Worldwide Tax News
India Circular on Relief from Indirect Transfer Provisions for Multi-Tier Investment Structures
India's Central Board of Direct Taxes has issued Circular No. 28/2017, which addresses the taxation of indirect transfers involving an investment fund or a venture capital company or a venture capital fund (specified funds) that are set up as multi-tier investment structures. Section 9(1)(i) of the Income-tax Act, 1961, sets out the provisions for income deemed to accrue or arise in India, including income from the transfer of foreign shares or interests that directly or indirectly derive their value substantially from assets located in India (previous coverage).
The Circular notes that under the Finance Act 2017, Category I and II foreign portfolio investors were exempted from the indirect transfer provisions. However, the indirect transfer provisions may still apply in situations involving multi-tiered investment structures, where an interest or share is held indirectly by a non-resident in a specified fund. If an interest is redeemed in an upstream entity outside India as a consequence of the transfer of shares or securities held in India by the specified funds, the income of which has been subject to tax in India, then the application of the indirect transfer provisions on such redemption may lead to multiple taxation of the same income.
In order to address the issue, the Board has decided that the indirect transfer provisions will not apply in respect of income accruing or arising to a non-resident on account of redemption or buyback of its share or interest held indirectly (i.e. through upstream entities registered or incorporated outside India) in the specified funds, provided that such income accrues or arises from or in consequence of a transfer of shares or securities held in India by the specified funds and such income is chargeable to tax in India. However, this exemption will only apply where the proceeds of redemption or buyback arising to the non-resident do not exceed the pro-rata share of the non-resident in the total consideration realized by the specified funds from the said transfer of shares or securities in India. Further, it is clarified that a non-resident investing directly in specified funds will continue to be taxed as per the provisions of the Act.
Ireland Extends CbC Report Deadline for First Year
Irish Revenue has published eBrief No. 107/17, which announces that for the first reporting fiscal year (year ending 31 December 2016), the Country-by-Country reporting deadline is extended from 31 December 2017 to 28 February 2018.
Country-by-Country Reporting (DAC 4) - Filing Update
Ireland’s Country-By-Country (CbC) Reporting filing obligations are contained in Section 891H of the Taxes Consolidation Act 1997 and the Taxes (Country-by-Country Reporting) Regulations 2016.
The first CbC Reports are due to be filed by relevant taxpayers in Ireland by 31 December 2017. An electronic CbC Reporting filing system has been developed by Revenue and the system includes a standard validation module that is being provided by the EU Commission. However, due to late changes to the CbC Reporting schema, the final version of the validation module is not yet available.
As a result, there will be a delay in Revenue making the CbC Reporting filing system available. It is expected that the tested version of the validation module will be received in mid-December and integrated with the Revenue system shortly thereafter.
Due to the late availability of the CbC Reporting filing facility, it will remain open for, and accept, CbC Reports for fiscal years ending in 2016 up to 28 February 2018. This will allow large multinational enterprises (MNEs) to file their CbC Reports and to meet their reporting obligations.
Please note that the electronic CbC Reporting notification filing facility continues to be operational. Customers should ensure that they provide their notifications to Revenue, as required by the CbC Reporting legislation, as soon as possible if they have not already done so. The filing of a notification is a prerequisite to enable the subsequent filing of Reports.
Revenue will issue a further update when the required validation module has been received.
Any inconvenience to affected customers is regretted.
Netherlands Social Security Rates for 2018
The Netherlands has published the regulation issued by the Ministry for Social Affairs and Employment that sets the social security contribution rates for 2018. The total state social security components are maintained at 27.65%, including general old-age social security (AOW) 17.90%, surviving dependent (spouse) social security (ANW) 0.10%, and long-term care (WLZ) 9.65%. These contributions are included as part of the first two individual income tax brackets, although for individuals aged 66 and older, the total contribution is reduced.
