Earlier, in 2014, the Internal Revenue Service (IRS) had issued guidance on the taxation of crypto currencies in the US, which treated virtual currency as ‘property’, and accordingly existing tax provisions applicable to property transactions would apply to virtual currencies as well.
Since then, virtual currency has been accepted and is continuously developing as a medium of exchange. IRS has been receiving several comments in response to the earlier guidance issued by it in 2014. It appears that there exists some ambiguity in taxation of virtual currencies, which is leading to uncertainty and litigation costs. In this connection, the IRS is going to issue detailed guidance on taxation of virtual currencies, which will bring certainty to the virtual currencies market.
The CBDT has clarified that SEBI-approved Asset Management Companies (AMCs) will be designated as ‘eligible fund manager’ and will, therefore, be entitled for benefits under Section 9A of the Income Tax law. This would mean that the fund management activities carried for offshore funds by such AMCs would not be regarded
as having a ‘business connection’ and would not result in a taxable presence of such offshore funds in India. Hence, their global incomes will not be subjected to tax in India.
Since the inception of OECD’s (Organization for Economic Cooperation and Development) Base Erosion & Profit Shifting (BEPS) Project, several attempts have been made to clarify tax position on Digital Economy Taxation and the same are mentioned below:
The final report would be issued sometime in 2020 after global consensus is reached amongst the signatories to the BEPS Project, which would identify the possible methods to address tax challenges of a digital economy.
However, recently, a top official of OECD has remarked that the final report may wind up quite differently from its predecessors. The top official, along with other spokespersons of the all the stakeholders involved, remarked that the rules, which broadly deal with reallocating taxing rights considering increased digitalization, should be simple and easy to administer. If all 129 jurisdictions cannot implement the revised tax allocation rules, then the same cannot be considered as an easy and practical solution.
United Nation: Updates practice manual on Transfer Pricing for Developing Countries with a new chapter on financial transaction
On 8 April 2019 United Nation (UN) Committee of Experts on International Cooperation in Tax Matters released a draft on financial transactions as an update to the Practical Manual on Transfer Pricing for Developing Countries.
Financial transactions between independent enterprises are based on various commercial considerations. However, members of an MNE Group have the flexibility and discretion to decide upon the conditions that apply to financial transactions within the group. As a result, it is important to test the arm’s length nature of the financial transaction between members of the MNE Group.
UN draft chapter has provided the following steps to determine the arm’s length nature of intragroup financial transaction:
Analysis of economically significant characteristic
UN draft chapter on financial transaction enlists the following economically significant characteristics of a financial transaction to be analyzed:
- Contractual term
- Functional analysis
- Characteristic of financial products or services
- Economic circumstance
- Business strategies
Accurate delineation of the entire transaction undertaken
As for any other intragroup arrangement, application of the arm's length’ principle requires accurate delineation of the actual transaction including the purpose of the financial transaction in the context of the business of the specific MNE. The assessment of the arm’s length nature of an intra group financial transaction requires identification of commercial or financial relations leading to accurate delineation and recognition of the actual transaction.
Selection and application of most appropriate transfer pricing method
The draft chapter recognizes the Comparable Uncontrolled Price Method as the most commonly used method in identifying the comparable transactions to the controlled transactions. It also specifies that for treasury services, Cost plus Method or Transactional Net margin Method may be applied.
USA: Internal Revenue Service’s (IRS) Large Business and International Division (LB&I) introduces campaign aimed at captive service providers
Till date, LB&I has announced a total of 53 campaigns with an intention to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.
On 16 April 2019, LB&I has announced its new campaign, namely ‘Captive Service Providers Campaign’ for Transfer Pricing operations practice. This campaign will focus on the pricing of those transactions wherein foreign captive service provider is providing services to US parent entity. The goal of this campaign is to ensure that US multinational companies are not paying more than arm’s length prices to their captive subsidiaries, based outside the USA. It has also been mentioned that excessive pricing in such controlled transactions would result in inappropriate shifting of taxable income to these foreign entities and erode the US tax base.
On 29 April 2019, New Zealand Inland Revenue issued the final guidelines on international tax and transfer pricing to implement its recently amended legislation, Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018. The guidelines provide five special reports on the following aspects:
- Transfer pricing
- Administrative measures
- Interest limitation
- Permanent establishment
Gabon: The tax authorities of Gabon extend due dates of filing the Financial Statement and Tax Return and Transfer Pricing Documentation for 2018
- The due date of filing the Financial Statement and Tax Return (FSTR) and Transfer Pricing Documentation has been extended to 30 July 2019.
- The extension in due date has no impact on the payment of the final installment of corporate tax due for the financial year 2018, which has to be paid by 30 April 2019.
On 16 May 2019, the tax administration of Peru issued new transfer pricing guidance on the transfer of shares issued by a Peruvian entity between foreign related parties.
The guidance has stated that if such a transfer is subsequently determined to be undervalued, the cost of the shares for the purchaser should be the cost of acquisition plus the transfer pricing adjustment if any.
It sets forth that any transfer pricing adjustment on the transfer of a Peruvian entity’s shares affect both the purchaser and the seller, if it has a negative impact on Peruvian revenue, i.e., less Peruvian income tax or greater amount of deductions or costs are allowed.
Accordingly, the guidance states that in case of cross-border transfer of Peruvian entities shares between foreign related party, a transfer pricing adjustment would be affecting both, the cost base of the purchaser as well as the recognized income tax of the transferor/issuer.
[Excerpts from press release by the Federal Ministry Republic of Austria - Finance]
The Austrian government has announced its plans for reforming the tax system and relieving the burden on taxpayers. The plan titled “Relieving Austria” intends to make Austria a more attractive business location to promote growth and investment. One of the crucial announcement is the proposed increase in the turnover limit above which VAT is payable from the current Euro 30,000 to Euro 35,000.