Worldwide Tax News
Argentina has published Decree 456/2021 of 12 July 2021, which provides a further extension of the validity of the Promotion Regime for the Sustainable Production and Use of Biofuels established by Law No. 26,093 of 12 May 2006, until 27 August 2021 or until a new "Biofuel Regulatory Framework" enters into force, whichever happens first. The regime, which originally applied for a period of 15 years (i.e., until 12 May 2021), provides various incentives for biofuel producers in Argentina, including the refund of VAT related to approved investment projects, accelerated depreciation, and fuel tax exemptions. The regime was previously extended to 12 July 2021 by Decree 322/2021 of 8 May 2021.07-30-2021
The Australian Taxation Office (ATO) published updated guidance on 27 July 2021 concerning Transactions and taxes that attract their attention. This includes guidance in relation to:
- Bad debts
- Capital gains tax
- Commercial debt forgiveness
- Excise and excise equivalent goods
- Franking credits
- Fringe benefits tax
- Private assets or private pursuits in business
- Private company benefits
- Revenue losses
- Taxation of financial arrangements
The guidance generally applies in relation to privately owned and wealthy groups, which are viewed as:
- companies and their associated subsidiaries (often referred to as economic groups) with an annual turnover greater than AUD 10 million, that are not public groups or foreign owned; and
- resident individuals who, together with their business associates, control net wealth over AUD 5 million.
Dominican Republic Senate Approves Law to Promote Public Offerings in the Dominican Republic Stock Market Including Tax Incentives
The Dominican Republic Senate (upper house of Congress) approved the Law for the Promotion of the Placement and Commercialization of Public Offering Securities in the Stock Market of the Dominican Republic on 15 July 2021, following the law's approval in the Chamber of Deputies (lower house). The law provides several incentives in relation to the promotion of listing securities on the Dominican Republic stock market, including:
- An exemption from the 1% tax on capital increases for companies issuing shares or other equity-like instruments for a period of 3 years;
- An exemption from the 1% withholding tax on the purchase and sale of shares and securities;
- A reduction of the capital gains tax rate to 15% on the disposal of shares or other equity-like instruments for a period of 3 years for both individuals and legal entities; and
- An exemption from the tax on the transfer of industrialized goods and services (ITBIS) and real estate transfer tax on the transfer of assets or other goods to a special purpose vehicle quoted on the Dominican Republic stock market.
The law must be signed by the president to enter into force, which is expected in the near future. Further details on the law's implementation will be published once available.07-30-2021
Gibraltar published several amendment rules on 26 July 2021 for the implementation of certain measures of the Government’s Budget 2021. One of the key measures is an increase in the corporate tax rate increase to 12.5%, which is provided for by the Rates of Tax (Amendment) Rules 2021 with effect from 1 August 2021.
Other amendments rules that have been published for the budget measures include:
- Qualifying (Category 2) Individuals (Amendment) Rules 2021, which provide for an increase in the cap from GIP 80,000 to GIP 105,000, beyond which no further tax is due in Gibraltar for Category 2 individuals, and an increase in the minimum tax payable from GIP 22,000 to GIP 32,000;
- High Executive Possessing Specialist Skills (Amendment) Rules 2021, which amend the rules regarding the classification of an individual as a High Executive Possessing Specialist Skills (HEPSS), including an increase in minimum earnings threshold from GIP 120,000 to GIP 160,000, along with transitional provisions for current certificate holders;
- Income Tax (Allowances, Deductions and Exemptions) (Amendment) Rules 2021, which provide for an increase in various individual income tax allowances, including for disabled individuals, single parents, blind persons, dependent relatives, and others;
- Energy Performance (Deductions) (Amendment) Rules 2021, which increases the energy performance deduction rates for improvements to the EPC rating of a property under the Energy Performance (Deductions) Rules 2018; and
- Energy Deductions (Amendment) Rules 2021, which expand the allowed deduction for solar energy systems.
