Worldwide Tax News
On 9 February 2017, the Australian Taxation Office (ATO) and the Department of Industry, Innovation and Science jointly issued two taxpayer alerts concerning claims for the R&D Tax Incentive for construction activities and claims for ordinary business activities.
The ATO and AusIndustry are reviewing the arrangements of certain building and construction industry participants that are claiming the R&D Tax Incentive where some (or all) of the expenditure:
- is incurred on building or construction activities which are expressly excluded from being taken into account in calculating an R&D tax offset, or
- does not otherwise relate to eligible R&D activities.
The arrangements under review concern claimants of the R&D Tax Incentive who are involved in either: acquiring buildings, or extensions, alterations or improvements thereto (the acquirer); or whose business it is to construct, extend, alter or improve buildings (the builder).
These types of arrangements exhibit some or all of the following features:
- A contract is entered into between the acquirer and the builder to construct, extend, alter or improve a building or buildings (construction).
- The contract is a standard construction contract and is not for the provision of R&D services and does not specify that R&D will be carried out by the builder.
- The acquirer or the builder registers one or more activities associated with the construction of the building for the R&D Tax Incentive, identifying the structure or construction techniques as purportedly involving untested or novel elements.
- Some or all of the activities registered are broadly described and non-specific. For example, whole construction projects may be registered rather than the specific activities which are being undertaken.
- Some or all of the registered activities are ordinary construction activities that are directed to fulfilling the requirements of the building or construction contract, or relate to expenditure that is expressly excluded from being taken into account in calculating an R&D Tax Incentive.
- Frequently, the expenditure which is incurred relates to construction methods or techniques that are already known within the building industry, or involve the mere adaptation or integration of existing technology.
- The acquirer or the builder claims the R&D Tax Incentive for expenditure that is not on eligible R&D activities, or for expenditure which is expressly excluded.
The ATO and AusIndustry are reviewing arrangements of companies that are claiming the R&D Tax Incentive where some (or all) of the expenditure that is incurred relates to their ordinary business activities and not to eligible R&D activities.
These types of arrangements exhibit some or all of the following features:
- A company registers one or more activities for the R&D Tax Incentive.
- Some or all of the activities registered are broadly described and non-specific. For example, projects may be registered instead of the specific activities undertaken.
- Some or all of the activities registered are ordinary business activities that are not eligible for the R&D Tax Incentive.
- Some or all of the activities were undertaken in the course of their ordinary business activities and recharacterized as R&D activities at a later time.
- The company claims the R&D Tax Incentive for expenditure that is not on eligible R&D activities.
Both tax alerts note that companies are expected to distinguish eligible R&D activities from ineligible ordinary business activities at the time of registration and throughout the conduct of the activities. Proper, detailed and contemporaneous records must be kept to support the registration application and the claim for the R&D Tax Incentive. The onus is on the taxpayer to ensure that the registration and claim for the R&D Tax Incentive are correct. Penalties may apply if the R&D Tax Incentive is incorrectly claimed, but will be significantly reduced if voluntarily disclosed.
The Slovak parliament has approved legislation (Bill No. 299) to transpose into domestic law the amendments made to the EU Administrative Cooperation Directive by Council Directive (EU) 2016/881 concerning Country-by-Country (CbC) reporting. The legislation, which amends Law 442/2012 on international assistance and cooperation in tax administration, was approved by parliament on 1 February 2017 and sent to the president for approval on 13 February.
The CbC reporting requirements are in line with BEPS Action 13 and Directive 2016/881, including that a CbC report must be submitted by MNE groups operating in the Slovak Republic that meet a EUR 750 million consolidated group revenue threshold in the previous year. The requirements apply for fiscal years beginning on or after:
- 1 January 2016, if the ultimate parent of the group is resident in the Slovak Republic; and
- 1 January 2017, if the ultimate parent is not resident in the Slovak Republic.
