Worldwide Tax News
The European Parliament has announced the approval of the fifth update to the Anti-Money Laundering Directive, with a vote of 574 for, 13 against, and 60 abstentions.
According to a release from the European Commission on the Parliament's approval, the fifth Anti-Money Laundering directive will:
- enhance the powers of EU Financial Intelligence Units and facilitating their increasing transparency on who really owns companies and trusts by establishing beneficial ownership registers;
- prevent risks associated with the use of virtual currencies for terrorist financing and limiting the use of pre-paid cards;
- improve the safeguards for financial transactions to and from high-risk third countries;
- enhance the access of Financial Intelligence Units to information, including centralised bank account registers; and
- ensure centralised national bank and payment account registers or central data retrieval systems in all EU Member States.
The Directive will enter into force after it is published in the Official Journal of the European Union, and once in force, EU Member states will have 18 months to transpose the new rules into national law.
Hong Kong Enacts 2018 Stamp Duty Amendment Ordinance to Restrict Exemption when Multiple Properties Acquired under a Single Instrument
The Hong Kong Inland Revenue Department announced on 20 April 2018 that the Stamp Duty (Amendment) (No. 2) Ordinance 2018 has been published in the Official Gazette. The Ordinance provides for a restriction to the exemption from the new 15% stamp duty for buyers that do not own any other residential property in order to prevent investors from inappropriately obtaining the exemption by acquiring multiple properties under a single instrument.
The Stamp Duty (Amendment) (No. 2) Ordinance 2018 has been gazette
By virtue of the Amendment Ordinance, unless specifically exempted or otherwise provided in the law, acquisition of more than 1 residential property under a single instrument executed on or after 12 April 2017 will be subject to ad valorem stamp duty (“AVD”) at the rate under Part 1 of Scale 1 – a flat rate of 15%, even if the purchaser/transferee is a Hong Kong permanent resident who is acting on his/her own behalf and does not own any other residential property in Hong Kong at the time of acquisition. Please refer to Stamping Circulars Nos. 04/2018 and 05/2018 for the new stamping arrangements. The FAQs and the illustrative examples for AVD - Scale 1 and Scale 2 have also been updated.
The OECD issued a release on 19 April 2018 announcing steps it is taking to address the misuse of residence/citizenship by investment schemes.
19/04/2018 - Today's revelations from the "Daphne Project" on the Maltese residence and citizenship by investment schemes underline the crucial importance of the OECD's work to ensure that the integrity of the OECD/G20 Common Reporting Standard (CRS) is preserved and that any circumvention is detected and addressed.
Over the last months, the OECD has been taking a set of actions to ensure that all taxpayers maintaining financial assets abroad are effectively reported under the CRS, including by:
- issuing new model disclosure rules that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the CRS. The adoption of such model mandatory disclosure rules will have a deterrent effect on the promotion of CBI/RBI schemes for circumventing the CRS and provide tax authorities with intelligence on the misuse of such schemes as CRS avoidance arrangements. The EU Member States have already agreed to implement these rules as part of a wider directive on mandatory disclosures;
- reaching out to individual jurisdictions, including Malta, to make them aware of the risk of abuse of their CBI/RBI schemes and offer assistance in adopting mitigating measures; and
- establishing a list of high risk schemes in order to further raise awareness amongst stakeholders of the potential of such schemes to undermine the CRS due diligence and reporting requirements.
In addition, on 19 February 2018, the OECD issued a consultation document, outlining potential situations where the misuse of CBI/RBI schemes poses a high risk to accurate CRS reporting and seeking public input both to obtain evidence on the misuse of CBI/RBI schemes and on effective ways for preventing such abuse.
The substantial amount of input received in response to the consultation further underlines the importance of the OECD's actions in this field. It also contains a wide range of proposals for further addressing the misuse of RBI/CBI schemes, including: 1) comprehensive due diligence checks to be carried out as part of the RBI/CBI application process, 2) the spontaneous exchange of information about individuals that have obtained residence/citizenship through such a CBI/RBI scheme with their original jurisdiction(s) of tax residence; and 3) strengthened CRS due diligence procedures on financial institutions with respect to high risk accounts.
The OECD will take the next step in addressing the issue, when experts from OECD and G20 countries meet in Paris this May to further elaborate actions to be taken to effectively address the misuse of CBI/RBI schemes.
The changes to Form No. 930 are introduced through Resolution No. 201-1937 of 2 April 2018, which was published in the 9 April 2018 edition of the Official Gazette. Changes include:
- New fields for reporting information on economic analysis, profitability indicators, profit/loss without adjustments, and profit/loss with adjustments;
- A new annex for reporting information on intangible asset transactions;
- A new annex for reporting information on comparables;
- A new questionnaire that includes questions concerning the taxpayer, including whether it is subject to a special tax regime, has been part of any restructuring, has been involved in an intangible assets transfers, and others; and
- A new questionnaire that includes questions concerning the taxpayer's group, including whether the group had undergone restructuring, whether any group transactions are under administrative process or control (audit) in relation to transfer pricing, details of the ultimate parent and consolidated group revenue, and others.
