Worldwide Tax News
China Issues Notice on Withholding of Non-Resident Enterprise Income Tax
- Withholding tax on income from the disposal of equity investments (shares) must be determined based on the difference between the actual acquisition cost and the disposal income, with no deduction for undistributed retained earnings;
- Where there are multiple acquisitions/disposals, the taxable amount must be determined based on the ratio of the proportion of the percentage of shares disposed of and the total shareholdings, for example, if a shareholder obtains a 40% share interest through multiple acquisitions with a total cost of CNY 7 million and then sells a 30% share interest for CNY 10 million, the taxable income (gain) is equal to 4.75 million: CNY 10 million minus the total acquisition cost (CNY 7 million) X 75% (30% / 40%);
- Where payments on are made in foreign currency, the amount must be converted to CNY for withholding tax purposes using an exchange rate as follows:
- The average exchange rate on the date the payment is actually paid or due, if tax is withheld by the withholding agent (payer);
- The average exchange rate on the date preceding the date the payment is made, if tax is not withheld by the withholding agent and is voluntarily paid by the non-resident enterprise; and
- The average exchange rate of the date preceding the deadline set by the tax authority, if tax is not withheld by the withholding agent and the non-resident enterprise has been ordered by the tax authority to pay the tax due;
- If it is agreed under contract that the tax due is to be paid by the payer (withholding agent), the withholding tax is determined on a grossed-up basis;
- With respect to withholding tax remittance deadlines:
- The deadline to remit tax withheld by withholding agents is within 7 days of the date of the withholding obligation;
- The deadline for non-resident to remit tax when ordered to do so is set by the tax authority; and
- The deadline is always considered met when tax is voluntarily paid by a non-resident without being ordered to do so;
- Where non-resident income is a dividend or other equity investment-based distribution, the withholding tax obligation is based on the date the dividend/distribution is actually paid;
- Where non-resident income is derived from the disposal of property and paid in installments, the withholding tax obligation applies from the date of the installment payment that exceeds the original acquisition cost;
- Where income is derived from multiple locations in China under different competent authorities, the non-resident may opt to declare all withholding tax due to a single competent authority, which must then communicate to the other relevant competent authorities within 5 business days;
- The relevant competent authority is generally the authority for the location where the relevant property is located or the relevant enterprise is established; and
- In the event any aspects of Notice No. 37 are inconsistent with the provisions of an applicable tax treaty, the treaty provisions shall prevail.
The notice applies from 1 December 2017.
Colombia Sets Late Payment Interest Rate for November 2017
The Colombian Tax Authority (DIAN) has announced that the annual interest rate for late tax payments for 1 to 30 November 2017 is reduced from 29.73% to 29.44%. The rate is based on the rate set by the Financial Superintendence of Colombia through Resolution No. 1447 of 27 October 2017.
Costa Rica Increases Interest Rate for Late Tax Payments and Overpayment Refunds
Costa Rica's Ministry of Finance has increased the interest rate for late advance tax payments and refunds of overpayments from 11.73% to 12.8%. The rate is based on the average commercial lending rate of Costa Rica's national banks and is effective from 1 October 2017.
Hong Kong Issues Departmental Interpretation and Practice Notes on Tax Concession for Aircraft Leasing
The Hong Kong Inland Revenue Department has Departmental Interpretation and Practice Notes (DIPN) No. 54 on taxation of aircraft leasing activities. DIPN No. 54 covers the tax concession for qualifying aircraft lessors introduced by the 2017 Amendment (No. 3) Ordinance, which includes that a qualifying aircraft lessor is entitled to have its qualifying profits from an aircraft leasing business charged at one-half of the corporate profits tax rate for a year of assessment if an irrevocable election is made and in the year of assessment:
- The central management and control of the corporation is exercised in Hong Kong (the central management and control requirement);
- The activities that produce its qualifying profits in that year are carried out in Hong Kong by the corporation; or arranged by the corporation to be carried out in Hong Kong (the substantial activity requirement); and
- Those activities are not carried out by a permanent establishment outside Hong Kong (the attribution to Hong Kong requirement).
