Direct Tax
US trade chief readies tariffs against six countries over digital taxes
[Excerpts from Reuters, 27 March 2021]
The United States Trade Representative(USTR) Katherine Tai on Friday said she was maintaining the threat of US tariffs on goods from Austria, Britain, India, Italy, Spain and Turkey in retaliation for their digital services taxes. The taxes target incountry revenues of digital services platforms, such as Facebook, Google, and Amazon.com.
Tai also said that the USTR was terminating ‘Section 301’ tariff investigations against Brazil, the Czech Republic, the European Union and Indonesia because these jurisdictions have not adopted or implemented digital services taxes that were previously under consideration. If they do adopt a digital services tax, USTR said it may open a new tariff probe.
The US also is maintaining a more advanced tariff threat against USD 1.3 billion in imports of French Champagne, cosmetics, handbags and other goods in retaliation for France’s digital tax.
Like the French tax, the USTR investigations into the taxes adopted by Austria, Britain, India, Italy, Spain and Turkey found that they discriminate against US technology companies and are inconsistent with international tax norms.
Warren Proposes Tax On The 100,000 Richest Americans
[Excerpts from Forbes, 1 March 2021]
Sen. Elizabeth Warren, (D-Mass.) and other progressives introduced legislation to tax the net worth of the richest Americans on Monday, framing it as a way to fund the sweeping federal spending programs proposed by President Joe Biden and other Democrats.
The bill would impose a 2% annual tax on the net worth — the total value of assets after debts are subtracted — of households and trusts above USD 50 million. A 1% surcharge would apply to those with net worth above USD 100 billion under the so-called Ultra- Millionaire Tax Act. It would apply to the ‘wealthiest 100,000 households in America,’ Warren, who joined the influential Senate Finance Committee this year, said in a statement.
The Ultra-Millionaire Tax Act is projected to raise USD 3 trillion over a decade, according to estimates from the Berkeley economists Emmanuel Saez and Gabriel Zucman. The researchers raised that estimate this year because ‘wealth at the top, particularly among billionaires, has grown’ in part because of the COVID-19 pandemic, which has hit low-income earners and minorities particularly hard.
Transfer Pricing
Bahrain: Introduced Country by Country Reporting (CbCR) requirements
Background
Recently, Bahrain’s Ministry of Industry, Commerce, and Tourism (MoICT) issued ministerial resolution 28 of 2021, introducing CbCR requirements. Earlier in 2018, Bahrain became a member of the Organisation for Economic Co-operation and Development (OECD)’s inclusive framework, thereby committing to implement the minimum standards of the OECD’s Base-Erosion and Profit Sharing (BEPS) action plan. Later, Bahrain became a signatory to the Multilateral Competent Authority Agreement (MCAA) on the exchange of CbC reports in December 2019, which provides a mechanism for the automatic exchange of CbC reports among members.
Applicability
The requirement of CbCR is majorly in line with the OECD recommendation. Wherein a Bahrain-resident entity or branches that are part of a multinational group (whose consolidated revenue was at least BHD 342 million (approximately Euro 760 million or USD 907 million) in the preceding financial year must file a notification with the MoICT, explaining whether or not the Bahrain entity is the group’s ultimate parent entity or has been nominated as the surrogate parent entity. The requirements are applicable with effect from the financial year commencing on or after 1 January 2021. Where the entity is neither the ultimate parent entity nor the surrogate parent entity, it must identify the CbCR entity and its tax residence.
Due date
The due date for furnishing the CbCR (wherever applicable) is within twelve months of the group’s financial yearend. For example, for the year ending on 31 December 2021, the report must be submitted on or before 31 December 2022. The authority is yet to provide the format of the CbCR notification and report. Also, the manner of filing has not yet been clarified by the authority.
Penalties for non-compliance
The resolution suggests potential penalties for failing to file CbC notifications or reports by the due dates. These include suspension of the commercial registration for six months, as well as administrative penalties of up to BHD 100,000 (approximately USD 265,000).