The employer paid social security contributions for 2018 set in the regulation are as follows:
- General unemployment insurance (AWF) - 2.85%
- Redundancy contribution (wachtgeld) - 1.37% (average)
- Government unemployment insurance (Ufo - paid by government employers instead of AWF) - 0.78%
- Occupational disability insurance (WIA) - 6.27%
- Childcare allowance contribution - 0.50%
The maximum salary basis cap for the employer contributions for 2018 is set at EUR 54,614 (annual).
OECD Invites Comments for Fourth Batch of MAP Peer Reviews
On 24 November 2017, the OECD announced the fourth batch of countries that will undergo review as part of the Mutual Agreement Procedure (MAP) peer review and monitoring process for implementation of the minimum standard developed under BEPS Action 14. The fourth batch includes Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand, and Portugal. In connection with the reviews, the OECD is seeking input from taxpayers regarding their experience with the MAP process in the respective countries.
Poland Suspends Retail Sales Tax until 2019
On 15 November 2017, Poland's President, Andrzej Duda, signed into law an amendment to the Retail Sales Tax Act that suspends the effective date of the tax to 1 January 2019. The tax was introduced in September 2016 with progressive rates of up to 1.4% on monthly turnover. However, the European Commission found the tax to be in breach of EU State Aid Rules because its progressive nature would unduly favor certain companies over others (previous coverage). Instead of amending the tax to comply with the decision, Poland has decided to wait for its challenge of the Commission decision to be resolved.
Russia Reintroduces Movable Property Tax from 2018
On 16 November 2017, the Russian parliament reportedly approved a law for the reintroduction of the tax on movable property reported as fixed assets on the balance sheet at a rate up to 1.1%. The law effectively removes an exemption from the tax that has applied since 1 January 2013 by changing the nature of the exemption to an incentive that may only be granted by regional authorities from 1 January 2018. If no particular exemption incentive is passed at the regional level, movable property of companies will be subject to tax from 2018 in the respective region.
Update - Tax Treaty between Bangladesh and Bhutan
The income tax treaty between Bangladesh and Bhutan was signed on 18 April 2017. The treaty is the first of its kind between the two countries.
The treaty covers Bangladesh income tax and Bhutanese income tax, including any surcharges.
The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 120 days.
Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a PE maintained by that resident in the first-mentioned Contracting State.
- Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
- Interest - 10%
- Royalties - 10%
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 value from immovable property situated in the other (the available English text does not specify to what degree shares must derive value from immovable property to be taxable, which appears to be in error).
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. A provision is also included for a tax sparing credit for tax that has been exempted or reduced in a Contracting State for a limited period in accordance with the laws and regulations of that State for tax incentives.
The treaty will enter into force once the ratification instruments are exchanged, and will generally apply in Bangladesh from 1 July of the year following its entry into force and in Bhutan from 1 January of the year following its entry into force.
Tax Treaty between Belgium and Seychelles has Entered into Force
On 24 November 2017, Belgium published in the Official Gazette the Act of 30 June 2015 that authorizes the entry into force (effect) of the income tax treaty with Seychelles, as well as the amending protocol. The notes to the Act specify that the treaty entered into force on 10 September 2015 and the amending protocol entered into force on 22 June 2016. The treaty, signed 27 April 2006, is the first of its kind between the two countries.
The treaty covers Belgian individual income tax, corporate income tax, income tax on legal entities, income tax on nonresidents, and the supplementary crisis contribution. It covers Seychelles business tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12 month period.
- Dividends - 0% if the beneficial owner is a company that has directly held at least 25% of the paying company's capital for an uninterrupted period of at least 12 months; 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
- Interest - 0% for interest on debt-claims or loans of any nature - not represented by bearer instruments - paid to banking enterprises and interest on deposits made by an enterprise with a banking enterprise; 5% for interest paid on commercial debt-claims resulting from deferred payments for goods, merchandise or services supplied by an enterprise; otherwise 10%
- Royalties - 5%
Note - The final protocol to the treaty clarifies that consideration for technical assistance or technical services are not be considered to be payments for information concerning industrial, commercial, or scientific experience for the purpose of Article 12 (Royalties), but may be taxed in accordance with the provisions of Article 7 (Business Profits).
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
Seychelles applies the credit method for the elimination of double taxation.
