Worldwide Tax News
The Republic of Congo Finance Bill for 2019 was enacted by way of Law 40-2018 of 28 December 2018. Some of the main tax-related aspects of the law are summarized as follows:
- Withholding tax changes and clarifications, including:
- Payments made to resident persons that are not subject to corporate income tax as a consideration for services supplied and used in the Republic of Congo are subject to withholding tax at a rate of 10%;
- Commissions of every kind and description received by entities operating in telecommunication sectors and which are not subjected to corporate income tax are subject to withholding tax at a rate of 10%;
- Withholding tax agents are required to submit to the tax authorities, on a quarterly basis, a statement detailing the beneficiaries of payments subjected to withholding tax; and
- With respect to withholding taxes on payments made to non-resident service suppliers, it is clarified that the withholding tax base includes gross remuneration excluding sales taxes but including auxiliary fees;
- VAT changes and clarifications, including:
- The VAT registration threshold is set at XAF 60 million;
- Sales of locally manufactured cement is subject to VAT at the reduced rate of 5%; and
- No input VAT deduction will be allowed on expenses incurred in connection with services rendered by nonresident service suppliers in cases where the corresponding remuneration has not been subjected to income tax;
- With regard to companies qualifying for a full corporate income tax exemption under the renewal of an establishment agreement, the special tax on companies will be levied at the rate of 2%, subject to a minimum of XAF 2 million;
- Any investment agreements concluded with the State granting tax incentives that are not consistent with the investment conduct code, the general tax code, or other domestic tax rules should be submitted to the Ministry of Finance for renegotiation by 30 April 2019 or risk being canceled;
- It is provided that penalties and fines of every kind and description are not considered deductible expenses;
- Exceptional property levies are implemented with rates that range from XAF 200 to XAF 500,000 depending on the location of the property; and
- Various sector-specific taxes/royalties are introduced or amended including inter alia:
- A universal services fund contribution is set at 1% on the turnover of electronic telecom operators;
- A contribution for preventing from environment risk is set at 0.05% of petroleum production multiplied by the agreed price; and
- An electronic transactions royalty is levied at the rate of 1% on the value of electronic transactions.
The measures generally apply from 1 January 2019.02-20-2019
Guinea's Finance Bill for 2019 was enacted in January 2019 by way of Law L/2019/N°0069. The main measures of the law include new transfer pricing rules and certain other changes.
Several measures are introduced in relation to transfer pricing, which are summarized as follows:
- It is provided that two entities are considered related when:
- One entity holds a majority of the shares in the other, whether directly or indirectly;
- One entity has de facto decision-making power in the other (majority of voting rights, same directors, economic dependence); or
- Both entities are controlled (according to the same criteria set above) by the same third entity;
- It is provided that for transfer pricing purposes, the following should increase the taxable base:
- Profits indirectly shifted (lack of compliance with the arm’s length price) to related parties whether resident or non-resident; and
- Profits indirectly shifted (lack of compliance with the arm’s length price) to companies resident in jurisdictions with preferential tax regimes;
- Cases of profits indirectly shifted include excessive royalties, interest-free loans, debt cancellation, excessive fees for services, etc.;
- A company is deemed to be resident in a jurisdiction with a preferential tax regime when it is subject to tax therein for an amount less than 50% of the amount it would be subject to in Guinea;
- A transfer pricing return must be submitted with the annual corporate tax return by resident companies with annual turnover or total assets exceeding GNF 100 billion, which must include a summary of the company's transfer pricing policy and details of:
- The nature and value of controlled transactions;
- Name and address of related parties; and
- The transfer pricing method for each controlled transaction;
- Transfer pricing documentation including a Master file and Local file should be prepared in French by:
- Resident companies with annual turnover or total assets exceeding GNF 1000 billion;
- Resident Companies that directly or indirectly hold more than 50% of the share capital or voting rights of companies with annual turnover or total assets exceeding GNF 1000 billion; and
- Resident companies that are directly or indirectly held by more than 50% of their share capital or voting rights by companies with annual turnover or total assets exceeding GNF 1000 billion;
- The transfer pricing documentation must be submitted electronically to the tax authorities no later than 3 months following the deadlines for the corporate tax return and should contain the following:
- Master file:
- A general description of the activity of the group
- The legal structure of the group including ownership and geographic location of entities
- A general description of functions undertaken, assets used, and risks assumed
- A detailed description of the supply chain within the group with respect to activities affecting the company;
- A list of the main intangibles held by the group; and
- A general description of the transfer pricing policy of the group
- Local file:
- A description of the activity of the company including a functional analysis and a description of the commercial strategy;
- A detailed functional analysis for any related entity involved in controlled transactions;
- A description of controlled transactions, including their nature and value;
- Information on intragroup service agreements impacting the company, including capabilities of the services suppliers, the pricing method, etc.;
- With respect to purchases of the company that are made from a related entity that has the role of central purchasing center, a detailed description of such center, the nature and value of transactions undertaken with the company, commissions, margins, etc.;
- For listed goods, the quantities/weight of the goods, the official price of the goods, the costs of goods, and adjustments, if any, according to the quality of goods;
- With respect to sales made to a related entity that resells the same goods, a detailed description of the resale pricing determination method and justification of the margin of such entity;
- Copies of important intra-group agreements;
- The transfer pricing methods used to comply with the arm’s length principle including an analysis of functions performed, assets used, and risks assumed, as well as justification of the transfer pricing method selected;
- The comparative analysis;
- Details from analytical accounting that are relevant for transfer pricing analysis; and
- An analysis of performance and various economic and competition factors in the business industry of the company;
- Master file:
- The transfer pricing documentation should cover controlled transactions valued at more than GNF 1 billion; and
- Failing to submit accurate transfer pricing documentation will result in fines equal to 1% of the value of transactions falling under the documentation requirements, which will be imposed after an initial warning issued by the tax inspector.
