Worldwide Tax News
Brazil Introduces New Tax Planning Disclosure Requirement and Tax Litigation Reduction Program
On 22 July 2015, Brazil published Provisional Measure (PM) 685 2015 in the Official Gazette. PM 685 introduces a new requirement that corporate taxpayers disclose tax-planning schemes, and establishes the Program for Reduction of Tax Litigation (PRORELIT), a special program to resolve tax disputes.
With the new tax-planning scheme reporting requirement, taxpayers must disclose any transactions in the previous year that resulted in the elimination, reduction, or deferral of federal taxes, if:
- There was no business purpose for the transaction aside from tax savings;
- The form of the transaction is not in line with normal business practices, such as using indirect transactions to achieve the same goal that could have been achieved directly; or
- The transactions is listed by the Federal Revenue Department
The report must be filed annually by 30 September.
If a transaction is not accepted, a notice will be issued to the taxpayer to pay the tax due with interest. If the tax and interest is paid within 30 days of the notice, no additional penalties will apply. However, a 150% penalty will apply for failure to file when required and cases where the report omits essential data to understand a transaction, includes falsified data, and certain other cases.
Under the PRORELIT program for tax disputes, corporate taxpayers will be allowed to end a dispute regarding tax assessments in administrative or judicial cases by offsetting up to 57% of the disputed amount with carried forward corporate income tax (IRPJ) and social contribution on profits (CSLL) losses. This applies for disputed tax debts up to 30 June 2015, using tax losses accrued up to 31 December 2013. It does not apply for tax debts already subject to an installment payment program.
The tax loss amount used for such purpose is limited to 25% of IRPJ losses, and 9% of CSLL losses (15% of CSLL losses for private insurance companies). The balance of the disputed assessment must be paid in cash (at least 43%).
If the amount of eligible losses of the taxpayer does not cover 57% of the tax debt, group tax losses carried forward may be used, including losses of directly or indirectly controlling and controlled companies, and tax losses of a company directly or indirectly controlled by the same company controlling the taxpayer. If group losses are used, the losses of the taxpayer must be applied first.
Application for the program and the necessary payments must be made by 30 September 2015.
UK Launches Consultations on Large Business Tax Compliance Matters and Sanctions for Tax Avoidance Schemes
On 22 July 2015, the UK HMRC launched public consultations on new proposals for improving large business tax compliance and strengthening sanctions for tax avoidance.
Large Business Tax Compliance
The proposals for improving large business tax compliance include:
- A legislative requirement for all large businesses to publish their tax strategy, enabling public scrutiny of their approach towards tax planning and tax compliance;
- A voluntary 'Code of Practice on Taxation for Large Business', which sets out the behaviors which HMRC expects from its large business customers; and
- A narrowly targeted 'Special Measures' regime to tackle the small number of large businesses that persistently undertake aggressive tax planning, or refuse to engage with HMRC in an open and collaborative manner.
Businesses that would be subject to the proposals include those with annual turnover exceeding GBP 200 million and/or a balance sheet total exceeding GBP 2 billion for the preceding financial year.
Concerning the publishing of a business's tax strategy, the type of information to be published would include:
- An overview of internal governance;
- The business's approach to risk management;
- The business's attitude to tax planning and appetite for risk in tax planning (e.g. whether they seek to work in accordance with the spirit – in addition to the letter of the law);
- The business's attitude to their relationship with HMRC; and
- Whether the business's UK Group has a target Effective Tax Rate (ETR), what this is, and what measures the business is taking to maintain or reach this target ETR.
The information could be published on the business’s website, in the annual report and accounts, or other publically available media.
The proposed public disclosure of tax strategies is separate from the country-by-country reporting requirements for large groups that the UK will implement, which will remain confidential and not made publicly available.
The code would be used as part of HMRC’s existing risk management approach. Signing of the code and remaining compliant would be an indicator of lower risk, while not signing would be an indicator of higher risk.
Special measures would apply to high-risk businesses that persist with aggressive tax planning or uncooperative behaviors. Businesses identified for special measures will be put on initial notice, which is a 12-month period during which a company is provided the opportunity to improve its behaviors before the special measures would apply.
Businesses that fail to make improvements in transparency and cooperation would be subject to Strand A sanctions, which include:
- Increased reporting and disclosure requirements between HMRC and the business;
- Withdrawing or limiting the extent to which HMRC provides certainty to businesses – for example, non-statutory clearances or informal opinions on the level of risk attached to proposed transactions; and
- Being named publicly by HMRC as being subject to special measures.
Businesses that fail to make improvements to tax planning would be subject to Strand B sanctions, which include:
- An inability to rely on the defense of “reasonable care” within Schedule 24 of Finance Act 2007, and therefore the charging of any penalties on the basis that the behavior was at least careless, if not deliberate; and
- Being named publicly by HMRC as being subject to special measures.
Strengthening Sanctions for Tax Avoidance
The purpose of the proposal is to target taxpayers that repeatedly engage in tax avoidance schemes. The proposal includes that if a tax avoidance scheme is defeated, a 5-year warning period will be triggered.
