Direct Tax

OECD and the Netherlands discuss developments in international tax co-operation

[Excerpts from, 10 January 2019]

OECD Deputy Secretary-General Ludger Schuknecht and Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration, met today in Paris with Menno Snel, State Secretary for Finance in The Netherlands, for wide-ranging discussions on international co-operation in the field of taxation, notably as concerns tackling tax evasion. Saint- Amans expressed support for ongoing tax reform in The Netherlands, welcomed recent measures adopted by the Dutch Government to combat tax Base Erosion and Profit Shifting (BEPS), and noted that speedy implementation of these measures would contribute to modernization of the international tax system. Snel underlined the importance of the multilateral approach led by the OECD. All parties agreed that international co-operation must be at the center of plans to improve international tax rules, and pledged to continue working closely on the development of effective and efficient measures.

Multinationals in Luxembourg pay lowest taxes in EU

[Excerpts from Luxembourg Times, 22 January 2019]

According to a report commissioned by the Greens in the European Parliament, multinational companies in Luxembourg pay a tax rate of only 2.2 %, far below the official rate of 29%, a study commissioned by the Greens in the European Parliament showed. The gap between the legal tax rate and the actual one is the largest of any country in the European Union, the study said. Other countries where the gap is significant are Malta (16% vs 35%), the Netherlands (10% vs 25%) and France (17% vs 33%). On the other hand, in Greece (28% to 24%) and Ireland (16% to 13%) multinationals ended up paying more than legally required. Only Bulgaria and Italy have their actual tax rates more or less in line with their statutory ones. The study, which was first reported by the Süddeutsche Zeitung and other media outlets is set to be published subsequently. Luxembourg was already subject to sharp criticism in 2014, when the socalled LuxLeaks scandal revealed tax rulings of around 300 multinational companies based in the Grand Duchy.

Transfer Pricing

Thailand provided few revisions to its proposed transfer pricing act

Thailand’s National Legislative Assembly published the revisions to the draft Transfer Pricing Act (revising the first draft), proposed to be effective for accounting years starting on or after 1 January 2019. The key features of the draft TP Act are:

  • Within 150 days from the closing of the accounting period, taxpayers with related parties are required to prepare reports, including descriptions of the relatedparty relationships and to disclose values of the relatedparty transactions for each fiscal year in accordance with the specified format, and submit them to the tax authority.
  • The revenue threshold for taxpayers subject to the requirement is THB200 million (USD 6 million) per year (increased from THB30 million (USD 0.9 million) per year in the original draft).
  • Penalties for - Failure to file the required report and/or additional documents/evidence or to submit incomplete/ incorrect documents or evidence without a reasonable cause.

Lithuania introduces transfer pricing documentation requirements

The ministry of finance of the Republic of Lithuania introduced the new TP documentation requirements (implementing OECD’s BEPS recommendations), applicable to related-party transactions (threshold of Euro 90,000 in the previous tax period) conducted in and after 2019. The requirements broadly relate to:

  • Deadlines for preparing TP documentation - 15th day of the sixth month after the financial year end;
  • Thresholds for preparation of Master File (Euro 15 million) and Local File (Euro 3 million);
  • Updation in TP documentation needed every three years (annually for financial transaction);
  • Within 30 days of the date of receipt of the intimation, TP documentation must be submitted to the tax administrator. A time limit may also be set for submitting TP documentation in the official language.
  • Penalties for non-compliance.

United Kingdom aligns transfer pricing policies with BEPS action plan 8-10 with a ‘profit diversion compliance’ facility

On 10 January 2019, Her Majesty’s Revenue & Customs (HMRC) announced a profit diversion compliance facility to align TP policies (primarily subject to diverted profits tax) with OECD’s BEPS 8-10. The facility will provide taxpayers an opportunity to register with HMRC, six months after which they will be required to submit a report with proposed historical tax liabilities and go-forward TP arrangements.

Who is affected?

Any taxpayer demonstrating ‘profit diversion’ risks is affected having the following indicators:

  • Contractual allocation of risk inconsistent with the control of such risk;
  • Fragmentation of valuable integrated functions;
  • Important regional functions (e.g., sales function) in the UK, however, profits routed to low tax jurisdiction with fewer functions,
  • Profit shifting via supply chain to low substance entities with limited functionality in low tax jurisdictions,
  • High value adding R&D services in the UK remunerated on a Cost Plus basis,
  • Intangible transactions involving low tax jurisdictions with limited functionality.

Why should businesses consider the facility?

A full and accurate disclosure, paying those liabilities and full cooperation would prevent a new investigation into potential DPT or corporation tax liabilities matter by HMRC. This gives rise to two major benefits, notably:

  • Reduced/no penalties
  • Allowing businesses to quickly bring tax matters up to date.

Australia updated its compliance guideline for simplified transfer pricing record-keeping

The Australian Taxation Office (ATO) in January 2019 updated Practical Compliance Guideline (PCG) 2017/2 ‘Simplified transfer pricing record-keeping’ options (STPRK). Key changes in the updated PCG include the following:

  • Changes to the revenue thresholds for the “Small Taxpayers” from AUD 25m to AUD 50m.
  • No restriction on applying for simplified transfer pricing record-keeping options even if a taxpayer has any international related party dealings with specified countries, which was previously restricted.
  • Reduction in the interest rate allowed for “Low Level Inbound Loans” option from the relevant Reserve Bank of Australia indicator lending rate (currently at 6.45 %) to 3.76 % for the current year.
  • Introduction of a new USD 500,000 combined threshold for taxpayers having royalties, license fees for research and development.
  • Consolidation of intra-group services, management and administration services options into a “Low Value Added Intra Group Services” (LVAIGS) option. Generally, the LVAIGS option will apply to back-office activities having a cost plus 5% mark-up. Furthermore, the updated PCG introduces an additional requirement for this option, being that the LVAIGS expenses should not exceed 25 % of the pre-intra-group service charges profit of the taxpayer.

The ATO has provided a transitional period for the taxpayers currently utilizing STPRK options to apply the prior STPRK guidance for their first income year commencing on or after 1 July 2018.

Indirect Tax

UK VAT - MTD to be introduced

  • The United Kingdom’s revenue department, i.e., Her Majesty’s Revenue and Customs (HMRC) is in the process of implementing Making Tax Digital (MTD) obligations on VAT registered businesses. Under MTD, HMRC will link its Application Program Interface (API) with the digital books of accounts of the taxpayers for ongoing and accurate projections of tax dues.
  • VAT returns under MTD are expected to be made applicable to businesses from the quarter of April 2019 to June 2019.

USA – Sales tax to apply on e-commerce sellers

  • In light of the Wayfair judgment of the US Supreme Court, most States have begun enacting legislation to levy sales tax on inter-state sales through online market place by remote sellers.
  • The States of Alabama and Iowa became the latest additions to the list of States where market place facilitators are liable to collect and remit sales tax on behalf of third-party sellers.