Worldwide Tax News
Argentina has increased the maximum basis cap for social security contributions from a monthly salary of ARS 63,995.73 to ARS 72,289.62 effective 1 March 2016. The employer social security contribution is generally 23% of gross salary or 27% if engaged in service activities, while the employee contribution is generally fixed at 17% of gross salary, subject to the maximum basis cap.
Belgium has published Notice 2017/11103 in the Official Gazette, which sets out the investment allowance rates for the 2017 tax year (2018 assessment year). The following summarizes the applicable allowance rates for specific investment types made by companies:
For all companies:
- 13.5% for investments in patents; environmentally friendly R&D; and energy saving and ventilation systems in hotels, restaurants and bars; and
- 3% for investments encouraging recycle/reuse of packing materials.
For qualifying small companies:
- 13.5% for digital investments;
- 20.5% for investments in security; and
- 8% for other investments.
For companies exclusively engaged in maritime shipping:
- 30% for investment in seagoing vessels.
Similar rates apply for individual taxpayers, as well as certain special rules.
In its decision issued 15 March 2017, the Brazilian Supreme Federal Court ruled on the constitutionality of the inclusion of state value added tax (ICMS) in the basis for calculating the Contribution for the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (COFINS). According to the Court, the amount collected as ICMS is not incorporated into the taxpayer's assets and, therefore, cannot be included in the calculation basis for these contributions. Further, the Court found that the collection of the ICMS does not fall within the sources of social security financing provided for in the constitution, since it does not represent billing or revenue, but rather represents only payments to the state treasury.
According to the Court release, this decision is to be followed by lower courts in more than 10,000 pending cases challenging the inclusion of ICMS. Whether the decision may be applied retroactively, however, is unclear and the government has reportedly requested that the decision apply only from 2018. If applied retroactively and refunds are required, the government has estimated it could amount to as much as BRL 250 billion.
On 9 March 2017, the Delhi Income Tax Appellate Tribunal gave its decision on a case involving a retroactive capital gains tax assessment resulting from changes made by the Finance Act 2012 to the Income Tax Act, 1962 (ITA) regarding the taxation of indirect transfers. The Finance Act 2012 added an explanation to the ITA to clarify that any share or interest in a company or entity registered or incorporated outside India is deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from assets located in India. Substantial was subsequently clarified to mean the underlying Indian assets represent at least 50% of the value of the foreign shares or interest being transferred.
The case involved Cairn UK Holdings Limited (Cairn UK), which in 2006 transferred its holdings in nine Indian subsidiaries to its wholly owned subsidiary, Jersey-based Cairn India Holdings Limited (Cairn Jersey). 100% of the issued share capital of Cairn Jersey was then transferred to the newly-formed Cairn India Limited (also a wholly owned subsidiary of Cairn UK) before its IPO on the Bombay Stock Exchange and the National Stock Exchange of India.
At the time the transactions were executed, no capital gains tax liability arose in India. However, with the 2012 amendments to the ITA and the fact that 100% of the underlying assets involved in the transfer were Indian assets, the transfer was considered an indirect transfer of Indian assets that gave rise to a taxable gain in India. Based on this, the tax authorities began reassessment proceedings in 2014 and in January 2016 issued a final assessment order in the amount of approximately USD 1.565 Billion plus interest of approximately USD 2.75 billion, which Cairn UK appealed.
Cairn UK's main arguments concerned the applicable law at the time of the transactions. This included an argument that the retroactivity of the 2012 amendments was not constitutional, as well as an argument that based on the 1994 India-UK tax treaty, the Indian law at the time the treaty was signed should be the law applied in this case. Cairn UK also argued that no capital gains tax should be levied because it was an internal reorganization that did not increase the wealth of the group, and that no interest penalty should be levied because the provisions regarding indirect transfers did not exist at the time of the transaction.
