Direct Tax
OECD and Nigeria Meet on Two- Pillar Tax Solution; Stakeholders resolve for 'continued participation
Excerpts from taxsutra.com, 17 April 2023
OECD organizes workshop with Federal Inland Revenue Services (FIRS) of Nigeria, to discuss the maximization of benefits of the two-pillar solution for Nigeria, which has not been endorsed by Nigeria so far; The workshop held on Apr 4 and 5, was attended by key stakeholders, led by the Executive Chairman of FIRS, Mr. Muhammad Nami represented by coordinating director, representatives of Office of Vice President, the Federal Ministry of Finance, Budget and National Planning, the Federal Ministry of Justice, the Federal Ministry of Industry, Trade and Investment, Nigerian Investment Promotion Commission (NIPC), Nigeria Export Processing Zone Authority (NEPZA), Oil and Gas Free Zone Authority (OGFZA), Nigeria Export Promotion Council (NEPC), Joint Tax Board (JTB), and some States’ tax authorities; After a critical review of the rules and Nigeria’s participation in their development, stakeholders at the meeting resolved that “there is the need for Nigeria’s continued participation in the rule development, as a member of the Inclusive Framework, to ensure that the interest of the country and Africa is factored into the design and development of the rules.”; The Outcome Statement noted that whether or not Nigeria endorsed the statement of October 2021, and the detailed rules to be released later, to address challenges arising from the digitalisation of the economy, the country’s tax base and fiscal policy options will be impacted by the implementation of the Two- Pillar solution, especially the Pillar 2 Global Minimum Tax Rules of 15% effective tax rate (the GloBE rules); The Stakeholders also observed that Nigeria could implement and reap the benefits of Pillar 2, even where it does not wish to implement Pillar 1, noting that effective implementation of Pillar 2 rules holds significant potential for increased tax revenue to fund government programme, boost the economy and keep Nigeria as an attractive investment location; As part of its recommendations, the OECDNigeria Meeting urged stakeholders within the country to commence internal engagements and draw up a national strategy for immediate streamlining of its tax incentives, to avoid ceding its tax base to other jurisdictions, owing to the implementation of Pillar 2 rules.
Transfer Pricing
Saudi Arabia: Amendments to Transfer Pricing Bylaws12
Saudi Arabia has amended its Transfer Pricing Bylaws which will be effective for financial years’ starting on or after 1 January 2024 to include:
- Zakat payers within the scope of Saudi Arabian Transfer Pricing Bylaws; and
- Introduce advance pricing provisions for tax and Zakat payers.
Compliance Requirements
The latest requirements for Zakat payers will be implemented in two phases and will depend on the aggregate value of the related party transaction during the year. Zakat payers with an aggregate value of related party transactions less than SAR 48 million will be exempted from the Transfer Pricing documentation requirement. The Master File and Local File requirements will apply to Zakat payers based on the following thresholds:
| Phase 1: FY 2024 to FY 2026* | |
|---|---|
| Value of Related Party Transactions | Local File and Master File requirements |
| Less than SAR 48 million | Not Applicable |
| SAR 48 million or more but less than SAR 100 million | Optional |
| SAR 100 million or more | Mandatory |
*The first stage includes all taxpayers subject to zakat collection, with the exception of financing funds
| Phase 2: FY 2027 onward* | |
|---|---|
| Value of Related Party Transactions | Local File and Master File requirements |
| Less than SAR 48 million | Not Applicable |
| SAR 48 million or more | Mandatory |
*The second stage includes financing funds
Serbia: Rulebook on arm’s length interest rates for 202313
The Ministry of Finance adopted the rulebook for arm’s length interest rates for related party loans in 2023, which entered into force on 6 April 2023. The rulebook prescribes separate interest rates for long-term and for short-term loans for all nonfinance entities and a single interest rate for banks and financial leasing companies (except for RSD denominated).