The Category 2 and HEPSS amendments are effective from 1 August 2021, while the other amendments are effective from 1 July 2021.07-30-2021
Greece is reportedly providing further tax relief for individuals in response to COVID-19. This includes an extension of the 3% discount for individuals that submit their tax returns and pay the tax due for 2020 in a lump sum. Previously provided where the lump sum is paid by 30 July 2021, the 3% discount will now be provided if the lump sum is paid by 27 August 2021. A new framework for settling tax liabilities will also be introduced for the settlement of outstanding taxes.07-30-2021
Hong Kong Inland Revenue Provides Guidance on Approach in Handling Tax Issues Arising from the COVID-19 Pandemic
Hong Kong's Inland Revenue Department has announced that a dedicated webpage has been set up to explain the Department’s approach in handling tax issues arising from the COVID-19 Pandemic. The webpage currently includes the following guidance regarding tax residence of companies and individuals, permanent establishment, income from employment, and transfer pricing, which may be updated/expanded in the future.
Tax Issues arising from the COVID-19 Pandemic
The COVID-19 pandemic has caused significant disruptions to people’s lives, resulting in changes to the ways in which businesses operate and the locations where people work. Such changes also give rise to certain tax issues, including those relating to tax residence of companies and individuals, permanent establishment (PE), employment income of cross-border employees and transfer pricing. The Inland Revenue Department (IRD)’s general approach to these issues is set out below.
It will be noted that the IRD’s approach in relation to the tax issues is generally in line with the Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic (the COVID-19 Tax Treaty Guidance) and Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic (the COVID-19 Transfer Pricing Guidance) released by the Organisation for Economic Co-operation and Development (OECD) in January 2021 and December 2020 respectively, to which further references may be made. These Guidances should be read together with the Commentary on the Model Tax Convention on Income and on Capital (MTC) and OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
It has to be stressed that the views expressed below are for general information only. The treatment for each case will be determined on its own facts and circumstances.
Tax Residence of Companies
Restrictions on international travel due to the pandemic may give rise to a change in the locations where senior management hold their meetings or conduct the business of an enterprise and concerns have been raised about the effect of such change on the tax residence of a company. The IRD does not consider that such a temporary change during extraordinary time would in itself alter the tax residence status of a company. In assessing the company’s residence status, the IRD will take into account all relevant facts and circumstances.
If a company is considered to be a resident of Hong Kong and another jurisdiction simultaneously, the tie-breaker rules under the relevant tax treaty would need to be considered to determine the jurisdiction where a company is regarded as a resident for the purposes of the treaty. As stated in the COVID-19 Tax Treaty Guidance, a company’s place of residence determined by the tie-breaker rules under a tax treaty is unlikely to be affected by the fact that the individuals participating in the management and decision-making of the company cannot travel as a result of a public health measure imposed or recommended by at least one of the governments of the jurisdictions involved.
Tax Residence of Individuals
An individual may have to temporarily remain in the host jurisdiction because he is prevented from returning to his home jurisdiction as a result of travel restrictions or other public health measures imposed under the pandemic. Generally, such an individual would unlikely become a resident of the host jurisdiction, and even if he did, he would normally remain a resident of the home jurisdiction under the tie-breaker rules in the relevant treaty. A different approach may, however, be appropriate if the change in circumstances continues after the public health restrictions are lifted.
Whether a non-Hong Kong resident person has a PE in Hong Kong within the meaning of a tax treaty or Part 3 of Schedule 17G to the Inland Revenue Ordinance (IRO) (as the case may be) is a question of fact and degree. In determining the issue, the IRD will examine all the relevant facts and circumstances, including the international travel disruption caused by public health measures imposed by governments in response to COVID-19. Given the extraordinary nature of the COVID-19 pandemic, the IRD is prepared to adopt a flexible approach when determining the issue, having regard to the relevant principles in the COVID-19 Tax Treaty Guidance.
