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Worldwide Tax News

Proposed Changes (3)

Japan

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Japan's Ruling Party Publishes Measures Delaying Consumption Tax and Local Tax Changes

On 2 August 2016, Japan's Liberal Democratic Party published an outline of measures to be included in legislation submitted to the National Diet (legislature) in the fall concerning the consumption tax increase and the shift in local taxes.

Consumption Tax Increase

The increase in the consumption tax from 8% to 10%, which has already been delayed to 1 April 2017, will be further delayed to 1 October 2019. Along with the delayed increase, the introduction of multiple rates will also be delayed to 1 October 2019, which includes maintaining the 8% rate for certain supplies such as food and newspapers sold on a subscription.

In addition, the introduction of an invoicing system to account for multiple rates will be delayed from 1 April 2017 to 1 October 2023. In order to assist small and medium-sized taxpayers to transition, a simplified calculation method will be introduced from 1 October 2019 to account for consumption tax before the new invoicing system is in place.

Local Tax Changes

Planned local tax changes will also be delayed from 1 April 2017 to 1 October 2019, which include:

  • Abolishing the special local corporation tax on the enterprise tax, while increasing the base enterprise tax rate; and
  • Reducing the prefectural and municipal rates that form part of the inhabitant's tax to 1.0% and 6.0% respectively, while increasing the local corporate tax rate component to 10.3%.

Although the special local corporation tax will be abolished, the increase in the base enterprise tax rate will result in the same effective rate - top rate of 3.6% for companies with paid-in capital over JPY 100 million and 9.6% for smaller companies. Regarding the inhabitants tax, the reductions and increases will also result in the same standard effective rate that currently applies - 17.3%.

While the standard effective rates will be unchanged, local authorities will be allowed to increase prefectural and municipal rates to a maximum of 2.0% and 8.4% respectively (currently 4.2% and 12.1% maximum). Therefore, depending on the local authority's reaction to the reduction of the local rates, taxpayers may see a change in their overall effective rates.

Note - The reduction in the statutory corporate tax rate from 23.4% to 23.2% effective 1 April 2018 is unchanged.

South Africa

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South Africa Issues Final Draft Notice for Public Comment on Transfer Pricing Record-Keeping Requirements

On 28 July 2016, The South African Revenue Service (SARS) issued a final draft notice for public comment on additional record-keeping requirements for transfer pricing. The main differences between the initial draft (previous coverage) and the final draft is a change in the persons subject to the requirements and the introduction of a transaction-specific threshold.

Under the initial draft, persons subject to the requirements were those that have entered into potentially affected (related-party) transactions and are a member of group with consolidated South African turnover of ZAR 1 billion or more. Under the final draft, the requirements apply for persons that have entered into potentially affected transactions and the aggregate of the transactions for the year exceeds or is expected to exceed the higher of:

  • 5% of the person's gross income; or
  • ZAR 50 million.

Persons meeting the above thresholds are required to keep records, books of account and documentation in respect of their business structure and operations. In addition, specified transfer pricing documentation must be kept in respect of any affected transaction that exceeds or is expected to exceed ZAR 1 million. However, if an affected transaction does not exceed the threshold, documentation should still be kept to satisfy SARS that the transaction is at arm's length.

Click the following link for the final draft notice. Comments are due by 19 August 2016.

United Kingdom

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UK to Amend CbC Regulations to Specifically Include Partnerships

On 2 August 2016, UK HMRC announced it will be amending the Country-by-Country reporting regulations to include partnerships.

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A clarification that partnerships are included as reporting entities.

The Organisation for Economic Co-operation and Development (OECD) recently published further guidance on country-by-country reporting, which makes clear that partnerships are within scope as reporting entities.

The government is committed to implementing the OECD recommendations on country-by-country reporting and in the autumn will propose amendments to the regulations to include partnerships.

The regulations will be applicable to periods beginning on or after 1 January 2016, in line with the OECD recommendations and previous government commitments.