Other important aspects of the law include the following:
- The minimum corporate income tax rate is increased from 1.5% to 3.0% of annual turnover, which is creditable against corporate income tax, with the following minimum and maximum amounts:
- For medium-sized companies, the minimum tax should not be less than GNF 15 million and should not exceed GNF 45 million; and
- For large companies, the minimum tax should not be less than GNF 75 million and should not exceed GNF 100 million;
- Qualifying companies operating under the investment code may benefit from a total or partial relief from the minimum tax;
- The standard corporate income tax rates for 2019 are maintained as follows:
- 25% for companies in general;
- 30% for mining companies; and
- 35% for telecom companies, banks, insurance companies, and companies operating in the import, warehousing, storage, or distribution of petroleum products;
- With respect to determining taxable profit and deductions, it provided that:
- Expenses are generally deductible as long as they are not excessive and the expense is in relation to identifiable goods, services, intangibles that actually relate to operating activities;
- The tax deductibility of interest expenses incurred on related party loans is capped at 15% of EBITDA; and
- When determining taxable profit, income derived from certain listed goods with official prices should not be less than a value equal to the quantity/weight of the goods, multiplied by the official price of the goods, with adjustments, if any, according to the quality of the goods; and
- The individual income tax withholding brackets and rates are set as follows:
- up to GNF 1,000,000 - 0%
- GNF 1,000,001 to GNF 5,000,000 - 5%
- GNF 5,000,001 to GNF 10,000,000 - 10%
- GNF 10,000,001 to GNF 20,000,000 - 15%
- over GNF 20,000,000 - 20%
The measures are generally effective from 1 January 2019.02-20-2019
The Jersey Government has updated its Country-by-Country (CbC) reporting guidance page with an announcement dated 2 January 2019, which includes that the Jersey Taxes Office AEOI portal is now able to accept CbC notifications.
The Jersey Taxes Office AEOI portal is now able to accept CBC notifications, where an entity is required to notify us that it intends to submit a CBC report in its own name or if another member of the MNE Group will include the Jersey entity’s details in its own report.
Entities intending to submit CBC notifications will need to apply for a CBC registration through the AEOI portal. Once you have completed your application to register, if approved, you will receive an email notification providing you with a User ID and activation pin. The first time you log in you will be prompted to set your password.
Only one registration is required per MNE Group. When you complete the registration form in the section that asks for contact information of the Jersey Entity, use the details of the main entity in Jersey. Once the registration is complete, you can add the details of any other Jersey entity in the CBC notification tab.
Please note you can only submit CBC notifications once you have activated your CBC account.
If you already have an account on the AEOI portal that was used for FATCA and/or CRS, you will not be permitted to use this account for CBC purposes and you will be required to complete a separate application. FATCA/CRS data & CBC data is held separately and anyone who is only registered to your CBC account cannot access your FATCA / CRS report history or any data.
Questions regarding registration and reporting of CBCR in Jersey should be referred to AEOI@gov.je.02-20-2019
The Kenya Revenue Authority (KRA) released on 8 February 2019 a notice clarifying the new measure introduced as part of the Finance Act 2018 for the taxation of untaxed profits distributed as dividends. The measure is included in a new section 7A of the Income Tax Act, which provides that where a dividend is distributed out of gains or profits on which no tax is paid, the company distributing the dividend shall be charged to tax in the year of income in which the dividends are distributed at the resident corporate rate of tax on the gains or profits from which such dividends are distributed (standard corporate rate currently 30%). The notice clarifies that the new section 7A does not apply to the distribution of income as dividends where the income:
- Is received by a registered collective investment scheme;
- Is a dividend received by a resident company from a subsidiary, whether local or foreign;
- Has been subjected to capital gains tax provisions; or
Has been subjected to final tax.
