July 2020

  • Focus Africa
    • African countries making headway in tackling tax evasion and money laundering, 2020 Tax Transparency report says

      Source: ABFD

      African countries made great strides in strengthening commitments and capacity to achieve tax transparency and exchange information on illicit fund flows in 2019, the latest Tax Transparency in Africa report, launched Thursday, revealed.

      Tax Transparency in Africa 2020 - produced by the Global Forum for Transparency and Exchange of Information for Tax Purposes, the African Union and African Tax Administration Forum (ATAF), in close partnership with the African Development Bank - noted the need for African countries to engage further in revenue mobilization, a concern sharpened by the backdrop of the ongoing global novel coronavirus pandemic. The report was published during a virtual launch.

      The report provides comparable tax transparency statistics to aid decision makers to address illicit fund flows. The 2020 report covers 32 Global Forum member countries, and three non-members: Angola, Guinea Bissau and Malawi.

      “This annual publication of the Tax Transparency in Africa is part of the various efforts of the continent to advance global tax transparency and exchange of information agenda in Africa in order to combat corruption, tax evasion, money laundering, fraud, base erosion, and profit shifting and illicit enrichment,” said Victor Harrison, African Union Commission Commissioner for Economic Affairs, in the report’s preface.

      Illicit financial flows in Africa are estimated at between $50 billion and $80 billion annually; 44% of Africa’s financial wealth is thought be held offshore, which corresponds to tax revenue losses of €17 billion.

      Participating countries show significant advances on the AI’s two core pillars: raising political awareness and commitment and developing capacities in tax transparency and exchange of information.

      Marie Jose Garde, Chair of the Global Forum, chaired the live event. Other participants included: Head of the Global Forum Secretariat Zayda Manatta; African Tax Administration Executive Secretary Logan Wort; Marcello Estevao, Global Director, Macroeconomics, Trade & Investment of the World Bank, and the African Development Bank’s Director, Governance and Public Financial Management, Abdoulaye Coulibaly.

      Ms. Manatta praised African countries’ growing proactive role in tax transparency and noted the benefits of existing exchange-sharing tools. “Requests for information directly translate into additional tax revenue and that’s what counts.  We have five African countries identifying nearly $12 million in additional revenue, and eight African countries secured $189 million of additional revenue between 2014 and 2019.”

      Mr. Coulibaly said, “The African Development Bank firmly believes that collaborations with both regional and international partners are key to moving forward the agenda on tax transparency which has significant impact on domestic resource mobilization, the achievement of the SDGs and other regional aspirations including the African Union’s Agenda 2063 and the Bank’s own High Fives.”  .

      He also underscored that the ongoing COVID-19 pandemic recalls the critical importance of domestic resource mobilization in Africa, in particular in relation to tax transparency and the fight against illicit flows, in order to further protect populations against threats to their livelihoods.

      The Africa Initiative, which launched in 2014, is a partnership of the Global Forum, its African members and regional and international organizations, including the African Development Bank, ATAF, and The World Bank. The Global Forum has a self-standing dedicated secretariat based in the OECD’s Centre for Tax Policy and Administration.

      The African Development Bank, an observer to the Global Forum since 2014, also participates in the Africa Initiative. The Bank promotes African tax transparency through support to institutions and non-state actors in its regional member countries and by strengthening international co-operation to eliminate IFFs.

        To download the full report click here  
    • African Development Bank joins World Trade Organisation (WTO) and other Multilateral Development Banks (MDB)s to support trade finance amid COVID-19 crisis

      The African Development Bank Group (www.AfDB.org) has joined the World Trade Organisation and other multilateral development banks to reduce trade finance gaps that emerge as a result of the COVID-19 pandemic.

      In a joint press release (https://bit.ly/38lkzjl) issued 1 July 2020, the institutions said they would prioritize their support to areas in the world where such support is needed most, particularly the poorest countries.

      Since the beginning of the COVID-19 outbreak, multilateral development banks have stepped up their trade finance programs to support essential imports and key exports, as international correspondent banks have cut lending in many countries. In addition to the ongoing shocks to supply and demand, international trade has been affected by a reduction in the supply of trade finance. Risk perceptions about non-payment in international trade are at the highest levels in a decade and banks are increasingly reluctant to take on payment risks in many countries where economic conditions are deteriorating.

      Facilitating trade in medical supplies has been a significant part of these support packages.

      With the approval of its $10 billion Covid-19 Rapid Response Facility (CRF) in April 2020, the African Development Bank is providing up to $1 billion in trade finance liquidity and risk mitigation support to local banks in all 54 eligible African member countries.

      More support will almost certainly be necessary in the weeks and months ahead, as the steep decline in the real economy starts to impact the financial system through loan defaults and corporate bankruptcies. Many developing countries were experiencing significant trade finance shortages even before the COVID-19 crisis; now they face even tighter access to trade credit.

      A further decline in trade finance supply would, in the short term, make it harder for imports of food and medical equipment to reach economies where they are urgently needed. In the medium-term, it would impede the ability of trade to help drive economic recovery.

      Insufficient trade finance threatens to compromise otherwise viable trade transactions, disproportionately affecting micro, small, and medium-sized enterprises (MSMEs), which account for the bulk of employment in Africa.

      “We share the concerns being expressed in markets, and will work within our respective remits to make trade finance available through this difficult period, just as we did during the global financial crisis of 2008-10,” the joint statement said.