Treaty Changes (5)

Andorra-OECD

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Andorra Approves Mutual Assistance Convention

On 28 July 2016, Andorra's parliament approved the ratification of the OECD-Council of Europe Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 protocol. The Convention as amended was signed by Andorra on 5 November 2013. It will enter into force in Andorra on the first day of the third month following the deposit of the ratification instrument.

Cayman Islands-Guernsey

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Protocol to TIEA between the Cayman Islands and Guernsey has Entered into Force

The protocol to the 2011 tax information exchange agreement between the Cayman Islands and Guernsey entered into force on 28 June 2016. The protocol, signed 10 September 2015 by the Cayman Islands and 8 October 2015 by Guernsey, is the first to amend the agreement. It adds Article 5A (Automatic Exchange of Information) and Article 5B (Spontaneous Exchange of Information), and revises Paragraph 2 of Article 10 (Mutual Agreement Procedure).

The protocol applies from the date of its entry into force.

Macao-Ireland

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Macau to Sign TIEA with Ireland

On 1 August 2016, Macau published in the Official Gazette an order authorizing the signature of a tax information exchange agreement with Ireland. The agreement will be the first of its kind between the two jurisdictions, and must be finalized, signed and ratified before entering into force.

Senegal-United Kingdom

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Tax Treaty between Senegal and the UK has Entered into Force

According to a 2 August 2016 update from UK HMRC, the income and capital tax treaty with Senegal entered into force on 30 March 2016. The agreement, signed 26 February 2015, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Senegalese income tax on companies, minimum income tax on companies, income tax on individuals, and capital gains tax on developed and undeveloped land. It covers UK income tax, corporation tax, and capital gains tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to the benefits of the treaty aside from those covered in Articles 21 (Elimination of Double Taxation), 23 (Non-Discrimination) and 24 (Mutual Agreement Procedure).

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

  • Dividends -
    • 5% if the beneficial owner is a company directly holding at least 25% of the paying company's capital;
    • 8% if the beneficial owner is a pension scheme;
    • 15% if paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 (Income from Immovable Property) by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax (unless beneficial owner is a pension scheme);
    • Otherwise 10%
  • Interest - 10%
  • Royalties  - 10%, although for payments for the use of, or the right to use, industrial, commercial or scientific equipment, the 10% rate is applied to 60% of the gross amount of the royalties

Capital Gains

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 shares or comparable interests deriving more than 50% of their value directly or indirectly from 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 in a company resident in the other State if the alienator, at any time during the 12- month period preceding such alienation, held directly or indirectly at least 50 per cent of the capital of that company (tax limited to 25% of the gain)

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 20 (Other Income) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest, royalties or other income are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Double Taxation Relief

Both countries generally apply the credit method for the elimination of double taxation. However, the UK will exempt dividends paid by a Senegalese company to a company resident in the UK if the conditions for an exemption under UK law are met. Exemption may also apply for profits of a permanent establishment in Senegal of a UK company if the conditions for an exemption under UK law are met.

Effective Date

The treaty applies in Senegal from 1 January 2017. It applies in the UK:

  • In respect of corporation tax from 1 April 2016; and
  • In respect of income tax and capital gains tax from 6 April 2016.

The provisions of Articles 24 (Mutual Agreement Procedure), 25 (Exchange of Information) and 26 (Assistance in the Collection of Taxes) apply from 30 March 2016.

Singapore-United States

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Singapore and the U.S. to Negotiate TIEA and Reciprocal FATCA Agreement

According to a joint statement published 2 August 2016, Singapore and the U.S. are committed to the negotiation of a tax information exchange agreement and a reciprocal FATCA agreement for the exchange of financial account information. Both agreements are to be finalized and signed by the end of 2017 and will be the first of their kind between the two countries, although a non-reciprocal FATCA agreement is currently in force that was signed in 2014.

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