Click the following link for the KRA notice.02-20-2019
OECD Extends Comment Period for Solutions to the Tax Challenges Arising from the Digitalisation of the Economy
On 19 February 2019, the OECD published an update including that the deadline to submit comments on the consultation document relating to the possible solutions to the tax challenges of digitalisation has been extended to 6 March 2019. The public consultation meeting remains scheduled for 13-14 March 2019 and the deadline for registration to attend the public consultation remains 1 March 2019.02-20-2019
On 19 February 2019, the OECD announced the eighth batch of countries that will undergo review as part of the Mutual Agreement Procedure (MAP) peer review and monitoring process for implementation of the minimum standard developed under BEPS Action 14 (Dispute Resolution). The eighth batch includes Brunei Darussalam, Curaçao, Guernsey, Isle of Man, Jersey, Monaco, San Marino, and Serbia. As part of the reviews, the OECD is seeking input from taxpayers regarding their experience with the MAP process in the respective countries.
Click the following link for the taxpayer input questionnaire. The deadline to submit the questionnaire for the eighth batch of countries is 19 March 2019.02-20-2019
On 6 February 2019, the Slovak Ministry of Finance published Guidance No. MF/019153/2018-724, which includes updated requirements for transfer pricing documentation. This includes that documentation is required as follows depending on certain conditions:
- Full transfer pricing documentation is required in respect of:
- Significant cross-border controlled transactions of taxpayers that are liable to report their operational results in separate financial statements under International Financial Reporting Standards (IFRS);
- Cross-border controlled transactions or groups of aggregated transactions exceeding EUR 10 million;
- Significant controlled transactions with related persons resident in a non-contracting State (no tax treaty or information exchange agreement with the Slovak Republic);
- Controlled transactions for which the taxpayer requests an advance pricing agreement with the tax authority;
- Controlled transactions for which the taxpayer requests a secondary adjustment, except for adjustments in relation to domestic controlled transactions;
- Controlled transactions for which the taxpayer has requested dispute resolution (MAP); and
- Cross-border controlled transactions of taxpayers that claim tax relief (incentives);
- Basic (essential) documentation is required in respect of:
- Cross-border controlled transactions of taxpayers whose total income from economic and financial activities for the relevant tax period exceeds EUR 8 million;
- Cross-border controlled transactions or groups of aggregated transactions exceeding EUR 1 million;
- Significant domestic controlled transactions of taxpayers that claim tax relief; and
- Non-significant controlled transactions with related persons resident in a non-contracting State; and
- Simplified (abridged) documentation is generally required in respect of controlled transactions not meeting the requirements for full or basic documentation.
Full documentation includes both general group documentation and specific documentation, which is in line with the latest OECD guidelines for Master file and Local file documentation. The basic documentation also includes general group documentation and specific documentation, but with much less detail. And lastly, the simplified documentation includes a basic overview of controlled transactions, which is set out in an annex to the new guidance in a structured form format.
The new guidance provides that the updated documentation requirements apply in respect of tax periods beginning after 31 December 2017, although taxpayers may submit documentation prepared in accordance with prior guidance up to 30 June 2019.02-20-2019
Following agreement by both Houses of Parliament, the UK Finance Act 2019 received Royal Assent (was enacted) on 12 February 2019. The legislation includes standard annual provisions, such as the charge to tax, the main rates of income tax, etc., as well as certain measures included in the Budget 2018. Particular measures of the Act include:
- An increase in the individual income tax personal allowance to GBP 12,500 with the basic rate limit increased to GBP 37,500 for 2019-20 and 2020-21, as such the brackets and rates for taxable income exceeding the personal allowance are as follows for the tax year 2019-20:
- up to GBP 37,500 – 20%
- GBP 37,501 to 150,000 - 40%
- over GBP 150,000 – 45%
- Changes with effect from 6 April 2019 to subject non-resident companies to corporate tax on gains from the disposal of all forms of UK land, including direct disposals of UK land, and indirect disposals of entities that predominantly derive their value from UK land;
- Measures to tax income from intangible property held in low-tax jurisdictions to the extent that the income is referable to the sale of goods or services in the UK effective from 6 April 2019, which includes taxing offshore entities directly with a GBP 10 million de minimis UK sales threshold, as well as joint and several liability provisions to enable collection of the debt from connected parties in the event non-payment by offshore entities and an anti-avoidance rule effective from 29 October 2018;
- The introduction of an anti-profit-fragmentation rule effective from 1 April 2019 to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK;
- Measures to provide that non-UK resident companies that carry on a UK property business or have other UK property income will be charged to corporation tax, rather than being charged to income tax as at present, effective from 6 April 2020, with an anti-avoidance rule applying from 29 October 2018;
