Worldwide Tax News
Oman’s Secretariat General of Taxation has issued a letter dated 4 March 2018 that clarifies the tax authority’s position with respect to withholding tax on service payments to nonresidents. While prior guidance indicated withholding tax would only be due where services are performed in Oman, the letter provides that withholding tax applies regardless of where the services are performed, and as such, any payments to nonresidents for the performance of services are subject to withholding tax (10%) unless an applicable tax treaty provides otherwise. It is uncertain if this position applies from the date of the letter or from the date withholding tax on service payments was introduced (27 February 2017 – previous coverage), although the tax authority will reportedly not be seeking tax retroactively. Additional clarification will be published once available.
According to recent reports, the Government of Panama on 8 March 2018 issued a resolution that contains an initial list of 20 jurisdictions that are deemed to have taken discriminatory or restrictive measures against Panama that harm its economic interests, such as listing Panama as a tax haven or non-cooperative. The 20 Jurisdictions listed include: Brazil, Cameroon, Chile, Colombia, Croatia, Ecuador, El Salvador, Estonia, France, Georgia, Greece, Lithuania, Peru, Poland, Portugal, Russia, Serbia, Slovenia, Uruguay, and Venezuela.
The list is in relation to Law 48 of 2016, which strengthened the available countermeasures that may be taken against such jurisdictions. It is uncertain what countermeasures will be taken against any particular listed jurisdiction, although measures reportedly include increased withholding tax of 25%, restrictions on the deduction of payments to listed jurisdictions, and application of transfer pricing rules whether related or not (essentially the type of measures that may be applied against Panama). Additional details will be published once available.
Taiwan Clarifies VAT Requirements for Domestic Businesses on E-Service Supplies from Non-Resident Suppliers
Taiwan’s Executive Yuan has published an English-language release from the National Taxation Bureau of Taipei clarifying the requirements for domestic businesses to pay value added tax (business tax) on e-services acquired from non-resident suppliers. From 1 May 2017, non-resident suppliers with no fixed place of business in Taiwan that provide electronic services to domestic individuals (B2C) need to register and account for VAT, but not in respect of supplies made to domestic businesses (B2B) (previous coverage).
Domestic business entities shall pay the business tax burden in accordance with relevant regulations when purchasing electronic services from offshore electronic services business entities.
The National Taxation Bureau of Taipei, Ministry of Finance (NTBT) expresses that many business entities have inquired about whether they have to receive uniform invoices when purchasing e-electronic services from offshore electronic services business entities.
NTBT explains that in accordance with Article 2-1 of the Value-added and Non-value-added Business Tax Act (hereinafter referred to as the “Act”), when a foreign enterprise, institution, group, or organization having no fixed place of business within the territory of the R.O.C. selling electronic services to domestic individuals, it shall be the taxpayer of the business tax. As such, when offshore electronic services business entities sell electronic services to domestic business entities, they would not be the taxpayers and domestic business entities should still pay the business tax in accordance with Article 36 of the Act and would not receive the uniform invoices as well. In addition, in accordance with the provisos of the same Article of the Act, if this domestic business entity computes its tax in accordance with the provisions of Section 1 of Chapter 4, and the purchased services are used solely in conducting business in taxable goods or services, such services are exempted from the business tax.
NTBT appeals that if the domestic business entity does not compute its tax in accordance with the provisions of Section 1 of Chapter 4, or the purchased services are not used in conducting business in taxable goods or services, it shall pay the business tax prior to the fifteenth day of the period following the period in which the payment is made, otherwise it shall be pursued for payment of taxes owed and be fined no more than five times the amount of tax evaded, and the operation of the taxpayer's business may be suspended.
On 14 March 2018, New Zealand’s Tax Working Group announced the release of a Submissions Background Paper for consultation. The background paper and the accompanying Summary for Submitters call for public submissions on a range of issues that the Tax Working Group considers important to its work. Public submissions will inform the Group's consideration of proposals for improving the tax system. While most of the submission questions are more general, there are four specific questions to be addressed:
- How would a capital gains tax (excluding the family home) or a land tax (excluding the land under the family home) affect housing affordability, and would these taxes improve the current system for capital income taxation? Relevant considerations will include: the impacts of these taxes on property-owners and renters; the ease of administering these taxes; the interaction of these taxes with the rest of the tax system; the extent to which the tax will incentivize productive investment as opposed to speculation; and the possibility of allowing for reductions in other taxes as a result of introducing them.
- Is there a case to introduce a progressive company tax (i.e. lower company tax rates for smaller businesses) in order to support small business?
