Worldwide Tax News
Malaysia's Finance Act 2017 (Act 785) was published in the Federal Gazette on 16 January 2017. The Act includes various amendments to the Income Tax Act, Petroleum (Income Tax) Act, Real Property Gains Tax Act, and others. Main measures include:
- Service payments to non-residents are made subject to withholding tax (10%), regardless of where the services are performed;
- The definition of royalties is expanded to also include payments for:
- The use of, or the right to use, software;
- The reception of, or the right to receive, visual images or sounds, or both, transmitted to the public by satellite, or cable, fiber optic or similar technology;
- The use of, or the right to use, visual images or sounds, or both, in connection with television broadcasting or radio broadcasting, transmitted by satellite, or cable, fiber optic or similar technology; and
- The use of, or the right to use, some or all of the part of the radio frequency spectrum specified in a relevant license;
- New rules are introduced with respect to revising incorrect tax returns submitted where there was no chargeable income (previously, revisions generally only allowed for taxpayers with chargeable income);
- The penalties for failure to furnish country-by-country report are established, which include a penalty of MYR 20,000 to 100,000, imprisonment for up to six months, or both (Malaysia's CbC report requirements were published in December 2016 - previous coverage);
- The lower income tax rate for SMEs (paid-up capital not exceeding MYR 2.5 million) is reduced from 19% to 18% on chargeable income up to MYR 500,000.
Malaysia is also planning to introduce a special scheme for the 2017 and 2018 years of assessment that provides for a reduction of the standard income tax rate on the year-on-year increase in chargeable income of companies (previous coverage). This was not provided for in the Finance Act, but is expected to be introduced through an exemption order.
Click the following link for the Finance Act 2017 as published.
Mali's Parliament adopted the Budget for 2017 on 16 December 2016 and the Finance Act for 2017 was enacted on 21 December. The main change is the introduction of new transfer pricing rules. Previously, Mali had no specific transfer pricing regime, although the tax authority was empowered to adjust the tax base when transactions with non-resident parties are not conducted at arm's length. The main aspects of the new transfer pricing rules are as follows:
- Related parties are defined to include where one party has direct or indirect capital ownership of 50% or more, or has effective decision-making power in the other, or where multiple parties are controlled by a third party meeting the same conditions;
- The transfer pricing rules apply regardless of two parties being related for transactions undertaken with a non-resident party located in a low-tax jurisdiction (lower than Mali's rate by 10% or more) or a non-cooperative jurisdiction (lack of transparency or exchange of information with Mali)
- Taxpayers under audit are required to disclose the following information within one month of request by the tax authorities (possible extension up to three months):
- The nature of relationships with non-resident companies;
- A description of activities with non-resident companies;
- The transfer pricing method used to determine prices for transactions with non-resident companies;
- The foreign tax treatment of operations undertaken with non-resident dependent companies;
- Transfer pricing documentation requirements are introduced that include:
- Group-level documentation, including general description of legal structure, business activity, functions performed and risks assumed, intangible assets, and transfer pricing policy; and
- Taxpayer-specific documentation, including details of business activities, related-party transactions, the transfer pricing methods used, the comparable analysis, and a list of cost-sharing agreements and advance pricing agreements (APAs) entered into;
- Failure to meet the new requirements will result in a penalty equal to 5% of profits deemed transferred abroad, with a minimum penalty of 5 million CFA franc; and
- Taxpayers are allowed to request APAs from the tax authority.
The new transfer pricing provisions generally apply from 2017. Additional details will be published once available.
Uruguay Issues Criteria for Low/No Tax Jurisdictions and Regimes and Clarifies Withholding Tax on Deemed Notional Dividends
On 13 February 2017, Uruguay’s Ministry of Economy and Finance issued a decree setting out the criteria for low or no tax jurisdictions and tax regimes. The criteria include:
- Income from activities performed, goods located, or rights economically used in Uruguay are taxed at an effective rate lower than 12% in such jurisdiction or under such regime; and
- There is no tax information exchange agreement or tax treaty with exchange of information provisions with such jurisdiction or there is no effective exchange of information.
The criteria apply from 1 January 2017 and are in relation to the measures regarding low or no tax jurisdictions and regimes introduced in Law No. 19.484 (previous coverage) and the increased withholding tax rate of 25% introduced in Law No. 19.438 (previous coverage). A government list of specific jurisdictions and regimes will be issued.
In addition, the Ministry has clarified the new rules regarding the notional deemed dividend requirements introduced in Law 19.438. Under the law, undistributed profits retained for more than three years (less increases in working capital, investment in other resident entities, and certain other deductions) are treated as a notional deemed dividend to owners/shareholders on which tax must be withheld. The decree clarifies that the obligation to withhold tax is on the company with the retained earnings and that where the shareholder/owner is a non-resident and a tax treaty would apply, the amount of tax withheld is the lower of the domestic rate and the treaty rate.