Our Comments
The introduction of CbCR requirements is a step to honor Bahrain’s commitment of becoming a member country to the OECD’s inclusive framework. A number of countries within the region have now implemented the CbCR and other tax transparency-related measures for greater clarity towards tax administrations through increased international cooperation.
Zambia: Introduced CbCR requirement
Background
The Zambian Minister of Finance announced the government’s intention to amend Zambia’s Income Tax (Transfer Pricing) Regulations 2000 to provide for the implementation of Action Point 13. Zambia already has a requirement to prepare the equivalent of a Master File and a Local File under the Transfer Pricing Regulations. Now, with the implementation of the Zambian CbCR Regulations, Zambia has completed the adoption of a threetiered approach to Transfer Pricing Documentation.
Applicability
Under the Zambian CbCR Regulations, reporting applies only to the MNE groups, with business entities in two or more states, with an annual consolidated revenue exceeding EUR 750 million or approximately ZMW 4,795 million during the immediately preceding accounting year (MNE Groups).
The filing requirements under the Zambian CbCR Regulations are applicable to Zambia tax resident entities of MNE groups for tax years ending on 31 December 2021 and each subsequent tax year. CbCR provides for the automatic exchange of the CbC reports among tax administrations in jurisdictions in which the MNE group operates (refer our comments on the exchange of information).
The CbC report should be filed by the Ultimate Parent Entity of an MNE Group (UPE) in its jurisdiction of tax residence. This is the primary filing mechanism as recommended by the OECD and also Zambian regulations.
In certain circumstances, constituent entities of an MNE Group other than the UPE are required to file a CbC report in their jurisdiction of tax residence.
This is known as the secondary filing mechanism. Under the Zambian CbCR Regulations, the secondary mechanism applies to either (a) a Zambia tax resident Constituent Entity (CE), which is not a UPE or (b) a non-Zambia tax resident CE acting as UPE Surrogate Parent Filing.
A non-reporting CE tax resident in Zambia must submit a CbC notification to the Zambia Revenue Authority (ZRA) providing the reporting entity's identity and tax residency (i.e., the UPE or the surrogate parent entity) in its MNE group.
Due date
The due date for UPE to furnish the CbCR is within twelve months of the group’s financial year-end. For example, for the year ending on 31 December 2021, the report must be submitted on or before 31 December 2022).
On the other hand, the due date for the CE/non-reporting entity to furnish the notification is the last day of the reporting accounting year of the MNE Group. For example, the due date for furnishing the notification with respect to the accounting year ending on 31 December 2021 would be 31 December 2021.
Our Comments
With the introduction of CbCR, Zambia has now implemented all key recommendations of Action Plan 13 (3 Tier documentation). However, there is yet some work on the exchange of information that Zambia needs to work on.
While Zambia has international agreements which provide for an exchange of information, this is not sufficient for the exchange of CbCR. Zambia is not yet a signatory to the Multilateral Competent Authority Agreement on the Exchange of Countryby- Country Reports (CbC MCAA).
This is critical because, under the Zambian CbCR Regulations, if the state of tax residence of either the reporting UPE or surrogate parent entity has an international agreement with Zambia but does not have a Qualifying Competent Authority Agreement (QCAA) with Zambia, then a full report will need to be filed in Zambia by a local CE of the MNE group. Currently, Zambia has no QCAAs in place, which would mean that a number of MNE groups with a Zambia tax resident CEs will be required to file a CbC Report in Zambia.
Indirect Tax
Introduction of VAT in Oman from April 2021
Oman will become the fourth GCC country, after UAE, Saudi Arabia and Bahrain, to implement Value Added Tax (VAT) once it is made applicable from 16 April 2021 in a phased manner depending upon the turnover. Similar to other GCC nations, Oman will levy VAT at the rate of 5% on most goods and services, with certain exceptions.