[Excerpts from OECD, 30 March 2021]
Greece and Hungary have deposited their instrument of ratification for the Multilateral Convention to Implement (MLI) Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS). The effective date of MLI for these two countries shall be 1 July 2021.
[Excerpts from National Post, 19 April 2021]
The Liberal government will target Big Tech with a USD 3.4-billion digital services tax, despite some experts warning that such a move carries the risk of retaliatory tariffs from the United States.
The federal budget confirmed that the government will go ahead with the tax, which is aimed at large companies that operate online marketplaces, social media platforms and earn revenue from online advertising. That category would include Amazon, Google and Facebook, as well as Uber and Airbnb, if they also meet minimum revenue criteria.
The 3% tax will come into effect from 1 January 2022 and will apply to large businesses with gross revenues of more than USD 1.13 billion, and USD 20 million in ‘in-scope revenue associated with Canadian users.’ The government expects to collect USD 3.4 billion over five years.
The budget also aims to boost Canada’s leadership in genomics, or the study of genes and their functions, with a five-year project. “Canada was an early mover in advancing genomics science and is now a global leader in the field. A national approach to support genomics research can lead to breakthroughs that have real world applications,” the budget said.
[Excerpts from Business Standard, 28 April 2021]
According to a person familiar with his proposal, President Joe Biden will propose a large-scale tax increase and give billions more to the Internal Revenue Service (IRS) to ensure that rich individuals and large corporations are paying all they owe.
The plan will include a top individual tax rate of 39.6% for those making at least USD 400,000 and will end an inheritance tax break on capital gains known as ‘step-up in basis,’ the person said. The proposal will include USD 80 billion to boost the IRS’s audit capabilities over the next decade for wealthy individuals and corporations, a change that could generate USD 700 billion in revenue, according to the person.
The measures will be key elements to offset the cost of Biden’s ‘American Families Plan’ that he’s set to unveil in a speech to Congress on Wednesday. The plan, estimated to cost about USD 1.8 trillion, is expected to include funding for paid leave, childcare and education, funded through tax increases on the rich.
Spending billions more on audits is intended to reverse a multi-year trend of falling audit rates at the IRS. Commissioner Chuck Rettig told a congressional panel this month that as much as USD 1 trillion in taxes may go uncollected each year. A pot of USD 80 billion over a decade specifically for IRS enforcement, which averages to USD 8 billion in additional funding per year, would be a significant increase to the IRS, which has an annual budget for the entire agency of about USD 11.9 billion for the fiscal year 2021.
[Excerpts from The Hindustan Times, 27 April 2021]
France and Germany support the USA’s proposal of a 21% minimum tax on multinational companies, French Finance Minister Bruno Le Maire and his German counterpart Olaf Scholz told Le Figaro and Die Zeit in a joint interview released on Tuesday. “If the Biden administration proposes a 21% rate and there is consensus, it would be acceptable for us,” Le Maire is quoted as saying.
U.S. President Joe Biden’s administration has proposed combating corporate tax-reduction strategies with a global minimum rate of 21%, and a system for ensuring that the world’s 100 or so biggest companies pay more in places they actually do business. While the broad proposal has received widespread support, after years of talks hosted, the OECD tried to reach a global deal, the precise tax rate could still be a sticking point.
Singapore: Issued special transfer pricing guidelines on centralized activities in multinational enterprise groups5
The Inland Revenue Authority of Singapore (IRAS) has issued special transfer pricing guidelines on centralized activities in multinational enterprise groups. Many leading companies choose Singapore to be their headquarter to deepen their presence in Asia and centralize key decisionmaking, management and coordination, build customer insights and develop product and services strategies for local markets. Even Singapore-based service providers have deepened capabilities and broadened their networks to support the business, innovation and talent needs of such headquarters. While the guidelines are to be read with the e-Tax guide on Transfer Pricing Guidelines (Fifth Edition), certain keys areas of focus are:
- centralized activities and their importance in Singapore to a MNE group
- analysis of activities taken place and appropriate transfer pricing methods used.
The Guidelines acknowledge that every headquarter is different and each headquarter has to be considered on its own facts and circumstances.
