Worldwide Tax News
Cyprus Parliament Approves New Measures to Support Economy in Response to COVID-19 Pandemic Including Relief for Rent Reductions
The Cyprus Press and Information Office has issued a release from the Minister of Finance announcing that the House of Representatives (parliament) approved two bills on 22 May 2020 for a new measures to support the economy in the response to the COVID-19 pandemic. As previously reported, the main tax-related measure is tax relief for owners of real estate that is rented to individuals or legal entities. If owners reduce the rent amount for a period of up to three months in 2020 for tenants that have been affected by the COVID-19 pandemic, they will receive tax relief in the form of a credit equal to 50% of the rent reduction amount. The rent reduction should be no less than 30% and no more than 50% of the monthly rent.06-02-2020
The Danish Ministry of Taxation has issued a Release announcing the extension of payment deadlines for wage tax, labor market contributions, and VAT, in order to improve liquidity during the COVID-19 crisis and secure Danish jobs. This includes a phased approach in returning to standard deadlines.
With respect to wage tax and labor market contributions, the payment deadlines for August, September, and October 2020 are extended by 4½, 5½, and 6½ months, respectively. With respect to VAT, the payment deadlines for large companies are extended by 15 days for the July settlement and 7 days for the August settlement. For medium-sized companies, the third and fourth quarter VAT periods are combined, with an extended payment deadline of 1 March 2021.
Further to the payment deadline extensions, the release also notes relief measures being provided in relation to expatriate tax scheme and other schemes for individuals that been impacted by travel and work restrictions due to COVID-19. The measures ease the requirements for the taxation of the special groups from 9 March to 30 June 2020.06-02-2020
France Provides Extensions and Other Relief for Installments of Corporate Tax and the Contribution on Added Value
The French government has announced an extension of the deadlines for the payment of corporate tax (IS) and contribution on added value (CVAE) installments due to COVID-19. This includes that the IS and CVAE installments based on 2019 results, which are normally due 15 June 2020, are now due on 30 June (in line with prior extension of return deadline).
In addition, companies that have taken advantage of the three-month deferral for the March installment to 15 June 2020 are exempt from the normal June installment, with the installment amount to be adjusted with the next installment payment due in September (catch-up adjustment).
Further, the requirements regarding installment adjustments and the allowed margin of error are relaxed for IS as follows:
- The second installment payment can be adjusted so that the sum of the first and second installments corresponds to at least 50% of the forecast IS for the current year, with a margin of error of 30%;
- The third installment payment can be adjusted so that the sum of the first, second, and third installments corresponds to at least 75% of the forecast IS amount for the current fiscal year, with a margin of error of 20%; and
- The fourth installment payment can be adjusted so that the sum of all installments paid corresponds at least to the forecast IS amount for the current fiscal year, with a margin of error of 10%.
The rules for large companies (95% or 98%), however, remain unchanged.
The requirements regarding installment adjustments and the allowed margin of error are also relaxed for CVAE as follows:
- The first installment payment is allowed a margin of error of 30%; and
- The second installment payment is allowed a margin of error of 20%.
For the above measures, large companies with more than 5,000 employees or EUR 1.5 billion in turnover are subject to the conditions imposed for other COVID-19 support measures, including that a commitment is made to not pay dividends or buy back shares in 2020, with some exceptions.
In addition to the above, France is reportedly providing an additional return extension, which provides that for companies with a tax year ending 31 March, the return deadline is extended from 30 June to 31 July 2020.06-02-2020
Irish Revenue Postpones Dividend Withholding Tax Real-Time Reporting Changes and Extends Deadline Charities VAT Compensation Scheme
Irish Revenue has issued eBrief No. 087/20 announcing Revenue's decision to postpone the introduction of the Dividend Withholding Tax (DWT) real-time reporting changes that were planned for January 2021. Revenue also issued eBrief No. 088/20 on an extension of the deadline for submitting claims for the VAT Compensation Scheme for Charities. The scheme, which was introduced in 2018, allows charities to reclaim a proportion of their VAT costs based on the level of non-public funding they receive
Revenue eBrief No. 087/20
Update - Public Consultation on Dividend Withholding Tax (DWT) – Real-Time Reporting
On 8 October 2019, the Minister for Finance announced changes to Dividend Withholding Tax (DWT) on dividends and distributions made by Irish resident companies. The objective of these changes is to ensure individuals pay the correct amount of Income Tax and USC on dividend payments at the right time.
