Worldwide Tax News
On 10 April 2019, Mozambique's National Institute of Mines (INAMI) published a notice on the specific tax regime for mining activities. In particular, the notice addresses the ring-fencing aspects of the regime, including that holders of a prospecting and research license, mining certificate, or mining concession must present a separate unique taxpayer ID number for each mining title. In addition, for holders of multiple mining titles, a separate legal entity must be created with separate organized accounts and taxpayer IDs. The requirements are part of the application process and apply for all applicants.04-19-2019
Russia has published Federal Law No. 63-FZ of 15 April 2019 on amendments to parts one and two of the tax code, including in relation to the deduction of value added tax (VAT) for exported services. This includes that the input VAT incurred on goods, works, and services used in the provision of services where the place of supply is outside Russia (exported services) may be deducted. Under prior rules, such input VAT deduction was only allowed for services supplied in Russia. The changes essentially provide that input VAT is deductible for exported services that would be subject to VAT if supplied in Russia. As such, exported services that would be exempt if supplied in Russia are not eligible for input VAT deduction.
The law generally entered into the force the day it was published, although different entry into force dates are provided for specific provisions. With respect to the input VAT deduction changes, the new rules enter into force one month after publication, but not earlier than the first day of the following period, i.e., will apply for supplies made in the quarterly period beginning 1 July 2019.04-19-2019
Austria's Ministry of Finance has announced a draft bill for consultation on the implementation of the Fifth EU Anti-Money Laundering Directive. This includes measures to provide for:
- The supervision of virtual currency service providers by the Financial Market Authority (FMA);
- The establishment of enhanced due diligence on transactions and business relationships with high-risk third countries;
- Improved cooperation between the FMA and other national and international authorities for the purposes of preventing money laundering and terrorist financing;
- Implementation of data quality assurance measures in the register of beneficial owners and additional legal penalties; and
- The introduction of public access to the register to the extent required by the Directive.
In addition, the register of beneficial owners is to be developed into a central platform for the storage of the documents required for the identification and verification of beneficial owners.
The consultation on the draft bill will run through 3 May 2019.04-19-2019
On 18 April 2019, India's Central Board of Direct Taxes published Notice F. No. 500/33/2017-FTD.I on the launch of a public consultation on the proposal for the amendment of rules for profit attribution to permanent establishments. The consultation is seeking views on recommendations included in a committee report that was prepared to examine profit attribution included in Article 7 (Business Profits) of India's tax treaties and recommend changes to the related Rule 10 of the Income Tax Rules, 1962. This includes the following five recommendations:
The amendment of Rule 10 to provide that where a non-resident has a business connection in India and derives sales revenue from India, the profits attributable to the operations carried out in India should be determined by apportioning the profits derived from India by three equally weighted factors of sales, employees (manpower & wages) and assets, using the following formula:
Profits attributable to operations in India = Profits derived from India x [SI/3xST + (NI/6xNT) +(WI/6xWT) + (AI/3xAT)]
- SI = sales revenue derived by Indian operations from sales in India;
- ST = total sales revenue derived by Indian operations from sales in India and outside India;
- NI =number of employees employed with respect to Indian operations and located in India;
- NT = total number of employees employed with respect to Indian operations and located in India and outside India;
- WI= wages paid to employees employed with respect to Indian operations and located in India;
- WT = total wages paid to employees employed with respect to Indian operations and located in India and outside India;
- AI = assets deployed for Indian operations and located in India; and
- AT = total assets deployed for Indian operations and located in India and outside India.
The amended rules should provide that profits derived from Indian operations will be the higher of the following amounts:
- The amount arrived at by multiplying the revenue derived from India x a Global operational profit margin; or
- Two percent of the revenue derived from India.
The amended rules should provide an exception for enterprises in cases where the business connection is primarily constituted by the existence of users beyond a prescribed threshold, or in cases where users in excess of such a prescribed threshold exist in India. In such cases, the income from such business that is attributable to the operations carried out in India shall be determined by apportioning the profits derived from India on the basis of four factors of sales, employees (manpower & wages), assets, and users. The users should be assigned a weight of 10% in cases of low and medium user intensity, while each of the other three factors should be assigned a weight of 30%, using the following formula:
Profits attributable to operations in India in cases of low and medium user intensity business models = Profits derived from India x [0.3 x SI/ST + (0.15 x NI/NT) +(0.15 x WI/WT) + (0.3 x AI/3xAT)] + 0.1]
In case of digital models with high user intensity, the users should be assigned a weight of 20%, while the share of assets and employees should be reduced to 25% each and the weight of sales should be kept at 30%, using the following formula:
Profits attributable to operations in India in cases of high user intensity business models = Profits derived from India x [0.3 x SI/ST + (0.125 x NI/NT) +(0.125 x WI/WT) + (0.25 AI/3xAT)] + 0.2]
The amended rules should provide that where the business connection of the enterprise in India is constituted by the activities of an associated enterprise that is resident in India and the enterprise does not receive any payments on accounts of sales or services from any person who is resident in India (or such payments do not exceed an amount of INR 1,000,000) and the activities of that associated enterprise have been fully remunerated by the enterprise by an arm's length price, then no further profits will be attributable to the operation of that enterprise in India.
