International Tax News. Edition 91 October 2020 · 2020. 11. 30. · October 20, and creates an...
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International Tax News Edition 91 October 2020 www.pwc.com/its
Transcript of International Tax News. Edition 91 October 2020 · 2020. 11. 30. · October 20, and creates an...
International Tax NewsEdition 91October 2020
www.pwc.com/its
Keeping up with the constant flow of international tax developments worldwide can be a real challenge for multinational companies. International Tax News is a monthly publication that offers updates and analysis on developments taking place around the world, authored by specialists in PwC’s global international tax network.
We hope that you will find this publication helpful, and look forward to your comments.
Welcome
Bernard Moens Global Leader International Tax Services Network T: +1 703 362 7644E: [email protected]
Featured articles
Responding to the potential business impacts of COVID-19 COVID-19 can cause potentially significant people,
social and economic implications for organisations.This link provides information on how you
can prepare your organisation and respond.
In this issue
Legislation Administrative EU/OECD Treaties
Legislation
Argentina adopts broad informative regime requiring domestic and international tax planning disclosures
The Argentine Tax Authorities (AFIP) issued Resolution 4838/2020 (‘the Resolution’) on October 19. The Resolution, which follows BEPS Action 12 (Mandatory Disclosure Rules), was effective as of October 20, and creates an informative regime with respect to domestic and international tax planning strategies (‘the Regime’). The new reporting requirements may apply retroactively.
The Regime requires taxpayers to report any agreement, scheme, plan, or other action resulting in a tax advantage or any other benefit with respect to any Argentine federal tax (not only income tax), or any informative regime in place in Argentina, either in a domestic or cross-border context. Examples of cross-border tax planning strategies subject to the Regime include:
• using legal entity vehicles to take advantage of tax treaty benefits
• adopting strategies that prevent the creation of a permanent establishment in Argentina
• strategies that result in stateless income (‘supuesto de doble no imposición’), allocation of taxable income to other jurisdictions, or avoidance of disclosure requirements through any Argentinian informative regime
• planning that involves non-cooperative jurisdictions or jurisdictions that are considered to be low or no-tax
• taking advantage of tax asymmetries or utilizing hybrid instruments, and
• pursuing a tax-planning strategy specifically listed on the tax authorities’ website (not yet published).
For more information see our PwC Insight.
Ignacio Rodriguez
Argentina
T: +54 11 5115-9626E: [email protected]
Juan Magadan
Argentina
T: +54 11 3120-9953E: [email protected]
Argentina
PwC observation:While numerous OECD jurisdictions have enacted similar disclosure rules, the Argentine Regime appears to broaden the scope to domestic planning and does not appear to be limited to ‘aggressive’ planning. Argentine taxpayers should monitor further clarification and developments regarding covered situations and transactions. Taxpayers also should evaluate existing and new structuring involving Argentina to determine whether they are subject to the new requirements.
Australian Federal Budget proposes significant business tax incentives
Australia’s Federal Budget (‘the Budget’) for the 2020-21 year was announced on October 6. Consistent with its goal of stimulating economic growth and employment, the Budget includes tax measures designed to encourage business investment. Measures potentially relevant for multinational groups include:
• immediate deductions for certain capital expenditures
• a new temporary loss carryback regime• expansion of the research and development
(R&D) tax incentive• incentives for business to employ staff and• amendments to the corporate residency rules.
For more information see our PwC Insight.
Australia
PwC observation:Australia’s Budget was designed to stimulate economic recovery and employment growth. To this end, it includes a range of tax changes that could provide opportunities to taxpayers with Australian operations, including potential cash refunds, significant accelerated deductions, and R&D and employment incentives.
Chris Morris
Australia
T: +61 418 496 220E: [email protected]
Magnus Morton
Australia
T: +61 497 417 786E: [email protected]
Tax measures in 2021 French draft budget aim to improve companies’ competitiveness
The French government on September 28 released the draft budget for fiscal year 2021 (‘the draft budget’). The draft budget focuses on economic recovery and job creation. Notably, it includes tax measures designed to increase the attractiveness of the French business environment and local companies’ competitiveness. The Finance Commission of the French Assemblée Nationale (French House) finished its review of the first part of the draft budget and its preliminary amendments on October 8. Parliamentary debates began on October 12. The draft budget will move back and forth between the French Senate and the French House before a vote on the final draft, with enactment expected before the end of 2020.