- Is there a case to make greater use of environmental taxation to improve environmental outcomes and diversify the tax base?
- Could the Government assist low-income people by introducing GST exemptions for certain goods and services?
Submissions should be made by 30 April 2018.
Officials from Argentina and Croatia reportedly met on 12 March 2018 to discuss bilateral relations, including the negotiation of an income tax treaty. Any resulting treaty would be the first of its kind between the two countries, and must be finalized, signed, and ratified before entering into force.
On 14 March 2018, officials from Armenia and Denmark signed an income and capital tax treaty. The treaty is the first of its kind directly between the two countries, although the 1986 tax treaty between Denmark and the former Soviet Union had continued to apply, but was terminated.
The treaty covers Armenian profit tax, income tax, and property tax. It covers Danish income tax to the state and income tax to the municipalities.
If a company is considered resident in both Contracting States, 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 relief or exemption from tax provided by the treaty.
- Dividends –
- 0% if the beneficial owner is a company that directly owns at least 50% of the paying company’s capital and has invested more than EUR 2 million (or equivalent in Danish or Armenian currency) in the capital of the paying company;
- 0% if the beneficial owner is the other Contracting State or central bank of that State or any public authority or other public institution (including a financial institution) owned by the Government of that other State;
- 5% if the beneficial owner is a company that directly owns at least 10% of the paying company’s capital and has invested more than EUR 100,000 (or equivalent in Danish or Armenian currency) in the capital of the paying company;
- Otherwise 15%
- Interest –
- 0% if paid to a Contracting State or a local authority, including that central bank of that State, or any institution, public authority, or fund owned by the Government of a Contracting State;
- 5% if paid in respect of any loan granted by a bank;
- Otherwise 10%
- Royalties – 5% for royalties paid for the use of, or the right to use, any computer software, any patent, trademark, design or model, or plan; or for the use of, or the right to use, any secret formula or process, or for information concerning industrial, commercial or scientific experience (know-how); otherwise 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 more than 50% of their value directly or indirectly from immovable property situated 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.
Both countries generally apply the credit method for the elimination of double taxation.
Article 29 (Limitation of Benefits) includes the provision that income derived from a Contracting State and legally owned by a resident of the other Contracting State may be taxed in the first-mentioned State in accordance with its domestic law if that income is not subject to taxation in the other Contracting State or is subject to legislation giving access to special benefits for income from foreign sources.
Article 29 also includes a general anti-abuse provision, which provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.
The treaty will enter into force the day following the exchange of the ratification instruments and will apply from 1 January of the year following its entry into force.
On 14 March 2018, the King of Bahrain, Hamad bin Isa Al Khalifa, signed the law for the ratification of the pending protocol to the 2001 income tax treaty with Thailand. The protocol is the first to amend the treaty. It clarifies that the State of Bahrain became known as the Kingdom of Bahrain as of 14 February 2002 and adds a new Article 26A (Exchange of Information) in line with the OECD standard for information exchange (original treaty has no exchange provisions). The protocol will enter into force once the ratification instruments are exchanged and will apply from the first day of the month following its entry into force.
On 14 March 2018, officials from Belarus and the Czech Republic signed a social security agreement. The agreement is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.
On 8 March 2018, officials from the Cayman Islands and Guernsey signed a non-reciprocal bilateral competent authority agreement on the exchange of Country-by-Country (CbC) reports. The agreement comes into effect on the date of the later of the notifications provided by each competent authority that its jurisdiction has the necessary laws in place to require reporting entities to file a CbC report (both already have CbC reporting requirements in place).
The agreement provides that pursuant to Paragraph 4 of the Arrangement between the States of Guernsey and the Cayman Islands for the Automatic Exchange of Information Relating to Tax Matters, the Cayman Islands will annually exchange with the Competent Authority of Guernsey on an automatic basis the CbC Report received from each Reporting Entity that is resident for tax purposes in the Cayman Islands, provided that, on the basis of the information provided in the CbC Report, one or more Constituent Entities of the MNE Group of the Reporting Entity are resident for tax purposes in Guernsey or are subject to tax with respect to the business carried out through a permanent establishment situated in Guernsey.
With respect to fiscal years beginning on or after 1 January 2016, CbC reports are to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC report relates. With respect to subsequent fiscal years, reports are to be exchanged no later than 15 months after the last day of the fiscal year.
On 14 March 2018, officials from Georgia and Saudi Arabia 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. Details of the treaty will be published once available.