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Approved Changes (5)

China

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China Issues Strengthened Transfer Pricing Rules Concerning Royalties and Service Fees

China's State Administration of Taxation has recently issued Public Notice No. 16 2015. The Notice, dated 18 March 2015, contains strengthened transfer pricing rules concerning service fees and royalties paid by a Chinese enterprise to a foreign related party, and clarifies the application of certain articles of the Enterprise Income Tax (EIT) Law. The main elements of the Notice are summarized as follows:

  • Based on Article 41 of the EIT Law, any expense paid by a Chinese company to a foreign related party will not be deductible if not in compliance with the arm's length principle.
  • Based on Article 43 of the EIT Law, the tax authorities can require companies to provide their signed contracts or agreements with related parties, and also provide proof that a transaction actually took place.
  • Any expense paid to a foreign related party will not be deductible if the foreign party undertakes no functions, no risks, and no substantial business activities.
  • In regard to service fees paid to foreign related parties, the fees paid will not be deductible in any of the following cases:
    • The services are not relevant to the Chinese company's functions, risks, or business activities,
    • The services are for the control, management and supervision of the Chinese company in order to protect the interests of the company's direct or indirect investors,
    • The services are duplicated, i.e. already supplied by a third party or carried out by the company itself,
    • Although the company received additional benefits due to services being provided in its group by related parties, no specific services were provided to the company itself,
    • Compensation for the services was paid in other related-party transactions, or
    • Any other case where the company did not receive any direct or indirect economic benefits from the service
  • In regard to royalties paid to a foreign related party for the use of intangibles, it must be considered how much each party has contributed to the creation of the value of the intangible property, and the payment made accordingly. If royalties are paid to a related party that holds the title to intangible property but does not contribute to the value of the property, the royalties paid will not be deductible.
  • If a Chinese company establishes a foreign holding company or financing company for the purpose of an initial public offering and royalties are paid to a foreign related party after benefiting from the public offering, such royalties will not be deductible.
  • Based on Article 123 of the EIT Law, if expenses paid to a foreign related party are found to be non-compliant with the arm's length principle, a special tax adjustment may be applied for up to 10 years following the year in which the transaction occurred.

Public Notice No. 16 2015 applies from the date it was issued.

Luxembourg-France-Germany-Italy-Poland-European Union

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Luxembourg to Increase VAT Rate on E-Books While Other EU Countries Pushing to be Allowed to Use Reduced Rates

Luxembourg has announced that effective 1 May 2015, the value added tax (VAT) rate applied for e-books will be the standard rate of 17% instead of the reduced rate of 3%. The change follows the decision of the European Court of Justice published 5 March 2015, that applying a reduced rate for e-books was not compliant with EU law. A similar decision was published the same date concerning France's VAT treatment of e-books.

While Luxembourg has complied and will increase the rate, other EU countries are pushing to be able to apply the currently permitted reduced rate for printed books to e-books as well. France, Germany, Italy and Poland have called on the European Commission to bring about the necessary changes needed to enable EU Member States to apply reduced rates.

Thailand

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Thailand to Delay VAT Rate Increase

According to recent reports, the Thai government has confirmed it will delay an increase in the value added tax rate due to lackluster economic growth. The rate will stay at 7%. The country had been planning to increase the rate to 8% effective 1 October 2015 if the economy improved.

Thailand's previous standard rate of 10% was reduced to 7% as part of special economic measures taken after the 1997 Asian financial crisis, and has been extended multiple time over the years.

United Kingdom

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Scotland Issues Bands and Rates for Land and Buildings Transactions Tax and Landfill Tax

The Scottish Government has issued The Land and Buildings Transaction Tax (Tax Rates and Tax Bands) (Scotland) Order 2015 and the Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2015, both made 17 March 2015. The rates are set under the tax authority of Revenue Scotland, which was established by the Revenue Scotland and Tax Powers Act 2014 for the collection of taxes devolved under the Scotland Act 2012.

The land and buildings transactions tax replaces the UK stamp duty land tax. The tax bands and rates are as follows:

Residential Property

  • up to GBP 145,000 - 0%
  • GBP 145,001 to 250,000 - 2%
  • GBP 250,001 to 325,000 - 5%
  • GBP 325,001 to 750,000 - 10%
  • over GBP 750,000 - 12%

Non-residential property

  • up to GBP 150,000 - 0%
  • GBP 150,001 to 350,000 - 3%
  • over GBP 350,000 - 4.5%

Net present value (NPV) Percentage of rent payable

  • up to GBP 150,000 - 0%
  • over GBP 150,000 - 1%

The Landfill Tax replaces the UK Landfill Tax, although the rates are set to match the UK rates for 2015-2016. The standard rate is set at GBP 82.60 per tonne, and the lower rate for certain qualifying materials is set at GBP 2.60 per tonne.

The orders come into force 1 April 2015, with the tax bands and rates applying from that date.

United Kingdom

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UK Issues Order Increasing VAT Registration Threshold

The UK HM Treasury has issued the Value Added Tax (Increase of Registration Limits) Order 2015, made 17 March 2015. The Order adjusts the registration and deregistration thresholds for value added tax (VAT) purpose for persons who make taxable supplies or acquisitions from other EU Member States. The thresholds are amended as follows:

  • Standard registration threshold is increased from GBP 81,000 to GBP 82,000, and
  • The deregistration threshold is increased from GBP 79,000 to GBP 80,000 when making taxable supplies, and increased from GBP 81,000 to GBP 82,000 when making acquisitions

In determining if the thresholds are met, sales/acquisitions during the previous 12 months are looked at.

The change applies from 1 April 2015.

Treaty Changes (2)

Hungary-Serbia

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SSA between Hungary and Serbia has Entered into Force

The social security agreement between Hungary and Serbia entered into force on 1 December 2014 and generally applies from that date. The agreement, signed 29 November 2013, replaces the 1957 agreement between Hungary and the former Yugoslavia as it applied in respect of Serbia.

Russia-Serbia

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SSA between Russia and Serbia Initialed

Following a final round of negotiations, officials from Russia and Serbia initialed a social security agreement on 13 February 2015. The agreement is the first of its kind between the two countries, and must be signed and ratified before entering into force.

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