Direct Tax

OECD – Unanimous thinking not required for amending global rules for taxing multinational groups

The global minimum tax proposal under Pillar II does not mandate specific number of countries to arrive on the same page for it to work, hence this approach can be implemented even if few countries have raised objections against it.

The OECD Director, Pascal Saint-Amans opined that any BEPS member country may block consensus on amended international tax framework, thus, legally speaking all member countries have an equal say on this. However, this does not imply that unanimity is required amongst all member countries for the new international tax framework to move forward. To elucidate this, Amans stated that if all the member countries were to be grouped into different constituencies having similar interests in global international tax framework and transfer pricing system and one of the constituencies object this, then it could be difficult for this scheme to move forward. However, if one country of a constituency does not agree with the scheme, the same would still be implemented.

While concluding his thoughts on the global international tax framework, Amans pointed out that while many countries would benefit if unified approach under pillar one is adopted, small exporting countries, such as Ireland, the Netherlands, Luxembourg, and Bermuda, may be significantly affected. If the investment hubs team up with some wealthy countries to oppose this, the plan might be defeated.

Airbnb, the rental giant is under pressure from HMRC, the UK tax authorities over taxes and application of tax law

Like so many other tech giants, Airbnb’s tax structure was under increasing pressure from the HMRC. A new international digital tax standard for the largest tech companies was a major point of contention at the G7 summit which took place this year. Airbnb had paid GBP449,802 in corporation tax in 2018, vis-à-vis GBP477,284 in the year 2017 – the same year in which HMRC had begun questioning the company. The rental giant channels the majority of its profits through Ireland, although its UK entities take care of operational costs and marketing.

The European Union may introduce ’digital tax’ next year

The EU Officials have made it very clear that the EU shall introduce “digital tax” by next year if the global arrangement for taxing tech giants does not see the light of day. To put things in perspective, until now the efforts to overhaul corporate taxation to reflect the profits made by tech giants in a fair and just manner have failed to produce desired results. This is mainly due to the fact that all the countries have differential international tax regimes. Further, the EU Officials who are supposed to take over office later this year, added that they will make an attempt to prevent individual EU governments from the ability to veto tax related decisions – currently appears to be an obstacle.

Transfer Pricing

Qatar: Additional Country by Country Reporting requirements introduced by the General Tax Authority of Qatar

On 9 September 2018, Qatar published Decision No. 21 of 2018 by the Ministry of Finance in its Official Gazette which outlined the CbCR requirements for entities that are registered under the State system.

Further, recently the GTA issued a circular providing additional updates and clarifications for CbC reporting obligations.

  • A Qatar tax resident entity is required to file a CbC report or notification if it is a member of a multinational group having at least QAR 3 billion (approximately EUR 700 million or USD 824 million) consolidated group revenue in the preceding financial year.
  • Any constituent entity resident in Qatar for tax purposes where the ultimate parent entity is resident outside Qatar (i.e. non Qatari ultimate parent) is not required to file CbC reports in Qatar until further notice, and is neither required to submit a CbC notification about the identity of the reporting entity or its place of residence.
  • Further, it also provides updates on the content of CbCR, submission method, and penalty which are as follows:
    • CbCR Content: The CbCR should be submitted using the XML schema format as per the guidance provided by the OECD. Also, the Notification should be submitted using the form which was attached to Circular 6/2018, issued last year.
    • Submission Mode: The CbCR should be submitted using the XML schema format as per the guidance provided by the OECD. Also, the General Tax Authority will issue an announcement that will include the electronic link for submission of the report.
    • Penalty: In case there is any non-compliance of filing of CbC notification or CbC report, a penalty would be imposed as per Article 24(8) of the Income Tax Law (which may extend upto QR 5,00,000).

The notification and CbCR filing requirements are effective for the financial years beginning on or after 1 January 2018. The CbCR notification and the CbCR should be submitted within 12 months as of the last day of the reporting financial period. Thus, for the financial year ending 31 December 2018, the due date will be 31 December 2019.

Argentina: The Argentine tax authorities (AFIP) issues draft resolution on transfer pricing compliance procedures for public comments

On 2 October 2019, AFIP announced a public consultation on proposed guidance that includes significant changes in the transfer pricing requirements that local taxpayers comply with. This would replace the existing transfer pricing rules in General Resolution 1122/2017. The proposed guidelines provided various draft resolutions in relation to applicability, compliance, and guidance.

