Worldwide Tax News
China's State Administration of Taxation (SAT) has published Public Notice 64/2016 on new procedures for the improvement of the administration of advance pricing agreements (APAs). Key points of the notice include:
- Companies may enter into APAs with the tax authorities on the transfer pricing principles and methods used for its related party transactions for future periods;
- Unilateral, bilateral and multilateral APAs are available, and all involve the following six-stage process:
- Pre-filing meeting;
- Letter of intent for the APA;
- Review and evaluation;
- Formal application;
- Negotiation and signing; and
- Execution and supervision of implementation;
- APAs may apply for three to five years beginning from the year in which the in-charge tax authority issues the Notice of Tax Matters to the applicant, signaling the tax authority's acceptance of the letter of intent (may also apply to up to ten prior years if in relation to the same or similar related party transactions);
- For an APA to be applicable, a company must generally have related party transactions exceeding CNY 40 million per year in the three consecutive years prior to the year in which the tax authority issues the Notice of Tax Matters to the applicant;
- In order to begin the APA process, a company must submit a written request to the in-charge tax authority for a pre-filing meeting (in the case of bilateral and multilateral APAs, a written request must also be submitted to the SAT).
While similar to the previous APA procedures, there are a number of differences. One of the main differences is the level of documentation required at the pre-filing meeting stage, which includes descriptions of:
- The years to be covered;
- The transactions to be covered and the related parties;
- The organizational and management structure of the applicant's group;
- The applicant's business operations for the previous three to five years and its contemporaneous transfer pricing documentation;
- The division of the functions and risks between the related parties;
- The market conditions, including industry trends and competitive environment;
- Geographical advantages, such as specific cost savings, market premium, or other advantages;
- Whether the APA is to apply for past years; and
- Any additional relevant information.
For bilateral and multilateral APAs, the following must also be provided:
- The application for the APA with the competent tax authorities of the other jurisdiction(s);
- The business operations and related party transactions of the related parties for the previous three to five years; and
- Whether there are any issues involving international double taxation and a description.
During the pre-filing meeting stage, the applicant may also need to provide additional information if requested by the tax authority.
If agreement is reached during the pre-filing stage, the applicant may then submit the letter of intent for the APA and the draft application package. In addition to the documentation submitted at the pre-filing stage, the application package must also include:
- The proposed transfer pricing methodology and calculation method to be used in the APA, as well as the functional and risk analysis, comparability analysis, and assumptions used;
- A value chain or supply chain analysis, with a focus on the consideration of location specific advantages;
- Annual information on business scale, performance forecasts, and plans for the period covered by the APA;
- Relevant domestic and international laws and regulations that affect the APA; and
- An explanation that none of the specified circumstances for refusal of an APA exist.
The specified circumstances where the tax authority may refuse to accept the letter of intent for the APA include:
- The applicant is under special tax investigation or other tax related investigations that are not yet closed by the tax authorities;
- The applicant has failed to file the annual reporting forms for related party dealings of enterprises;
- The applicant has failed to prepare, maintain, and provide contemporaneous transfer pricing documentation; or
- The tax authorities and the applicant cannot otherwise reach agreement at the pre-filing stage.
If the letter of intent and draft application package are accepted, the process will continue with the review and evaluation, formal application, negotiation and signing, and the execution and supervision of implementation.
The new procedures are effective from 1 December 2016. Any pending APA applications not accepted by the effective date will be subject to the new procedures.
Click the following link for Public Notice 64/2016 (Chinese language).
On 20 October 2016, the OECD announced the launch of a new website that shows all exchange relationships that are currently in place for the automatic exchange of financial account information under the Common Reporting Standard (CRS). The relationships shown include those under the framework of Article 6 of the Mutual Assistance Convention and the CRS Multilateral Competent Authority Agreement, as well as exchange relationships based on bilateral agreements and the EU framework.
To date, 101 jurisdictions have committed to automatic exchange under the CRS by September 2017 or 2018.
On 17 October 2016, the Swiss Federal Tax Administration published Circular 2-144-D-2016 (French language), which sets out interest rates for 2017. For tax arrears, the interest rate is 3%; for advance tax payments, the rate is 0%. The Circular also sets out the maximum deduction amounts for supplementary pension contributions for 2017, which are CHF 6,788 for employees and CHF 33,840 for the self-employed.
On 17 October 2016, Malta's Minister of Finance Edward Scicluna submitted the draft budget for 2017 to parliament. The main tax-related measures are in relation to certain investments, including:
- A Risk Investment Scheme tax credit of up to EUR 250,000 for investments in small and medium-size enterprises (SMEs) registered on an alternative trading platform administered by the Malta Stock Exchange;
- An exemption from tax on capital gains from the transfer of shares in newly listed companies on the Malta Stock Exchange when owned prior to listing; and
- The possibility to claim a refund of tax withheld on dividends distributed by listed companies, provided that the shareholder holds no more than 0.5% of the nominal share capital.
The government is also planning to introduce measures in 2017 to provide for tax consolidation of groups and to equalize the tax treatment of debt and equity. Additional details of those plans will be published once available.
On 20 October 2016, the Japanese Ministry of Finance announced that officials from Austria and Japan have agreed in principal on a new income tax treaty that will replace the 1961 treaty. According to the announcement, the new treaty expands the extent of the reduction of taxation on investment income (dividends, interest and royalties), introduces arbitration proceedings to the mutual agreement procedure, and introduces assistance in the collection of taxes.
The new tax treaty will be signed after the necessary internal procedures have been completed by each of the two governments.
According to an announcement from the Liechtenstein government, officials from Austria and Liechtenstein signed a protocol to the 2013 withholding tax agreement between the two countries on 17 October 2016. The 2013 agreement provides for the regularization of untaxed assets of Austrian residents held in Liechtenstein bank accounts. The protocol amends the agreement with respect to the automatic exchange of financial account information between the two countries, which will apply from 1 January 2017.
Officials from Cambodia and China signed an income tax treaty on 13 October 2016. The treaty is the first of its kind between the two countries, and will enter into force after the ratification instruments are exchanged.
Additional details will be published once available.
On 18 October 2016, the laws ratifying the pending income tax treaties with Cyprus and Hong Kong were published in Latvia's Official Gazette.
The treaty with Cyprus was signed 24 May 2016 and will enter into force once the ratification instruments are exchanged. It will apply from 1 January of the year following its entry into force.
The treaty with Hong Kong was signed on 13 April 2016 and will enter into force once the ratification instruments are exchanged. It will apply in Hong Kong from 1 April of the year following its entry into force and in Latvia from 1 January of the year following its entry into force.