformity of the price in a tested transaction to the market price, while the current law does not include any direct reference to the entitlement to use more than one method.

At the same time, the Draft Law allows the tax authorities to reject the taxpayer’s choice of a transfer pricing method if they justify that the choice was not correct, and to assess an arm’s-length price on the basis of another method which must provide a more reliable result.

Data sources
The Draft Law establishes clear subordination of various data sources that may be used for transfer pricing purposes. The list of data sources is open-ended and has not changed significantly in comparison with the current law. At the same time, pursuant to the Draft Law, a taxpayer is entitled to use any data from public open sources specified in Article 35-4 of the Draft Law.

Comparability analysis
Using a three-year period
The Draft Law provides that, when calculating the arm’s-length profitability range, information available at the time of execution of a tested transaction should be used (but not later than 31 December of the year during which the tested transaction was undertaken), or data from the accounting (financial) statements for the three calendar years immediately preceding the calendar year in which a tested transaction was undertaken (the year in which prices in the tested transaction were set).

Under the current wording of the Tax Code, a taxpayer is entitled to rely on the financial data of potentially comparable companies only for the reporting period (calendar quarter). If there is no comparable data in the examined reporting period, one is entitled to use data for other reporting periods (though how many is not defined), provided the data is properly adjusted for the price indices compiled by the National Statistics Committee of Belarus or fluctuations of the official exchange rate of the Belarusian ruble established by the National Bank (the adjustment requirement remains in the new rules).

Search for comparable companies
The Draft Law introduces new requirements regarding a search of comparable companies. In particular, a comparable company may be accepted when all the following criteria are met:

  • Comparable activity criterion (where a company carries out comparable activities with respect to the taxpayer that has completed the tested transaction)
  • Absence of losses criterion (where a company incurs no losses from sales for more than one year out of several years under the analysis)
  • Positive net assets criterion (where a company’s net assets are not negative as of 31 December of the end of the analyzed period)
  • Independence criterion (where a company neither has a direct and (or) indirect interest in the capital of the other company more than 20%, nor has as a participant (shareholder) another company with a direct interest of more than 20%)

If fewer than four comparables are found as a result of applying the aforementioned criteria, the independence criterion may be raised from 20% to 50%.

Arm’s-length range
The Draft Law abolishes a 20% safe harbor currently available for deviation of prices (actual profit level indicators) in a controlled transaction from the arm’s-length range.

Beginning 1 January 2018, the arm’s-length range will be defined as a full range, i.e., the range starting from the lowest value to the highest value of prices/margins (as opposed to an interquartile range).

Grouping of transactions
The current Tax Code requires testing each controlled transaction broken down by each and every contract, appendix to a contract, and specification.

For the purposes of transfer pricing documentation, the Draft Law entitles a taxpayer to test transactions by “groups of contracts for homogeneous transactions,” although it neither establishes the approach for such grouping, nor defines the concept of “a group of homogeneous transactions.”

At the same time, transfer pricing documentation is to be prepared only with respect to large transactions. For other transactions, the current law requires preparing a so called “economic justification” with a somewhat limited scope as compared to a traditional transfer pricing documentation. In the case of economic justification, grouping would not be possible.

Transfer pricing documentation deadline
Currently, transfer pricing documentation should be submitted to the tax authorities only upon request.

With the new rules, there is a requirement to submit transfer pricing documentation by a certain deadline. However, it will apply only to large transactions, those conducted by large taxpayers, as well as transactions with strategic goods if the total amount of foreign trade transactions with one party exceeds BYN1,000,000. For such transactions, taxpayers will be required to prepare and submit to the tax authorities transfer pricing documentation by 1 June of the year following the reporting tax period.

With respect to other types of tested transactions, they are documented in a simple form (so called ”economic justification”) to be provided to the tax authorities only upon request.

Source: EY

miércoles, 13 de diciembre de 2017

New Dutch government coalition plans to lower corporate tax rates and eliminate the dividend withholding tax

After months of negotiations, on October 10, 2017, a new business-minded Dutch government announced its political plans for the upcoming four years. These plans include various corporate tax proposals.

The relevant items for multinational enterprises (MNEs) doing business in the Netherlands are the reduction of the general Dutch corporate income tax (CIT) rate to 21% and elimination  of the dividend withholding tax. The government also is planning to introduce various measures to further counter international tax avoidance that align with EU and OECD BEPS recommendations.

