Worldwide Tax News
Standing Committee of China's National People's Congress Adopts Decision Authorizing Additional Property Tax Pilot Areas
The Standing Committee of the National People's Congress (NPC) adopted on 23 October 2021 a decision authorizing the expansion of property tax in the country. While Chinese President Xi Jinping has called for nationwide implementation of property tax, the Standing Committee decision only authorizes the State Council to implement property tax in additional pilot areas for a five-year period. As per the decision, the property tax is to be levied on all types of residential and non-residential property in pilot areas, although certain rural property will be excluded. Taxpayers of the property tax in pilot areas will include holders of land-use rights and house owners. The effective date and pilot areas will be set by the State Council, with the Ministry of Finance and the State Administration of Taxation to issue the required regulations.10-27-2021
Italy has published Decree-Law No. 146 of 21 October 2021 in the Official Gazette, which contains urgent economic and fiscal measures. The Decree-Law includes various measures, including additional payment and interest relief for outstanding taxes in response to COVID-19. However, the key measures of the Decree-Law provide for the introduction of a new simplified patent box regime that allows qualifying taxpayers to claim an additional deduction of 90% of R&D costs incurred in relation to qualifying intellectual property (190% total deduction). With the introduction of the new simplified patent box regime, the old regime providing for a 50% exemption of qualifying income is repealed.
Qualifying intellectual property under the new regime includes copyrighted software, industrial patents, trademarks, drawings, and models, as well as processes, formulas, and information related to business, commercial, or scientific knowledge that is legally protected. The increased deduction is available for costs of R&D performed in-house, as well as outsourced R&D with universities and research intuitions. The increased deduction is not, however, available for costs incurred with directly or indirectly controlled or controlling enterprises (i.e., related parties).
Where a taxpayer opts for the simplified regime, it must be applied for at least five years. Further, taxpayers opting for the simplified regime may not benefit from the existing tax credit for investment in R&D activities for the same costs for the duration the simplified regime is applied. It is also provided that taxpayers may prepare documentation supporting claims for the increased deduction in accordance with implementing provisions to be provided by the Revenue Agency, with notification of such documentation provided with the tax return. The documentation requirement is not mandatory but does provide certain penalty protection in the event a deduction is challenged.
Decree-Law No. 146 is generally in force and effective from 22 October 2021 but must be converted into law to remain in force. The new simplified patent box regime applies for options exercised from the date of the Decree-Law's entry into force. It is also provided that taxpayers that have already exercised an option for the prior regime may opt to take part in the new regime. Further details on the new simplified regime and the transition from the old regime will be published once available.10-27-2021
The Luxembourg Administration of Direct Tax has issued Circular L.I.R. n° A 21/1 of 21 October 2021, which updates and replaces Circular L.I.R. n° A 21/1 of 7 April 2021 regarding the tax allowance for rent reductions. The tax allowance was first granted in 2020 for the benefit of owners that reduce commercial rents in order to help businesses impacted by the COVID-19 pandemic and was subsequently extended for 2021 by the Law of 21 June 2021. The allowance is equal to twice the amount of rent reduction granted, subject to a EUR 15,000 cap for the year.
The Circular provides guidance on the conditions for the allowance for both the 2020 and 2021 calendar year, including the conditions relating to the taxpayer (owner), the conditions relating to the rented building (or part of a building), and the conditions relating to the tenant. The Circular also provides guidance on determining the allowance amount, as well as several examples. Some key points include:
- Qualifying taxpayers include natural persons, companies, and partners in a partnership that are the owner or co-owner of the building or part of the building;
- The taxpayer must have waived in whole or in part the rent due for the year and not simply granted a payment deferral;
- The building or part of a building must be located in Luxembourg and must be rented under a commercial lease agreement;
- The tenant may be a natural or legal person and must be in a difficult situation due to the impacts of the COVID-19 pandemic and not due to another reason, including, in particular, where the tenant was already in financial difficulty before the beginning of the pandemic;
- Only the rent due for the respective calendar year, 2020 or 2021, is taken into account for determining the allowance amount, with any rent increases excluded unless already contractually fixed by 18 March 2020 in respect of both the 2020 and 2021 calendar year.
