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Worldwide Tax News

Approved Changes (3)

India

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Indian Parliament Passes GST Bills and Finance Bill

The Indian Lok Sabha (lower house of parliament) reportedly passed the four bills needed for the implementation of India's new GST regime on 29 March 2017, and passed the Finance Bill 2017 on 30 March 2017 after rejecting amendments put forward by the Rajya Sabha (upper house).

The four GST bills include the Central GST Bill, the Integrated GST Bill, the Union Territory GST Bill, and the GST Compensation to the States Bill (previous coverage). Separate state GST bills will need to be approved by the state legislatures to complete the legislative process to implement the GST Regime.

The Finance Bill 2017 includes measures introduced as part of the 2017-18 Union Budget (previous coverage), including a reduced corporate tax rate of 25% if total turnover does not exceed INR 500 million; the incorporation of the principle of secondary adjustment under Indian transfer pricing regulations; and the implementation of a limitation on interest deductions with a cap of 30% of the debtor’s EBITDA.

The GST regime is to be implemented from 1 July 2017, while the main Finance Bill measures will generally be effective from 1 April 2018.

Update - Click the following link for the Finance Act 2017 as published in the Official Gazette.

Russia

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Russia Clarifies Deductibility of Contractual Fines and Penalties

The Russian Ministry of Finance recently published Letter No. 03-03-06/2/15657, which clarifies the deductibility of fines, penalties and other sanctions resulting from a failure to meet contractual or debt obligations. According to the letter, Russia's Tax Code provides for the deduction of such payments as required by a court decision for noncompliance, including any payment for compensation for damages caused by the noncompliance. For this purpose, such payments are to be recognized as non-operating expenses on the date the counterparty recognizes the income or the date the related court decision enters into force. In either case, such payments are to be recognized as deductible in the year to which they relate, regardless of when the actual cash or other form of payment is made.

United Kingdom

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UK Amends CbC Reporting Regulations including Reporting Requirements for Partnerships and New Notification Requirements

The UK Treasury has laid before parliament amending regulations to the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016 for the implementation of obligations under Council Directive 2011/16/EU on administrative cooperation in the field of taxation (as amended by Council Directive (EU) 2016/881), as well as the latest OECD guidance on CbC reporting. The main changes include:

  • Extending the original statutory requirements to submit a CbC report to partnerships in the UK that are parent entities of multinational groups;
  • Requiring UK entities of an MNE group to provide notification by the end of the relevant period on which entity in the MNE group will file the CbC report and where, and provide the names and unique taxpayer references for all of the MNE group’s UK entities (one entity to fulfill obligation on behalf of all UK entities, and for the first year, the notification deadline is extended to 1 September 2017);
  • Requiring a UK non-parent entity with an obligation to file a CbC report to ask the foreign parent for the information necessary to complete a full CbC report, and if received, file a full CbC report for the group, and if not received, file a UK CbC report (essentially a report containing information on the UK entity and its subsidiaries);
  • Amending the penalty provisions of the original regulations to apply for the amended CbC reporting and notification requirements; and
  • Amending the local filing condition regarding lack of an exchange agreement with parent's jurisdiction to align it with the OECD model, i.e., a local entity will be required to submit a CbC report if the foreign parent's jurisdiction has an international exchange agreement with the UK but not an agreement for the exchange of CbC reports (as per OECD model, international exchange agreement means Mutual Assistance Convention or bilateral treaty/TIEA).

Click the following links for the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) (Amendment) Regulations 2017 and the explanatory memorandum. The amending regulations are to come into force on 20 April 2017.

Proposed Changes (3)

Latvia

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Latvia Considering New Reduced Individual Income Tax Rate

According to a release from the Latvian government, a proposal has been made to introduce a lower individual income tax rate of 20%. If adopted, the 20% rate would apply for individual income up to EUR 45,000, while a 23% rate (current flat rate) would apply for income over that amount.

