Worldwide Tax News
Brazil Audit Plan for 2017 Announced
On 2 March 2017, Brazil's Federal Revenue Department announced its annual audit plan for 2017 and results for 2016. The main areas of focus for 2017 include:
- Tax planning linked to corporate reorganization events with generation of depreciable assets;
- Tax planning involving investment funds;
- Taxation of income earned in subsidiaries and affiliated companies abroad;
- Evasion involving profit-free distributions;
- Evasion in the cigarette, beverage, and fuel sectors;
- Tax planning involving image rights of professionals; and
- Failure to pay social security contributions.
The amount recovered from the audit work performed in 2017 is expected to reach BRL 143.4 billion. Click the following link for the annual plan (Portuguese language).
Chile Clarifies VAT Refund Available for Subcontracted Exported Service
The Chilean tax authorities (Servicio de Impuestos Internos - SII) on 8 February 2017 published a ruling letter on whether subcontracted export services qualify for a VAT refund. The letter concerned a pre-shipment logistics company that outsourced its export service to a third party. According to the letter, a refund of VAT on the services may be claimed provided that the services were provided to non-residents and qualified by the National Customs Service for export.
Cyprus to No Longer Accept Minimum Margins for Back-to-Back Loans
The Cyprus Tax Department has reportedly informed the Institute of Certified Public Accountants of Cyprus (ICPAC) that minimum profit margins will no longer be accepted for back-to-back intragroup loans from 1 July 2017. Instead, all related-party financing will require a transfer pricing study from that date based on OECD guidelines. The change is a result of developments resulting from the OECD BEPS Project, as well as reviews from within the EU. Any tax rulings issued by the Cyprus Tax Department concerning back-to-back loans prior to 1 July 2017 will cease to apply from that date.
India GST Council Approves Legislation for July 2017 Implementation
According to local reports, India's Goods and Services Tax (GST) Council approved additional legislation on 4 March 2017 for the implementation of the country's new GST regime from 1 July 2017. Although legislation has already been passed to allow for the implementation of GST, the Council has been working to iron out several details that will require legislative approval to finalize, including the central GST bill and the integrated GST bill. Additional legislation, including the state GST bill and the union territory GST bill, are to be finalized and approved at an upcoming meeting of the Council, after which the required legislation will go to Parliament for approval in the second half of the Budget session, which begins 9 March (state GST bill subject to approval at the state level).
Italy Amends Maximum Investment Costs for Regional Investment Tax Credit
On 28 February 2017, Law No. 18 of 27 February 2017 was published in Italy's Official Gazette, which promulgated Law Decree No. 243 of 29 December 2016 (annex to Law No. 18). The Law Decree includes various amendments, including amendments to the maximum investment costs available for the regional investment tax credit:
- For small enterprises - EUR 3 million;
- For medium enterprises - EUR 10 million; and
- For large enterprises - EUR 15 million.
The regional investment tax credit is available for investments in business assets purchased up to 31 December 2019 in certain southern regions. For the regions of Basilicata, Calabria, Campania, Puglia, Sardinia, and Sicily, the credit is equal to 45% for small enterprises; 35% for medium enterprises; and 25% for large enterprises. For investments in the regions of Abruzzo and Molise, the credit is equal to 30% for small enterprises; 20% for medium enterprises; and 10% for large enterprises. For all regions, the investment cost caps amended by Law Decree No. 243 apply.
Law No. 18 entered into force on 1 March.
Jersey Enacts New Limited liability Partnerships Law
The Limited Liability Partnerships (Jersey) Law 2017 was enacted on 24 February 2017. The 2017 Law replaces The Limited Liability Partnerships (Jersey) Law 1997. While many aspects of the 1997 Law are maintained, some of the main changes include:
- The addition of capital as a form of partner contribution in addition to a contribution of "effort and skill";
- The clarification of rules in relation to the liability of current or former partners that have withdrawn property from the partnership;
- The introduction of an LLP secretary that replaces and assumes functions of the designated partner;
- The addition of provisions to provide for the reinstatement of a partnership after cancellation of registration; and
- The clarification of rules regarding the winding up of solvent and insolvent LLPs.
The 2017 Law also amends the Income Tax (Jersey) Law 1961 to provide that the comptroller may require an LLP to deliver a statement of profits or gains arising to the partners from the activities of the limited liability partnership.
Click the following link for the Limited Liability Partnerships (Jersey) Law 2017.
Russia Clarifies Determination of Residence for Foreign Company
The Russian Ministry of Finance recently published Letter No. 03-12-11/5639 concerning the determination of tax residence. Under the Russian Tax Code, a foreign company may be determined to have its tax residence in Russia if its place of management is deemed to be in Russia. For this purpose, place of management may be deemed to be in Russia if:
- The foreign company's executive body regularly carries out its company-related activities in Russia, unless such activities are carried out at a significantly large scale outside Russia, and/or
- The foreign company's key officials overseeing the planning, management, and control of the company's activities perform their management activities pertaining to the day-to-day operations of the company primarily in Russia.
According to the letter, however, a number of functions performed do not fall within the scope of planning and control for determination of place of management, including strategic planning, budgeting, preparation and compilation of consolidated financial and management statements, analysis of the foreign company's activities, internal audit and internal control, and the adoption of standards, methodologies, or policies that apply to all of the subsidiaries of the foreign company. As such, the performance of one of these functions does not constitute place of management of the foreign company in Russia for residence purposes.
The letter also notes that a foreign company will be considered to have its place of management outside Russia if its business is carried out using its own qualified personnel and assets in the state (territory) of its permanent location with which Russia has an effective tax treaty. For this purpose, documentary evidence may be required from the foreign company.
Bangladesh to Sign Tax Treaties with Bhutan and Qatar
On 27 February 2017, the Bangladesh Cabinet authorized the signature of draft income tax treaties with Bhutan and Qatar. The treaties will be the first of their kind between Bangladesh and the respective countries, and must be signed and ratified before entering into force. Additional details of each treaty will be published once available.
Tax Treaty between Honduras and Kuwait to be Negotiated
Officials from Honduras and Kuwait met 28 February 2017 to discuss bilateral relations, including the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.