As explained in the said Guidance, the exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 pandemic, such as working from home, should not create new PEs for the employers. Similarly, the temporary conclusion of contracts in the home of employees or agents because of the pandemic should not create PEs for enterprises, though a different approach may be appropriate if the employees or agents were habitually concluding contracts on behalf of the enterprises in their home jurisdictions before the pandemic.
It is important to note that the above views are relevant only to circumstances arising during the COVID-19 pandemic when public health measures are in effect. Where an individual continues to work from home after the cessation of the public health measures, further examination of the facts and circumstances would be required to determine whether a PE exists.
Income from Employment
Where an employee resident in another jurisdiction and exercising an employment in Hong Kong is stranded in Hong Kong because of the COVID-19 pandemic; and would otherwise have left Hong Kong and qualified for exemption from salaries tax in Hong Kong under Article 15 of the MTC, the additional days spent by the employee in Hong Kong under such circumstances would be disregarded for the purposes of the 183-day test in Article 15(2)(a). This approach covers situations where the employee is prevented from travelling due to quarantine requirements, certified sickness caused by COVID-19, travel ban imposed by government and cancellation of flights necessitated by government public health measures. It does not, however, cover the situation where the employee, like members of the public, is simply urged to avoid non-essential travel.
It should be mentioned that at the domestic level, the IRD has no discretion to exclude the days of physical presence in Hong Kong for the purposes of counting days under section 8(1B) of the IRO.
The IRD will generally follow the COVID-19 Transfer Pricing Guidance which maintains that the arm’s length principle remains the applicable standard for the purpose of evaluating the transfer pricing of controlled transactions in the face of the pandemic, though due regard must be given as to how the outcomes of the economically significant risks controlled by the parties to the transactions have been affected by the pandemic.
In view of the effect of the COVID-19 pandemic on the economic conditions, it may be appropriate to have separate testing periods for the duration of the pandemic or to include loss-making comparables when performing a comparability analysis. A limited-risk entity could be accepted to have incurred losses if the losses are found to be incurred at arm’s length. The receipt of government assistance may also affect the price of a controlled transaction.
The IRD will uphold existing advance pricing arrangements (APAs), unless a condition leading to the revocation, cancellation or revision of the APA has occurred. Where material changes in economic conditions lead to the breach of the critical assumptions, taxpayers should notify the IRD not later than one month after the breach occurs.07-30-2021
The OECD has announced the release of new data in the annual Corporate Tax Statistics publication, highlighting the importance of international tax reform.
New OECD data highlights the importance of the international tax reform discussions
29/07/2021 - New data, released today, underlines the importance of the two-pillar plan being advanced by over 130 members of the OECD/G20 Inclusive Framework on BEPS to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate.
The data, released in the OECD's annual Corporate Tax Statistics publication, shows the importance of the corporate tax as a source of government revenues, while also pointing to evidence of continuing base erosion and profit shifting behaviours.
Under the two-pillar solution to address the tax challenges arising from the digitalisation of the economy, Pillar One would re-allocate some taxing rights over multinational enterprises (MNEs) from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there. Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
The data released today show that the corporate income tax is an important source of tax revenues for governments to fund essential public services, especially in developing and emerging market economies. On average, the corporate income tax accounts for a higher share of total taxes in Africa (19.2%) and in Latin America and the Caribbean (15.6%) than in OECD countries (10%).
The data also show that statutory corporate income tax (CIT) rates have been decreasing in almost all countries over the last two decades. Across 111 jurisdictions, 94 had lower CIT rates in 2021 compared with 2000, while 13 jurisdictions had the same tax rate, and only 4 had higher tax rates. The average combined (central and sub-central government) statutory CIT rate for all covered jurisdictions declined from 20.2% in 2020 to 20.0% in 2021, compared to 28.3% in 2000. These declining rates highlight the importance of Pillar Two, which will put a multilaterally agreed limit on corporate tax competition.
