The Finance Minister of France opined that Facebook could issue its own digital money, provided Facebook can provide strong guarantees for it. Further, the Finance Minister also opined that such digital money cannot become the currency i.e. cannot replace sovereign currency of France. This is because, the sovereignty must remain with the respective countries and not private corporations which in turn respond to private interests. The objective behind guarantees backing digital money is to ensure that such digital money is not misused, for instance, for financing terror activities or illegal activities, etc.
Automatic exchange of information of financial accounts has witnessed a massive drop of investments in 46 IFCs in the form of bank deposits as per a recent study undertaken by OECD. Besides, reduction in off-shore bank deposits, this automatic exchange of information is promoting tax compliance while reducing off-shore hidden wealth. In addition to this, the OECD, very categorically remarked that the international tax community has brought about an unprecedented level of transparency in tax matters, thus bringing huge government revenues and services in the near as well as distant future.
Further, OECD has observed that approximately 46 key IFCs have been considered while undertaking this study/ survey, some of which include Bahamas, Cyprus, Cayman Islands, Hong Kong, Jersey, Luxembourg, British Virgin Islands, Marshall Islands, Mauritius, Panama, Singapore, UAE, etc.
Recently, the G20 Ministers met in Japan to wrap up tax rules on digital economy by the Year 2020. These tax rules would be nothing but a compilation of common rules to close loopholes used by global tech giants such as GAFA (Google, Amazon, Facebook and Apple) to reduce their corporate taxes by shifting profits to no/ low tax jurisdictions.
Over the years, GAFA and other large multinational enterprises have been reducing their tax bills to a great extent by booking their profits in low/ no tax jurisdictions irrespective of the location where the services are finally being consumed, hence, the new tax rules. The new rules would mean higher tax burdens for large multinational enterprises and at the same time make it difficult for low tax countries like Ireland to attract foreign direct investments.
On 24 May 2019 the Inland Revenue Authority of Singapore (IRAS) published transfer pricing guidelines on commodity marketing and trading activities. The e-tax guide provides guidance on the analysis of the economic value of commodity marketing and trading activities, whereby the taxpayers are required to assess their contribution to the commodity MNE broader value chain. These guidelines would assist taxpayers who are engaged in commodity marketing and/or trading operations in Singapore, to ensure they comply with arm’s length principle with respect to their related party transactions.
The guidelines introduced by IRAS cover four broad levels of participation that commodity marketing/trading entities may undertake viz service provider, agent, distributor and full risk-taking entrepreneur. IRAS also provides the various levels of activities, mentioning the key functions that each category of participation may perform and the risk arising therefrom.
The areas covered by the recently introduced guidelines include –
- Commercial objectives of commodity marketing/trading entities, including commercial considerations in setting up commodity marketing/trading entities in Singapore
- Transfer pricing for commodity marketing/trading activities, which highlight the process for comparability and functional analysis as well as transfer pricing methods and arm’s length results of related party commodity transactions
- Transfer pricing documentation requirement
- Avoiding and resolving transfer pricing dispute.
The commodity marketing/trading entity resident in Singapore shall be liable for a fine of SGD 10,000 if it fails to maintain TP documentation in line with the requirements outlined in the guidelines. To gain certainty on the arm’s length nature of the transaction the entities engaged into commodity marketing/trading also have options to apply for mutual agreement procedure (MAP) and advance pricing agreement (APA).
In order to be in line with the best international practice and avoid accusations for erosion of tax base of other countries a draft bill for the tax treatment of intra-group financing transactions has been sent for approval. The new legislation focuses on avoiding the phenomenon of transferring profits to countries with lower tax rates and covers all types of transactions whose costs are over Euro 750 thousand per year.
Since Cyprus is a low tax jurisdiction (with a corporate tax rate of 12.5%), it is important to have in place regulations and documentation for justifying to relevant tax authorities that the transactions undertaken by entities based in Cyprus are in line with the standards of intra-group arrangements defined as per OECD’s guidelines.
The Mauritius government on 4 May 2019 enacted new penalty provisions for non-compliance with the country-bycountry regulations, as mentioned below:
Non-compliance with the country-by-country reporting regulations
Not exceeding MUR 5,000 (approx. EUR 127 or USD 141) and imprisonment of a term not exceeding six months
Additional penalty if the failure persists after the first penalty being introduced
MUR 10,000 (approx. EUR 254 or USD 281) per month or part of the month till the failure continues, subject to max MUR 120,000 (approx. EUR 3,045 or USD 3,376)
Providing inaccurate information deliberately
Not exceeding MUR 50,000 (approx. EUR 1,269 or USD 1,047)
The Mauritius Revenue Authority can claim penalty for non-compliance with the regulations within 12 months from the date on which the entity becomes liable for penalty. In case of providing inaccurate information the time limit is within 12 months from the date that the Mauritius Revenue Authority first become aware of the inaccuracy, but no later than three years from the date on which the entity becomes liable to the penalty. The aggrieved entity may object to the penalty with the Assessment Review Committee within 28 days of the date of the claim.