According to recent reports, Venezuelan President Nicolás Maduro announced on 19 February 2017 that the tax unit (unidad tributaria - TU) value will be increased from VEF 177 to VEF 300 effective 1 March 2017. The tax unit is used as a reference value for a number of tax purposes, including determining applicable progressive income tax rates, deductions, penalties, and others.
The increase will result in the following corporate income tax brackets:
- up to VEF 600,000 (2,000 TU) - 15%
- over VEF 600,000 (2,000 TU) up to VEF 900,000 (3,000 TU) - 22%
- over VEF 900,000 (3,000 TU) - 34%
The resolution for the increase will need to be published in the Official Gazette for the change to enter into force. Typically, the resolution for an increase will include provisions for determining which tax year any increase in the TU value applies. In general, a new tax unit value applies for income tax purposes if it has been in effect for at least 183 days in the relevant tax year.
A draft report from the European Parliament Committee on Economic and Monetary Affairs has been published that includes several proposed amendments to the proposed directive for public Country-by-Country (CbC) reporting in the EU. Proposed amendments include:
- Removing the general condition that reported information "should be limited to what is necessary to enable effective public scrutiny, in order to ensure that disclosure does not give rise to disproportionate risks or disadvantages";
- Using the EU Accounting Directive threshold for large companies (EUR 40 million revenue, 250 employees, EUR 20 million balance sheet) as the reporting threshold for ultimate parents resident in the EU instead of the proposed EUR 750 million;
- Using consolidated revenue of EUR 40 million as the reporting threshold for subsidiaries and branches in the EU of non-EU ultimate parent instead of the proposed EUR 750 million;
- Requiring that the report be published in a common template available in an open data format and made accessible to the public on the website of the company and requiring that the report be filed in a public registry managed by the European Commission;
- Increasing the required information in the public CbC report, including information on:
- The value of assets and annual cost of maintaining those assets;
- Sales and purchases;
- The value of investments broken down by tax jurisdiction;
- Stated capital;
- Tangible assets other than cash or cash equivalents;
- Public subsidies received;
- The list of subsidiaries operating in each tax jurisdiction both inside and outside the union and data for those subsidiaries corresponding to the data requirements on the parent undertaking under this article;
- All payments made to governments on an annual basis; and
- Requiring that information be broken down at the jurisdiction level for all jurisdictions vs. the proposed requirement to break down by Member State and certain listed tax havens, while the information for all other non-EU jurisdictions would be aggregated together.
Click the following link for the draft report.
Note, a revised version of the proposed directive for CbC reporting was published in December 2016 (previous coverage), while the draft report amendments outlined above appear to be in respect of the original proposed directive.
On 21 February 2017, the Council of the European Union announced that agreement has been reached during a meeting of the Economic and Financial Affairs Council on a draft directive that introduces rules to address hybrid mismatches with regard to non-EU countries based on OECD BEPS recommendations. The directive compliments and amends the anti-tax avoidance directive adopted in July 2016, which introduced rules addressing intra-EU hybrid mismatches, among other measures (previous coverage). According to the announcement, The Council reached a compromise on the following issues:
- For hybrid regulatory capital, a carve-out from the rules is established for the banking sector. The carve-out will be limited in time, and the Commission will be asked to present a report assessing the consequences;
- For financial traders, a delimited approach is followed in line with that followed by the OECD;
- As regards implementation, a longer timeline is foreseen than that set for the July 2016 directive. Implementation is set for 1 January 2020 (one year later), and for 1 January 2022 as concerns one specific provision (rules regarding reverse hybrid mismatches).
Click the following link for the draft directive agreed to. The Council will adopt the directive once the European Parliament has given its opinion. Once adopted, Member States will have until 31 December 2019 to transpose the directive into national laws and regulations.
