Worldwide Tax News
Japan's Ministry of Finance has published a G20 Press Release on International Taxation following the G20 Finance Ministers and Central Bank Governors meeting held 17-18 October 2019. The release welcomes the progress made on addressing the tax challenges arising from digitalization of the economy, including the OECD Secretariat’s efforts for the proposed unified approach under Pillar 1 (previous coverage).
G20 Press Release on International Taxation
1. We welcome the recent progress on addressing the tax challenges arising from digitalization of the economy led by the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), along the lines of the work program endorsed by G20 Leaders in June. The work program consists of a two-pillar approach. The first pillar focuses on the allocation of taxing rights, and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules (Pillar 1). The second pillar seeks to address the remaining BEPS risks of profit shifting to entities subject to no or very low taxation (Pillar 2).
2. We reaffirm our full support for a consensus-based solution with a final report to be delivered by the end of 2020. With a view to meeting this ambitious timeline, we stress the importance of the Inclusive Framework on BEPS agreeing to the outlines of the architecture by January 2020. The outlines will include a determination of the nature of, and the interaction between, both Pillars. We welcome the OECD Secretariat’s efforts for the proposed unified approach under Pillar 1.
3. We note a public consultation process has been initiated on the OECD Secretariat’s proposed unified Pillar 1 approach to seek further input from external stakeholders. The approach proposes to focus on consumer-facing businesses, including highly-digitalized business models. It would create a new nexus for taxpayers in scope not dependent on physical presence. The proposed new profit allocation rules would use formula-based methods to reallocate a portion of profits of taxpayers in scope to market jurisdictions. Greater tax certainty, including effective dispute prevention and resolution mechanisms, is an important component of the approach.
4. We look forward to further progress on both pillars in this collective endeavor at the Inclusive Framework on BEPS, and ask the OECD to update us on its work at our next meeting in February 2020 under the Presidency of Saudi Arabia.10-21-2019
The Kenya Revenue Authority has published the Public Notice of 14 September 2019 concerning the amendment of the Value Added Tax Act to provide for offset or refund of excess VAT credits arising out of VAT withholding. The amendments were made to resolve issues for taxpayers making predominantly zero-rated supplies that often ended up in an excess VAT credit position due to VAT withholding without the possibility of getting a refund. With the amendments, taxpayers may offset excess VAT credits resulting from VAT withholding against VAT and other taxes due, including corporation tax, PAYE, and withholding tax. Where no offsets are available, a refund may be claimed.
Offset/refund in respect of the 36 months prior to 23 July 2019 may be claimed within 12 months of 23 July 2019. For periods after 23 July 2019, offset/refund may be claimed within 24 months from the date the tax becomes due and payable. Applications for the offset/refund should be made through the iTax system.10-21-2019
The Turkish Revenue Administration (TR) has published an English-language Guideline on the Mutual Agreement Procedure for the Elimination of Double Taxation Agreements. The MAP Guidelines covers the general MAP framework, who can make a MAP request, in which cases MAP can be requested, etc. The TRA also published a related document listing the time limits for making MAP applications under Turkey's tax treaties and the time limits for the implementation of final MAP decisions.
All of the double taxation agreements Turkey has concluded, contain provisions related to the Mutual Agreement Procedure. MAP is generally stipulated under Article 251 of the agreements. Texts of the agreements concluded by Turkey which are still in force and the information about these agreements are available on our website: www.gib.gov.tr
Despite comprehensive and carefully designed provisions of the Double Taxation Agreements, erroneous procedures and misinterpretations may sometimes occur in the course of the application of such provisions by related tax authorities of the Contracting States. It could also be seen that sometimes the provisions of the Double Taxation Agreements are not taken into consideration at all.
A common way for taxpayers who face such undesired circumstances and cannot solve their problems with the related tax authority is to have recourse to national remedies such as litigation and reconciliation procedures. The "Mutual Agreement Procedure" in the Double Taxation Agreements offers to taxpayers a way of solution to present their case either to the competent authority of the Contracting State of which they are residents or as the case may be, to the competent authority of the Contracting State of which they are citizens, irrespective of the national remedies provided by the domestic laws of those States. In this sense, the aim of this guideline is to inform taxpayers on the "Mutual Agreement Procedure" Article included in all Double Taxation Agreements as well as on the application of this Article.10-21-2019
UK Prime Minister Boris Johnson has asked the EU for a further extension of Brexit to the end of January 2020. The request follows a vote in Parliament on 19 October 2019 rejecting the deal reached by the Prime Minister and EU leaders on 17 October. A new vote on the deal is to be held on 21 October, which if approved, may result in the withdrawal or modification of the extension request.10-21-2019
The Moroccan Government approved the draft Budget for 2020 on 17 October 2019. Details of the tax-related measures are currently limited but are reportedly focused on stimulating investment and supporting SMEs. Measures are also included to encourage the declaration of assets and the repatriation of cash in foreign currency. Further information on the 2020 Budget measures will be published once available.10-21-2019
The Dutch Ministry of Finance has published the Benelux agreement to combat tax fraud, which was signed together with Belgium and Luxembourg on 10 October 2019 and sent to the Dutch parliament on 16 October. The agreement provides for the participation in digital projects that allow for the exchange of information between the Benelux countries in the area of tax fraud and allows for joint studies to be conducted by the countries in the detection of tax fraud. The agreement entered into force the day it was signed.10-21-2019
Officials from Gibraltar and the UK signed an income and capital tax treaty through the exchange of letters dated 1 October and 15 October 2019. The treaty is the first of its kind between the two Territories.
