Worldwide Tax News
OECD Conducting Survey on VAT/GST Relief for Foreign Businesses
The OECD is conducting a business survey on VAT/GST relief for foreign businesses. The survey is meant to gather insight on how the refund procedures in various countries work in practice regarding the refund of VAT/GST incurred by foreign businesses. It is being conducted as part of the OECD's ongoing project: Measuring Total Business Taxes.
Click the following for the survey. Submissions are due by 15 March 2016.
Switzerland Related Party Interest Rate Safe Harbor Limits for 2016 Published
The Swiss Federal Tax Administration has published the minimum and maximum interest rate safe harbor limits for shareholder and related party financing for 2016. The rates depend on whether the financing is in Swiss francs or in a foreign currency.
- Loans to shareholders or related parties:
- Financed through equity - at least 0.25%
- Financed through debt - at least actual interest expense plus 0.50% for amounts up to CHF 10 million, and plus 0.25% for amounts exceeding CHF 10 million
- Loans from shareholders or related parties:
- Real estate loans - at most 1.0% to 2.25% depending on nature of the property and the amount financed
- Business loans received by:
- Commercial and industrial companies - at most 3.0% for amounts up to CHF 1 million, and 1.0% for amounts exceeding CHF 1 million
- Holding and asset management companies - at most 2.25% for amounts up to CHF 1 million, and 0.75% for amounts exceeding CHF 1 million
- Financed through equity - 1.0% if in EUR, 2.25% if in USD, and between 1.25% and 8.5% for other currencies
- Financed through debt - actual interest expense plus 0.50%, with a minimum of 1.0% if in EUR, 2.25% if in USD, and between 1.25% and 8.5% for other currencies
The safe harbor rates may be deviated from if it can be shown the rate is appropriate given the circumstances and is at arm's length. If the rates are deviated from and not shown to be at arm's length, excess interest paid will be treated as a hidden profit distribution (deemed dividend) subject to tax.
The rates apply from 1 January 2016.
Zimbabwe Publishes Joint Venture Act
Zimbabwe published the Joint Venture Act in its Official Gazette on 12 February 2016 following its recent passage by parliament and assent by the President. The Act provides for the implementation of joint venture agreements between contracting authorities and counter-parties, and establishes the rules governing the public-private procurement process. Under the Act, public-private partnerships may be formed with both domestic and foreign entities.
The types of joint venture agreements available under the Act include:
- Build and Transfer;
- Build, Lease and Transfer;
- Build, Operate and Transfer;
- Build, Own and Operate;
- Contract, Add and Operate;
- Develop, Operate and Transfer; and
- Several others.
Projects covered under the Act are focused mainly on infrastructure projects related to energy, water, waste management, petroleum, roads and bridges, and ports, as well as education and healthcare.
For a joint venture agreement to be approved, it must first go to the newly created Joint Venture Unit (JVU) under the Ministry of Finance and Economic Development. The JVU is responsible for examining joint venture agreement proposals and assisting the Joint Venture Committee on making recommendations for approval. Recommendations are then made to the Cabinet, which makes the final decision on any joint venture agreement.
Indian Budget 2016-2017 Delivered including CbC Reporting, an Equalization Levy on Digital Supplies, a Patent Box Regime, and Other Measures
On 29 February 2016, Indian Finance Minister Arun Jaitley delivered the country's 2016-2017 Union Budget, including several proposed tax measures. The main tax measures are summarized as follows.
The proposed CbC reporting requirements are in line with the guidelines developed as part of Action 13 of the OECD BEPS Project.
Key aspects of the CbC reporting requirements include:
- The format of the CbC report will follow the OECD template.
- The CbC reporting requirements will be effective from 1 April 2017, and apply from the 2017-2018 assessment year (i.e. 2016-2017 fiscal year) for MNE group's with annual consolidated group revenue exceeding the INR equivalent of EUR 750 million in the previous year based on the exchange rate of the last day of the previous year.
- If the Ultimate Parent Entity of the group is resident in India, the Parent will be required to file the CbC report by the deadline for the tax return of the year concerned (generally 30 November of the following year).
- If the Ultimate Parent Entity is not resident in India, every Constituent Entity of the MNE group resident in India must provide information to the Indian tax authorities on the jurisdiction of residence of the Parent filing the CbC report.
- If the Ultimate Parent Entity is not required to file, or the Parent's jurisdiction does not have agreements in place with India for the exchange of CbC reports (or otherwise does not exchange), a Constituent Entity of the MNE Group in India must file the report (if multiple Indian entities, only one must file).
- A Surrogate Reporting Entity designated in another jurisdiction may fulfill the CbC reporting obligation, as long as India has agreements in place with the other jurisdiction for the exchange of CbC reports.
Failure to furnish a CbC report when required would result in penalties of INR 5,000 to INR 50,000 per day of delay. Similar penalties would apply for failing to provide additional information when requested, and a penalty of INR 500,000 would apply for providing inaccurate information in the CbC report.
The proposed Master File requirements are also in line with the guidelines developed as part of Action 13 of the OECD BEPS Project. The required information and submission requirements will be prescribed by the Indian tax authority.