While the present deadline extension would be maintained up to December 2019 for taxpayers having fiscal year-ends during the period from December 2018 to May 2019, the future deadlines for the submission of the transfer pricing documentation, including the transfer pricing report, the disclosure form F2668 and the master file, is six months after the end of the financial year (i.e. June 2020 for fiscal years ending December 2019).

Spain: Spanish National Appellate Court rules on use of multiple year data and inter quartile range

The Spanish High Court (“Audiencia Nacional”) no 1072/2019, in the case of IKEA distribution services (a wholesale distribution company engaged in selling products to related party retail companies) has pronounced its judgement on two relevant aspects in the practical application of the Transactional Net Margin Method (TNMM):

  • The use of multi-year averages in both the comparable entities and the tested party; and
  • The most suitable point in the interquartile range at which to make an adjustment, if any.

Regarding the first area of concern, the selection of a multiple year analysis, the court concluded that while the market interquartile range can be calculated on a multiple year basis, the taxpayer must compare the former to its financial position within the individual year subject to adjustment on a year-by-year basis. Further, with regards to the issue of selection of a point in the range, the court of Appeal (in line with the OECD guidelines) determined that where the range comprises results of relatively equal and high reliability, any point in the range can satisfy the arm’s length principle, whereas, if comparability defects remain, the use of measures of central tendency can be more appropriate. In the above case, the court confirmed the lower court’s observation against the tax authorities that a difference in economy of sales volume can standalone not be considered sufficient reason for defect in comparability, hence rejecting the reports provided by tax authorities for their contention on the same.

Regarding the first area of concern, the selection of a multiple year analysis, the court concluded that while the market interquartile range can be calculated on a multiple year basis, the taxpayer must compare the former to its financial position within the individual year subject to adjustment on a year-by-year basis. Further, with regards to the issue of selection of a point in the range, the court of Appeal (in line with the OECD guidelines) determined that where the range comprises results of relatively equal and high reliability, any point in the range can satisfy the arm’s length principle, whereas, if comparability defects remain, the use of measures of central tendency can be more appropriate. In the above case, the court confirmed the lower court’s observation against the tax authorities that a difference in economy of sales volume can standalone not be considered sufficient reason for defect in comparability, hence rejecting the reports provided by tax authorities for their contention on the same.

Accordingly, since there were no comparability defects in the company’s sample, the transfer pricing adjustment if any, should be on the basis of lower side of the interquartile range i.e. in the above case 2.1% (Inter quartile range being 2.1% -7.6% with a median of 4.1%) and not towards the median, i.e., 4.1%.

Greece: Requirement of online submission of Country by Country Report notification and update on due date of filing of such notifications

The Greek Independent Public Revenue Authority (AADE), amending decision POL.1184/2017 “Procedures for the submission of the Country by Country Reporting by Multinational Enterprises in Greece,” Country-by-Country Reporting (CbCR) Notifications must be made online via the AADE website starting 15 October 2019 instead of submitting notifications via email. The deadline for submitting the CbC report is 12 months after the closing date of the fiscal year to which the CbC report refers. Accordingly, for the tax year ending on 31 October 2018, legal entities subject to CbCR should submit the CbC report for tax year 2018, no later than 31 October 2019.

In case of non-filing of the required CbC report, a penalty of EUR 20,000 will be imposed, while in the case of a late or inaccurate submission, a penalty of EUR 10,000 will be imposed. Further, the Greek tax resident entities forming part of an MNE group (i.e., Ultimate Parent Entity, Surrogate Parent Entity or Constituent Entity), which are subject to CbCR requirements, must notify the AADE of the identity and tax residence of the Reporting Entity no later than the last day of the reporting fiscal year (i.e. for a reporting fiscal year ending on 31 October 2019, the notification for this fiscal year is required to be filed by 31 October 2019).

Indirect Tax

Turkey proposes Digital Services Tax

The Turkish government has proposed a law which intends to implement a 7.5% digital services tax. The law would cover the following services within its ambit:

  • Online advertising services;
  • Sale of audio, video or any digital content through digital environment;
  • Services for provision and operation of digital media allowing the users to interact with each other;
  • Intermediary services performed in the digital environment in relation to aforementioned services.
Tax Street October 2019