Singapore Finance Minister Heng Swee Keat delivered the Budget for 2017 on 20 February 2017. The main tax changes for businesses as provided in an annex to the budget speech include:
- Increasing the cap for the 50% corporate income tax rebate from SGD 20,000 to SGD 25,000 for Year of Assessment (YA) 2017, and extended the rebate to YA 2018, but with a reduction to 20% and a cap of SGD 10,000;
- Extending the Withholding Tax exemption on payments made to non- resident non-individuals for structured products offered by Financial Institutions until 31 March 2021;
- Extending the Tax Incentive Schemes for Project and Infrastructure Finance until 31 December 2022, except for the remission of stamp duty, which will end 31 March 2017;
- Introducing an Intellectual Property Regime to incentivize the exploitation of IP arising from R&D activities of the taxpayer in compliance with the modified nexus approach developed as part of BEPS Action 5 from 1 July 2017 (existing incentives will no longer be awarded from that date, although existing incentive recipients will be grandfathered until 30 June 2021);
- Refining the Finance and Treasury Centre scheme by streamlining the qualifying counterparties for certain transactions;
- Enhancing the Global Trader Program by removing certain qualifying counterparty requirements, expanding the scope of transactions qualifying for the concessionary tax rate (5% or 10%), and increasing the substantive requirement to qualify;
- Withdrawing the Tax Deduction for Computer Donation scheme effective 20 February 2017;
- Withdrawing the Accelerated Depreciation Allowance for Energy Efficient Equipment and Technology scheme effective 1 January 2018;
- Allowing the accelerated Writing-Down Allowances for acquisition of Intellectual Property Rights for Media and Digital Entertainment content scheme to lapse in respect of IP rights acquired after the last day of the basis period for years of assessment 2018;
- Allowing the International Arbitration Tax Incentive to lapse after 30 June 2017;
- Allowing the Approved Building Project scheme to lapse after 31 March 2017;
- Introducing a safe harbor rule for payments under Cost Sharing Agreements for R&D projects made on or after 21 February 2017 that allows taxpayers to claim a tax deduction equal to 75% of the payments;
- Extending the Withholding Tax exemption on payments for international telecommunications submarine cable capacity until 31 December 2023;
- Extending the Aircraft Leasing Scheme until 31 December 2022 with some refinements; and
- Extending the Integrated Investment Allowance scheme until 31 December 2022 with some refinements.
Other budget measures potentially impacting businesses include:
- Extending the SME working capital loan program for two years;
- Extending the wage credit scheme, special employment credit, and additional special employment credit;
- Establishing an International Partnership Fund to provide government co-investment with Singapore-based firms to help them scale-up and internationalize;
- Delaying the increase in the foreign worker levy for the marine and process sectors for one year; and
- Introducing a carbon tax of SGD 10 to 20 per ton in 2019.
Click the following link for the Singapore Budget 2017 webpage for more information.
On 17 February 2017, officials from Azerbaijan and Denmark signed an income tax treaty. The treaty is the first of its kind between the two countries, although the 1986 tax treaty between Denmark and the former Soviet Union had applied in respect of Azerbaijan, but was terminated. Additional details will be published once available.
On 16 February 2017, Brazil's National Congress approved for ratification the pending income tax treaty with Russia. The treaty, signed 22 November 2004, is the first of its kind between the two countries.
The treaty covers Brazilian federal income tax, and covers Russian tax on profits of organizations and income tax on individuals.
- Dividends - 10% if the beneficial owner is a company directly holding at least 20% of the paying company's capital; otherwise 15%
- Interest - 15%
- Royalties - 15%
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; 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.
Both countries apply the credit method for the elimination of double taxation.
Article 28 (Limitation of Benefits) provides that the competent authorities of a Contracting State may deny the benefits of the treaty to any person, or with respect to any transaction, if in their opinion the granting of such benefits would constitute an abuse of the Convention in view of its purposes. Article 28 also provides that if a Contracting State introduces legislation in terms of which offshore income derived by a company from:
- banking, financing, insurance, investment or similar activities; or
- being the headquarter, co-ordination centre or similar entity providing administrative services or other support to a group of companies which carry on business primarily in other States,
is not taxed in that State or is taxed at a rate of tax which is significantly lower than the rate of tax which is applied to income from similar onshore activities, the other Contracting State is not be obliged to apply any limitation imposed under the treaty on its right to tax the income derived by the company from such offshore activities or on its right to tax the dividends paid by the company.
In addition to Article 28, Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) each include that the provisions of those articles 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 treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
On 16 February 2017, officials from Burundi and the United Arab Emirates signed an income tax treaty. 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 17 February 2017, officials from Hong Kong and Pakistan signed an income tax treaty. The treaty is the first of its kind between the two jurisdictions.
The treaty covers Hong Kong profits tax, salaries tax, and property tax. It covers Pakistan income tax and super tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 183 days within any 12-month period.
- Dividends - 10%
- Interest - 10%
- Royalties - 10%
- Fees for technical services (managerial, technical, or consultancy) - 12.5%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares of a company deriving more than 50% of its asset value directly or indirectly from immovable property situated in the other Party.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Both jurisdictions apply the credit method for the elimination of double taxation.
Article 28 (Miscellaneous Rules) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty will enter into force once the ratification instruments are exchanged, and will apply in Hong Kong from 1 April of the year following its entry into force and in Pakistan from 1 July next following its entry into force.