New Country-by-Country Reporting data also provides aggregated information on the global tax and economic activities of around 6000 MNE groups headquartered in 38 jurisdictions and operating across more than 100 jurisdictions worldwide. Country-by-Country reports (CbCRs), which are a major output under the OECD/G20 BEPS Project, provide tax authorities with the information needed to analyse MNE behaviour for risk assessment purposes. The release of today's anonymised and aggregated statistics will continue to support the improved measurement and monitoring of BEPS.
The data contain some limitations and comparability between the 2016 and 2017 data is limited. Nonetheless, the new statistics suggest continuing misalignment between the location where profits are reported and the location where economic activities occur. This can be seen through differences in profitability, related-party revenues, and business activities of MNEs in investment hubs and zero-tax jurisdictions compared to MNEs in other jurisdictions. While these effects could reflect some commercial considerations, they are also indicate the existence of BEPS.
Evidence of continuing BEPS behaviours as well as the persistent downward trend in statutory corporate tax rates reinforce the need to finalise agreement and begin implementation of the two-pillar approach to international tax reform.
This year's database also includes new indicators highlighting the use of tax incentives for research and development (R&D) investments. The indicators, which are accompanied by a new working paper, show that in 2020, among OECD countries offering tax support, R&D tax incentives decrease the effective tax rate on R&D investments by around 10 percentage points on average, compared to non-R&D investments.
The publication and data are accessible at: https://oe.cd/corptaxstats
A list of Frequently Asked Questions on CbCR is available at: https://oe.cd/corporate-tax-stats-CbCR-FAQ07-30-2021
BIR Regulations Issued Suspending 12% VAT Rate for Certain Supplies to Exporters and Certain Conditions for Proprietary Educational Institution Benefits
The Philippines Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 15-2021, which suspends the implementation of Revenue Regulations No. 9-2021 in relation to the imposition of 12% VAT on certain supplies to exporters that were previously zero-rated. As previously reported, the Department of Finance and the BIR agreed to suspend the implementation of Revenue Regulation 9-2021 in relation to imposing 12% VAT on certain supplies to exporters, including:
- Sale of raw materials or packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise;
- Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production;
- Those considered export sales under Executive Order (EO) No. 226, or the Omnibus Investment Code of 1987, and other special laws (Section 106 (A) (2) (a) (5) of the Tax Code, as amended);
- Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported; and
- Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production.
According to Revenue Regulations No. 15-2021, the deferral is provided in view of the continuing COVID-19 pandemic and its impact on the export industry. The deferral will remain in force until the issuance of amendatory revenue regulations.
In addition to the suspension of the 12% VAT rate, the BIR also issued Revenue Regulations No. 14-2021, which suspends the implementation of certain provisions of Revenue Regulations No. 5-2021 in relation to the taxation of proprietary educational institutions. Under the CREATE Act, further beneficial measures were provided for the taxation of proprietary educational institutions that were implemented by Revenue Regulations No. 5-2021. However, the benefits were limited to "non-profit" proprietary educational institutions. To ease the burden of taxation of proprietary education institutions, especially during the COVID-19 pandemic, Revenue Regulations No. 14-2021 suspends different references to "non-profit" in Revenue Regulations No. 5-2021 until the passage of appropriate legislation. In other words, it is provided that proprietary educational institutions may be eligible for the beneficial measures even if they are not "non-profit".07-30-2021
The UAE Federal Tax Authority has published a VAT Guide for the Automotive Sector (VATGAM1), which is dated 29 June 2021. The guide covers the VAT treatment of the sale of cars in the UAE, the sale of used/pre-owned cars in the UAE, the lease of cars, the export of cars, the import of cars, and other related matters.
VAT was introduced with effect from 1 January 2018 in the United Arab Emirates ("UAE"). As a general consumption tax on the supply of goods and services, it applies to taxable supplies which take place within the territorial area of the UAE.
Businesses in the automotive sector in the UAE are principally engaged in the trading of cars. The cars in question are usually manufactured overseas and are sold in the UAE through a network of authorized distributors. This guide discusses the VAT implications of certain activities common within the automotive sector, particularly in respect of the sale of cars, the import and export of cars and warranty supplies.
