Worldwide Tax News
According to recent reports, on 6 January 2015, Belarus adopted a decree reducing the tax on foreign currency purchases from 10% to 0%. The tax was introduced at a rate of 30% on 19 December 2014, by Decree No. 786 issued by the National Bank of Belarus. It was later reduced to 20% by decree, and then reduced to 10% by another decree.
The tax was set to apply from 1 February 2015 for the purchase of foreign currency by legal entities and individual entrepreneurs. It does not apply for foreign currency purchases made by the state, or when the purchase is for the purpose of using the foreign currency as payment for gas, oil and electricity.
On 16 December 2014, Iceland published a new regulation concerning transfer pricing (TP) documentation requirements.
Iceland's current TP rules have been effective since 1 January 2014, but until now did not include detailed TP documentation requirements. Under the rules, TP documentation for both domestic and cross border transactions with related parties must be maintained when total revenue or assets of a taxpayer exceeds ISK 1 billion at the beginning or end of a fiscal year.
According to the requirements recently published, taxpayers must prepare the following by the deadline of the annual tax return:
- A description of the taxpayer, including main business activities, main markets, main competitors, etc.
- A description of the taxpayer's group, including the legal and operational structure, the main business activities, the groups industry, and a history of the group including restructuring
- A description of each affiliate in the group, including business activities, legal form and tax residence
- A description of each related party transaction including:
- The parties involved, the transaction type, and the amounts
- An analysis of functions and risks undertaken and assets employed by the parties involved
- Details of the contractual terms, economic conditions and business strategies
- A description of intangible assets in the group that have an effect on related party transactions, including information on ownership, development, use and maintenance of the assets, as well as the estimated resale price and present value of expected earnings
- A comparability analysis for each related party transaction, including the transfer pricing policy and methods applied - a benchmark study may also be required at the request of the tax authorities.
- A list of intercompany agreements entered into by the taxpayer and a copy of any written agreements in place with foreign tax authorities regarding transfer pricing
TP documentation need not be submitted unless requested by the tax authorities. However, taxpayers are required to file an information return on transactions with related parties when filing their annual tax return and provide confirmation that the TP documentation requirements have been complied with.
A request for TP documentation may be made by the tax authorities for a particular tax year no earlier than the date of the annual return filing deadline. The documentation should be submitted within 45 days of a request.
As introduced in the Luxembourg 2015 Budget Law and approved 18 December 2014, Luxembourg has strengthened its transfer pricing (TP) rules.
Although Luxembourg previous TP rules included that transactions between related parties should be carried out in line with the arm's length principle, the focus was on adjustments for profit shifting abroad and assessment of hidden dividend distributions. Under the new rules, the arm's length principle is aligned with the OECD Model Tax Convention and explicitly applies to any taxpayer, regardless of legal form, and for both domestic and cross border transactions. When profits do not meet the arm's length principle based on normal market conditions, the tax authorities may make adjustments and tax accordingly. In determining the appropriate transfer price, the OECD transfer pricing guidelines are to be referred to.
As with the previous rules, no specific transfer documentation requirements are provided, and the general documentation requirement for justifying information in tax returns applies. In determining what information to prepare, the OECD and UN guidelines, and the European Council’s Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the EU can be referred to. If sufficient documentation substantiating appropriate transfer pricing is not prepared, the burden of proof in an audit may shift from the tax authorities to the taxpayer.
On 1 January 2015, the decree granting a tax incentive for investment in fixed assets in the states of Chiapas, Guerrero or Oaxaca was published in the Official Gazette. The incentive is an additional deduction equal to 25% of investments made in new fixed assets permanently used in those three states exclusively for agricultural, cattle, fishing, forestry or agribusiness activities. For the purpose of the incentives, "new fixed assets" means never before used in Mexico.
The incentive applies from 1 January 2015 to 31 December 2018.
The individual income tax exemption threshold for residents in Paraguay for 2015 is annual income equal to 84 minimum salaries (~PYG 153 million). Income exceeding that amount but not exceeding 120 minimum salaries is subject to an 8% tax rate. Annual income of 120 minimum salaries or more is subject to a tax rate of 10%.