      Source: Africa News

  • Hong Kong
    • Hong Kong Updates Guidance on Advance Pricing Arrangement for Transfer Pricing Purposes

      Hong Kong has updated the guidance on its advance pricing arrangement (APA) regime to reflect recent legislative changes and the streamlining of the APA process. Departmental Interpretation and Practice Note (DIPN) No. 48 (revised) was issued by the Inland Revenue Department on 15 July 2020, replacing the previous DIPN issued in March 2012. DIPN No. 48 (revised) contains updates in the following areas:
      • the definition of controlled transactions, which refers not only to transactions between associated persons, but also transactions between different parts of the same person (such as between branches and head offices). In addition, attribution of profits to a permanent establishment of a non-resident person in Hong Kong can be the subject matter of an APA (paragraph 5);
      • the latest relevant domestic legislation in relation to the APA regime, i.e. the Inland Revenue (Amendment) (No. 6) Ordinance 2018, which incorporated the international transfer pricing rules into the tax law and provided a statutory framework for the APA regime;
      • suitability of concluding an APA, with indicators provided where the Commissioner may be more/less likely to enter into an APA (such as whether the transfer pricing methodology adopted is consistent with OECD guidelines, the complexity of the transfer pricing issues, the probability of double taxation or non-taxation, and whether the proposed arrangements are primarily tax-driven), the treatment of carried forward losses, and the presence of tax avoidance issues (paragraphs 18-28);
      • streamlining of the APA process from 5 stages to 3 stages, namely early engagement, APA application and monitoring and compliance. The key changes made are delivery of a more balanced approach to understand the totality of the controlled transactions, deliberate early engagement stage with a more rigorous approach if necessary, and greater focus on identifying and appropriately considering collateral issues (paragraphs 29-30);
      • the right of the tax authorities to refuse to make an APA (such as where fees have not been paid) and the applicant's right to withdraw an APA application (paragraphs 152-154);
      • the management of the APA process, particularly by the Deputy Commissioner (Technical), who takes overall charge of the APA programme (paragraph 181);
      • introduction of offences and penalties, including penalties on more/less serious offences, additional tax, and consideration for taking penal action (paragraphs 182-196); and
      • three updated annexes (Appendix 2, 3 and 5) on a model APA case plan, contents of an APA application and a Model APA respectively; three new annexes (Appendix 1, 4 and 6) on details to be provided in a request for early engagement, a template for spontaneous exchange of information on cross-border unilateral APAs and a model annual compliance report respectively.
      DIPN No. 48 (revised) is available here.
    • COVID-19 Pandemic: IRD Extends Profits Tax Return Filing Deadline

      The Inland Revenue Department (IRD) has extended the deadline for filing profits tax returns for 2019/20 with Accounting Date Code D (i.e. the accounting date being between 1 December 2019 and 31 December 2019) from 17 August 2020 to 15 September 2020. The announcement was made in a circular letter to tax representatives issued by the IRD on 14 July 2020. The full details are available here.
  • India
    • India allows manufacturing and other operations in a bonded manufacturing facility

      With the Government’s continuous efforts to promote India as the manufacturing hub globally and the commitment towards ease of doing business, another initiative in this direction by the Central Board of Indirect Taxes (CBIC) is allowing import of raw materials and capital goods without payment of duty for manufacturing and other operations in a bonded manufacturing facility.

      When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market.

        Bonded Manufacturing

      Note:When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market

      *When finished goods are exported, in addition to the waiver of BCD + IGST on the imported goods used, the GST on the finished goods can be zero-rated.

        To read more about bonded warehousing: https://www.investindia.gov.in/bonded-manufacturing
    • India has the world’s 2nd largest mobile market

      The Telecom industry in India is the second-largest in the world with a subscriber base of over 1.2 bn. The industry has witnessed exponential growth over the last few years primarily driven by affordable tariffs, wider availability, roll-out of Mobile Number Portability (MNP), expanding 3G and 4G coverage, evolving consumption patterns of subscribers and a conducive regulatory environment. Indian smartphone users consume maximum data in the world at 9.8 GB per month.
      • Total number of Subscriber Identity Module (SIM) connections is expected to reach 1.4 bn by 2020 from 1.1 bn in 2017
      • Telecom industry contribution to GDP is expected to reach 8.2% by 2020 from 6.5% in 2017
      • 4mn total employment
      • 525 mn+Smartphone users
      • 100: No. of smart cities
      The market:
      • Indian Mobile industry contributed over $ 140 bn to India's GDP in 2015
      • Digital India is expected to create $ 1.3 tn business opportunity by 2020
      • Number of internet users in India is expected to reach 829 mn by 2021
        100% FDI is allowed in the Telecom, wherein upto 49% is allowed through the automatic route and beyond 49% under government route. For further details, please refer FDI Policy
    • Under the National Solar Mission, India aims to install 100 GW grid-connected solar power plants by 2022

      No alternative text description for this image   In 2019, India was ranked as the fourth most attractive renewable energy market in the world:
      • 5th largest installed capacity of renewable energy in the world
      • 4th largest installed capacity of wind power in the world
      • 5th largest installed capacity of solar power in the world
      The market:
      • 1,000+ GW: Renewable energy potential in India
      • 81 GW: Installed renewable energy capacity (as of August 2019)
      • 22%: Share in total installed capacity
      • 137%: Increase in renewable installed capacity (FY 2013-14 to FY 2018-19)
        The country has set an ambitious target of 450 GW of renewable power by 2030. This is the world's largest expansion plan in renewable energy. Up to 100% FDI is allowed under the automatic route for renewable energy generation and distribution projects subject to provisions of The Electricity Act, 2003. For further details, please refer FDI Policy  
    • Pharmaceutical is among the top 10 sectors in India in terms of FDI and boasts of a strong manufacturing base – making New India an ideal destination for global players

      No alternative text description for this image

      India is the 3rd largest pharmaceuticals industry in the world by volume

      India is a prominent and rapidly growing presence in global pharmaceuticals. It is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume, and also supplies 62% of global demand for vaccines.