This document contains guidance about the VAT treatment of supplies made by motor vehicle dealers in the UAE including but not limited to the supply of new cars, the supply of used/ second-hand cars, supplies under warranty and the export and import of cars.
The purpose of this document is to provide guidance on how VAT affects businesses which operate within the automotive sector.
This document should be read by anyone responsible for tax matters in the automotive sector in the UAE, as well as their tax agents. It is intended to be read in conjunction with other relevant guidance published by the Federal Tax Authority ("FTA").
In this guide, Federal Decree-Law No. 8 of 2017 on Value Added Tax is referred to as "Decree-Law" and Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as "Executive Regulation". This guidance is not a legally binding statement, but is intended to provide assistance in understanding and applying the VAT legislation.
This guide is issued in accordance with Article 73 of the Executive Regulation and provides general guidance concerning the application of the Decree-Law and Executive Regulation in respect of the business activities within the automotive sector in the UAE.
It should be noted that this guide is not intended to provide comprehensive details associated with VAT and is not intended for legal reference but as a framework discussing VAT issues relevant specifically to the automotive sector. As a consequence, the guide does not provide an overview of the general operation of VAT but assumes that the reader already has an understanding of the basic principles of VAT. For details in respect of the general operation of VAT, refer to the Taxable Person Guide – Value Added Tax which is available on the FTA website (www.tax.gov.ae).07-30-2021
The Fiji Revenue and Customs Service (FRCS) has published the National Budget Amendments 2021-2022, including a summary of revenue policies and the different bills for the implementation of the budget measures. Some of the main direct tax and tax administration measures are summarized as follows:
- Any new investment in infrastructure for businesses engaged in the information and communications technology (ICT) sector will be granted a tax holiday and a duty concession package where at least 90% of the income for the investor is derived from the ICT businesses, with the tax holiday duration dependent on the capital investment amount:
- FJD 2 million to 5 million: 10-year tax holiday
- FJD 5 million to 10 million: 15-year tax holiday
- in excess of FJD 10 million: 20-year tax holiday
- Any new investment in an ICT Park (including data storage services) will be granted a tax holiday and a duty concession package, with the tax holiday duration dependent on the capital investment amount:
- FJD 10 million to 30 million - 20-year tax holiday
- in excess of FJD 30 million - 25-year tax holiday
- Any company investing in network cabling (submarine cable) and associated infrastructure development will be provided a 30-year tax holiday and duty concession package if investing more than FJD 40 million;
- Hotel investment incentives will be expanded, including:
- the extension of a 5-year tax holiday for investments more than FJD 2 million in renovations and refurbishments of existing hotels or resorts, which will be for 18 months from 1 August 2021 and can be claimed only once;
- the addition of a new tier for the tax-holiday incentive for investments in new hotels, providing a 25-year tax holiday for capital investment in excess of FJD 40 million; and
- an increase in the standard investment allowance from 25% to 50%;
- Any new investment in the recycling business will be granted a tax holiday and a duty concession package, with the tax holiday duration dependent on the capital investment amount:
- FJD 250,000 to 500,000: 3-year tax holiday
- FJD 500,000 to 2 million: 5-year tax holiday
- FJD 2 million to 5 million: 10- year tax holiday
- FJD 5 million to 10 million: 15- year tax holiday
- in excess of FJD 10 million: 20-year tax holiday
- To encourage investment in the agriculture sector, any new activity in commercial agricultural farming and agro-processing will qualify for income tax exemption based on the following capital investment levels:
- FJD 100,000 to 250,000: 5-year tax holiday
- FJD 250,000 to 1,000,000: 10-year tax holiday
- FJD 1,000,000 to 2,000,000: 15-year tax holiday
- in excess of FJD 2,000,000: 20-year tax holiday
- The increase in the Export Income Deduction (EID) to 60% until 2022 in response to COVID-19 will be extended to 31 December 2024, while the agriculture and fisheries sector will qualify for a 90% EID until 31 December 2024;
