Worldwide Tax News
On 25 April 2017, the Isle of Man Tynwald (parliament) approved the Value Added Tax (Amendment) Regulations 2017 for the introduction of a 16.5% VAT flat rate scheme for limited costs business. As announced by the Isle of Man government at the end of March, the flat rate scheme applies from 1 April 2017.
Norway Holds Irish Holding Company Board Meetings and EEA Branches Satisfy Substance Requirement for Dividend Exemption
On 4 May 2016, the Norwegian tax authority (Skatteetaten) issued a ruling on whether dividends paid by a Norwegian company to its Irish holding company would qualify for Norway's participation exemption for dividends paid to EEA/EU countries. In general, for the exemption to apply, real business (substance) requirements must be met and the structure must not be for purely tax reasons.
The holding company was organized in Ireland and held its board meeting twice a year. The board includes four directors, with three living in Ireland. The holding company had no Irish employees, but operated several foreign branches, including branches in the EEA that employed approximately 200 people to provide regional management and marketing services to other group entities.
According to the ruling the holding of the board meetings in Ireland and the operation of the branches in the EEA are sufficient with regard to the substance requirements and the participation exemption can apply. With regard to tax reasons, the ruling notes that there are oblivious tax benefits for the structure, but given the operations, the existence of tax benefits is not sufficient to disqualify the holding company from the exemption.
On 2 May 2017, South Africa published the Financial Intelligence Centre Amendment Act, 2017 (FICA Act) in the Official Gazette. According to an announcement from the South African Presidency, measures in the Amendment Act include:
- Requiring the identification of beneficial owners to prevent natural persons from misusing legal entities for nefarious purposes like evading tax;
- Enhancing the customer due diligence requirements that will ensure that entities fully understand the nature and potential risk posed by their customers;
- Providing for the adoption of a risk based approach in the identification and assessment of money laundering and terrorist financing risks, and assisting in making customer compliance easier;
- Providing for the implementation of the United Nations Security Council Resolutions relating to the freezing of assets relating to persons associated with terrorism;
- Safeguarding information in line with the Protection of Personal Information;
- Providing for inspection powers for regulatory compliance purposes in accordance with the Constitution; and
- Enhancing certain administrative and enforcement mechanisms.
For more information on the new requirements, click the following link for a pamphlet on the FICA Act and its impact published by the National Treasury.
The Vietnam government has recently issued changes concerning employer social security contributions and the depreciation of complex (mixed-use) buildings.
Three main changes (one pending) are made affecting employer social security contributions:
- Decree 47/2017/ ND-CP of 24 April 2017 provides that effective 1 July 2017, the minimum monthly salary is increased to VND 1.3 million, which increases the contribution basis cap to VND 26 million per month (20 times minimum monthly salary);
- Decree 44/2017/ND-CP of 14 April 2017 provides that effective 1 June 2017, the rate of contribution to the labor accident and occupational diseases insurance fund is reduced from 1% to 0.5%; and
- Resolution No. 34/NQ-CP of 7 April 2017 provides that effective from the date of its ratification (pending), the rate of contribution to the unemployment insurance fund is reduced from 1% to 0.5%.
Circular 28/2017/TT-BTC of 12 April 2017 provides that in determining the depreciation of a complex building used by a company for both normal business activities and leasing or sales purposes, the company must record which areas of the buildings are used for which purpose and are allowed depreciation expense accordingly:
- For areas used for normal business activities and leasing (excluding financial leasing), the area may be treated as a fixed asset and depreciation expense may be claimed in accordance with current rules;
- For areas used for sale purposes, the area may not be treated as a fixed asset with depreciation expense, but instead treated as assets for sales purposes;
- If the areas cannot be separated, no depreciation expense will be allowed for the whole area of the building.
The change is effective 26 May 2017 and applies for fiscal year 2016.
