Worldwide Tax News
Benin has published Law No. 2018/39 of 28 December 2018, which includes the finance measures for 2019. One of the main tax-related measures includes that the deductibility of interest expenses incurred on loans granted by shareholders or other related parties are subject to the following limitations:
- The value of loans should not exceed the share capital value (except for holding companies);
- Interest expenses should not exceed 30% of EBITDA;
- The interest rate should not exceed the average rate of the central bank of West African countries increased by three (3) percentage points;
- The Reimbursement period should not exceed 5 years; and
- The share capital of the company must be fully paid up.
The new limitations are effective 1 January 2019.
Another important tax-related measure is a full waiver of tax fines and penalties that will be granted for persons operating in the informal sector and submitting their tax return with respect to the previous tax periods for the first time during the period from 1 January 2019 to 31 December 2019. The principal amount of tax should be fully paid. However, taxpayers under a tax audit do not qualify for the amnesty scheme.
Brazil has published Ordinance No. 2176/2018, which sets out the selection criteria for the differentiated and special tax monitoring programs for 2019. Differentiated tax monitoring involves periodic evaluations of a taxpayer's tax behavior and collection of taxes to identify any inconsistencies. If inconsistencies are identified, the taxpayer is listed as a priority for auditing purposes. Special tax monitoring applies only for large corporate taxpayers and involves additional actions to ensure priority treatment to conclude any tax demands and disputes.
For 2019, corporate taxpayers will be subject to differentiated tax monitoring if any of the following conditions are met:
- Annual gross income exceeding BRL 250 million in the 2017 calendar year;
- Declared tax debits in the tax return exceeding BRL 30 million in the 2017 calendar year;
- Annual payroll exceeding BRL 65 million in the 2017 calendar year; or
- Social security contribution (INSS) and employer's contribution to the unemployment guarantee fund (FGTS) debits exceeding BRL 30 million in the 2017 calendar year.
For 2019, large taxpayers will be subject to special tax monitoring if any of the following conditions are met:
- Annual gross income exceeding BRL 1 billion in the 2017 calendar year;
- Declared tax debits in the tax return exceeding BRL 70 million in the 2017 calendar year;
- Annual payroll exceeding BRL 100 million in the 2017 calendar year; or
- INSS and FGTS debits exceeding BRL 70 million in the 2017 calendar year.
Conditions for monitoring of individual taxpayers were also updated (Ordinance No. 2177/2018), including annual income thresholds of BRL 15 million and BRL 200 million in 2017 for differentiated and special tax monitoring, respectively.
Taxpayers subject to monitoring based on the above conditions will generally remain subject to monitoring beyond 2019 if no subsequent ordinances are issued. The new ordinances repeal the prior ordinances issued for 2018.
Bulgaria's National Revenue Agency has published guidance on the applicable social security legislation for 2019, including the applicable contribution rate tables. Overall, the rates have not changed, and include a standard total social security contribution rate of 24.3% (13.72% by employer and 10.58% by employee) and a national health insurance contribution of 8% (4.8% by employer and 3.2% by employee). The contributions are subject to a monthly basis cap of BGN 3,000, which was increased for 2019. Further, the range for the work accident and occupational illness funds, which is paid by the employer, is 0.4% to 1.1%. The range is unchanged, although the rates for certain groups are adjusted.
The Ecuador Internal Revenue Service (SRI) has published NAC-DGERCGC18-00000433, which establishes new rules and requirements for the automatic application of tax treaty benefits effective from 1 January 2019. Changes include:
- The maximum annual amount for the automatic application of tax treaty benefits is increased from 20 times to 50 times the 0% individual income tax bracket threshold (i.e., 50 times USD 11,310 for 2019 – USD 565,000);
- New rules are added, including that automatic application of treaty benefits is allowed as long as the withholding tax agent has the tax residence certificate of the beneficiary and one of the following conditions applies:
- The payment is made in relation to a dividend distribution;
- The payment corresponds to expenses that will be treated as non-deductible in Ecuador;
- The aggregate annual amount of payments made by the Ecuador resident to the non-resident does not exceed the maximum annual amount as above (USD 565,000 for 2019); or
- Qualification for the automatic application of treaty benefits has been obtained for a transaction;
- To be qualified for the automatic application of treaty benefits for a transaction, the following conditions must be met:
- The first refund procedure for a transaction has been accepted by the tax authority and 100% of the amount requested was refunded;
- The subsequent transaction corresponds to the same written contract for which the first refund was requested/approved, with no modifications to the terms;
- The withholding tax agent and the recipient are the same as in the first transaction for which the first refund was requested/approved, including the same fiscal residence; and
- The payment corresponds to the same type of income for which the first refund was requested/approved.