Having regard to the scale of the challenge facing the industry in preparing for the transfer of the Irish equities market to a new settlement system by March 2021, feedback obtained through the consultation and engagement processes with stakeholders, as well as being cognisant of the many challenges in the current environment (due to COVID-19), Revenue has decided to postpone the introduction of the DWT real-time reporting changes that were planned for January 2021.
Revenue will engage with stakeholders in advance of the resumption of the change management programme and will ensure that adequate time is allocated to the delivery of any development work associated with DWT real-time reporting.
Revenue intends to publish the outcome of the consultation held with stakeholders during late 2019/early 2020 in due course.
Revenue eBrief No. 088/20
Charities VAT Compensation Scheme - extension to closing date for submitting claims
In response to the impact of the Covid-19 pandemic on the operation of business, the closing date for submission of claims under the VAT Compensation Scheme has been extended this year, from 30 June 2020 to 31 August 2020. This is a temporary measure and applies to claims submitted in respect of eligible VAT paid by charities in 2019. Charities are encouraged, however, to continue to submit their claims as early as possible via Revenue's Online Service (ROS).06-02-2020
Italian Supreme Court Holds Reverse Charge VAT on Intercompany Services Only Deductible if Relevant to Taxpayer Activity
According to recent reports, Italy's Supreme Court issued a decision in February concerning the deductibility VAT on intercompany charges that was paid via reverse charge. The case concerned an Italian subsidiary that was charged for intercompany management services rendered by related entities resident in the EU.
In auditing the company, the Italian tax authority determined that there was a lack of connection between the services and the activities conducted by the subsidiary (i.e., the services were not relevant to the activities of the subsidiary). As such, the subsidiary was denied a deduction for both direct tax and VAT purposes.
In its decision the Supreme Court upheld the position of the tax authorities and lower courts on the matter, finding that the VAT paid via reverse charge is only deductible if the purchases and imports are made in the exercise of a business, an art, or a profession and are relevant to the activity carried out by the taxpayer.06-02-2020
The Inland Revenue Board of Malaysia (IRBM) has published guidance on the application of subsections 12(3) and 12(4) of the Income Tax Act (ITA) 1967 in determining a “place of business”. The new provisions regarding income derived from a place of business in Malaysia were introduced with effect from 28 December 2018 as part of the Finance Act 2018.
Some of the key points of the guidance regarding the application of subsections 12(3) and 12(4) of the ITA are as follows:
Subsection 12(3) of the ITA states that the income of a person from a business that is attributable to a place of business in Malaysia is deemed to be the gross income of that person derived from Malaysia from the business. In other words, a person is deemed to derive income from a business in Malaysia if that income can be associated with the existence of a place of business in Malaysia.
Subsection 12(4) of the ITA provides that a place of business includes:
- a place of management;
- a branch;
- an office;
- a factory;
- a workshop;
- a warehouse;
- a building site, or a construction, an installation, or an assembly project;
- a farm or plantation; and
- a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
Subsection 12(4) of the ITA also deems a person to have a place of business in Malaysia if the person:
- carries on supervisory activities in connection with a building or work site, or a construction, an installation, or an assembly project; or
- has another person acting on his behalf who:
- habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification;
- habitually maintains a stock of goods or merchandise in that place of business of the person from which such person delivers goods or merchandise; or
- regularly fills orders on behalf of the person.
Further to the above, the guidance also provides greater detail regarding:
- A physical place of business, which must be fixed considering two critical components:
- a certain degree of permanence at geographical point (the duration test); and
- a specific geographical point (the location test);
- Preparatory or auxiliary activities, which may not constitute a place of businesses on their own, but could constitute a place of business if the overall activity of a person or its associated person resulting from the combination of preparatory or auxiliary activities constitute complementary functions that are part of a cohesive business operation
- A building site, construction, installation, assembly, or supervisory activity, which will be regarded as a place of business if a person has carried on activities at the site or project for a period or periods exceeding 5 months in aggregate in any 12 month-period (the period of connected activated of associated persons may be aggregated)
- An agent as place of business, including that a person (principal) may also be deemed to have a place of business in Malaysia if the person has another person acting on their behalf (agent) who:
- (a) habitually concludes contracts in the name of the principal or which are binding on the principal, or (b) habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification; or
- (a) habitually maintains a stock of goods or merchandise of the person from which such person delivers goods or merchandise, or (b) regularly fills orders on behalf of the person.
