Direct Tax

EU puts digital tax plan on hold during OECD talks

[Excerpts from the Economic times, 12 July 2021]

The European Commission said on Monday that it would delay its plan to propose an EU digital tax in order to not jeopardize efforts to secure a global deal on fairer taxation. The G20 finance ministers meeting in Venice endorsed a plan agreed by 132 countries to overhaul the way multinational companies, including US digital giants, are taxed. They approved the result of negotiations at the Organisation for Economic Cooperation and Development (OECD) for a global minimum corporate tax rate of at least 15%, and allow nations to tax a share of the profits of the world's biggest companies regardless of where they are headquartered. The European Commission has insisted that its new levy plan will be unveiled later this month, would conform with whatever is agreed at the OECD and would hit thousands of companies, including European ones.

Ireland cannot be part of current global tax reform proposals

[Excerpts from the Irish Times, 15 July 2021]

Minister for Finance Paschal Donohoe has said that Ireland cannot be part of an international agreement on a minimum global tax rate of 15%. Earlier this month, the G7 and OECD countries reached an agreement but not unanimous consensus on the key aspects of a global tax deal that seeks to introduce a minimum rate of 15%. Ireland and Hungary are among a handful of countries, that are opposed to a 15% rate. Mr. Donohoe said a key feature of the agreement was what was best for each jurisdiction. That would be examined in detail, and he said he would launch a public consultation to bring the details to the business community and stakeholders.

Brazil to vote on tax reform next week, corporate profit changes seen

[Excerpts from Reuters, 28 July 2021]

Brazil’s lower house of Congress is expected to vote on tax reform. The bill will likely be amended to exclude certain small companies’ profit and dividend taxes, said senior lawmakers steering the process. Voting on the stage of the bill aimed at simplifying and lowering personal, income taxes and levies on corporate profits will take place when Congress returns from recess.

Transfer Pricing

Madagascar: Transfer Pricing Documentation (TPD) requirements

The Ministry of Economy and Finance had provided a guidance note to taxpayers in Madagascar in relation to documentation to be maintained, which is summarized below:

  • Obligation to now submit Master and Local Files basis recommendations from the OECD.
  • Master File to include group structure and general information whereas Local File to include specific information such as the description of the local entity, controlled transactions along with financial and other information.
  • The obligation is for all those companies that engage in crossborder transactions irrespective of the transaction quantum.
  • The documents are to be submitted in French, but if presented in any other language, a certified document is to be presented with translation in French along with original documents.
  • Submission deadlines are as follows:
Year end Due date
31 December 15 May of the following year
30 June 15 November of the following year
Any other year-end 15th day of the 4th month following the closing date of accounts

For companies with 31 December 2020 year-end, an extension till 31 October 2021 has been granted

Mexico: Reforms relating to outsourcing and subcontracting rules

Various reforms relating to tax and labor laws were published in the official gazette of Mexico. The provisions relating to tax reforms will take effect from 1 August 2021 and are concerned with the outsourcing or sub-contracting of personnel.

  • Article 12 of the decree prohibits subcontracting of personnel except when it is done to execute specialized works that are not part of the corporate purpose of the predominant activity of the beneficiary. Subcontracting is understood to be done when a natural or legal person provides or makes available their own worker for the benefit of another.
  • Article 14 states that the subcontracting of specialized services or the execution of specialized works has to be formalized by way of a written contract wherein the objects and the approximate number of workers participating need to be indicated. Furthermore, the natural or legal persons who provide subcontracting services are required to register with the Ministry of Labor and Social Welfare.
  • Article 5 puts an obligation on the beneficiary to ensure that the contractor is registered at the time of making payment to him.
  • Article 127 prescribes norms relating to the right of workers to participate in the distribution of profits. The profit sharing will be subject to a maximum limit of three months of the worker's salary or the average of the participation received in the last three years, whichever is more favorable to the worker.
  • Article 15-D: When subcontracting is done for the execution of work that is part of both the corporate purpose and the predominant economic activity of the contractor, the payment will not have tax deduction or crediting effects. The tax deduction and credit shall also be ineligible where the contractor has transferred the workers to the beneficiary by means of any legal mechanism.
  • If the specialized service providers fail to comply with their documentation delivery obligations, they would also be subject to the sanctions established in articles 81 and 82 of the Fiscal Code of Federation, that is, between USD 150,000 to USD 300,000.

In light of these reforms, the corporate groups in Mexico shall have to examine their Mexican workforce to develop strategies to comply with the new obligations. Given the vigorous penalties for non-compliance with the obligations, it becomes even more necessary for employers in Mexico to prepare for this new legal scenario from a holistic perspective concerning labor laws, corporate laws and tax laws.

Indirect Tax

Two months’ sales tax holiday

[Excerpts from NBC 10 Boston]

Governor Charlie Baker of Massachusetts State has proposed to waive off the sales tax for the entire month of August and September. As the State has collected more tax than it had expected, the viability of the sales tax holiday is being discussed. Governer Baker mentioned that as the State revenues are 15% ahead from where they should be, the State can consider returning tax money to the residents and small businesses.