May 2018

  • United States
    • Foreign housing costs limitations for 2018

      On 1 May 2018, the US Treasury Department and the Internal Revenue Service (IRS) issued Notice 2018-44 with the amounts to be used by US citizens and residents who are working abroad to compute their exclusion or deduction for excessive foreign housing costs. Notice 2018–44 is issued pursuant to section 911 of the US Internal Revenue Code (IRC). This section permits qualified individuals to exclude foreign earned income from US taxation up to an annual exclusion amount (USD 103,900 for 2018, and to claim an exclusion or deduction for excessive foreign housing costs. The threshold amount for determining whether foreign housing costs are considered excessive is 16% of the limitation for the foreign earned income exclusion. In addition, a limitation applies to the maximum amount allowed, which cannot exceed 30% of the annual foreign earned income exclusion. The Treasury Department and the IRS are authorized to adjust the maximum limitation based on geographic differences in foreign housing costs relative to housing costs in the United States. Notice 2018–44 sets out the threshold amounts, the limitation amounts, and the adjusted per-city amounts that are permitted for specified world cities, including both daily and annual amounts. For 2018, the threshold amount over which foreign housing costs are considered excessive is USD 16,624 (USD 103,900 x.16). The 30% maximum limitation amount is USD 331,170 (USD 103,900 x.30). The adjusted amounts for specified world cities are given in a table included in the notice. Notice 2018-44 is effective for tax years beginning on or after 1 January 2018. Notice 2018-44 provides, however, that taxpayers may elect to use the 2018 amount for a particular city for taxable years beginning in 2017 if it is higher than the amount published for 2017 in Notice 2017-21. Notice 2018-44 revokes Notice 2018-33, issued on 23 April 2018, which used an incorrect amount (i.e. USD 104,100) for the maximum foreign earned income exclusion to calculate the housing cost amount for 2018. Notice 2018-44 will appear in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2018-21 dated 21 May 2018.
    • Cryptocurrency Bill Offers Certainty but Struggles for Buy-In

