Worldwide Tax News
On 17 September 2018, Nigeria's Federal Inland Revenue Service (FIRS) issued a public notice on the obligation to submit a notification pursuant to Regulation 6 of the Income Tax (Country by Country Reporting) Regulations 2018, which entered into force with effect from the accounting year beginning 1 January 2018. As per the Regulation, the public notice provides that any constituent entity of an MNE group resident in Nigeria must notify FIRS whether it the ultimate or surrogate parent no later than the last day of the reporting accounting year, and if neither the ultimate or surrogate parent, must notify FIRS of the identity and tax residence of the reporting entity no later than the last day of the reporting. The first deadline for the notice is 31 December 2018. A completed notification form, which is available on the FIRS CbC Reporting guidance page, should be submitted to the Director of the International Tax Department (address included in the notice). Failure to provide notification will result in penalties of NGN 5 million plus NGN 10,000 per day of delay.
The Pakistan Federal Board of Revenue has published Circular No. 03 of 2018, which provides explanations of 42 amendments made in the Income Tax Ordinance 2001 by the Finance Act 2018, which was published in the Official Gazette on 24 May 2018 (previous coverage). The Circular also notes the new international taxation provisions included in the Act, which will be explained in a separate circular.
On 18 September 2018, the U.S. IRS issued Country-by-Country Reporting News & Information Issue 2018-5 (email newsletter). The main points are reproduced as follows:
1. IRS Issues Reminder to U.S. MNEs Filing Form 8975 with no U.S. Schedule A (Form 8975)
When submitting Form 8975 and Schedules A (Form 8975), filers must attach at least two Schedules A (Form 8975) to the Form 8975. At least one Schedule A should be for the United States.
A U.S. MNE group with only fiscally transparent United States business entities would not provide a Schedule A for the United States, but would provide a Schedule A for "stateless" entities.
Filers who do not submit either a U.S. or stateless Schedule A (Form 8975) will receive a letter notifying them that an amended return must be filed to ensure their complete and accurate information is exchanged.
2. IRS Issues Reminder to U.S. MNEs of Instructions for Schedule A (Form 8975)
U.S. MNEs must submit a Schedule A (Form 8975) for each tax jurisdiction in which one or more constituent entities is tax resident. The tax jurisdiction field in Part I of Schedule A is a mandatory field, and U.S. MNEs are required to enter a two-letter code for the tax jurisdiction to which the Schedule A pertains. The country code for the United States is "US" and the country code for "stateless" is "X5." All other country codes can be found at www.IRS.gov/CountryCodes.
Form 8975 and Schedule A information is exchanged using the OECD Country Code List that is based on the ISO 3166-1 Standard. Although the country codes found in the IRS link above contain the jurisdictions listed below, those jurisdictions do not correspond to a valid OECD country code for purposes of exchanging the information.
Therefore, do not enter any of these country codes on the tax jurisdiction line of Part I of Schedule A.
- Akrotiri - AX
- Ashmore and Cartier Islands - AT
- Clipperton Island - IP
- Coral Sea Islands - CR
- Dhekelia - DX
- Paracel Islands - PF
- Spratly Islands - PG
- Other Country - OC
If the tax jurisdiction specified in the above list is associated with a larger sovereignty, use the country code for the larger sovereignty with which the tax jurisdiction is associated (e.g., Akrotiri and Dhekelia are considered a British Overseas Territory, so the country code for the United Kingdom would be used ("UK")). Otherwise, use a separate Schedule A for "stateless" using the tax jurisdiction code "X5". In either case, you should include in Part III of Schedule A the name of the specific constituent entity and the jurisdiction where the constituent entity is located.
3. IRS Issues Reminder to U.S. MNEs of Procedures for Mailing Page 1 of Paper-Filed Form 8975 to the Ogden Mailbox
If a U.S. MNE files Form 8975 and Schedule A (Form 8975) on paper, the MNE should mail a copy of only page 1 of Form 8975 to Ogden to notify the IRS that Form 8975 and Schedules A (Form 8975) have been filed with a paper return.
If a U.S. MNE files Form 8975 and Schedules A (Form 8975) electronically, the filer should not mail a copy of page 1 of Form 8975 to the Ogden mailbox.
See the Instructions for Form 8975 and Schedule A (Form 8975) for further guidance.
