Worldwide Tax News
India Clarifies Place of Effective Management for Regional Headquarters
On 23 October 2017, India's Central Board of Direct Taxes issued Circular No. 25 of 2017, which clarifies the application of the place of effective management (POEM) determination guidelines in the case of a regional headquarters structure where employees working in India have responsibility or oversight over the operations in other countries of the region. The POEM guidelines were issued in January 2017 as Circular No. 06 of 2017 and are used in relation to the determination of residence in India (previous coverage).
In general, if a company has an active business outside India, its POEM will be considered outside India as long as the majority of the board of directors (BoD) meetings are held outside India. However, if it is established that the BoD is standing aside and not exercising their powers of management and such powers are being exercised in India, POEM may be considered in India. Circular No. 25 clarifies that the BoD will not be considered to be standing aside when it follows general and objective principles of the global policy of the group laid down by the parent entity that are not specific to any entity or group of entities, including in relation to such areas as payroll, accounting, HR, IT, etc. Based on this, a regional headquarters operating for regional subsidiaries/group companies within the general and objective principles of the global policy of the group in such areas will not, in itself, constitute a case of the BoD standing aside, and such activities of the regional headquarters in India will not serve as a standalone basis for the establishment of POEM in India for the subsidiaries/group companies.
OECD Releases Guidance on Effective Collection of VAT on Cross-Border Sales
The OECD has announced the release of its report on Mechanisms for the Effective Collection of VAT/GST Where the Supplier Is Not Located in the Jurisdiction of Taxation. The report contains guidance to promote the effective collection of consumption taxes on cross-border sales, with a focus on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 "Addressing the Tax Challenges of the Digital Economy" of the BEPS project (BEPS Action 1 report). The new report consists of the following components:
- Chapter 1, provides a general description of basic policy questions and design issues concerning the collection of VAT/GST on supplies of services and intangibles by foreign suppliers;
- Chapter 2, provides an overview of the key policy and design issues for tax authorities to consider when designing and implementing a registration-based collection regime. These considerations may be equally relevant for regimes with specific simplification measures and for registration-based regimes without simplifications; and
- Chapter 3, provides more detailed guidance on the design and practical operation of a simplified registration and collection regime as recommended by the Guidelines (Section C.3.3.) and by the BEPS Action 1 Report (Section 8.2.2 and Annex D).
Note - The "Guidelines" referred to are the International VAT/GST Guidelines released in April 2017.
Hungary to Reduce Employer Social Tax Contribution Rate
Legislation has reportedly been submitted to the Hungarian parliament to reduce the employer social tax contribution rate from 22% to 19.5% from 1 January 2018. The social tax, which applies on the gross income of employees, and was already reduced from 27% to 22% in 2017 with a further reduction to 20% scheduled for 2018.
Protocol to TIEA between the Bahamas and Finland Signed
On 19 October 2017, officials from the Bahamas and Finland signed an amending protocol to the 2010 tax information exchange agreement between the two countries. The protocol is the first to amend the agreement, and reportedly provides changes necessary for the automatic exchange of financial account information under the OECD Common Reporting Standard.
Protocol to Tax Treaty between Cyprus and Mauritius Signed
On 23 October 2017, officials from Cyprus and Mauritius signed an amending protocol to the 2000 income and capital tax treaty between the two countries. The protocol reportedly amends Article 27 (Exchange of Information) to bring it in line with the OECD standard for information exchange. The protocol is the first to amend the treaty and will enter into force after the ratification instruments are exchanged.
Polish Parliament Approves BEPS MLI
On 19 October 2017, the Polish Senate approved the law for the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). The law was approved by the Polish Sejm (lower house of parliament) on 29 September 2017 (previous coverage). The MLI will generally apply for a particular Polish bilateral tax treaty after both Poland and the other party to the treaty have deposited their respective ratification instruments. However, the MLI itself must first enter into force, which requires ratification by five signatories. To date, one country has deposited its ratification instrument (list of signatories and ratification status).
San Marino and Serbia Conclude Tax Treaty Negotiations
On 19 October 2017, officials from San Marino and Serbia concluded negotiations with the initialing of an income tax treaty. The treaty will be the first of its kind between the two countries, and must be signed and ratified before entering into force. Details of the treaty will be published once available.
U.S. Signs CbC Exchange Arrangement with Luxembourg
According to an update to the IRS Country-by-Country Reporting Jurisdiction Status Table, the U.S. signed a competent authority arrangement on the exchange of Country-by-Country (CbC) Reports with Luxembourg on 18 October 2017. The arrangement was not yet published at the time of writing, but will likely be published in the near future and is expected to apply for fiscal years beginning on or after 1 January 2016.