Worldwide Tax News
On 14 November 2017, Taiwan's Ministry of Finance announced the adoption of the three-tiered documentation requirements of BEPS Action 13, including the Master file, Local file, and Country-by-Country (CbC) Report. The new requirements are introduced through an amendment Order to the country's transfer pricing regulations and are effective from the 2017 fiscal year.
The Master file documentation requirements are in line with the BEPS Action 13 guidelines. The Master file is to be prepared by the tax return deadline, although the deadline for submission is within 12 months following the close of the fiscal year. Where there are multiple group entities in Taiwan, one may be designated for submitting the Master File (see notification below).
The Master file should be prepared in Chinese or accompanied by a Chinese translation. However, English may be accepted without a translation, although a translation may be requested and must be submitted within one month of request with a possible one-month extension.
The threshold for the Master file requirement has not yet been set, but is expected in the near future and is to be in line with international practices.
The Local file documentation requirements are an expansion of the previous transfer pricing documentation rules and are in line with the BEPS Action 13 guidelines. As with the previous documentation rules, the Local file must be prepared by the tax return deadline and must be submitted within one month of request, with a possible one-month extension. Current revenue/transaction thresholds may apply in respect of the Local file requirements.
The Local file should be prepared in Chinese or accompanied by a Chinese translation. As with the Master file, English may be accepted without a translation, but a translation must be submitted within one month of request with a possible one-month extension.
The CbC reporting requirements are in line with the BEPS Action 13 guidelines and apply for ultimate parent entities resident in Taiwan, as well as non-parent constituent entities resident in Taiwan if standard secondary local filing conditions are met: foreign ultimate parent not submitting a report, no agreement for exchange of reports, or systemic failure for exchange. Where there are multiple constituent entities in Taiwan, one may be designated in the case of secondary filing. The secondary local filing requirement will not apply, however, if a surrogate parent entity has been designated to submit a CbC report in a jurisdiction that will exchange the CbC report with Taiwan and notification of the designation has been provided to the Taiwanese authority.
When required, CbC reports are generally due within 12 months following the close of the reporting fiscal year. However, when secondary local filing is required due to a systemic failure for exchange, the report will be due within one month following notice from the tax authority, with a possible one-month extension.
The reporting threshold for the CbC report has not yet been set, but is expected in the near future and is to be in line with international practices (likely a near equivalent of EUR 750 million).
In addition to the documentation requirements, Taiwan's standard tax return disclosure requirements are also expanded to include notification on the designated entity responsible for the Master file, as well as reporting entity for the CbC report.
South Africa's Davis Tax Committee has announced the release of six final reports:
- Funding of tertiary education in South Africa;
- Financing a National Health Insurance (NHI) for South Africa;
- Second and final report on base erosion and profit shifting (BEPS) (replaces first report);
- Second and final report on hard-rock mining (replaces first report);
- Oil and gas report coupled with an IMF report on the same topic for the DTC; and
- Tax Administration.
The Davis Tax Committee is only advisory in nature, and makes recommendations to the Minister of Finance. The Minister will take into account the reports and recommendations and will make any appropriate announcements as part of the normal budget and legislative processes. As with all tax policy proposals, these will be subject to the normal consultative processes and Parliamentary oversight once announced by the Minister.
The interim and final versions of the reports can be found on the Library page of the Davis Tax Committee website.
On 14 November 2017, an emergency debate was held in the UK House of Commons to discuss the issues enabling the tax avoidance and evasion uncovered by the so-called Paradise Papers. During the debate, led by Dame Margaret Hodge, a call was put forward for the implementation of public Country-by-Country (CbC) reporting. A provision to allow the government to require a CbC report as part of the public tax strategy disclosures was already approved as part of the Finance Act 2016, although the government has not yet introduced the requirement as it is waiting for international agreement on the matter before moving forward.
The Senate Finance Committee has announced a modification of the chairman’s mark for the Tax Cuts and Jobs Act. Some of the main modifications include:
- A limitation on the net operating loss deduction to 80% of taxable income (determined without regard to the deduction) in taxable years beginning after 31 December 2023.
- A reduction in the proposed deduction for global intangible low-taxed income from 50% to 37.5% for taxable years beginning after 31 December 2025. For taxable years beginning after 31 December 2017, and before 1 January 2026, the proposed 50% deduction for global intangible low-taxed income is unchanged.
- A reduction in the proposed deduction for foreign-derived intangible income from 37.5% to 21.875% for taxable years beginning after 31 December 2025. For taxable years beginning after 31 December 2017, and before 1 January 2026, the proposed 37.5% deduction for foreign-derived intangible income is unchanged.
