Worldwide Tax News
Guernsey Publishes CbC Reporting and Notification Guidance
The Guernsey Government has published new guidance, Country by Country Reporting: Reporting Practicalities. Guernsey's CbC reporting requirements apply for fiscal years beginning on or after 1 January 2016 for MNE groups meeting the standard EUR 750 million consolidated group revenue threshold in the previous year. The guidance provides additional details on the submission of initial CbC notifications, as well as the submission of full CbC reports.
With respect to CbC notifications, the guidance provides that:
- For Guernsey resident ultimate and surrogate parent entities, notification must be provided within 6 months following the close of the reporting fiscal year. Notification is to be made through Information Gateway Online Reporter (IGOR), which is currently being expanded for CbC purposes and is to be ready by the end of 2017. In the meantime, notifications may be sent via email to firstname.lastname@example.org.
- For Guernsey resident constituent (non-parent) entities, notification including details of the reporting entity for the group should be given annually on the company tax return (30 November following account period).
With respect to full CbC reports, the guidance provides that reports should be submitted within 12 months following the close of the reporting fiscal year via the IGOR platform. The reports will be made in XML format on the OECD Schema. The guidance also provides general guidance on the content of the CbC report, which must be in line with OECD guidance.
India Issues New Rules for Valuing Unquoted Shares
The Indian Central Board of Direct Taxes has issued Notification No. 61/2017, which includes new rules for the determination of the fair market value of unquoted equity shares.
As provided in the notification, the fair market value of unquoted equity shares = (A+B+C+D-L) × (PV)/(PE), where:
- A = book value of all the assets (other than jewelry, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by,
- any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and
- any amount shown as assets including the unamortized amount of deferred expenditure which does not represent the value of any asset;
- B = the price which the jewelry and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer;
- C = fair market value of shares and securities as determined in the manner provided in this rule;
- D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property;
- L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely:
- the paid-up capital in respect of equity shares;
- the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;
- reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
- any amount representing provision for taxation, other than the amount of income-tax paid, if any, less the amount of income-tax claimed as a refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
- any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
- any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;
- PV = the paid up value of such equity shares; and
- PE = total amount of paid up equity share capital as shown in the balance-sheet.
The new rules will come into force on 1 April 2018, and will apply in relation to assessment year 2018-19 and subsequent years.
Malaysia Clarifies Withholding Tax on Services Performed Abroad
The Inland Revenue Board of Malaysia recently published two practice notes regarding the changes in withholding tax requirements on service payments introduced as part of the Finance Act 2017 (Act 785), which include that payments for services to non-residents are now subject to a 10% withholding tax, regardless of where the services are performed. The two practice notes clarify the application of the new rules.
The first practice note clarifies that the change applies from 17 January 2017 and that the 10% withholding tax is applicable for services performed outside Malaysia:
- When contracts are signed and services are performed after 17 January; and
- When contracts are signed before 17 January and the services are performed after 17 January (payments for services performed under contract prior to 17 January remain exempt).
The 10% withholding tax is not applicable:
- When contracts are signed and services are performed before 17 January, but payment is made after 17 January; and
- When contracts are signed and payment is made before 17 January, but the services are performed after 17 January.
The second practice note clarifies that despite the new withholding rules, Malaysia's right to impose withholding tax on service payments is restricted under certain tax treaties. This includes that no withholding tax applies for services performed outside Malaysia under the tax treaties with Singapore and Spain, and that no withholding tax applies for services (wherever performed) under the tax treaties with Australia and Turkmenistan.
Uruguay Regulates Beneficial Ownership Reporting Requirement
Uruguay has published Decree No. 166/017 of 26 June 2017, which regulates the new ultimate beneficial ownership reporting requirements that were introduced by the Law on International Tax Transparency and Identification of Beneficial Ownership, enacted in January 2017. The reporting requirements apply for most resident entities, as well as certain non-resident entities. Ultimate beneficial owners to be reported include individuals that directly or indirect hold at least 15% of the capital or voting rights of the entity, or otherwise exercise ultimate control. The Decree sets out the reporting obligation, required information, associated penalties, and timing for submission. Basic requirements are summarized as follows.
The obligation applies for resident public limited companies, partnerships limited by shares, trusts and investment funds, limited liability companies, and several other entity types, although certain exemptions apply. With respect to non-resident entities (regardless of legal form), the obligation applies to:
- Entities with a permanent establishment in Uruguay;
- Entities with their place of effective management in Uruguay; and
- Entities that hold assets in Uruguay in excess of UI 2.5 million based on the UI value as at the end of the previous year (~USD 300,000 based on end of 2016 rate).
The initial deadline for the electronic submission of ultimate beneficial ownership information is within 60 days of:
- 1 August 2017, in the case of entities obliged to report by Law No. 18,930 of 17 July 2012 (issuers of bearer shares); and
- 1 May 2018, in other cases.
Where there is a change in ownership information altering the percentage of participation, the change should be reported within 30 days (90 days if ultimate beneficiaries are non-resident).
Note - The indexed unit (Unidad Indexada - UI) is adjusted daily based on the consumer price index. As at 31 December 2016, 1 UI = UYU 3.5077 (~USD 0.12).
