Direct Tax
European countries agree to withdraw Digital Service Tax in compromise
[Excerpts from Mondaq, 25 October 2021]
The Office of the US Trade Representative (USTR) announced an agreement reached with five countries – Austria, France, Italy, Spain, and the United Kingdom – on Digital Services Tax (DST) measures that had been subject to recent investigations by USTR under Section 301 of the Trade Act of 1974. These countries will avoid 25% duties on certain imports into the US due to the deal.
This ‘political compromise’ reached does not require the five countries involved to withdraw their existing DST measures. Instead, those countries have agreed that to the extent US companies accrue any DST liability before implementing Pillar 1 of the Organization for Economic Co-operation and Development (OECD)’s Pillar 1, such liability will be creditable against future income taxes as determined under Pillar 1.
South Korea to levy 20% digital currency tax in 2022
[Excerpts from Coingeek, 11 October 2021]
The South Korean administration has issued a message that the government will levy taxes on digital currency gains starting next year as planned. The taxation has become the subject of heated debate between the government and the opposition, with the latter seeking to postpone it for one more year.
This month, the taxation law was meant to come into effect, imposing a 20% tax on digital currency gains above USD 2125. After cries of a lack of preparedness by exchanges and traders, the government pushed it to 1 January 2022. The opposition to People’s Power Party has been making a concerted effort to push it further by a year, but the government is standing its ground on the set date.
Ireland joins OECD Two Pillar solution
[Excerpts from Lexology, 11 October 2021]
On 8 October 2021, an agreement was reached between 136 countries, including Ireland, on a revised agreement of OECD’s two-pillar approach. Amongst other things, Pillar One proposes a re-allocation of a proportion of tax to market jurisdictions, while Pillar Two seeks to apply a global minimum effective tax rate of 15%.
Ireland had previously indicated its support for Pillar One (which will initially apply to groups with global turnover above €20 billion and profitability above 10%) but had reservations in respect of Pillar Two and, in particular, the phrase “at least 15%” in the context of the minimum effective tax rate. Having secured the removal of “at least” in the text, Ireland confirmed its agreement to the proposal.
Transfer Pricing
Thailand: Transfer pricing: Transfer pricing documentation requirements11
Thai Revenue Department (TRD) published a Notification from the Director-General of the TRD regarding Corporate Income Tax no. 407 dated 30 September 2021. It provides a list of information to be included in the transfer pricing documentation, which is as follows:
- Nature of business, Management Structure, key trading partners, key competitors, business strategy and economic situation
- Description of any business restructuring
- Description of any transfer of intangible assets as well as the impact on operating results
- Related party transactions, their type and value
- List of all contracts related to each type of transaction with a summary of the key terms of the contracts
- Functions, assets, and risk analysis
- Financial information used to implement the pricing method
- Price determination method for each transaction type along with the reasons for the choice of such method and the non-option of the specified method
- Transactions and descriptions of comparable unregulated transactions
- Any other document or evidence showing information necessary for analysis.
Taxpayer is not required to submit the benchmarking documentation if it meets the following criteria:
- Has income from the business in the accounting period not exceeding 500 million baht
- No controlled transactions with related parties paying a different corporate income tax rate from the taxpayer
- No controlled transactions with related parties
- No brought forward losses.
OECD releases Country-by-Country Report(CbCR) – Compilation of 2021 Peer Review Reports12
OECD has released its fourth annual peer review for the Base Erosion Profit Shifting (BEPS) Action 13 minimum standard covering 132 jurisdictions. For each jurisdiction, the review covers the domestic legal and administrative framework, the exchange of information framework and measures in place to ensure the confidentiality and appropriate use of CbCR. The key findings included the following:
- Over 100 jurisdictions have a domestic legal framework for CbCR in place. 83 jurisdictions have multilateral or bilateral competent authority agreements in place.
- 89 jurisdictions have undergone an assessment by the Global Forum on Transparency and Exchange of Information for Tax Purposes concerning confidentiality and data safeguards in the context of implementing the AEOI standard and did not receive any action plan.
- 84 jurisdictions have provided detailed information, enabling the Inclusive Framework to obtain sufficient assurance that measures are in place to ensure the appropriate use of CbCR.
The report provided recommendations for improvement around the domestic, legal and administrative framework for India, which are as follows:
- To amend or otherwise clarify that the annual consolidated group revenue threshold calculation rule applies in a manner consistent with the OECD.
- Guidance on currency fluctuations in respect of an MNE Group whose Ultimate Parent Entity is in a jurisdiction other than India.
- To amend its legislation or otherwise takes steps to ensure that local filing is only required in the circumstances contained in terms of reference.
Indirect Tax
VAT cut on household energy bills
[Excerpts from Bloomberg]
In view of the rising home heating costs, the UK Finance Minister Rishi Sunak has proposed a 5% VAT cut on the household energy bills to help the citizens over the winter. Although no final conclusions have been drawn regarding the same.
Change in rate of VAT
[Excerpts from Forbes]
The Bahrain government is considering a hike in the VAT rate from 5% to 10% with the intention of restraining its large budget deficit. Previously, a similar change was noticed in July 2020, when Saudi Arabia had tripled its VAT rate to 15%.