For more information see our PwC Insight.
France
Guillaume Glon
France
T: +33 1 56 57 40 72E: [email protected]
Guillaume Barbier
United States
T: +1 (347) 276-7441E: [email protected]
PwC observation:Multinational entities (MNEs) should consider the impact of the proposed draft budget with respect to their operations or subsidiaries in France, as well as the potential related IFRS or GAAP tax accounting impacts.
Ireland’s 2020 Finance Bill amends provisions impacting multinationals
Following the introduction of the 2021 Irish Budget, on October 22, the Irish Finance Minister published the draft 2020 Finance Bill (‘Finance Bill 2020’). Once enacted, Finance Bill 2020 will give legislative effect to the Budget’s provisions. Legislative changes likely to affect MNEs include amendments to: (1) balancing charge provisions related to specified intangible assets under Ireland’s intangible property (IP) amortization regime and (2) Irish transfer pricing rules on certain non-trading transactions. Finance Bill 2020 also contains several helpful technical amendments in areas such as the Irish controlled foreign company (CFC) rules and the anti-hybrid provisions. The Bill also extends certain relief, including the knowledge development box.
For more information see our PwC Insight.
Luxembourg budget retains tax rates, adds anti-avoidance measures
The Luxembourg government, on October 14, advanced the 2021 State Budget Bill (n°7666). The Bill contains a number of proposed tax changes. Prime Minister Xavier Bettel had already mapped out the major items in his annual (but delayed) State of the Nation speech on October 13.
For the 2021 tax year, all corporate tax rates are to remain unchanged – the headline overall effective corporate tax rate thus remains 24.94%.
Tax regimes for fund vehicles will remain stable. Fund vehicles (Part I and II UCI) investing in sustainable assets will begin to benefit from the subscription tax rate, which is reduced from the standard 0.05% rate. One long-foreseen and sharply-focused anti-avoidance measure will target non-tax transparent Luxembourg fund vehicles investing directly in Luxembourg real estate, subjecting both gross rental income and disposal gains arising as of January 1, 2021 to a new 20% real estate levy (‘prélèvement immobilier’). The new anti-avoidance measure is expected to affect a small number of fund vehicles. Also, the levy does not apply to fully taxable corporate (i.e., non-transparent) entities owning Luxembourg real estate, even when owned by Luxembourg fund vehicles. The Bill does not impact Luxembourg funds holding foreign real estate assets.
For more information see our PwC Insight.
Ireland Luxembourg
Andrew Dunne
United States
T: +1 347 225-6717E: [email protected]
Harry Harrison
Ireland
T: +353 87 372 0882E: [email protected]
Sami Douénias
PwC Luxembourg
T: +352 49 48 48 3060E: [email protected]
PwC observation:Finance Bill 2020 introduced legislative reform which, once enacted, will result in action points for many companies. MNEs with an Irish tax presence may welcome the anti-hybrid provisions in particular, while groups that have IP in Ireland or have loans between Irish entities will need to evaluate the potential impacts of the updates to the IP amortization and transfer pricing provisions on their structures.
PwC observation:The government has recognized that while the pandemic will weigh heavily on the State budget, it would not be desirable to reduce purchasing power by increasing taxes. Stability at this time is seen as essential. Therefore, no major tax reforms will be undertaken in 2021, even though the current government’s programme had foreseen such activity.
Proposed changes mainly target very specific areas where unfairness in the existing regime is perceived, and to enhance sustainability and environmental protection. Liabilities under the proposed real estate levy on Luxembourg real estate income and gains accruing directly to investment fund vehicles will be of very limited and local application.
Panama introduces tax incentive regime for intragroup manufacturing services
Panama recently introduced a new special regime, effective December 1, that contains tax incentives for companies that execute intragroup services related to manufacturing activities. The law is designed to promote foreign investment, create jobs, and enhance the Panamanian tax environment’s competitiveness.