The Circular also explains the formalities for obtaining the allowance, providing that the allowance may only be granted to taxpayers who request it by completing Form 191F or 191D, annexed to the income tax return.10-27-2021
The Maldives Inland Revenue Authority (MIRA) has published the English-language version of the Fifth Amendment to the Tax Administration Regulation 2021/R-127, which was originally issued on 27 September 2021 in the Dhivehi language. The amendments concern the refund of tax amounts paid in excess. This includes, where the submission of a tax return or amending a tax return results in an overpayment of tax, such overpaid amount shall be refunded by MIRA in the following manner:
- Set off against amounts overdue and outstanding by the taxpayer to MIRA at the time; and
- Where the above set-off does not apply or excess overpayment remains, such amount shall be refunded to the taxpayer.
Instead of taking a refund, a taxpayer may also opt to:
- Retain the amount overpaid at MIRA to be set off against the taxpayer's future liabilities; or
- Set off the amount overpaid against an amount payable to MIRA by a third party.
The amendments also provide that in cases where there is an overpaid amount for reasons other than the submission of a tax return or amending a tax return and a taxpayer wishes to recover such amount, then the taxpayer must submit to MIRA a completed MIRA 904 (Adjustment/Refund Request) form. However, the submission of the MIRA 904 form is not required where a person is entitled to a refund following a decision of the Tax Appeal Tribunal or a judgement passed by a court of law of the Maldives. In such cases, refunds are to be made without considering amounts overdue and outstanding as above, although the person may still opt to use the refund to offset such amounts or retain the refund to offset future liabilities.
Further, the amendments provide that MIRA shall have the discretion to perform a review or conduct an audit of the person who requests for a refund, with reference to either the risks involved or a threshold as determined by MIRA, before issuing a refund in respect of an amount overpaid. It is also provided that where the Commissioner General has reasonable grounds to believe that MIRA may not be able to recover a tax amount due and outstanding by a person if a refund arising under the following circumstances is issued, MIRA shall conduct an audit prior to the issuance of such refund in the following cases:
- A person who is not a resident of the Maldives files an interim return or an income tax return under the Income Tax Act; and
- A person files a tax return under Section 48 of the Income Tax Act, which concerns specific cases where the Commissioner General may require tax returns, such as when a person ceases to be resident in the Maldives, terminates a permanent establishment in the Maldives, and others.
The Fifth Amendment to the Tax Administration Regulation 2021/R-127 is effective from 27 September 2021.10-27-2021
Paraguay Publishes Decree Amending Rules on Depreciation and Inventory Losses and the Special Transfer Pricing Rules for Commodity Transactions
Paraguay's tax authority (SET) has published Decree No. 6105 of 14 October 2021, which includes amendments regarding depreciation and inventory losses, as well as the special transfer pricing rules for commodity transactions (the so-called sixth method).
With regard to depreciation, Decree No. 6105 amends Decree No. 3182 of 2019 in relation to the prescribed years of useful life and residual value of different assets for depreciation purposes. Decree No. 6105 contains the entire list of asset categories, although the only change is the addition of returnable containers under the "Movable, Useful, and Household Goods" category of fixed assets, with a prescribed useful life of 3 years and a residual value of 10%. Decree No. 6105 also updates the rules for the recognition of damaged/impaired or obsolescent inventory as a loss, providing that the rules apply for inventory and fixed assets.
