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Approved Changes (3)

India

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Indian Appellate Tribunal Holds Taxpayer's Acceptance of Tax Authorities Transfer Pricing Position in Earlier Year does Not Equate to Consent in Later Years

In a recently published ruling from the Delhi Income Tax Appellate Tribunal, the Tribunal ruled on whether a taxpayer's acceptance of a set of comparables as part of an earlier mutual agreement procedure (MAP) can be used against the taxpayer in subsequent years.

The case involved Turner International India Pvt. Ltd (TII), which distributes satellite channels in India. In the 2005-06 and 2006-07 tax years, TII had related party transactions related to subscriptions fees, marketing, distributions rights and others. Because the transactions were considered closely interlinked, TII used the transactional net margin method (TNMM) to determine the arm's length price. Due to a lack of comparable channel distribution companies, TII chose retail distribution companies as comparables, which it determined had a similar average margin.  

In reviewing TII's transfer pricing during audit, the transfer pricing officer accepted the use of TNMM, but rejected the comparables chosen. Instead, the officer chose comparable service companies, which included training and staffing companies, print and digital publishers, and registrar and transfer agents. In choosing the comparables, the officer relied on an earlier MAP during which TII accepted the use of similar comparables. Based on the new comparables, the officer determined that an adjustment was need of approximately INR 57 million, which was appealed by TII.

In its decision, the Tribunal sided with TII. It determined that TII assumed normal risk, and that choosing distributors as comparables was more appropriate than choosing service companies. Furthermore, the Tribunal found that TII's acceptance of service companies as comparables during the earlier MAP did not provided any justification for the transfer pricing officer to use such comparables for the years at issue.  

Romania

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Romania Clarifies Additional Deduction for R&D Expenses

On 13 July 2016, an order clarifying the research and development expenses eligible for an additional 50% deduction was published in Romania's Official Gazette. The additional deduction applies for the following main expenses when related to R&D:

  • Personnel expenses;
  • Rental expenses;
  • Maintenance and repair expenses;
  • Expenses incurred with third-party providers; and
  • A portion of overhead expenses.

In addition, increased depreciation is allowed for assets used in R&D.

In order for the additional deduction for qualifying expenses to apply, they must be related to qualifying R&D activities. Qualifying R&D activities include applicative research and/or technological development relevant to the taxpayer’s activity, which must be performed in Romania or in an EU/EEA Member State.

United States

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New U.S. Disclosure Rules for Resource Extraction Issuers May be Fulfilled with Similar Reports Filed in Canada or the EU

On 27 June 2016, the U.S. Securities and Exchange Commission announced the adoption of new resource extraction issuers disclosure rules. Under the rules, an issuer is required to disclose payments made to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals, and is required to file annual reports with the Commission under the Securities Exchange Act. The issuer must also disclose payments made by a subsidiary or entity controlled by the issuer. Payments or a series of related payments that equal or exceed USD 100,000 must be disclosed, including: taxes; royalties; fees (including license fees); production entitlements; bonuses; dividends; payments for infrastructure improvements; and, if required by law or contract, community and social responsibility payments. The disclosure must be made at the project level.

The required disclosure will be filed publicly with the Commission on Form SD no later than 150 days after the end of its fiscal year. If a resource extraction issuer is subject to similar reporting requirements under another reporting regime that is substantially similar to the new requirements, such other report may be used to fulfill the obligation. For this purposes, the Commission has determined that the current reporting requirements of the European Union Accounting and Transparency Directives, Canada’s Extractive Sector Transparency Measures Act, and the U.S. Extractive Industries Transparency Initiative (USEITI) are substantially similar to the Commission’s rules.

Click the following link for the press release.

Proposed Changes (4)

France

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France Considering Tax Measures to Promote Investment

During the recent Europlace Financial Forum, French Prime Minister Manuel Valls announced tax measures that the government is currently considering in order to promote investment in the country, especially in the financial sector. The measures include:

  • Reducing the statutory corporate income tax rate from 33.33% to 28% by 2020;
  • Reducing local taxes;
  • Extending the period of individual income tax benefits for "inpatriates" coming to work in France from five years to eight years; and
  • Introducing an exemption from the salary tax for "inpatriates" - salary tax is paid by companies not subject to VAT on at least 90% of their turnover, which generally includes financial institutions.

Additional details of the proposed measures will be published once finalized.

Isle Of Man

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Isle of Man Consultation on Draft Record Keeping Regulations

On 12 July 2016, the Isle of Man Income Tax Division issued a consultation document on draft record keeping regulations - Income Tax (Accounting Records) (Retention) Regulations 2016. The regulations have been drafted in relation to the Isle of Man's commitments as a member of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. Although the Isle of Man has received a compliant rating from the peer review process all Forum members must undergo, an upcoming 2017 review will include stricter standards regarding accounting records that the Isle of Man will need to meet.

The draft regulations cover:

  • The relevant entities to which the regulations apply;
  • The determination of the adequacy of accounting records;
  • The preservation of accounting records, which must be kept at least five years;
  • The duty to produce accounting records;
  • Provision for accounting records kept outside the Isle of Man; and
  • Related fines and penalties, and rights to appeal and mitigation of penalties.

The proposed regulations are subject to approval, and if approved, will have immediate effect.

Click the following link for the consultation document - Enhanced Requirements for Accounting Records. Comments are due by 26 August 2016.

Jamaica

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Jamaica Joins Inclusive Framework for Implementation of BEPS Measures

According to a 15 July 2016 update from the OECD, Jamaica has joined the Inclusive Framework for the global implementation of the BEPS Project, bringing the total number of participants to 85. As a member of the Framework, Jamaica has committed to the implementation of four minimum standards, including those developed under Action 5 (Countering Harmful Tax Practices), Action 6 (Preventing Treaty Abuse) and Action 14 (Dispute Resolution), as well as Country-by-Country (CbC) reporting under Action 13 (Transfer Pricing Documentation).

Click the following link for the list of participants.

Sweden

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Sweden Considering Public Tax Policy Disclosure Requirements

As part of the Swedish government's plan to prevent tax evasion, the government has reportedly instructed the Swedish Tax Agency (Skatteverket) to develop a proposal on ways to better engage companies in relation to their tax policies. One method under consideration is to introduce a requirement for large companies to publically disclose their tax policies, which may involve requirements similar to those introduced in the UK that require companies to publish their tax strategies online if meeting certain thresholds (previous coverage).

Treaty Changes (1)

Turkey-Uganda

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Turkey and Uganda Conclude Tax Treaty Negotiations

The Turkish Revenue Administration has announced that officials from Turkey and Uganda concluded negotiations with the initialing of an income tax treaty during an 11 to 12 July 2016 meeting. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force.

Additional details will be published once available.

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