Worldwide Tax News
Bermuda Senate Passes Changes in Financial Services Tax, Foreign Currency Purchase Tax, and Stamp Duty on Leases
According to an update from the Bermuda Senate (upper house of parliament), the Senate passed the Financial Services Tax Amendment Act 2019 in the second and third reading on 18 March 2019. This completes the parliamentary processing following the legislations passage in the House of Assembly (lower house) on 11 March. The legislation amends the Financial Services Tax Act 2017 to:
- Increase the financial services tax rate for banks from 0.005% to 0.0075%
- Increase the financial services tax rate for domestic insurers from 2.5% to 3.5%.
It also expands the exclusion for certain premiums for domestic insurers to include premiums relating solely to "government insurance", in addition to the existing exclusion for health insurance and annuities. For this purpose, "government insurance" is defined to mean insurance policies taken out by a government department.
The increase for banks applies from 1 April 2019, while the changes for domestic insurers apply from 1 May 2019.
The Senate also passed the Foreign Currency Purchase Tax Amendment Act 2019 on 18 March, which increases the tax rate from 1.00% to 1.25% from 1 April 2019.
And lastly, the Senate passed the Stamp Duties Amendment Act 2019, which amends the Stamp Duties Act 1976 so that the stamp duty payable on leases and agreements for leases to be calculated as 1% of the aggregate rent for leases up to three years, plus 0.5% of the aggregate rent payable for any additional period beyond three years. This replaces fixed stamp duty amounts based on the amount or value of rent per month. The Amendment Act also restricts the exemption for the transfer or assignment of a mortgage for consideration equal to the amount outstanding or the market value of the debt to mortgages of a total amount not exceeding BMD (USD) 750,000. These changes also apply from 1 April 2019.03-22-2019
On 18 March 2019, Costa Rica published Executive Decree No. 41615-MEIC-H in the Official Gazette. The Decree provides the list of basic goods subject to the 1% reduced VAT rate under Costa Rica's new VAT system, which will be implemented from 1 July 2019. The final Decree is generally in line with the draft previously reported on and includes several different types of goods grouped under various categories, including:
- Bread and tortillas;
- Rice, cereals, flours, and pasta;
- Cow's milk and cheese, and goat's milk;
- Meats, including beef, pork, chicken (including eggs), sausages, and fish;
- Oils, margarine, and other fats;
- Various fruits, legumes, tubers, and vegetables (fresh, chilled, or frozen, without any preparation);
- Articles for personal hygiene and cleaning and home care goods; and
- School supplies.
The Decree enters into force on 18 April 2019. However, a transitional provision is included, which provides that the goods listed in the Decree will be exempt until 1 July 2020.03-22-2019
On 21 March 2019, EU leaders agreed to extend the UK's exit from the EU, but not the 30 June 2019 extension requested by UK Prime Minister Theresa May. The extension agreed to provides that if May's exit deal is approved next week, the UK would leave the EU on 22 May 2019. Otherwise, the UK would leave the EU on 12 April 2019 with no deal unless an alternative plan is provided by that date. The two dates coincide with EU parliamentary elections. 12 April is the date by which the UK must legislate for holding elections and 22 May is the date before parliamentary elections begin.03-22-2019
Irish Revenue has published Revenue eBrief No. 048/19 on various updates to the VAT Tax and Duty Manual.
Updates to VAT Tax and Duty Manual
The VAT Tax and Duty Manual has been updated as follows:
To include new chapters on:
- VAT treatment of activities of public bodies. This chapter was created to set out the Value-Added Tax (VAT) treatment of activities that are carried out by public bodies, and other bodies governed by public law.
- VAT treatment of vouchers (excluding Single Purpose Vouchers and Multi-Purpose Vouchers) that do not fall within the new rules for vouchers that were introduced by Council Directive (EU) 2016/1065.
To reflect the fact that the following chapter has been archived:
- Retail sales and credit charge cards. This chapter has been archived as the content is now available on the Revenue website.
In addition, the following chapters have been updated to take account of certain VAT rate changes in accordance with Finance Act 2018. These rate changes took effect from 1st January 2019.