Australia Budget 2017-18 Delivered Including Reduced Tax Rates for Small Businesses, Measures Targeting Tax Avoidance, and Others
On 9 May 2017, Australian Treasurer Scott Morrison delivered the country's Budget 2017-18. Main tax related measures of the Budget are summarized as follows.
- Increasing the small business entity turnover threshold from AUD 2 million to AUD 10 million per annum from 1 July 2016, with the current AUD 2 million annual turnover threshold retained for access to the small business capital gains tax concessions, and access to the unincorporated small business tax discount extended to entities with turnover less than AUD 5 million per annum;
- Reducing the company tax rate to 27.5% in 2016-17 for companies with aggregated annual turnover below AUD 10 million, increasing the threshold to 25 million for 2017-18 and to 50 million for 2018-19, and further reducing the rate to 27% for 2024-25, 26% for 2025-26 and 25% for 2026-27;
- Extending to 30 June 2018 the AUD 20,000 immediate deductibility threshold for assets acquired by small businesses with annual turnover below AUD 10 million.
Most of the small business changes are included in the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, which passed both house of parliament on 9 May and is awaiting royal assent.
- Amending the Multinational Anti-Avoidance Law to ensure corporate structures involving foreign partnerships and foreign trusts are subject to the law with retrospective effect (1 January 2016);
- Introducing anti-hybrid rules to keep banks and financial institutions from exploiting different tax treatments of their regulatory capital across borders from 1 January 2018 (or 6 months after royal assent of relevant legislation if later); and
- Amending the principal asset test for the non-resident CGT exemption on the disposal of non-portfolio interests to include the disposed entity as well as associates so non-residents cannot circumvent the exemption restriction when the disposed interests derive value from real property.
- Introducing a bank levy at a rate of 0.06% on liabilities of large banks exceeding AUD 100 billion;
- Increasing the Medicare levy for individual taxpayers from 2% to 2.5% from 1 July 2019; and
- Increasing the foreign-resident capital gains withholding tax rate from 10% to 12.5% and reducing the threshold from AUD 2 million to AUD 750,000 effective 1 July 2017.
Click the following link for the Australian government Budget website for more information on the Budget 2017-18 plans.
With Emanuel Macron's victory over Marine Le Pen in the French presidential election on 7 May 2017, the new president's plans for France announced during the campaign will now need to be formalized. Some of the main aspects of Macron's plans include:
- Keeping France in the eurozone, but with reforms including a common eurozone budget and a eurozone finance minister;
- Limiting public contracts to companies with a majority of their operations in Europe;
- Implementing various changes to reduce public spending; and
- Tax measures, which include:
- Reducing the corporate tax rate to 25% (rate already reduced from 33% to 28% for small taxpayers and scheduled to be reduced in stages for all taxpayers by 2020);
- Repealing the 3% tax on dividend distributions;
- Implementing a carbon tax based on commitments to fight global warming;
- Potentially delaying to 2019 the new withholding tax system on employment income that is to apply from 2018 - pay-as-you-earn (PAYE) type system where employers withhold on monthly basis;
- Removing investment income from scope of individual wealth tax to encourage investments in French businesses;
- Introducing a flat 30% tax on individual capital gains.
It is expected that formal proposals for most of the plans will be put forward in the near future.
On 8 May 2017, officials from Cyprus and Luxembourg signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged. Additional details will be published once available.
On 24 April 2017, Seychelles published the ratification instrument for the protocol to the 2011 tax information exchange agreement with Guernsey. The protocol, signed 12 August 2016 by Seychelles and 1 September 2016 by Guernsey, repeals Article 11 (No Prejudicial or Restrictive Measures) of the agreement. Article 11 provides that neither Party may apply prejudicial or restrictive measures based on harmful tax practices to residents, nationals or citizens of the other Party, such as the denial of a deduction, credit or exemption, the imposition of a tax, charge or levy, or special reporting requirements.
The protocol will enter into force once the ratification instruments are exchanged, and will generally apply from that date.