Worldwide Tax News
The Brazilian tax authority recently issued Ruling No. 7/2016, which clarifies the deduction of credits related to the acquisition of goods and services under the non-cumulative regime for the Contribution for the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (COFINS). According to the ruling, the deduction of input credits is only allowed if the goods and services acquired are directly related to the production of goods for sale or services provided to the general public.
Panama Publishes Law Strengthening Counter Measures Against Countries Harming Its Economic Interests
Panama has published Law 48 of 26 October 2016 in the Official Gazette. The Law replaces Law 58 of 2002 in order to strengthen available counter measures that may be taken against countries that have taken discriminatory or restrictive measures against Panama that harm its economic interests. Possible counter measures include increased withholding taxes, increased tariffs, labor restrictions, and others (previous coverage).
On 26 October 2016, Turkey published Decree No. 2016/9385 in the Official Gazette, which extends the deadline to submit applications for the tax amnesty program to 25 November 2016. The tax amnesty program was introduced by Law No. 6736 (previous coverage), and includes provisions for the restructuring of outstanding tax debts, the disclosure and repatriation offshore assets, and the correction of accounts. Originally, applications for the program were due by 31 October 2016.
UK HMRC published updated guidance for creative industry tax reliefs on 21 October 2016. The tax reliefs covered include:
- Film Tax Relief (FTR);
- Animation Tax Relief (ATR);
- High-end Television Tax Relief (HTR);
- Children’s Television Tax Relief (CTR);
- Video Games Tax Relief (VGTR);
- Theatre Tax Relief (TTR); and
- Orchestra Tax Relief (OTR)
Click the following link for Corporation Tax: creative industry tax reliefs.
On 24 October 2016, the President of the United Arab Emirates, Khalifa bin Zayed Al Nahyan, issued the decree for the establishment of the Federal Tax Authority (FTA). The establishment of the FTA is needed to administer the value added tax that will be introduced in 2018 (previous coverage), as well as the potential corporate tax that is currently being designed.
The FTA will be responsible for setting up and maintaining records on taxpayers and on taxes paid, issuing guidelines on federal taxes and related fines, and reviewing/auditing tax returns submitted. Federal tax revenues and fines that are collected by the FTA will be deposited into an independent account and then distributed to the federal and local governments.
The decree will enter into force after it is published in the Official Gazette.
The Czech Ministry of Finance has launched a public consultation seeking input on income tax issues as it prepares for the recodification of the country's income tax laws. The consultation covers both general and specific issues for the new law(s), including:
- The purpose of income tax;
- The type of tax system (accrual vs. cash);
- The guiding principles for tax legislation;
- Whether personal and corporate income tax should be regulated by a single law or separate laws;
- The terminology of the tax law;
- The structure of the tax law;
- The appropriation of income taxes;
- Transition from the current law;
- The basis for the definition of income and determination of the tax base; and
- Cross-border issues, including whether to adopt a territorial tax system or maintain current system, exit taxes, and others.
Click the following link for the consultation page (Czech language). Comments are due by 10 November 2016. Additional details will be published as the drafting of the new tax law(s) advances.
Proposed legislation that would amend the Law on Social Tax to introduce a maximum basis cap is currently before The Estonian parliament. The proposed basis cap would be equal to 4.5 times the average salary as determined by the tax authorities.
The current rate of social tax payable by employers is 33% on gross salary. The rate is scheduled to be reduced to 32.5% in 2017 and to 32% in 2018.
On 27 October 2016, the Swiss Federal Council published a press release voicing its support of the Corporate Tax Reform (CTR) III package. CTR III was approved by parliament in June 2016 (previous coverage), but is subject to a public referendum to be held 12 February 2017.
Bern, 27.10.2016 - In a media conference on 27 October 2016, Federal Councillor Ueli Maurer outlined the Federal Council's arguments in favour of adopting the third series of corporate tax reforms. The proposal which will be voted upon on 12 February 2017 envisages the abolishment of special arrangements for status companies under corporate tax law which are no longer accepted internationally. At the same time, the reform makes provision for new tax measures to prevent the hitherto privileged companies from moving abroad. In addition, the cantons will be given the fiscal policy leeway they need to maintain their competitiveness.
