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Approved Changes (3)

Nigeria

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Nigeria Issues Public Notices on Tax Payment Due Dates and New Tax Identification Number Requirements

Nigeria's Federal Inland Revenue Service (FIRS) reportedly issued a public notice on 21 February 2020 that clarifies the due dates for tax payment and the early payment bonus introduced by the Finance Act 2019. The notice includes the following:

  • Tax must be paid on or before the due date for the tax return as a lump sum or in installments;
  • If paid in installments, the final installment is due on or before the due date for the tax return;
  • If taxes are paid in full at least 90 days before the tax return due date, a 2% bonus is provided for medium-sized companies and 1% bonus is provided for large companies, which may be used to set off against future tax liabilities (small companies were made exempt by the Finance Act); and
  • Any outstanding tax due and not paid by the return deadline will be subject to interest and penalties.

In addition to the public notice on tax payment, FIRS also issued a public notice on the same date on the requirement for all companies and businesses to register for tax purposes and obtain a taxpayer identification number (TIN), which must be displayed on all business transaction documents. Further, the notice instructs banks and other financial institutions to require that a TIN be provided before opening an account for any company or business. It is also required that companies and business must provide their TIN by 12 April 2020 in order to update records in relation to accounts opened prior to the new TIN requirement.

02-27-2020

Turkey

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Turkey Publishes Presidential Decree Amending Transfer Pricing Regulations Including Three-Tier Documentation Requirements

Turkey's Revenue Administration has announced the publication of Presidential Decree No. 2151 of 24 February 2020, which amends the country's transfer pricing regulations. This includes the introduction of the three-tier documentation requirements of BEPS Action 13 that apply from the 2019 reporting fiscal year (beginning 1 January 2019):

  • A transfer pricing report (Local file) requirement that is generally in line with existing transfer pricing documentation requirements in Turkey, which must be prepared by the tax return deadline and submitted upon request;
  • A general report (Master file) requirement that applies for corporate taxpayers that are members of an MNE group and that have net assets in the balance sheet and net sales that are both at least TRY 500 million, with the Master file required to be prepared by the end of the following fiscal year and submitted upon request (content to be specified by administration and expected to be in line with OECD guidelines);
  • A Country-by-Country (CbC) report requirement that applies for members of MNE groups with consolidated annual revenue of at least EUR 750 million in the previous fiscal year, which must be submitted electronically within 12 months following the end of the reporting year; and
  • A CbC notification requirement, which must be initially submitted to the administration by the end of the 6th month after the Decree was published (i.e., end of August 2020) in respect of the 2019 reporting fiscal year and by the end of June following the end of subsequent reporting fiscal years.

The Decree also includes secondary CbC reporting obligations for non-parent constituent entities in Turkey in cases where:

  • the ultimate parent is not required to file a CbC report in its jurisdiction of residence;
  • the ultimate parent's jurisdiction has an international exchange agreement with Turkey, but not an agreement for the exchange of CbC reports; or
  • there is a systemic failure for exchange.

The secondary local filing requirements also apply from 2019, although the Decree includes a final provision on documentation that indicates that the administration may extend the obligation to 2020.

In addition to the new documentation requirements, the Decree also provides for certain other amendments, including:

  • A revision of the related party provisions, although the general 10% holding/ownership threshold is maintained;
  • Changes in the acceptable transfer pricing methods, including a new provision that if none of the recognized methods are sufficient in determining an arm's length price, a taxpayer may use another method if it provides more accurate results, as well as a new provision on the recognition of the transitional net margin and profit split methods;
  • Changes in the rules for advance pricing agreements, including:
    • a reduction in the time limit to renew an APA from at least 9 months before the APA expires to at least 6 months before;
    • an increase in the maximum duration of an APA from three years to five years; and
    • the implementation of provisions on the application of agreed methods under an APA to past periods (rollback); and
  • New provisions for penalty reduction, which include 50% tax loss penalty relief provided that transfer pricing documentation obligation is fully and timely fulfilled.

The Decree entered into force on the date it was published in the Official Gazette, 25 February 2020.