Panama published Law 159 in the Panamanian Official Gazette on September 1. The law, which will be effective three months after publication (i.e., December 1), introduces a special regime for the provision of services related to manufacturing by multinational companies (the ‘EMMA’ regime). Under the EMMA regime, a company may provide the following (non-exhaustive) intragroup services:
• services related to the manufacture of products, machinery, and equipment
• assembly• maintenance and repair• remanufacturing• product conditioning• development, innovation, or research• analysis, laboratories, or tests, and• logistics.
For more information see our PwC Insight.
Panama
Francisco Barrios
Panama
T: +507 206-9217E: [email protected]
Luis Vargas
United States
T: +1 (347) 325-4171E: [email protected]
Maria Bel
United States
T: +1 646 637-2461E: [email protected]
PwC observation:MNEs should evaluate whether the EMMA regime could benefit their current or proposed global operational structure. They should also consider the labour conditions required to obtain a license. Furthermore, they also should consider the regime’s non-tax incentives, such as immigration benefits.
2020 State Budget law proposal – Tax measures
The 2021 State Budget law proposal was presented to the Parliament on October 12. The key corporate tax proposed changes are highlighted below:
I – Corporate income tax (CIT)
Permanent establishment (PE)
The domestic PE concept in general reflects an alignment with BEPS Action 7, the OECD Model Tax Convention on Income and on Capital dated November 21, 2017, and respective Commentaries, as well as with the Portuguese position on the OECD Multilateral Convention. The proposed amendments also follow the UN Model Convention. The proposed amendments include:
Force of attraction
Article 5 of the Portuguese CIT code already includes a limited force of attraction principle for PEs. However it is proposed to further clarify that the taxable profit of a non-resident entity’s PE in Portugal includes income derived from the sale of goods and services made by the head office to natural or legal persons that are resident for tax purposes in Portugal, provided that such goods and services are identical or similar to those sold through the PE.
Relevant activities, fixed installation, dependent agent PE, and preparatory or ancillary activities
The PE concept has been expanded to include additional situations not already foreseen in domestic tax law. A PE shall be deemed to be recognized in the following circumstances:
a) Business activities derived from services, including consulting services, performed by an enterprise, through its own staff or subcontractors hired for the purpose of conducting such activities in the Portuguese territory; provided that such activities are performed for a period or periods exceeding in the aggregate 183 days in any twelve-month period starting or ending in the relevant tax year
b) Installations, platforms or ships in general (currently, reference is made to drilling ships) used in prospection or exploitation of natural resources, when the activity exceeds 90 days (currently, 6 months)
c) Broadening dependent agent PE (DAPE) scenarios to prevent the artificial avoidance of PE status. DAPE will now apply to contracts that are substantially negotiated in a State but not concluded in that State and instead are finalized or authorized abroad. DAPE also will apply to contracts where the person that habitually exercises an authority to conclude contracts constitutes an ‘independent agent’ (and thus an exception would apply), even though it is closely related to the foreign enterprise on behalf of which it is acting.
d) The use of facilities or the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of delivery (currently this is an exception to the recognition of a PE as a preparatory or ancillary activity)
e) A fixed place of business or stock of goods or merchandising, used or maintained by an enterprise if the same enterprise or a closely related enterprise constitutes complementary functions that are part of a cohesive business operation and carries on business activities at the same place or at another place in the Portuguese territory, in order to prevent the fragmentation of activities between related parties.
The budget would introduce, in Article 5 of the CIT Code, a definition of a “person or enterprise closely related to an enterprise” that would align with BEPS Action 7 and the OECD Multilateral Convention.
II – Use of existing tax incentives – Additional requirements proposed
R&D (‘SIFIDE II’)
Eligibility for the R&D tax incentives (‘Sistema de incentivos fiscais em investigação e desenvolvimento empresarial II,’ or ‘SIFIDE II’) of equity investments in R&D institutions or contributions made to private or public investment funds will require effective investment in equity or quasi-equity instruments of R&D companies.
Furthermore, within five years, the investment fund is effectively required to invest in companies dedicated to R&D activities, and in turn, these companies must effectively invest in R&D activities. Otherwise, the CIT liability of the relevant tax year increases by the amount of unpaid CIT resulting from the tax incentive’s misuse (proportionally if applicable), plus late assessment interest.