The objective of the third series of corporate tax reforms (CTR III) is to maintain Switzerland as an attractive location, to strengthen the international acceptance of the tax system and to ensure the tax revenue of the Confederation, the cantons and the communes in the future. If Switzerland were only to abolish the cantonal tax statuses which are no longer accepted internationally without introducing new measures, job losses and lower tax receipts for public bodies could be expected. The cantonal status companies currently employ around 150,000 people in Switzerland. At the cantonal and communal level, they make a contribution of 20% to tax receipts. At federal level, their share of profit tax is almost 50%. They are also responsible for almost half of all research expenditure.
Focus on promotion of innovation
Together with the Federal Council, Parliament is also recommending that the third series of corporate tax reforms be adopted. The National Council approved the proposal by 139 votes to 55, the Council of States by 29 votes to 10. The reform was prepared in close cooperation with the cantons. In the media conference with Federal Councillor Ueli Maurer, President Charles Juillard, Finance Director of the canton of Jura, and Vice-President Eva Herzog, Head of the Finance Department of the canton of Basel Stadt, advocated the favourable opinion of the Conference of Cantonal Finance Directors regarding the CTR III.
Regarding the tax law measures which are being introduced with the CTR III, the focus is on promoting innovation. The aim of the patent box is to tax patent revenue at a lower level. For research and development expenditure, the reform makes provision for a deduction to be made which goes beyond the actual costs. This will create an incentive for high value-added jobs which are associated with these activities to be retained in Switzerland or relocated here. With the interest-adjusted profit tax, Switzerland should remain competitive for intra-group financing.
Fiscal policy leeway for cantons
The new special arrangements with the third series of corporate tax reforms can only partially offset the previous tax benefits of the status companies. In view of the unchanged fierce international tax competition, many cantons therefore intend to lower their profit taxes so as to maintain their tax appeal. All companies will benefit from this measure, even small and medium-sized enterprises (SMEs).
The Confederation wants to share the financial burden of these profit tax reductions because it will benefit from the preservation of tax competitiveness. It is thus envisaged that the cantons' share of direct federal tax receipts will be increased from 17.0% to 21.2%. In addition, fiscal equalization will be adapted to the new tax law circumstances so that major upheaval among the cantons can be avoided.
The financial impact of the reform depends on various factors. This includes the type of implementation by the cantons, companies' behavioural adjustments and tax law developments in other countries. These dynamic effects cannot be predicted in advance. Excluding these factors, the reform entails a burden of around CHF 1.1 billion annually for the federal budget. This amount goes to the cantons and creates fiscal policy leeway for any profit tax reductions. Further declines in receipts will occur with the interest-adjusted profit tax on above-average equity capital, the amount of which will depend on the interest rates applied.
Overall, the reform will lead to Switzerland remaining an attractive location for companies and to each canton being able to tailor its tax policy to its economic and financial situation. The reform will prevent the exodus of the existing status companies and thus potential tax losses of over CHF 5 billion for the Confederation, the cantons and the communes. At the same time, the foundations are being laid to make it possible for new tax bases to be developed via the migration of new corporate activities or entire companies and for new jobs to be created.
On 1 November 2016, the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol entered into force for Barbados and Chile. The Convention generally applies in the respective countries from 1 January 2017. However, it may apply for earlier periods with another signatory if agreed to, and applies in relation to any period regarding criminal matters.
Click the following link for the signatories to the Mutual Assistance Convention to date.
Hong Kong Signs Agreements for Automatic Exchange of Financial Account Information with Japan and the UK
On 26 October 2016, Hong Kong Inland Revenue announced the signing of competent authority agreements with Japan and the UK for the automatic exchange of financial account information. Under the agreements, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin in 2018.
On 27 October 2016, Kazakhstan's Senate approved the law for the ratification of the tax residency agreement with Russia. The agreement was signed 22 February and 15 March 2016 by Kazakhstan and Russia respectively, and provides for simplified procedures for the confirmation of permanent residence for treaty purposes based on residency certificates issued by authorized authorities of either country.
The agreement will enter into force after the ratification instruments are exchanged, and will apply retroactively from 1 January 2011.