The treaty covers Gibraltar income tax and corporation tax, and covers UK income tax, corporation tax, and capital gains tax.
If a company is considered resident in both territories, the competent authorities will determine the company's residence for the purpose of the treaty by mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, the company 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 territories.
- Dividends - 0% in general, although a 15% rate applies for dividends paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 (Income from Immovable Property) by an investment vehicle that distributes most of its income annually and whose income from such immovable property is exempted from tax, unless the beneficial owner of the dividends is a pension scheme
- Interest – 0% for interest arising in a Territory that is paid by that Territory, one of its political subdivisions, local authorities or statutory bodies or the interest is beneficially owned by the following (otherwise, domestic rates apply):
- the other Territory itself, one of its political subdivisions, local authorities, its Central Bank, or its statutory bodies;
- an individual;
- a company in whose principal class of shares there is substantial and regular trading on a recognised stock exchange;
- a company less than 25% of whose shares or other rights are owned, directly or indirectly, by persons who are not residents of the other Territory;
- a pension scheme;
- a bank or building society;
- any other financial institution unrelated to and dealing wholly independently with the payer; (the term "other financial institution" here means an enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance); or
- any other person provided that the competent authority of the Territory which has to grant the benefits determines that the establishment, acquisition or maintenance of that person, or the conduct of its operations, does not have as its principal purpose or one of its principal purposes to secure the benefits of Article 11 (Interest).
- Royalties – 0% for royalties arising in a Territory and beneficially owned by the following (otherwise, domestic rates apply):
- the other Territory itself, one of its political subdivisions, local authorities, or its statutory bodies;
- an individual;
- a company in whose principal class of shares there is substantial and regular trading on a recognised stock exchange;
- a company less than 25% of whose shares or other rights are owned, directly or indirectly, by persons who are not residents of that other Territory; or
- any other person provided that the competent authority of the Territory which has to grant the benefits determines that the establishment, acquisition or maintenance of that person, or the conduct of its operations, does not have as its principal purpose or one of its principal purposes to secure the benefits of this Article 12 (Royalties).
The following capital gains derived by a resident of one Territory may be taxed by the other Territory:
- Gains from the alienation of immovable property situated in the other Territory;
- Gains from the alienation of shares or comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other Territory, with an exemption for shares or comparable interests substantially and regularly traded on a recognised stock exchange, except for interests in an exempt investment vehicle; and
- Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other Territory.
Gains from the alienation of other property by a resident of a Territory may only be taxed by that Territory.
Article 21 (Miscellaneous Rules Applicable to Certain Offshore Activities) provides that a permanent establishment will be deemed constituted if a resident of one Territory carries on offshore activities in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in the other Territory, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day period has been exceeded, activities of an associated enterprise that are substantially the same are considered unless carried on at the same time.
Article 21 also provides that gains derived by a resident of one Territory may be taxed by the other Territory if derived from the alienation of exploration or exploitation rights, property situated in the other Territory used in connection with exploration or exploitation, and shares deriving the greater part of their value directly or indirectly from such rights or property.
Gibraltar and the UK generally apply the credit method for the elimination of double taxation, although the UK will exempt dividends paid to a company resident in the UK if the conditions for an exemption under UK law are met. An exemption may also apply for profits of a permanent establishment of a UK company if the conditions for an exemption under UK law are met.
In the event the conditions for the exemption of dividends is not met, the UK will apply the credit method, and if the UK company receiving the dividends controls directly or indirectly at least 10% of the voting power of the paying company, the credit will also take into account the tax paid on the profits out of which the dividends are paid.
Article 24 (Mutual Agreement Procedure) includes the provision that if any issues of a case cannot be resolved under MAP within two years from being presented to the competent authority of the other Territory, the person that presented the case may request that the case be submitted to arbitration. Unresolved issues may not, however, be submitted to arbitration if a decision on the issues has already been rendered by a court or administrative tribunal of either Territory.
Article 28 (Entitlement to Benefits) includes the provision that a benefit under the treaty shall not be granted in respect of an item of income or capital gain 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 this Agreement.
