viernes, 23 de marzo de 2018

Germany's coalition agreement contains broad tax policy goals

The “grand” coalition between Germany’s Christian-Democrats and Social-Democrats successfully finalized its negotiations and released its draft coalition agreement on 7 February 2018. The agreement describes the government’s policy goals, including its goals relating to tax policy, and how it intends to achieve these goals.
Following the federal elections that took place on 24 September 2017 and the unsuccessful first round of coalition talks between the Christian-Democrats, the Green Party and the Liberals, the new government will be established by the Christian-Democrats and the Social-Democrats, the same parties that have governed Germany for the last four years. Although the coalition agreement includes few details on concrete tax measures, it does offer some insight into what can be expected. The agreement does not specifically mention any major tax reform projects or changes in tax rates – the focus will be on combatting tax evasion, harmful tax practices and unfair tax competition. As noted above, the coalition agreement still is a draft version and has not yet been finally signed by the parties. The content, however, is not expected to change.
Simplification of the tax system and enforcement procedures
One of the goals of the new government is to use electronic data processing to enhance the electronic communications between the tax authorities and taxpayers. The government intends to introduce a pre-populated tax return for taxpayers starting from 2021. The coalition agreement mentions several other measures, including the abolition of the 25% flat tax for interest income for individuals and its support for the introduction of a substantial financial transaction tax at the EU level. The agreement also alludes to strengthening the role of the federal tax office, in particular, as the central point of contact for nonresident taxpayers. The enforcement and refund procedure for import VAT would be enhanced, as this has been identified as a competitive disadvantage for German companies and German seaports and airports.
The coalition agreement specifically states that the new government supports a common tax base in the EU and minimum corporate income tax rates. The government plans to push these goals forward together with the French government, in a joint effort to respond to global changes and challenges, in particular, tax reform in the US.
Combatting tax evasion, harmful tax planning and unfair tax competition
The coalition agreement emphasizes the new government’s goals of combatting tax evasion, harmful tax planning, unfair tax competition and money laundering at the national, EU and international levels. The government also intends to restrict “tax dumping” (i.e. excessive measures (in the form of reduced rates, tax holidays, etc.) adopted by governments to attract business).
The new government supports a fair tax burden for multinational companies (with respect to the digital economy, in particular) and aims to achieve this goal within an international framework similar to the OECD BEPS initiative. The agreement cites the implementation of the EU anti-tax avoidance directive (ATAD) into German tax law, the modernization of the domestic controlled foreign company (CFC) rules, the introduction of anti-hybrid rules and changes to the interest deduction limitation rules.
To combat VAT fraud in the digital marketplace, rules would be introduced that would impose secondary liability on the operators of trading platforms that do not prevent VAT fraud by their customers/users. An information reporting obligation for the operators of such platforms about their customers/users would be introduced.
The agreement also highlights the new government’s plans to expand the German customs authorities.
Other proposals
Other noteworthy proposals mentioned in the coalition agreement are:

  • Tax incentives for small and medium-sized businesses that are engaged in R&D activities;
  • Tax incentives for start-up companies, particularly in the area of VAT;
  • Gradual abolition of the solidarity surcharge;
  • Amendment of the real estate transfer tax (RETT) law to prevent harmful tax practices through share deals, and possibly using the additional tax revenue generated by the changes to lower the general RETT rates;
  • Overhaul of the general real estate property tax; and
  • Measures to ease the burden of tax administration, e.g. measures that would harmonize differences in the accounting rules for book and tax purposes and measures that would implement real-time tax audits.
Source: Deloitte

jueves, 22 de marzo de 2018

BEPS-related proposals in India’s budget 2018 would broaden PE rules

As a member of the G20 and an active participant in the OECD’s BEPS project, India has been a leader in implementing the BEPS recommendations. On 1 February 2018, the Indian Finance Minister announced a few budget proposals that derive from the BEPS project (see the article in this issue). This article highlights two of the proposals:

  1. The first would amend India’s domestic tax law in respect of agency permanent establishments (PEs), to incorporate the recommendations under BEPS action 7 (preventing the artificial avoidance of PE status); and
  2. The second proposal would introduce the concept of a digital PE into India’s domestic tax law, taking inspiration from BEPS action 1 (addressing the tax challenges of the digital economy).