Where the ultimate parent is not resident in the Slovak Republic, a resident constituent entity is required to submit a CbC report if:
- The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
- The ultimate parent's jurisdiction of residence does not have a competent authority agreement in force for automatic exchange of CbC reports with the Slovak Republic by the date the report is due; or
- There is a systemic failure of the jurisdiction of residence of the ultimate parent for automatic exchange and notification of the failure was provided by the Slovak authority.
Where a resident non-parent constituent entity is required to file, the entity is to request that all required information for the CbC report be provided by the ultimate parent. If all required information is not provided, a CbC report must still be filed based on the information available to the non-parent constituent entity, and the Slovak tax authority must be informed that the ultimate parent refused to provide the required information. This local filing requirement will not apply, however, if a surrogate parent entity has been designated to file a CbC report in another jurisdiction for the fiscal year, that report will be exchanged with the Slovak Republic, and notification of the surrogate parent's designation has been provided.
When required, the CbC report must be submitted within 12 months following the end of reporting fiscal year. In addition, group entities resident in the Slovak Republic must provide notification to the tax authority on whether they are the ultimate parent or surrogate parent, or if neither, the identity and tax residence of the reporting entity. This notification is due by the tax return deadline of the notifying entity (generally three months after the year-end).
Failure to submit the CbC report will result in a penalty of up to EUR 10,000, while failure to submit the reporting notification will result in a penalty of up to EUR 3,000.
Click the following link for the CbC legislation, which must be published in the Official Gazette and will enter into force on 1 March 2017.
Thailand Introduces Incentives to Support Technology and Software and Digital Content Development Companies and Extends Incentive for Capital Investment
On 8 February 2017, a release was published by the National News Bureau of Thailand announcing that the Board of Investment has approved measures to promote ten targeted technology industries, including biotechnology, nanotechnology, advanced manufacturing technology, digital technology, as well as services supporting core technologies such as research and development, occupational training courses on science and technology and electronic design. The measures include a 10-year exemption for corporate income tax, a new visa application process for foreign workers, and a special income tax for highly skilled professionals.
Also announced are measures to support the software and digital content industry, including tax incentives by the Board of Investment, intellectual property protection with guidance from the Ministry of Digital Economy and faster application timelines, and easier access to capital by reducing application procedures and waiving collateral requirements.
Lastly, it was announced that the increased deduction for private capital investment in machines, equipment, facilities, and other assets acquired for expansion activities will be extended to 31 December 2017 (originally to expire 31 December 2016). However, the increased deduction is reduced during the extended period from two times the value of the investment to 1.5 times.
On 10 February 2017, the Ukraine State Fiscal Service (SFS) published guidance letter No. 2991/7/99-99-15-02-01-17, which covers corporate tax amendments for 2017. Key changes/clarifications include:
- Clarification that advance tax paid in respect of the payment of dividends in a period is creditable in determining the tax liability for the period as reported in the corporate tax return, with any excess carried forward to future periods;
- From 1 January 2017, real estate (property) tax is no longer deductible in determining taxable profit (deduction remains available in respect of the 2016 tax year);
- Clarification that the calculation of the tax depreciation value of fixed assets and intangible assets is made without regard to their reassessment (markdown, revaluation) conducted in accordance with accounting;
- Accelerated depreciation of two years on a straight-line basis is introduced for group 4 fixed assets (machinery and equipment), subject to certain conditions including that the acquisition cost of the assets is incurred on or after 1 January 2017 and the assets are used in the taxpayer's own economic activity and not sold or rented to others (unless the taxpayer is in the business of renting)
- A 5% reduced withholding tax rate is introduced on interest payments to non-residents on qualifying loans to Ukrainian residents, provided that the following conditions are met:
- The funds for the loan to Ukrainian residents were obtained through the placement of foreign debt securities on a foreign stock exchange included in a government approved list;
- The funds were received by the nonresident for the purpose of granting (directly or indirectly) loans to Ukrainian residents; and
