Direct Tax

OECD releases results that show further progress in countering harmful tax practices

Excerpts from OECD.org, 5 January 2023

At its November 2022 meeting, the OECD Forum on Harmful Tax Practices (FHTP) reached new conclusions on 13 regimes as part of implementing the BEPS Action 5 minimum standard on harmful tax practices. The results are as follows: two regimes were found to be not harmful (Cabo Verde and Hong Kong (China)), four regimes are now in the process of being amended (Armenia) and two regimes have been amended to be in line with the standard and are now not harmful (amended) (Jamaica and North Macedonia). Furthermore, two regimes were abolished (Honduras and Pakistan), and two regimes were concluded as potentially harmful (Albania), for which the FHTP will assess at its next meeting if these regimes are actually harmful.

Transfer Pricing

Draft UK transfer pricing documentation regulations published for consultation, but Summary Audit Trail (SAT) delayed6

The UK Government issued a draft statutory instrument to introduce new transfer pricing documentation requirements. The draft statutory instrument requires Multinational Enterprises (MNEs) with a turnover of EUR 750 million or more, operating in the UK, to keep and preserve a master file and local file in accordance with the OECD Transfer Pricing Guidelines commencing on or after 1 April 2023.

The regulations have an effect on the following:

  • for Corporation Tax purposes, in relation to accounting periods beginning on or after 1 April 2023
  • for Income Tax purposes in relation to the tax year 2024 to 2025 and subsequent years.

The regulations also provide HM Revenue and Customs (HMRC) with the power to require MNEs to produce a Summary Audit Trail (SAT) - a document covering the steps taken by members of an in-scope MNE in completing their local file.

HMRC will undertake a separate public consultation on the SAT in 2023, and therefore, the SAT requirement will not come into force on 1 April 2023. A decision on the SAT’s commencement will be made following the conclusion of the public consultation.

Singapore - Indicative margin for related party loans for 2023 7

The Inland Revenue Authority of Singapore (IRAS) published the indicative margin for related party loans not exceeding SGD 15 million obtained or provided from 1 January 2023 to 31 December 2023 for which the base reference rates are Risk-Free Rates (RFRs) as + 230 bps (2.30%).

Brazil: Draft legislation to align transfer pricing rules with OECD Transfer Pricing Guidelines8

The Brazilian government issued draft legislation to align its transfer pricing system, which is currently in force with the OECD Transfer Pricing Guidelines. For the fiscal year 2023, the taxpayers have the liberty to choose from the existing transfer price rules or the new OECD-based rules. However, beginning 1 January 2024, it is imperative for taxpayers to apply the new transfer pricing rules.

Some of the key highlights of the points addressed include:

  • Introduction of the Arm’s length principle by the Brazilian Legislation.
  • Definition of related party subject to Transfer Pricing (TP) rules.
  • The scope of TP rules has been broadened to include any commercial or financial relationship between two or more related parties. The current transfer pricing rules focused on tangible goods, services and rights.
  • Implementation of TP methods according to the OECD rules. The Comparable Independent Price method will be considered the most appropriate method where reliable price information is available.
  • Business Restructuring would come under the gamut of transfer pricing rules.
  • Analysis of the contractual terms, functions performed, the characteristics of the goods, rights or services, economic circumstances and business strategies to be undertaken to outline the transaction.
  • Transfer Pricing documentation is now required for compliance purposes and lack of TP documentation will attract a penalty of five percent of the value of the corresponding transaction.

6. Draft regulations: The Transfer Pricing Records Regulations 2023 - GOV.UK (www.gov.uk)
7. https://bit.ly/3YroEM2
8. MPV1152 (planalto.gov.br)

Indirect Tax

Changes in Spain’s ‘use and enjoyment’ VAT rule from 1 January 2023

Excerpts from various sources

From 1 January 2023, the application of the "use and enjoyment rule" for services under the Spanish VAT law has been restricted to B2C cases, leaving most of the B2B services outside the scope. In B2B cases, it will only apply to certain financial services and leasing of means of transport. Accordingly, most services supplied by Spanish businesses to non-EU customers will no longer be subject to VAT.

Dubai reduces the threshold for imposing customs duty on imports

Excerpts from vatupdates.com

Starting 1 January 2023, Dubai Customs authority has lowered the threshold for imposing customs duty. The threshold is reduced from an earlier consignment value of SAR 1000 to AED300. The new rule applies to parcels or shipments up to 70kg that is transported through courier companies. However, consignments of cards, mail, visually impaired leaflets, and print materials would remain outside the levy's scope.

Amendments to Bulgarian VAT law

Excerpts from various sources

The National Assembly of Bulgaria has adopted the Bill to amend the VAT Act. The key amendments are summarized below:

  • The taxpayers are now allowed to offset the VAT on the original invoice against output VAT in the return of the period in cases where the customer does not settle their debt.
  • The VAT rates of 9% (applicable to supplies of tourist, restaurant and catering services) and 0% (applicable to bread and flour), which were earlier extended till 31 December 2022 and 1 July 2023 respectively, will now apply 31 December 2023. On the other hand, VAT rate of 9% on supplies of books, textbooks, baby food, hygiene products, etc., has been made permanent.
  • New obligations have been introduced for payment service providers from 1 January 2024, in relation to the collection and reporting of data on cross-border payments.

Peru extends VAT exemption and introduces a temporary early VAT recovery regime

Excerpts from various sources

The Peruvian VAT authorities have announced two measures:

  • Extension of VAT exemption until 31 December 2025 on certain goods such as fish, crustaceans, mollusks, fresh or refrigerated potatoes, etc., as well as services like public transportation within the country, cargo transportation from Peru to /from foreign countries, live cultural shows, and interest from the collection of credits transferred by banking entities to securitization companies, trusts or investment funds.
  • A temporary and exceptional VAT early recovery regime until 31 December 2024 will allow taxpayers to elect to apply for the early VAT recovery system if the investment is at least USD 2 million.