In its decision, the Delhi Income Tax Appellate Tribunal found in favor of the tax authority. The Tribunal dismissed the constitutional challenge, holding that the Tribunal is not the right forum to rule on such matters. With regard to the tax treaty argument, the Tribunal held that a tax treaty must be interpreted based on current law as it exists. And lastly, with regard to the internal reorganization argument, the Tribunal found it was not a simple internal reorganization as the series of transactions ended with an IPO that resulted in a considerable gain. One argument, however, was accepted by the Tribunal, which held that because Cairn UK could not have foreseen its tax liability at the time of the transactions, it should therefore not be subject to penalty interest.
Malaysia has published amendments to the 2014 vendor development program deduction rules to extend the deduction incentive to 31 December 2020 (was to expire the end of 2016). Under the program, qualifying "anchor companies" are allowed a double deduction for expenditure incurred to carry out activities for the development of vendor companies, including activities related to product quality development, R&D, capability improvement, management improvement, and others.
Russia Clarifies Inclusion of CFC Profits for Consolidated Tax Base Purposes and Indirect Participations
The Russian Ministry of Finance recently issued two guidance letters clarifying the inclusion of CFC profits for Russian tax purposes.
The first letter (03-12-11/3/5790) clarifies the non-inclusion of CFC profits in a consolidated tax base. According to the letter, for determining the corporate tax base for a consolidated group, the tax base is the total income received by all group members less total expense incurred. For this purpose, only income subject to tax at the standard corporate tax rate (20%) as provided for in paragraph 1 of Article 284 of the Tax Code is included. Because paragraph 1 of Article 284 does not apply in determining the tax base for CFC profits, CFC profits of group members cannot be included in a group's consolidated corporate tax base.
The second letter (03-12-11/2/9757) clarifies the inclusion of CFC profits in the taxable income of an entity with an indirect controlling participation in a CFC. According to the letter, if the indirect participation is through other Russian residents that have a controlling participation in the CFC, the amount of CFC profits included in the taxable income of the indirectly participating entity will be reduced by the amount of CFC profits included in the taxable income of the other Russian residents. The amount of reduction is in proportion to the ownership interest in the controlling residents through which the indirect participation is held. If the reduction results in zero CFC profits being included in the taxable income of the indirectly participating entity, no reporting on the indirect participation is required.
Singapore Reduces Seller Stamp Duty Rates and Introduces Additional Conveyance Duties for Property-Holding Entities
The Singapore government has reduced the rates of Seller Stamp Duty on residential properties and introduced an Additional Conveyance Duty for property-holding entities.
Effective 11 March 2017, the rates of Seller Stamp Duty on the sale of residential properties are as follows:
- 12% if held for up to one year (previously 16%)
- 8% if held up to two years (previously 12%)
- 4% if held for up to three years (previously 8%)
- No Seller Stamp Duty if held over three years (previously 4% if held up to four years)
Also effective 11 March 2017, the Additional Conveyance Duty (ACD) is introduced on the acquisition or sale of a property-holding entity (PHE). For the purpose of the ACD, there are two types of PHEs:
- Type 1 PHE - At least 50% of the value of the entities total tangible assets is derived from residential property (market value); and
- Type 2 PHE - The entity:
- Has 50% or more beneficial interest (directly or indirectly) in one or more Type 1 PHE entities (related entities); and
- At least 50% of the value of the total tangible assets of the entity and its related entities is derived from residential property (market value).
In the case of an acquisition of an equity interest in a PHE on or after 11 March 2017, the acquisition will be subject to ACD if the buyer, together with associates, has held at least 50% of the equity interest or voting power in the PHE or will hold at least 50% as a result of the acquisition.
In the case of a sale of an equity interest in a PHE, the sale will be subject to ACD if the seller, together with associates, held at least 50% of the equity interest or voting power in the PHE if acquired on or after 11 March 2016 and disposed of within three years.
The ACD rate is:
- For buyers - Buyer’s Stamp Duty at 1% to 3% (depending on value of underlying property) plus Additional Buyer’s Stamp Duty at 15% (flat rate);
- For sellers - Seller’s Stamp Duty at 12% (flat rate).