      India ranks 3rd worldwide for production by volume and 10th by value. India is the only country with largest number of US-FDA compliant Pharma plants (more than 262 including APIs) outside of USA. India has nearly 1400 WHO-GMP approved Pharma Plants, 253 European Directorate of Quality Medicines (EDQM) approved plants with modern state of the art Technology.

      India is the source of 60,000 generic brands across 60 therapeutic categories and manufactures more than 500 different Active Pharmaceutical Ingredients (APIs). The API industry is ranked third largest in the world contributing 57% of APIs to prequalified list of the WHO.

      The country is home to more than 3,000 pharma companies with a strong network of over 10,500 manufacturing facilities. The domestic pharmaceuticals market turnover reached $20.03 bn in 2019, up 9.3% from 2018, growing as penetration of health insurance and pharmacies rise.

      • From 2018-19, India’s pharmaceuticals exports were worth $19.3 bn with a growth of 10.72% year on year
      • India holds 12% of all global manufacturing sites catering to US market
      • The cost of manufacturing in India is approximately 33% lower than that of the US
      100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield pharma.   100% FDI is allowed in brownfield pharma; wherein 74% is allowed under the automatic route and thereafter through government approval route For further details, please refer FDI Policy
  • Switzerland
    • Tax Reform Strengthens Switzerland as a Business Location

      Source: Invest Switzerland  
      Tax burdens represent an important metric in assessing the comparative international attractiveness of business locations. According to an analysis including long-term projection to 2025 carried out by the economic research institute BAK Economics AG (BAK) for the BAK Taxation Index 2020, the Swiss taxation landscape is set to change significantly for the good of the country’s economy. Many cantons are sharply reducing standard rates of corporate tax. This will therefore further increase the fiscal competitiveness of Switzerland in the international arena. Alongside the newly introduced taxation instruments aimed at boosting innovation, this provides security of planning to companies, according to BAK.

      Major reduction in tax burdens across several cantons

      A comparison of standard tax burdens reveals the impact of the reform. According to the projection for the phase after the STAF implementation in 2025, the weighted Swiss average for gross domestic product (GDP) across all 26 cantons would decrease from 16.8 percent before STAF to 13.5 percent following STAF taking effect. At -8.7 percentage points, the most significant reduction in the standard tax burden can be seen in the canton of Basel-Stadt. Six cantons display reduced burdens of more than  -5 percentage points, with a total of 12 cantons cutting their rates by more than a single percentage point. In four cantons, the reduction in tax burden will total less than one percentage point. Just three cantons do not envisage any reduction in line with the current planning status.
  • United Arab Emirates
    • FTA Issues Public Clarification on Zero Rating Export of Services

      The UAE Federal Tax Authority (FTA) has published public clarification VATP019 on zero rating the export of services. The clarification was issued on 22 July 2020 following the amendment of cabinet decision no. 52 of 2017 on the executive regulation of federal decree-law no. 8 of 2017 on value added tax. In accordance with the provisions of article 31(1)(a)(1) of the executive regulation, the export of services will be zero rated if the following conditions are met:
      • the recipient of the services does not have a place of residence in an implementing state; and
      • the recipient of the services is outside the United Arab Emirates at the time the services are performed.
      The clarification provides FTA's views and interpretation on the two conditions set out below.

      The recipient of the services does not have a place of residence in an implementing state

      For the time being, the United Arab Emirates does not recognize any state of the Gulf Cooperation Council as an implementing state. Therefore, this condition would be satisfied if the recipient of the services does not have a place of residence in the United Arab Emirates. The place of residence in the UAE means either a "place of establishment" or a "fixed establishment". The clarification further provides that if the recipient of the services has a number of establishments in different countries, the place of residence should be considered to be the country where the "place of establishment" or the "fixed establishment" is most closely related to the supply of services.

      The recipient of the services is outside the United Arab Emirates at the time the services are performed

      In accordance with the provisions of article 31 (2) of the executive regulation as amended, the recipient of the services will be considered as being "outside the United Arab Emirates" if it only has a short-term presence in the United Arab Emirates of less than 1 month and the presence is not effectively connected with the supply. The clarification provides that only the physical presence of the recipient of the services during the periods in which the services are supplied and recipient enjoyed them should be taken into account. The place of presence of the recipient before or after the services were supplied should not be taken into account.
    • Dubai announces new economic stimulus package worth AED 1.5 billion

      - Total value of economic incentives introduced by the Dubai govt in the past few months rises to AED6.3 billion

      Under the directives of Vice President and Prime Minister of the UAE and Ruler of Dubai His Highness Sheikh Mohammed bin Rashid Al Maktoum, Dubai has launched its third stimulus package to ease the impact of the COVID-19 crisis on businesses. Worth AED1.5 billion, the new package raises the value of business incentives introduced by the emirate’s government in the past few months to AED6.3 billion. The first stimulus package announced by the Dubai government was worth AED1.5 billion while the second was worth AED3.3 billion.

      Crown Prince and Chairman of The Executive Council of Dubai His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum emphasised the Government of Dubai’s commitment to continue supporting all economic sectors in overcoming the repercussions of the COVID-19 pandemic.

      “Our economy is strong, has a stable foundation and has shown high resilience to crises, all of which enable us to effectively navigate any global challenge. We stand together with the private sector to overcome the impact of the pandemic. We are keen to help businesses renew their growth momentum as soon as possible,” HH Sheikh Hamdan bin Mohammed said.

      The Crown Prince’s remarks came as he approved the third economic stimulus package launched by the Dubai government to support the recovery of sectors across the economy and mitigate the financial pressures faced by businesses. The stimulus package aims to support small and medium enterprises and a number of strategic sectors maintain business continuity by reducing operational costs.