Poland

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Poland Planning Measures to Increase Tax Transparency and Reduce Fraud

Poland's Ministry of Finance is currently planning a number of initiatives to increase tax transparency and reduce fraud. The plans include:

  • Public disclosure of corporate tax return data, including taxable revenues, costs claimed as tax deductible, taxable income, tax due for a given year, and effective tax rate;
  • Increased data analysis of the monthly Standard Audit Files for Tax (SAF-T introduced for large VAT payers July 2016) to more efficiently target fraudulent transactions;
  • The implementation of a new risk assessment tool to monitor banking transactions that would provide for the possible blocking of bank accounts for up to 3 days (3 months in serious cases) when fraudulent VAT activity is detected based on location, industry, relationship between entities, and other behavior factors indicating fraud; and
  • Implementing a split VAT payment system, where VAT due on an invoice would be directly deposited in a temporary bank account administered by the tax authorities when the payment is made, with net amount of the payment going to the supplier;

Although still in the planning stages, certain initiatives may be introduced as early as next year, including the split VAT payment system.

United Kingdom-European Union

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UK to Convert Existing EU Law into Domestic Law as Part of Great Repeal Bill

The UK Department for Exiting the European Union has published the Great Repeal Bill White Paper, which sets out the government’s proposals for ensuring a functioning statute book once the UK has left the EU. In order to achieve a smooth transition, the Great Repeal Bill will do three main things:

  • It will repeal the European Communities Act 1972 and return power to UK institutions;
  • It will convert EU law as it stands at the moment of exit into UK law to allow businesses to continue operating knowing the rules have not changed significantly overnight, and will ensure that it will be up to the UK Parliament (and, where appropriate, the devolved legislatures) to amend, repeal or improve any piece of EU law at the appropriate time; and
  • It will create powers to make secondary legislation to enable corrections to be made to the laws that would otherwise no longer operate appropriately once the UK has left the EU, and will also enable domestic law to reflect the content of any withdrawal agreement under Article 50.

With respect to the conversion of EU law into UK, the white paper clarifies that:

  • The Bill will convert directly-applicable EU law (EU regulations) into UK law;
  • It will preserve all existing laws made in the UK to implement EU obligations;
  • The rights in the EU treaties that can be relied on directly in court by an individual will continue to be available in UK law; and
  • The Bill will provide that historic CJEU case law be given the same binding, or precedent, status in UK courts as decisions of the UK Supreme Court.

Click the following link for the Great Repeal Bill: White Paper.

Treaty Changes (2)

Belgium-Luxembourg

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Protocol to Tax Treaty between Belgium and Luxembourg Signed

On 29 March 2017, officials from Belgium and Luxembourg signed an amending protocol to the 1970 income and capital tax treaty between the two countries. The protocol reportedly amends provisions regarding the tax treatment of dependent personal services. It is the third to amend the treaty, and will enter into force after the ratification instruments are exchanged.

Guernsey-Anguilla-Bahrain-Bermuda-Colombia-Ghana-Gibraltar-Kenya-Malawi-Malaysia-Panama-Thailand-Untd A Emirates-United Kingdom-Zambia

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Guernsey Update on TIEA and Tax Treaty Negotiations

The Guernsey government has published an update of its policy on tax information exchange agreements (TIEA) and tax treaties dated 24 March, including the status of negotiations.

TIEA Negotiations

TIEA negotiations have been concluded with:

  • Ghana;
  • Kenya;
  • Malawi; and
  • Zambia.

In addition, Guernsey has virtually concluded TIEA negotiations with:

  • Anguilla.

TIEA negotiations with Colombia and Malaysia have been suspended as both countries are now signatories to the Convention on Mutual Administrative Assistance in Tax Matters (Multilateral Convention), and the exchange of information will be managed through that instrument.

Tax Treaty Negotiations

Tax treaty negotiations have been concluded with:

  • Bahrain, and
  • Gibraltar.

Tax treaty negotiations have commenced and are ongoing with:

  • United Arab Emirates; and
  • United Kingdom (renegotiation of existing treaty).

Discussions are also ongoing for the possible negotiation of a tax treaty with Estonia.

Tax Treaty negotiations with Panama and Thailand have been terminated, as Panama has signed, and Thailand is considering signing, the Multilateral Convention. Negotiations have also been terminated with Bermuda, as an alternative agreement to facilitate the Common Reporting Standard (CRS) is now under discussion.

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