Agency PE
The agency PE rules in Indian tax law and in India’s tax treaties are broadly similar. Under Indian tax law, a foreign enterprise will be regarded as having a “business connection” (a concept akin to a PE) in India if any person acting on behalf of the foreign enterprise is habitually authorized to conclude contracts for the foreign enterprise.
Under the proposed amendments, a foreign enterprise would be regarded as having a business connection in India if a person acting on behalf of the foreign enterprise (i) has and habitually exercises the authority to conclude contracts; (ii) habitually concludes contracts; or (iii) habitually plays the principal role leading to the conclusion of contracts by the foreign enterprise in India, and the contracts are:

  • In the name of the foreign enterprise;
  • For the transfer of the ownership of, or the granting of the right to use, property owned by the foreign enterprise or that the foreign enterprise has the right to use; or
  • For the provision of services by the foreign enterprise.

The proposed amendments are in line with BEPS action 7, and modelled on article 12 of the OECD multilateral instrument (MLI) (artificial avoidance of PE status through commissionaire arrangements and similar strategies). The MLI has been signed by India and many other jurisdictions, and is designed to implement the treaty-related measures arising from the BEPS project. Once the MLI enters into effect, it will be applied alongside the existing treaties between participating jurisdictions to the extent that both contracting states agree to its application. The budget proposals would ensure that the agency PE rules under Indian tax law and tax treaties (once the MLI becomes effective) are on the same footing.
It should be noted that many significant treaty partners of India (such as Canada, Cyprus, Luxembourg, Singapore and the UK) have reserved the right for article 12 of the MLI not to apply to their tax treaties. The India-US tax treaty also would remain unaffected, since the US is not yet a signatory to the MLI. In addition, some treaty partners (such as China, Germany and Mauritius) have not listed their tax treaty with India as a covered tax agreement for purposes of the MLI. Accordingly, the agency PE clause under India’s tax treaties with these countries would not be affected by the MLI, and the agency PE changes discussed above would not affect taxpayers that are tax residents of these countries. India’s treaty partners that have opted to apply article 12 of the MLI and have listed their treaty with India as a covered tax agreement include France, Japan and Netherlands, and the agency PE rules would be effectively modified for tax residents of these countries once the MLI is effective.
Digital PE
Taking a cue from BEPS action 1 on the digital economy, the Finance Minister has proposed that a “significant economic presence” would constitute a business connection of a foreign enterprise in India. A significant economic presence would be defined to mean:
One or more transactions in respect of any goods, services or property carried out by a foreign enterprise in India (including downloads of data or software in India), if the aggregate payments arising from such transactions during the year exceed a prescribed threshold; or
A systematic and continuous soliciting of an entity’s business activities, or engaging in interaction with a number of users (as may be prescribed), in India through digital means.
The aggregate payment threshold for transactions and the threshold for the number of users in India have not yet been indicated, but will be determined after consultation with stakeholders.
The budget also proposes that the transactions or activities described above would constitute a significant economic presence in India regardless of whether the foreign enterprise has a residence or place of business in India or renders services in India.
Generally, the business connection rules provide that only the portion of a foreign enterprise’s income that is reasonably attributable to the operations carried out in India will be liable to tax in India. However, in the context of significant economic presence, the proposed rules would provide that only the portion of income that is attributable to the transactions or activities described above would be liable to tax in India – interestingly, operations carried out in India are not mentioned in respect of a digital PE.
The concept of a digital PE or significant economic presence is not in any of India’s existing tax treaties or the MLI. Thus, the digital PE would affect only taxpayers that are a tax resident of a jurisdiction that does not have a tax treaty with India (e.g. Hong Kong). However, the memorandum explaining the provisions of the finance bill that was released as part of the budget package clarifies that the proposed amendments to the domestic law will enable India to negotiate the inclusion of a new nexus rule in the form of a significant economic presence in tax treaties.
Country by country (CbC) reporting
The budget contains certain proposals in respect of CbC reporting, which essentially are clarifications intended to align the Indian requirements with the BEPS action 13 recommendations, including a proposal to extend the deadline for submitting the CbC report.
Source: Deloitte