      HH Sheikh Hamdan pointed out that investors and entrepreneurs should keep pace with changing global markets, continue to explore new opportunities, and ensure they are prepared for the future. He stressed that the SME sector represents a key pillar of the national economy and plays a major role in helping Dubai maintain its status as a global destination for entrepreneurs and start-ups.

      “SMEs constitute a highly strategic sector and are a major contributor to the emirate's GDP. Supporting this sector in tiding over the current challenges is vital to accelerate our progress towards a diversified knowledge-based economy,” HH Sheikh Hamdan added.

      SMEs account for 99% of all companies operating in Dubai, 46% of the GDP and 51% of the emirate's workforce.

      New initiatives

      The government has launched many initiatives to support business sectors across the economy. In the healthcare sector, the government has taken steps to ensure its payments to private hospitals are expedited. In the tourism and entertainment sector, an initiative to refund hotel establishments and restaurants 50% of the 7% municipality fees charged on sales will be extended for the period from July to December 2020.  In addition, the ‘Tourism Dirham Fee’ has been halved until the end of the year.

      In the international trade sector, fines for some customs cases will be reduced by 80%, with the option to pay them in instalments, to help traders meet their financial obligations and boost business continuity.

      In the construction sector, payment of financial dues to contractors will be expedited and all financial guarantees for construction activities related to commercial licences will be refunded. This will be replaced by another system that guarantees all the rights of the contracting parties.

      In the education sector, private schools will be exempted from commercial and educational license renewal fees until the end of the year.

      The temporary entry permits obtained by art exhibitions for artworks loaned from institutionoutside Dubai will be extended until the end of 2020. These include artworks that have entered Dubai in the fourth quarter of 2019 and have since remained in the emirate.

      Extension of some initiatives from the first package

      The current stimulus package extends the validity of some of the initiatives announced in the first stimulus package for an additional three months until the end of September 2020 as part of support extended to the private sector in recovering from the crisis. These include the freeze on the 2.5% market fee, cancellation of all fines charged for late payment of government service fees (such as accumulated fines charged for delays in renewing business licenses). Payment of penalties will not be required to renew commercial licenses during this period.

      Furthermore, commercial licenses can be renewed without the mandatory renewal of lease contracts. The 25% down payment requirement for paying government fees in instalments will also be cancelled. In addition, businesses are exempted from fees for sales and special offers.

      In the international trade sector, exemptions for traditional commercial vessels registered locally in the UAE from docking fees at Dubai Port and Hamriya Port (include direct and indirect loading fees) will be extended.

      The AED50,000 bank or cash guarantee required to conduct customs clearance activity will continue to be waived, and bank and cash guarantees paid by customs clearance companies will be refunded. Also, the fees on customs documents will continue to be reduced from AED50 to AED5 for each transaction, and processing of customs complaints will be accelerated.

      In the tourism, entertainment and events sector, the freeze on fees charged for hotel rating, ticket sales, issuing permits and other government fees related to entertainment and business events has been extended.

    • United Arab Emirates Amends CbC Reporting Obligations

      The UAE Council of Minsters has issued decision 44/2020 cancelling and replacing decision 32/2019 on the regulation of reports submitted by multinational companies and country-by-country (CbC) reporting. The decision provides that only the ultimate parent company that is tax resident in the United Arab Emirates is required to file the CbC report with the Ministry of Finance. Previously, this obligation could be fulfilled by the surrogate parent company if the ultimate parent company was not tax resident in the United Arab Emirates. Consequently, only the ultimate parent company that is tax resident in the United Arab Emirates has the obligation to notify the Ministry of Finance of its status of ultimate parent company no later than the last day of the reporting period.
  • United Kingdom
    • European Commission Provides Guidance to Businesses on Customs Implications of Brexit

      The European Commission released a Guidance Note on 14 July 2020 aiming to provide economic operators with information on changes in customs procedures relating to movements of goods between the European Union and the United Kingdom following 31 December 2020. On 31 December 2020, the transitional period of the Brexit Withdrawal Agreement will end, following which the United Kingdom will be considered a third country also from a customs perspective. This essentially means that all customs formalities will be applicable to movements of goods between the European Union and the United Kingdom; furthermore, all licences, authorizations, registrations, etc. (including binding tariff information decisions and binding origin information decisions) previously obtained by UK economic operators will cease to be valid. The Commission especially emphasizes that UK economic operators will need to reobtain an EORI (EU customs identification) number if they have a permanent business establishment in the European Union, or are planning to lodge a customs declaration/apply for a customs decision. Goods originating from the United Kingdom will also qualify as "non-originating" according to EU preferential trade agreements. This means, among other things, that these good will not benefit from a preferential customs duty rate when imported into the European Union. The Guidance Note also briefly describes the customs procedures that will be applicable to products moving between the European Union and the United Kingdom, as well as the special provisions applicable to Northern Ireland.
    • UK government Publishes Consultation Results on Transposition of Fifth Money Laundering Directive

      On 15 July 2020, HM Revenue and Customs (HMRC) and HM Treasury published the consultation outcome on the Fifth Money Laundering Directive and Trust Registration Service outlining how the government intends to implement the changes to the Trust Registration Services on the transposition of the Directive (EU) 2018/843 (the Fifth Money Laundering Directive). The idea behind the consultation was to increase the transparency of trust ownership to ensure that the United Kingdom's anti-money laundering and counter terrorist financing regime is up to date, effective and proportionate. The Fifth Money Laundering Directive explicitly requires certain trusts to be registered. A significant majority of the responses agreed with the list of trusts to be outside the scope of registration and most respondents gave examples of other trusts they felt should be outside the scope.