4. IRS Issues Reminder to U.S. MNEs of Procedures for Amending Form 8975
If a U.S. MNE files Form 8975 and Schedules A (Form 8975) that the MNE later determines should be amended, the MNE must file an amended Form 8975 and all Schedules A (Form 8975), including any that have not been amended, with its amended tax return. The U.S. MNE should use the amended return instructions for the return with which Form 8975 and Schedules A were originally filed and check the amended report checkbox at the top of Form 8975. Note that the amended return (with the amended Form 8975 and all Schedules A) must be filed using the same method (electronically or by paper) as the original submission. In other words, if the U.S. MNE is required to e-file an original return and need to file an amended or superseding return, the amended return must also be e-filed. Note that for the paper filer, it must also submit page 1 of Form 8975 to Ogden.
According to recent reports, Brazil's Ministry of Finance is currently considering draft legislation to gradually reduce the corporate tax rate from the current rate of 34% to a rate of 21% to 22%. At the same time, a tax on dividends and profit distributions would be introduced (currently no such tax).
Egypt Consulting on Draft Update of Transfer Pricing Guidelines Including Three-Tiered Documentation Requirements
The Egyptian Tax Authority (ETA) has published a first draft update (English and Arabic) of the country's transfer pricing guidelines for consultation. The consultation will run through 27 September 2018, after which the final guidelines will be published.
The first part of the draft guidelines provides taxpayers with practical guidance and explanation of the main concepts and issues that arise in the area of transfer pricing, including guidance on the arm's length principle, comparability analysis, transfer pricing methods, and documentation requirements. The second part of the guidelines addresses the principles and application of Advance Pricing Agreements (APAs). One of the key overall changes in the draft guidelines is that in preparing the update, the OECD 2017 Transfer Pricing Guidelines were used. Further, it is stated in the draft guidelines that for a more detailed discussion of the principles contained therein, the OECD Guidelines should be consulted.
In following the OECD Guidelines, Egypt's draft guidelines include the introduction of the three-tiered documentation requirements developed as part of the BEPS project, including the Master file, Local file, and Country-by-Country (CbC) report. The new requirements apply from 2018.
With respect to the Master and Local file, the documentation should be prepared and submitted annually, with no particular transaction or revenue thresholds provided. For the Master file, the draft guidelines include that since the Master file relates to a group as a whole, it should be prepared in accordance to the ultimate parent's tax return filing date and made available to ETA by the taxpayer in due course. For the Local file, a clear submission deadline is provided, which is within two months following the date of filing the tax return.
With respect to CbC reports, the draft guidelines include an EGP 3 billion (~EUR 143 million) consolidated group revenue threshold where the ultimate parent of an MNE group is resident in Egypt, while subsidiaries in Egypt of foreign parented groups are subject to the standard EUR 750 million threshold. Although a threshold is given in relation to foreign parented groups, the guidelines include that only Egyptian parent companies will be required to submit a CbC report with the ETA. When required, CbC reports should be submitted within 12 months after the close of the fiscal year.
Lastly, the draft guidelines note that the ETA will issue separate guidelines to address the application of the arm's length principle to transactions involving intangible property, controlled services, and cost contribution arrangements. Separate guidelines will also be issued regarding the tax treatment of Permanent Establishments (PE) including the attribution of profits between the head office and the PE, as well as guidelines to address key transfer pricing issues for certain industries.
On 18 September 2018, the Dutch Budget for 2019 was presented to Parliament. Along with the Budget is the Tax Plan for 2019, which includes:
- A reduction in the corporate tax rate on profits up to EUR 200,000 from 20% to 19% in 2019, to 17.5% in 2020, and to 16% in 2021;
- A reduction in the tax rate on profits exceeding EUR 200,000 from 25% to 24.3% in 2019, to 23.9% in 2020, and to 22.25% in 2021;
- An increase in the reduced VAT rate from 6% to 9% from 1 January 2019;
- The abolition of dividend tax from 2020, along with the introduction of a withholding tax on dividends paid to low-tax jurisdictions and in cases of abuse;
- A reduction in the loss carryforward limit from 9 years to 6 years beginning from 2019;
- An increase in the tax rate on income from an interest in a company (Box 2) from 25% to 26.25% in 2020 and to 26.9% in 2021;
- The replacement of the current four-bracket individual income tax system with a two-bracket system in 2021, which will include a basic rate of 37.05% and a top rate of 49.50% - For 2019, the tax rate in the current first tax bracket will be 36.65%, the rate in the second and third tax brackets will be 38.10%, and the top rate will be 51.75%;
- An increase in the employed person's tax credit and the general tax credit in 2019; and
- A reduction in the eligibility period for the 30% ruling (tax exemption) on employment income of qualified expatriates in the Netherlands from eight years to five years from 2019.