- VAT on food and drink
- Mixed supplies of goods and services
- Supply of printed matter
- VAT treatment on supplies of bread
- Services connected with immovable property
- Entrance fees to historic houses and gardens
- Supplies of live horses, greyhound, insemination services
The following chapters have also been updated:
- Electricity Market. This chapter has been updated to set out the VAT treatment of the Integrated Single Electricity Market (I-SEM).
- VAT on gifts and promotional items. The chapter has been updated to clarify the VAT treatment of gifts, samples, promotional schemes etc.
- VAT treatment of member-owned golf clubs. This chapter has been updated to remove certain information that is no longer relevant or that has been incorporated elsewhere on the Revenue website.
- VAT treatment of staff secondments. This chapter has been updated to improve readability.
OECD Releases Beneficial Ownership Toolkit to Help Tax Administrations Tackle Tax Evasion More Effectively
The OECD has announced the release of a new beneficial ownership toolkit that will help tax administrations tackle tax evasion more effectively.
20/03/2019 - The first ever beneficial ownership toolkit was released today in the context of the OECD's Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum's standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures.
The toolkit was developed to support Global Forum members and in particular developing countries because the current beneficial ownership standard does not provide a specific method for implementing it. To assist policy makers in assessing different implementation options, the toolkit contains policy considerations that Global Forum members can use in implementing the legal and supervisory frameworks to identify, collect and maintain the necessary beneficial ownership information.
"Transparency of beneficial ownership information is essential to deterring, detecting and disrupting tax evasion and other financial crimes. The Global Forum's standard on beneficial ownership offers jurisdictions flexibility in how they implement the standard to take account of different legal systems and cultures. However, that flexibility can pose challenges particularly to developing countries." said Pascal Saint-Amans, Head of the OECD's Centre for Tax Policy and Administration. "This new toolkit is an invaluable new resource to help them find the best approach."
The toolkit covers a variety of important issues regarding beneficial ownership, including:
- the concepts of beneficial owners and ownership, the criteria used to identify them, the importance of the matter for transparency in the financial and non-financial sectors;
- technical aspects of beneficial ownership requirements, distinguishing between legal persons and legal arrangements (such as trusts), and measures being taken internationally to ensure the availability of information on beneficial ownership a series of checklists that may be useful in pursuing a specific beneficial ownership framework;
- ways in which the principles on beneficial ownership can play out in practice in Global Forum EOIR peer reviews;
- why beneficial ownership information is also a crucial component of the automatic exchange of information regimes being adopted by jurisdictions around the world.
With 154 members, a majority of whom are developing countries, the Global Forum has been heavily engaged in providing technical assistance on the new beneficial ownership requirements, often with the support of partner organisations including the IDB. The Toolkit offers another means to further equip members to comply with the international tax transparency standards.
The Toolkit is the first practical guide freely available for countries implementing the international tax transparency standards. It will be frequently updated to incorporate new lessons learned from the second-round EOIR peer reviews conducted by the Global Forum, as well as best practices seen and developed by supporting organisations.03-22-2019
The Russian Ministry of Finance has published Letter No. 03-03-07/12958 of 28 February 2019, which clarifies the tax treatment of income in the form of property (work, services) or rights of ownership received free of charge. The letter clarifies that such income must be included as taxable non-operating income unless Article 251 of the Russian Tax Code applies. Article 251 covers certain income that is not included in the taxable base, including income in the form of property received free of charge:
- From an entity where more than 50% of the receiving entity's capital has been contributed by the transferring entity;
- From an entity where more than 50% of the transferring entity's capital has been contributed by the receiving entity, unless the transferring entity is a foreign entity domiciled in a blacklisted jurisdiction; or
- From an individual where more than 50% of the receiving entity's capital has been contributed by that individual.
Further, the exclusion under Article 251 is subject to the condition that the property is not subsequently transferred to a third party within one year from the date received (except for cash).03-22-2019
Saudi Arabia's General Authority for Zakat and Tax (GAZT) has published an English-language release announcing the issuance of the implementing (executive) regulations for the collection of Zakat (previous coverage). The GAZT has also published Arabic-language versions of Ministerial Decree No. 2216, which includes the regulations, and Ministerial Decree No. 2215, which includes certain rules for financing activities.