      Compliance and consumerism are two key components of legislation aimed at assisting taxpayers who exchange and buy goods with cryptocurrencies, but lawmakers have yet to crack the code for moving the bill.
      The Cryptocurrency Tax Fairness Act ( H.R. 3708 ), introduced by House Ways and Means Committee member David Schweikert, R-Ariz., and Rep. Jared Polis, D-Colo., would create an exclusion for de minimis gains for exchanges or purchases using virtual currencies up to $600, indexed for inflation, beginning in 2019. The legislation would also allow Treasury to issue guidance on reporting requirements for virtual currency transactions with recognized gains or losses, a provision that could raise revenue, one lobbyist suggested.
      “The goal is to make it easier for people to use cryptocurrency by removing any threat or reporting requirements for transactions under $600, which should cover the vast majority” of transactions, Polis recently told Tax Analysts. “It’s likely that many of those are not reported, but anyone that uses cryptocurrency for purchasing, say, coffee or a book, could potentially be at risk. Generally, people are not filing paperwork for a $3 bagel or coffee,” Polis said.
      Taxpayers have been contacting Schweikert’s office with concerns about how difficult it is to comply with their virtual currency portfolio without clear guidance, an aide for the congressman said. Schweikert received a letter from then-IRS Commissioner John Koskinen in June 2017 stating that uncertainty over how to comply with the law when conducting transactions with cryptocurrency was a primary concern at the agency, the aide said.
      The IRS has been relatively quiet on the issue, having issued only one guidance document on it, a 2014 notice (IR-2014-36) that classifies virtual currencies as property. Under those rules, any transaction using virtual currencies could be subject to capital gains taxes, depending on the value and whether the currency is held as a capital asset. Accuracy-related penalties under section 6662 and information reporting penalties under sections 6721 and 6722 could also apply.
      Ideally, the IRS would create a new asset class for virtual currencies, but the current classification as property was settled on to comport with existing laws, said Jerry Brito, executive director for Coin Center, a think tank focused on cryptocurrency public policy.
      Brito called the proposed legislation a “win-win-win,” explaining that consumers would have certainty that small, typical transactions using cryptocurrencies would not be subject to additional capital gains taxes, businesses would be able to offer more payment options via virtual currencies, and virtual currency exchanges would eventually have a set of reporting requirements to work with and could worry less about noncompliance.
      Giving Treasury the authority to issue reporting requirements could have broader implications than just improving compliance. Traditionally, the Joint Committee on Taxation has estimated that implementing stricter reporting requirements would raise revenue, and the language included in the Cryptocurrency Tax Fairness Act is “potentially very powerful,” Mary Burke Baker of K&L Gates LLP told Tax Analysts.
      There are many questions about what data would be required under potential Treasury guidance, including possibly the basis value of digital currency and what kind of activity could be considered a taxable event, Baker said. Cryptocurrency miners, those individuals whose systems verify virtual currency transactions, present another host of questions about how they should be treated and regulated, Baker added.
      Bear Market
      Coin Center worked with Polis’s and Schweikert’s offices to develop the legislation, and Brito said his group would focus on educating legislators on the bill this year after the language was not included in the Tax Cuts and Jobs Act (P.L. 115-97). “We made a big push last year during the tax bill passage to include it in there, but the amendment failed in the Rules Committee,” Brito said.
      Polis offered the legislation again in the Rules Committee as an amendment to a series of IRS-related bills that passed the House in April, but it was struck down on a party-line vote. Polis said whenever a Ways and Means Committee bill is sent to the Rules Committee, he will try to offer the legislation as an amendment, calling the cryptocurrency bill “fairly noncontroversial.” But Rep. Rob Woodall, R-Ga., told Polis during the Rules Committee meeting that Ways and Means legislation is rarely amended in the Rules Committee, especially with a larger bipartisan package like the IRS legislation.
      With a tight legislative schedule in Congress and election season nearing, opportunities to move the Schweikert-Polis legislation will be few, Baker said. But she said issues dealing with the tax treatment of digital currency will persist, and IRS officials have begun to recognize the potential for related compliance issues.
      Although it’s unlikely, Schweikert would ideally like a markup on the Cryptocurrency Tax Fairness Act, but like Polis he is looking for opportunities to attach the legislation to related tax measures or to a must-pass bill, a spokesperson for Schweikert told Tax Analysts.
      Ways and Means Committee Chair Kevin Brady, R-Texas, was noncommittal when asked whether the cryptocurrency bill could be included in a potential major tax bill this year, but suggested he would work with Schweikert to consider the legislation.
  • Tax Treaties
    • Tax Treaties

      A tax treaty is a bilateral agreement made by two countries to resolve issues involving double taxation of passive and active income. Treaties Update – May 2018
      Date Country A Country B Object Status
      04.05.18 Cambodia China Income Tax Treaty Enters into force
      31.05.18 Chile China Income Tax Treaty Signed
      18.05.18 Hong Kong Saudi Arabia Income Tax Treaty Gazzetted by Hong Kong
      04.05.18 Brazil Switzerland Income Tax Treaty Signed
  • South Africa
  • Bulgaria
    • New local tax for residential properties in resorts proposed

      On 18 May 2018, a proposal was submitted to the parliament for the introduction of a new annual local tax for residential properties that are not the primary home of the taxable person and are situated in resorts. In addition, it is proposed to exclude from the scope of the new tax properties that are rented or registered as tourist sites under the Tourism Act. The suggested tax rates are as follows:
      • for residential properties in sea/mountain resorts of national importance: 0.5%-0.7% of the tax value of the immovable property; and
      • for residential properties in other resorts: 0.2%-0.4% of the tax value of the immovable property.
      As a next step, the proposal will be discussed and voted on by the parliament. Further developments will be reported in due course.
    • Tax avoidance: enablers – collection published