02-27-2020

United States

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U.S Proposed Regulations on Entertainment and Meal Expense Deduction Restrictions

The U.S. IRS and Treasury have issued proposed regulations (REG-100814-19), published in the Federal Register on 26 February 2020. The proposed regulations provide guidance in relation to the elimination of the deduction for entertainment expenses and the limitation on the deduction of meal expenses resulting from amendments made by the Tax Cuts and Jobs Act. Written or electronic comments on the regulations must be submitted by 13 April 2020

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SUMMARY:

This document contains proposed regulations that provide guidance under section 274 of the Internal Revenue Code (Code) regarding certain statutory amendments made to section 274 by 2017 legislation. Specifically, the proposed regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment. The proposed regulations also address the limitation on the deduction of food and beverage expenses under section 274(k) and (n), including the applicability of the exceptions under section 274(e)(2), (3), (4), (7), (8), and (9). These proposed regulations affect taxpayers who pay or incur expenses for meals or entertainment in taxable years beginning after December 31, 2017. This document also provides notice of a public hearing on these proposed regulations.

02-27-2020
Proposed Changes (4)

Hong Kong

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Hong Kong 2020-21 Budget Delivered

On 26 February 2020, Hong Kong Financial Secretary Paul Chan delivered the 2020-21 Budget. Some of the main measures of the budget include:

  • A reduction in the profits tax for the year of assessment 2019-20 by 100%, subject to a ceiling of HKD 20,000 (also applies for salaries tax and tax under personal assessment);
  • A waiver of rates for non-domestic properties for the four quarters of 2020/21, subject to a ceiling of HKD 5,000 per quarter in the first two quarters and a ceiling of HKD 1,500 per quarter in the remaining two quarters for each rateable non-domestic property;
  • A waiver of business registration fees for 2020-21;
  • A waiver of registration fees for all annual returns (except for late delivery) charged by the Companies Registry for two years;
  • A waiver of stamp duty on stock transfers paid by ETF market makers in the course of creating and redeeming ETF units listed in Hong Kong;
  • A tax concession for carried interest issued by private equity funds operating in Hong Kong subject to the fulfillment of certain conditions; and
  • Tax concessions for the ship leasing business, including a profits tax exemption to qualifying ship lessors and a half-rate profits tax concession to qualifying ship leasing managers.

For more information, click the following links for the Hong Kong 2020-21 Budget webpage and information published by the Inland Revenue Department on 2020-21 Budget – Concessionary Measures.

02-27-2020

Namibia

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Namibia to Repeal Tax Incentives for Manufacturing and Export Processing Zones

Namibia's Minister of Finance introduced a draft bill in parliament on 19 February 2020 that would repeal tax incentives for manufacturers and export processing zones (EPZs).

For manufacturers, this includes the repeal of the 10-year reduced tax rate of 18% and the additional 25% deductions for training costs, export costs, and transport costs for materials and components and imported equipment.

For EPZs, this includes the repeal of the various tax exemptions for EPZ entities, including for customs and excise duties, stamp duties, transfer duties, and income tax, although exemptions from VAT and import VAT would not be affected. Further, the treatment of the movement of goods from Namibia into an EPZ and vice versa would no longer be treated as an export/import.

02-27-2020

New Zealand

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New Zealand Seeking Feedback on GST Issues

New Zealand Inland Revenue announced the release of an officials' issues paper on 24 February 2020, which seeks feedback on a wide range of GST-related policy issues, to ensure the GST rules remain current for modern business practices and technology, while remaining fair.

Proposals include improving and simplifying tax invoice requirements, excluding cryptocurrency from certain GST and financial arrangement rules (while remaining taxable under existing income tax rules), changes to the GST apportionment and adjustment rules, and simplifying how GST can apply to certain financial services in the managed funds industry.

The deadline for submissions is 9 April 2020.

02-27-2020

South Africa

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South Africa's Budget 2020 Presented in Parliament Including Proposed Interest and Loss Offset Restrictions

On 26 February 2020, the South African Minister of Finance presented the Budget for 2019 in parliament. As provided in Chapter 4 - revenue trends and tax proposals of the Budget Review, two of the main tax proposals include new restrictions on the deduction of interest and the offset of carried forward losses.

Curtailing excessive corporate interest deductions

The government proposes to restrict net interest expense deductions to 30% of earnings for years of assessment commencing on or after 1 January 2021. This measure will address a typical form of base erosion and profit shifting by multinational corporations. This practice involves artificially inflating company debt and/or the interest rate on that debt to a related party in another jurisdiction with a lower corporate income tax rate. The resulting interest payments are deducted in South Africa, reducing the domestic tax base and effectively shifting profits to be taxed at a lower rate offshore.

A consultation on the design of this limitation has begun. A discussion document is available on the National Treasury website and the closing date for comments is 17 April 2020.