miércoles, 21 de marzo de 2018

South Africa’s anti-dividend stripping rules broadened

South Africa’s 2017 Taxation Laws Amendment Act, which was enacted on 18 December 2017, significantly amended the country’s anti-dividend stripping rules with retroactive effect as from 19 July 2017. Where shares of a resident or nonresident entity are sold by corporate resident shareholders, the rules require the taxable proceeds realized from the disposal of the shares to be increased by the amount of certain nontaxable dividends received on those shares prior to the sale. (The rules potentially could apply to sales by nonresidents in specific circumstances, e.g. sales involving shares in a property-rich South African company or shares effectively connected to a South African permanent establishment.) The rules are particularly important for local groups of companies intending to rationalize their group structures by liquidating or deregistering companies within the group.
Anti-dividend stripping rules have long been a feature of South African tax law. These rules aim to curb perceived abuse where dividends that are exempt from South African tax are paid to a shareholder before the shareholder disposes of the underlying shares and, as a result, the shares are sold for a reduced amount, thereby reducing the capital gains tax liability for the selling shareholder.
However, the previous anti-dividend stripping rules targeted only specific schemes and have been infrequently applied.
As from 19 July 2017, South African resident corporate shareholders are required to treat dividends as additional taxable sales proceeds received on a subsequent disposal of the related shares, where a certain minimum shareholding (which varies depending on whether the shares are listed or unlisted) was held by the shareholder at any time in the 18-month period before the disposal. The revised rules apply to exempt dividends received by the shareholder on shares, other than preference shares that bear dividends at a fixed rate, if such dividends are:

  • Received within the 18-month period before the shares are sold; or
  • Received “in respect of, by reason of, or in consequence of” the disposal, regardless of the length of time between the shareholder’s receipt of the dividend and its disposal of the shares.

The total amount of dividends treated as sales proceeds is limited to the amount of dividends (if any) that exceeds 15% of the market value of the disposed shares. “Market value” for this purpose is defined as the market value of the shares on the date that is 18 months before the date of disposal or, if higher, the market value of the shares on the disposal date.
If the shares are preference shares that bear dividends at a fixed rate, the rules apply to any dividends received that exceed a rate of 15%; such excess dividends will be treated as sales proceeds on the disposal of the preference shares.
Under prior law, corporate tax rules in the Income Tax Act provided protections from the application of the anti-dividend stripping rules in certain cases (e.g. for certain transactions within a group of companies). The 2017 act effectively removed these protections by providing that the anti-dividend stripping rules override the corporate rules.
The revised anti-dividend stripping rules also apply to shares that are held by a corporate shareholder as trading stock, gains from the sale of which are taxable as ordinary income.
Source: Deloitte

martes, 20 de marzo de 2018

OECD's Interim Report on Tax Challenges Arising from Digitalisation

India: Transfer pricing proposals in 2018 budget, country-by-country reporting clarifications

The Finance Minister on 1 February 2018 presented the Union Budget 2018 that includes proposals to clarify rules for implementation of the country-by-country (CbC) reporting requirements.
The due date for furnishing the CbC report would be extended, to a date that is 12 months from the end of the reporting accounting year. The due date, thus, would vary for each situation, depending on the reporting accounting year of the taxpayer. For FY 2016-17, the due date has already been extended to 31 March 2018.
The rules provided in the budget are also clarified for Indian entities having a foreign parent company when the foreign parent company is not required to file a CbC report. In such instances, the proposals address when Indian entities or an “alternative reporting entity” would be required to file the CbC report in India.
The amendments would be effective retroactively from 1 April 2017 and, thus, would apply in relation to the assessment year 2017-18 (financial year 2016-17) and subsequent years.
Source & more info: KPMG

