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Approved Changes (4)

Belgium

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Belgium Publishes Simplified Local File Form for 2016

Belgium's Federal Public Service (SPF) Finance has published updated guidance on the country's BEPS Action 13 requirements, including a simplified version of the Local file form (Form 275 LF) that can be used for the 2016 period. The simplified form includes parts A and C of the Local file. Part B, which includes more detailed information, is required for periods beginning on or after 1 January 2017. The guidance also notes that until the electronic system for submission of Local files is completed, the Local file can be submitted via email to BEPS13@minfin.fed.be.

Click the following links for the simplified form, which is available in Dutch, French, and English.

Brazil-Russia-India-China-South Africa

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BRICS Countries Confirm Commitment to Addressing BEPS and Promoting Information Exchange in Xiamen Declaration

The Indian Government has published the joint declaration from the leaders of Brazil, Russia, India, China, and South Africa (BRICS) following the ninth BRICS Summit held 4 September 2017 in Xiamen, China. With respect to taxation, the declaration includes the following:

34. We reaffirm our commitment to achieving a fair and modern global tax system and promoting a more equitable, pro-growth and efficient international tax environment, including to deepening cooperation on addressing Base Erosion and Profit Shifting (BEPS), promoting exchange of tax information and improving capacity-building in developing countries. We will strengthen BRICS tax cooperation to increase BRICS contribution to setting international tax rules and provide, according to each country’s priorities, effective and sustainable technical assistance to other developing countries.

Click the following link for the full text of the declaration.

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OECD Releases Additional Guidance on CbC Reporting

On 6 September 2017, the OECD announced the release of two sets of additional guidance on Country-by-Country (CbC) reporting from the Inclusive Framework on BEPS. The first set is an update to the existing guidance on the implementation of CbC reporting and the second set is new guidance on the appropriate use of information contained in CbC reports.

The updated guidance on the implementation of CbC Reporting addresses the following issues/questions:

The definition of revenues

When financial statements are used as the source of the data to complete the CbC template, which items shown in the financial statements should be reported as Revenues in Table 1?

All revenue, gains, income, or other inflows shown in the financial statement prepared in accordance with the applicable accounting rules relating to profit and loss, such as the income statement or profit and loss statement, should be reported as Revenues in Table 1. For example, if the income statement prepared in accordance with the applicable accounting rules shows sales revenue, net capital gains from sales of assets, unrealized gains, interest received, and extraordinary income, the amount of those items reported in the income statement should be aggregated and reported as Revenues in Table 1. Comprehensive income/earnings, revaluations, and/or unrealized gains reflected in net assets and the equity section of the balance sheet should not be reported as Revenues in Table 1. The amount of any income items shown on the income statement need not be adjusted from a net amount.

The treatment of MNE groups with a short accounting period

Is transitional relief available for MNE Groups with a short accounting period that starts on or after 1 January 2016 and that ends before 31 December 2016?

As a transitional measure, jurisdictions may allow the Reporting Entity of an MNE Group with a short accounting period beginning on or after 1 January 2016 and ending before 31 December 2016 to file the required CbC report in accordance with the same timelines as for MNE Groups with a fiscal year ending on 31 December 2016. The date by which the CbC report is to be exchanged would be similarly extended. This transitional relief would not frustrate the policy intention of the Action 13 minimum standard.

The treatment of the amount of income tax accrued and income tax paid

Where the income tax for a fiscal year has been paid in advance (e.g., preliminary tax assessments based on an estimate of the year's corporate income tax), should the amount reported in the "Income Tax Accrued-Current Year" column be linked to the amount reported in the "Income Tax Paid (on Cash Basis)" column of Table 1?

Income Tax Accrued-Current Year is the amount of accrued current tax expense recorded on taxable profits or losses for the Reporting Fiscal Year of all Constituent Entities resident for tax purposes in the relevant tax jurisdiction irrespective of whether or not the tax has been paid (e.g. based on a preliminary tax assessment). Income Tax Paid (on Cash Basis) is the amount of the taxes actually paid during the Reporting Fiscal Year, which should thus include not only advanced payments fulfilling the relevant fiscal year’s tax obligation but also payments fulfilling the previous year(s)’ tax obligation (e.g. payment of the unpaid balance of corporate income tax accrued in relation to the previous year(s), including payments related to reassessments of previous years), regardless of whether those taxes have been paid under protest. The amount of Income Tax Accrued-Current Year and Income Tax Paid (on Cash Basis) should be reported independently.

Where taxes have been paid and subsequently refunded, how should the tax refund be reported for the purposes of Table 1?

In general, a refund of income tax should be reported in Income Tax Paid (on Cash Basis) in the reporting fiscal year in which the refund is received. An exception to this may be permitted where the refund is treated as revenue of the MNE group under the applicable accounting standard or in the source of data used to complete Table 1. Where this is the case, taxpayers should provide the following statement in Table 3: "Tax refunds are reported in Revenues and not in Income Tax Paid (on Cash Basis)".

United States-European Union- WTO

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WTO Appellate Body Reverses Panel Finding on Boeing Tax Breaks

On 4 September 2017, the World Trade Organization (WTO) Appellate Body issued its report in the case "United States – Conditional Tax Incentives for Large Civil Aircraft". The report concerns a November 2016 WTO Panel report, which found that a 2013 Washington state tax package for the aerospace industry (Boeing) was in violation of WTO rules (previous coverage). In particular, the Panel took issue with the condition that the tax break included in the package would be terminated if any final assembly or wing assembly has been sited outside the state of Washington. This was found to be in violation of Article 3.1(b) of the WTO Agreement on Subsidies and Countervailing Measures (SCM agreement), which prohibits subsidies contingent upon the use of domestic over imported goods.