Panama: Introduction to the Country-by-country reporting regulations and changes in reporting of related party transactions
On 27 May 2019 Panama issued Decree no. 46 to introduce CbCR requirements. As per Article 2 of the Decree, the ultimate parent company of the multinational group, being a tax resident in Panama with consolidated income exceeding Euro 750 million or its equivalent in Balboas (at the exchange rate on 1 January 2015) during the fiscal period immediately preceding the reporting fiscal period are required to comply with the said regulations. Starting with fiscal year 2018, the CbC report is to be submitted annually (in XML schema) within 12 months following the closing date of the corresponding fiscal period..
Furthermore, Panamanian entities belonging to foreign multinational entities would be required to submit notification to the DGI specifying the identity and tax residence of the reporting entity. As per the OECD, Panama has signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-country Reports (MCAA) on 24 January 2019, which enable the exchange of information between the countries.
Transfer Pricing report for related party transactions:
All Panamanian countries having related party transactions during the year are required to file transfer pricing information return in Form F930 within six months from the fiscal year end. Revised version of F930 has been circulated to include information as follows –
- Detailed business and financial information about comparable companies selected for transfer pricing analysis
- Detailed information pertaining to intangibles
- Adjustments relating to arm’s length
- Comparability adjustments
- Information regarding transfer pricing disputes globally
- Consolidated revenue of the multinational group.
In addition to filing the transfer pricing statement in F930, the Panamanian tax authorities also require entities to have contemporaneous supporting transfer pricing documentation.
[Excerpts from online edition of Bloomberg Tax]
With effect from 1 January 2019, the Ministry of Finance and Economic Development introduced digital economy tax for income exceeding USD 500,000 in any year of assessment, by foreign satellite broadcasters or e-commerce platforms from local residents with services from offshore sources. This income shall be deemed to be earned by such nonresident service providers from a source within Zimbabwe and is liable to income tax @ 5%.
Reference has been made to Action 1 of the OECD/G20 Base erosion profit shifting (BEPS) plan, for implementing the digital economy tax in Zimbabwe.
Transfer pricing regulations and penalties
With effect from 1 January 2019, Zimbabwe taxpayers are required to file annual transfer pricing returns to the Commissioner, reflecting the transactions entered between controlled and/or associated enterprises in the prescribed form.
The newly introduced penalty provisions are as below:
Noncompliance is due to fraud or tax evasion leading to transfer pricing adjustment
100% penalty on shortfall
Contemporaneous transfer pricing documentation does not exist
30% penalty on shortfall
Transfer pricing documentation complies with the new Zimbabwe transfer pricing regulations
10% penalty on shortfall
The 10th Advance Pricing Arrangement (APA) Annual Report 2018 was published by the State Taxation Administration (STA) of China, which describes the regulations, procedures, latest statistics, and implementation status of the APA program in China. In 2018, China has signed two unilateral APAs (including one renewal), and seven bilateral APAs (including one renewal) which total to 89 unilateral APAs and 67 bilateral APAs through the end of year 2018.
It has been observed that the APA requests are on a rise due to uncertainty from the universal implementation of BEPS project and tax scrutiny by tax administrations. The STA is considering prioritizing the APA applications basis the innovative application of transfer pricing method or high-quality quantitative analyses of value chain analysis, intangible and location specific analysis on cost savings, and market premium.
By the end of 2018, China has signed 44 bilateral APAs with Asian countries, 16 with European countries and 7 with the North America countries. The transactional net margin method (TNMM) was the most commonly used method in executed APAs and the common transaction type was related party buy-and-sell transactions (65%) followed by services (20%) and transfer of the right to use or ownership of intangibles (15%). The APA’s signed were majorly related to the general manufacturing.
[Excerpts from online edition of Bloomberg Tax]
The US states have so far been treading softly in enforcing compliance since the US Supreme Court’s decision in June 2018, which brought out-of-state online sellers within the ambit of state sales taxes. The States have instead focused on campaigning to encourage remote sellers into compliance.