      Trusts to be exempted from registration

      The government response exempts the following trusts:
      • trusts imposed by statute where these do not result from the clear intention of the settlor;
      • UK registered pension trusts;
      • charitable trusts regulated in the United Kingdom;
      • pure protection life insurance policies and those paying out on critical illness or disablement, including group policies;
      • trusts used by the government and other UK public authorities;
      • trusts for vulnerable beneficiaries or bereaved minors;
      • personal injury trusts;
      • save as your earn schemes and share incentive plans;
      • maintenance fund trusts;
      • certain trusts incidental to commercial transactions;
      • certain trusts used as part of financial markets infrastructure
      • authorized unit trusts;
      • co-ownership trusts where the trustees and beneficiaries are the same person;
      • will trusts created on death that only receive assets from the estate and trusts that only receive death benefits from a life insurance policy and are wound up within 2 years of death; and
      • existing trusts holding assets valued at less than GBP 100 unless or unit further assets are added.

      Deadlines and penalties for non- or late registration

      A number of respondents were concerned with the 30-day requirement to register a new trust or update information within a trust as it may not be realistic. The government agreed that requiring trusts created by will to be registered within 30 days of death was inappropriate and will not be required accordingly. The government also outlined that they intended to proceed with the proposed penalty regime as outlined in the consultation document.

      Legitimate interest and third-country entity requests

      The government committed to ensuring clear guidance and examples are provided to help stakeholders understand the legitimate interest and third-country entity request processes, committing to ensure each request is considered on its own merits.
    • COVID-19 Pandemic: Government Defers Exchange of Information Deadlines under DAC6

      The UK government has confirmed the postponement of reporting deadlines under Council Directive 2018/822 (DAC6) following the adoption of Council Directive (EU) 2020/876 amending the Directive on Administrative Cooperation (DAC). This measure comprises part of the government's COVID-19 pandemic package. The new reporting deadlines are as follows:
      Time framework for reporting Reporting deadline
      mainstream reporting (30-day period to report new cross-border arrangements) The period commences on 1 January 2021
      lookback reporting (reportable arrangements from 25 June 2018 to 30 June 2020) 28 February 2021
      periodic reporting on marketable arrangements 30 April 2021
        Reporting as from 1 January 2021 must be done as normal. In addition, HM Revenue and Customs (HMRC) confirmed that the IT systems for reporting will be available ahead of the revised reporting deadlines (for the HMRC statement, see here). The International Tax Enforcement (Disclosable Arrangements) (Coronavirus) (Amendment) Regulations 2020 (S.I. 2020/713) were made on 9 July 2020. The Regulations will come into force on 30 July 2020.
    • COVID-19 Pandemic: Reduction of VAT Rate in Hospitality and Tourism (Order S.I. 2020/728)

      On 13 July 2020, Order 2020 (S.I. 2020/728) was made announcing the reduced Value Added Tax (VAT) rate in the field of hospitality and tourism in light of the ongoing Covid-19 pandemic.

      More specifically, the Order provides for a temporary reduced VAT rate for certain supplies in the course of catering, holiday accommodation and admission to shows and other attractions.

      This measure comprises part of the government's COVID-19 pandemic package. The relief and consequential changes to the flat-rate scheme both have effect for the period from 15 July 2020 to 12 January 2021.

      The Order entered into force on 15 July 2020.

    • COVID-19 Pandemic: Reduction of SDLT Rates for Residential Properties Purchased Between 8 July 2020 and 31 March 2021 Inclusive

      On 8 July 2020, HMRC announced that reduced rates of Stamp Duty Land Tax (SDLT) will apply for residential properties purchased from 8 July 2020 until 31 March 2021 inclusive. On 1 April 2021, the reduced rates shown below will revert to the rates of SDLT that were in place prior to 8 July 2020.

      This temporary measure comprises part of the government's COVID-19 pandemic package.

      HMRC released a policy paper on 10 July 2020.

      First home

      The following rates apply for a first home purchased during the aforementioned period:
      Property or lease premium or transfer value (GBP) SDLT rate (%)
      up to 500,000 0
      portion from 500,001 to 925,000 5
      portion from 925,001 to 1.5 million 10
      portion above 1.5 million 12

      Additional dwelling

      The 3% higher rate for purchases of additional dwellings applies on top of the above-mentioned revised standard rates. Hence, the following rates apply for an additional dwelling purchased during the above-mentioned period:
      Property or lease premium or transfer value (GBP) SDLT rate (%)
      up to 500,000 3
      portion from 500,001 to 925,000 8
      portion from 925,001 to 1.5 million 13
      portion above 1.5 million 15

      New leasehold sales and transfers

      The following rates apply:
      Net present value of any rent (GBP) SDLT rate (%)
      up to 500,000 0
      over 500,000 1
      The HMRC policy paper, released on 10 July 2020, can be accessed here.
    • Brexit: European Commission Adopts a “Readiness” Communication for the End of the Transition Period with the United Kingdom

      The European Commission has adopted a communication to help national authorities, businesses and citizens prepare for the changes that will arise in the relationship between the European Union and the United Kingdom at the end of 2020. The communication, dated on 9 July 2020, sets out an overview of the main areas of change (including customs and taxation rules) that will take place in any event as of the end of the transition period (i.e. 31 December 2020), and whether there is an agreement on a future partnership between the European Union and the United Kingdom or not.
  • United States
    • United States Provides New Guidance on Excluding High-Taxed Foreign Income from GILTI and Subpart F Income

      The US Treasury Department and Internal Revenue Service (IRS) have issued final regulations (TD 9902) and proposed regulations (REG-127732-19) that provide guidance on the exclusion of certain income that is subject to a high rate of foreign tax ("high-taxed income") from the income of a controlled foreign corporation (CFC) for purposes of computing the global intangible low-taxed income (GILTI) and subpart F income of the US shareholders. The regulations were announced by the IRS in News Release IR 2020-165 dated 20 July 2020. Both the final and proposed regulations are scheduled to be published in the Federal Register on 23 July 2020.