- The amendment of the Diverted Profits Tax rules to close tax planning opportunities, make clear that diverted profits that are subject to DPT will not also be subject to corporation tax, and introduce modifications to the mechanics of the DPT legislation, with the amendments generally deemed to have always had effect;
- Changes to the hybrid mismatch rules effective from 1 January 2020 to comply with the EU Anti-Tax Avoidance Directive (ATAD) in relation to the treatment of certain permanent establishments and the treatment of regulatory capital;
- Changes to the Controlled Foreign Company (CFC) rules effective from 1 January 2019 to comply with ATAD, including:
- An amendment of the CFC control rules so that any interests held by associated enterprises, wherever they're resident, are taken into account when assessing control; and
- An amendment of the CFC rules in relation to significant people functions (SPFs) so that non-trade finance profits that are brought into scope by virtue of UK SPFs will no longer qualify for consideration for exemption under the CFC finance company rules;
- The introduction of an anti-fragmentation rule by changing the definition of permanent establishment (PE) effective from 1 January 2019 to restrict the exemption for preparatory and auxiliary activities when non-resident companies artificially fragment their business operations to take advantage of the exemption;
- Changes in respect of corporation tax exit charges in order to comply with ATAD with effect from 1 January 2020, including in relation to exit charge payment plans, certain provisions that enable the postponement of exit charges (repealed), and the treatment of assets that are the subject of EU exit charges;
- The extension of the definition of “UK related” company for the purposes of group relief to include non-UK resident companies that are within the charge to Corporation Tax;
- The reform of the corporate intangibles regime to partially reinstate relief for acquired goodwill in the acquisition of businesses with eligible intellectual property, and to alter the regime’s de-grouping charge rules so that a charge will not arise where de-grouping is the result of a share disposal that qualifies for the Substantial Shareholding Exemption;
- Amendments to the loss relief legislation to ensure that the legislation works as intended and prevents relief for carried-forward losses being claimed in excess of that intended;
- The introduction of a new Structures and Buildings Allowance (SBA) that provides relief for qualifying capital expenditure on new non-residential structures and buildings where all the contracts for the physical construction works are entered into on or after 29 October 2018;
- A reduction of the special rate of writing down allowances for qualifying plant and machinery from 8% to 6% for businesses claiming capital allowances with effect from 1 April 2019;
- A temporary increase in the Annual Investment Allowance from GBP 200,000 to GBP 1,000,000 with effect from 1 January 2019 to 31 December 2020 and provisions for chargeable periods that straddle 1 January 2021;
- The update of the Energy Technology List (ETL) and Water Technology List (WTL) that qualify for First Year Allowance (FYA) effective in 2019 and the abolition of both schemes and the associated First Year Tax Credit effective from 1 April 2020;
- The introduction of a new Carbon Emissions Tax starting at a rate of GBP 16 per tonne of carbon dioxide (or other greenhouse gas on a carbon equivalent basis) emitted over and above an installation’s emissions allowance from 1 April 2019;
- The introduction of new rules generally effective from 1 January 2019 that cover companies of any sector for the taxation of hybrid capital instruments to ensure that they are taxed in line with their economic substance (previous regulations that only applied for the financial sector are revoked).
Click the following link for the full text of the Finance Act 2019.02-20-2019
The income tax treaty between Croatia and Kazakhstan will enter into force on 22 February 2019. The treaty, signed 5 June 2017 by Croatia and 29 September 2017 by Kazakhstan, is the first of its kind between the two countries.
The treaty covers Croatian profit tax, income tax, and the local income tax and any surcharges thereon. It covers Kazakhstan corporate income tax and individual income tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel within a Contracting State for the same or connected project 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 25% of the paying company's capital; otherwise 10%
- Interest - 10%
- Royalties - 10%
Article 10 (Dividends) also provides that the treaty does not prevent a Contracting State from imposing an additional tax on the profits of a company attributable to a permanent establishment, but such additional tax may not exceed 5%.
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 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.
Both countries apply the credit method for the elimination of double taxation.
The treaty applies from 1 January 2020.02-20-2019
On 12 February 2019, officials from the Czech Republic and Ecuador 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.02-20-2019
On 14 February 2019, the French National Assembly approved the ratification of the pending income and capital tax treaty with Luxembourg. The treaty, signed 20 March 2018 (previous coverage), will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force and, once in force and effective, will replace the 1958 tax treaty between the two countries.02-20-2019
On 14 February 2019, the Luxembourg parliament approved the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Luxembourg must now 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 instruments. 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 Luxembourg's provisional list of reservations and notifications at the time of signature. A definitive list will be provided when the ratification instrument is deposited.02-20-2019