- Taxation of the mining sector as stipulated under Part 6 of the Income Tax Act 2015 will be made effective from 1 August 2021;
- All Unit Trusts will be exempted from Income Tax;
- A 200% tax deduction will be allowed on the development or upgrade of online shopping websites with integrated payment platforms;
- A 200% tax deduction will be allowed for investment in fogging machines specifically used for decontamination and sanitizing purposes;
- The tax exemption on debt forgiveness provided in response to COVID-19 will be extended, with the debt creation period extended from 31 December 2020 to 31 December 2021 and the debt forgiveness period extended from 31 December 2021 to 31 December 2022;
- The Income Tax Act will be amended to simplify the rules to allow interest income earned to be exempted on income less than FJD 30,000;
- The scope of the re-organization rules under Section 88 of the Income Tax Act 2015 will be extended to cover partnership structures and the definition of group companies will be expanded to include the transfer of assets between companies that have common shareholders;
- The 300% deduction allowed on salaries and wages paid to an employee that was quarantined and/or tested positive for COVID-19 will be further extended from 31 December 2020 to 31 December 2022;
- The tax deduction given to landlords for the amount of reduction of commercial rent will be increased from 100% to 200% and will be further extended until 31 July 2022;
- The mandatory Fiji National Provident Fund (FNPF) contribution will be increased from 5% to 6%, with employers making contributions exceeding the 6% mandatory FNPF contribution up to 10% allowed a tax deduction of 300% of the excess;
- Clarifications will be made for the facilitation of refunds by the FRCS of withholding tax collected on professional services fees in accordance with tax treaties (DTAs) and domestic law provisions:
- withholding tax directly paid by non-residents will be refunded through discussions with the respective competent authorities using the Mutual Agreement Process article in the relevant DTA; and
- withholding tax paid by Fiji residents on behalf of non-residents will be paid (refunded) using section 33(5) of the Tax Administration Act after verifying documents and assessments;
- The ability of the FRCS to amend an assessment/tax return will be limited to within 3 years for companies with a gross turnover of less than FJD 1.25 million;
- Tax Amnesty will be granted to taxpayers with tax arrears, including a waiver of all penalties upon payment of taxes, provided that payment arrangements are made within 3 months from 1 August 2021 and all payments are made before 30 June 2022;
- Taxpayers will be allowed to use excess credits of VAT, income tax, or any other tax type to offset against customs debt, excluding disputed tax, and will be similarly allowed to use excess customs credits to offset against any tax debt;
- Legislation on rulings will be implemented from 1 August 2021; and
- The implementation of the VAT Monitoring System (VMS) as per the Electronic Fiscal Device (EFD) Regulations will be further deferred until 31 December 2023, with businesses required to implement the VMS from 1 January 2024 and a 300% deduction allowed for the cost of voluntary implementation before that date.
The budget also includes several measures regarding indirect tax, including various amendments to the Value Added Tax Act, the Environmental & Climate Adaptation Levy Act, the Customs Tariff Act, the Gambling Turnover Tax Act, and others.07-30-2021
Republican members of the U.S. House Ways and Means Committee have sent a letter on 28 July 2021 to Treasury Secretary Janet Yellen to express concerns regarding the proposed elimination of the foreign derived intangible income (FDII) deduction.
Dear Secretary Yellen,
As Members who care deeply about research and development, manufacturing, and jobs here in the United States, we are writing to express concern about the elimination of the foreign derived intangible income (FDII) deduction in the Administration's proposed FY 2022 budget.
Currently, FDII provides an important counterbalance to global intangible low-taxed income (GILTI) to keep successful research and development (R&D) in the U.S, create valuable intellectual property (IP) here, and even redomicile IP that is acquired or created overseas. FDII provides this parity with GILTI to discourage offshoring through a lower, 13.125% rate on high-return income, effectuated through a 37.5% deduction from income taxed at the 21% headline corporate rate. By eliminating the FDII deduction, and combined with the proposal to increase the corporate tax rate, the Administration's budget proposal would be detrimental to U.S. competitiveness and job growth.