The minimum salary amount in force at 1 January of each year is used when determining the applicable rate. Each year the exemption threshold is reduced by 12 monthly salaries. The final reduction will be for 2019, when the threshold is set at 36 monthly salaries.
On 6 January 2015, the Inland Revenue Authority of Singapore (IRAS) published the second edition of its transfer pricing (TP) guidelines. The main change is the expanded guidance on TP documentation requirements, including on contemporaneous documentation. The requirements are summarized as follows:
Under the guidelines, contemporaneous TP documentation refers to documentation and information that taxpayers have relied upon to determine the transfer price prior to or at the time of undertaking the transactions. For ease of compliance, the IRAS will also accept as contemporaneous TP documentation any documentation prepared at any time no later than the time of completing and filing the tax return for the financial year in which the transaction takes place.
The IRAS expects taxpayers to maintain appropriate and sufficient TP documentation to demonstrate their compliance with the arm’s length principle as part of the record-keeping requirements for tax. The IRAS will monitor compliance, and if necessary may introduce measures including specific record-keeping regulations for transfer pricing.
Transfer pricing documentation should be organized at the group level and the entity level.
Group level documentation for the financial year should include:
- Details (including a chart) on the worldwide organizational structure, showing the location and ownership linkages among all related parties transacting with the Singapore taxpayer
- Descriptions of the group's business relevant to the Singapore taxpayer, including:
- Lines of business, products and services, geographic markets and key competitors
- The industry dynamics, market, regulatory and economic conditions in which the group operates
- Business models and strategies, including any important changes in recent years such as restructuring, acquisition or divestiture
- Important drivers of business profit, including a list of intangibles and the related parties which legally owned them
- The principal business activities and functions of each party in the group, including charts showing the supply chains of products and services
- The business relationships (services provided, goods sold, development, ownership or exploitation of intangibles, financing arrangements, etc.) among related parties
- Financial statements of the group relating to the lines of business involving the Singapore taxpayer
Entity level documentation for the financial year should include:
- Description of the management structure of the Singapore taxpayer, including a description of the related parties to whom the Singapore management reports for its operations
- Organizational chart of the Singapore taxpayer, showing the number of employees in each department
- Descriptions of the Singapore taxpayer's business, including:
- Lines of business, products and services, geographic markets and key competitors
- The industry dynamics, market, regulatory and economic conditions in which the Singapore taxpayer operates
- Business models and strategies, including any important changes in recent years such as restructuring, acquisition or divestiture involving or affecting the Singapore taxpayer
- Details of transaction between the Singapore taxpayer and related parties subject to TP documentation requirements, including:
- The identities of the related parties, the relationship, amounts and countries involved
- Contracts or agreements showing the terms of the transactions
- A detailed functional analysis (i.e. functions performed, assets (including intangibles) used and/ or contributed and risks borne) of the Singapore taxpayer and relevant related parties with respect to the transactions, including any changes compared to prior years
- Transfer pricing analysis/ benchmarking, including:
- The choice of the transfer pricing method and reasons to substantiate the method is the most appropriate
- The choice of the tested party and reasons to support the choice
- Details on comparables and the screening criteria for choosing the comparables
- Comparability analysis of the related party transactions/ tested party and the comparables
- Details of (and reasons for) any adjustments made to achieve comparability
- The arm’s length price/ margin, showing the detailed computation and explanation of any assumption made
- Details/ reasons to support the determination and use of the range if an arm’s length range is used
- Segmented financial accounts with respect to the transactions to show the operating results of the tested party, including explanations on the assumptions (if any) used to derive the segmented information
Other types of TP documentation may be included if appropriate in the taxpayer's circumstances. TP documentation prepared for other tax jurisdictions may also be included if relevant to the business operations in Singapore.