With regard to the special transfer pricing rules for certain commodity transactions, Decree No. 6105 provides for an extension of the deadline for taxpayers to register sales contracts for commodities. The registry of commodity contracts is to be operational from 1 November 2021 and, due to the delay in operation, taxpayers are granted an extension for registering their contracts until 31 December 2021 for exports made from 1 July 2021, which is the date the special rules for commodity transactions are effective.10-27-2021
The Russian Central Bank has announced its decision to increase the key rate from 6.75% to 7.50%. The increase is effective from 25 October 2021.
For tax purposes, the key rate is important in relation to the safe harbor rates for interest income and expense on controlled debt. For ruble-denominated loans, the safe harbor rates range from 75% to 125% of the key rate. For loans denominated in other currencies, the safe harbor rate range is based on EURIBOR, SHIBOR, or LIBOR, depending on the currency.
The key rate also impacts interest penalties, which are adjusted along with the adjusted key rate. For corporate taxpayers, the interest penalty is equal to 1/300 of the key rate per day of delay where the delay does not exceed 30 calendar days. Where the delay exceeds 30 days, the interest penalty is equal to 1/150 of the key rate beginning from the 31st day of delay.10-27-2021
Spain has published Royal Decree 899/2021 of 19 October 2021 in the Official Gazette, which amends the Personal Income Tax Regulation for the implementation of certain changes that were included as part of the Budget Law for 2021. Amendments to the regulation concerns revised limits on the deduction of contributions to social security systems and revisions to income tax rates.
The amendments concerning revised limits are in relation to new limits that apply to reductions in the tax base (tax deductions) for contributions to social security systems. This includes that such deductions are limited to the lower of 30% of work/economic income or EUR 2,000 by an individual, although this may be increased by contributions from a company of up to EUR 8,000, resulting in an aggregate cap of EUR 10,000 for individual and company contributions. The regulations are amended to provide that where deductions are limited, the excess may be carried forward for deduction in the following five years. For this purpose, where there are both employee and employer contributions, the excess amount will be determined in proportion to the respective contributions. Where excess amounts are carried forward, they are to be deducted first in a given year. A transitional provision is also provided for excess amounts carried forward from the 2016 to 2020 tax periods,
With respect to income tax rates, amendments are made to the regulations for withholding in consideration of the changes in the personal income tax rate brackets/rates for employment income as follows, including a new top rate:
- up to EUR 12,450 - 19.00%
- EUR 12,451 to 20,200 - 24.00%
- EUR 20,201 to 35,200 - 30.00%
- EUR 35,201 to 60,000 - 37.00%
- EUR 60,001 to 300,000 - 45.00%
- EUR 300,001 and over - 47.00%
Amendments are also made for changes in income tax for non-resident individuals, which has been changed from a single flat rate of 24% to progressive rates of 24% on income up to EUR 600,000 and 47% on income exceeding EUR 600,000.10-27-2021
The United Nations Department of Economic and Social Affairs has announced the launch event for the Handbook on Carbon Taxation for Developing Countries, which was held on 25 October 2021.
Introduction to the Handbook on Carbon Taxation for Developing Countries
1. The United Nations Handbook on Carbon Taxation for Developing Countries is a response to the need, often expressed by developing countries, for clear and holistic guidance on the application of carbon taxes as a policy option that is geared towards (i) curbing carbon-based emissions that are responsible for climate change; and (ii) living up to the commitments undertaken by countries under the Paris Agreement.
2. Climate change is an existential threat. Countries are facing dramatic impacts because of global warming. Given the substantial costs associated with climate change, jurisdictions are increasingly adopting more ambitious and sophisticated policy instruments to support climate mitigation, especially market-based policy instruments such as carbon taxation.
3. This Handbook outlines some of the common reasons why countries might want to introduce a carbon tax and provides options for policy design and administration that might cater to the different needs and priorities of countries. It is meant as a practical guide, and it contains many real-world examples and practical tools, including checklists to guide on the design and administration of the tax.
