Worldwide Tax News
The Federal Court of Australia recently issued its decision on whether Uber drivers operating in the country are required to collect and remit GST. The case did not involve whether GST is due on supplies of Uber services, but rather whether such supplies are subject to GST if the standard AUD 75,000 GST registration threshold is not met. This depends on whether Uber services constitute a supply of "taxi travel" as defined in the GST Act, which is subject to GST regardless of revenue.
The main point argued by Uber was the meaning of the word "taxi". Uber argued that the meaning includes core features that are consistent across Australia, including that they wait curbside, they can be hailed on the street, they have a meter, and they must generally accept fares from any member of the public. Since these features are not features of Uber services, Uber argued that the services are not within the ordinary meaning of the word "taxi" and do not constitute a supply of "taxi travel".
The Court found, however, that a common sense approach should be taken and that it is inappropriate to pull out individual words of a provision to give meaning. Rather, the text of the provision should be construed according to the context. With this approach, the Court determined that Uber services are a supply of "taxi travel" and therefore Uber drivers must collect and remit GST regardless of meeting the standard registration threshold.
Click the following link for the decision.
Canadian Government Response to Committee Report on Actions to Address Tax Avoidance and Tax Evasion including Support for BEPS Measures
On 23 February 2017, the Canadian government announced that Minister of National Revenue Diane Lebouthillier has tabled the Government's response to the House of Commons Standing Committee on Finance’s report entitled: The Canada Revenue Agency, Tax Avoidance and Tax Evasion: Recommended Actions (previous coverage). In the response, the Government supports all actions recommended in the report, including the recommendation for the Canada Revenue Agency (CRA) to take a lead role in ensuring global implementation of the recommendations resulting from the OECD BEPS Project.
In relation to BEPS, the response notes that the Department of Finance and the CRA have already acted on certain recommendation of the BEPS Project, including:
- Introduction of Country-by-Country reporting;
- Application of revised transfer pricing guidance;
- The spontaneous exchange of tax rulings giving rise to BEPS concerns; and
- Participation in the development of the multilateral instruments for the implementation of treaty-related BEPS recommendations, which Canada will sign in June 2017.
The government, through the Department of Finance in collaboration with the CRA, will continue to examine the remaining BEPS recommendations to ensure a coherent and consistent approach.
Malaysia's Companies Act 2016 entered into force and effect on 31 January 2017. The Act, passed by parliament in April 2016, replaces the Companies Act 1965 and includes a number of changes meant to simplify and improve company incorporation and management in Malaysia overall. According to a notice from Malaysia's Companies Commission (SSM), the Act is implemented with a phased-in approach, with the following main changes applying from 31 January:
- A company may be incorporated by or have only one member and that single member can also be the sole director of the company. However, for public companies, a minimum of two directors is still required.
- As part of the registration process, the SSM will issue a "notice of registration" as opposed to the previous "certificate of registration" to confirm compliance with the law.
- Companies are no longer required to state their authorized capital, but are instead required to notify their issued share capital and paid up capital and the related changes through the return of allotments.
- The concept of shares with nominal value is abolished. Any newly issued shares will no longer be tied with the nominal value when the company was incorporated and companies may issue shares at a price depending on the factors affecting the current circumstances and needs of the company.
- Companies are no longer required to have memorandum and articles of association, but may opt to adopt a constitution. However, for a company limited by guarantee, a constitution is mandatory.
- Companies are no longer required to have a common seal.
- The requirement for private companies to hold an annual general meeting is abolished, and all decisions of private companies can instead be fully made through circular resolutions.
- The dates for lodgment of annual returns and financial statements are decoupled, with annual returns due based on the anniversary of the companies incorporation and financial statements due no later than seven months from the end of the financial year.
The Companies Act also includes provisions for increased sanctions for directors that violate company law, including fines up to MYR 3 million and imprisonment up to 5 years, as well as new debt-restructuring mechanisms for financially distressed companies. It is uncertain if these are also effective from 31 January or to be implemented in a later phase.
Swiss Federal Tax Administration Notes Possible Change in VAT Rates from 2018 Depending on Referendum
On 24 February 2017, the Swiss Federal Tax Administration published a notice on changes in VAT rates from 1 January 2018. The notice concerns the VAT rate changes scheduled to take effect 1 January 2018, including:
- The expiration of the increases introduced in 2011 for supplementary financing on 31 December 2017; and
- The implementation of the increases for railway infrastructure financing from 1 January 2018.
These set changes will result in a change in rates from 8% (normal rate), 3.8% (special rate for accommodation), and 2.5% (reduced rate) to rates of 7.7%, 3.7%, and 2.5% respectively. However, a referendum is planned for September 2017 on an increase in VAT rates to finance retirement reform, which if approved, would result in no change in the respective rates from 2018.
Given that the referendum is relatively late in the year, the notice advises companies to prepare in good time for any adjustments in ERP and settlement systems that may be needed following the referendum.