Lack of job maintenance prevents use of tax incentives
In 2021, The budget proposes that the access to certain tax benefits and public support measures would depend on job maintenance. This shall apply to entities engaged mainly in agricultural, commercial, or industrial activities (micro, small and medium-size companies are excluded) that assess positive net profit in 2020.
Among the tax benefits and public support measures covered are credit facilities with State guarantee, the regime of conventional remuneration of share capital (‘Remuneração Convencional do Capital Social’), the tax regime for investment support (‘Regime Fiscal de Apoio ao Investimento,’ or ‘RFAI’), the SIFIDE II, and the extraordinary regime for investment (‘Crédito Fiscal Extraordinário ao Investimento II,’ or ‘CFEI II’). Further regulations are expected.
Portugal
III – Real estate transfer tax – Taxation of the acquisition of shares in land-rich joint stock companies
Under the Budget proposal, the acquisition of shares corresponding to at least 75% of the share capital of a non-listed joint stock company (‘sociedade anónima’) shall be subject to Real Estate Transfer Tax. This rule shall apply to companies whose assets consist of more than 50% of real estate located in Portugal. An exception applies in case the real estate is allocated to a commercial, industrial or agricultural activity (except for buy-sell activities). Currently, this rule applies only to private limited liability companies (‘sociedades por quotas’) as well as to general and limited partnerships.
PwC observation:Expanding the PE concept in Portugal’s domestic law may ultimately lead to increased taxation in Portugal. When assessing these PE changes, any applicable tax treaty eventually affected by the Multilateral Convention should be considered. Entities enjoying tax incentives should carefully review the potential tax impacts of failing to comply with the additional proposed requirements.
An additional tax burden, the real estate transfer tax, would be levied on the acquisition of shares in land-rich joint stock companies and should be considered in business restructurings.
Rosa Areias/PT/TLS/PwC
Lisbon
T: + 351 22 543 3197E: [email protected]
Jorge Figueiredo/PT/TLS/PwC
Lisbon
T: +351 21 359 9618E: [email protected]
Spanish coalition government proposes significant corporate tax changes
The 2021 budget approved by the Spanish cabinet seeks to enact parts of the political agreement reached by both parties of the current coalition government. Consistent with that agreement, the draft budget includes several tax increases that would help fund some of the agreement’s public spending proposals. The October 13 bill includes several tax measures aimed at improving tax compliance and reducing tax litigation. In this context, the bill transposes into domestic legislation some of ATAD’s provisions by amending existing exit tax and CFC rules.
For more information see our PwC Insight.
New Ukrainian tax laws mean significant changes for multinationals
New Ukrainian laws (Law 466) introducing significant international tax and transfer pricing changes, mostly implementing BEPS initiatives, enter into force January 1, 2021. However, many of Law 466’s provisions became effective May 23, 2020. Law 466 introduces CFC rules into the tax code, under which a Ukraine-resident company or individual may be taxed on a portion of the profits of certain foreign entities that are owned or controlled by such Ukrainian residents.
The CFC profits are included in the controlling person’s taxable income and are taxed at standard income tax rates, with specific tax rates for individuals. An entity is deemed to be a CFC if it is not a Ukrainian resident for tax purposes or permanent establishment (PE) in Ukraine but is controlled by a Ukrainian tax resident. Foreign establishments without legal entity status (such as partnerships, trusts, funds, and foundations) are considered entities for CFC purposes. A foreign company’s controlling person is a person who:
• holds more than 50% of foreign company shares, or
• owns more than 10% of foreign company shares (25% for 2021 and 2022), provided other Ukrainian residents hold at least 50% of the shares, or
• exercises actual control over the foreign company.
For more information see our PwC Insight.
