Direct Tax
Treasury refuses to back Biden push for minimum corporation tax
[Excerpts from The Telegraph, 24 May 2021]
Ministers are refusing to back a global overhaul of corporation tax championed by Joe Biden unless the White House supports their demands to crack down on US tech titans. It is feared that if Whitehall backs the Biden minimum rate too soon, it will lose leverage for action on big tech.
The high-stakes gambit threatens ambitions to agree on major changes to the international tax system ahead of next month’s G7 summit, to be hosted in Cornwall. A Treasury source said: “A minimum tax that means tax is paid elsewhere that ought to be paid in the UK will not fund the UK’s schools and hospitals.”
Experts at the Paris-based Organisation for Economic Cooperation and Development have been working for almost a decade on plans to establish a minimum corporate tax and force firms to pay more taxes in countries where they earn revenues.
A G7 agreement is seen as a crucial step towards a wider OECD deal, which could raise an extra $100bn (£71bn) in global revenues. But the Treasury is hunting more assurances over the tax treatment of major US companies like Facebook, Amazon and Google.
The Revised Cyprus – Russia Double Tax Treaty
[Excerpts from Mondaq, 24 May 2021]
The Republic of Cyprus and Russia had entered into a Double Tax Treaty (DTT) in 1998 in a joint effort to avoid the double taxing of income and capital generated in Cyprus. This was an effort to promote economic cooperation between the two countries.
Through its Finance Minister Mr. Constantinos Petrides, Cyprus has managed to secure the continuation of the DTT by signing on 10 August 2020 an amendment to the Cyprus- Russia double-tax treaty. The Cypriot side ensured the exemption from a 15% withholding tax on dividends for regulated entities, such as pension funds and insurance companies, as well as listed companies. In addition, interest payments from corporate and government bonds as well as Eurobonds are excluded from the 15% withholding tax in the new Cyprus Russia Double Tax Treaty. Any other type of Cyprus-based entities will still be able to avoid double taxation but at a higher rate of 15%.
In advance, the Russian side had assured the withdrawal of the termination procedures of the Convention. Furthermore, it assured that the same regulations would apply to other countries that maintain similar agreements from the same date that will apply to Cyprus, since it is a single fiscal policy. The signing will probably coincide with the arrival on the island of Foreign Minister Sergey Lavrov in September or October 2020.
OECD Tax Negotiations Offer Chance for New Approach
[Excerpts from Bloomberg Tax, 21 May 2021]
As the Biden administration begins to engage with other countries in the OECD tax discussions, some viable proposals are starting to take form. Pillar One finally has a possible path forward. And Pillar Two has become even more understandable now that the administration’s domestic tax proposals overlap with the OECD negotiations. However, Pillar One steps outside transfer pricing rules.
Previously, Europe and emerging markets tailored Pillar One for digital companies and ‘consumer-facing’ corporations. The Pillar One proposal is not without concern. Despite being one of the most prominent digital companies, Amazon’s tax structure could be unaffected by potential profitability thresholds as its profitability is too low. Current proposals on the domestic front regarding global intangible low-tax income (GILTI) and other Tax Cuts and Jobs Act international provisions create an intelligent path forward.
The White House has included several tax proposals to pay for the American Jobs Plan. The ‘Made in America’ tax plan has seven major proposals, half of which deal with international corporate taxes or profit shifting. Domestically, the critical international corporate tax proposals in the ‘Made in America’ tax plan revolve around altering the (TCJA). The overlap is quite clear since GILTI rules inspired Pillar Two’s global minimum tax proposals.
The Biden administration’s domestic proposals depend on a robust Pillar Two system (GILTI/SHIELD). But domestic companies believe the complexity and function of transfer pricing creates a short shelf-life for tax policy. The tax morale of these domestic companies depends on the idea that their greatest competitors will not be able to game the tax system in the long term.
Transfer Pricing
Tanzania: Rendering of intra-group services and transfer pricing audits
On 1 July 2020, the Commissioner- General of the Tanzania Revenue Authority (TRA), published the Transfer Pricing Guidelines, 2020. The Guidelines provide illustrations and simplified examples about the steps to be followed in the determination of arm’s length prices, amongst others.
Tanzania’s transfer pricing guidelines help taxpayers determine whether their related-party transactions—especially intra-group services—conform to the arm’s length principle.
The aforesaid transfer pricing guidelines provide clarity and examples of information that taxpayers must submit to the tax authority to satisfy the “rendering test.” With this clarity, taxpayers can engage in intra-group services with their related parties, being fully aware of the information that will be needed when the time comes for a transfer pricing audit.
Intra-group services
Over the years, inter-group (or intercompany) services have been among the most challenging relatedparty transactions for taxpayers audited by the Tanzania Revenue Authority. The type of intra-group services rendered among related parties is highly dependent on the structure adopted by the group of companies, with a majority of intercompany services conducted under centralized group structures. Common services provided among related parties are management and support, procurement and logistics, IT, human resources, strategy and planning, marketing, and advertisement services.