4. This introduction is meant to provide an overview of the topics covered in each chapter of the Handbook.
5. The primary intention of Chapter 2: An Introduction for Policymakers is to give policymakers all the elements to make an informed decision when considering whether to introduce a carbon tax, and when weighing the benefits of a carbon tax over other carbon pricing instruments. It seeks to provide an introductory overview of key concepts and policy options further developed throughout the Handbook, as well as to discuss high-level concepts such as the goals of carbon taxation. Although Chapter 2 is intended primarily for policymakers, it was drafted having in mind the wide range of potential users of the Handbook, from politicians to practitioners.
6. Chapter 2 also briefly touches on the international framework that provides the backdrop for the introduction of carbon taxes; a more detailed discussion can be found in the Appendix: Carbon Taxation in the Context of the United Nations.
7. Chapter 3: How to Generate Public Acceptability for Carbon Taxes argues that, to introduce a feasible carbon tax, policymakers should consider not only how to achieve the best technical design, but also how to ensure public acceptability. Therefore, governments interested in the implementation of carbon taxes must consider strategies to achieve immediate acceptability and permanent acceptance. The specific measures needed must be assessed considering the contextual factors of the jurisdiction that implements the tax. The chapter outlines the main factors affecting people's attitudes towards carbon taxes, and how these factors can be dealt with to increase acceptability – including adequate information and effective communication, as well as potential substantive changes in the tax design, such as implementing compensatory measure, focussed exceptions or revenue use, or even more complex policy-mixes.
8. Chapter 4: General Issues in Designing a Carbon Tax explores some of the main issues raised in designing a carbon tax, and examines the basic elements in carbon tax design, such as tax incidence, taxing power, tax base, and the point of regulation. The chapter conducts this analysis in light of two principal design approaches, the Fuel Approach - which uses fuels as the tax base and sets the tax rate based on carbon content, and the Direct Emissions Approach - which establishes the tax directly on emissions (the two approaches are then discussed in detail in Chapter 6).
9. Chapter 5: Setting the Tax Rate discusses why setting the tax rate can be an important design element and examines several practical approaches and their theoretical framework; however, an important conclusion of this chapter is that it is more important to get started and potentially set a sub-optimal tax rate, than delay the introduction of a carbon tax while trying to achieve the perfect rate.
10. Chapter 6: Carbon Tax Design Approaches in Practice discusses in detail the two main approaches that were introduced in Chapter 4, namely the Fuel Approach and the Direct Emissions Approach. The Fuel Approach is discussed based mainly on the example of Sweden, while the Direct Emissions Approach is outlined making frequent reference to the case of Chile.
11. Chapter 7: Addressing Undesired Effects on Households and Firms outlines the design features to keep in mind to counter potential undesired effects of the carbon tax. Potential adverse effects include distributional and equity impacts on households, competitiveness impacts on firms and carbon leakage. Chapter 7 also takes the reader through some methods to assess the actual risk of such negative effects, and finally policy options to counter them, including tax-reducing measures, support measures and trade-related measures.
12. Chapter 8: From Design to Administration: Practical Application of a Carbon Tax discusses the administrative issues raised by a carbon tax in light of different design approaches, and uses the cases of Sweden and Chile to explore some of the administrative decisions that authorities must make in this context. The chapter discusses general administrative issues, such as the role of tax authorities, inter-administrative cooperation, and the role of public consultations and information campaigns to improve administration and public acceptance. The chapter also analyses, considering the different approaches, the detailed regulations of the core elements of good administration that promote compliance, and the administrative requirements for ex-post evaluation to ensure the necessary adjustments to both the design and administration of the tax.
13. Chapter 9: Revenue Use discusses the complexities of revenue use in the context of the political economy of carbon tax design and implementation. Although it is usually not considered their primary purpose, carbon taxes may raise significant revenues; the use of those revenues co-determines carbon taxes' net economic benefits (beyond the direct environmental benefit); it can affect distributional impacts, as well as strengthen support for their introduction or increase. The chapter identifies possible revenue uses, and discusses how countries can establish revenue commitments and communicate those choices. It also provides an overview of current and potential tax revenues around the world.
