July 2020

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.

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

• 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.

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.

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.

• 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

• 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

• 5^th largest installed capacity of renewable energy in the world
• 4^th largest installed capacity of wind power in the world
• 5^th largest installed capacity of solar power in the world

• 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)

India is the 3^rd 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 3^rd worldwide for production by volume and 10^th 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

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

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

- 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.

Trusts to be exempted from registration

• 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

Legitimate interest and third-country entity requests

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.

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

Additional dwelling

New leasehold sales and transfers

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.

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.

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.

• 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).