lunes, 19 de marzo de 2018

Tax reform in Argentina: Transfer pricing implications

On December 27, 2017, the Argentine Congress passed comprehensive tax reform, which became effective as of January 1, 2018.  This reform contains important changes related to transfer pricing, including:
  • Introduction of new requirements related to transactions of import and export of goods carried out through international intermediaries (intermediary substance test).
  • Introduction of substantial changes for the valuation of the exports of commodities carried out through a foreign intermediary, and alignment of the documentation requirements of such transactions with the OECD standards recently developed under Action 10 of the BEPS initiative.
  • Introduction of a detailed definition of Permanent Establishment (PE), broader than the definition by the OECD Model Tax Convention Guidelines, and introduction of rules aiming to capturing profits generated by the PE.
  • Introduction of a Regime named ‘Determinaciones Conjuntas de Precios de Operaciones Internacionales’ (similar to an Advance Pricing Arrangement [APA] program) and regulations that are expected to make the Mutual Agreement Procedures (MAPs) effective.
  • Tax havens: due to the modifications introduced in the legislation, transfer pricing rules also apply to transactions carried out with third parties located in (1) jurisdictions considered non-cooperative for tax purposes, and/or (2) jurisdictions of low or nil taxation. 
  • Introduction of materiality thresholds for transfer pricing documentation purposes.
  • Update of the amounts of the penalties for not complying with transfer pricing obligations and introduction of penalties in the Procedural Tax Law for not complying with Country-by-Country (CbC) Reporting obligations, including CbC Reporting notifications.
  • Restriction on interest deductions broader than those of Action 4 of the BEPS initiative.

Source & more info: PwC

jueves, 15 de marzo de 2018

Ukraine updates transfer pricing rules for 2018

Ukraine's Law No. 2245-VIII "On Introduction of Changes to the Tax Code of Ukraine and Some Legislative Acts of Ukraine on Ensuring the Balance of Budget Revenues in 2018," which came into effect on January 1, 2018, includes important changes to transfer pricing (TP) regulations. These changes are outlined below.

Permanent establishment and threshold for TP purposes

Business transactions between a non-resident and its Ukrainian permanent establishment qualify as controlled transactions (CTs) when the annual volume of such transactions exceeds UAH10 million. For this type of CT, there is no annual income criterion (ie, the permanent establishment does not need to earn income beyond a specific level). In contrast, for other CTs to be subject to transfer pricing rules in Ukraine, the resident would need to have earned an annual income of UAH150 million or above and the annual volume of transactions between the resident and non-resident entity would have to be UAH10 million or above.

The volume of transactions amount must be calculated based on arm's length pricing. In the past, this threshold was calculated based on contractual prices.

Non-residents: low-tax jurisdictions and legal forms

For TP purposes in Ukraine, transactions of Ukrainian entities with entities located in low-tax jurisdictions as well as with entities of special legal forms may be subject to TP control, even if the parties are not related.

The list of low-tax jurisdictions is approved by the Cabinet of Ministers and includes states and territories (a) with a corporate tax rate lower than the tax rate in Ukraine by 5 percent or more; (b) which do not have double tax treaties with Ukraine; and (c) which do not provide tax information upon the request of Ukrainian tax authorities in full and in a timely manner.

The list of legal forms of non-residents was introduced in 2017 and includes tax transparent entities such as LLPs in UK or K/S in Denmark as well as many others (around 90 legal forms from 27 jurisdictions). The new law clarifies that any changes to the list of the legal forms (such as inclusion or exclusion of legal forms) come into force on 1 January of the year following the year when those changes were introduced.

TP documentation

The Ukrainian government has not introduced the three-tiered documentation requirements that are part of the OECD BEPS Action Plan. Instead, the requirements for the contents of local Ukrainian TP documentation have been modified as follows:

Information on parties to CTs and taxpayer's related persons should be provided for the period when the transaction was performed and as of the date of documentation submission.
Description of the taxpayer's management structure and organizational chart have to contain information on the total number of employees (with a breakdown by individual units) as of the date of the transaction or at the end of the reporting period.
Advance Pricing Agreements

Most importantly, the revised rules in 2018 allow for the possibility to apply for Advance Pricing Agreements (APAs) retroactively, potentially covering reporting periods before 2018 when the APA rules came into force. In order to qualify to apply for an APA, a taxpayer needs to be a large taxpayer. The APA can be done on a bilateral basis.

For taxpayers that have concluded an APA, it is guaranteed that the provisions of the APA will remain stable and unchanged in case of any legislative changes to the procedure in respect of the conclusion, amendment or termination of APAs or if the taxpayer loses the status of a large taxpayer. If changes are made to the criteria of CTs that need to comply with the arm's length principle or if legislative changes affect the activities of a large taxpayer, then the tax authorities and the taxpayer are entitled to propose an amendment to the APA. If either party rejects the proposed changes, the APA shall be terminated.

