Worldwide Tax News
The Danish Ministry of Taxation has announced the signing of a "historic" cooperation agreement with Airbnb concerning the reporting of rental income. The agreement provides that the rental income of all users of the Airbnb platform in Denmark will be reported to the Danish tax authority. According to the announcement, the agreement is the first of its kind between Airbnb and any tax authority.
The announcement also notes that the government has agreed on more favorable tax terms for individuals generating rental income as part of the sharing economy, including for those renting via Airbnb. The includes an increase in the flat deduction to DKK 40,000 for holiday housing and to DKK 28,000 for full-year housing, with 60% of income exceeding the deduction taxed as capital income. Further, a flat deduction of DKK 10,000 will be provided for rental income from the renting of cars, boats, campers, etc., with the excess taxed as personal income. For any of the rental income benefits to apply, however, the rental must be made through a third party that has a cooperation agreement with the tax authority, like the new one with Airbnb.
According to recent reports, the parliaments of four EU Member States have submitted formal objections to the European Commission's proposals to tax the digital economy. The proposals, issued 21 March 2018 (previous coverage), include a common reform of the EU's corporate tax rules to provide for the taxation of the profits of a company, even if it has no physical presence, and an interim tax at the rate of 3% on certain revenue from digital activities. The national parliaments that are formally opposed to the proposals include the parliaments of Denmark, Ireland, and Malta, and the House of Representatives of the Dutch parliament.
The objections are generally meant to invoke the so-called yellow card procedure, which would require that the Commission review the proposals and provide a decision to either keep, amend, or withdraw the proposals along with its reasons for doing so. However, the number of objections submitted by 17 May 2018, the deadline for such objections, is not enough to trigger the formal yellow card procedure, which requires objections from at least 33% of EU national parliaments. Although the yellow card procedure was not successfully invoked, the objections of the four Member States may at least result in additional consideration of the proposals.
On 7 May 2018, Hungary's National Tax and Customs Administration issued two notices in relation to the country's new Master file and Local file requirements. The new requirements were approved in October 2017 through Decree No. 32/2017 (X. 18.).
The first notice provides a general summary of Hungary's three-tier transfer pricing documentation requirement, including the Country-by-Country (CbC) report, Master file, and Local file (CbC reporting was introduced separately). The content of the Master file and Local file are in line with the latest OECD guidelines and expand upon the prior EU master/local transfer pricing file concept applied by Hungary.
The second notice provides a more expanded overview of the new Master and Local file requirements, including in relation to the previous requirements. Some of the main points include:
- The obligation to prepare documentation is generally unchanged;
- It is clarified that the HUF 50 million transactions threshold for exemption from the documentation requirements is based on the arm's length price and not the contractual price;
- The Master file is required where there is at least one controlled transaction not exempt from documentation requirements;
- It is clarified that although the preparation of documentation should still be a proportionate burden on that taxpayer, this does not mean in any case that proof of compliance with the arm's length price is not needed;
- A new definition of intangible assets is provided, based on the latest OECD guidelines;
- Rules for applying a simple markup on low added value services are amended, with the allowed profit margin of 3% to 10% changed 3% to 7% (a list of qualifying services are included in an annex to the Decree);
- It is emphasized that the functional analysis is the most important part of the documentation and must provide detail of the functions, risks, and assets used in the transactions carried out, including for each party involved in a transaction, as well as for comparable independent transactions and companies;
- Transactions may only be aggregated where such aggregation does not compromise comparability;
- The documentation must be fully prepared/compiled for each year, although past years' documentation can be used if circumstances have not changed;
- The quantitative and qualitative data must be updated at least every three years in unchanged circumstances, but financial data must be updated every year;
- The deadline for preparation is unchanged (by the tax return deadline), although an exception may be provided in respect of Master file preparation in cases where the ultimate parent of a group is not required to produce a Master file until a later date, but this may be no later than 12 months after the end of the Hungarian taxpayer's fiscal year; and
- Taxpayers may amend documentation up to the limitation for a tax assessment, but no later than the beginning of a tax audit.
The new Master and Local file documentation rules must be applied from 2018, but may also be applied in respect of 2017.
The Royal Malaysia Customs Department has issued an FAQ document concerning the recent changes to the GST that include a reduction in the GST rate from 6% to 0% for all supplies effective 1 June 2018. The FAQ covers, the status of GST, continued registration for GST, tax invoices and returns, and various other impacts of the changes.