A corporation is a qualifying aircraft lessor for a year of assessment if, in the basis period for that year of assessment:
- It is not an aircraft operator;
- It has carried out in Hong Kong one or more qualifying aircraft leasing activities; and
- It has not carried out in Hong Kong any activity other than a qualifying aircraft leasing activity.
When a qualifying aircraft lessor makes the election for the profits tax rate concession, the depreciation allowance will be denied in respect of the capital expenditure incurred on the provision of the aircraft concerned for the year in which the half rate concession applies. To compensate for the loss of depreciation allowance, a 20% tax base concession is provided, which includes that the net lease payments to be included in the assessable profits is equal to 20% of the tax base (i.e., gross lease payments less deductible expenses, excluding tax depreciation).
Click the following link for DIPN No. 54 for additional information, including several examples.
Irish Revenue Issues Tax and Duty Manual on VAT Treatment of Payment Services
Irish Revenue has issued eBrief No. 100/17 to announce a new Tax and Duty Manual on the value added tax (VAT) treatment of payment services. The guidance sets out the VAT treatment of transactions concerning the transfer of money, and in particular, the Revenue position as to how the VAT exemption relating to the transfer of money should be applied. This includes positions on the guiding principles, the status of suppliers, the means by which the service is supplied, physical or technical services, charges for using certain payment methods, and composite and multiple supplies, as well as examples.
UK Publishes Tax Payment Schedule Amendment Regulations for Very Large Companies
The UK has published the Corporation Tax (Instalment Payments) (Amendment) Regulations 2017, which was made on 7 November 2017 and will come into force on 1 April 2019. The Regulations amend and insert regulations into the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175) so that companies with annual taxable profits exceeding GBP 20 million pay Corporation Tax by installments 4 months earlier than large companies.
Under current rules, large taxpayers (generally those with annual profits exceeding GBP 1.5 million) are required to make quarterly installment payments based on estimated profits with the payments due in the 7th and 10th month of the taxpayer's current 12-month accounting period, and in the 1st and 4th month of the following period. Under the new rules, for accounting periods beginning on or after 1 April 2019, companies with annual taxable profits of over GBP 20 million (very large companies) are required to make payments in the 3rd, 6th, 9th and 12th month of the current accounting period.
UAE Announces Draft Executive Regulation for VAT
The United Arab Emirates Ministry of Finance has announced the draft Executive Regulation for the Federal Decree-Law No. (8) of 2017 on Value Added Tax, which was issued in August and will be effective from 1 January 2018 (previous coverage). The Regulation defines VAT as the 5% tax imposed on the import and supply of goods and services at each stage of production and distribution, including what is a deemed supply, with the exception of specific supplies subject to the zero rate, and what is exempted as specified in the Decree-Law. The draft text of the Executive Regulation will be published next week on the UAE Ministry of Finance’s website www.mof.gov.ae and the Federal Tax Authority’s website www.tax.gov.ae.
Romanian Government Approves Emergency Ordinance on Individual Taxation, Social Security Contributions, and EU Anti-Tax Avoidance Directive
On 8 November 2017, the Romanian government reportedly approved a draft Emergency Ordinance including a number of tax measures. The main measures include:
- A reduction in the general individual income tax rate from 16% to 10%;
- A reduction in the overall social security contribution rate from 39.25% of gross salary to 37.25% along with a shift in the contribution burden, with employees subject to a 35% contribution rate on their gross salary and employers subject to a 2.25% rate on total gross salary (employee contribution will fund pension and health insurance; employer contribution will fund labor insurance for unemployment, sick leave, work accidents, etc.);
- An increase in the turnover threshold for the micro-enterprise regime from EUR 500,000 to EUR 1,000,000 (1% flat tax on turnover); and
- The transposition of the EU Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164 - ATAD1), including restrictions on the deduction of interest expense, exit tax rules, a general anti-abuse rule, and controlled foreign company (CFC) rules.
Subject to parliament approval, the measures of the Emergency Ordinance will generally apply from 1 January 2018. Additional details will be published once available.