On 23 February 2017, the U.S. IRS published draft Instructions for Form 8975 and Schedule A (Form 8975), Country-by-Country Report (CbC Report). A U.S. person must file a CbC Report if it is the ultimate parent entity of a U.S. MNE group with revenues of USD 850 million or more in the immediately preceding reporting period. The first required reporting period for an ultimate parent entity is the 12-month reporting period that begins on or after the first day of a tax year of the ultimate parent entity that begins on or after 30 June 2016.
When required, the CbC Report is attached to the income tax return and filed with the IRS by the due date for that return, including extensions. The CbC Report should be attached, if applicable, to Forms 1120, 1065, 1065-B, 1120S, 1120-L,1120-PC, 1120-REIT, 990-T, and 1041. In general, the CbC Report must be filed electronically in the correct format, and not as a binary attachment. However, the instructions provide that in certain cases a paper version may be filed. This includes cases where the filer is filing Form 1120-REIT, Form 990-T, filers of Form 1120-PC and 1120-L that are filing as parent entities, and where filers of Form 1041 choose not to or are not required to file electronically.
In order to enable compliance with the CbC reporting requirements in third countries that already apply for fiscal years beginning 1 January 2016, the IRS will accept voluntary filing for reporting periods beginning on or after 1 January 2016 but before 30 June 2016. For this purpose, the IRS issued Rev. Proc. 2017–23 (previous coverage). It is important to note that in order for third country requirements to be met through voluntary CbC report filing in the U.S., a competent authority agreement for the automatic exchange of CbC reports must be in place. To date, no such agreements have been signed and for certain countries the required underlying exchange agreements (TIEA/Treaty) may not be in place or may not include the required language to provide for automatic exchange.
On 24 February 2017, the Australian Taxation Office published a draft Law Companion Guideline on GST on low value imported goods (LCG 2017/D2). The draft Guideline discusses the amendments proposed by Treasury Laws Amendment (GST Low Value Goods) Bill 2017, which was tabled in Parliament on 16 February 2017 (previous coverage). The broad purpose of the Bill is to ensure that Australian GST is payable on supplies of low value imported goods (less than AUD 1,000) that are purchased by consumers in Australia.
Click the following link for draft LCG 2017/D2. Comments on the draft should be submitted by 24 March 2017.
UK Parliament Rejects Amendment Requiring Overseas Territories to Establish Beneficial Ownership Registries
An amendment to the UK Criminal Finances Bill 2017 was rejected in the House of Commons on 21 February 2017 that would have required the creation of publically accessible registers of beneficial ownership of companies registered in UK overseas territories (previous coverage). Although the amendment was rejected, the UK Government will still work with overseas territories to increase transparency.
UK overseas territories include Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat, and the Turks & Caicos Islands, among others.
The income and capital tax treaty between Austria and Iceland will enter into force on 1 March 2017. The treaty, signed 30 June 2016, is the first of its kind between the two countries.
The treaty covers Austrian income tax and corporation tax. It covers Icelandic income taxes to the state and to the municipalities, and net wealth taxes to the state.
- Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
- Interest - 0%
- Royalties 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; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment 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.
Iceland applies the credit method for the elimination of double taxation, while Austria generally applies the exemption method. However, Austria will apply the credit method in respect of income taxed in Iceland in accordance with the provisions of Articles 10 (Dividends) and 12 (Royalties).
The treaty applies from 1 January 2017 (1 January of the year following the latter notice of ratification, which was given 28 December 2016).
Danish Tax Authority Holds Multiple Projects At Same Property do Not Constitute PE Under Tax Treaty with Germany if Not Clearly Continuous
The Danish tax authority (SKAT) has published a recent binding ruling concerning whether the time spent on two separate construction projects at the same property should be taken in aggregate for the determination of a permanent establishment (PE) under the Danish-German tax treaty. The binding ruling was sought by a German company that undertook construction projects in Denmark. The first project involved the construction of a horse stable, riding hall, certain roof repairs, and other works with a total project time of just under 12 months (period for construction PE to be constituted under the treaty). At the end of the project, the contract was concluded and all invoices were paid. After the conclusion of the first project, a second project was offered to the German company to construct an extension to the stables and make repairs to a separate roof, with an expected project time of approximately seven months. Concerned that the second project may result in a PE along with the first project, the binding ruling was sought.
The binding ruling notes that if the two projects were considered continuous, the total time spent at the property would result in a PE being constituted. However, the tax authority determined that because there was no expectation for a second project at the time the first project was concluded, the building site for PE purposes ceased to exist based on OECD guidance. As a result, the tax authority would not consider the second project to be a continuation of the first, and therefore a PE would not be constituted for the German company.
According to recent reports, officials from the Netherlands and Pakistan met 20 February 2017 to discuss negotiations for a new income tax treaty. The current treaty between the two countries was signed in 1982 and has been in force since that year without amendment.