Worldwide Tax News
Costa Rica Publishes Final Resolution on New Master/Local File Documentation Requirements
Costa Rica has published resolution DGT-R-16-2017 in the 21 April 2017 edition of the Official Gazette (text begins page 5). The resolution introduces new transfer pricing documentation requirements based on the Master file and Local file requirements developed as part of Action 13 of the OECD BEPS Project. The resolution includes:
- Group information requirements (Master file) with 17 items specified, including details/descriptions of the organizational structure, drivers of business, supply chain for top five products/services, important service contracts, functional analysis, group intangibles strategy/ownership/agreements, group financing, consolidated financial statements, and APAs and other relevant rulings; and
- Local business information requirements (Local file) with 19 items specified, including details/descriptions of local administrative/organizational structure, business strategy, main competitors, transactions by country, comparability analysis, transfer pricing methods used, comparables and adjustments made, APAs and relevant tax rulings, audited financial statements of local entity, and other relevant supporting documentation and information.
The resolution provides that all taxpayers that carryout transactions with related parties shall prepare the documentation and that the documentation must be available upon request. No transaction thresholds or set deadlines are provided.
Resolution DGT-R-16-2017 applies from the date it was published in the Official Gazette.
Croatia Clarifies Applicable Corporate Tax Rate for Non-Calendar Tax Years
The Croatian Tax Administration recently clarified the applicable corporate tax rate for non-calendar tax years given changes in the tax rate resulting from the tax reform measures that entered into force 1 January 2017 (previous coverage). As part of the reform, the standard corporate tax rate is reduced from 20% to 18%, and a reduced corporate tax rate of 12% is introduced for small business with annual revenue up to HRK 3 million. The Tax Administration has clarified that the new rates apply for tax years beginning on or after 1 January 2017, and for tax years that began in 2016 and end in 2017, the 20% corporate tax rate applies for the whole tax year.
Ireland eBrief on Opinions/Confirmation on Tax/Duty Consequences Update Published
Irish Revenue has published eBrief 36/2017, announcing the update of the Tax and Duty Manual regarding opinions/confirmation on tax/duty consequences of a proposed course of action.
Large Cases Division: Opinions/Confirmation on Tax/Duty Consequences of a Proposed Course of Action
Tax and Duty Manual Part 37-00-40 (PDF, 532KB) - Large Cases Division: Opinions/Confirmation on Tax/Duty Consequences of a Proposed Course of Action - has been updated:
- To confirm how a taxpayer should contact LCD to request an opinion/confirmation where: (i) the taxpayer is participating in the Cooperative Compliance Framework; and (ii) the taxpayer is not participating in the Cooperative Compliance Framework; and
- To refer to the additional mandatory information that must be supplied at the time of making a request for an opinion/confirmation where EU and/or OECD exchange of information requirements apply, as set out in Tax and Duty Manual Part 35-00-01 (PDF, 747KB).
IRS Releases Practice Unit on Physical Presence Test for Foreign Earned Income Exclusion
On 24 April 2017, the U.S. IRS published an international practice unit: Physical Presence Test for Purposes of Qualifying for IRC 911 Tax Benefits. The practice unit details the determination of whether a U.S. citizen or resident alien working abroad meets the physical presence test in a foreign country for the purpose of benefiting from the foreign earned income exclusion under IRC 911 (for 2016 maximum exclusion amount is USD 101,300). In general, for the physical presence test to be met, a U.S. citizen or resident alien must have been present in a foreign country or countries for at least 330 days during a consecutive 12-month period.
International practice units are developed by the Large Business and International Division of the IRS to provide staff with explanations of general international tax concepts as well as information about specific transaction types. They are not an official pronouncement of law and cannot be used, cited, or relied upon as such.
Click the following link for the International Practice Units page on the IRS website.
Kenya Transfer Pricing Changes for Residents under Preferential Regimes
As part of the Finance Bill 2017, which includes measures proposed in the 2017/2018 Budget (previous coverage), a new section 18A is inserted in the Income Tax Act that essentially introduces transfer pricing rules for transactions between resident related parties when one is operating in a preferential tax regime and the other is not. In particular, section 18A provides that where a resident entity operating in a preferential tax regime carries on business with a related resident entity not operating in a preferential tax regime and the business results in no profits or less profits than would be expected between independent parties, then the gains or profits of such business will be deemed to be the amount expected if at arm's length. For this purpose, a preferential tax regime, with respect to an item of income or profit, means any legislation, regulation, or administrative practice that provides a preferential rate of taxation to such income or profit, including reductions in the tax rate or the tax base.
