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Direct Tax

French Finance Minister welcomes Secretary Yellen's over Tech taxes

[Excerpts from CNBC, 25 January 2021]

French Finance Minister Bruno Le Maire welcomed the support of President Joe Biden's administration over a proposed global tax on tech giants, saying a multilateral agreement could come into force as soon as this spring.

This comes shortly after Biden's nominee for Treasury Secretary, Janet Yellen, voiced her support over calls for tech companies to pay a larger share of their revenues in the countries where they operate. The French Minister and the USA Secretary agree on the need to find multilateral solutions to various global issues, including addressing the tax challenges of efficiently and equitably taxing the income of multinational firms.

USTR report slams India digital tax levy

[Excerpts from TOI, 8 January 2021]

The USA Trade Representatives (USTR) released the 'special 301' investigation report, slamming India's digital service tax. It said that the levy discriminated against American digital services companies such as Netflix and Amazon, while arguing that it was also against the principle of international taxation.

USTR investigation indicates that India's digital service tax is discriminatory, unreasonable and burdens or restricts the US commerce.

Transfer Pricing

Vietnam: Updated Guidelines and Administration for Related Party Transactions2

Decree No. 132/2020/ND-CP provides updated guidance for taxpayers with key principles, methods, order for determining factors of prices of transactions with related parties; rights and obligations of taxpayers in the determination of prices of transactions with related parties and procedures for the declaration; responsibilities of state agencies for tax administration of taxpayers having transactions with related parties. Certain Key aspects are:-

  • A Transfer Pricing form declaring the related party transactions in 'Form No. 01' is required to be filed with the income tax filings;
  • The declaration is required to be made within 90 days/3 months from the end of the fiscal year that may either evidence the arm's length nature of the related party transactions or make an adjustment (if any) based on transfer pricing study, which results in an increase in the taxpayer's net taxable income;
  • Transfer pricing documentation (in Vietnamese) must be completed before the submission of the declaration and may be submitted to the authorities when asked for;
  • The definition of related parties expanded to including an increase in the direct or indirect ownership threshold from 20% to 25%;
  • In applying the TNMM, a comparison of the tested entity's profit with the profit range of comparable companies for the same year is required (as against the weighted average data) with an allowance of the prior year information for comparables;
  • Restrictions in relation to the deduction of expenses;
    • Payments to related parties – inconsistent business, assets, employees and functions, or do not contribute to generating revenue or adding value;
    • Payments for intragroup services unless meeting specified conditions,
    • Interest expense deductions, which are limited to 20% of EBITDA;
  • A commercial database can be used as a source to identify comparable companies to ascertain the arm's length nature of related party transactions;
  • Formerly, the arm's length range was equivalent to the interquartile range, i.e., range from 25th to 75th percentile of the data set. However, now the range is 35th percentile to 75th percentile;
  • Introduction and explanation of the Country-by-Country Report(CbCR) filing compliances.

Rwanda: Ministerial Order establishes general rules on transfer pricing3

The Rwanda Tax Authority has increased its capabilities to train and equip staff with the required tax expertise to conduct tax pricing audits. The Order issued establishing rules on transfer pricing between related persons involved in controlled transactions is a step forward towards effective tax administration structure.

This Order applies to both controlled transactions and deemed controlled transactions. It provides rules on the comparability of the transaction, complying with the arm's length principle, documentation, and necessary price adjustments. The new regulations largely conform with the 2017 OECD guidelines.

Singapore: IRAS to actively participate in International Compliance Assurance Programme (ICAP) effective 20214

The ICAP is a voluntary risk assessment and assurance program to facilitate co-operative multilateral engagements between multinational enterprises (MNEs) and tax administrations. The OECD has developed it as an efficient, effective and coordinated approach to provide MNEs with increased tax certainty with respect to their activities and transactions. IRAS will be a participating member effective 2021. The key benefits of ICAP include:

  • Improved tax certainty for MNEs and tax administrations;
  • More effective dispute resolution by preventing unnecessary disputes;
  • Better and more standardized information such as CbCRs for transfer pricing risk assessment;
  • Better use of resources for MNEs and tax administrations; and
  • Advances in international collaboration.

OECD: Releases toolkit on implementation of effective Transfer Pricing documentation for developing countries5

The Platform for Collaboration on Tax - a joint initiative of IMF, OECD, UN and the World Bank has released the final version of its toolkit on Transfer Pricing documentation, which is designed to support countries in implementing effective transfer pricing documentation requirements. The relevance of transfer pricing to developing countries, together with the challenges faced by low-capacity or inexperienced tax administrations, has been high on the regional and global tax agenda in the last several years. As per the toolkit, research using firm-level information and selected country experiences suggest that the introduction of effective documentation obligations is a critical component of compliance management strategies to address transfer mispricing.

The OECD's toolkit is intended to provide an analysis of policy options and a 'sourcebook' of guidance and examples to assist low capacity countries in implementing efficient and effective Transfer Pricing documentation regimes. For the purposes of this toolkit, the term 'Transfer Pricing documentation' comprises the Entity and Group level documentation.

OECD publishes guidance on Transfer Pricing implications of the COVID- 19 pandemic

The 'guidance on the Transfer Pricing implications of the COVID-19 pandemic' represents the consensus view of the 137 members of the Inclusive Framework on BEPS regarding the application of the arm's length principle and the OECD Transfer Pricing guidelines to issues that may arise or be exacerbated in the context of the COVID-19 pandemic.

The guidance helps taxpayers report the financial periods affected by the pandemic and for tax administrations in evaluating the implementation of taxpayers' transfer pricing policies. The guidance provides clarifying comments and illustrations of the practical application of the arm's length principle in four priority issues:

  1. comparability analysis;
  2. losses and the allocation of COVID-19 specific costs;
  3. government assistance programs; and
  4. advance pricing agreements.

Global: Relief to taxpayers through the extension of Transfer Pricing Form filing deadlines

In light of business operations affected due to the global COVID-19 crisis, various countries are providing relief to taxpayers by extending the due dates for filing of annual transfer pricing compliance forms. For example, the revised deadline for transfer pricing return is as under:

Country Form Previous deadlines Revised deadlines
Turkey CbCR for 2019 and 2020 31 January 2021 26 February 2021
Oman CbCR 2020 31 December 2020 30 April 2021

Peru: Peru has approved the evaluation of the confidentiality and information security standards required by the OECD for the automatic exchange of information obligating taxpayers to file CbCRs for fiscal years 2017, 2018, and 2019 by 29 January 2021.

Columbia: Ministry of Finance and Public Credit specified deadlines for compliance with tax obligations for the year 2020, including the transfer pricing documentation requirements in respect of the local file, informative return, master file, and CbCR. The due dates are basis the last digit of the taxpayer's id. Informative return, CbCR notification, and local file are to be filed in September 2021 while Master file and CbCR in December 2021.

2. Decree No. 132/2020/ND-CP dated November 05, 2020) – Click Here

3. Ministerial Order No 003/20/10/TC of 11/12/2020 – Click Here

4. IRAS participating in ICAP – Click Here

5. OECD announced Toolkit for developing countries, transfer pricing documentation rules – Click Here

Indirect Tax

Small businesses in UK struggle with post-Brexit VAT rules

[excerpts from The Guardian]

Small scale businesses in the UK exporting to EU countries are struggling to navigate through the new VAT regime. Since the UK is no longer a part of the EU, the businesses have to deal with different VAT rules for different member countries, resulting in an increase in compliance and tax costs.