In case of non-compliance with the terms and conditions of the APA by the taxpayer, such APA becomes void from the day of its entry into force. In this case, the tax authorities may charge additional tax liabilities and apply financial sanctions with regard to CTs that do not meet the arm's length principle.

Source & more info: DLA Piper

miércoles, 14 de marzo de 2018

Belgian corporate tax reform takes effect

The Belgian Parliament on December 22, 2017, approved the major corporate tax reform announced in July. Most provisions of the new law (the Act) went into force on January 1, 2018. The Act should positively affect Belgium’s international business competitiveness, while reinforcing the importance of tax compliance.

The Act’s key provision is a gradual decrease in the corporate income tax rate from 33.99% to 25%. Other important provisions are a 100% participation exemption and the introduction of a grouping system.

Source & more info: pwc

martes, 13 de marzo de 2018

Thailand introduces transfer pricing rules

On 3 January 2018, the Thai Cabinet approved the draft specific transfer pricing legislative provisions after public consultation during 2017. Taxpayers with international and domestic related party transactions should consider whether to expedite any transfer pricing analysis, comparable search and transfer pricing documentation in view of the mandatory reporting.
Source & more info: Baker Tilly

lunes, 12 de marzo de 2018

United States: IRS announces passport restrictions on “seriously delinquent” taxpayers

The US Internal Revenue Service (IRS) announced on 16 January 2018 that it will begin working with the State Department to implement a taxpayer compliance measure enacted in 2015 that will prevent certain individuals from obtaining, renewing or keeping a passport if they owe significant amounts of unpaid federal taxes.
The passport restrictions were enacted in the Fixing America’s Surface Transportation (FAST) Act, a USD 305 billion infrastructure spending package that became law in late 2015. Among its revenue provisions, the FAST Act requires the IRS to notify the State Department of taxpayers that the IRS has identified as having “seriously delinquent tax debts,” defined as more than USD 51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired and the IRS has issued a levy. The State Department is required to deny applications for new passports or passport renewals by these individuals and, in some cases, may revoke existing passports. The restrictions are intended to help close the “tax gap,” i.e. the difference between the amount of taxes owed to the federal government and the amount actually collected, and are expected to increase federal receipts.
The IRS explained that affected taxpayers can avoid having the IRS notify the State Department of their delinquent status by paying their debt in full or by making timely payments under an approved installment agreement, an accepted offer in compromise, or a settlement agreement with the Justice Department. The process also will not apply if a taxpayer has requested or has pending a collection due process appeal with a levy, or if collection of the tax debt is suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.
Taxpayers who will not be subject to passport restrictions include those who are in bankruptcy, have been identified by the IRS as a victim of tax-related identity theft, have accounts that the IRS has determined are not collectible due to hardship, are located in a federally declared disaster area, have a request pending with the IRS for an installment agreement, have a pending offer in compromise with the IRS, or have an IRS-accepted adjustment that will satisfy the debt in full. Certain protections also will apply to members of the armed forces with a seriously delinquent tax debt who are serving in a combat zone.
Source: Deloitte

domingo, 11 de marzo de 2018

Singapore's GST to be levied on imported services

In the Singapore budget presented on 19 February 2018, the government announced that as from 1 January 2020, goods and services tax (GST) will apply to business-to-business (B2B) and business-to-consumer (B2C) imported services.
B2B services will be taxed via a reverse-charge mechanism that will apply to partly exempt businesses and non-GSTregistered businesses that receive non-business receipts. Fully taxable businesses would be allowed to opt into the reverse charge.
For B2C services, the government has announced that it will put in place an overseas vendor registration scheme for digital services providers and electronic platform operators that are not established in Singapore but that supply services to Singapore consumers.
The scheme will take effect on 1 January 2020 and will require providers and operators with more than SGD 1 million in turnover globally and more than SGD 100,000 of sales in Singapore to register for GST and to collect the tax on their sales and remit it to the Inland Revenue Authority of Singapore (IRAS) via periodic GST filings. The IRAS has released two draft e-tax guides for public consultation: one on the requirements and processes that businesses would need to follow to fully comply with the reverse charge, and one on the overseas vendor registration proposals. Both consultations are open until 20 March 2018.
Source: Deloitte

EU Commission finds that Luxembourg granted unlawful State aid to Amazon

On February 26, 2018, the European Commission (EC) published the non-confidential version of its final decision issued on October 4, 2017 in the Amazon State aid investigation opened in October 2014.