Limiting the use of assessed losses to reduce taxable income

When a company’s tax-deductible expenses exceed its income, it records an assessed loss. Often, the loss is carried forward to the next year and is offset against taxable income in that year. Over the past few years, there has been an international trend to restrict this practice.

The government proposes broadening the corporate income tax base by restricting the offset of assessed losses carried forward to 80% of taxable income, for years of assessment commencing on or after 1 January 2021. This is viewed as a reasonable approach that affects all businesses equally, rather than restricting the number of years for carrying forward assessed losses, which would disproportionately hurt businesses with large initial investments or long lead times to profitability.

Other Tax Proposals

Other noted tax proposals include:

  • Providing personal income tax relief through an above-inflation increase in the brackets and rebates.
  • Increasing the fuel levy by 25c/liter, consisting of a 16c/liter increase in the general fuel levy and a 9c/liter increase in the RAF levy, to adjust for inflation.
  • Increasing the annual contribution limit to tax-free savings accounts by R3 000 from 1 March 2020.
  • Increasing excise duties on alcohol and tobacco by between 4.4% and 7.5%.

Click the following link for the 2020 Budget page for more information.

02-27-2020
Treaty Changes (4)

Armenia-Denmark

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Tax Treaty between Armenia and Denmark in Force

The income and capital tax treaty between Armenia and Denmark reportedly entered into force on 22 October 2019. The treaty, signed 14 March 2018, is the first of its kind directly between the two countries, although the 1986 tax treaty between Denmark and the former Soviet Union had continued to apply, but was terminated.

Taxes Covered

The treaty covers Armenian profit tax, income tax, and property tax. It covers Danish income tax to the state and income tax to the municipalities.

Resident

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Withholding Tax Rates

  • Dividends –
    • 0% if the beneficial owner is a company that directly owns at least 50% of the paying company’s capital and has invested more than EUR 2 million (or equivalent in Danish or Armenian currency) in the capital of the paying company;
    • 0% if the beneficial owner is the other Contracting State or central bank of that State or any public authority or other public institution (including a financial institution) owned by the Government of that other State;
    • 5% if the beneficial owner is a company that directly owns at least 10% of the paying company’s capital and has invested more than EUR 100,000 (or equivalent in Danish or Armenian currency) in the capital of the paying company;
    • Otherwise, 15%
  • Interest –
    • 0% if paid to a Contracting State or a local authority, including that central bank of that State, or any institution, public authority, or fund owned by the Government of a Contracting State;
    • 5% if paid in respect of any loan granted by a bank;
    • Otherwise, 10%
  • Royalties –
    • 5% for royalties paid for the use of, or the right to use, any computer software, any patent, trademark, design or model, or plan; or for the use of, or the right to use, any secret formula or process, or for information concerning industrial, commercial or scientific experience (know-how);
    • 10% for royalties paid for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, and films or tapes for television or radio broadcasting

Capital Gains

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.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation.

Limitation on Benefits

Article 29 (Limitation of Benefits) includes the provision that income derived from a Contracting State and legally owned by a resident of the other Contracting State may be taxed in the first-mentioned State in accordance with its domestic law if that income is not subject to taxation in the other Contracting State or is subject to legislation giving access to special benefits for income from foreign sources.

Article 29 also includes a general principal purpose test, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2020.

02-27-2020

Ecuador-Italy

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Update - Pending Protocol to Tax Treaty between Ecuador and Italy

The pending protocol to the 1984 income and capital tax treaty between Ecuador and Italy was signed on 13 December 2016. The protocol includes the following changes:

  • Article 2 (Taxes Covered) is updated with respect to the taxes covered for both countries;
  • Article 3 (General definitions) is updated with respect to the definitions of the terms "Ecuador" and "Italy" and the term "competent authority" for both countries;
  • Article 27 (Exchange of Information) is replaced in line with the OECD standard for information exchange

The protocol will enter into force once the ratification instruments are exchanged and will generally apply from that date.

02-27-2020

Japan-Qatar

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Japan Publishes Synthesized Text of Tax Treaty with Qatar as Impacted by the BEPS MLI

Japan's Ministry of Finance has published the synthesized text of the 2015 Japan-Qatar income tax treaty as impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). A summary of the application of the MLI has also been published.

The synthesized text was prepared on the basis of the reservations and notifications submitted to the Depositary (the Secretary-General of the Organisation for Economic Co-operation and Development) by Japan on 26 September 2018 and by Qatar on 23 December 2019, respectively. It is solely for the purpose of facilitating the understanding of the application of the MLI to the treaty and does not constitute a source of law.