Belgium generally applies the exemption method. However, with respect to income covered by Article 7 (Business Profits), if the amount of Seychelles tax is less than 15% of the net amount of the income, Belgium will instead reduce to half the Belgian tax which is proportionally relating to that income, calculated as if that income was from Belgian sources.
For dividends, Belgium will apply the exemption method under the conditions and within the limits provided for in Belgian law. However, Belgium will apply the credit method if the dividends are included in a company's aggregate income for Belgian tax purposes and are not exempted under Belgian law.
For interest and royalties, Belgium generally applies the credit method, subject to the provisions of Belgian law.
Article 27 Limitation on Benefits provides that the benefits of the treaty will not apply for a resident of a Contracting State if the main purpose or one of the main purposes of such resident or connected person was to obtain the benefits of the treaty.
The amending protocol to the treaty, signed 14 July 2009, amends Article 24 (Exchange of Information).
The treaty, as amended by the protocol, applies from 1 January 2016.
Cape Verde Approves Pending Tax Treaty with Mauritius
According to recent reports, the Cape Verde Council of Ministers approved a pending income tax treaty with Mauritius on 26 October 2017. The treaty, signed 13 April 2017, 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.
Tax Treaty between Hong Kong and Latvia has Entered into Force
The income tax treaty between Hong Kong and Latvia entered into force on 24 November 2017. The treaty, signed 13 April 2016, is the first of its kind between the two jurisdictions.
The treaty covers Hong Kong profits tax, salaries tax, and property tax. It covers Latvian enterprise income tax and personal income tax.
If a company is considered resident in both Contracting Parties, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement. If no agreement is reached, the company will not be entitled to claim any benefits provided by the treaty.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting Party through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.
- Dividends - 0% if the beneficial owner is a company or a pension fund; otherwise 10%
- Interest - 0% if the beneficial owner is a company or a pension fund; otherwise 10%
- Royalties - 0% for royalties paid for the use, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience, provided that the royalties are paid by a company resident in one Contracting Party to a company resident in the other Party; otherwise 3%
The following capital gains derived by a resident of one Contracting Party may be taxed by the other Party:
- Gains from the alienation of immovable property situated in the other Party;
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Party; and
- Gains from the alienation of shares or a comparable interest of any kind deriving more than 50% of their value directly or indirectly from immovable property situated in the other Party, with an exception for:
- Shares quoted on a stock exchange as may be agreed to by both Parties, and
- Shares alienated or exchanged in the framework of a reorganization of a company, a merger, a division or a similar operation.
Gains from the alienation of other property by a resident of a Contracting Party may only be taxed by that Party.
Both jurisdictions apply the credit method for the elimination of double taxation.
The treaty applies in Hong Kong from 1 April 2018 and in Latvia from 1 January 2018.
Peru-Mexico Tax Treaty MFN Clause Triggered for Dividends and Interest
The Peru tax administration (SUNAT) has published Report No. 036-2017-SUNAT/7T0000, which announces the triggering of the MFN clause included in the final protocol to the 2011 income tax treaty with Mexico. As a result, the following changes apply where the beneficial owner is a resident Mexico:
- Dividends - the maximum general rate (15%) is replaced with a 10% rate as provided in the 2012 Peru-South Korea tax treaty (original 10% rate subject to 25% ownership no longer applies);
- Interest - the maximum rate (15%) is replaced with a 10% rate as provided in the 2012 Peru-Switzerland tax treaty in respect of interest paid on a credit sale of any industrial, commercial, or scientific equipment, or on any loan granted by a bank; otherwise the standard 15% rate applies.
The Report also notes that the 10% reduced rate on royalties paid for technical services included in both the Korean and Swiss treaties does not apply with respect to the treaty with Mexico.
Because the tax treaties with South Korea and Switzerland apply from 1 January 2015, the changes in withholding tax rates under the Mexico-Peru treaty also apply from that date. As per the provisions of the MFN clause, the reduced rates also automatically apply with respect to payments from Mexico, although it is uncertain if Mexico has confirmed the reduction.