According to the decision, in the EC’s opinion, Luxembourg’s tax treatment of Amazon gave rise to State aid in the amount of up to € 250 million.

Source & more info: pwc

jueves, 8 de marzo de 2018

Poland: Major corporate tax reform enacted

New legislation that applies in Poland generally as from 1 January 2018 makes sweeping changes to the Corporate Income Tax Act. The rules, which were enacted on 27 November 2017, introduce a new limitation on deductions of debt financing costs, restrict the deductibility of certain payments made to related parties and tax havens, create a separate capital gain “basket” of income and revise the controlled foreign company (CFC) rules, among other changes.
Source & more info: Deloitte

miércoles, 7 de marzo de 2018

Transfer pricing definition updated to reflect OECD BEPS

HMRC has confirmed the definition of transfer pricing guidelines within UK legislation following changes to the OECD guidelines issued last year, which will affect businesses who are subject to the transfer pricing rules for the purposes of income tax or corporation tax
This measure amends the references within the relevant legislation to incorporate the most recent revisions to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which are the internationally agreed standard for application of the arm’s length principle for transfer pricing purposes. The government says this will reduce the potential for double taxation.
The OECD issued revised OECD Guidelines last July and the UK change is effective for accounting periods beginning on or after 1 April 2018 for corporation tax.
The revised OECD Guidelines essentially reflects a consolidation of the changes resulting from the joint OECD/G20 Base Erosion and Profit Shifting (BEPS) project based on the arm’s length principle. They incorporate the substantial revisions made in 2016 to reflect the clarifications and revisions agreed in the 2015 BEPS Reports on Actions 8-10 Aligning Transfer pricing Outcomes with Value Creation and on Action 13 Transfer Pricing Documentation and Country-by-Country Reporting.
It also includes the revised guidance on safe harbours approved in 2013 which recognises that properly designed safe harbours can help to relieve some compliance burdens and provide taxpayers with greater certainty.
The measure will have effect for section 164(4) Taxes (International and Other Provisions) Act 2010 for corporation tax purposes in relation to accounting periods beginning on or after 1 April 2018 and for income tax purposes in relation to the tax year 2018 to 2019 and subsequent tax years.
Source: CCH Daily HMRC

Japan Tax reform proposals for 2018 approved by ruling coalition

Japan’s ruling coalition (the Liberal Democratic Party and the New Komeito Party) approved tax reform proposals for 2018 on 14 December 2017. Among other changes, the proposals would expand tax credits and incentives for companies that increase wages and capital investment, revise the definition of a permanent establishment (PE) to align Japanese tax law with the definition under the OECD BEPS project, make changes to the CFC regime and revise the taxation of individuals.
Some of the key proposals that could affect companies doing business in Japan are described below. It should be noted that the tax reform proposals have not yet been included in proposed legislation and, therefore, could change prior to becoming law. Although there is no specific timeline, the legislation is expected to be enacted by the end of March 2018.
Source & more info: Deloitte

martes, 6 de marzo de 2018

Finland proposes changes to interest deduction limitation rules

On 19 January 2018, the Finnish government published a draft proposal that would revise the domestic rules governing the deductibility of interest expense. The proposed amendments are based on the EU anti-tax avoidance directive and would substantially broaden the scope of the interest deduction limitation rules and further limit the deductibility of interest expense. If approved, the rules would be applicable for financial years ending on or after 1 January 2019.

The current limitations on the deductibility of interest expense apply only to (net) interest on related party loans. A full deduction is allowed for interest expense up to the amount of the interest income of the borrower. Accordingly, the rules do not affect the deduction of interest on unrelated party loans. If the net interest expense of the borrower does not exceed EUR 500,000, the total amount is deductible. If the net interest expense exceeds EUR 500,000, the deductibility of net interest expense is limited to a maximum of 25% of adjusted taxable income (adjusted for interest expense, depreciation for tax purposes, as well as group contributions). The interest deduction limitations are not applicable if the equity ratio (i.e. the ratio between the total equity and total assets) of the company is equal to or greater than the equity ratio of the whole group, based on the audited financial statements of the group.

