Worldwide Tax News
India Adopts Range Concept and use of Multiple Year Data for Transfer Pricing
On 19 October 2015, India's Central Board of Direct Taxes issued Notification 83/2015, which makes a number of changes concerning the transfer pricing rules under section 92C of the Income Tax Act, 1961. The new rules follow a public consultation launched in May 2015 (previous coverage) on the adoption of the range concept instead of the arithmetic mean concept for determining the arm's length price, as well as the use of multiple year data. The following summarizes the main points of the new rules:
- Taxpayers may use the range concept and multiple year data when using the transaction net margin method, resale price method, or cost plus method;
- For the range concept to be allowed, at least 6 uncontrolled comparables must be selected using a 3-year weighted average, including data for the current year in which the transaction takes place;
- If data is not available for the current year at the time the annual tax return is submitted, data for the immediately preceding financial year must be considered, but if current year data is subsequently available at the time of an assessment, then such data will be used for the assessment;
- The acceptable range for a transaction price to be deemed arm's length is the 35th percentile to the 65th percentile (if outside this range, the arm's length price is the median of the dataset);
- In cases where the conditions for using the range concept are not met, the arithmetic mean concept is to be used, with a plus or minus 3% tolerance band.
The new rules apply for transactions entered into on or after 1 April 2014.
Click the following link for the full text of Notification 83/2015, including examples.
Ireland Publishes Finance Bill 2015 including New Knowledge Box and CbC Reporting Requirements
On 22 October 2015, Ireland's Department of Finance announced that the Finance Bill 2015 was published. The bill includes the measures announced in the 2016 budget (previous coverage), with major measures including:
- A new knowledge development box regime that is in line with the modified nexus approach of Action 5 of the OECD BEPS Project, with a beneficial rate of 6.25%;
- A country-by-country reporting requirement based on guidelines developed as part of Action 13 of the BEPS Project, which will apply for fiscal years commencing on or after 1 January 2016, with the report due within 12 months following the last day of the fiscal year concerned; and
- Implementation of the anti-abuse amendment to the EU Parent-Subsidiary Directive, so that the benefits of the Directive will not be granted to an arrangement or series of arrangements that are not genuine and are only made to obtain the benefits of the Directive.
Subject to Oireachtas (parliament) approval, the measures will generally apply from 1 January 2016.
Morocco's 2016 Budget Submitted to Parliament including New Progressive Corporate Tax Rates
Morocco's draft budget measures for 2016 were recently submitted to parliament. The main tax-related measure is replacing the current standard corporate tax rate of 30% with progressive rates as follows:
- up to MAD 300,000 - 10%
- over MAD 300,000 up to 1 million - 20%
- over MAD 1 million up to 5 million - 30%
- over MAD 5 million - 31%
The current 37% corporate income tax rate for banks, financial institutions, and insurance companies would remain
Other key tax-related measures include:
- The dividends withholding tax exemption rules for offshore holding companies would be amended so that the exemption will apply based on the proportion of profits derived from activities that qualify for lump-sum taxation;
- The ability of loss companies to carry forward a credit for the 0.5% minimum corporate income tax for up to three years would be abolished;
- The VAT rate for railway transport would be increased from the 14% reduced rate to the standard 20% rate;
- The availability of VAT refunds would be expanded for certain investments, equipment acquisitions and agricultural inputs, instead of being limited to only entities engaged in VAT exempt activities and newly established entities;
- The requirement to file returns and pay taxes electronically would be expanded to cover all taxpayers from the 2017 tax year; and
- The statute of limitations for the tax authorities to claim outstanding tax liabilities would be extended from 4 years to 10 years in cases of fraud.
Unless otherwise indicated above, the change are to apply from 1 January 2016.
U.K. Consults on Interest Expense Deduction and Patent Box Rules based on Outcomes of the OECD BEPS Project
On 22 October 2015, the UK HMRC launched two public consultations, including on bringing interest expense deduction rules in line with the outcome of Action 4 of the OECD BEPS Project and bringing the patent box regime in line with Action 5 of the BEPS Project. The UK agrees with the recommendations developed under the BEPS Project and has launched the consultations to obtain input on how to best implement the needed changes.
The basic recommendation of BEPS Action 4 is implementing a fixed ratio rule that allows an entity to deduct net interest expense up to a net interest/EBITDA ratio within a range of 10%-30%, as well as an optional group ratio rule based on a net interest/EBITDA ratio or other group rule. For the implementation of new rules, the consultation poses 18 questions covering a number of areas, including:
- When the rules should be implemented, which is not likely before 1 April 2017;
- Whether the rules should apply only to multinational groups, or to domestic groups and stand-alone companies as well;
- What the definition of interest subject to the rules should include/exclude;
- What percentage (10%-30%) should be used for the fixed ratio limit;
- Whether a group ratio rule should be introduced; and
- What level a de minimis threshold should be, if any.
The basic recommendation of BEPS Action 5 regarding patent box (IP) regimes is that a modified nexus approach should be adopted to ensure that the benefits of a regime are aligned with value creation and that non-compliant regimes be abolished by 1 July 2016 for new entrants. The approach uses a nexus ratio of qualifying expenditure / total expenditure, which reduces the benefit based on expenditure for R&D activities outsourced to related parties. The consultation patent box regime poses 17 questions covering a number of areas, including:
- Whether the definition of IP profits needs amending (UK government considers current definition already consistent with Action 5);
- Whether it should be required that the nexus ratio be calculated for each separate stream in all cases;
- In what exceptional circumstances should a taxpayer be able to rebut the determination of eligible income and be allowed to prove that more income should be permitted;
- Whether the definition of R&D and expenditure should be based on the current definitions for the R&D tax credit, including rules for calculating direct and subcontracted expenditure;
- At what level should the expenditure and profits be tracked, and the factors where a company would not be required to track to the level of individual IP assets; and
- How long companies will need to adapt to an amended regime (grandfathering period).
Legislation to amend the patent box regime will be included in the 2016 Finance Bill.
Responses for the interest expense deductibility consultation must be submitted by 14 January 2016.
Responses for the patent box regime consultation must be submitted by 4 December 2015.
Ireland Concludes Tax Treaty Negotiations with Azerbaijan and Turkmenistan
According to a recent update from Irish Revenue, Ireland has concluded tax treaty negotiations with Azerbaijan and Turkmenistan. The treaties are the first of their kind between Ireland and the respective countries, and must be signed and ratified before entering into force.
Additional details will be published once available.
Tax Treaty between Senegal and the U.A.E Signed
On 22 October 2015, officials from Senegal and the United Arab Emirates signed an income tax treaty. The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
Additional details will be published once available.