Source & more info: pwc

martes, 12 de diciembre de 2017

Singapore: Amendments to the Income Tax Act

The Income Tax (Amendment) Bill 2017 (the Bill) was read for the second time and passed in Parliament in October 2017.

Besides the tax changes announced in the 2017 Budget Statement, this year’s Bill contains a number of other proposals that arose from the on-going review of Singapore’s income tax system. These include, most notably, various proposed measures to strengthen the transfer pricing (TP) regime such as the introduction of a mandatory transfer pricing documentation (TPD) requirement. The Bill also includes a specific tax framework for companies that re-domicile into Singapore, and prescribes the tax treatment of certain items arising from the adoption of Financial Reporting Standard 109 — Financial Instruments (FRS 109) and Financial Reporting Standard 115 — Revenue from Contracts with Customers (FRS 115).

Source & more info: pwc

lunes, 11 de diciembre de 2017

Russia introduces general anti-avoidance rules

A law that applies as from 20 August 2017 introduces a general anti-avoidance rule (GAAR) in Russia and codifies the concept of an “unjustified tax benefit.” The law, approved by the State Duma on 7 July 2017 and signed by the president on 19 July, originally was submitted to the State Duma in 2014 and underwent some changes during the legislative process.
The unjustified tax benefit concept was first articulated by the Supreme Arbitration Court in in 2006 and, since that time, has been relied on extensively by both the tax authorities and the Russian courts.
A new article (article 54.1) added to the tax code defines an unjustified tax benefit as a taxpayer’s understatement of its tax base and/or tax payable due to the taxpayer’s “misrepresentation of its business operations and/or taxable assets.” In such circumstances, the tax authorities, for instance, can assess additional tax liabilities by disallowing the deduction of certain expenses. The burden will be on the tax authorities to demonstrate the presence of an unjustified tax benefit. The applicability of the unjustified tax benefit concept will be tested primarily by assessing the genuineness of the transaction – in other words, whether the taxpayer intended to misrepresent the tax data.
If there is no misrepresentation, the taxpayer will be entitled to reduce its taxable base and/or tax payable, provided both of the following conditions are fulfilled:

  • The primary purpose of the transaction is not the avoidance (or the partial avoidance) of tax and/or to obtain a tax refund; and
  • The obligations under the transaction were performed by a party to the relevant agreement with the taxpayer, and/or its legitimate assignee.

The law expressly states that the following factors, in and of themselves, will not be considered evidence of an unlawful reduction of the taxable base or tax due:

  • The signing of source documents by an unidentified/unauthorized person;
  • A violation of tax legislation by a counterparty (e.g. failure to pay tax due); or
  • The possibility of using other options to achieve the same economic result.

The new rules apply to desk audits of tax returns filed after the date the law was enacted and to field audits and transfer pricing audits scheduled by the tax authorities after the enactment date.

Source: Deloitte

viernes, 8 de diciembre de 2017

Mexico extends repatriation deadline under capital repatriation program to 19 October 2017

Mexico’s Tax Service Administration (SAT) released interpretative guidance on 29 August 2017 that affects taxpayers that have elected to take advantage of the capital repatriation program that was launched on 18 January 2017.

The capital repatriation program allows taxpayers (both entities and individuals) that earned income from previously unreported direct and indirect offshore investments that were held abroad until 31 December 2016 to bring the funds back to Mexico. Taxpayers can pay a specified tax on the funds and be deemed to have met their tax obligations in Mexico for the fiscal year in which the payment is made and for the previous fiscal years in which the investment was held. The requirements to benefit from the capital repatriation program include the following:

  • The taxpayer must pay an 8% tax on the repatriated amount within 15 days following the date the amount is brought back into Mexico;
  • The repatriation must be made during the period 19 January 2017 to 19 October 2017 (the previous deadline of 19 July has been extended by three months); and
  • The funds must be “invested in Mexico” for at least two years.

Initially, funds were deemed to be invested in Mexico if the investment was made through financial instruments issued by residents of Mexico or in shares issued by Mexican companies. The SAT has now re-interpreted the investment requirement, so that the benefits of the repatriation initiative may not be available in one of two circumstances:

  1. The Mexican taxpayer is able to exercise control over the investment decisions taken by the company whose shares have been acquired; or
  2. The Mexican company whose shares have been acquired uses the repatriated funds to invest abroad.