In levying the ACD, the tax base is the prevailing market value of the underlying residential property at the time of the acquisition/sale, pro-rated by the percentage of the beneficial equity interest transferred.
Click the following link for more information: e-Tax Guide - Stamp Duty: Additional Conveyance Duties (ACD) On Residential Property-Holding Entities.
On 18 March 2017, a report on tax certainty (uncertainty) prepared by the IMF and OECD was published in response to a request from the G20 Leaders at the summit held in September 2016 in Hangzhou, China. The report provides information from an extensive global survey of more than 700 businesses and companies headquartered in 62 different jurisdictions, as well as 25 predominantly G20 and OECD tax administrations. The main findings from the surveys as provided in the report:
- According to businesses, issues related to tax administration were ranked as among the major drivers of uncertainty in tax systems, with the top two, and three out of the top 10, sources of tax uncertainty deriving from issues related to tax administration. In this regard, the main sources included bureaucracy to comply with the tax legislation, although this may also reflect concern over compliance costs, and inconsistent treatment.
- Concerns over the inconsistent approaches of different tax authorities towards the application of international tax standards ranked high in the business survey.
- Issues associated with dispute resolution mechanisms, including timescales, were also identified as an important driver of uncertainty. In particular, respondents to the business survey highlighted concerns about lengthy decision making of the courts, which may be an aspect of the wider judicial system and not wholly under the tax authorities' control.
- Tax administrations identified taxpayer behavior as an important source of uncertainty, in particular as a result of aggressive tax planning and a lack of cooperation. They also highlighted complexity in legislation, lengthy court procedures, unclear drafting and frequency of legislative changes.
- A key area of agreement in both surveys was that legislative and tax policy design issues are a major source of tax uncertainty, mainly through complex and poorly drafted tax legislation and the frequency of legislative changes.
In order to improve tax certainty, the report recommends:
- Reducing complexity and improving the clarity of legislation through improved tax policy and law design, including avoiding inappropriate retroactivity, ensuring appropriate mechanisms for consultation on proposed or announced legislation, and enhanced guidance;
- Increasing predictability and consistency by tax administrations, through timely issuance of rulings and technical interpretations;
- Improving effectiveness of dispute resolution mechanisms, which should be fair and independent, accessible to taxpayers, and effective in resolving disputes in a timely manner;
- Enhancing tax certainty in the international context for G20 and OECD countries, including through:
- Dispute prevention and early issue resolution programs;
- Robust and effective international dispute resolution procedures;
- Updating of tax treaties through the use of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS;
- Making further progress towards simplified and effective withholding tax collection and treaty relief procedures; and
- Cooperation and coordination on the development of coherent international standards and guidance.
Click the following link for the report, Tax Certainty: IMF/OECD Report for the G20 Finance Ministers.
BEPS Monitoring Group Publishes Report on Multilateral Instrument for Tax Treaty-Related BEPS Measures Implementation
On 16 March 2017, the BEPS Monitoring Group (BMG), a global network of independent researchers on international taxation, published a report analyzing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) (previous coverage). Overall, the report finds that the MLI would be an improvement on existing tax treaty rules, but does find certain aspects concerning, especially for developing countries. In particular, the report recommends that developing countries make the reservation regarding corresponding transfer pricing adjustments and opt out of mandatory binding arbitration, which the report finds would disadvantage developing countries. Aside from these, the report finds that all countries should adopt the provisions of the MLI, and that a decision to opt out of any of the other provisions should only be made after very careful consideration, supported by strong reasons.
Click the following link for the full BMG report.
According to a release from the Ukraine government, Ukraine and Turkey will sign three key agreements in 2017, including an updated income and capital tax treaty, a free trade agreement, and an updated investment protection agreement. With regard to the tax treaty, it is unclear if the two countries are planning to sign a completely new tax treaty or update the current 1996 treaty through an amending protocol.