During a transfer pricing audit, the main issues in the analyzing of transfer pricing for intra-group services are:
- Whether intra-group services have been rendered?
- Whether the provision of such
services has conferred an economic
benefit or commercial value to
the business that enhances its
commercial position?
The Revenue Authorities generally disregard Intra-group services of the following nature during the audit:
- Shareholders or custodial in nature
- On Call
- Providing incidental or passive association benefits
- Duplicative in nature
- Whether the intra-group charges are at arm’s length prices?
Our Comments
If a taxpayer does not provide the necessary evidence or provides only limited evidence, it may be concluded that no services were rendered or that only limited services were rendered. This fact is considered in the determination of the fees paid to compensate the related party rendering the services.
Therefore, as the tax authority makes efforts to reduce the ambiguity that comes with the transfer pricing audit requirements, the taxpayers need to consider how to be proactive and prepare for such audits by maintaining information that will provide clear justification for the arrangements and transfer prices applied in their transactions for those engagements with their related parties.
Qatar: FAQs addressed in relation to the transfer pricing documentation
Background
While the requirement for transactions between related parties to be undertaken at arm’s length existed in accordance with the OECD accepted pricing method, there was no specific provision with regards to filing the transfer pricing documentation (TPD) with Qatar’s General Tax Authority (GTA). By way of a webinar, the GTA introduced additional clarification regarding the TPD requirements. The said requirements are applicable from 1 January 2020 for taxpayers with financial year-end as 31 December 2020, where the first submission deadline was due on 30 April 2021. The Qatar transfer pricing requirements are in line with OECD three-tiered approach.
In this regard, the GTA issued a set of ‘frequently asked questions’ (FAQs) to clarify TPD rules, including clarifications for the preparation of the Master file and Local file as. The key FAQs in this regard are as under:
Applicability of Transfer Pricing Declaration requirement
- The annual tax-free turnover of the entities or the gross assets appearing on their balance sheet should be greater than or equal to QAR10 million; and
- The entities are associated with other entities established in Qatar or abroad.
Due-date of filing the Transfer Pricing Declaration
The Transfer Pricing Declaration must be filed with the income tax return.
Substance of the Transfer Pricing Declaration
The Transfer Pricing Declaration is a lighter version of the Master File and Local File that some entities must file with the GTA.
In this regard, the following type of information must be declared:
- General information on the group of related entities
- Specific information on the reporting entity
Criteria for submitting the Master File and Local file
The entities resident in Qatar must submit a Master File and Local File when the following conditions are met:
- The annual tax-free turnover is greater than or equal to QAR 50 million and
- These entities are associated with other entities established abroad.
Information to be provided in a Master File
The information to be provided in the Master File inter-alia includes:
- The Master File should provide an overview of the multinational enterprise group (MNE) business, including the nature of its global business operations, its overall Transfer Pricing policies, and its global allocation of income and economic activity in order to assist the GTA in evaluating the presence of significant Transfer Pricing risk.
- In general, the Master File is intended to provide a high-level overview in order to place the MNE group’s Transfer Pricing practices in their global economic, legal, financial and tax context.
Information to be provided in a Local File
The information to be provided in the Local File inter-alia includes:
- The Local File focuses on information relevant to the Transfer Pricing Analysis related to transactions taking place between a Qatari affiliate and associated enterprises in different countries and which are material in the context of the Qatari’s tax system.
- The information would include relevant financial information regarding those specific transactions, a comparability analysis, and the selection and application of the most appropriate TP method.
Timing for preparing the transfer pricing documentation and for filling the Master File and Local File
A 30-day period is given to taxpayers to respond to specific GTA’s requests for documentation and other audit-related information requests.
The taxpayers must submit their master files and local files no later than 30 June of the year following the fiscal year in question.
Indirect Tax
End of sales tax on gold and silver
[Excerpts from Yahoo! Finance]
Arkansas Governor Asa Hutchinson signed a legislation that has ended the sales tax on gold, silver, platinum, palladium bullion, and coins, making them easier to use as money in the state. In total, 40 US States have fully or partially exempted the sales tax on gold and silver, with more states expected to follow. In the opinion of these states, taxing precious metals is not fair as metals like gold and silver are held as a form of savings and investments by certain investors. The Arkansas sales tax exemption will take effect from 1 October 2021.
‘Freedom week’ tax holiday in Florida
Florida Governor Ron DeSantis announced a tax-free sales period in the first week of July to eliminate sales tax on museums, movie and music tickets, fishing and camping gear, bicycles, etc. Further, from 31 July 2021 to 9 August 2021 sales tax will be exempted on back-to-school supplies, clothing, shoes, etc.