In order to reduce compliances burdens on taxpayers, the IRAS does not expect TP documentation for the following transactions:
- Transactions with related parties in Singapore where the transactions are subject to the same Singapore tax rates for both parties (excluding related party loans)
- Domestic related party loans between the taxpayer and a related party in Singapore where the lender is not in the business of borrowing and lending
- Routine services between related parties where the taxpayer applies the generally accepted 5% cost markup
- Transactions that are covered by an advanced pricing agreement, although documentation for the annual APA compliance report must be kept
- Related party transactions that do not exceed prescribed thresholds per financial year as follows:
- Purchase of goods from all related parties - SGD 15 million
- Sale of goods to all related parties - SGD 15 million
- Loans owed to all related parties - SGD 15 million
- Loans owed by all related parties - SGD 15 million
- All other categories of related party transactions, such as service income/payment, royalty income/expense, rental income/expense, etc. - SGD 1 million per category (aggregated)
Although TP documentation is not expected in the above cases, normal business records for such transactions should still be kept.
Singapore taxpayers must also comply with the following TP documentation matters:
- The date of creation or update must be included in all contemporaneous TP documentation
- TP documentation is not included in the tax return, but must be submitted within 30 days of a request by the tax authorities
- TP documentation should be reviewed periodically (at least once every three years), and updated when there are material changes to the operating conditions that impact their functional analysis or transfer pricing analysis
- TP documentation must be kept for at least 5 years from the relevant year of assessment, and for a longer period if involved in an audit or mutual agreement procedures
- TP documentation may be kept in any medium, but must be available in hardcopy or softcopy upon request
- Any TP documentation not written in English must be translated if requested
Click the following link for the full Singapore Transfer Pricing Guidelines (PDF) on the IRAS website.
On 30 December 2014, Turkey's individual income tax brackets for 2015 were issued by the Turkish Ministry of Finance. There are no changes to the bracket tax rates, but each bracket threshold is increased.
For employment income, the brackets and rates are as follows:
- up to TRY 12,000 - 15%
- over TRY 12,000 to TRY 29,000 - 20%
- over TRY 29,000 to TRY 106,000 - 27%
- over TRY 106,000 - 35%
For income other than employment income, the top bracket threshold is instead TRY 66,000 while the lower bracket thresholds are the same.
According to an announcement by Iceland's Ministry of Finance, the new income and capital tax treaty between Iceland and the United Kingdom entered into force on 10 November 2014. The treaty, signed 17 December 2013, replaces the 1991 tax treaty between the two countries.
The treaty covers Icelandic state and municipal income taxes, and the financial activities tax. It covers U.K. income tax, corporation tax and capital gains tax.
If a company is resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the company will not be entitled to the benefits of the treaty aside from those covered in Article 21 (Elimination of Double Taxation), Article 22 (Non-Discrimination), and Article 23 (Mutual Agreement Procedure).
- Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 15% (exemption when the beneficial owner is a pension scheme)
- Interest - 0%
- Royalties - 5%
- Capital Gains - generally exempt, except for gains from the alienation of immovable property, gains from the alienation of movable property forming part of the business property of a permanent establishment, and gains from the alienation of shares directly or indirectly deriving 50% or more of their value from immovable property in a Contracting State unless such shares are traded on a stock exchange
In addition to the above treaty provisions on the treatment of capital gains, the treaty includes the provision that a Contracting State (A) may tax the capital gains of a individual resident in the other State (B) if:
- They were a resident of State A for five years in the ten year period preceding the date upon which they became a resident of State B;
- The alienation takes place within 3 years of becoming a resident of State B; and
- On ceasing to be a resident of State A, they held shares or other rights that constituted at least 10% of the capital of the company
If the above conditions are met, the gain so taxed shall be the gain that is attributable to the period before becoming a resident of State B.
Both countries generally apply the credit method for the elimination of double taxation. However, the U.K. may apply the exemption method in the case of dividends and profits of a permanent establishment if the conditions for an exemption under U.K. law are met.
For withholding taxes, the provisions of the treaty apply from 1 January 2015.
For other taxes, the treaty applies in Iceland from 1 January 2015, and applies in the U.K. for corporation tax from 1 April 2015, and for income tax and capital gains tax from 6 April 2015.
The provisions of Article 23 (Mutual Agreement Procedure), Article 24 (Exchange of Information) and Article 25 (Assistance in the Collection of Taxes) apply from 10 November 2014, regardless of the taxable period to which the matter relates.
The provisions of the 1991 treaty between the two countries ceases to have effect for the relevant taxes on the dates the new treaty applies as above, and will terminate on the last such date.