In both cases, the SAT will consider the transactions to constitute an unacceptable practice and the benefits of the capital repatriation regime may be forfeited. Additionally, any person that advises, renders services or participates in the implementation of such a transaction will be deemed to have engaged in an unacceptable practice and may be subject to examination and sanctions by the SAT.

Source: Deloitte

jueves, 7 de diciembre de 2017

Latvia moves to taxation of corporate profit distributions

A law adopted by the Latvian parliament on 28 July 2017 will introduce fundamental changes to the corporate income tax regime, as well as changes to the tax rates affecting individuals, beginning on 1 January 2018. The new corporate regime, which is similar to the regimes in Estonia – and, more recently, Georgia – will tax corporate profits only at the time profits are distributed or deemed to be distributed. However, the tax rate will be increased and certain tax deductions and incentives will be eliminated (although incentives in the four free economic zones (FEZs) will remain available).

The new rules aim to stimulate the economy and are expected to provide a major benefit to investors in Latvian entities.

Tax on profit distributions
Companies in Latvia currently are subject to a 15% tax on net taxable income. Under the tax reform, the tax rate will be increased to 20%, but tax will be levied only on distributed profits or profits that are deemed to be distributed, with undistributed profits generally remaining untaxed. Amounts loaned to related parties in certain situations will be deemed to be distributions of profits and subject to the 20% rate (except for amounts loaned to directly owned subsidiaries or associated companies).

Certain expenses will be deemed to be taxable similar to profit distributions under the new law. However, these items will be subject to tax at an effective rate of 25% (i.e. the new rate of 20% multiplied by the taxable base attributable to these items divided by a coefficient of 0.8) that must be paid immediately. Expenses falling in this category include the following:

  • Interest expense exceeding the ratio established under Latvia’s thin capitalization rules;
  • Adjustments made to increase profit under the transfer pricing rules;
  • Expenses for representational or entertainment-related activities that exceed certain limits;
  • Certain non-business expenses and donations; and
  • Penalties.

Most tax deductions will be abolished, including depreciation, extra tax allowances on new equipment and deductions for research and development costs, and as discussed below, the tax relief for large-scale investments will be phased out.

The new law also includes the following rules:

  • Profits earned through 31 December 2017 (and subject to tax under the current regime) will not be subject to corporate income tax under the new regime when distributed.
  • Dividends received from nonresident entities (which normally are exempt from corporate income tax) will be subject to tax as deemed distributions of profit in cases where the payer of the dividends does not pay corporate income tax in the country in which it is resident or where the payer is registered in a jurisdiction included on Latvia’s black list.
  • The current regime for holding company income will be maintained, but with a new restriction under which capital gains on the sale of shares will be exempt from corporate income tax only if the shares have been held for at least three years.
  • A transitional rule will allow tax losses incurred through 2017 to be carried forward to reduce up to 50% of taxable distributed profits in the following five years, i.e. through 31 December 2022.

Tax incentives
The large-scale investment regime allows taxpayers to obtain a corporate income tax credit equal to 25% of an investment amount between EUR 10 million and EUR 50 million, and 15% for investments exceeding this amount, which generally may be used to reduce tax on profits distributed during the 16-year period following the year in which the project is completed. The large-scale incentive will be phased out – applications for the credit no longer will be accepted as from 1 January 2018. However, foreign investors that currently operate in Latvia or that plan to invest in the near future still may be able to qualify for the large-scale investment incentive credit under the new regime, provided they apply for the incentive by 31 December 2017.

The special tax regime available for companies operating in a Latvian FEZ or free port will continue to be available for investments made through 31 December 2035. Companies operating in these areas benefit from an 80% reduction of corporate income tax otherwise payable. Taking the tax on profit distributions into account, this will result in an effective tax rate of as low as 4% on distributed profits from FEZ/free port operations as from 2018.

Personal income tax changes
The personal income tax rate on individuals with taxable income of EUR 55,000 or more will be increased by replacing the current flat rate of 23% with the following progressive rates:

  • 20% on taxable income up to EUR 20,000;
  • 23% on taxable income over EUR 20,000 and up to EUR 55,000; and
  • 31.4% on taxable income over EUR 55,000.

The total rate of social security contributions will be increased by 1% (i.e. both the employer’s and the employee’s contributions will be increased by 0.5%), from 34.09% to 35.09%.