FDII also supports innovation and investment. FDII encourages high-return advanced manufacturing to be performed in the U.S. Businesses often establish R&D centers and supply chains around where their high-return intellectual property is located. These activities create well-paying jobs. Moreover, bringing highly mobile intellectual property into the U.S. from low-tax jurisdictions provides the U.S. the primary right to tax (as opposed to only a secondary right if taxed under GILTI), boosting U.S. revenue.
While the Administration's budget proposes reinvesting revenue raised by FDII into an unspecified R&D spending incentive, we are concerned that any such incentive will not be able to keep American-developed IP at home or encourage companies to domesticate IP as well as FDII. Moreover, that trade-off conflates provisions that serve distinct purposes, both of which encourage domestic innovation.
Research incentives, while certainly valuable, serve as "input" measures — reducing the cost of research on the front-end, whether or not that research is successful. In contrast, FDII — in addition to providing parity with GILTI to discourage tax-motivated offshoring — serves a purpose that is complimentary to research incentives: it is a type of "output" measure that rewards successful research, leading to more investment in innovation.
IP boxes have been enacted in 19 of 37 OECD countries, so retaining FDII is critical for the U.S. to keep pace in the global innovation race. At the same time, we stand ready to work with the Administration on legislation to improve our competitive standing on R&D. Countries like China already permit businesses to deduct up to 200% of their R&D costs, and we should develop bipartisan solutions that complement FDII and promote U.S. innovation.
We know that when the businesses and workers in our districts have a level playing field, they can compete and win, even in an increasingly competitive global marketplace. We believe that the FDII regime provides our businesses and workers that level playing field and encourages businesses to expand their activity on U.S. soil. We urge the Administration to reconsider its elimination in order to preserve American IP, and the valuable economic activity that follows it, and protect our R&D and innovative jobs.07-30-2021
On 29 July 2021, officials from Ethiopia and Switzerland 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.07-30-2021
The amending protocol to the 1995 income and capital tax treaty between the Netherlands and Ukraine will enter into force on 31 August 2021. The protocol, signed 12 March 2018, is the first to amend the treaty and includes the following changes:
- The title and preamble are replaced in line with OECD BEPS standards;
- Article 2 (Taxes Covered) is updated, including that the treaty covers:
- Netherlands income tax, wages tax, company tax including the Government share in the net profits of the exploitation of natural resources levied pursuant to the Mining Act, and dividend tax; and
- Ukraine individual income tax and tax on income of enterprises;
- Article 3 (General Definitions) is updated in regard to the definition of the terms "the Netherlands", "Ukraine", and "pension fund";
- Paragraph 1 of Article 4 (Resident) is replaced with three new paragraphs concerning the definition of a "resident of a Contracting State";
- Paragraph 3 of Article 5 (Permanent Establishment) is replaced, providing that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months;
- Paragraphs 2, 3, and 4 of Article 10 (Dividends) are replaced, providing for a 5% withholding tax rate if the beneficial owner is a company directly holding at least 20% of the paying company's capital, otherwise 15%, as well as an exemption for dividends paid by a company that is a resident of a Contracting State to the other State if the beneficial owner is:
- a company whose investment in the capital of the company paying the dividends is guaranteed or insured by the other State, the central bank of the other State or any agency or instrumentality (including a financial institution) owned or controlled by that State; or
- a pension fund of the other State;
- Article 11 (Interest) is replaced, providing for a withholding tax rate of 5%, as well as the following exemptions:
- interest arising in a Contracting State and paid in respect of a bond, debenture or other similar obligation of that State, the central bank of that State, a political subdivision or local authority thereof shall be exempt from tax in that State;