In order for the final point above to apply, a non-resident will be deemed to have a place of business if the agent also conducts sales related activities in addition to regularly delivering or regularly filling orders out of the stock of goods or merchandise belonging to the principal.
The guidance also provides several examples, as well as the requirements for persons liable to tax in Malaysia. This includes the requirements to register for tax, prepare statements of accounts, compute tax payable, submit returns through e-filing, etc.06-02-2020
Saudi Arabia's General Authority for Zakat and Tax (GAZT) has published the second edition of its Transfer Pricing Guidelines, dated May 2020. The guidelines serve to provide insight and guidance on the transfer pricing practice of Saudi Arabia and represent the GAZT's views on the application of the country's Transfer Pricing Bylaws, which generally apply from the fiscal year ending 31 December 2018. The scope of topics covered in the second edition are generally unchanged, although some additional detail and information is provided.06-02-2020
On 28 May 2020, a decision of the Tunisian Ministry of Finance was published in the Official Gazette to extend until 31 May 2020 the suspension of interest and penalties in relation to tax returns due between 23 March and 30 April 2020. The extended suspension applies for individual taxpayers (excluding those subject to the lump-sum tax regime) and corporate taxpayers with annual gross revenue below TND 500,000 (those not required to e-file).06-02-2020
The Belgian parliament is reportedly considering a draft proposal for the introduction of a digital services tax (DST). The DST is based on the proposal put forward by the European Commission in 2018, but with lower thresholds, which would include a sales threshold in Belgium of EUR 5 million. Further, the Belgian DST would be designed to ensure that it would not be considered a direct tax so that application issues would not arise for companies that have a permanent establishment in Belgium. Further details will be published once available.06-02-2020
On 27 May 2020, the Czech Chamber of Deputies (lower house of parliament) began discussions on a draft bill for the repeal of the real estate transfer tax. The 4% tax is levied on the acquiring party in real estate transactions based on the greater of the transaction price or the officially appraised value of the property. Subject to approval, the repeal is to apply retroactively from 1 December 2019.06-02-2020
The Dutch Government has issued a release announcing plans for the introduction of a new withholding tax on dividend to low tax jurisdictions in 2024. This would include jurisdictions with a corporate tax rate below 9% and those in the EU blacklist, even if the Netherlands has a tax treaty with the jurisdiction. The release also notes tax treaty policy including that the Netherlands is open to more source state taxation for developing countries.
Government to step up fight against tax avoidance with new withholding tax on dividend flows
In 2024 the Dutch government is planning to introduce a new withholding tax on dividend flows to low tax jurisdictions. This will mark another big step in the fight against tax avoidance. The new tax will come on top of the withholding tax to be imposed on interest and royalties from 2021.
The new tax will enable the Netherlands to tax dividend payments to countries that levy little or no tax, and will also help curb the use of the Netherlands as a conduit country. The measure will apply to financial flows to countries with a corporate tax rate of under 9% and to countries on the EU blacklist, even if the Netherlands has a tax treaty with them.
As State Secretary for Finance Hans Vijlbrief explains: ‘This additional withholding tax represents another major step in our fight against tax avoidance. Financial flows channelled from or through the Netherlands to another country where they are not or not sufficiently taxed, will soon no longer go untaxed. It’s now vital to make even better international agreements to prevent other countries being used for tax avoidance purposes.’
From 2021 interest and royalties will be subject to a withholding tax. This is one of the measures taken by this government in recent years to tackle tax avoidance. The effects of these measures are monitored wherever possible. This has revealed that, contrary to expectations, there are large dividend flows to countries that levy too little tax.
In 2016 they totalled 35 billion euros, and not 22 billion euros, as announced earlier. The figures for 2018 show that this amount has now risen to nearly 37 billion euros. The reason the initial estimate was too low is that earlier surveys by SEO Amsterdam Economics only looked at dividends paid out from current-year profit, whereas the Dutch central bank (DNB) also tracks retained earnings that may be paid out in later years. The withholding taxes on interest, royalties and dividends will specifically target these financial flows.
Before its term of office ends next March, the government intends to devise measures for taxing dividend flows from 1 January 2024. This will give the Tax and Customs Administration time to prepare for their introduction. Businesses, too, will have time to make the necessary organisational changes.