The tax rate on capital income derived by individuals (currently 10% on dividends and 15% on interest and capital gains) will be increased to 20%. However, dividends paid by Latvian companies to individuals will be exempt from personal income tax where corporate tax is paid on the dividends under the new rules. Dividends paid to individuals from retained earnings accumulated through 31 December 2017 are subject to a 10% personal income tax if distributed by the end of 2019 (the new 20% rate will apply to dividends from pre-2018 retained earnings that are distributed after 2019).

Source: Deloitte

French constitutional court rules 3% surtax on dividends is unconstitutional

The French constitutional court published a decision on 6 October 2017, concluding that the 3% surtax on profit distributions – in its entirety – violates the constitution.

The 3% surtax has been the target of intense criticism since it was introduced in 2012, and has given rise to claims that the surtax is contrary to the French constitution, as well as EU law and France’s tax treaties. Challenges to aspects of the surtax have been before various French courts and the Court of Justice of the European Union (CJEU).

Source: Deloitte

miércoles, 6 de diciembre de 2017

Kosovo issues guidance on transfer pricing procedures and documentation requirements

Kosovo’s Ministry of Finance released guidance on 20 July that sets out the procedures for the administration of related-party transactions.
The final guidance – Administrative Instruction MoF-No.02/2017 – which applies from 28 July 2017, makes some changes to a draft instruction issued in September 2016. The final guidance includes a definition of intragroup services and distinguishes between low- and high-value-adding services. For example, under the new guidance, no intragroup services will be considered to have been provided when the activities duplicate a service that another group member performs for itself or is provided to that group member by a third party. To be considered low-value-adding services, the services rendered must be supportive in nature, must not be part of the multinational company’s core business, must not require the use of or lead to the creation of special and valuable intangible assets, or involve the assumption of significant risk for the service provider.
When calculating the market value of low-value-adding services, as per the new guidance, the service provider must apply a 7 percent profit margin to all accumulated costs (with some exclusions).
The guidance also contains a new definition of “related party” and introduces transfer pricing documentation requirements.
Parties will be deemed to be related when there is a special relationship that could have a material effect on the economic results of the transactions between the parties. A related party relationship exists in the following cases:

  • One person holds or controls 50 percent or more of the shares or voting rights in another person;
  • One person directly or indirectly controls the other person;
  • Both persons are directly or indirectly controlled by a third person; and
  • Relatives of the first, second, and third degree.

The burden of proof is on the taxpayer to demonstrate that its related-party transactions are concluded on arm’s length terms.
From fiscal year 2017 (the calendar year in Kosovo), taxpayers engaged in related-party transactions must prepare transfer pricing documentation that contains at least the following information:

  • A summary of the taxpayer’s activities and organizational structure;
  • A description of the organizational and operational structure of the group of which the taxpayer is a member;
  • A description of the controlled transactions and applicable transfer pricing policies;
  • An explanation of why a particular transfer pricing method and financial indicator were selected;
  • A comparability analysis of controlled and uncontrolled transactions, along with:
  • A description of the process used to identify comparable transactions;
  • An explanation of the reason any potential internal comparable transactions were rejected, and a description of comparable transactions;
  • Details and an explanation of each adjustment made to the comparability analysis; and
  • An explanation of the analysis;
  • Details on any preliminary agreement regarding the pricing arrangement; and
  • Conclusions regarding compliance with the arm’s length principle.

Alternatively, documentation may be prepared in accordance with the EU Code of Conduct and its annexes on transfer pricing documentation, or the three-tiered documentation approach under action 13 of the BEPS project (master file, local file, and country-by-country report).
Although the guidance does not include a specific deadline for submitting the documentation, it must be produced within 30 days of a request by the tax authorities, and must be in one of Kosovo’s official languages (Albanian and Serbian), although the tax authorities may accept English in certain circumstances.
Additionally, taxpayers involved in controlled transactions valued at more than EUR 300,000 must submit a notice to the tax authorities on their annual controlled transactions. The notice is due by 31 March of the following year, along with the annual corporate income tax return and statutory financial statements; the first notice will be due on 31 March 2018.