Russia Considering New Progressive Personal Income Tax Rates
The Russian State Duma (lower house of parliament) is currently considering draft legislation that would introduce Tax Code amendments for the introduction of new progressive personal income tax rates that would replace the current 13% flat rate. The proposed rates are as follows:
- up to RUB 100,000 - 5%
- RUB 100,001 up to 3,000,000 - 13%
- RUB 3,000,001 up to 10,000,000 - 18%
- RUB 10,000,001 and over - 25%
Click the following link for the draft legislation page (Russian language). If approved, the new rates would apply from 1 January 2018.
Update - UK BEPS Measures in Second Finance Bill
A number of BEPS-related measures were originally included in the Finance Bill for 2017, but were ultimately removed in the enacted version. The government has now announced that a second Finance Bill for 2017 will be introduced in autumn 2017 in order to enact the measures that were left out, including the new rules regarding
- Carried-forward losses;
- Corporate interest deduction restrictions;
- Profits from the exploitation of patents: cost-sharing arrangements;
- Hybrids and other mismatches; and
- Digital tax record requirements for smaller businesses (Making Tax Digital).
In general, these new rules are unchanged from the original proposals and will apply for the 2017/18 tax years as originally planned, although some modifications will be made and the final provisions are still subject to change.
It has also been confirmed that the timetable for Making Tax Digital has been modified so that the new digital record-keeping requirements will apply for VAT purposes from 2019, and for other taxes from 2020 at the earliest.
Tax Treaty between Angola and Turkey under Negotiation
On 11 to 12 July 2017, officials from Angola and Turkey met to discuss the negotiation of several bilateral agreements, including an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
Cambodia and Thailand Agree to Continue Tax Treaty Negotiations
According to an update from Cambodia's General Department of Taxation, officials from Cambodia and Thailand met 13 to 14 July 2017 to discuss bilateral cooperation, including the continuation of negotiations for an income tax treaty, which first began in June 2015. Any resulting treaty will be the first of its kind between the two countries and must be finalized, signed, and ratified before entering into force.
Protocol to Tax Treaty between China and Pakistan has Entered into Force
China's State Administration of Taxation has announced that the 2016 protocol to the 1989 income tax treaty with Pakistan entered into force on 24 April 2017. The protocol, signed 8 December 2016, is the third to amend the treaty. This third protocol clarifies that for the exemption for "State Banks" under Article 11 (Interest) as amended by the second protocol (2007), the Industrial and Commercial Bank of China and the Silk Road Fund are included as "State Banks", but only for the purpose of interest income they derive from loans in Pakistan for the Energy Projects mentioned in the 2014 China-Pakistan Economic Corridor Energy Projects Cooperation Agreement.
The protocol generally applies from the date of its entry into force.
Croatia Looking to Conclude Tax Treaty with the U.S.
The Croatian Government has reportedly expressed the need to continue negotiations and conclude an income tax treaty with the U.S. during a recent meeting between officials from the two sides. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signs and ratified before entering into force.
SSA between India and Quebec has Entered into Force
The social security agreement between India and Quebec, Canada entered into force on 1 April 2017. The agreement, signed 26 November 2013, is the first of its kind the two jurisdictions and generally applies from the date of its entry into force.
Moldova Approves Signing of Tax Treaty with Georgia
The Moldovan Government reportedly approved on 19 July 2017 the signing of an income tax treaty with Georgia. The treaty will be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
New Zealand Court Holds Resident May Claim China Tax Sparing Credit for CFC
A recent decision of the High Court of New Zealand has been published concerning whether a New Zealand resident is eligible to claim a tax sparing credit granted in China to that resident's controlled foreign corporation (CFC). The case involved a New Zealand resident individual that held a 30% stake in two Chinese companies that were deemed CFCs for New Zealand tax purposes. As such, income of the two companies was attributed to the resident, although no income was ever received. The income amounted to NZD 4.605 million, resulting in a tax assessment of approximately NZD 1.796 million, with a credit of NZD 926,968 for Chinese tax paid.
Under Chinese domestic tax law, tax concessions were available to the Chinese Companies, so they were relieved of Chinese tax which would otherwise have been imposed, which amounted to NZD 588,135. The resident claimed that a credit for the tax spared in China should be creditable against their tax liability in New Zealand; however, the tax authorities denied the claim.
In its decision, the High Court found in favor of the resident individual. In coming to its decision, the Court reviewed the provisions of Article 23 (Methods for the Elimination of Double Taxation) in the 1986 China-New Zealand tax treaty, as amended (1997), and in particular Article 23(2)(a), which concerns tax relief granted by New Zealand, and Article 23(3), which provides for a tax sparing credit for tax that has been exempted or reduced under Chinese law. One of the main points was an evaluation of the meaning of the phrase "in respect of" in relation to the provision under Article 23(2)(a) allowing a credit for Chinese tax paid in respect of income derived by a New Zealand tax resident. The Court found that the phrase "in respect of" suggests that a more expansive interpretation is appropriate, including that income derived by a CFC in China and attributed to a New Zealand resident may be considered as income derived by the New Zealand resident for the purpose of double taxation relief provisions of the treaty, including the tax sparing credit.
Spain Approves Pending SSA with China
On 21 July 2017, the Spanish Cabinet approved the pending social security agreement with China. The agreement, signed 19 May 2017, is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.