      The final regulations

      The final regulations were issued pursuant to section 951A of the Internal Revenue Code (IRC), which was enacted as part of the US international tax reform implemented by Tax Cuts and Jobs Act (TCJA) on 22 December 2017. In general terms, the GILTI rules of section 951A require a US shareholder of a CFC to include in gross income each year the excess of such US shareholder's pro rata share of the net tested income of the CFC over such US shareholder's pro rata share of a deemed 10% return on the CFC's qualified business asset investment (QBAI). GILTI must be included by the US shareholders in addition to the regular subpart F income of the CFC.

      The final regulations retain the basic approach and structure of proposed regulations that were issued on this topic in 2019, with certain revisions. The preamble to the final regulations addresses the public comments that were received by the Treasury and IRS in response to the 2019 proposed regulations.

      The GILTI rules permit US shareholders to exclude income that is subject to a high rate of foreign tax from the tax base used to compute GILTI.

      The definition of "high-taxed" under the final regulations continues to be based on a comparison of the effective foreign tax rate with 90 percent of the maximum US corporate tax rate (currently 21%) i.e. 18.9%. If the effective foreign tax rate on the income exceeds the 90% measure, an election may be made to exclude such income from GILTI.

      The final regulations also address the computation of the effective foreign tax rate. The final regulations rejected public comments that the computation should be made using a CFC-by-CFC approach, rather than a "qualified business unit" (QBU) approach, i.e. QBU-by-QBU, as in the originally proposed 2019 regulations, but adopt a more targeted approach to the foreign income that is taken as the basis for the computation, specifically using a "tested unit" approach rather than a QBU approach.

      In response to a number of public comments, the final regulations provide that the GILTI high tax exclusion can be elected annually, subject to the consistency requirement ("all-in or all out") set out in the regulations, and eliminated the 60-month re-election restriction that applied under the proposed regulations if the election was revoked.

      The final regulations will be effective from 21 September 2020, and the GILTI high-tax exclusion applies to taxable years of foreign corporations beginning on or after 23 July 2020, and to taxable years of US shareholders in which or with which the taxable years of such foreign corporations end. Subject to certain conditions, taxpayers may also choose to apply the exclusion to taxable years of foreign corporations that begin after 31 December 2017, and before 23 July 2020, and to taxable years of US shareholders in which or with which the taxable years of such foreign corporations end.

      The final regulations do not finalize the portions of the 2019 proposed regulations under IRC sections 951, 956, 958, and 1502 regarding the treatment of domestic partnerships. The Treasury Department and the IRS plan to finalize those regulations separately.

      The proposed regulations

      The proposed regulations were issued at the same time as the final regulations and are intended to conform a similar exclusion of high-taxed income that applies to subpart F income under IRC section 954(b) to the rules applicable to GILTI in the final regulations. This is intended to prevent inappropriate tax planning and reduce complexity.

      The proposed regulations provide for a single high-tax election for purposes of both GILTI and subpart F income. In addition, to facilitate administration of the rules regarding these elections, the proposed regulations include a contemporaneous documentation requirement that requires US shareholders to maintain specific contemporaneous documentation that substantiates their high-tax exception computations. The proposed regulations also include an anti-abuse rule to address actions undertaken with a significant purpose of avoiding the purposes of the subpart F and GILTI provisions.

      The IRS has requested comments on the new proposed regulations. Comments should be received by 21 September 2020.

    • IRS Issues Practice Unit on Computing Foreign Tax Credits for Individuals

      The US Internal Revenue Service (IRS) has released guidance on how to calculate the amount of allowable foreign tax credits (FTCs) for individuals. The guidance, in the form of a Practice Unit, sets out the steps to compute FTCs as well as the calculation of the foreign tax credit limitation. Related legislative and administrative resources are also listed. The Practice Unit also notes a number of considerations that may be relevant for auditing purposes. Practice Units are issued by the Large Business and International (LB&I) division of the IRS for the purpose of internal staff training. The document states that it is not an official pronouncement of law, and cannot be used, cited or relied upon as such. The Practice Unit bears a Document Control Number of INT-P-218 and indicates a date of last update of 2 July 2020. Note: US citizens and resident aliens are subject to tax on worldwide taxable income, which includes both US source taxable income and foreign source taxable income (FSTI). When a foreign jurisdiction also taxes FSTI, the United States provides an FTC to relieve this double taxation. The FTC is limited, however, to the amount of US income tax imposed on FSTI. This is called the FTC limitation. In practice, this generally prevents the FTC from being claimed for foreign taxes that exceed the US tax on the same income.
    • COVID-19 Pandemic: Regulations Issued on Net Operating Losses of Consolidated Corporate Groups

      The US Treasury Department and Internal Revenue Service (IRS) have issued proposed and temporary regulations that affect corporations filing consolidated returns. The two sets of regulations respond in particular to changes made under the Tax Cuts and Jobs Act (TCJA) and the CARES Act regarding the carry forward and carry back of net operating losses (NOLs). The IRS announced the issuance of the proposed and temporary regulations in News Release IR-2020-138. The regulations were issued under section 1502 of the Internal Revenue Code and address certain aspects of those NOL rules that are relevant to consolidated groups, in particular groups that include certain types of insurance companies. The TCJA revised the NOL rules to eliminate the carryback of NOLs and limit the use of NOL carryforwards so that such NOLs may offset only 80% of taxable income in a carry-forward year. The TCJA applies special rules to non-life insurance companies and farming losses. The CARES Act delayed the effective date of the TCJA provisions until 1 January 2021 and permits a five-year carryback for NOLs, including NOLs of non-life insurance companies and farming losses, and also allows an option to waive NOL carrybacks. The proposed regulations include guidance for consolidated corporate groups on the application of the 80% limitation. The temporary regulations include an allowance for certain acquiring consolidated groups to make an election to waive all or a portion of the pre-acquisition portion of the extended carryback period for certain losses attributable to certain new members acquired by consolidated groups.
    • COVID-19 Pandemic: New Guidance on Procedure for Claiming Net Operating Loss Carry-Backs

      The Internal Revenue Service (IRS) has provided guidance regarding the deadlines for submitting claims for the carry-back of a net operating loss. The guidance clarifies how the 6-month extension for submitting such claims under Notice 2020-26 interacts with the extension to 15 July 2020 for taxpayers to perform specified time-sensitive actions granted under Notice 2020-23. The guidance, in the form of frequently asked questions (FAQs), explains when a taxpayer may apply the 15 July 2020 deadline. The guidance supplements previous FAQs regarding temporary procedures for claiming quick refunds of the prior year minimum tax credit and net operating loss deductions.

