Direct Tax
Facebook, Google, Amazon, Twitter may have to pay up to 40% digital tax in India soon, says the report
[Excerpts fromTimes Now, 15 February 2019]
Tech companies, such as Facebook, Google, Amazon, and Twitter are expected to pay a ‘digital tax’ in India soon as the Central Board of Direct Taxes (CBDT) — the policymaking body of income tax department — is ready with a draft proposal under the concept of “significant economic presence”, also known as digital permanent establishment (PE), the Business Standard reported citing sources aware of the matter.
The CBDT draft proposes to impose a tax at 30 to 40 per cent rate based on the revenues and user base of such companies in India, it said.
Brexit Britain will be 'huge tax haven in the middle of Europe' - 'UK will PROSPER'
[Excerpts from The Express, UK, 20 February 2019]
Economists Marc Friedrich and Matthiaas Welk believe the UK will become a tax haven “soon” after Brexit if the country leaves the EU without a deal. Speaking to Focus in Germany, the experts said: “In the case of a hard Brexit, we expect to soon have the largest tax haven in the middle of Europe - Britain. Attractive tax rates will attract private and commercial capital from around the world in the tax optimization competition, and the UK will prosper.”
This transformation of Brexit Britain from Europe’s financial hub to tax paradise with convenient tax rates will compensate the disruption and damage to the British economy will experience in the immediate aftermath in case of a no-deal, Friedrich and Welk said.
New Zealand to explore digital services tax for multinationals
[Excerpts from The MNE Tax, 19 February 2019]
The New Zealand government today announced that it would open consultation in May on the design of digital services tax on the revenue of multinationals operating in New Zealand. “Highly digitalized companies, such as those offering social media networks, trading platforms, and online advertising, currently earn a significant income from New Zealand consumers without being liable for income tax. That is not fair, and we are determined to do something about it,” Finance Minister Grant Robertson said.
The tax would serve as an interim measure until the OECD reaches agreement on a coordinated global method to address the tax challenges of digitalization.
Transfer Pricing
Hong Kong - Introduces disclosure of transfer pricing information in its income tax return
The transfer pricing rules in Hong Kong were made applicable in July 2018. Furthermore, on 23 January 2019 Hong Kong’s Inland Revenue Department (IRD) introduced new supplementary Form S2, which contains related party details. The taxpayer is required to state in its profit tax returns, whether Form S2 is applicable.
The Supplementary Form S2 has to be submitted if the taxpayer fulfills any of the following conditions:
- If the taxpayer had any transaction with non-resident associated person during the relevant period
- If the taxpayer has entered in any Advance Pricing Arrangement (APA) for the relevant period
- If the taxpayer is a part of the Multinational Enterprise (MNE) who is obligated to file Country-by-Country Reporting in Hong Kong or any other jurisdiction
If the above conditions are met then the taxpayer is required to file the Form S2 with the following information:
- The country of the associated non-resident persons with whom the taxpayer has entered into a transaction in the relevant period
- The taxpayer has to disclose if its obligated to file master file or local file
- If the taxpayer has entered into an APA, it is required to provide detailed information on the arrangement, including the amount of transaction in HK$ to which the APA applies.
- Intimation of Country-by-Country Reporting (CbCR) filed by the taxpayer.
Ireland – Seeks public consultation with respect to the proposed revised transfer pricing rules
The Department of Finance of Ireland published a public consultation document on 18 February 2019 for the taxpayers to contribute and provide their inputs with regard to the proposed revisions in the present transfer pricing policy of Ireland.
The public consultation document seeks feedback on current transfer pricing regime in Ireland. The motive of the released document is to enable the Irish transfer pricing rules to be on par with the approach, which is prevailing globally. Accordingly, the proposed reforms, in connection to which the comments are invited, to Ireland’s transfer pricing rule are as follows:
- Incorporation of the Organisation for Economic Cooperation and Development (OECD) 2017 transfer pricing guidelines into Irish legislation replacing the OECD 2010 transfer pricing guidelines.
- As regards domestic transfer pricing, the existing law provides an exemption to the arrangement, the terms of which are arranged prior to 1 July 2010. The proposed reforms intend the removal of the said exemptions from 1 January 2020. This implies that all the domestic transactions would be covered under transfer pricing, regardless of whether the arrangement was carried out before July 2010.
- Extension of transfer pricing rules to small and mediumsized enterprises SME’s*
- Currently, transfer pricing is applicable on transaction related to profits or gains or losses arising from income within the charge to tax under the said proposal. The department has proposed to extend the transfer pricing rules to non-trading income and capital transactions.
- Enhancing the documentation guidelines by introducing the Master File and Local File requirements for certain taxpayers.
- Application of transfer pricing rules to branches.
Denmark - Supreme Court of Denmark rules on the various substantial transfer pricing issues
The Supreme Court gives its decision in the case of Tax Ministry of Denmark vs. Microsoft Denmark ApS as follows:
Arm’s length remuneration on marketing services
The Tax Ministry of Denmark alleged that the remuneration received by Microsoft Denmark ApS for the marketing services provided to its AE, i.e., Microsoft Ireland was not at arm’s length. Microsoft Denmark received a commission as per the Market Development Agreement for the sale of packaged software directly to end users and sale of OEM licenses to local computer manufactures to enable them to sell computers with pre-installed software.
Tax Ministry was of the view that Microsoft Denmark’s marketing activity for the Microsoft products also benefitted the multinational computer manufactures selling their computers with pre-installed Microsoft products directly in Denmark. Accordingly, Microsoft Denmark ApS should also receive a commission for direct sales made by such multinational computer manufacturers in Denmark.
The above contention was rejected by the Supreme Court as even the independent parties in this scenario would not remunerate Microsoft Denmark for the sales of OEM licenses to Multinational computer manufacturer in the United States or any other country. Therefore, the Supreme Court concluded that Microsoft was remunerated for its marketing activities on an arm’s length terms.
Transfer pricing documentation of Microsoft Denmark
The Tax Ministry of Denmark stated that Microsoft Denmark did not provide adequate data in its transfer pricing documentation and that they could carry out the discretionary assessment. Supreme court concluded that the Tax ministry of Denmark could make a discretionary assessment only if the documentation provided is defective, and if they are unable to determine whether the arm’s length principle is met or not. In this case, the documentation provided did not suffer from such deficiencies, and therefore the Tax Ministry was not allowed to make a discretionary assessment.
Indirect Tax
USA - Sales tax on remote sales
Last year’s US Supreme Court judgment in South Dakota vs. Wayfair Inc. unlocked possibilities of various States to levy sales tax on inter-state sales through e-commerce firms, even if they do not have any physical presence in the taxing State. In light of this, following key developments are worth noting.
Florida to introduce sales tax on remote sales
Florida is set to become the latest US state to levy sales tax on remote sales. The Senate Bill 1112 once passed by the Senate will make sales tax applicable on remote sales into Florida from outside the State with effect from 1 July 2019. It is pertinent to note that prior to the introduction of this Bill, Florida was one of the only two States, the other being New Mexico, which does not have a legislative mandate to levy sales tax on remote sales.
Massachusetts sales tax legislation on remote sales challenged
Online retailers have challenged Massachusetts remote sales tax regulations as the State intends to implement it from 1 October 2017. The retailers have alleged that sales tax on remote sales was unconstitutional before the Supreme Court of the United State’s decision in South Dakota vs. Wayfair, Inc. which was pronounced in June 2018.