The standard corporate income tax rates and the associated surcharge and education cess rates are unchanged. However, two new reduced corporate rates are proposed:
- A reduced rate of 29% (plus surcharge and cess) for domestic companies with income not exceeding INR 50 million in the previous year; and
- A reduced rate of 25% (plus surcharge and cess) for companies solely engaged in manufacturing/production that are established on or after 1 March 2016, subject to certain other conditions.
A dividends tax of 10% is proposed on dividend income of domestic firms and individuals in excess of INR 1 million. This would be in addition to the dividend distribution tax of 15% that applies in the hands of the company declaring the dividends.
An equalization levy of 6% is proposed on the consideration paid for specified digital services supplied by a non-resident without a permanent establishment (PE) in India. The levy would apply on services supplied to Indian residents carrying on a business or profession or non-residents with a PE in India (B2B). The recipient would be required to withhold and deposit the levy, and failure to do so would result in the disallowance of the expense as a deduction. A threshold of INR 100,000 in the previous year is provided for the withholding requirement to apply.
It is proposed to reduce the holding period from three years to two years for gains on unlisted shares in companies to be considered long-term gains (eligible for reduced rate of 10%).
The budget includes the clarification that all foreign companies would be exempt from MAT effective from 1 April 2001, if:
- The foreign company is resident in a jurisdiction with which India has entered into a tax treaty, and the company does not have a permanent establishment in India in accordance with the treaty; or
- The foreign company is resident in a jurisdiction with which India has not entered into a tax treaty, and the company is not required to register under Indian company law.
The issue of MAT exemption for foreign companies was raised following the introduction of the MAT exemption for foreign institutional investors in the 2015-2016 Union Budget from 1 April 2015 and whether it would apply retroactively.
A Krishi Kalyan cess of 0.5% is proposed on taxable services, which would increase the effective service tax rate from 14.5% to 15.0%.
A 100% deduction of profits and gains is proposed for start-ups in the areas of innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. The incentive would apply for up to three years for start-ups established before 1 April 2019. MAT would still apply.
A tax exemption would also apply for capital gains invested in qualifying start-ups if holding majority shares.
A patent regime based on the modified nexus approach of Action 5 of the OECD BEPS Project is proposed. The regime would provide a concessional tax rate of 10% (plus surcharge and cess) on royalty income derived from patents developed and registered in India. No expenditure or allowance in respect of such royalty income will be allowed.
The patent regime would apply only for the "first inventor" of the patent as named in the registration.
The budget includes the phasing out of a number of incentives, including:
- The profit linked deductions for units in Special Economic Zones for exports would no longer apply for units beginning operations on or after 1 April 2020;
- Deductions for expenditure on certain eligible social development projects or schemes would no longer be available from 1 April 2017;
- The 150% weighted deduction for skills development would no longer be available from 1 April 2017;
- The accelerated depreciation of up to 100% for certain industrial sectors would be limited to 40% from 1 April 2017; and
- The weighted deductions for certain scientific research expenses (125% to 200%) will generally be reduced or no longer available from 1 April 2017 (those reduced will no longer be available from 1 April 2020).
The change in the corporate residence test to a place of effective management test as introduced in the Finance Act, 2015 is delayed to 1 April 2017.
The implementation of the general anti-avoidance rule (GAAR) from 1 April 2017 is confirmed.
The budget includes a proposed dispute settlement regime whereby taxpayers with pending appeals before the Commissioner may settle the dispute by paying the disputed tax with interest up to the date of assessment. If settled, no additional penalty will be imposed if the disputed tax is INR 1 million or less, and only 25% of the minimum penalty will be imposed if greater than that amount.
It is also proposed that the penalty for under-reported income be reduced to 50% of the tax payable on the under-reported income. However, if under-reported income results from the misreporting of facts by the assessee, a penalty of 200% of the tax payable would apply.
The measures must be approved by both houses of the Indian Parliament and receive assent by the president before entering into force, and are subject to change.
Click the following link for the Union Budget 2016-2017 website for the Budget speech, the draft Finance Bill and other information.
The Netherlands to Launch Consultation on Amending the Innovation Box Regime
On 19 February 2016, the Netherland's Finance Secretary sent a letter including an evaluation of the country's innovation box regime to parliament. Under the regime, royalty income derived in respect of self-developed intangible assets is eligible for a reduced tax rate of 5% subject to certain conditions. The letter includes an evaluation of the number of users of the regime, how it has been used and the benefits received by taxpayers. The letter also includes that the innovation box regime will be amended to bring it in line with the modified nexus approach developed as part of Action 5 of the OECD BEPS Project. For this purpose, a public consultation will be launched in the second quarter of 2016.
Tax Treaty between Algeria and Kazakhstan to be Negotiated
Officials from Algeria and Kazakhstan met February 18 to discuss bilateral issues, including the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and would need to be finalized, signed and ratified before entering into force.
Jersey to Sign Tax Treaties with Mauritius and the United Arab Emirates
According to a recent update from the Jersey government, Jersey has initialed or agreed to sign income tax treaties with Mauritius and the United Emirates. The treaties will be the first of their kind between Jersey and the respective countries, and must be signed and ratified before entering into force.
Details of each treaty will be published once available.