Source: Deloitte

Malaysia issues sample notification letters for country-by-country reporting

Malaysia’s Internal Revenue Board (IRB) has issued sample notification letters for entities subject to the country-by-country (CbC) reporting notification requirement.
Two different sample notification letters have been provided, one for reporting entities (ultimate holding companies or surrogate holding companies that are tax resident in Malaysia) and the other for non-reporting entities.
To avoid duplication, notification may be provided by one Malaysian constituent entity on behalf of other Malaysian constituent entities of the same multinational enterprise (MNE) group.
Source & more info: Deloitte

martes, 5 de diciembre de 2017

Joint audits in the EU: The pilot project between Italy and Germany

In October 2017, the Italian and the German Tax Authorities met and debated about the state of play of the pilot project on cross-border joint audits. The pilot project is an innovative program which aims to reinforce international cooperation in tax matters and implement the recourse to joint audits by two or more tax administrations against groups or companies operating in multiple jurisdictions.

Source & more info: PwC

IRS APMA Program issues draft APA template for comment

The IRS Advance Pricing and Mutual Agreement (APMA) Program on September 19 issued a revised draft advance pricing agreement (APA) template for public comment.
The APA template is for use with unilateral or bilateral/multilateral APAs requested under Rev. Proc. 2015-41. US taxpayers are required to submit a proposed APA as Exhibit 15 to its complete APA request, in a form substantially similar to APMA’s current model APA. When finalized, the revised draft APA template would replace APMA’s current model APA, which has not been substantially updated since 2004. As noted above, the APA template has been issued in draft, and may be changed based on comments received.
Source & more info: Deloitte

lunes, 4 de diciembre de 2017

Taiwan: Employment income tax exemption procedure under agreement with Japan clarified

Taiwan’s tax authorities issued guidance on 25 September 2017 that clarifies the procedure for Japanese individuals working in Taiwan on short-term assignments to obtain benefits under the Japan-Taiwan tax treaty that entered into effect on 1 January 2017.
Article 15(2) of the agreement provides that remuneration derived by a resident of Japan from employment in Taiwan will be taxable only in Japan if:

  • The individual was present in Taiwan for a period or periods not exceeding an aggregate of 183 days in any 12-month period commencing or ending in the calendar year concerned;
  • The remuneration is paid by, or on behalf of, an employer that is not a resident of Taiwan; and
  • The remuneration is not borne by a permanent establishment (PE) or a fixed place of business of the Japanese employer in Taiwan.

Based on article 15(2), a Japanese resident individual can obtain an exemption from Taiwan tax on his/her income by submitting an application to the Taiwan tax authorities, accompanied by the following documentation:

  • Certificate of residence issued by the Japanese tax authorities;
  • Passport;
  • Employment agreement;
  • Tax payment certificate;
  • Description of employment activities carried out in Taiwan;
  • Payer of remuneration;
  • Remuneration amount; and
  • Evidence that the remuneration is not paid by a PE or a fixed place of business in Taiwan.

Similar rules may apply for Taiwanese residents seconded to Japan, but the required documentation and application procedures may differ.
The guidance notes that the provisions in Taiwan’s 32 tax agreements are not exactly the same, so the relevant agreement should be consulted in each case.

Source: Deloitte

Irish report on corporation tax code includes transfer pricing recommendations

The Irish government on 12 September published a report on its corporation tax code prepared by an independent academic that had been appointed to perform the review in October 2016.
The key transfer pricing-related proposals arising from the review are as follows:

  • Updating Ireland’s domestic transfer pricing laws to align them with the 2017 version of the OECD transfer pricing guidelines, including action 8-10 and 13;
  • Removal of the grandfathering exemption, whereby arrangements that were in place and the terms agreed before 1 July 2010 are outside Ireland’s domestic transfer pricing rules;
  • Expansion of domestic transfer pricing rules to non-trading transactions and capital transactions;
  • Imposition of an obligation on Irish taxpayers subject to transfer pricing laws in Ireland to have transfer pricing documentation in place in accordance with Action 13 and the new Chapter V of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities, that is, the master file and local file approach; and
  • Consideration to extending domestic transfer pricing rules to small and medium-sized enterprise (SME) groups that are currently outside the scope of Ireland’s documentation regime.

They are outlined below in more detail.