    • COVID-19 Pandemic: No Further Deferral of Federal Tax Filing and Payment Deadline

      There will be no further deferral of the deadline for filing and payment of 2019 federal taxes, the US Treasury Department and the US Internal Revenue Service (IRS) have announced. The deadline had previously been postponed from 15 April to 15 July in response to the COVID-19 crisis. The news release, dated 29 June 2020, also notes that individual taxpayers unable to meet the 15 July deadline can request an automatic extension of time to file until 15 October. It also lists various payment options to avoid interest and penalties. The IRS also reminds taxpayers that state filing and payment deadlines may differ.

  • Bulgaria
    • Bulgarian Constitutional Court Confirms Constitutionality of Challenged VAT Provision – Decision Issued

      On 30 June 2020, the Constitutional Court of Bulgaria issued Decision No. 8, confirming the constitutionality of article 102, paragraph 4 of the Value-Added Tax Act (effective as from 1 January 2018). According to the challenged VAT provision, a taxable person is liable for VAT on all taxable supplies made after exceeding the statutory threshold for a mandatory VAT registration, regardless of whether the taxpayer has been registered for VAT purposes. Based on this provision, while performing tax audits, the tax authorities may assess additional VAT in cases where taxpayers failed to file, or failed to file on time, for a VAT registration. The decision is accessible on the Constitutional Court's website.
    • European Commission Closes Infringement Procedure Against Bulgaria Regarding Incorrect Implementation of DAC2

      On 3 July 2020, the European Commission closed the infringement procedure against Bulgaria regarding the incorrect implementation of Council Directive 2014/107/EU amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation (DAC2). The issue was that Bulgarian domestic rules provided for a broader exception for certain reportable persons than the one allowed under EU legislation, allowing certain types of entities, such as partnerships, to escape due diligence procedures, and excluding certain annuity contracts from their scope. In the meantime, Bulgaria amended its legislation accordingly and, as a result, the Commission decided to close the infringement procedure.
    • COVID-19 Pandemic: Bulgaria Announces Intention to Defer Exchange of Information Deadlines

      On 11 June, the Bulgarian National Revenue Agency announced Bulgaria's intention to defer the reporting deadlines for the exchange of information under DAC2 and DAC6 reporting standards in light of the ongoing COVID-19 pandemic. The announcement provides that financial institutions will be granted an opportunity to file DAC2, CRS and FATCA returns in respect of the 2019 reporting period by 30 September 2020. DAC6 reporting planned for launch on 1 July 2020, will also be deferred. The envisaged extension of reporting deadlines has been based on Council Directive (EU) 2020/876 amending the Directive on Administrative Cooperation (DAC), according to which EU Member States are granted an option to defer the time limits with respect to the following reporting frameworks:
      • automatic exchanges of information under the EU Common Reporting Standard (CRS) for reporting financial institutions (DAC2); and
      • filing and exchange of information with respect to mandatory disclosure requirements (DAC6).
      The Bulgarian National Revenue Agency is expected to announce further legislative measures for the amendment of the Bulgarian Tax and Social Security Procedure Code that regulates administrative cooperation and exchange of information. The text of the announcement can be accessed through the website of the National Revenue Agency (in Bulgarian only).
    • Supreme Administrative Court Revokes VAT Provision on Application of Bulgarian Tour Operators’ Margin Scheme

      The Bulgarian Supreme Administrative Court (SAC) has issued its decision No. 10037 in administrative case No. 10108/2017 г., according to which it revoked as unconstitutional the provision under article 87a, paragraph 2 of the Regulation for Application of the VAT Act. Article 87a (2) of the VAT Act excluded from Bulgaria's Tour Operators' Margin Scheme (TOMS) goods or services acquired for resale from non-taxable vendors. Under the TOMS, tour operators that buy and resell travel, accommodation and certain other services operating as principal or undisclosed agents do not recover input VAT on all direct costs and apply output VAT on the realized resale margin only. The revoked VAT provision excluded from the scope of the TOMS goods or services acquired for resale from non-taxable vendors. As a result, tour operators had to apply 20% output VAT on the resale price of such purchases under the general VAT regime. Under the SAC's decision to revoke the contested VAT provision, tour operators may include such purchases under the scope of the TOMS and apply 20% output VAT only on the realized resale margin. The SAC decision is effective as from 26 June 2020 and can be accessed through the SAC website (in Bulgarian only).
    • COVID-19 Pandemic: Bulgaria Extends Scope of Reduced 9% VAT Rate

      On 30 July 2020, the Bulgarian parliament approved at second (final) reading the proposal for extending the scope of the products for which the reduced 9% VAT is applied. The new products include:
      beer and wine provided as part of restaurant/catering services;
      the use of certain sports facilities; and
      tour operators' services, including the organization of excursions by tour operators and travel agents with occasional transportation.
      The reduced 9% VAT rate for the above products will apply temporarily during the period from 1 August 2020 – 31 December 2021. As a next step, the amendments to the VAT Act must be promulgated in the State Gazette. Further developments will be reported as they occur. The draft proposal is available here (as a PDF and in Bulgarian only).
  • China
    • State Council Urges Better Business Environment and Services for Market Entities