- A modification that allows taxpayers to elect to preserve net operating losses and opt out of utilizing such net operating losses to offset the mandatory inclusion required of a U.S. shareholder under the transition proposal. The modification also provides rules to coordinate the interaction of existing net operating losses, overall domestic losses, and foreign tax credit carry-forward rules with the income inclusions required under section 965.
- A change in the proposed base erosion payments tax rate of 10% to a rate of 12.5% of the modified taxable income of the taxpayer for the taxable year over an amount equal to the regular tax liability (defined in section 26(b)) of the taxpayer for the taxable year for taxable years beginning after 31 December 2025 (a base erosion payment generally means any amount paid or accrued by a taxpayer to a foreign person that is a related party for which a deduction is allowable, and certain other payments).
- A modification to provide that in the case of a taxpayer who has qualified business income from a partnership, S corporation or sole proprietorship, the amount of the 17.4 % deduction is generally limited to 50% of the taxpayer’s allocable or pro rata share of W-2 wages of the partnership or S corporation or 50% of the W-2 wages of the sole proprietorship (W-2 wage limit does not apply in the case of a taxpayer with taxable income not exceeding USD 500,000 for married individuals filing jointly or USD 250,000 for other individuals).
Click the following link for the description of the chairman’s modification, which also includes a number of new more specific proposals.
Azerbaijan, Saint Kitts and Nevis, and the UAE Sign Multilateral Agreement on Automatic Exchange of Financial Account Information
According to a 10 November 2017 update to the list of signatories, Azerbaijan, Saint Kitts and Nevis, and the United Arab Emirates have signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA). The MCAA provides for the exchange of information under the OECD Common Reporting Standard (CRS). The three countries intend to begin the first exchanges by September 2018.
According to a release from the Belgian government, Finance Minister Johan Van Overtveldt has requested a review of tax treaties with potential tax havens, including the tax treaties concluded with the Isle of Man, Macau, and Seychelles. The release also notes that stricter conditions are being applied for the ongoing treaty negotiations with Andorra.
Update - Belgium has since announced the entry into force of the treaty with Seychelles.
On 27 October 2017, Cambodia's Council of Ministers approved the pending income tax treaties with Brunei, signed 27 July 2017; China, signed 13 October 2016; Singapore, signed 20 May 2016; and Thailand, signed 7 September 2017. The treaties are the first of their kind between Cambodia and the respective countries and will enter into force after the ratification instruments are exchanged. Details of each will be published after their entry into force.
The new income tax treaty between Finland and Germany entered into force on 16 November 2017. The treaty, signed 19 February 2016, replaces the 1979 tax treaty between the two countries.
The treaty covers Finnish state income tax, corporate income tax, communal tax, church tax, interest withholding tax, and non-resident income withholding tax. It covers German income tax, corporation tax, and trade tax, including any surcharges.
- Dividends - 5% if the beneficial owner is company (other than a partnership or German REIT) directly holding at least 10% of the paying company's capital; otherwise 15%
- Interest - 0%
- Royalties - 0%
Note - The final protocol to the treaty includes the provision that dividends and interest may be taxed in the Contracting State in which they arise, and according to the law of that State, provided that they are: a) derived from rights or debt-claims carrying a right to participate in profits, including income derived by a silent partner (stiller Gesellschafter) from his participation as such, or from a loan with an interest rate linked to borrower's profit (partiarisches Darlehen), or from profit sharing bonds (Gewinnobligationen) within the meaning of the tax law of the Federal Republic of Germany; and b) deductible in determining the profits of the debtor of the dividends or interest.
The final protocol to the treaty also includes the provision that Germany retains the right to withhold tax at domestic rates, which will be refunded on application by the taxpayer.
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 shares or other interests in a company deriving more than 50% their value from immovable property situated in the other State; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Finland generally applies the credit method for the elimination of double taxation, while Germany generally applies the exemption method. However, with respect to dividends, Finland will exempt dividends if the Finnish recipient directly holds at least 10% of the German paying company, and Germany will only exempt dividends if the German recipient is a company directly holding at least 10% of the paying Finnish company and such dividends are not deductible for the Finnish company. Further, Germany may apply the credit method for dividends (if not exempted), capital gains from the sale of shares deriving value from immovable property, and certain other items of income in accordance with German tax law.
The treaty applies from 1 January 2018. The 1979 tax treaty between the two countries generally ceases to have effect from that date.