      On 1 May 2018, HMRC launched a portal to its collection, Tax avoidance: enablers. The collection includes:
      • information on who HMRC classes as an enabler of tax avoidance;
      • information on penalties; and
      • a checklist of what to do if one may be liable to a penalty for enabling tax avoidance.
  • China
    • Taxpayers Don’t Have to Make Registrations for Claiming Corporate Income Tax Benefits

      The State Administration of Taxation recently issued the revised editions of the Measures for the Handling of Preferential Policies on Corporate Income Tax, and the Catalogue on the Management of Preferential Items on Corporate Income Tax (2017 Edition). According to the revised documents, corporate taxpayers should confirm by themselves whether they are eligible to enjoy the preferential tax policies, make tax declarations and present relevant documents. Taxpayers no longer have to make registration before making tax declarations and claiming tax benefits, and they should keep relevant business records and tax documents to be subject to future examinations by tax authorities. The revised regulations apply to the handling of preferential tax items in the 2017 fiscal year and future years. When a company prepares to pay corporate income tax for 2017, it no longer has to make registrations if it's eligible to claim tax benefits.
    • Five Authorities Expand Favorable Tax Policy on Technology-advanced Service Companies to Nationwide

      The Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the Ministry of Science and Technology and the National Development and Reform Commission recently issued the Circular about Expanding the Corporate Income Tax Policy on Technology-advanced Service Companies at Pilot Regions for Innovative Development of Service Trade to Nationwide. According to the circular, technology-advanced service trade companies would pay corporate income tax at a lower rate of 15% starting from January 1, 2018. Service trade companies must meet certain conditions specified in the Scope of Business Activities for Technology-advanced Service Companies (Service Trade) to be eligible to enjoy the favorable tax policy.
    • China to Launch Tax-free Policy for Service Exports in 17 Regions

      China will further open up its service sector by expanding the pilot program for the innovative development of service trade, the State Council decided at an executive meeting chaired by Premier Li Keqiang on May 23, 2018. It was decided at the meeting that the pilot program will be rolled out in 17 areas from July 1, 2018, to June 30, 2020, for the innovative development of trade in services. A series of opening-up measures will be piloted in the 17 places, covering telecommunications, tourism, engineering consulting, finance and legal services. Access mechanisms for trade in services on cross-border delivery and overseas consumption will be explored and refined, while restrictions will be gradually lifted or eased. Trade in services in such areas as R&D and design, inspection and testing, international settlement and exhibition will be expanded. Tax exemption policies will be made available for service exports, and eligible exporters can enjoy zero tax rates. Exports of emerging services that are guided by Internet Plus will be encouraged.
    • MOF and SAT Clarify Tax Deductible Policy for Staff Education Expenses

      The Ministry of Finance and the State Administration of Taxation recently issued the Circular about Tax deductible Policy for Staff Education Expenses, effective from January 1, 2018. According to the circular, if an enterprise's staff education expenses are not higher than 8% of total wages in a year, it can deduct the expenses when calculating its taxable income on corporate income tax, and additional expenses beyond the 8% can be carried over to future tax years.
  • Hong Kong
    • Amendment bill implementing concessionary tax measures – passed