The prior resolution on the automatic application of treaty benefits issued in 2016 is repealed effective 1 January 2019 but continues to apply in respect of refund requests for any withholdings made prior to that date.
Finland has published Law 1364/2018 of 28 December 2018 in the Official Gazette, which includes amendments to the country's controlled foreign company (CFC) rules to comply with the EU Anti-Tax Avoidance Directive. The Law includes:
- An expansion of the CFC rules to cover persons subject to limited tax liability in Finland if the holding in a CFC relates to a permanent establishment in Finland;
- The amendment of the definition of CFCs to provide that a foreign entity is considered a CFC if a Finnish taxpayer holds itself, or together with related parties, a direct or indirect participation of at least 25% in the capital, voting rights, or rights to profit or gains of the foreign entity and the effective level of taxation of the foreign entity is less than 3/5 of the level of taxation if resident in Finland (essentially the same 25% participation requirements apply for determining related parties for the CFC rules);
- The abolishment of the use of a CFC blacklist and the prior exemptions for certain industries and EEA and tax treaty countries; and
- The introduction of an exemption where a CFC carries on substantive economic activity supported by staff, equipment, assets, and premises, provided that Finland has an information exchange agreement with the relevant jurisdiction in the case of non-EEA countries and the relevant jurisdiction is not listed as non-cooperative by the EU.
Law 1364/2018 entered into force and applies from 1 January 2019. For the purpose of the economic activity exemption, a white list has been published of non-EEA jurisdictions with which Finland has an exchange agreement.
On 11 January 2019, Indonesia's Directorate General of Taxation published new regulations on the taxation of e-commerce (Regulation No. 210/PMK.10/2018), which are to take effect from 1 April 2019. The regulations are mainly focused on sales of goods and services via online marketplace platforms, although sales via other channels are also covered, including through online retail and social media. Key points include:
- E-commerce sales are subject to VAT at a rate of 10% where sales turnover exceeds IDR 4.8 billion (standard VAT threshold), as well as sales tax on luxury goods where applicable;
- Income from e-commerce sales is subject to income tax in accordance with statutory provisions, which generally includes:
- A 0.5% tax on gross turnover where the IDR 4.8 billion threshold is not exceeded; and
- The standard income tax on profit (25%) where the threshold is exceeded, although if income does not exceed IDR 50 billion, a 50% discount on the tax rate applies on the proportion of taxable income for the first 4.8 billion of turnover; and
- Reporting requirements are introduced for both sellers and online marketplace platforms.
Note, the regulations only provide that income tax obligations must be met and does not include any specific rules in relation to e-commerce.
As announced by the Government, Venezuela has increased the minimum monthly salary from VES 4,500 to VES 18,000 effective 15 January 2019. The increase impacts the basis cap for social security contributions, unemployment insurance, and other benefits.
Note – Venezuela revalued its currency in August 2018 with the introduction of the Bolívar Soberano (VES), which is equal to 100,000 times the prior currency, the Bolívar Fuerte (VEF).
According to recent reports, Guyana's Ministry of Finance has delivered the Budget for 2019. The proposed tax measures of the budget include:
- A reduction in the corporate tax rate for non-commercial companies from 27.5% to 25%;
- An increase in the property tax threshold to GYD 40 million for both companies and individuals;
- An increase in the capital gains threshold on property disposals to GYD 500,000; and
- The introduction of VAT and customs duties exemptions on new equipment used for manufacturing, construction, or agriculture, subject to certain conditions.
The measures must be approved before entering into force. Additional details will be published once available.
Japan's Ministry of Finance has announced the signing of an income tax treaty with Ecuador on 15 January 2019 (16 January in Japan). The treaty is the first of its kind between the two countries.
