Worldwide Tax News
According to recent reports, China's Ministry of Finance has indicated it plans to finalize the process for implementing value added tax (VAT) reforms for the real estate sector by the end of 2015. Once implemented, real estate sales currently subject to Business Tax (5%) will instead be subject to VAT. Although, the exact rate has not yet been set, it is expected to be around 16%.
China's transition to VAT from Business Tax began in 2012. The real estate sector is one of the last sectors to make the switch, along with the financial and insurance services sectors.
New Zealand published guidance on transfer pricing issues in regard to services charges on 10 April 2015, including a checklist for companies with international service charges. The checklist covers ten basic guidelines that companies should focus on in order to avoid potential transfer pricing issues, including:
- Understand the charge, go behind the label and document it (the actual services provided, the benefits arising, the basis of the charge, etc).
- The cost plus method is generally best, but never rule out the possibility of internal comparables (where similar services are being provided to third parties by the provider).
- Watch out for "duplicated services" - in particular, does the enterprise have an infrastructure in New Zealand which can and does provide the type of services for which charges are also being made from overseas?
- Be wary of charges for directors/chief executives (doing no more than investment monitoring), and overseas regulatory costs (for instance, Sarbanes Oxley compliance costs) - these are most probably non-chargeable "shareholder services".
- Get the cost base right (including New Zealand tax deductibility of items included in cost sharing arrangements) and apply a sanity check - does it make sense, especially in relation to the bottom line?
- Mark-ups must be fair and reasonable in relation to the nature of the service and the risks assumed - for example:
- no mark-up for simply on-charging third party costs;
- minimal mark-ups for low risk supporting services;
- higher mark-ups where specialist knowhow or expertise is involved.
- An allocation key should result in a charge proportionate to expected benefits - in this regard, turnover can be too simplistic and arbitrary (don’t just assume a close relationship between services provided and sales without further analysis).
- For outbound direct investment/New Zealand exporters, management and other support services provided to offshore associates (including controlled foreign companies) must be identified and fully charged.
- A branch is not legally distinct from the rest of the enterprise - service charges should therefore be allocated on an actual cost basis only (i.e. no mark-ups).
- Keep in mind other tax obligations such as withholding on services performed in New Zealand by offshore associates and royalties ("knowhow and connected services").
Click the following link for the full service charges transfer pricing guidance published on the Inland Revenue website.
On 4 May 2015, Canada's Finance Minister Joe Oliver tabled in the House of Commons a detailed Notice of Ways and Means Motion to implement certain tax provisions in the 2015 Economic Action Plan (previous coverage), as well as other tax measures. The main business related tax measures tabled include:
- Reducing the small business federal tax rate from 11% to 9% by 2019;
- Providing a 10-year accelerated capital allowance rate of 50% on a declining-balance basis for investment in productivity-enhancing machinery and equipment for manufacturing and processing;
- Increasing the Lifetime Capital Gains Exemption to CAD 1 million for owners of farm and fishing businesses; and
- Extending the Mineral Exploration Tax Credit until 31 March 2016
Negotiations are underway for an income tax treaty between Andorra and the United Arab Emirates following a 28 April 2015 meeting between officials from the two countries. Any resulting treaty will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.
Additional details will be published once available.
The tax information exchange agreement between the Bahamas and Ireland was signed by the Bahamas on 12 December 2014 and by Ireland on 12 January 2015. The agreement is the first of its kind between the two countries and will enter into force once the ratification instruments are exchanged.
Once in force, the agreement will apply for criminal tax matters in respect of tax periods beginning on or after 1 January 2004, and for other tax matters in respect of tax periods beginning on or after the date of its entry into force.
On 18 April 2015, the income and capital tax treaty between Georgia and Portugal entered into force. The treaty, signed 21 December 2012, is the first of its kind between the two countries.
The treaty covers Georgian profit tax, income tax and property tax; and covers Portuguese personal income tax, corporate income tax, and surtaxes on corporate income.
- 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 - 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 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 or comparable interest deriving more than 50% of their value directly or indirectly 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.
A protocol to the treaty, signed the same date, includes the provision that the benefits of the treaty will not apply when the main purpose or one of the main purposes of any person concerned with the creation or assignment of the property or right in respect of which income is paid is to take advantage of the treaty provisions.
The treaty applies from 1 January 2016.
On 30 April 2015, the income and capital tax treaty between Guernsey and Liechtenstein entered into force. The treaty was signed 5 June 2014 by Guernsey and 11 June 2014 by Liechtenstein. It is the first of its kind between the two jurisdictions.
The treaty covers Guernsey income tax, and Liechtenstein personal income tax, corporate income tax, corporation taxes, real estate capital gains tax, wealth tax, and coupon tax.
- Dividends - 0%
- Interest - 0%
- Royalties - 0%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Guernsey applies the credit method for the elimination of double taxation, while Liechtenstein generally applies the exemption method. However, in the case of income covered by Article 14 (Income from Employment), Article 15 (Directors' Fees), and Article 16 (Artistes and Sportsmen), Liechtenstein applies the credit method.
The treaty applies from 1 January 2016.
The tax information exchange agreement between Guernsey and Macau entered into force on 26 April 2015. The agreement, signed 3 September 2014, is the first of its kind between the two jurisdictions and is in line with the OECD standard for information exchange.
The agreement applies for criminal tax matters from the date of its entry into force, and for other matters from 1 January 2016.