During the warning period, the taxpayer would be required to annually certify whether any tax avoidance schemes were entered into. Any schemes entered into during the warning period would be subject to a surcharge if defeated and the warning period reset from the date of defeat (whether defeated during or after the warning period). If three or more avoidance schemes are entered into, the taxpayer will be deemed a serial avoider and subject to increased sanctions, including restrictions on access to tax reliefs.
In addition to the tax avoidance sanctions, the consultation also proposes the implementation of a penalty for the General Anti-Abuse Rule (GAAR). The penalty amount considered is 60% of the tax counteracted under the GAAR.
The consultation period for both runs from 22 July 2015 to 14 October 2015. Click the following links for the Improving Large Business Tax Compliance Consultation Document and the Strengthening Sanctions for Tax Avoidance Consultation Document for more information and instruction for submitting comments.
Tax Collection and Management (Wales) Bill Introduced
On 13 July 2015, the Tax Collection and Management (Wales) Bill was introduced. The Bill puts in place the legal framework for the collection and management of devolved taxes in Wales. In particular, it provides for:
- The establishment of the Welsh Revenue Authority (WRA) whose main function will be the collection and management of devolved taxes;
- The conferral of appropriate powers and duties on WRA (and corresponding duties and rights on taxpayers and others) in relation to the submission of tax returns and the carrying out of enquiries and assessments so as to enable WRA to identify and collect the appropriate amount of devolved tax due from taxpayers;
- Comprehensive civil investigation and enforcement powers, including powers allowing WRA to require information and documents and to access and inspect premises and other property;
- Duties on taxpayers to pay penalties and interest in certain circumstances;
- Rights for taxpayers to request internal reviews of certain WRA decisions and to appeal to the First Tier Tribunal against such decisions; and
- The conferral of criminal enforcement powers on the WRA.
The first taxes to be implemented under the WRA are the land transaction tax and landfill disposals tax, which replace the UK stamp duty land tax and landfill tax. The change is to apply from April 2018. Other devolved taxes include the non-domestic (business) rates and income tax.
The Bill is expected to be approved and receive Royal Assent by spring 2016.
Click the following links for the Tax Collection and Management (Wales) Bill as introduced, and the Explanatory Memorandum.
U.A.E. Planning Implementation of a Corporate Tax Regime
According to recent reports, the government of the United Arab Emirates has drafted legislation for a corporate tax law including a tax rate comparable to rates applied by other countries in the region. Legislation has also been drafted for the relevant tax procedures and the establishment of a federal tax authority.
The process for implementing a corporate tax regime is just in its early stages, and it is unclear when the tax regime would be implemented. Additional details will be published once available.
Cyprus and Ukraine Agree to Sign Protocol to Tax Treaty
According to an announcement published by the Ministry of Finance of Ukraine on 21 July 2015, officials from Cyprus and Ukraine have agreed to sign a protocol to the 2012 income tax treaty between the two countries following a second round of negotiations held 2 July 2015. Ukraine's reasoning for the protocol include that the current treaty provides significantly lower withholding tax rates than are provided in Ukraine's tax treaties with other countries and the treaty is not in line with the OECD Model.
The protocol must be signed and ratified before entering into force, and according to the announcement, will apply no sooner than 1 January 2019.
TIEA between Jersey and South Korea Signed
On 21 July 2015, officials from Jersey and South Korea signed a tax information exchange agreement. The agreement is the first of its kind between the two jurisdictions and is line with the OECD standard for information exchange.
It will enter into force after the ratification instruments are exchanged.
Update - New Tax Treaty between Lesotho and South Africa
The new income tax treaty between Lesotho and South Africa was signed on 18 September 2014. Once in force and effective, the new treaty will replace the 1995 tax income treaty between the two countries, which currently applies.
The treaty covers Lesotho taxes imposed under the Income Tax Act, 1993 (as of 18 September 2014), and covers South African normal tax, dividends tax, the withholding taxes on interest and royalties, and the tax on foreign entertainers and sportspersons.
If a person, other than an individual, is considered resident in both Contracting States, the competent authorities will determine the person's residence for the purpose of the treaty through mutual agreement. If the authorities cannot reach mutual agreement, the person will not be entitled to any relief or exemption from tax provided by the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 90 days within any 12-month period.
- Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
- Interest - 10%
- Royalties - 10%
- Technical fees for services of a technical, managerial or consultancy nature - 7.5%
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;
- Gains from alienation of movable property forming part of the business property of a permanent establishment in the other State; and
- Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated 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.
A protocol to the treaty, signed the same date, includes the provision that if Lesotho and any other country enter into a tax treaty that provides for a lower rate of withholding tax in regard to Articles 11 (Interest), 12 (Royalties) or 13 (Technical Fees), then such lower rate will apply to the Lesotho-South Africa treaty.
The treaty will enter into force once the ratification instruments are exchanged, and will apply 30 days after the date of its entry into force.
The 1995 income tax treaty between Lesotho and South Africa will terminate with effect on the date the new treaty enters into force, and will cease to have effect for any period for which the provisions of the new treaty apply.