In addition, the government has sent parliament a letter on tax treaty policy, expressing the Netherlands’ wish to do even more to take developing countries’ interests into account. Since these countries often have little other tax revenue, it is particularly important that they can levy enough tax on the income generated by activities and investments there.
The Netherlands is therefore willing to make agreements with these countries to give them more taxation rights, including in situations where dividend, interest or royalty payments are made from these countries. For the 47 poorest developing countries, the Netherlands is open to include a ‘source state tax’ on payments for technical services carried out in the developing country. For instance, when a Dutch person carries out a management or consultancy job in a developing country, a tax treaty normally allows tax to be levied only in the Netherlands. The source state tax will also enable the developing country to levy tax.06-02-2020
The French General Directorate of Public Finance has published the synthesized text of the 1979 tax treaty with New Zealand as impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The text is intended to facilitate the reading of the treaty as impacted by the MLI based on the reservation and notifications deposited by France and New Zealand. The text is not a substitute for the respective authentic texts of the treaty and the MLI, which remain the only applicable legal instruments.
As provided in the synthesized text, the MLI applies for the 1979 France-New Zealand tax treaty:
- with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2019;
- with respect to all other taxes levied by a Contracting State, for taxes levied with respect to taxable periods beginning on or after 1 July 2019; and
- with respect to arbitration, for cases submitted from 1 January 2019 and for cases submitted prior to that date to the extent agreed to by both Contracting States.
Click the following link for the tax treaty page of the General Directorate of Public Finance, which includes the MLI synthesized texts.06-02-2020
On 27 May 2020, the German Cabinet approved the draft law for the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). After the ratification process is completed, Germany must deposit its ratification instrument to bring the MLI into force for its covered agreements (tax 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. With respect to the effect of the MLI, Germany has taken the reservation that for the MLI to become effective, Germany must first deposit a notification that it has completed its internal procedures for the entry into effect of the MLI for a particular covered agreement. As such, the provisions of the MLI will generally apply for a covered agreement:
- in respect of withholding taxes, from the first day of the next calendar year that begins on or after 30 days after the date of deposit of the notification by Germany (or by the respective counterparty if the same reservation is taken); and
- in respect of other taxes, from the taxable period beginning on or after the expiration of a six-month period from 30 days after the date of deposit of the notification by Germany (or by the respective counterparty if the same reservation is taken).
For Germany's own application of the MLI in respect of other taxes, however, Germany has taken the reservation that the MLI will apply for tax periods beginning on or after 1 January of the next calendar year following a six-month period after the MLI's entry into force.
Click the following link for Germany's provisional list of reservations and notifications at the time of signature. Note, the provisional list includes 35 covered agreements, while only 14 covered agreements are included under the draft law.06-02-2020
According to an update from the OECD, Gibraltar signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA) on 7 May 2020, bringing the total number of signatories to 85. Gibraltar's CbC reporting requirements apply for financial years beginning on or after 1 January 2016 for MNE groups with consolidated annual revenue equal to or exceeding EUR 750 million in the previous year (from 2017 for non-resident parented groups).06-02-2020
Japan Parliament Approves Pending Tax Treaties with Argentina, Jamaica, Morocco, Peru, Uruguay, and Uzbekistan
On 27 May 2020, Japan's House of Councilors (upper house of parliament) approved the pending income tax treaties with:
- Argentina, which was signed on 27 June 2019;
- Jamaica, which was signed on 12 December 2019;
- Morocco, which was signed on 8 January 2020;
- Peru, which was signed on 18 November 2019;
- Uruguay, which was signed on 13 September 2019; and
- Uzbekistan, which was signed on 19 December 2019.
The treaties were approved by the House of Representatives (lower house) on 19 May.
The treaties will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year following their entry into force.06-02-2020
According to recent reports, the Moldova government approved the signing of a new social security agreement with Russia on 21 May 2020. The agreement must be finalized, signed, and ratified before entering into force and, once in force and effective, will replace the 1995 agreement between the two countries.06-02-2020
On 28 May 2020, Ukraine President Volodymyr Zelensky signed Order No. 373/2020-rp, which authorizes the Minister of Finance to sign a new income tax treaty with Spain. The treaty must be signed and ratified before entering into force and, once in force and effective, will replace the 1985 tax treaty between Spain and the former Soviet Union as it applies in respect of Spain and Ukraine.06-02-2020