However, where the business connection of the enterprise in India is constituted by the activities of an associated enterprise that is resident in India and the payments received by that enterprise on account of sales or services from persons resident in India exceeds the amount of INR 1,000,000, then profits attributable to the operation of that enterprise in India will be derived by apportionment using the three or four factors described above and deducting from the same the profits that have already been subjected to tax in the hands of the associated enterprise. For this purpose, the employees and assets of the associated enterprise will be deemed to be employed or deployed in the Indian operations and located in India.
Comments or suggestions may be sent within 30 days of publication of the consultation.04-19-2019
New Zealand Prime Minister Jacinda Ardern has announced that the government will not proceed with plans for the implementation of a capital gains tax in response to recommendations of the Tax Working Group. The announcement is as follows and a table detailing the government responses to each recommendation can be found at the following link.
The Coalition Government will not proceed with the Tax Working Group's recommendation for a capital gains tax, Jacinda Ardern announced today.
"The Tax Working Group gave the Government, and the country, an opportunity to look at the fairness of our tax system and debate options for change," Jacinda Ardern said.
"All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus. As a result, we will not be introducing a capital gains tax.
"I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That's an argument Labour has made as a party since 2011.
"However after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it's clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.
"The Tax Working Group was a valuable exercise that has delivered some useful suggestions well beyond just the debate on CGT, and I want to thank the Group for its work. In fact the majority of recommendations will either be investigated further or have formed part of our work programme.
"There are other things that can be done to improve the fairness of our tax system. As such the Coalition Government has agreed to tighten rules around land speculation and work on ways to counter land banking.
"Work will also continue to cut red tape for business and crack down on multi-nationals avoiding paying their fair share of tax in New Zealand. We have already made changes to address base erosion and profit shifting, and we will shortly release a discussion document on options for introducing a digital services tax.
"My job now is to focus on the things we can and are doing to improve the wellbeing of all New Zealanders.
"The Coalition Government is addressing the long-term challenges New Zealanders face such as mental health, climate change and child poverty and responding to the March 15 terrorist attack and keeping New Zealanders safe. Those challenges will be my priorities for the remainder of this term," Jacinda Ardern said04-19-2019
On 16 April 2019, officials from Bahrain and Latvia met to discuss bilateral relations including the two sides' intention to continue the work on the signing of an income tax treaty. The treaty will be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.04-19-2019
On 17 April 2019, officials from Gambia and Vietnam met to discuss bilateral relations and agreed to begin negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.04-19-2019
On 17 April 2019, officials from South Korea and Turkmenistan signed an amending protocol to the 2015 income tax treaty between the two countries. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged. Details of the protocol will be published once available.04-19-2019
Poland Publishes Synthesized Text of Tax Treaties with France and Israel as Impacted by the BEPS MLI
Poland's Ministry of Finance has published the synthesized texts of the 1975 tax treaty with France and the 1991 tax treaty with Israel as impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The texts constitute auxiliary tools only, aimed at documenting the impact of the MLI to the respective treaties and do not constitute a source of law. As provided in the synthesized texts, the MLI applies:
- For the 1975 France-Poland tax treaty:
- with respect to taxes withheld at source on amounts paid or credited to nonresidents, where the event giving rise to such taxes occurs on or after 1 January 2019; and
- with respect to all other taxes levied by France and Poland, for taxes levied with respect to taxable periods beginning on or after 1 July 2019;
- For the 1991 Israel-Poland tax treaty:
- with respect to taxes withheld at source on amounts paid or credited to nonresidents, where the event giving rise to such taxes occurs on or after 1 January 2019;
- with respect to all other taxes levied by Poland, for taxes levied with respect to taxable periods beginning on or after 1 July 2019;
- with respect to all other taxes levied by Israel, for taxes levied with respect to taxable periods beginning on or after 1 January 2020.
Click the following link for the Ministry of Finance treaty webpage that includes the synthesized texts of Poland's treaties, including both Polish and English-language versions. At the time of writing, an English-language version of the France-Poland tax treaty was not yet published but is expected.04-19-2019
According to an update from Turkey's Revenue Administration, the new income tax treaty with Qatar entered into force on 31 December 2018. The treaty, signed 18 December 2016, replaces the 2001 tax treaty between the two countries.
The treaty covers Qatari income tax and Turkish income tax and corporation tax.
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 projects for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 5% if the beneficial owner is a company directly holding at least 20% of the paying company's capital or is the government of a Contracting State; otherwise 10%
- Interest - 10%
- Royalties - 10%
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; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment 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.
Article 28 (Limitation of Benefits) provides that the competent authorities of the Contracting States, upon their mutual agreement, may deny the benefits of the treaty to any person, or with respect to any transaction, if in their opinion the receipt of those benefits under the circumstances would constitute an abuse of the treaty.
The treaty applies from 1 January 2019. The 2001 tax treaty between the two countries ceased to apply from that date.
Note - The 2001 tax treaty between Qatar and Turkey is a covered agreement under the BEPS MLI, while the new treaty is not.04-19-2019
On 17 April 2019, the Russian State Duma (lower house of parliament) approved for ratification the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which Russia signed on 7 June 2017. After the ratification procedure is complete, Russia must deposit its ratification instrument to bring the MLI into force for its covered agreements (treaties).
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 Russia's provisional list of reservations and notifications at the time of signature. A definitive list will be provided when the ratification instrument is deposited.04-19-2019