U.S. Consultation on Recommendations for 2017-2018 Priority Guidance Plan
The U.S. IRS has issued Notice 2017-28 inviting public comment on recommendations for items that should be included in the 2017-2018 Priority Guidance Plan. The Priority Guidance Plan is developed each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2017-2018 Priority Guidance Plan will identify guidance projects that the Treasury Department and the IRS intend to work on as priorities during the period from 1 July 2017 through 30 June 2018. In reviewing recommendations and selecting projects for inclusion in the 2017- 2018 Priority Guidance Plan, the Treasury Department and the IRS will consider the following:
- Whether the recommended guidance resolves significant issues relevant to many taxpayers;
- Whether the recommended guidance reduces controversy and lessens the burden on taxpayers or the IRS;
- Whether the recommendation involves existing regulations or other guidance that is outdated, unnecessary, ineffective, insufficient, or unnecessarily burdensome and that should be modified, streamlined, expanded, replaced, or withdrawn;
- Whether the recommended guidance would be in accordance with Executive Order 13771 (on Reducing Regulation and Controlling Regulatory Costs), or other executive orders;
- Whether the recommended guidance promotes sound tax administration;
- Whether the IRS can administer the recommended guidance on a uniform basis; and
- Whether the recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance.
Recommendations are due by 1 June 2017 for possible inclusion in the initial 2017-2018 Priority Guidance Plan, although recommendation may be submitted at any time during the year for possible inclusion in updates to the Plan.
Update - Andorra Approves Pending Tax Treaty with the U.A.E.
On 20 April 2017, the Andorran parliament approved for ratification the pending income tax treaty with the United Arab Emirates. The treaty, signed 28 July 2015, is the first of its kind between the two countries.
The treaty covers Andorran corporate income tax, personal income tax, tax on income of non-residents, and capital gains tax on immovable property transfers. It covers U.A.E. income tax and corporate tax.
Article 3 (Income from Hydrocarbons) provides that the treaty will not affect the right of either one of the Contracting States to apply their domestic laws and regulations related to the taxation of income and profits derived from hydrocarbons and its associated activities situated in the territory of the respective Contracting State.
- Dividends - 0%
- Interest - 0%
- Royalties - 0%
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 the 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 (exemption for shares listed on a recognized stock exchange of either Contracting States and shares alienated as part of a corporate reorganization).
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.
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.
Tax Treaty between Cameroon and Vietnam under Negotiation
According to recent reports, officials from Cameroon and Vietnam met in March 2017 for negotiations on 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.
Tax Treaty between the Czech Republic and Sri Lanka under Negotiation
Officials from the Czech Republic and Sri Lanka began negotiations for an income tax treaty on 25 April 2017. Any resulting treaty will be the first of its kind directly between the two countries, and will need to be finalized, signed and ratified before entering into force. Once in force and effective, the new treaty will replace the 1978 tax treaty between Sri Lanka and the former Czechoslovakia, which continues to apply in respect of the Czech Republic and Sri Lanka.
Protocol to Tax Treaty between Latvia and Singapore Signed
The Inland Revenue Authority of Singapore has announced that on 20 April 2017, officials from Latvia and Singapore signed an amending protocol to the 1999 income tax treaty between the two countries. Some of the main changes made by the protocol are as follows:
- Paragraph 3 of Article 5 (Permanent Establishment) is replaced to provide that a construction PE will be deemed constituted if the site, project or activity lasts for a period of more than twelve months (originally nine months) and that a service PE will be deemed constituted if the service activities continue for a period or periods aggregating more than 183 days within any 12-month period (originally no service PE provisions);
- Paragraph 2 of Article 10 (Dividends) is replaced to provide for a 0% withholding tax rate if the beneficial owner is a company; otherwise 10% (originally 5% if holding at least 25% of capital; otherwise 10%)
- Paragraph 2 of Article 11 (Interest) is replaced to provide for a 0% withholding tax rate if the beneficial owner is a company; otherwise 10% (originally just 10%)
- Paragraph 2 of Article 12 (Royalties) is amended to provide for a 5% withholding tax rate (originally 7.5%)
- Paragraphs 1 and 2 of Article 22 (Limitation of Benefit) are deleted - The paragraphs relate to the provision that an exemption or reduction of tax allowed under the treaty in Latvia may be limited to the amount of income remitted to or received in Singapore (as opposed to the full amount of income from Latvian sources); and
- Article 26 (Exchange of Information) is replaced to bring it in line with the OECD standard.
The protocol will enter into force once the ratification instruments are exchange. It will apply in Latvia from 1 January of the year following its entry into force, and will apply in Singapore in respect of withholding taxes from 1 January of the year following its entry into force and for other taxes from 1 January of the second year following its entry into force. The new Article 26 will generally apply from the date of the protocol's entry into force.