The General Authority of Zakat and Tax, following a number of regulatory amendments, announced the Minister of Finance and the Chairman of the Board of Directors' decision to issue the Zakat collection regulations, the Zakat calculation rules for financing activities, the government's assumption of responsibility of the Zakat and the Income Tax on Investment in Government Bonds and Sukuk. This came as part of the Authority's commitment to continuous improvement, which enhances transparency between the Authority and the taxpayers and achieves the highest degrees of efficiency and disclosure. This will be implemented early next year in 2020.
The implementing regulations for the collection of Zakat have introduced a number of changes, the most important of which is the improvement in Zakat collection procedures to achieve the highest degree of commitment and efficiency and increase transparency. This will assist in attracting investment and increasing investor confidence.
One of the changes that will have a positive impact is the Zakat treatment of properties under development which will support the real estate development industry and encourage investment in it.
The implementing regulations also clearly defined the criteria of the Zakat components for insurance activities, considering the special nature of the business.
In addition, the Zakat calculation for the financing activities has been updated and improved to raise the level of commitment and reduce disputes that may arise between the Authority and the taxpayers.
To encourage the development of the local debt market and the investment in government issued debt instrument, the government will assume the Zakat and income tax liability on investment in such instruments.
The General Authority for Zakat and Tax will begin working on the development of manuals to detail, explain and clarify the provisions of the regulation and answer the queries of the taxpayers.03-22-2019
UK HMRC Publishes Guidance on Changes to Deduction of Tax on Interest, Royalties, and Dividends if UK Leaves EU Without a Deal
UK HMRC has published guidance on changes to the deduction of tax on interest, royalties, and dividends if the UK leaves the EU without a deal. Note, the following refers to an exit date of 29 March 2019, but as of 21 March 2019, the EU has accepted a conditional extension to either 12 April or 22 May 2019.
If the UK leaves the EU without a deal, the way that interest, royalties and dividends are paid between UK and EU companies may change. Tax may be deducted from some payments.
Under UK domestic law and existing double taxation agreements with EU member states, you may be able to claim full or partial exemption, or claim back some or all of the tax you have paid.
Deduction of tax from interest and royalties
The EU Interest and Royalties Directive (IRD) allows EU companies to make certain interest and royalties payments to associated companies and permanent establishments within the EU without needing to deduct tax from them.
If the UK leaves the EU without a deal, from 11pm on 29 March 2019, the IRD will no longer apply to the UK.
Payments from the EU
If the UK leaves the EU without a deal, some EU member states may start to deduct tax from interest and royalty payments that used to be exempt under the IRD.
The amount of tax deducted will depend on the double taxation agreement (DTA) between the UK and the EU member state.
As a UK resident company, if you receive royalties and interest in the UK from an associated company in an EU member state, you can usually apply for full or partial exemption or claim back some or all of the tax you have already paid under the relevant DTA.
Often interest and royalty payments that are exempt from domestic withholding taxes under the IRD are also exempt under the DTA. For example, payments made to the UK from France, Germany or Spain.
Sometimes the terms of the DTA state that the amount of tax deducted from interest and royalty payments cannot exceed a specific amount, but the payments are not entirely exempt. For example, payments made to the UK from Italy.
You should check the terms of the DTA between the UK and the EU country where the person paying the interest or royalties is resident. You can find information about the UK's tax treaties here. You may need to submit a new or revised claim to the tax authorities of the EU country.
Payments from the UK
UK companies, and EU companies that have a permanent establishment in the UK, who make payments of interest and royalties to associated companies in the EU will not need to start deducting tax from these payments.
This is because sections 757 to 767 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) allows an exemption for these payments. This legislation will continue to apply if the UK leaves the EU without a deal.
For payments of interest this exemption is not automatic. A person receiving interest payments will need to apply for the exemption by filling in an EU Interest and Royalties form.
This form can also be used to claim a repayment of tax that has been deducted from payments of interest or royalties.
If you already have an exemption this will stay the same.
UK companies that pay royalties will still be able to make these payments without deducting tax from them if they reasonably believe that the payment is exempt under section 758 ITTOIA.
Deduction of tax from dividends
The PSD means that associated companies in different EU member states do not have to deduct tax on certain payments of dividends.
If the UK leaves the EU without a deal, from 11pm on 29 March 2019, the PSD will no longer apply to the UK.
UK law does not impose an obligation to deduct tax from dividends, this will have no effect on dividends paid by UK companies to companies resident in the EU.
Some EU countries may start to deduct tax from dividends paid by EU subsidiaries to UK parent companies.