The Dutch government has also published legislation for the implementation of the EU Anti-Tax Avoidance Directive (ATAD1) effective 1 January 2019. This includes:
- The introduction of CFC rules in line with ATAD1, which provide for the inclusion of passive income of a foreign company in a Dutch resident's taxable income (Option A of ATAD) where a Dutch resident itself or together with associated parties holds at least 50% of the foreign company and either the company is resident in a low or no-tax jurisdiction (tax rate less than 7%) or is resident in a jurisdiction listed in the EU list of non-cooperative jurisdictions, with an exemption if the foreign company undertakes substantial economic activity;
- The introduction of interest restriction rules in line with ATAD1, which limit the deduction of net interest expense to 30% of EBITDA or EUR 1 million (safe harbor), with excess interest carried forward to future years indefinitely (no exceptions provided, such as for financial companies or public infrastructure projects); and
- The adjustment of existing exit tax rules to bring them in line with ATAD1.
The explanatory notes for the ATAD1 legislation include that no further measures are needed with respect to the GAAR requirements of ATAD1, and that the hybrid mismatch requirements of ATAD2 will be implemented through separate legislation.
Click the following link for the tax planning documents page (Dutch Language).
The new social security agreement between Belgium and Turkey entered into force on 1 September 2018. The agreement, signed 11 April 2014, generally applies from the date of its entry into force and replaces the 1966 agreement between the two countries.
On 12 September 2018, the Burkina Faso Cabinet approved draft legislation for the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which Burkina Faso signed on 7 June 2017.
The MLI will generally enter into force for a particular covered agreement on the first day of the month following a three-month period after both parties to the covered 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.
Click the following link for Burkina Faso's provisional list of reservations and notifications at the time of signature. A definitive list will be provided when the ratification instrument is deposited.
On 1 September 2018, officials from China and Gabon signed an income tax treaty. The treaty is the first of its kind between the two countries.
The treaty covers Chinese individual income tax and enterprise income tax, and covers Gabonese company tax, flat-rate minimum tax, tax on income of natural persons, complementary tax on salaries, and special immovable tax on rentals.
The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 5%
- Interest - 10%
- Royalties – 5% on payments as consideration for studies, technical, financial, accounting, or tax support provided in a Contracting State; otherwise 7.5%
Note – The final protocol to the treaty includes the provision that the withholding tax rates provided for dividends, interest, and royalties will be applied directly rather than through a levy-then-refund procedure, in case such rates are lower than those stipulated in the domestic law.
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 deriving more than 50% of their value directly or indirectly from 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.
China applies the credit method for the elimination of double taxation. In respect of dividends received by a Chinese company that owns at least 20% of the shares of the paying company, the credit will take into account the tax paid to Gabon by the company paying the dividend in respect of its income.
Gabon generally applies the exemption method for the elimination of double taxation but will apply the credit method in respect of items of income taxed in China in accordance with Articles 10 (Dividends), 11 (Interest), and 12 (Royalties).
The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
The protocol to the 2010 tax information exchange agreement between Guernsey and San Marino entered into force on 23 August 2018. The protocol, signed on 19 December 2017 by Guernsey and 14 December 2017 by San Marino, amends the text of paragraph 1 of Article 12 (No Prejudicial or Restrictive Measures) to provide that "A Party shall not apply prejudicial or restrictive measures based on harmful tax practices to residents, nationals or citizens of the other Party so long as this Agreement, and any other agreement between the Parties or the competent authorities of the Parties, relating to the exchange of information for tax purposes, is in force and effective". The protocol is effective from the date of its entry into force.
According to a release from the Guyana Revenue Authority, officials from Guyana and the United Arab Emirates met on 14 September 2018 for the negotiation of an income tax treaty. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
The OECD has announced that on 18 September 2018, Saudi Arabia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). According to the provisional list of reservations and notifications, Saudi Arabia intends to have the MLI cover 53 tax treaties. For the MLI to become effective for a particular treaty, both parties to a treaty must have included the treaty as a covered agreement, and both must have completed the required procedures for the ratification of the MLI.