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Approved Changes (5)

Australia

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Australia Issues Additional Taxpayer Alerts on Ineligible Claims for R&D Tax Incentive

On 20 February 2017, the Australian Taxation Office (ATO) and the Department of Industry, Innovation and Science jointly issued two additional taxpayer alerts concerning claims for the R&D Tax Incentive for agricultural activities and for software development activities. Related alerts for construction activities and claims for ordinary business activities were issued 9 February (previous coverage).

TA 2017/4 - Claiming the Research and Development Tax Incentive for agricultural activities

The ATO and AusIndustry are reviewing the arrangements of entities that are claiming the R&D Tax Incentive in respect of agricultural activities where some (or all) of the expenditure incurred is on activities which are not eligible R&D activities.

These types of arrangements exhibit some or all of the following features:

  • An agricultural business is being carried on, often by an entity that is not eligible for the R&D Incentive, for example a family trust.
  • The operators of the agricultural business are approached by a promoter/R&D consultant advising that the farming activities that are being carried on are eligible for the R&D Tax Incentive.
  • Where necessary, a new special purpose R&D company may be incorporated in order that the activities are conducted by an entity that is able to claim the R&D tax offset.
  • A company registers one or more activities for the R&D Tax Incentive.
  • The registered activities involve the application of farm products or practices across all or a significant part of a farm or farms.
  • Some or all of the registered activities have the character of ordinary farming activities whose main purpose is the production of crops.
  • The company claims the R&D Tax Incentive for expenditure that is not on eligible R&D activities.

TA 2017/5 - Claiming the Research and Development Tax Incentive for software development activities

The ATO and AusIndustry are reviewing the arrangements of companies that are claiming the R&D Tax Incentive on software development projects where some (or all) of the expenditure incurred is on activities which are not eligible R&D activities.

These types of arrangements exhibit some or all of the following features:

  • A company undertakes a software development project that involves one or more of the following:
    • developing new software;
    • modifying, customizing or upgrading existing software; and
    • acquiring and modifying off-the-shelf software.
  • The software development project includes one or more of the following:
    • undertaking activities that use existing software development knowledge and expertise to achieve the required technical outcomes;
    • undertaking activities that involve business risk rather than technical uncertainty;
    • undertaking activities to replace manual work processes using software technologies that are available in the market and adapted to the requirements of the company; and
    • using existing software technologies as they were intended to be used.
  • Some or all of the registered R&D activities are broadly described and non-specific. For example, they may describe project objectives or business and system requirements that the company is seeking to design and implement.
  • All of the project, or a substantial part of it, is registered as R&D activities.
  • The company includes the whole, or a large proportion, of their expenditure on the software development project in the calculation of their R&D Tax Incentive claim.

TA 2017/5 was also amended through an addendum (TA 2017/5A) published 24 February to further clarify when routine testing steps in software development projects are eligible for the R&D Tax Incentive.

Both tax alerts note that companies are expected to distinguish eligible R&D activities from ineligible ordinary business activities at the time of registration and throughout the conduct of the activities. Proper, detailed and contemporaneous records must be kept to support the registration application and the claim for the R&D Tax Incentive. The onus is on the taxpayer to ensure that the registration and claim for the R&D Tax Incentive are correct. Penalties may apply if the R&D Tax Incentive is incorrectly claimed, but will be significantly reduced if voluntarily disclosed.

Belgium

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Belgium Royal Decree Published to Abolish Advance VAT Payments for Quarterly Return Filers

On 23 February 2017, the Royal Decree of 16 February 2017 was published in Belgium's Official Gazette. The Royal Decree amends Royal Decrees Nos. 1 and 24 on value added tax (VAT) as regards the payment of advance payments by a taxable person filing quarterly returns. The amendments provide for the abolishment of advance VAT payments for quarterly return filers as previously announced by the Belgian Ministry of Finance (previous coverage). The Royal Decree enters into force on 1 April 2017.

Click the following link for the Royal Decree as published in the 23 February issue of the Official Gazette (French and Dutch language).

China

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China Issues Notice on Enhanced Procedures for Claiming Input VAT Deductions on Imported Goods

China's State Administration of Taxation has published Announcement No. 3/2017 on enhanced audit procedures to monitor input VAT deductions on imported goods. According to the announcement, the enhanced procedure is put in place to strengthen import VAT refund management and counter VAT fraud. The enhanced procedures include more detailed information requirements on import VAT payment documentation for customs and an audit procedure by the authorities to verify claims for an input tax deduction from the output tax amount. Where mismatches are found, the input tax deduction will not be allowed.

Denmark

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Danish Tax Authority Publishes Individual Income Tax Table through 2025

The Danish tax authority (SKAT) has published a table summarizing individual income tax rates and thresholds through 2025 based on current legislation. Key points of the table include:

  • Bottom tax rate (state tax - top rate is 15%):
    • 2016 - 9.08%
    • 2017 - 10.08%
    • 2018 - 11.15%
    • 2019 - 12.18%
    • 2020- 12.19%
    • 2021 - 12.19%
    • 2022 and subsequent years - 12.2%
  • Tax rate ceiling (combined state, municipal, and certain other taxes)
    • 2016 - 51.95%
    • 2017 - 51.95%
    • 2018 - 52.02%
    • 2019 - 52.05%
    • 2020- 52.06%
    • 2021 - 52.06%
    • 2022 and subsequent years - 52.07%
  • Health contribution phased out in 2019 (3.0% in 2016, 2.0% in 2017, 1.0% in 2018)
  • Equalization tax phased out in 2020 (4.0% in 2016, 3.0% in 2017, 2.0% in 2018, 1.0% in 2019)

Click the following link for the summary table (Danish language).