The new Form 930 (V 2.0) applies for the 2018 and future fiscal years, while for prior years, the previous version of Form 930 (V 1.0) is to be used. In accordance with the tax code, the transfer pricing report must be submitted within 6 months following the end of the corresponding fiscal year.
Zambia published The Income Tax (Transfer Pricing) (Amendment) Regulations, 2018 in the Official Gazette on 6 April 2018. Main aspects of the regulations are summarized as follows:
- The regulations apply to companies resident in Zambia and permanent establishments in Zambia of nonresidents;
- In determining transfer prices, the most appropriate method should be applied among the five standard methods of the OECD guidelines, although another method may be applied if none of the five standard methods can be reasonably applied and such other method yields a result consistent with the arm's length principle;
- Transactions with related persons must generally be documented on a per transaction basis, although transactions that are economically closely linked or form a continuum that cannot be reliably analyzed separately may be combined for the comparability analysis and transfer pricing method selection;
- Service charges between related persons may only be considered at arm's length if the service is actually rendered, the service is expected to provide economic or commercial value, an independent person would be willing to pay for such service, and the amount charged corresponds to the amount that would be agreed to between independent persons;
- For low value added services in particular, a charge will only be considered at arm's length if, the amount is based on an allocation to each person that receives a low value added service of the total group cost for providing the services, the allocation is based on an appropriate allocation method, the cost plus method is applied to these costs, and the mark-up is 5%;
- For transactions involving intangible property, an analysis must consider the perspective of the transferor and the transferee, including special factors such as the expected benefits, commercial alternatives, geographic limitations, right of the transferee to participate in further development, and others;
- The regulations are to be construed in a manner consistent with the OECD transfer pricing guidelines and the UN transfer pricing manual for developing countries as supplemented and updated;
- Persons participating in controlled transactions must prepare and maintain contemporaneous transfer pricing documentation on an annual basis that describes, among others:
- The controlled transactions, including the nature, terms, and price of the transactions, and details of property transferred or services provided;
- The identity of associated persons involved in the transactions and the relationship with the associated persons;
- A detailed comparability analysis, including functions performed, risks borne, tangible and intangible assets used, and changes made from prior years;
- The transfer pricing methods considered, the method selected, and why;
- Details of adjustment made, if any, to align the transfer pricing with the arm's length price and consequent adjustment to total income for tax purposes;
- Summarized schedules of relevant financial data used for comparables; and
- Any other relevant information for the determination of the arm's length price;
- For the purpose of the transfer pricing documentation, contemporaneous is defined as meaning documentation generated when a person is developing or implementing a controlled transaction;
- In addition to the general transfer pricing documentation, taxpayers must also maintain additional documentation that must be prepared by the tax return deadline that includes the elements of the Master file and Local file as developed as part of BEPS Action 13;
- Documentation required under the regulations must be submitted to the tax authority within 30 days of request; and
- Documentation that is in a language other than English must be translated into English (certified translation).
The regulations do not clearly specify an effective date, although it is expected that the requirements apply from the 2018 financial year.
The income tax treaty between Bangladesh and Morocco was signed on 28 February 2018. The treaty is the first of its kind between the two countries.
The treaty covers Bangladesh income tax and covers Moroccan income tax and corporation tax.
The treaty includes the provision that a permanent establishment (PE) will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 2 months within any 12-month period.
A PE will also be deemed constituted if an enterprise provides in a Contracting State services, facilities, or plant and machinery on hire used for the prospecting, extraction, or exploitation of mineral oils in that State.
Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried on by a PE maintained by that resident in the first-mentioned Contracting State.
- Dividends - 10%
- Interest - 10%
- Royalties (including technical assistance and the furnishing of services, other than independent and dependent personal services covered by Article 14 and 15) - 10%
Note – Article 10 (Dividends) includes the provision that where business profits are attributed to a PE, a withholding tax up to 10% may be charged on such profits when remitted to the head office, after deducting the corporation tax imposed on the profits.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
- Gains from the alienation of immovable property situated in the other State;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares of the capital stock of a company, the property of which consists directly or indirectly principally of immovable property situated in the other State.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation. A provision is also included for a tax sparing credit for tax that has been exempted or reduced in a Contracting State in accordance with the domestic legislation of that State for tax incentives.
The treaty will enter into force once the ratification instruments are exchanged and will apply in Bangladesh from 1 July of the year following its entry into force and in Morocco from 1 January of the year following its entry into force.
On 19 April 2018, the French Senate approved a bill for the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which has now been sent to the National Assembly for approval.
Once the ratification process is complete, the MLI will generally enter into force for a particular French covered agreement (tax treaty) on the first day of the month following a three month period after both parties to an agreement have deposited their ratification instrument. Once in force, the provisions of the MLI will generally apply for a covered agreement from 1 January of the year following its entry into force in respect of withholding taxes, and for all other taxes with respect to taxable periods beginning on or after the expiration of a 6-month period following the date of entry into force.
On 17 April 2017, the Saudi Cabinet authorized the Ministry of Finance to sign an income tax treaty with Latvia. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force. Details of the treaty will be published once available.