      The Inland Revenue (Amendment) Bill 2018 was passed by the Legislative Council on 16 May 2018. The Bill gives effect to the concessionary tax measures proposed in the Budget for 2018/19. The concessionary tax measures approved by the Legislative Council are as follows:
      • a 75% one-off reduction in profits tax, salaries tax and tax under personal assessment for the year of assessment (YA) 2017/18 is provided, subject to a maximum of HKD 30,000 per case;
      • with effect from YA 2018/19, tax bands and marginal tax rates are adjusted. The previous and new tax bands and marginal tax rates are shown in the table below:
        Previous (YA 2017/18) New (from YA 2018/19 onwards)
        net chargeable income (tax band) (HKD) rate (%) net chargeable income (tax band) (HKD) rate (%)
        on the first 45,000 2 50,000 2
        on the next 45,000 7 50,000 6
        on the next 45,000 12 50,000 10
        on the next 50,000 14
        remainder 17 17
      • the following allowances are increased, as well as a personal disability allowance introduced from YA 2018/19 onwards:
        Previous (YA 2017/18) (HKD) New (from YA 2018/19 and onwards) (HKD)
        China allowance
        – for each of the 1st to 9th child 100,000 120,000
        – additional child allowance for each child born during YA 100,000 120,000
        dependent parent/grandparent allowance (per dependant aged 60 or above):
        – not residing with taxpayer 46,000 50,000
        – residing with taxpayer 92,000 100,000
        dependent parent/grandparent allowance (per dependant aged 55-59):
        – not residing with taxpayer 23,000 25,000
        – residing with taxpayer 46,000 50,000
        personal disability allowance Not applicable 75,000
      • the deduction ceiling for elderly residential care expenses is increased from HKD 92,000 to HKD 100,000 from YA 2018/19.
      In addition, a separate Bill (Inland Revenue (Amendment) (No.4) Bill 2018) was gazetted on 18 May 2018 providing tax deduction for taxpayers purchasing eligible health insurance products for themselves or specified relatives under the Voluntary Health Insurance Scheme (VHIS). According to the VHIS tax deduction scheme, a taxpayer can claim deductions under salaries tax and personal assessment for VHIS premiums paid up to HKD 8,000 per insured person for insurance policies procured for the benefit of the taxpayer and all specified relatives (irrespective of the number). This Bill will be introduced to the Legislative Council on 23 May 2018.
  • Switzerland
    • Treaty between Austria and Switzerland – Austrian Ministry of Finance clarifies treatment of cloud mining activities

      The Austrian Ministry of Finance recently published its opinion on the question whether cloud mining activities may constitute a permanent establishment (PE). In EAS 3401 of 30 April 2018, the Ministry of Finance considered the question whether a stock company with legal seat and place of management in Switzerland would be subject to limited tax liability in Austria through the participation in a cloud mining project relating to cryptocurrencies. In its answer, the Ministry of Finance noted that the current OECD Commentary on Article 5 of the OECD Model does not include any references relating to cloud mining projects. The Ministry therefore referred to the relevant part of the current OECD Commentary and article 5(1) of the Austria-Switzerland Income and Capital Tax Treaty (1974). Accordingly, an enterprise has a PE if it has a fixed place of business in the other state at its disposal in which the business of the enterprise is wholly or partly carried on. Where an enterprise operates computer equipment at a particular location, a PE may exist even though no personnel of that enterprise is required at that location for the operation of the equipment. The Ministry observed that if the Swiss stock company operates computer equipment in order to carry on mining activities related to cryptocurrencies, such activities must be considered significant business activities. Furthermore, if the stock company owns or rents computer equipment to carry on such activities and has the equipment at its disposal, the equipment may be considered a PE. However, if the Swiss stock company only rents computer capacity from a company engaged in cryptocurrency mining activities without having any computer equipment at its disposal, it cannot be considered to have a PE. Finally, the Ministry noted that the users of other cloud services also generally do not have the related computer equipment at their disposal.
  • United Kingdom
    • Tax avoidance: enablers – collection published

      On 1 May 2018, HMRC launched a portal to its collection, Tax avoidance: enablers. The collection includes:
      • information on who HMRC classes as an enabler of tax avoidance;
      • information on penalties; and
      • a checklist of what to do if one may be liable to a penalty for enabling tax avoidance.
    • Off-payroll working in private sector – consultation launched

      On 18 May 2018, HMRC launched a consultation on off-payroll working rules in the private sector (commonly known as IR35), which ensure that people working through a personal service company pay broadly the same income tax and national insurance contributions (NIC) as if they were employed. The consultation seeks views on the best way to tackle non-compliance with such rules. The consultation runs to 10 August 2018.