Spain Ukraine
Roberta Poza Cid
Spain
T: +34 915 684 365E: [email protected]
Slava Vlasov
Ukraine
T: +044 354 04 04E: [email protected]
Carlos Concha Carballido
Spain
T: +34 915 684 145E:[email protected]
Anna Nevmerzhytska
Ukraine
T: +044 354 04 04E: [email protected]
PwC observation:Since the government does not have a majority in either house of Parliament, it will need the support of several other political groups in order to secure passage of both pieces of legislation. Some of these measures therefore could be dropped or modified during the legislative process. MNEs with operations in Spain or with Spanish holding companies should assess the impact of the proposed changes on their investments in Spain and prepare to respond accordingly.
PwC observation:The new laws contain a variety of new concepts, terms, and obligations affecting Ukrainian businesses and multinational companies. Existing financing or corporate structures may appear inefficient under the new rules. Further analysis to understand the impact of these laws is advisable as noncompliance might result in material fines for businesses. MNEs doing business in Ukraine should consider immediately adopting new measures intended to achieve compliance while maintaining efficiency in their business.
Regulations on investment promotion
The provisions set forth by Law 16,906 support the investment promotion regime. Under the regime, relevant tax benefits are granted to CIT taxpayers who make eligible investments and generate certain positive externalities. The Executive Power (EP) released Decree 268/020 on September 30, introducing modifications to the current regulations on investment promotion.
Although the Decree does not alter the regime’s basic objectives (i.e., job creation, decentralization, exports increase, clean technologies, research, development and innovation), it eliminates the matrix of indicators and delegates the method for determining each one’s rating to the COMAP (the administrative commision).
The new regulation includes the following modifications:
• Computable investment: elimination of the 20% cap applicable to the calculation of investment projects previously executed and extension of the calculation period.
• CIT exemption: increases the maximum exemption cap to apply each fiscal year and extends the minimum exemption period.
• Weight of the indicators matrix: increase in the nominal weight of four indicators (job creation, export increase, decentralization and sectorial indicator), with a decrease in the weight of the research, development, and innovation indicator.
• Simplified matrix: all investment projects could be assessed through a simplified matrix with only one indicator: job creation. Furthermore, an additional point is awarded to the job creation indicator for all projects submitted up to 12/31/2020.
• Compliance assessment: the compliance assessment for indicators will be conducted once the compliance schedule ends (three fiscal years).
Uruguay
Patricia Marques
Uruguay
T: +598 291 60 463E: [email protected]
Eliana Sartori
Uruguay
T: +598 291 60 463E: [email protected]
Carolina Techera
Uruguay
T: +598 291 60 463E: [email protected]
PwC observation:Decree 268/020 modifies the investment promotion regime in Uruguay, emphasizing job creation as the pandemic continues to affect the country’s economy.
Administrative
ATO guidance on ‘foreign income tax offset’ limit and capital gains
The Australian Taxation Office (ATO) released final Taxation Determination TD 2020/7 which provides that when a taxpayer has not paid any foreign income tax, their capital gains should not be included when calculating the foreign income tax offset (FITO) limit (which operates to reduce Australian income tax otherwise payable on amounts where foreign tax has also been paid).
The FITO limit calculation compares the total Australian tax payable to the Australian tax that would be payable if certain amounts (including income from non-Australian sources) were disregarded. Per the Taxation Determination, the Commissioner views that because a ‘net capital gain’ is an amount of statutory income (rather than each component capital gain) that does not have a source, it cannot be disregarded in the FITO limit calculation. The relevant provisions also do not allow taxpayers to disaggregate a net capital gain to identify capital gains that were included in calculating the net capital gain. The Taxation Determination applies both before and after August 26, 2020.
The ATO reiterates disclosure requirements related to hybrid restructures.
Taxpayers are required to make certain disclosures regarding hybrid mismatch arrangements in the International Dealings Schedule (IDS), which is included in the annual income tax return. A specific disclosure is required where a ‘restructure’ occurred during either the FY18 or FY19 income tax year that had the potential to give rise to a hybrid mismatch arrangement. The ATO has observed varying levels of disclosure (with omission of certain details) in recently submitted IDSs. The ATO intends to follow up with taxpayers who have not met the ATO’s level of required disclosure. The ATO is mandating disclosure of each step of any arrangements that have effectively replaced previous arrangements, which would have been subject to the hybrid mismatch rules had they not been unwound, restructured, or replaced.