- The nonresident, or its authorized representative receiving the interest, is not resident in a jurisdiction included in Ukraine's list of low-tax jurisdictions (as on the date the foreign debt securities are placed);
- In relation to the above, an exemption from withholding tax is provided through 31 December 2018 for interest on loans meeting the above conditions;
- A tax holiday (exemption) is introduced through 31 December 2021 for qualifying companies (certain activity restrictions apply) with taxable income not exceeding UAH 3 million in the previous tax period, provided that the wages of each employee of the taxpayer is at least two times the minimum monthly wage (UAH 3,200 - 2017), and one of the following conditions is met:
- The company was formed on or after 1 January 2017;
- The company's taxable income did not exceed UAH 3 million in the three previous years (or since it was formed, if less than three years) and the average number of employees has been between 5 and 20 people during the period; or
- The company was registered for the simplified tax system (single tax) prior to 1 January 2017, revenue from sales of goods or services did not exceed UAH 3 million in the previous period, and the average number of employees has been between 5 and 50 people;
- A corporate tax exemption until 1 January 2025 is introduced for companies engaged in the development or manufacture and final assembly of aircraft and aircraft engines, provided that the amount of tax not paid is reinvested in R&D work on aircraft, establishment or upgrading of logistics, increased production, or introduction of new technologies.
The amendments are generally effective 1 January 2017.
According to a recent announcement from the Bolivian Ministry of Finance, draft legislation has been submitted to parliament to increase the rate of additional tax that applies for certain financial institutions with a return on equity index higher than 6%. As proposed, the additional tax rate would be increased from 22% to 25% from 2017 to fund programs and projects in education, health, infrastructure, and others. Affected financial institutions are those regulated by the Supervisory Authority of the Financial System (ASFI).
According to recent reports, the Cayman Islands Ministry of Financial Services, Commerce and Environment has launched a consultation with industry stakeholders on the introduction of Country-by-Country (CbC) reporting requirements. The proposed CbC reporting requirements would reportedly apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting an annual consolidated group revenue threshold of EUR 750 million (USD 850 million threshold also being considered). In line with BEPS Action 13 guidelines, the requirements would apply for ultimate parent entities resident in the Cayman Islands, as well non-parent constituent entities if the ultimate parent is not required to submit a report in its jurisdiction of residence, there is no agreement for exchange of CbC reports with ultimate parent's jurisdiction, or there is a systemic failure for exchange. Additional details of the proposed requirements will be published once available.
The tax information exchange agreement between Chile and Uruguay entered into force on 4 August 2016. The agreement, signed 12 September 2014, is the first of its kind between the two countries and generally applies from the date of its entry into force for tax periods beginning on or after that date.
Japan's Ministry of Finance has announced that the tax information exchange agreement with Panama will enter into force on 12 March 2017. The agreement, signed 25 August 2016, is the first of its kind between the two countries. It will apply for criminal tax matters from the date of its entry into force and for other matters from 1 January 2013.
The income and capital tax treaty between Kosovo and the United Arab Emirates was signed on 20 May 2016. The treaty is the first of its kind between the two countries.
The treaty covers Kosovo personal income tax and corporate income tax, and covers U.A.E. income tax and corporate tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through employees or other engaged personnel for a period or periods aggregating more than 6 months.
- Dividends - 5%
- Interest - 5%
- Royalties - 0%
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
- Gains from the alienation of immovable property situated in the other State;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares or other comparable interest deriving more than 50% of their value from immovable property situated in the other State, except for shares listed on a recognized stock exchange.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation.
Article 28 (Anti-abuse Clause) provides that the provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 21 (Other Income) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment.
The final protocol to the treaty provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from natural resources and its associated activities situated in the territory of the respective Contracting State, as the case may be.
The treaty will enter into force 30 days after the ratification instruments are exchanged and will apply from 1 January of the year in which the treaty enters into force.
On 7 to 10 February 2017, officials from Rwanda and Turkey held a second round of negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.