- interest arising in a Contracting State and paid in respect of a bond, debenture or other similar obligation to the other Contracting State, the central bank of the other Contracting State, a political subdivision or local authority thereof, or a pension fund of the other Contracting State shall be exempt from tax in the first-mentioned State; and
- interest arising in a Contracting State and paid in respect of loans guaranteed or insured by the other Contracting State, the central bank of the other Contracting State or any agency or instrumentality (including a financial institution) owned or controlled by that State, shall be exempt from tax in the first-mentioned State;
- Article 12 (Royalties) is replaced, providing for:
- a 10% withholding tax rate on royalties paid for the use of, or the right to use any copyright of literary or artistic work (including cinematograph film and films or tapes for radio or television broadcasting); and
- a 5% withholding tax rate on royalties paid for the use of, or the right to use any copyright of scientific work, any patent, trademark, design or model, plan, secret formula, or process, or for information concerning industrial, commercial, or scientific experience;
- Article 24 (Elimination of Double Taxation) is amended, which includes clarifying amendments and adjustments to references to other provisions of the treaty, as well as a new paragraph providing that, subject to certain conditions, the Netherlands will allow a reduction from Netherlands tax for the tax paid in Ukraine on items of income that, according to Article 7 (Business Profits) and the relevant provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 22 (Other Income), may be taxed in Ukraine due to being connected to a permanent establishment;
- A new Article 24a (Entitlement to Benefits) is added, providing that a benefit under the treaty shall not be granted in respect of an item of income or property if it is reasonable to conclude, having regard to all relevant facts and circumstances, 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 in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty;
- Article 27 (Mutual Agreement Procedure) is amended, including updated provisions regarding arbitration;
- Article 28 (Exchange of Information) is replaced in line with international standards;
- Article 29 (Assistance in the Collection of Taxes) is replaced with updated provisions; and
- Several provisions of the final protocol to the treaty are amended, including the addition of the provision that the benefits of the Articles 10 (Dividends), 11 (Interest), 12 (Royalties), 13 (Capital Gains), and 22 (Other Income) will not apply to a Dutch tax-exempt Investment Institution (vrijgestelde beleggingsinstelling).
The protocol also amends Article 15 (Dependent Personal Services), replaces Articles 18 (Pensions, Annuities and Social Security Payments) and 21 (Students), and removes Articles 30 (Limitation of Articles 28 and 29) and 32 (Extension to the Netherlands Antilles or Aruba).
The protocol applies from 1 January 2022.07-30-2021
U.S. IRS Publishes Competent Authority Arrangements with the UK Regarding Application of 2001 Tax Treaty
The U.S. IRS has published two competent authority arrangements signed with the United Kingdom on 26 July 2021.
The Competent Authority Arrangement Regarding United Kingdom Withdrawal from the EU concerns whether a person resident in the United Kingdom may continue to be considered a "resident of a Member State of the European Community" for the purposes of applying the so-called "derivative benefits test" in paragraph 3 of Article 23 (Limitation on benefits) of the 2001 US-UK Tax Treaty, including the term "equivalent beneficiary," as defined in subparagraph (d) of paragraph 7 of Article 23. The competent authorities agree that, for the purposes of applying paragraph 7(d) of Article 23, a "resident of a Member State of the European Community" continues to include a resident of the United Kingdom. This interpretation reflects the shared understanding of the competent authorities that residents of either Contracting State should be eligible to qualify as equivalent beneficiaries for purposes of applying the derivative benefits test in paragraph 3 of Article 23.
The Competent Authority Arrangement Regarding USMCA concerns the interpretation of the term "North American Free Trade Agreement" referred to in subparagraphs d) of paragraph 7 of Article 23 (Limitation on Benefits) of the 2001 US-UK Tax Treaty considering the signing of the United States-Mexico-Canada Agreement (USMCA). The competent authorities agree that the references to the NAFTA in subparagraph d) of paragraph 7 of Article 23 of the Treaty shall be understood as references to the USMCA upon entry into force of the USMCA.07-30-2021