Worldwide Tax News
Argentina has published General Resolution 4622/2019 of 29 October 2019, which established a new withholding regime for value added tax and income tax for intermediaries that administer electronic payment services and/or collections on behalf of third parties, including through the use of mobile devices and/or any other electronic means. The withholding applies in respect of merchants and service providers that are VAT taxable persons (registered) and those that do not prove their VAT status as registered or exempt from VAT. Micro enterprises, however, are excluded from withholding.
For those that are registered for VAT, the VAT withholding rate is 0.5%, 1.0%, or 3.0%, depending on the method of payment and supplier activity. For those that do not prove their VAT status, the VAT withholding rate is 10.5%. Further, an income tax withholding applies at rates of 0.5% or 1.0%, depending on the method of payment, and a 2.0% rate applies for those that do not prove their VAT status. Tax withheld under the new regime is considered an advance payment and may be offset against a taxpayer's final tax liability.
The General Resolution is effective from 19 November 2019.11-15-2019
Brazil has published Constitutional Amendment No. 103, which was enacted on 12 November 2019 and provides for certain social security systems reforms. One of the main aspects of the reform is a consolidation of the social security rate tables for private employees and civil servants with a progressive rate table as follows based on salary:
- up to one minimum wage (currently BRL 998.00) - 7.5%
- over one minimum wage up to BRL 2,000 - 9%
- from BRL 2,000.01 up to BRL 3,000 - 12%
- from BRL 3,000.01 up to BRL 5,839.45 - 14%
- from BRL 5,839.46 up to BRL 10,000 - 14.5%
- from BRL 10,000.01 up to BRL 20,000 - 16.5%
- from BRL 20,000.01 up to BRL 39,000 - 19%
- over BRL 39,000 - 22%
The bracket thresholds will be adjusted periodically, except for the minimum wage-based bracket, which is subject to separate legislation. Also, social security contribution basis caps apply, such that the maximum contribution rate for private employees is 14% based on the current basis cap of BRL 5,839.45, while civil servants may be subject to contribution rates up to the maximum 22% rate based on the current basis cap of BRL 39,293.32.
In addition to the progressive contribution rates, Constitutional Amendment No. 103 also increases the rate of social contribution on profits (CSLL) from 15% to 20% for banks.
The changes are effective from the first day of the fourth month after publication, i.e., 1 March 2020.11-15-2019
CJEU Holds German Withholding Tax on Dividends Paid to Non-Resident Pension Funds Violates Free Movement of Capital
The Court of Justice of the European Union (CJEU) issued a judgment on 13 November 2019 on whether Germany's final withholding tax on dividends paid to non-resident pension funds violates EU law in relation to the free movement of capital.
The case concerned a Canadian pension fund that received dividends from portfolio investments in German public limited companies during the years 2007 to 2010, which were subject to final withholding tax at a rate of 15% (rate under Canada-Germany tax treaty). The Canadian pension fund applied for a refund of the tax, claiming that the final withholding was discriminatory given that:
- German pension funds would be allowed to fully deduct tax withheld on dividends against their corporate tax liability and may claim a refund where tax withheld exceeds the corporate tax liability; and
- Dividends received result in a moderate or no increase in the taxable result for German pension funds since they may deduct provisions for future pension/retirement commitments.
However, the German tax authorities did not accept the pension fund's argument and denied the claim for a refund. This was appealed and made its way through the courts to the CJEU.
In its judgment, the CJEU ruled in favor of the Canadian pension finding that the differing treatment did amount to an unjustified restriction on the free movement of capital. In particular, the CJEU ruled the following:
Articles 63 and 65 TFEU must be interpreted as precluding national rules, under which dividends distributed by a resident company to a resident pension fund, on the one hand, are subject to withholding tax that can be fully deducted from the corporation tax payable by this fund and give rise to a refund, where the withholding tax exceeds the corporation tax payable by the fund and, on the other hand, do not result in an increase in the taxable result of the corporation tax or result only in a moderate increase in the latter due to the ability to deduct from such income the provisions for retirement, while dividends paid to a non-resident pension fund are subject to a withholding tax which constitutes for such a fund a definitive tax, when the non-resident fund shall allocate dividends to the provisioning of the pensions it will have to pay in the future, which the national court has the responsibility to verify.11-15-2019
Thailand Publishes Royal Decrees to End Grandfathering of Regimes Replaced by New International Business Centre Regime
Thailand has published a series of Royal Decrees in the Official Gazette that include provision to end the grandfathering provided for the Regional Operating Headquarters (ROH) regime (Royal Decree 685), International Headquarters (IHQ) regime (Royal Decree 686), and the International Trading Center (ITC) regime (Royal Decree 687), which were replaced by the new International Business Center (IBC) regime (previous coverage). The old regimes were replaced by the IBC regime because they were found to be harmful as part of the OECD review in relation to BEPS Action 5.