| Arm's length interest rates for 2023 | ||||
|---|---|---|---|---|
| Credit/Loan Currency | Banks and Financial leasing companies | Other companies | ||
| Short term loans | Long term loans | Short term loans | Long term loans | |
| RSD(Serbian Dinar) | 1.48% | 4.47% | 3.88% | 4.74% |
| EUR (Euro) | 3.25% | 2.98%s | 3.22% | |
| United States Dollar | 4.43% | 3.18s | 4.28% | |
| Swiss Franc | 2.63% | - | 7.84% | |
| Swedish Krona | 3.70% | - | - | |
| British Pound Sterling | 1.88% | - | - | |
| Russian Ruble | 1.91% | - | - | |
| Chinese Yuan | 4.01% | - | - | |
United States: Announcement and report concerning Advance Pricing Agreement14
The Internal Revenue Service released its 24th annual Advance Pricing Agreement (APA) report, which discusses the experience, structure, and activities of the Advance Pricing and Mutual Agreement (APMA) program. The highlights of the report are as under:
- The total APAs executed in 2022 was 77 as against 183 applications that were filed
- The % of APA renewals executed in 2022 was 55% as compared to 63% in 2021.
- At year end, 564 APA requests were pending (480 bilateral, 30 multilateral and 54 unilateral).
- The median time required to complete an APA increased from 35.1 months in 2021 to 43.4 months in 2022.
- As in prior years, more than half of the APAs executed in 2022 involved transactions between non-U.S. parents and US subsidiaries.
- In 2022, the most used transfer pricing method for the sale of tangible property and use of intangible property continued to be the comparable profits method/ transactional net margin method. It was used for 77% of these types of transactions.
- The operating margin continued to be the most common profit level indicator (PLI) used to benchmark results. It was used in 73% of the cases.
12. https://uqn.gov.sa/?p=22752
13. ”Official Gazette of RS", number 24/23 – Click Here
14. https://www.irs.gov/pub/irs-drop/a-23-10.pdf
Indirect Tax
Four new SEZs unveiled in Saudi Arabia
Excerpts from site.ecza.gov.sa
Saudi Arabia’s Economic Cities and Special Zones Authority has launched four new SEZs focusing on key growth sectors, including advanced manufacturing, cloud computing, and medical technology. The details of these SEZs are as follows:
| SEZ | Location | Main focus areas |
|---|---|---|
| King Abdullah Economic City (KAEC) SEZ | Makkah Province | Automobile supply chain and assembly lines, consumer goods, information and communication technology, pharmaceutical industries, medical tech, and logistics |
| Ras Al-Khair SEZ | Eastern Province | Ship building - maintenance, repair and operation, offshore drilling rigs - maintenance, repair, and operation |
| Jizan SEZ | Jizan Province | Food Processing, metal conversion, and logistics |
| Cloud Computing SEZ | King Abdulaziz City for Science and Technology in Riyadh | Cloud computing |
Portugal temporarily zero-rates VAT on Food Staples to combat inflation
Excerpts from news.bloombergtax.com
Due to increased food prices, the Portuguese Government has temporarily zero-rated VAT on specified food staples. The law includes measures for applying 0% VAT with the right to deduct input VAT to the import or sale of food staples like milk, eggs, bread, and specified fruits and vegetables. The law, implemented from 18 April 2023, shall remain in force until 31 October 2023.
Poland introduces temporary reverse charge VAT on energy trading
Excerpts from various sources
Poland has introduced a temporary reverse charge for exchange-traded supplies of gas, electricity, and emission allowances. This measure, which applies between April 2023 and February 2025, has been introduced to counter VAT fraud and to improve the competitiveness of Poland’s energy trading system.
Kenya updates VAT Regulations on digital supplies
Excerpts from various sources
The Kenyan Cabinet Secretary for National Treasury and Economic Planning has issued VAT (Electronic, Internet, and Digital Marketplace Supply) Regulations, 2023, with effect from 15 March 2023.
The updated Regulations inter alia provide no distinction between B2C and B2B supplies, and non-residents supplying taxable electronic, internet or digital marketplace supplies in Kenya shall be required to register and pay VAT in Kenya, regardless of the nature of the recipient. Furthermore, the scope of taxable supplies has been expanded to now include the sale/licensing/ monetizing data from users’ activities, as well as the facilitation of online payment for the exchange or transfer of digital assets.