Worldwide Tax News
Bolivia Sets Out Transfer Pricing Documentation Requirements
On 30 April 2015, the Bolivian tax administration published a resolution setting out transfer pricing documentation requirements for related party transactions. The main requirements are summarized as follows.
The documentation filing requirements depend upon the annual value of transactions with related parties:
- Taxpayers with annual transactions with related parties exceeding BOB 15 million must file a sworn informative statement and a full transfer pricing report;
- Taxpayers with annual related party transactions exceeding BOB 7.5 million but not exceeding BOB 15 million must file a sworn information statement and a brief report of transactions with related parties;
- Taxpayers with annual related party transactions not exceeding BOB 7.5 million are not required to file documentation, but must maintain documentation demonstrating their compliance with the arm's length principle
A full transfer pricing report should include the following information:
- A description of the taxpayer's industry and markets in which it operates;
- A description of the organizational and corporate structure of the taxpayer's group;
- Details of related parties, including the type of relationship and the transactions performed;
- The business strategies and policies for determining pricing levels;
- The transfer pricing method selected;
- The transactions, agreements, or contracts concluded with related parties, including a description of the activities, assets used, and risks assumed by both parties;
- The financial indicators used in determining the arm's length price, including profitability ratios, debt ratios, interest rates, and methods for calculating royalties for use of intangibles;
- The amount of related party transactions, including outstanding balances; and
- A comparability analysis, including a description of the comparable sources
Related party transactions should be compared with similar transactions denominated in Bolivian currency (boliviano, BOB). If the transaction is made in another currency, it must be converted to BOB using current exchange rates published by the Central Bank of Bolivia. In the event there is no direct exchange rate in Bolivia, the currency used should be converted to USD and then converted to BOB.
Documentation should be in Spanish.
The documentation requirements are effective 1 May 2015.
Colombia Clarifies Applicability of Net Worth Tax for Non-Residents
Colombia's National Tax Authority (DIAN) recently published Ruling 9164 (2015), which clarifies whether a non-resident is subject to net worth tax. According to the Ruling, a non-resident with net worth in Colombia exceeding COP 1 billion is subject to net worth tax whether held directly or indirectly through branches or permanent establishments located in Colombia.
As per Colombia's Tax Reform Act (Act 1739), passed the end of 2014, that rate of net worth tax from 1 January 2015 depends on the net worth amount as follows:
- up to COP 2 billion - 0.20%
- COP 2 billion to COP 3 billion - 0.35%
- COP 3 billion to COP 5 billion - 0.75%
- over COP 5 Billion - 1.15%
The rates will be reduced in 2016 and again in 2017. From 2018 the net worth tax will no longer apply.
Jamaica Postpones Implementation of New Withholding Tax Requirements for Certain Service Payments
On 3 June 2015, the Jamaican Ministry of Finance and Planning announced that the implementation of withholding tax on certain service payments is postponed, until further notice. The 3% withholding tax on certain service payments was to be introduced from 1 June 2015 (previous coverage).
Further discussions will be held to examine issues raised related to the implementation of the withholding tax requirement, and the Jamaican Tax Administration will issue the revised implementation date.
Morocco Clarifies the Treatment of Excess Input VAT
The Moroccan tax administration recently issued guideline No. 725, which deals with the refund of excess input VAT. Prior to 1 January 2014, VAT refunds were generally not allowed and excess VAT was instead carried forward to offset future VAT payable. However, with Finance Law 2014, the refund of VAT was allowed in certain cases, including:
- VAT on exported goods;
- VAT on exempt supplies with the right to deduct; and
- VAT on the purchase of fixed assets in the first 24 months of operation of a new formed company
The new guidelines clarify that excess input VAT is deductible where the rate of input VAT is levied at a higher rate than the rate of output VAT.