Further Implementation of Ireland’s commitments under BEPS actions 8-10 and 13: At present, Ireland’s domestic transfer pricing law is aligned with the 2010 version of the OECD transfer pricing guidelines. The report recommends that Ireland should update its domestic law to align with the current version of the OECD transfer pricing guidelines, which were published in July 2017. The new guidelines include the changes arising from the OECD BEPS project, including the principles contained in actions 8-10 (“Aligning Transfer Pricing Outcomes with Value Creation”) and action 13 (“Transfer Pricing Documentation and Country-by-Country Reporting”).
In relation to Actions 8-10, one of the main effects for companies operating in Ireland will relate to how entitlement to intangible-related returns are allocated among group members. The amendments in the 2017 OECD transfer pricing guidelines contain critical changes in relation to the allocation of risk and allocation of intangible-related profits. Legal allocation of risk under contract between related parties will be disregarded to the extent the allocation is not consistent with the actual conduct of the parties. The key factors are who controls risk and who has the financial capacity to bear risk. In relation to the allocation of intangible-related returns, the guidelines differentiate between economic ownership and legal ownership of intangibles, the execution of value-creating development, enhancement, maintenance, protection, and exploitation (the “DEMPE” functions) and the allocation of arm’s length remuneration thereto.
In relation to action 13, the main impact for companies operating in Ireland will be the introduction of a two-tier transfer pricing documentation requirement, which calls for filing a master file and a local file. Companies operating in Ireland will already be familiar with the other key pillar of action 13 – country-by-country reporting requirements that are already included in Ireland’s domestic tax law. The significant difference between current documentation requirements and action 13 documentation requirements is that groups will be required to provide the tax authorities with substantially more information on their global operations than in the past, including specific information on intangibles, financing activities, the supply chain of key products/services, and details of relevant tax rulings and advance pricing agreements.

Application of transfer pricing law to arrangements whose terms were agreed before 1 July 2010 (“grandfathered” arrangements): When Ireland’s transfer pricing law was introduced in Finance Act 2010, Irish Revenue included provisions to ensure certain trading transactions would fall outside the transfer pricing documentation requirement. Such arrangements are termed “grandfathered arrangements.” To the extent the terms of a grandfathered arrangement were not subsequently amended, then it was possible that the transaction in question did not fall within the ambit of transfer pricing laws in Ireland. The report indicates that if Ireland’s domestic transfer pricing law is not extended to grandfathered arrangements, there will be no specific transfer pricing provisions – whether including or excluding the 2017 OECD transfer pricing guidelines – applying to such arrangements. The report also states that if legislative changes are introduced to remove this exemption, consideration would need to be given to the announcement and commencement date of any such changes.

Expanding domestic transfer pricing rules to non-trading and capital transactions: At present, Ireland’s transfer pricing regime is relevant only for related-party transactions that are taxed at the 12.5 percent rate of corporation tax in Ireland. This means that certain transactions are not within the remit of transfer pricing in Ireland, including non-trading interest income, certain interest expenses treated as a charge on income, rental income, non-trading royalty income, foreign income, acquisitions/disposals of tangible and intangible assets, and assets subject to capital allowance claims. Also excluded currently are interest-free loan arrangements, which are considered non-trading in nature. The report recommends that consideration be given to extending domestic transfer pricing rules to non-trading transactions and capital transactions. The report also recognizes that certain of the above transaction classes, including capital transactions and capital allowances, have equivalent concepts in other parts of Ireland’s tax laws to the arm’s length principle that allow for the adjustment of capital values to reflect market value.

The report outlines a number of policy options available regarding the extension of transfer pricing rules to capital transactions, including:

  • Continue to keep such transactions outside the scope of transfer pricing rules on the basis that existing rules have comparable concepts to the arm’s length principle;
  • Bring all capital transactions within the scope of transfer pricing rules; and
  • Continue to keep such transactions outside the scope of transfer pricing rules but supplement existing market value rule contained in domestic law with the application of the OECD transfer pricing guidelines when appropriate.

Strengthening domestic transfer pricing documentation requirements: Irish Revenue issued guidance in 2010 (Tax Briefing Issue 7) that outlined good practices for Irish transfer pricing documentation. The guidance was subsequently reissued in August 2017. The existing guidance refers to Chapter V of the 2010 OECD transfer pricing guidelines and EU transfer pricing documentation as representing good practices for the format of documentation. Action 13 now provides for more detailed transfer pricing documentation in the format of a master file and a local file. The report suggests that there is a strong case for updating Ireland’s domestic transfer pricing documentation law to align with the new Chapter V of the 2017 OECD transfer pricing guidelines.