In its report, the Appellate Body determined that the Panel's analysis and reasoning did not provide a sufficient basis for its finding that the condition for the tax break makes it de facto contingent upon the use of domestic over imported goods within the meaning of Article 3.1(b) of the SCM Agreement. Based on this determination, the Appellate Body reversed the Panel's finding. Further to reversing the Panel's finding, the Appellate Body also rejected other claims put forward by the EU in relation to the case.

Click the following links for a summary of the case and the Report of the Appellate Body.

Proposed Changes (3)

Singapore

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Singapore Summary of Responses to Public Consultation on Draft Property Tax (Amendment) Bill 2017

On 5 September 2017, the Singapore Ministry of Finance issued a release on the summary of responses to the public consultation on the Draft Property Tax (Amendment) Bill 2017 (previous coverage).

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1. The Ministry of Finance (MOF) held a public consultation exercise on the draft Property Tax (Amendment) Bill 2017 from 4 May to 25 May 2017. The draft Bill provided for changes to the Property Tax Act to update the legislation and to improve tax administration. These are:

  • The basis to implement an "opt-out" approach for digital property tax notices will be provided.
  • The information gathering powers of the Comptroller of Property Tax, the Chief Assessor and their authorised officers will be clarified and enhanced.
  • Machinery that is used for providing the setting / controlled environment for business and industrial processes to take place in the building or for storage of articles is to be assessed, together with the land or building on which it has been affixed, for property tax.

2. MOF received 24 suggestions on the above proposed amendments. Following the feedback, we will proceed to include in the Property Tax (Amendment) Bill 2017 the first two proposed amendments. We will study further the proposed amendment relating to the exemption of machinery from property tax, and not include this in the Bill.

3. MOF would like to thank all individuals and organisations who have taken the time and effort to provide their inputs.

Taiwan

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Taiwan's Draft Tax Reform includes Abolishing Imputation Tax System and Increasing Corporate Tax Rate and Dividend Withholding Tax Rate

On 1 September 2017, Taiwan's Ministry of Finance issued a release on draft tax reform amendments to the Income Tax law. Planned changes are divided into three main areas and include:

  • Reducing the tax burden on salary income and low-income taxpayers by:
    • Increasing the standard deduction from TWD 90,000 to TWD 110,000;
    • Increasing the special deductions for salaries and for the disabled or handicapped from TWD 128,000 to TWD 180,000; and
    • Removing the top 45% income tax bracket (top rate will be 40%);
  • Reducing the tax burden for SMEs and new enterprises by:
    • Treating sole proprietorship and partnerships as transparent, with the business income no longer subject to profit tax, but instead directly attributed to the owner or partner; and
    • Reducing the retained earnings tax from 10% to 5%;
  • Establishing a competitive investment income tax system in line with international trends by:
    • Abolishing the current imputation tax system for dividends;
    • Establishing a new system for the taxation of individual dividend income, with two possible options being considered:
      • A partial exemption, where 37% of dividend income would be tax-free and the remaining 63% would be added to normal taxable income; or
      • An optional dividend tax deduction or separate flat tax, where taxpayers can choose to include all dividend income as normal income with a tax deduction equal to 8.5% of the dividend income amount (capped at TWD 80,000), or choose to have the dividend income tax taxed separately at a flat rate of 26%; and
    • Making reasonable adjustments to the tax rate structure, which include:
      • Increasing the corporate tax rate from 17% to 20%;
      • Abolishing the credit for the retained earnings tax paid when dividends are distributed to foreign shareholders (currently, 50% of retained earnings tax paid can offset withholding tax); and
      • Increasing the standard withholding tax rate on dividend income for foreign shareholders from 20% to 21%.

The draft amendments are currently under review by the Executive Yuan and must be submitted to the Legislative Yuan for final approval.

United Kingdom

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UK Publishes Updated Explanatory Notes on Finance Bill Resolutions

On 6 September 2017, the UK government published updated explanatory notes that give a brief description of each of the resolutions that will be included in the second 2017 Finance Bill. Most of the resolutions are for policies previously announced but were ultimately removed from the first 2017 Finance Bill, which received Royal Assent in April (previous coverage). This includes the new loss relief provisions, interest deduction restrictions, and others, which will apply with retrospective effect. In total, 48 resolutions are described in the explanatory notes.

Treaty Changes (2)

South Africa

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South Africa Publishes Draft List of Jurisdictions for CbC Exchange Purposes

On 6 September 2017, the South African Revenue Service (SARS) published a draft list of jurisdictions for CbC exchange purposes. The draft has been published in relation to the secondary local filing requirements in South Africa's CbC reporting regulations (previous coverage), which include that a non-parent constituent entity resident in South Africa must file a CbC report for the group if a competent authority agreement (CAA) for the exchange of the Country-by-Country (CbC) reports is not in place by the deadline to file a report in South Africa (12 months after the reporting fiscal year). The draft includes a list of jurisdictions with which South African currently has a CbC CAA in place, and a list of jurisdictions with which South Africa has an international exchange agreement in place but not a CbC CAA.

Because the process for concluding and activating CbC CAAs is ongoing, SARS intends to publish an updated list in October and a final list by the end of November 2017. Comments on the draft lists must be submitted by 6 October 2017.

United States-Bermuda

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U.S. Negotiating CbC Exchange Arrangement with Bermuda

According to an update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. had begun negotiations for a competent authority arrangement on the exchange of Country-by-Country (CbC) Reports with Bermuda. Once finalized and signed, the exchange arrangement will likely apply with respect to fiscal years beginning on or after 1 January 2016.

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