The treaty covers Ecuadorian income tax and covers Japanese income tax, corporation tax, special income tax for reconstruction, local corporation tax, and local inhabitant taxes.
If a company is considered resident in both Contracting States, the competent authorities of both States will determine its residence for the purpose of the treaty through mutual agreement based on its place of head or main office, its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company will not be entitled to any relief or exemption from tax provided by the treaty.
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 when the activities continue for a period or periods aggregating more than 183 days within any 12-month period. For determining whether the 183-day threshold is exceeded, connected activities of associated enterprises in a Contracting State will be considered.
- Dividends – 5% in general, although the rate is 10% if the dividends are deductible in computing the taxable income of the paying company in its Contracting State of residence
- Interest – 10%, with an exemption where:
- The beneficial owner is either Contracting State;
- The beneficial owner is a resident of a Contracting State and the debt-claims are guaranteed, insured, or indirectly financed by that State; or
- The beneficial owner is a bank, provided that it is established and regulated as such under the laws of a Contracting State
- 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;
- Gains from the alienation of any property, other than immovable property, forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived at least 50% of their value directly or indirectly from immovable property situated in the other State, with an exemption if the shares or comparable interests are traded on a recognized stock exchange and the alienator and related parties own 5% or less of the class of such shares or comparable interests.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Ecuador generally applies the exemption method for the elimination of double taxation, while Japan applies the credit method. However, for income covered by Articles 10 (Dividends), 11 (Interest), and 12 (Royalties), Ecuador applies the credit method.
Article 28 (Entitlement to Benefits) includes a general anti-abuse provision, 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.
Provisions are also included in the final protocol to the treaty to restrict treaty benefits where income of a resident of a Contracting State is attributed to a permanent establishment in a third state, and:
- The income is exempt from tax in that Contracting State; and
- The rate of tax in the third state is less than 60% of the tax that would be imposed in that Contracting State had the income not been attributed to the permanent establishment.
This restriction will not apply, however, if the income emanates from or is incidental to the active conduct of a business carried on through the permanent establishment, other than the business of making, managing or simply holding investments for the enterprise's own account, unless these activities are banking, insurance or securities activities carried on by a bank, insurance enterprise or registered securities dealer, respectively. Further, even where benefits would be denied for income attributed to a PE in a third state as above, the competent authority of a Contracting State may still grant benefits in respect of the income if it is determined that granting the benefits would be justified.
The final protocol to the treaty provides that any income derived by a silent partner that is a resident of a Contracting State in respect of a silent partnership (Tokumei Kumiai) contract or another similar contract concluded under the laws of Japan or any contract similar to those contracts concluded under the laws of Ecuador that are introduced after the date of signature of the treaty may be taxed in the other Contracting State according to the laws of that other State, provided that such income arises in that other State and is deductible in computing the taxable income of the payer in that other State.
The treaty will enter into force 30 days after the ratification instruments are exchanged and will generally apply from 1 January of the year following its entry into force, although Article 25 (Exchange of Information) will apply from the date the treaty enters into force and Article 26 (Assistance in the Collection of Taxes) will apply from the date to be agreed between the Governments of the Contracting States through an exchange of diplomatic notes.
The Guernsey Government has published the competent authority agreement on the automatic exchange of Country-by-Country (CbC) Reports with Hong Kong, which was signed on 9 January 2019. The agreement is effective the date it was signed
The agreement provides that pursuant to Article 24 (Exchange of Information) of the 2013 Guernsey-Hong Kong tax treaty, each Competent Authority will annually exchange on an automatic basis the CbC Report received from each reporting entity that is resident for tax purposes in its jurisdiction with the other competent authority, provided that, on the basis of the information provided in the CbC report, one or more constituent entities of the MNE Group of the reporting entity are resident for tax purposes in the jurisdiction of the other competent authority or, are subject to tax with respect to the business carried out through a permanent establishment situated in the jurisdiction of the other competent authority.
The agreement is limited in the reporting fiscal years covered, including that with respect to fiscal years beginning between 1 January 2017 and 31 December 2018, CbC reports are to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. For fiscal years beginning on or after 1 January 2019, the exchange of CbC reports will be provided for under the CbC MCAA (first year CbC MCAA is effective for Hong Kong).