The Seychelles Revenue Commission has issued a notice on the introduction of a new progressive individual income tax effective 1 June 2018. The system being replaced includes a flat rate of 15%, which is a final withholding tax for non-resident individuals. Under the new system the rates are based on monthly income as follows for resident individuals:
- up to SCR 8,555.50 – 0%
- over SCR 8,555.50 up to 10,000 – 15%
- over SCR 10,000 up to 85,333 – 20%
- over SCR 85,333 – 30%
For non-resident individuals, the rates are:
- up to SCR 10,000 – 15%
- over SCR 10,000 up to 85,333 – 20%
- over SCR 85,333 – 30%
New payroll forms have been designed for the new tax system, which employers must lodge within 21 days after each month along with their monthly Business Activity Statement. Employee status reports must also be lodged on 21 July and 21 January of each year.
The U.S. IRS has announced the issuance of a new template on 11 May 2018 that taxpayers must use when requesting an advance pricing agreement (APA) and requests additional comments.
On May 11, 2018, the IRS's Advance Pricing and Mutual Agreement Program (APMA) issued a new template that taxpayers must use when requesting an advance pricing agreement (APA) under Rev. Proc. 2015-41, 2015-35 I.R.B. 263 (Rev. Proc. 2015-41). Taxpayers with pending APA requests should contact their assigned APMA team leader(s) about whether to use this template in their cases.
A proposed version of this template was released for comment in September 2017. In conjunction with the proposed template, APMA also released in September 2017 a filled-in and annotated example (Example) of how the template might be edited by taxpayers to produce an initial draft APA. APMA received constructive comments on both documents that are summarized below. APMA envisions periodically reviewing the template and making further revisions as it gains experience in the template's use. As noted below, comments are presently invited on one issue; but taxpayers may provide feedback at any time by sending an e-mail to firstname.lastname@example.org (APMA Mailbox) with the subject line "APA Template Comments".
Taxpayers may request Microsoft Word files of the template, the Example, and a "redline" comparison of the current version of the template with the September 2017 version by sending an e-mail to the APMA Mailbox with the subject line "APA Template Request".
The current version of the template continues to use an options-based format. APMA believes this format will facilitate the submission and review of APA requests and the drafting of APAs. APMA's principal revisions to the proposed template and Example and APMA's reply to comments received are as follows:
- In response to comments regarding flexibility in certain cases, APMA clarified and further emphasized how the template might be edited by taxpayers. Thus, custom drafting might be required even where not specifically indicated in the template; in particular, custom critical assumptions might be appropriate and helpful, and in appropriate cases APMA might agree to modify the "limitation on assistance" provision in the Recitals.
- Some comments suggested that any non-selected options should be deleted from the final executed APA to make it shorter, more readable, and less confusing to parties not involved in the APA's drafting. APMA acknowledges the merit of these comments and may revisit this point as it gains experience in the template's use. However, for now, APMA believes that retaining the non-selected options will limit errors and facilitate the review process.
- The proposed template flagged with an asterisk certain specified options whose selection will require justification in the APA request. A comment suggested that only custom-drafted options should require justification. APMA believes that certain specified options, even if commonly used in APAs, should be justified in the APA request to facilitate review. After further considering which options should require justification, APMA has retained the justification requirement for options so flagged in the proposed template and has extended that requirement to additional options, primarily those involving a testing period other than annual testing.
- As explained in the Instructions on Appendix A, the template uses the term "Tested Party" in a more expansive sense than is used in the OECD Transfer Pricing Guidelines and Treasury regulations. One comment suggested that this usage is confusing. APMA believes that this usage is appropriate and preferable to alternatives considered. However, to avoid confusion, the revised template repeats in section 4 of Appendix A the explanation of the sense in which "Tested Party" is used.
- APMA agrees with a comment that, when an APA covers the pricing of transactions between related entities, the covered issue should be described as the pricing for the transaction, rather than simply as the transaction. APMA has thus modified the description of the two Covered Issues in the Example (see section 3 of Appendix A of the revised Example).
Specific Provisions in Appendix A
- APMA added in section 4.e of Appendix A two optional provisions regarding periodic adjustments, as contemplated in section 6.03 of Rev. Proc. 2015-41. One provision, suggested by a comment, provides that a covered platform contribution transaction ("PCT") will not be treated as a Trigger PCT for purposes of making periodic adjustments under section 1.482-7(i)(6) of the Treasury regulations. The other provision, not specifically suggested in the comments, similarly provides that a covered intangible transaction (other than a PCT) will not be subject to periodic adjustments under section 1.482-4(f)(2) or (6) of the Treasury regulations.
- A provision in section 6.i of Appendix A of the proposed template reflects the IRS position that an intercompany payable established under the principles of Rev. Proc. 99-32 should be treated as indebtedness for all U.S. federal tax purposes, including for purposes of Code section 956. Some comments criticized this provision, as regards Code section 956, on various grounds: (i) the IRS position is legally incorrect, (ii) the application of the IRS position to APAs will discourage many taxpayers from seeking APAs and is not needed to fulfill the purpose of Code section 956, and (iii) the application of the IRS position to bilateral APAs will frustrate the relief of double tax. The IRS continues to believe that its position is correct on legal and policy grounds. Within the context of a bilateral, multilateral, or unilateral APA, however, a de minimis exception is provided whereby the intercompany payable will not be treated as indebtedness for purposes of Code section 956 if the payable is satisfied within 90 days of the close of the APA Tax Year with respect to which it is established.