Where a benefit under the treaty would be denied to a person, the competent authority of the Territory that would otherwise have granted this benefit shall nevertheless treat that person as being entitled to the benefit, or to different benefits with respect to a specific item of income or a capital gain, if such competent authority, upon request from that person and after consideration of the relevant facts and circumstances, determines that such benefits would have been granted to that person in the absence of the transaction or arrangement referred to above.
The treaty will enter into force once the ratification instruments are exchanged. The treaty will apply in Gibraltar from the first day of the second month next following its entry into force in respect of withholding taxes, and from 1 July next following its entry into force in respect of other taxes. The treaty will apply in the UK from the first day of the second month next following its entry into force in respect of withholding taxes, from 1 April next following its entry into force in respect of corporation tax, and from 6 April next following its entry into force in respect of income tax and capital gains tax.
However, Article 25 (Exchange of information) and Article 26 (Assistance in the collection of taxes) shall have effect from the date the treaty enters into force, without regard to the taxable period to which the matter relates.10-21-2019
Hungary's Prime Minister Viktor Orbán reportedly issued Decree No. 1558/2019 at the end of September 2019, which authorizes the Ministry of Finance to sign an amending protocol to the 1992 income tax treaty with Pakistan. The protocol will be the first to amend the treaty and must be finalized, signed, and ratified before entering into force.10-21-2019
Japan's Ministry of Finance has published the synthesized text of the 1986 Canada-Japan income tax treaty as impacted by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). A summary of the application of the MLI has also been published. The synthesized text was prepared on the basis of the reservations and notifications submitted to the Depositary (the Secretary-General of the Organisation for Economic Co-operation and Development) by Japan on 26 September 2018 and by Canada on 29 August 2019 respectively. It is solely for the purpose of facilitating the understanding of the application of the MLI to the treaty and does not constitute a source of law.
The MLI is in force for Japan on 1 January 2019 and for Canada on 1 December 2019 and has effect as follows:
- The provisions of the MLI shall have effect in each Contracting State with respect to the treaty:
- with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2020; and
- with respect to all other taxes levied by each Contracting State, for taxes levied with respect to taxable periods beginning on or after 1 June 2020.
- Notwithstanding the above, Article 16 (Mutual Agreement Procedure) of the MLI shall have effect with respect to the treaty for a case presented to the competent authority of a Contracting State on or after 1 December 2019, except for cases that were not eligible to be presented as of that date under the Convention prior to its modification by the MLI, without regard to the taxable period to which the case relates.
- Notwithstanding the above, the provisions of Part VI (Arbitration) of the MLI shall have effect:
- with respect to cases presented to the competent authority of a Contracting State (as described in subparagraph a) of paragraph 1 of Article 19 (Mandatory Binding Arbitration) of the MLI), on or after 1 December 2019; and
- with respect to cases presented to the competent authority of a Contracting Jurisdiction prior to 1 December 2019, on the date when both Contracting Jurisdictions have notified the Depositary that they have reached mutual agreement pursuant to paragraph 10 of Article 19 (Mandatory Binding Arbitration) of the MLI, along with information regarding the date or dates on which such cases shall be considered to have been presented to the competent authority of a Contracting Jurisdiction (as described in subparagraph a) of paragraph 1 of Article 19 (Mandatory Binding Arbitration) of the MLI) according to the terms of that mutual agreement.
Click the following link for the Ministry of Finance's webpage on the BEPS MLI for more information.10-21-2019
According to an update from the OECD, Mauritius deposited on 18 October 2019 its ratification instrument for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Based on the date of deposit, the MLI will enter into force for Mauritius on 1 February 2020, although its entry into force for Mauritius's covered agreements (tax treaties) will depend on the ratification of the MLI by the counterparty to a particular covered agreement.
The MLI will generally enter into force for a particular covered agreement on the first day of the month following a three-month period after both parties to the covered agreement have deposited their ratification instruments. Once in force, the provisions of the MLI will generally apply for a covered agreement from 1 January of the year beginning on or after the date of its entry into force in respect of withholding taxes, and for all other taxes with respect to taxable periods beginning on or after the expiration of a 6-month period following the date of entry into force. For Mauritius's own application of the MLI in respect of withholding taxes, however, Mauritius has taken the reservation that the MLI will apply from the first day of the next taxable period instead of the next calendar year (i.e., from 1 July).
Click the following link for Mauritius's definitive list of reservations and notifications made upon deposit of the ratification instrument.10-21-2019
The South African Revenue Service published an update to its status overview of all tax treaties and protocols on 14 October 2019. This includes that negotiations are ongoing for new income tax treaties with Malawi, Senegal, and Zambia. The tax treaty with Senegal would be the first of its kind, while the treaties with Malawi and Zambia would replace existing treaties.
The status overview also includes the negotiations are ongoing for amending protocols to South Africa's tax treaties with Botswana, Germany, Kuwait, Luxembourg, Mozambique, the Netherlands, Swaziland (Eswatini), and Switzerland.
Any resulting treaties and protocols must be finalized, signed, and ratified before entering into force.10-21-2019