Thailand

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Thailand Extends SME Start-Up Tax Holiday

Thailand has published Royal Decree No. 637, which extends the five-year tax holiday for qualifying SME start-ups. The tax holiday was introduced in 2015 for SMEs incorporated between 1 October 2015 to 31 December 2016 with at least 80% of revenue from one of ten targeted industries, including alternative and clean energy, tourism services, advance materials, information technology, research and development, and others. The Royal Decree extends the tax holiday incentive to SMEs incorporated between 1 January 2017 and 31 December 2017.

Note - Qualifying SMEs are those with paid up capital not exceeding THB 5 million (~USD 144,000) and annual revenue not exceeding THB 30 million (~USD 861,000).

Proposed Changes (2)

Isle Of Man

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Isle of Man 2017-18 Budget Delivered

The Isle of Man Minister for the Treasury Alfred Cannan delivered the 2017-18 Budget on 21 February 2017. Main features of the budget include:

  • The income tax rates for companies are maintained at 10% for banking businesses and retail business profits above GBP 500,000; 20% for land and property in the Isle of Man, and 0% for all other income;
  • The income tax lower rate for individuals is maintained at 10% and the higher rate at 20% (Non-resident rate on all income is 20%);
  • The individual income tax personal allowance is increased by GBP 2,000 to GBP 12,500; and
  • The 10% income tax band will apply to the first GBP 6,500 of an individual's taxable income, instead of the current GBP 8,500 limit.

Click the following links for the 2017-18 Budget speech, the full Budget, and a practice note on income tax proposals.

Pakistan

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Pakistan to Implement Common Reporting Standard for Exchange of Financial Account Information

The Pakistan Federal Board of Revenue has published Notification S.R.O. 101 (I)/2017 on draft amendments to implement the OECD's Common Reporting Standard (CRS) for the automatic exchange of financial account information. Under CRS, countries collect information on financial accounts of non-resident's and exchange that information with the respective countries that have also adopted the standard.

Treaty Changes (3)

Germany-India

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New SSA between Germany and India to Enter into Force

According to an announcement from India's Ministry of External affairs, the new social security agreement with Germany will enter into force on 1 May 2017. The agreement, signed 12 October 2011, expands upon and replaces the agreement signed in 2008.

India-Singapore

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Protocol to Tax Treaty between India and Singapore has Entered into Force

The Inland Revenue Authority of Singapore has announced that the new protocol to the 1994 income tax treaty between India and Singapore entered into force on 27 February 2017. The protocol, signed 30 December 2016, is the third to amend the treaty. Changes to the treaty are summarized as follows:

Capital Gains Taxation

The main amendments to the treaty are in relation to Article 13 (Capital Gains) and the 2005 protocol to the treaty, which effectively provided an exemption from tax on gains from the alienation of shares in a company resident in a Contracting State, with the condition that the exemption under the India-Mauritius tax treaty remained in effect (2016 protocol to India-Mauritius treaty removed exemption - previous coverage).

With the new protocol, the taxation of capital gains from shares is transitioned as follows:

  • Shares acquired before 1 April 2017: Gains will remain taxable only in the residence state of the alienator, subject to the condition that the expenditure on operations of the alienator in its residence State is at least SGD 200,000 if Singapore resident or INR 5 million if Indian resident for each of the 12-month periods in the immediately preceding 24 months from the date on which the gains arise (these are conditions for the alienator to not be deemed a shell/conduit company);
  • Shares acquired on or after 1 April 2017:
    • For gains that arise during the period 1 April 2017 to 31 March 2019, the tax rate imposed on such gains will be limited to 50% of the tax rate applicable on such gains in the State in which the company whose shares are alienated is resident, subject to meeting the above annual expenditure condition for the immediately preceding 12 months from the date on which the gains arise;
    • For gains that arise after 31 March 2019, the gains will be taxable in the State in which the company whose shares are alienated is resident.

The protocol also provides that the benefits of the transition (exemption / 50% taxation) will not apply if the alienator's affairs were arranged with the primary purpose to take advantage of the benefits.

Other Changes

In addition to the capital gains taxation changes, the new Protocol also:

  • Amends Article 9 (Associated Enterprises) to provide for both countries to enter into bilateral discussions for the elimination of double taxation arising from transfer pricing or pricing of related party transactions; and
  • Adds Article 28A (Miscellaneous), which includes the provision that the treaty will not prevent a Contracting State from applying its domestic law and measures concerning the prevention of tax avoidance or tax evasion.

Effective Date

The protocol applies from 1 April 2017.

Lithuania-Singapore

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Lithuania and Singapore Sign Competent Authority Agreement for Exchange of Financial Account Information

According to an update from the Inland Revenue Authority of Singapore, a competent authority agreement for the automatic exchange of financial account information was signed with Lithuania on 23 February 2017. Under the agreement, each country will automatically exchange information on accounts held in the respective country by tax residents of the other country based on the OECD Common Reporting Standard (CRS). The automatic exchange is to begin by September 2018 for information collected on the 2017 reporting year.

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