Payments from the EU
The amount of tax deducted from these dividend payments will depend on the DTA between the UK and the EU member state.
Often dividends payments that are exempt from domestic withholding taxes under the PSD are also exempt under the DTA. For example, payments made to the UK from France or Spain.
Sometimes the DTA means that the amount of tax deducted from dividend payments cannot exceed a specific amount, but the payments are not entirely exempt. For example, payments made to the UK from Germany or Italy.
This means if the UK leaves the EU without a deal some EU member states may start to deduct tax from some dividend payments that used to be exempt under the PSD.
You should check the terms of the DTA between the UK and the EU country where the person paying the dividends is resident. You can find information about the UK's tax treaties here. You may need to submit a new or revised claim to the tax authorities of the EU member state.
Payments from the UK
UK law does not impose an obligation to deduct tax from dividends, this will have no effect on dividends paid by UK companies to companies resident in the EU.
UK companies may continue to pay their dividends gross.
Published 20 March 201903-22-2019
Venezuela's tax administration (SENIAT) has announced an increase of the tax unit (unidad tributaria - TU) value from VES 17 to VES 50. The increase was published in the Official Gazette on 7 March 2019 and is generally in force from that date. The tax unit is used as a reference value for a number of tax purposes, including determining applicable progressive income tax rates, deductions, penalties, and others. For corporate income tax, the increase results in the following brackets:
- up to VES 100,000 (2,000 TU) - 15%
- over VES 100,000 (2,000 TU) up to VES 150,000 (3,000 TU) - 22%
- over VES 150,000 (3,000 TU) - 34%
For taxes that are settled for annual periods, the applicable tax unit value is the value in force for at least 183 continuous days of the respective period. For taxes that are settled for periods other than annual periods, the applicable tax unit value is the value in force for the beginning of the period.
Note – Venezuela revalued its currency in August 2018 with the introduction of the Bolívar Soberano (VES), which is equal to 100,000 times the prior currency, the Bolívar Fuerte (VEF).03-22-2019
The European Parliament has issued a release including the final report from the special committee on financial crimes, tax evasion and tax avoidance (TAX3), including recommendations to set up an anti-money laundering watchdog in EU and a European financial police force. The report will be voted on in plenary on 26 March and forwarded to the European Commission for consideration.
To fight tax crimes, the EU needs to set up an anti-money laundering watchdog and a European financial police force, according to the tax committee's final recommendations.
They are among the recommendations in the final report by Parliament's special committee on financial crimes, tax evasion and tax avoidance. The financial police force would operate under Europol, with its own investigative powers to carry out international investigations into tax and financial crimes.
The committee also calls for the establishment of an EU watchdog in charge of countering money laundering and financing of terrorism as at the moment member states don't coordinate enough.
MEPs will debate the own-initiative report during the plenary session on 25 March and vote on it the next day. Once adopted, the report will be forwarded to the European Commission for consideration.
The proceeds from money laundering in the EU in various forms are estimated at €110 billion per year, corresponding to 1% of the EU's total gross domestic product.
The special committee's report comes after Europe was shaken in recent years by money laundering scandals involving European banks as well as numerous revelations by investigative journalists on tax evasion such as LuxLeaks and the Panama Papers.
Czech EPP member Luděk Niedermayer, one of the authors of the report, said money laundering cases always have an international dimension. "Due to a lack of cooperation and coordination among authorities within and between member states, those cases were not prevented, tackled at an earlier stage or investigated properly. It is often unclear who should take the lead."
Danish S&D member Jeppe Kofod, the other author of the report, said: "This has led to a multitude of loopholes and legislative and supervisory blind spots. That is what we have documented in our work and that is what we are putting forward suggestions to address."
The EU for sale?
The report also criticises so-called golden visa schemes operated by 18 EU countries. These schemes could be seen as offering rich foreign criminals a way to set up in Europe.
It is estimated that more than 100,000 visas and 6,000 passports have been provided to especially people in Russia and countries under Russian influence in exchange for financial investment in the EU over the last decade.
Not only do these programmes regularly involve tax privileges for the beneficiaries, but they also grant them the opportunity to move freely within the Schengen zone which can be exploited to launder money and evade taxes.