Extending transfer pricing rules to small and medium-sized enterprises (SMEs): Ireland’s transfer pricing regime currently does not apply to some SMEs, as defined by an EU recommendation of 6 May 2003. An SME is defined as an enterprise with less than 250 employees and either turnover of EUR 50 million or less or total assets (before deduction of liabilities) of less than EUR 43 million. This exemption is applied on the basis that such small groups would incur an undue administrative burden if they were required to prepare transfer pricing documentation. The report states that the OECD transfer pricing guidelines already include provisions that allow for a pragmatic solution for smaller enterprises when considering the level of transfer pricing support that needs to be in place to demonstrate the arm’s length nature of intercompany dealings. On that basis, the report outlines a number of policy options that could be considered:

  • Retain the current SME exemption in Irish transfer pricing law;
  • Remove the SME exemption completely;
  • Reduce the size threshold to bring more companies within the scope of domestic transfer pricing law;
  • Remove the SME exemption completely and also reduce transfer pricing documentation requirements for small entities to reduce compliance burden; and
  • Align with the approach taken in the United Kingdom, whereby certain transactions considered to be high risk are brought within the scope of transfer pricing.

Source: Deloitte

viernes, 1 de diciembre de 2017

Taiwan to amend transfer pricing rules to adopt Action 13 concepts

Taiwan’s Ministry of Finance (MOF) on July 27 announced a draft amendment of the transfer pricing guidelines that would adopt the OECD’s BEPS Action 13 guidance into domestic legislation. The MOF will collect public comments on the proposed amendment during August and September. The amendment is expected to be approved before the end of 2017.
The revised guidelines would introduce a three-tiered transfer pricing documentation regime that would be applicable to fiscal years beginning on or after January 1, 2017 (FY2017). Taxpayers that meet certain criteria would have to provide a country-by-country report (CbCR), a master file, and a local file. This documentation regime will provide the tax authority with a higher degree of transparency to review a taxpayer’s transfer pricing documents and to evaluate whether any intercompany transactions have been arranged to avoid tax liability.
The timeline to prepare/submit the three-tiered transfer pricing documentation is illustrated below:

For calendar-year taxpayers, the FY2017 master file and local file should be ready by the income tax return filing deadline of May 31, 2018, and the FY2017 master file and CbCR should be filed before December 31, 2018.

Source & more info: Deloitte

jueves, 30 de noviembre de 2017

Spanish Tax Authorities look to levy wealth tax on non-residents having indirectly owned properties in Spain

Many properties in Spain belong to non-tax resident individuals through companies. The tax authorities are currently reviewing these structures with the goal of levying wealth tax on these non-resident shareholders in Spain for the value of the properties which they own indirectly.
Source & more info: PwC

Argentina issues rules on exchange of country-by-country information

The Argentine Revenue Administration (AFIP from its Spanish acronym) on September 20 published a general ruling that implements a country-by-country (CbC) reporting regime for constituent entities of multinational entity (MNE) groups and the tax jurisdictions where they operate, which applies to fiscal years beginning on or after January 1, 2017.
The new ruling – General Ruling No. 4130/E – was issued as part of the commitments assumed by Argentina as signatory to the Convention for Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, which define international standards for the development of research and control actions in the international taxation area.
 The ruling excludes from the CbC regime all MNE groups whose total annual consolidated turnover does not exceed EUR 750 million or its equivalent in the local currency of the parent company’s tax jurisdiction, at the exchange rate prevailing on January 31, 2015.
The CbC report must be prepared by any of the following entities:
The ultimate parent entity (UPE) residing in Argentina for tax purposes;

  • A surrogate entity resident in the country, appointed by the parent entity to file the report on its behalf;
  • A constituent entity, resident in the country, that is part of the MNE group (other than entities listed above), provided at least one of the following assumptions holds true:
  • The ultimate parent entity is not required to file a CbC report in its tax jurisdiction;
  • On the deadline for filing the CbC report, the tax jurisdiction of the ultimate controlling entity has not signed a qualified competent authority agreement (QCAA)3 with Argentina, even if both jurisdictions may be signatories to an international agreement4 in force; and
  • In the event of a systemic failure to exchange by the tax jurisdiction of the ultimate parent entity.

The resident constituent entities that are part of the MNE group included under will be exempted from filing the CbC report if the report has already been filed by a surrogate entity not residing in Argentina with the tax authority of its local tax jurisdiction, provided the following conditions are met:

  • The tax jurisdiction has a CbC report filing scheme in place;
  • The tax jurisdiction is signatory to a qualified competent authority agreement to which Argentina is a party;
  • No systemic failure to exchange has been reported to or verified by AFIP; and
  • The constituent entity resident in that jurisdiction has notified the tax authorities of its appointment as surrogate parent entity.