Interest expense would continue to be deductible up to an amount equal to 25% of a company’s adjusted taxable income. However, the following changes are proposed:

  • The limits on the deductibility of interest would be extended to apply to loans from third parties;
  • All corporations generally would subject to the rules, including real estate companies and financial institutions, which currently fall outside the scope of the restrictions on the deductibility of interest expense;
  • The balance sheet ratio-based safe harbor would be eliminated;
  • Unrelated net interest expense would be fully deductible up to EUR 3 million; and
  • The definitions of independent company, related party and interest expense would be revised.

Expansions of the limits on the deduction of interest expense can have a significant effect on financing costs for businesses, so affected companies should carefully assess the impact of the proposed changes on their current financing structures. The introduction of a separate net interest threshold for unrelated party interest would add an additional layer to the calculation of deductible interest expense since related party and unrelated party interest expense would have to be analyzed separately.
The government has circulated the draft proposal for comments, and a final proposal is expected to be published sometime during 2018.

Source: Deloitte

lunes, 5 de marzo de 2018

Chinese authorities announce deferral of dividend withholding tax for foreign investors

On 28 December 2017, four Chinese ministries (Ministry of Finance, State Administration of Taxation (SAT), National Development and Reform Commission and Ministry of Commerce) jointly issued a notice (Circular 88) that defers the imposition of withholding tax on profits distributed by Chinese enterprises to foreign investors. On 8 January 2018, the SAT issued guidance (Bulletin 3) that contains the implementation rules for Circular 88.
Circular 88 and Bulletin 3 put into practice the policy announced by the State Council on 16 August 2017 to roll out new policies to promote foreign investment in China. One of the announced policies is that no withholding tax will be imposed on a distribution of profits by a PRC resident enterprise in China to a foreign investor where the profits are used to invest in domestic projects encouraged by China. The government’s policy aims to create a better tax environment for businesses and encourage foreign investors to maintain and expand their investments in China. Implementation of this new policy has been eagerly anticipated. URL:
Circular 88 and Bulletin 3, which apply retroactively as from 1 January 2017, set out the conditions and procedures for obtaining deferral of dividend withholding tax, as well as measures outlining how the tax authorities will administer the incentive.
Source & more: Deloitte

jueves, 1 de marzo de 2018

New Taiwan transfer pricing documentation requirements finalized

On November 13, 2017, the Taiwan Ministry of Finance (MOF) announced amendments to the Rules Governing Assessment of Profit-seeking Enterprise Income Tax on Non-Arm's Length Transfer Pricing (TP Assessment Rules). Subsequently, on December 13, 2017, the thresholds for the Master File and the Country-by-Country Report (CbC Report) were announced. A three-tiered approach, including the existing Local File and newly introduced Master File and CbC Report, will apply starting from fiscal year 2017.
Source & more info: PwC

miércoles, 28 de febrero de 2018

Russia: Foreign providers of e-services to pay VAT on B2B supplies

A law published in Russia on 27 November 2017 revises the procedure for accounting for and paying VAT on electronic services (e-services) that are deemed to be supplied in Russia by foreign suppliers to legal entities or individual entrepreneurs (B2B supplies) that are registered with the Russian tax authorities. The new rules require foreign entities that make supplies of e-services to such businesses to account for and pay Russian VAT on B2B supplies of eservices, unless the obligation is imposed by law on a tax agent.
The new rules relating to B2B supplies of e-services will become effective on 1 January 2019. Foreign entities that make B2B supplies of e-services and that are not yet registered with the tax authorities will have to apply for tax registration by 15 February 2019. Foreign suppliers that already are tax registered in Russia and pay VAT on businessto-consumer (B2C) supplies of e-services also will be required to account for and pay VAT on B2B supplies of e-services as from 1 January 2019.
National payment system operators will not be treated as tax agents (intermediaries) with respect to activities involving cash transfers for e-services. National payment system operators include money transfer operators, bank payment agents, payment agents, federal postal operators rendering cash transfer services, payment system operators, and payment infrastructure service operators. This provision applies as from 1 January 2018.

Source: Deloitte