      The General Office of the State Council released on July 21, 2020 the Implementation Opinions about Further Optimizing Business Environment and Better Serving Market Entities, in a policy move to further reduce restrictions on foreign and trade companies' investment and business activities. The document expressed support for foreign trade companies to sell their products originally designed for foreign consumers in the domestic market, and they can make self-declarations to replace domestic certifications. If they have already obtained international certifications according to product standards that are not lower than domestic standards, they can issue a written statement and then sell their products at the domestic market. All prefecture-level cities are authorized to register foreign-funded enterprises.
    • Regulation on Payment Protection for Small and Medium-sized Enterprises to Take Effect in September 2020

      Premier Li Keqiang signed a decree on July 14, 2020 to release the Regulation on Payment Protection for Small and Medium-sized Enterprises, to be effective from September 1, 2020. The regulation has 29 articles and aims to address three problems. The first is to set rules for contract conclusion and payments; the second is to ensure timely payment and prevent payment arrears; the third is to strengthen credit oversight and services. The regulation stipulated that systems for payment information disclosure, complaint handling and regulatory evaluation should be established to safeguard the legitimate rights and interests of SMEs and optimize the business environment.
    • GAC Releases Regulatory Measures for Duty-free Shopping of Tourists Leaving Hainan Island

      The General Administration of Customs revised and released on July 6, 2020 the Regulatory Measures of the Customs of the People's Republic of China for Duty-free Shopping of Tourists Leaving Hainan Island, to be effective from July 10, 2020. Four announcements released by the GAC in 2015, 2016, 2017 and 2018 will be revoked at the same time. The regulation made provisions about supervision of the sales of duty-free items, the delivery and departure of duty-free items, and legal responsibilities. If shoppers provide fake or illegal identity certificate or travel document, they will be deprived of duty-free shopping policies for three years, and their unlawful activities will be recorded as part of their credit information.
    • STA Revises Tax Return for Prepayment of Enterprise Income Tax

      The State Taxation Administration released an announcement on July 1, 2020 to revise the Tax Return for the Monthly (Quarterly) Prepayment of Enterprise Income Tax (Type A, 2018 Version) and (Type B, 2018 Version), with effect from July 1, 2020.   The revisions are overall amendment to the sample forms and instructions to the 2018 and 2019 versions of the respective documents. These documents will be abolished from July 1, 2020.
    • China’s 2020 negative list shortened again

      China unveiled new, shortened negative lists for foreign investment, as part of efforts to further open up the economy and improve its business environment amid the novel coronavirus epidemic. The new negative lists will go into effect on July 23. Items on the national negative list will be cut from 40 to 33, and the negative list for pilot free trade zones (FTZs) will shrink from 37 to 30. The shortened nationwide list further improves the level of openness in the service, manufacturing, and agricultural sectors. In the service sector, foreign ownership caps on securities, fund management, futures and life insurance companies will be removed. Foreign investors will be allowed to take majority shares in joint ventures that engage in the building and operation of water supply and drainage networks in cities with a population of more than 500,000. Regulations prohibiting foreign investment in air traffic control also will be canceled. In the manufacturing sector, foreign ownership caps on commercial vehicle manufacturing will be lifted, and regulations prohibiting foreign investment in the smelting and processing of radioactive minerals and nuclear fuel production also will be eliminated. In the agricultural sector, ownership limit on foreign investors in wheat breeding and seed production will be raised up to 66 percent. The role of FTZs as a pioneer in the country's reform and opening-up will be further strengthened. In the field of medicine, regulations prohibiting foreign investment in ready-to-use traditional Chinese medicine will be canceled. Foreign investors will be allowed to run wholly owned vocational education institutions. From 2017 to 2019, China was the second-largest foreign direct investment (FDI) recipient despite continuing declines in global transnational investment, with FDI inflow of over $141 billion in 2019.   Source: State Council of PRC
    • China grants foreign banks access to fund custody business

      China will allow foreign banks to gain access to fund custody business in its market, as part of efforts to further open up the financial sector, the country's securities and banking regulators said on July 10. Eligible Chinese branches of foreign banks will be able to apply for permits for fund custody business, according to the newly-revised fund custody rules jointly issued by the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission. Applicants should have sound internal control mechanisms and good business performance, with major indicators including the scale of fund custody business, profits and market share ranking among the top in the world in the past three years, according to the rules. While allowing applicants to use performance indicators of their overseas headquarters, the rules also revised the bar for net assets to 20 billion yuan (about $2.86 billion) for applicants. The rules also specified that headquarters of foreign banks should bear civil liability for their Chinese branches and put in place a liquidity support mechanism commensurate with the scale of their fund custody business in China.   Source: Invest in China
    • China to promote quality development of national high-tech zones

      China will build national high-tech zones with better layout and innovation capability by 2025, according to a circular issued by the State Council on July 17. Mechanisms in the high-tech zones will be continuously updated to improve the environment of innovation and entrepreneurship and build high-tech industrial systems, as planned in the circular. High-tech zones should gather high-quality resources and attract top talents to enhance independent innovation and stimulate enterprises' business vitality for innovation by supporting technology-based small and medium-sized enterprises, according to the circular. Meanwhile, industries in high-tech zones should be pushed to upgrade toward higher ends, and emerging industries should be encouraged. Further opening-up and more innovation were also stressed, with regional integrated development urged and new growth engines to be discovered. An environment of high-quality development should be established for high-tech zones, and reform of management systems and mechanisms should be deepened, the business environment optimized, and financial services strengthened.   Source: State Council of PRC