Furthermore, the constituent entities of the MNE group resident in the country should inform the tax authorities that the report has been filed with the corresponding tax jurisdiction by the last business day of the second month following the deadline for filing the CbC report.
The CbC report must include the following information for each jurisdiction where the MNE group operates:

  • The group’s total turnover;
  • Pretax income;
  • Income tax paid and accrued for the current fiscal year, including any withholdings applied;
  • Capital stock;
  • Retained earnings;
  • Number of employees; and
  • Tangible assets, cash, and cash equivalents.

For each constituent entity of the MNE group within each jurisdiction, the following information must be included:

  • Argentine Tax Identification Number (CUIT) or tax identification number (TIN) in the country of residence if the entity is a foreign person;
  • Corporate name;
  • Tax jurisdiction and country of organization; and
  • Main business activity and description of the same.

The report must be filed no later than the last business day of the 12th month following the end of the reporting fiscal year of the ultimate parent entity of the MNE group. Filing must be done through the AFIP’s web page, in the section “Country-by-Country Reporting Scheme,” under the option “File Report,” on information return form F. 8097.
The constituent entities of the MNE group that reside in Argentina are required to provide the following information:
1) Regarding the Ultimate Parent Entity:

  • Corporate name;
  • Argentine Tax Identification Number (CUIT), Foreign Investor Identification (CIE) or tax identification number (TIN) in the residence country, as applicable;
  • Type of entity;
  • Tax domicile;
  • Date and place of organization;
  • Tax jurisdiction;
  • Fiscal year closing date;
  • Total consolidated turnover for the fiscal year immediately prior to the reporting year;
  • Whether the MNE group is subject to the CbC reporting requirement because it exceeds the EUR 750 million threshold; and
  • Whether it is required to act as reporting entity under the CbC reporting scheme.

2) Regarding the reporting entity, other than the ultimate parent company:
  • Corporate name, Argentine tax identification number (CUIT), foreign investor identification (CIE), or tax identification number (TIN) in the residence country, as applicable;
  • Type of entity;
  • Tax domicile;
  • Date and place of organization;
  • Tax jurisdiction;
  • Fiscal year closing date;
  • Total consolidated turnover for the fiscal year immediately prior to the reporting yea; and
  • Whether the entity files a CbC report as surrogate parent entity nominated by the ultimate parent entity, or as a constituent entity.
The information listed above must be filed no later than the last business day of the third month following the end of the reporting fiscal year of the ultimate parent entity. Filing must be through AFIP’s web page, in the section “Country-by-Country Reporting Scheme” under the option “Registration process,” on the information return form F. 8096.
Records and documentation supporting the CbC report must be kept for a term of five years after the statute of limitations for the reporting fiscal year has run out.
Failure to comply with this filing obligation will be considered a key indicator of the need for assessment and verification of risks associated with transfer prices, base erosion, and profit shifting in relation to the MNE’s constituent entities.
Furthermore, failure to comply with the obligations set forth by the new ruling will be subject to the penalties provided by Act 11683. Specifically, failure to comply may result in any of the following actions:

  • Rating under a higher risk category, under the provisions set forth in General Ruling No. 3985 – Risk Assessment System (SIPER);
  • Suspension or exclusion, as applicable, from any special tax registries where the entity may be registered; and
  • Suspension of any application for an exclusion or nonwithholding certificate.

The information included in the CbC Report may be used by AFIP for several purposes, including the assessment of risks associated with transfer prices, base erosion and profit shifting, and the development of economic and statistical analysis, when applicable.
Notwithstanding the above, this reporting scheme does not repeal the transfer pricing regime established by General Ruling 1122/2001.
The CbC reporting obligation applies for the fiscal years of each ultimate parent entity in the MNE group beginning on or after January 1, 2017.
Source: Deloitte

miércoles, 29 de noviembre de 2017

In Ireland Budget 2018, government intends to deliver certainty and stability to business and build for the future

The Irish Minister for Finance, Paschal Donohoe, on October 10, 2017, released his first Budget, as well as an update on Ireland’s international tax strategy.

Donohoe also announced details of a public consultation on the recently published review of Ireland’s corporation tax code by an independent economist, Seamus Coffey.

Source: pwc