Some of the key points include the following:
- In general, the reduced tax rate on qualifying income from affiliated enterprises in Thailand and the exemption on qualifying income from foreign affiliated enterprises is limited to income received before 1 June 2019 for ROHs and IHQs,
- The preferential treatment for income from loans granted to affiliates by ROHs under the original 2002 regime will continue to apply up to the accounting period beginning on or after 1 January 2020 but not later than 31 December 2020;
- The exemption on qualifying trading income of ITCs is limited to income received before 1 June 2019;
- The beneficial tax treatment for foreign employees working in ROHs, IHQs, and ITCs will end 31 December 2019; and
- The withholding tax exemption on dividends paid to non-residents applies for dividends paid up to 31 December 2020 out of profits derived from qualifying income before 1 June 2019, and for IHQs, exemption continues to apply for interest paid on loans received before 1 June 2019 to fund loans granted to affiliates.
The Royal Decrees entered into force on 2 November 2019.11-15-2019
Tunisia Publishes Ministerial Orders on Transfer Pricing Documentation Content Requirements and CbC Reports
Tunisia has published a Ministerial Order setting out the country's new transfer pricing documentation requirements, which apply from 2020, as well as an Order on Country-by-Country (CbC) reporting. The Orders, which are dated 16 October 2019, were published in Tunisia's Official Gazette No. 086 of 25 October 2019.
The required documentation includes both a Master file and a Local file that follows OECD guidelines. The specific content requirements as set out in the Order are as follows:
The Master File should include information on the following:
- Organizational structure, including a chart illustrating an MNE group’s legal and ownership structure and geographical location of operating entities;
- The MNE Group's areas of activity, including:
- Important sources (drivers) of profit;
- A description of the supply chain for five core products or services provided by the group, as well as other products or services that provide more than 5% of the group's turnover;
- A list and description of the important service arrangements between members of the group, other than research and development (R&D) services, including a description of the capabilities of the main locations providing important services and transfer pricing policies adopted for allocating services costs and determining prices to be paid for intra-group services;
- A description of the main geographic markets in which the group’s products and services are marketed;
- A functional analysis of the principal contributions by individual entities within the group to value creation, i.e., the core functions performed, significant risks assumed, and important assets used; and
- A description of important business reorganizations, as well as acquisitions and divestitures that occurred during the financial year;
- Intangible assets, including:
- A general description of the group's strategy for the development, ownership, and exploitation of intangibles, including in particular the location of principal R&D facilities and the location of R&D management;
- A list of intangibles or classes (groups) of intangibles of the group that are important for transfer pricing purposes, as well as the entities that own them;
- A list of important agreements between associated enterprises related to intangible assets, including cost contribution agreements, principal research service agreements, and license agreement; and
- A general description of significant transfers of interests in intangibles assets between associated enterprises, including mention of the countries and related remuneration;
- Financing activities between group members, including:
- A general description of the method of group financing, including a description of the significant financing agreements entered into with independent lenders;
- Information on all group members that provide a central financing function for the group, including the countries in which they are organized and their place of effective management; and
- A general description of the group's transfer pricing policies relating to financing agreements between associated enterprises; and
- Financial and tax position, including:
- The annual consolidated financial statements of the group for the year concerned if prepared for financial disclosure purposes or as required by law or related to internal management; and
- A list and description of advance pricing agreements concluded by the group and other tax rulings concerning the distribution of profits between countries.