- On an overall basis, the total remuneration for the headquarter should always be commensurate with its functions, assets and risks profile. Any of the five methods set out in the IRAS TP Guidelines, any other more appropriate methods or a combination of various methods can be used. The Comparable Uncontrolled Price (CUP) can be appropriate only if a comparable transaction is found in a case where headquarter acts as a principal in distribution, manufacturing or research and development. In the case of contract manufacturers and research and development service providers, these would be tested by using Cost Plus Method (CPM) or Transactional Net Margin Method(TNMM). Whereas in the case of distributors, Resale Price Method or TNMM would be tested using sales as the appropriate base.
- Preparation of transfer pricing documentation would also be liable to headquarters. (where related party transaction meets the conditions specified).
Maldives Inland Revenue Authority (MIRA) published APA regulations (Regulation Number 2021/R-42) that set out the procedure to be followed to enter into an APA, introduces a rollback provision, and imposes an annual compliance report filing requirement. Certain Keys aspects of these regulations are as follows:
- Application Process is in three phases
- (i) a pre-filing consultation is required, through which the scope of the arrangement is identified and the controlled transaction in question is understood,
- a formal application requesting an APA can be lodged following the pre-filing consultation and then the application is passed through for evaluation,
- Once the parties have successfully entered into an APA, an annual compliance report will be filed along with the income tax return.
- Even if the APA application process is expected to be time-consuming, no time frame is provided within which the tax administration completes the process.
- The rollback provision: In permitting a rollback, the regulation merely states that the tax administration will look into the APA duration of participating jurisdictions, investigate the surrounding circumstances of the transaction in question, seek whether a tax audit or investigation is being carried out, and determine whether any legal actions are being taken in relation to the transaction in question. The detailed guidelines on the applicability and limitations of the rollback provision are still awaited.
- The regulation includes provisions on possible revisions and/or cancellation of the arrangement for consideration of uncontrolled economic circumstances and possibilities of significant changes to business operations.
Greek Independent Authority for Public Revenue (IAPR) provides guidance on intra-group issues impacted by the COVID-19 crisis, based on the OECD’s guidance. The keys areas of importance are summarized below:
- Details on the pandemic’s impact on the controlled transactions can be drawn from a) review change in volume of sales, distribution of channels b) analyzing the cost and profit margins c) comparison of an industry that has affected the sale, cost and profitability;
- Comparability analysis based on information from prior financial crises is not recommended since the COVID-19 pandemic effect on the economic environment is unique;
- The application of more than one method can be more useful, provided it is required;
- Appropriate to consider loss-making companies in the comparable set.
Losses and cost due to COVID-19
- Examine whether a company is taking consistent positions on the allocation of functions and risks, before and after the pandemic;
- In response to the pandemic emergency, independent parties could seek to renegotiate certain terms in their existing agreements;
- For extraordinary costs incurred due to the pandemic, the circular follows the rationale of the OECD guidance regarding the conditions that must be met and the circumstances that must be considered for the costs to be considered exceptional and allocated to the cost basis of each related entity involved.
Advance Pricing Agreements (APAs)
- The pandemic’s economic impact cannot be a factor for the revocation of APAs. The guidance encourages taxpayers to revise APA applications or some terms — which are already submitted and are under negotiation.
- The taxpayers should also consider submitting separate applications for the pandemic period and the subsequent period to cover the entire period, adding a clause permitting annual amendments to the arrangement.
5. Click Here for the e-Tax Guide issued by the Inland Revenue Authority of Singapore
6. Click Here for the APA Regulations published by the Maldives Inland Revenue Authority
7. Click Here for the circular issued by the Greek Independent Authority for Public Revenue
Florida Governor Ron DeSantis has signed a bill that requires out-of-state online retailers to collect sales tax on purchases made from a Florida address. Previously, the law required sales tax to be paid to the state by the purchaser. Now, this burden has been shifted to out-of-state retailers/online marketplaces.
An announcement by Her Majesty’s Revenue and Customs (HRMC) said that businesses who deferred VAT payments in the previous year between March to June 2020 under the VAT Payment Deferral Scheme could join the online VAT Deferral New Payment Scheme to pay in equal consecutive monthly installments from March 2021, interest-free. Businesses will need to opt-in to the VAT Deferral New Payment Scheme through the online services, which closes on 21 June 2021. The payments can be spread across the months depending on when the scheme is joined, i.e., 10 installments will be available if the scheme is joined by 21 April 2021, 9 installments when joined by 19 May 2021, and 8 installments if joined by 21 June 2021.