The Parliament's tax committee produced the final report as its one-year inquiry mandate was coming to an end. "The sad conclusion is that Europe has a systemic problem with money laundering, tax evasion and tax avoidance," said Kofod. "We have successfully created the world's richest and most attractive internal market, with free movement of capital and services. But we still lack effective cooperation on cross-border supervision, investigation and enforcement."
Fellow report author Niedermayer said the committee's most notable findings were the amounts of money laundered, the banks involved and the approach of some member states to the transposition of EU legislation. He said he was also surprised by EU countries' resistance to changes with a strong justification and the potential to create real benefits.03-22-2019
Brazil's Department of Revenue has announced the signing of an amending protocol to the 1975 income tax treaty with Sweden on 19 March 2019. The protocol updates the treaty in line with the minimum BEPS standards and makes other amendments. Changes include:
- The replacement of the preamble in line with BEPS standards;
- The replacement of Article 1 (Persons Covered), including the provision that income derived by or through a person that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that Contracting State, as the income of a resident of that Contracting State;
- The update of Article 2 (Taxes Covered) with respect to the taxes specified for both Brazil and Sweden;
- The update of Article 4 (Fiscal Domicile) to include that if a person, other than an individual, is considered resident in both Contracting States, the competent authorities will determine such person's residence for the purpose of the treaty through mutual agreement, and if no agreement is reached, such person will not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States;
- The update of Article 10 (Dividends) to include that a 10% withholding tax rate will apply if the beneficial owner is a company that has directly held at least 10% of the paying company's capital for a period of 365 days including the day on which the dividend is paid, otherwise the rate is 15%, and to provide for a 10% tax rate on the repatriation of profits of a PE from Brazil to Sweden;
- The update of Article 11 (Interest) to include that a 10% withholding tax rate will apply for interest paid on loans and credits granted by a bank for a period of at least 7 years in connection with the sale of industrial equipment or in connection with investment projects, including the financing of public works, otherwise the rate is 15%;
- The update of Article 12 (Royalties) to include that a 15% withholding tax rate will apply for royalties paid for the use of, or right to use, trademarks, otherwise the rate is 10%;
- The replacement of Article 23 (Elimination of Double Taxation), with both countries generally applying the credit method, although Sweden may exempt dividends in accordance with the provisions of Swedish law;
- The replacement of Article 25 (Mutual Agreement Procedure) with updated provisions, but without provisions for arbitration;
- The replacement of Article 26 (Exchange of information) in line with OECD standards;
- The addition of Article 26-A (Entitlement to Benefits) including that a resident of a Contracting State will not be entitled to a benefit under the treaty unless such resident is a qualified person as defined in the protocol, although the benefits may still apply in certain cases, including where income of a resident is derived from an active business, subject to certain conditions, and where a resident can demonstrate that neither its formation, acquisition or maintenance, nor the conduct of its business, had the main purpose or one of its main purposes to receive benefits under the treaty; and
- The replacement of the final protocol to the original treaty, including, among other provisions, that the term "royalties" under Article 12 includes payments relating to the provision of technical services and technical assistance.
The protocol will enter into force 30 days after the ratification instruments are exchanged and will generally apply from 1 January of the year following its entry into force. The new Article 26 (Exchange of information), however, will apply from the date of the protocol's entry into force, regardless of the tax period to which a matter relates.03-22-2019
According to recent reports, officials from Hong Kong and Kazakhstan are scheduled to meet in September 2019 for the first round of negotiations for an income tax treaty. Any resulting treaty would be the first of its kind between the two jurisdictions and must be finalized, signed and ratified before entering into force.03-22-2019
Agreement Signed for Automatic Exchange of Financial Account Information between the Isle of Man and the UK
The Government of the Isle of Man has published the competent authority agreement on the automatic exchange of financial account information that was signed by the UK on 21 January 2019 and by the Isle of Man on 22 February 2019. The agreement provides for the exchange of information in accordance with the OECD Common Reporting Standard (CRS). Exchange is made on the basis of Article 26 (Exchange of Information) of the 2018 Isle of Man-U.K. income and capital gains tax treaty, which generally applies for exchange purposes from 19 December 2018, regardless of the taxable period to which the matter relates. The agreement will have effect once both competent authorities confirm they have the necessary laws, data safeguards, etc. in place for the implementation of CRS (both jurisdictions already do).03-22-2019