Comments are invited on one issue:
- APMA removed proposed section 7 of Appendix A, Effect of Certain Adjustments by Tax Authorities and Resulting Competent Authority Proceedings. This section addressed whether a covered method should be re-applied to take into account certain adjustments between an APA-covered entity and a non-APA-covered entity, and any resulting competent authority resolution, that would affect the testing of financial results under the covered method. APMA believes that this question needs further study. Comments are invited on the frequency with which this question might arise, the need for provisions to address this question, and what provisions or choice of provisions (including those in the removed section of the proposed template) might be appropriate.
Comments should be directed to the APMA Mailbox with the subject line "APA Template Comments".
The revisions to the proposed version of the template were prepared primarily by APMA employees Robert Weissler and Emily Mangrum. For further information regarding this announcement, please contact Robert Weissler at (202) 317- 8933 (not a toll free number).
The Hong Kong Inland Revenue Department has announced the publication of subsidiary legislation for open-ended fund companies.
The Government and the Securities and Futures Commission (SFC) published in the Gazette today (May 18) three pieces of subsidiary legislation to enable the implementation of the open-ended fund company (OFC) regime. The three pieces of subsidiary legislation are:
(a) the Securities and Futures (Amendment) Ordinance 2016 (Commencement) Notice (the Commencement Notice);
(b) the Securities and Futures (Open-ended Fund Companies) Rules (the OFC Rules); and
(c) the Securities and Futures (Open-ended Fund Companies) (Fees) Regulation (the Fees Regulation).
The Commencement Notice will bring into effect all provisions in the Securities and Futures (Amendment) Ordinance 2016 from July 30, 2018, onwards and the OFC regime will commence on that day. The detailed statutory operational requirements of the regime, including matters related to an OFC's formation, incorporation and maintenance, appointment and cessation of appointment of the key operators, corporate filings, segregated liability of sub-funds (if any), winding-up and offences, will be set out in the OFC Rules. The fees to be collected by the SFC and the Registrar of Companies in respect of OFCs will be set out in the Fees Regulation.
The Inland Revenue (Amendment) (No. 2) Ordinance 2018, which extends profits tax exemption to onshore privately offered OFCs, will also take effect on July 30, 2018.
"With the commencement of the OFC regime, fund managers will have the option of setting up a fund in the form of a company, in addition to the form of a unit trust. This additional choice should help diversify Hong Kong's fund domiciliation platform and build up our fund manufacturing capabilities. This will in turn help further develop Hong Kong's asset management industry," a government spokesperson said.
An OFC is a collective investment scheme with variable capital set up in the form of a company, but with the flexibility to create and cancel shares for investors' subscription and redemption in the fund. Also, an OFC will not be bound by restrictions on distribution out of capital applicable to a conventional company, and instead may distribute out of capital subject to solvency and disclosure requirements. The SFC will be the primary regulator responsible for the registration and regulation of OFCs under the Securities and Futures Ordinance (Cap. 571). The Companies Registry will oversee the incorporation and statutory corporate filings of OFCs and the Official Receiver's Office the winding-up procedure.
The three pieces of subsidiary legislation will be tabled before the Legislative Council on May 23, 2018, for negative vetting.
On 15 May 2018, the Kuwait Parliament Budget Committee announced that the implementation of the value added tax (VAT) regime In Kuwait will be deferred to 2021, while the implementation of the selective excise tax regime on tobacco products and energy and carbonated drinks will be accelerated. As a GCC Member State, Kuwait was meant to have implemented both regimes from 2018.
The tax information exchange agreement between Belgium and Guernsey entered into force on 10 May 2018. The agreement, signed 24 April 2014 by Belgium and 7 May 2014 by Guernsey, is the first of its kind between the two jurisdictions. It applies for criminal tax matters on the date of its entry into force, and for all other matters in respect of taxable periods beginning on or after that date.
The Russian Ministry of Foreign Affairs has announced that officials from the Philippines and Russia met on 15 May 2018 and agreed to begin negotiations for a social security agreement. Any resulting agreement would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
Taiwan's Ministry of Finance has announced that it is looking to sign tax treaties with countries in the Association of Southeast Asian Nations (ASEAN) as part of Taiwan's new Southbound Policy. The ASEAN countries with which Taiwan does not already have a tax treaty include Brunei, Cambodia, Laos, Myanmar, and the Philippines.