The MLI is in force for Japan on 1 January 2019 and for Qatar on 1 April 2020 and has effect as follows:

  • The provisions of the MLI shall have effect in each Contracting State with respect to the 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 2021;
    • with respect to all other taxes levied by that Contracting State, for taxes levied with respect to taxable periods beginning on or after 1 October 2020;
  • Notwithstanding the above, Article 16 (Mutual Agreement Procedure) of the MLI shall have effect with respect to the treaty for a case presented to the competent authority of a Contracting State on or after 1 April 2020, except for cases that were not eligible to be presented as of that date under the treaty prior to its modification by the MLI, without regard to the taxable period to which the case relates.

Click the following link for the Ministry of Finance's webpage on the BEPS MLI for more information.

02-27-2020

Korea, Rep of-Untd A Emirates

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New Tax Treaty between South Korea and the UAE to Enter into Force

On 24 February 2020, South Korea published the new income tax treaty with the United Arab Emirates in the Official Gazette, which will enter into force on 29 February 2020. The treaty, signed 27 February 2019, replaces the 2003 tax treaty between the two countries.

Taxes Covered

The treaty covers Korean income tax, corporation tax, special tax for rural development, and local income tax. It covers UAE income tax and corporation tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel if the activities continue for a period or periods aggregating more than 12 months.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holdings at least 10% of the paying company's capital; otherwise, 10%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

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;
  • Gains from the alienation of shares deriving more than 50% of the value directly or indirectly from immovable property situated in the other State, unless the shares are listed on a recognized stock exchange; and
  • Gains for the alienation of shares, other than the above, representing a participation of at least 25% in a company that is a resident of the other State, although the tax so charged may not exceed 10% of the gains.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. In respect of dividends received by a Korean resident company that owns at least 25% of the voting rights or capital of the UAE paying company, South Korea will also provide a credit for the UAE tax payable on the profits out of which the dividends are paid.

Entitlement to Benefits

Paragraph 1 of Article 26 (Entitlement to Benefits) includes benefits provisions in respect of Articles 7 (Business Profits), 8 (Shipping and Air Transport), 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), 14 (Dependent Personal Services), 19 (Students), and 20 (Other Income). The provisions include that with respect to taxation in Korea only the following residents of the UAE shall be entitled to the benefits of the aforementioned articles:

  • the Federal and the local governments of the United Arab Emirates;
  • a government institution of the United Arab Emirates such as Central Bank of the United Arab Emirates, Abu Dhabi Investment Authority, Abu Dhabi Investment Company, International Petroleum Investment Company (IPIC), Dubai Tourism Department, Dubai Investment and Development Corporation;
  • a company provided that such company can prove that at least 75% of its capital is beneficially owned by the United Arab Emirates and/or by a government institution of the United Arab Emirates and give substantial evidence that the remaining capital is beneficially owned by individuals being residents of the United Arab Emirates and that the company is controlled by the aforementioned residents.

Paragraph 2 provides that, notwithstanding the provisions of paragraph 1, the following residents of the UAE shall be entitled to the benefits of Article 8, 10 and 11:

  • an individual;
  • a company, provided that such company can give substantial evidence that its capital is beneficially owned exclusively by the United Arab Emirates and/or by a government institution of the United Arab Emirates or local governments and/or by individuals being residents of the United Arab Emirates and the company is controlled by the aforementioned residents;

Paragraph 3 provides that a further prerequisite for relief from Korean taxes under paragraphs 1 and 2 is that the company resident in the United Arab Emirates proves that it was not a principal purpose of the company or of the conduct of its business or of the acquisition or maintenance by it of the shareholding or other property from which the income in question is derived to obtain any of such benefits to the advantage of a person who is not a resident of the United Arab Emirates.

And lastly, paragraph 4 provides that relief from Korean taxes under paragraphs 1 to 3 is conditional on confirmation by the competent authority of the United Arab Emirates that the prerequisite mentioned in paragraphs 1 and 2 have been fulfilled. If the authorities of the Republic of Korea have evidence which casts doubt on the statements which have been made by the person to whom the income or capital is allocatable and which have been confirmed by the competent authority of the United Arab Emirates, the latter shall, as far as possible, make fresh inquiries and shall inform the competent authority of the Republic of Korea of the results. In case of disagreement between the competent authorities of the two Contracting States, the procedure under Article 23 shall be applied

In addition to the above, Article 26 also includes a general principal purpose test, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in the benefit, unless it is established that granting the benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2021. The 2003 tax treaty between the two countries ceases to have effect from that date.

02-27-2020
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