U.S. House Tax Reform Bill Passes Committee and Senate Version Announced
On 9 November 2017, the House Ways and Means Committee announced the passage of the Tax Cuts and Jobs Act, H.R. 1. In addition to the markup amendment agreed to earlier in the week (previous coverage), Committee Chairman Kevin Brady offered a second amendment, including the following as provided in the amendment summary:
Section 1004 – Maximum rate on business income of individuals (reduced rate for small businesses with net active business income)
The amendment provides a 9-percent tax rate, in lieu of the ordinary 12-percent tax rate, for the first $75,000 in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income through a pass-through business. As taxable income exceeds $150,000, the benefit of the 9-percent rate relative to the 12-percent rate is reduced, and it is fully phased out at $225,000. Businesses of all types are eligible for the preferential 9-percent rate, and such rate applies to all business income up to the $75,000 level. The 9-percent rate is phased in over five taxable years, such that the rate for 2018 and 2019 is 11 percent, the rate for 2020 and 2021 is 10 percent, and the rate for 2022 and thereafter is 9 percent. For unmarried individuals, the $75,000 and $150,000 amounts are $37,500 and $75,000, and for heads of household, those amounts are $56,250 and $112,500.
Section 3001 – Reduction in corporate tax rate
The amendment lowers the 80-percent dividends received deduction to 65 percent and the 70- percent dividends received deduction to 50 percent, preserving the current law effective tax rates on income from such dividends
Section 3315 – Amortization of Research and Experimentation Expenditures
The amendment provides that certain research or experimental expenditures are required to be capitalized and amortized over a 5-year period (15 years in the case of expenditures attributable to research conducted outside the United States). The amendment provides that this rule applies to research or experimental expenditures paid or incurred during taxable years beginning after 2023.
Section 3703 – Surtax on life insurance company taxable income
The amendment generally preserves current law tax treatment of insurance company deferred acquisition costs, life insurance company reserves, and pro-ration, and imposes an 8% surtax on life insurance income. This provision is intended as a placeholder
Section 4004 – Treatment of deferred foreign income upon transition to participation exemption system of taxation
The amendment provides for effective tax rates on deemed repatriated earnings of 7% on earnings held in illiquid assets and 14% on earnings held in liquid assets. (5% and 12% originally proposed)
Section 4303 – Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income
The amendment modifies the bill’s international base erosion rules in two respects. First, the provision eliminates the mark-up on deemed expenses. Second, the amendment expands the foreign tax credit to apply to 80% of foreign taxes and refines the measurement of foreign taxes paid by reference to section 906 of current law rather than a formula based on financial accounting information
Also on 9 November, the Senate Committee on Finance announced the release of its own tax reform plan that includes a similar approach to the House bill, but with a number of key differences. Some of the differences include:
- Delaying the 20% corporate tax rate to 2019;
- Requiring a transitional mandatory inclusion of deferred foreign income with a deduction to provide that earnings and profits attributable to cash assets will result in a 10% tax rate, with the remainder subject to a 5% tax rate;
- Requiring current year inclusion of global intangible low-taxed income, which means the excess (if any) of a U.S. shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return (deemed return equal to 10% of the aggregate of the shareholder’s pro rata share of the qualified business asset investment of each CFC);
- Maintaining seven individual income tax brackets: 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%;
- Completely repealing state and local tax deductions, including property tax, unless paid or accrued in carrying on a trade or business (House bill maintains property tax deduction with a cap); and
- Maintaining the taxation of pass-through entity income up to the top individual rate, but allowing a 17.4% deduction of domestic qualified business income.
The actual text of the Senate bill is expected next week.
Azerbaijan Looking to Sign SSA with South Korea
According to a release from Azerbaijan's Ministry of Labour and Social Protection of Population, the Ministry is looking to sign a draft a social security agreement with South Korea in order to expand cooperation between the two countries. The agreement will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
Tax Treaty between Colombia and the UAE to be Signed
According to a release on the Colombian Presidency website, an income tax treaty with the United Arab Emirates will be signed during a state visit by President Juan Manuel Santos that will begin on 11 November 2017. The treaty will be the first of its kind between the two countries. Details of the treaty will be published once available.
Lithuania and Ukraine to Amend Tax Treaty
On 6 November 2017, officials from Lithuania and Ukraine met and agreed to the negotiation of amendments to update the 1996 income and capital tax treaty between the two countries. Any amendments would be the first to the treaty and must be finalized, signed, and ratified before entering into force.