14. Chapter 10: Interactions Between the Carbon Tax and Other Instruments aims to support policymakers in identifying which existing policy instruments might interact with the carbon tax in relation to its intended goals and effectiveness, i.e., whether they are complementary (the various policies enhance each other's performance); overlapping (the various policies duplicate the same effect); or countervailing (the various policies have adverse effects on the behaviour of investors, consumers etc). Once the interactions are identified, the chapter provides guidance on how to address them by adjusting the carbon tax; the other instrument; creating a hybrid approach; or adding complementary policies. Instruments that are specifically analysed in this chapter are other carbon pricing mechanisms, fuel/ energy taxation, incentives for clean technology and fossil fuel subsidies.10-27-2021
The Cyprus Ministry of Finance has issued a release on the strategy for attracting companies to Cyprus, which was presented by Finance Minister Constantinos Petrides on 15 October 2021. The strategy includes certain tax incentive measures as follows:
- An extension of the 50% tax exemption for investment in certified innovative companies, including for corporate investors (the exemption was previously in force until June 2021 and limited to natural persons);
- An extension of the existing 50% tax exemption for non-residents that become resident employees with salary income of at least EUR 55,000, including an extension of the benefit from 10 years to 17 years; and
- An increased deduction for eligible R&D costs by 20%, i.e., a 120% deduction of eligible costs.
The above measures are to be finalized in the first quarter of 2022. It is also noted that if the extension of the tax exemption for investment to corporate investors is not approved, an extension of the tax exemption just for natural persons will be proposed. Aside from the tax incentives, the strategy also includes measures to improve company facilitation, employment license procedures for employees from third (non-EU) countries, work permit and visa procedures, and other related measures/reforms.10-27-2021
Finnish Parliament Considering Draft Bill for Certain 2022 Budget Measures Including Increased R&D Deduction and Transfer Pricing Adjustment Revision
The Finnish parliament is considering draft bill HE 186/2021 vp, which provides for the amendment of the increased deduction for R&D investment costs. This includes an increase from an additional deduction of 50% of qualifying costs to an additional deduction of 150% of qualifying costs. Further, the validity of the increased deduction would be extended until the end of 2027 (currently scheduled to expire in 2025). As proposed, the additional 150% deduction would enter into force on 1 January 2022 and apply for the first time in the 2022 tax return. Other aspects of the current 50% additional deduction will continue to apply, including the maximum additional deduction cap of EUR 500,000 per year and no additional deduction if the amount to be deducted is less than EUR 5,000 in a year.
The parliament is also considering draft bill HE 188/2021 vp, which provides amendments to the Tax Procedure Act and related laws to revise the rule on transfer pricing adjustments. The revisions are made so that the adjustment rule can be applied in line with the OECD Transfer Pricing Guidelines, as well as Article 9 of the OECD Model Tax Convention. In these circumstances, the proposed regulation could disregard the related transaction and replace it with another market-based transaction. The proposed revisions are to apply from 1 January 2022.10-27-2021
The Moldovan parliament is reportedly considering draft legislation to introduce new beneficial ownership disclosure requirements. The legislation would amend the law on state registration of business entities to require the submission of information on the beneficial owners of legal entities, their founders, and administrators. Further details of the beneficial ownership disclosure requirements will be published once available.10-27-2021
Turkey's Revenue Administration has issued a release confirming that an income tax treaty with Nigeria was signed on 20 October 2021, which is the first of its kind between the two countries. According to the release, the treaty provides for the following withholding tax rates:
- Dividends - 7.5%
- Interest - 7.5%
- Royalties - 7.5%
The release also notes that the treaty provides for a construction PE if construction, assembly, or installation project activities continue for 6 months or more, and that the treaty provides for exchange of information and assistance in the collection of taxes to fight against tax losses and evasion more effectively. Additional details of the treaty will be published once available.10-27-2021