Worldwide Tax News
ATO Issues Tax Alerts Concerning Transactions with Offshore PEs, GST Avoidance, and Treatment of Debt as Equity under Thin Cap Rules
On 10 August 2016, the Australian Taxation Office (ATO) issued tax alerts on arrangements currently being targeted for review. Links to the alerts and summaries of the targeted arrangements are as follows.
The ATO is reviewing arrangements involving tax-consolidated groups with subsidiaries using offshore permanent establishments (PE) that have entered into intra-group transactions. In particular, the ATO is looking at transactions where the amount of taxable income returned does not reflect the economic substance and significance of the operations carried on in and between Australia and the offshore jurisdiction.
The ATO is reviewing arrangements that involve foreign and Australian entities swapping their roles via contracts to make the Australian entity the distributor of intangible products or services and the foreign entity an agent of the Australian entity, collecting the sales revenue from customers on its behalf. Such arrangement are to avoid application of the Multinational Anti-Avoidance Law (MAAL) and avoid Goods and Services Tax (GST), which the ATO considers will not be effective in avoiding GST and clearly inconsistent with the underlying policy intent of both the MAAL and the GST Act.
The ATO is reviewing arrangements where taxpayers have taken the view that their debt capital for the purposes of the thin capitalization rules does not include the value of a debt interest that has been treated as equity for accounting purposes. The concern of the ATO is that taxpayers are incorrectly adopting a treatment under the thin capitalization provisions that may result in claims for higher debt deductions than should be allowed.
Greece Reduces Threshold for Import VAT Deferral
On 3 August 2016, Greece published Law 4410/2016 in the Official Gazette, which amends the value added tax (VAT) deferral scheme on imports for non-residents. Under the scheme, non-residents are allowed to defer the payment of VAT on supplies made at import, and instead pay the VAT through periodic returns, provided certain conditions are met. Previously, in order to apply the scheme, the annual value of supplies imported must be at least EUR 300 million, with a reduced threshold of EUR 120 million for the first five years. With the amendments of Law 4410/2016, the main threshold is reduced to EUR 250 million and the threshold for the first five years is reduced to EUR 100 million.
Luxembourg Introduces Simplified Limited Liability Company Form
On 4 August, the law providing for the creation of a simplified limited liability company (Société À Responsabilité Limitée Simplifiée - Sàrl-S) was published in Luxembourg's Official Gazette. The new business form is for natural person entrepreneurs, and involves lower establishment costs, quicker establishment time and an initial capital requirement of just 1 euro. The Sàrl-S may be formed by a notarial deed or a private agreement, and formation should be able to be completed in 1 day.
Click the following link for the Sàrl-S Law (French language), which will enter into force 16 January 2017.
Turkey Approves Legislation for Regional Headquarters Incentive, Tax Amnesty and Other Tax Measures
The Turkish parliament has reportedly approved legislation for the introduction of an incentive for regional headquarters, a tax amnesty regime, and certain other tax measures. The main measures include the following.
The incentive provides a corporate income tax and payroll tax exemption for foreign corporations that establish a regional headquarters (management center) in Turkey, provided the foreign corporation funds the costs of the headquarters and it is not financially associated with a Turkish company.
A voluntary disclosure regime is introduced for both individuals and legal entities. Under the regime, taxpayers are allowed an exemption from tax on disclosed assets without risk of audit or investigation, provided the assets are disclosed by 31 December 2016 and brought into turkey within one month of disclosure (one year for the value of disclosed real estate properties).
The penalties for taxpayers that have submitted incorrect returns resulting in an underpayment of tax are relaxed. The penalty amount is reduced to 20% of the underpaid tax (normally 100%) as long as the taxpayer submits a corrected return before the launch of a formal investigation. If the tax authorities are considering a formal investigation, a notice will first be issued to the taxpayer, providing the opportunity to submit a corrected return. Although the under payment penalty is reduced, standard late payment interest will still apply.
Egyptian Parliament Examining VAT Legislation
The Egyptian parliament is currently examining the legislation to introduce a value added tax (VAT) and repeal the Sales Tax Law. The main aspects of the current draft legislation are as follows.
- The standard VAT rate will be 12% to 14% (final rate will be determined by parliament after the impact examination is completed);
- The general VAT registration threshold is sales of EGP 500,000, with taxpayers already registered for sales tax automatically maintaining their registration for VAT purposes if meeting the new threshold;
- Traders and importers required to register for sales tax must maintain registration for VAT (EGP 150,000 threshold for traders, no threshold for importers).
- VAT will apply on all goods and services, unless specifically exempted;
- Services subject to VAT are defined as any work done not classified as goods, which includes transactions involving professional, consulting, and training services, shared services, advertising, and intellectual property transactions;
- Exemptions will apply for basic commodities, education and healthcare services, banking and financial leasing services, and approximately 90% of food commodities.
- Supplies made by non-resident suppliers are subject to VAT, with the non-resident supplier required to appoint a tax representative to fulfill the VAT obligations;
- If a representative is not appointed, the reverse charge will apply (recipient accounts for the VAT due)
- VAT declarations are required monthly;
- The penalty for late payments is 1.5% per month;
- The statute of limitations for the tax authority to amend a declaration is five years; and
- Refunds are available if a balance has been maintained for more the six months.
The parliament is expected to approve the VAT legislation in September, with the required executive regulations issued within one month of approval. The switch to VAT is expected to be effective from 1 January 2017.
Nigeria Committed to CbC Reporting
Nigeria's Minister of Information and Culture Lai Mohammed recently announced that the Federal Executive Council has approved the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, which Nigeria signed in January 2016 (previous coverage). With the agreement approved, the Nigerian government is committed to the implementation of CbC reporting requirements for multinationals operating in the country. The required legislation for the implementation is expected to be submitted to the National Assembly in the near future.
Estonia Approves Tax Treaty with Vietnam
The Estonian government has approved for ratification the pending income tax treaty with Vietnam. The treaty, signed 26 September 2015, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
New Tax Treaty between Singapore and South Africa Signed
According to a recent tax treaty status update from the South African Revenue Service, a renegotiated tax treaty with Singapore was signed by South Africa on 23 November 2015 and by Singapore on 30 November. Additional details will be published once available.