Direct Tax
Papua New Guinea deposits its instrument for the ratification of key multilateral conventions against tax evasion and avoidance and Romania completes its internal procedures for the entry into effect of the provisions of the Multilateral BEPS Convention
Extract from www.oecd.org dated 7 September 2023
On 31 August 2023, Papua New Guinea deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS Convention) as well as the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, underlining its strong commitment to prevent the abuse of tax treaties and base erosion and profit shifting (BEPS) by multinational enterprises, and facilitating international co-operation in matters of tax transparency and exchange of information.
The BEPS Convention now covers around 1870 bilateral tax treaties and will enter into force on 1 December 2023 for Papua New Guinea. As of 1 September 2023, around 1200 treaties concluded among the 83 jurisdictions that have ratified, accepted, or approved the BEPS Convention have already been modified by the BEPS Convention. Around 670 additional treaties will be modified once all Signatories will have ratified the BEPS Convention.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters enables jurisdictions to engage in a wide range of mutual assistance in tax matters and guarantees extensive safeguards for the protection of taxpayers' rights. It will enter into force for Papua New Guinea on 1 December 2023 and will be in effect for exchanges as of 1 January 2024.
In addition, on 5 September 2023, Romania confirmed the completion of its internal procedures for the entry into effect of the provisions of the Multilateral BEPS Convention under Article 35(7)(b).
Transfer Pricing
UK - HMRC publishes updated guidance on APAs
An updated guidance on Advance Pricing Agreements (APA) was duly published by the HMRC (His Majesty's Revenue & Customs) and was notified in the International Manual. The amended guidance addresses the implications of ongoing investigations that restrict the taxpayer from applying for an APA until such investigations are concluded. Furthermore, it also applies in cases where the taxpayer has been directed to comply with the Profit Diversion Compliance Facility (PDCF)3.
The new guidelines expressly state that if HMRC has begun an investigation into covered or linked transactions, the same must be completed before an APA has been applied for future years or a rollback to earlier periods. Upon completion of the investigation, the taxpayer may evaluate if they want to apply for APA or submit a treaty Mutual Agreement Procedure (MAP) request to protect time restrictions if an APA is not agreed upon. In a case HMRC has given a PDCF to the taxpayer, the latter is expected to complete the self-investigation and submit the appropriate report for prior periods before formally asking for an APA. The HMRC will look into unresolved overseas inquiries separately based on the facts and circumstances and the overseas tax authority's willingness to engage before applying for an APA. Additionally, the guidance also mentions about:
- Expression of Interest (EoI), i.e., pre-filing stage: The clarificatory changes make it mandatory for the taxpayer to approach each territory to discuss their intention of entering into a bilateral/multilateral APA, even where the taxpayer seeks unilateral APA (indicating HMRC's stress over bilateral agreements). The EoI shall cover brief details of any APA or MAP requests, APA or other rulings in the UK or overseas relating to the covered or similar transactions, including requests made to third states, made by either of the parties to the proposed APA.
- Timeline for application acceptance: The HMRC shall formally confirm the admissibility of the APA within 30 days from receipt of the application, subject to the application being made within six months to the HMRC expressing its willingness (during EoI meeting) to consider the APA proposal.
- Timeline for reaching agreement: The bilateral agreement would first be agreed with the other tax authority and then the UK taxpayer's approval shall be taken. The process can be terminated in case of non-acceptance of the terms (by UK taxpayer). The HMRC may revisit the proposed competent authority only in amenable cases. The agreement between the taxpayer and HMRC shall be signed within 60 days of the competent authority mutual agreement being notified to the businesses.
- Review and monitoring of APA: The HMRC expects the tax computation to align with the APA application for the covered period until it is concluded. The amended guidance warrants the taxpayers to furnish an Annual Report within 90 days from the signing of the domestic agreement. Any amendments made to previously filed tax returns (for APA covered years) reflecting the agreed transfer pricing methodology shall also be made available within 90 days.
- Withdrawal from APA process: Lack of active engagement from the other tax administration may lead to termination of the process by HMRC, provided reasonable efforts to encourage the former were made. A new application may be applied (by HMRC) in case of suspension or interruption for at least 6 months is observed in the ongoing proceedings.
The analysis of the HMRC's statistics4 indicates a downfall in the number of APAs signed along with an increase in average conclusion time by 73.51% approximately In our opinion, the target timelines introduced would prove to be beneficial to the taxpayer. It would be interesting to see how the corollary drawn between the conclusion of the investigation(s) into the covered or linked transactions with the consideration of the APA application by HMRC would help to obtain the desired result for the dispute resolution mechanism.
3. PDCF – Diverted profit tax (DPT) disclosure facility available to business groups to revisit
and alter their transfer pricing arrangements and pay additional tax at 25% (corporate tax
rate being 19%) on such arrangements that evade UK’s tax base.
4. HMRC's Transfer Pricing and Diverted Tax Profits Statistics
Indirect Tax
Ireland hikes tax rates on fuel and hospitality from 1 September
Excerpts from various sources
The Republic of Ireland has hiked Petrol excise rates by 7% per liter and diesel rates by 5% per liter. VAT on the tourism and hospitality sector has also increased from 9% to 13.5%. The temporary rate reduction introduced in November 2020 owing to the pandemic comes to an end as the Irish Government rules it no longer justifiable.
Belgium Government clarifies VAT implications on company cars
Belgian Circular 2023/C/72 dated 1 September 2023
It has been clarified that the provision of company cars by foreign employers to Belgian resident employees for consideration shall be treated as providing car rental services to employees for the purposes of VAT. Accordingly, such foreign employers shall be required to register for VAT in Belgium to assess domestic tax or, alternately, resort to the VAT One-Stop-Shop (OSS) platform to declare and pay the dues without such registration.
New reporting obligation for VAT-registered persons in Bulgaria from November 2023
Excerpts from various sources
Bulgarian Government has mandated all VAT registered businesses to declare on a quarterly basis the cash available at hand and the amount of receivables from (including the provision of loans to) individual owners, employees, staff, and persons hired under management agreements. Such reporting obligation would arise when the total amount of both the cash at hand and these receivables exceed BGN 50,000 at the end of the respective quarter.
Thailand extends reduced 7% VAT rate till September 2024
Excerpts from various sources
The Thai Cabinet has approved the Ministry of Finance's proposal to maintain the reduced 7% VAT rate for one more year. Accordingly, transactions like the sale of goods, provision of services and imports would attract 7% VAT till 30 September 2024.