OECD Provides BEPS Project Update via Webcast
On 8 June 2015, the OECD provided an update on the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project via a live webcast, covering progress on the following matters:
- The development of a Multilateral Instrument to streamline implementation of the tax treaty-related measures of the BEPS Project, which began with a procedural meeting on 27 May 2015, and will continue with substantial negotiations during an inaugural meeting on 5-6 November 2015 (Action 15);
- The recently adopted implementation package for country-by-country (CbC) reporting, including the applicable competent authority agreements for the exchange of CbC reports, the included confidentiality and data safeguards, and the implementation timeline - first reports due 2017 based on 2016 tax year, and first exchange of reports 6 months following first report submission (Action 13);
- Methodologies to collect and analyze BEPS related data, including analysis of BEPS issues and effectiveness of countermeasures (Action 11);
- Ongoing work on transfer pricing issues related to hard-to-value intangibles and cost contribution arrangements (Action 8);
- The forum on harmful tax practices, with a focus on substantial activity in regard to IP regimes, as well as transparency through the compulsory spontaneous exchange of tax rulings (Action 5);
- Making dispute resolution mechanisms more effective, including the introduction of a minimum standard in regard to the resolution of tax treaty disputes, as well as arbitration provisions (Action 14);
- The development of recommendations for the design of controlled foreign company (CFC) rules with a coordinated approach, including the definition of a CFC, low-tax and threshold requirements, income definition, rules for computing and attributing income, and rules to prevent or eliminate double taxation (Action 3);
- The development of recommendations to limit BEPS issues caused by interest deductions and other financial payments, including a combination approach that would use an EBITDA-based fixed ratio rule combined with a group ratio rule and an optional de minimis threshold to remove low risk entities, as well as an optional carry forward of disallowed interest and targeted rules to address specific risks (Action 4);
- Ongoing follow up work on preventing the granting of treaty benefits in inappropriate circumstances, including a simplified limitation on benefits (LOB) rule, treaty provisions for dealing with special tax regimes and changes in domestic law following the conclusion of a treaty, and other matters (Action 6); and
- Work on the artificial avoidance of PE status, including moving away from the more formal conditions that are easily circumvented to more material tests, as well as work on issues related to splitting-up of contracts, insurance and profit attribution to PEs (Action 7)
Final delivery of the BEPS Action deliverables will be made to the OECD Council and G20 Finance Ministers in October 2015 and to G20 Leaders in November 2015.
Click the following link to view a recording of the webcast (~1 hour).
U.S. Interest Rates on Overpaid and Underpaid Tax Remain Unchanged for Q3 2015
The IRS has announced that the interest rates for overpaid and underpaid tax will not be changed for the third quarter of the year beginning 1 July 2015. The rates are 3% for both underpayment and overpayment by individuals, and 2% and 3% for corporate overpayments and underpayments respectively.
The rate for corporate overpayment portion exceeding USD 10,000 in a tax period will remain at 0.5%. The rate for large corporate underpayments exceeding USD 100,000 will remain at 5%.
South African 2015 Tax Rates Bill Presented
On 3 June 2015, South African Finance Minister Nhlanhla Nene presented the Rates and Monetary Amounts and Amendment of Revenue Laws Bill 2015 to the National Assembly. The Bill includes certain measures introduced in the 2015 Budget delivered in February. The main changes include:
- An increase in the individual income tax rates by 1% for income exceeding ZAR 181,900, resulting in a top rate of 41% from 1 March 2015;
- An increase in the marginal tax rate on trusts from 40% to 41%;
- A reduction in the tax rates provided under the turnover-based tax regime for small businesses with annual turnover below ZAR 1 million from a top rate of 6% to a top rate of 3%; and
- An adjustment in the rates and brackets for transfer duty on the sale of property, including the elimination of transfer duty on properties below ZAR 750,000 and the addition of a new bracket with an 11% rate for properties above ZAR 2.25 million
The Bill must now be approved for the changes to enter into force.
Tax Treaty between Fiji and Thailand under Negotiation
On 25 May 2015, officials from Fiji and Thailand met to begin negotiations for an income tax treaty. 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.
TIEA between South Africa and Turks and Caicos Signed
According to a recent update from the South African Revenue Service, officials from South Africa and Turks and Caicos signed a tax information exchange agreement on 27 May 2015. The agreement is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.
Spain Approves Protocol to the Tax Treaty with Canada
On 2 June 2015, the Spanish Senate approved the pending protocol to the 1976 income and capital tax treaty with Canada. The protocol, signed 18 November 2014, is the first to amend the treaty. It amends several articles of the treaty including updating the article on information exchange in line with OECD standards and adding an article on assistance in the collection of taxes. Key changes are also made to the articles on dividends and interest:
- A reduced withholding tax rate of 5% on dividends is added if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise a 15% rate applies (same as current rate);
- An exemption from withholding tax is added if the beneficial owner is a qualifying pension or retirement plan; and
- A maximum rate of 5% is added for the taxation of repatriated profits attributed to a permanent establishment
- The maximum withholding tax rate on interest is reduced from 15% to 10%; and
- An exemption from withholding tax is added where interest arising in a Contracting State is paid to a beneficial owner resident in the other State as long as the beneficial owner is dealing at arm's length with the payer
The protocol will enter into force 3 months after the ratification instruments are exchanged, and will generally apply from that date.