Australia Australia
PwC observation:The Taxation Determination only applies to capital gains derived where no foreign income tax has been paid. Capital gains may still be disregarded where foreign income tax has been paid.
PwC observation:Currently, the ATO considers all outbound interest-free loans as ‘high’ or ‘very high’ risk, and the new guidance may allow a lowering of the risk rating in some cases. This will affect tax return disclosures in many cases.
Peter Collins/AU/TLS/PwC
Sydney
T: +61 (0) 438 624 700E: [email protected]
Peter Collins/AU/TLS/PwC
Sydney
T: +61 (0) 438 624 700E: [email protected]
David Earl/AU/TLS/PwC
Melbourne
T: +61 (0) 403 416 958E: [email protected]
David Earl/AU/TLS/PwC
Melbourne
T: +61 (0) 403 416 958E: [email protected]
EU/OECD
OECD release on taxing virtual currencies: An overview of tax treatments and emerging tax policy
The OECD released its report OECD 2020: Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues. The report addresses the rapid change in this emerging asset class, as well as the breadth of virtual currency applications. In addition, the increased interest in virtual currencies from tax authorities and other regulators demonstrates that this asset class is receiving serious attention from policymakers.
The report was prepared for the October 2020 G20 Finance Ministers and Central Bank Governors meeting. It provides key insights and considerations to help policymakers wishing to improve their tax policy frameworks for virtual currencies. The report is an important development in the evolution of tax guidance regarding virtual currencies internationally. For more information, see our PwC Insight and PwC’s annual global crypto tax report 2020.
For more information see our PwC Insight and PwC’s annual global crypto tax report 2020.
OECD
PwC observation:While the report didn’t provide specific recommendations, it highlighted a few key areas for further considerations: the need for clearer, consistent and regularly updated guidance for this rapidly emerging asset class, the importance of simplified rules that consider the different use cases and the types of users (individuals vs. traders, funds, exchanges, etc.), and the benefits of better aligning the existing and future tax guidance with broader policy objectives.
The taxation of virtual currencies continues to evolve on a global scale. Regulators in various jurisdictions are focused not only on questions of characterization and timing, but also enforcement. Staying in the forefront of these emerging issues is key for any company navigating this space.
Mazhar Wani
United States
T: +1 (415) 515 4451E: [email protected]
Peter Brewin
United Kingdom
T: +852 2289 3650E: [email protected]
Memorandum of Understanding for Australia-Swiss tax treaty’s arbitration process
The competent authorities of the Swiss Confederation and Australia have entered into mutual arrangements (Memorandum of Understanding) to establish the method for applying the arbitration process provided in paragraph 5 of Article 24 of the Australia--Switzerland tax treaty. Subject to certain conditions, independent and binding arbitration is now available under the Australia-Switzerland tax treaty for issues arising from a MAP case that remains unresolved after three years.
Australia
Treaties
PwC observation:The Memorandum of Understanding (MoU) was effective September 15, 2020.
Peter Collins/AU/TLS/PwC
Sydney
T: +61 (0) 438 624 700E: [email protected]
David Earl/AU/TLS/PwC
Melbourne
T: +61 (0) 403 416 958E: [email protected]
Glossary
Acronym Definition
AFIP Argentine Tax Authorities
ATAD anti-tax avoidance directive
ATO Australian Tax Office
BEPS Base Erosion and Profit Shifting
CFC controlled foreign corporation
CIT corporate income tax
DAPE dependent agent permanent establishment
DST digital services tax
DTT double tax treaty
ETR effective tax rate
EU European Union
Acronym Definition
FITO foreign income tax offset
GAAP generally accepted accounting principles
IFRS International Financial Reporting Standards
ITA income tax act
MNE Multinational enterprise
PE permanent establishment
OECD Organisation for Economic Co-operation and Development
R&D Research & Development
REICOs Real Estate Investment Companies
VAT value added tax
WHT withholding tax
For your global contact and more information on PwC’s international tax services, please contact:
Bernard Moens Global Leader International Tax Services Network
T: +1 703 362 7644 E: [email protected]
Geoff JacobiInternational Tax Services
T: +1 202 414 1390E: [email protected]
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