The Local File should include information on the following:
- The Local entity, including:
- A description of the management structure and organizational structure of the local entity;
- A detailed description of the activities carried out and the strategy of the local entity, including special mention of whether the entity has been involved in a reorganization or the transfer of intangible assets during the current or previous financial year, and an explanation of the aspects of such operations involving the entity; and
- Key competitors;
- Controlled transactions, including:
- A description of material controlled transactions with associated enterprises and the conditions in which the transactions took place, including in particular transactions relating to manufacturing services, purchase of goods, provision of services, loans, financial guarantees, and licensing of intangibles;
- The amount of intra-group payments and receipts for each category of controlled transactions involving the local entity, broken down by tax jurisdiction of the foreign payor or recipient;
- Information on the associated enterprises involved in each category of controlled transactions and the relationships;
- Copies of all important inter-company agreements concluded by the local entity;
- A detailed comparability and functional analysis of the local entity and relevant associated enterprises for each category of controlled transactions, including an analysis of changes, if any, compared to previous financial years;
- Indication of the most appropriate transfer pricing method for each category of transactions and the rationale for their selection;
- A statement on which associated enterprise has been selected as the tested party, where appropriate, including an explanation for the choice;
- A summary of the important assumptions made in applying the transfer pricing methodology;
- Clarification, where appropriate, of the rationale for adopting a multi-year analysis methodology;
- A list and description of comparable uncontrolled transactions and financial indicators for independent enterprises relied on within the transfer pricing analysis, including a description of the method used to search for the comparable data and the sources of such data;
- A description of adjustment made, if any, indicating whether the adjustments were made to the results of the tested party, the comparable uncontrolled transactions, or both;
- A description of the rationale for concluding that the transfer pricing for the transactions is considered to be in full conformity with the arm's length principle;
- A summary of financial assumptions used to apply the transfer pricing methodology; and
- Copies of unilateral, bilateral, or multilateral APAs and other tax rulings to which Tunisia is not a party and which are related to the relevant controlled transactions; and
- Financial statements, including:
- The annual financial statements of the local entity for the financial year concerned;
- Information necessary to understand the financial data used in applying the transfer pricing method links to the annual financial statements; and
- Summary tables of the comparable financial data used in the analysis and the sources of such data.
The Ministerial Order on Tunisia's Country-by-Country (CbC) reporting requirements includes the relevant definitions and basic instructions in line with OECD guidelines, as well as a general form for submitting the CbC report. The form follows the standard three CbC report tables and may be prepared in French or English.
Tunisia's CbC reporting requirements apply for financial years beginning on or after 1 January 2020 for MNE groups with consolidated annual revenue equal to or exceeding TND 1,636,000,000 in the previous year. When required, CbC reports are due within 12 months after the end of the reporting financial year.11-15-2019
According to recent reports, Singapore's Deputy Prime Minister, Heng Swee Keat, has announced that the government is planning to include measures for an increase in the GST rate as part of the 2020 Budget. Although the implementation date is not yet finalized, the GST rate will be increased from 7% to 9% between 2021 and 2025. To offset the negative impact, a GST support package will also be introduced as part of the Budget that will include a permanent GST voucher scheme providing discounts on certain goods for lower-income individuals.11-15-2019
Bulgaria's Council of Ministers has announced that is approved a draft of a new income tax treaty with the Netherlands, which will serve as a basis for negotiation. At the same time, the Minister of Finance was authorized to hold negotiations and sign the treaty. The new treaty must be finalized, signed, and ratified before entering into force and, once in force and effective, will replace the 1990 tax treaty between the two countries.11-15-2019
On 8 November 2019, the Liechtenstein parliament approved the ratification of the pending income and capital tax treaty with Lithuania. The treaty, signed 15 February 2019 (previous coverage), is the first of its kind between the two countries and 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.11-15-2019
Rwanda reportedly published Law No. 115/01 in the Official Gazette on 11 November 2019, which provides for the ratification of the pending income tax treaty with Morocco. The treaty, signed 19 October 2016 (previous coverage), is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.11-15-2019
On 12 November 2019, the Saudi Cabinet approved for ratification the pending income and capital tax treaty with Mauritania. The treaty, signed 2 December 2018, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Details of the treaty will be published once available.11-15-2019