May 2024

Beijing Municipal Tax Service and Guangdong Maoming Municipal Tax Service have issued working measures regarding ATR (hereinafter referred to as the “Beijing ATR Measures” and “Maoming ATR Measures”) on May 7,2024 and April 24, 2024 respectively. ATR allows taxpayers to seek from tax authorities the application of tax policies to their future complex tax-related matters.

The two Measures also provide for ruling process, follow-up administration and other relevant issues. Taxpayers who have business plans that may trigger significant and complex tax matters may strongly consider utilizing ATR mechanisms. Currently, tax authorities in multiple locations like Guangzhou Nansha, Shanghai, the Nanjing Area of China (Jiangsu) Pilot Free Trade Zone, Dongfang City and Ding’an County of Hainan Province, as well as Qitaihe of Heilongjiang Province have already offered similar services. Among them, Guangzhou Nansha and Shanghai have introduced relatively detailed ATR measures, while other regions have only briefly outlined their ATR implementation rules. Tax authorities in Shenzhen, Guangzhou, Ningbo, Qingdao, Xiongan New Area and other regions have also formulated relevant regulations but have not released the same to the public.

The Ministry of Finance (MOF), General Administration of Customs, and State Taxation Administration (STA) jointly issued Caiguanshui [2024] No. 10 (Circular 10) on May 9th , 2024, extending the preferential tax policies for imported exhibits previously outlined in Circular Caiguanshui [2023] No. 5 (Circular 5).

Key points of the preferential tax policies:

• Preferential tax treatments: sales of imported exhibits within the duty-free quota during the CIEF 2024 and 2025 will be exempt from import duties, import-level Value-added Tax and Consumption Tax;
• Eligible imported exhibits: the scope of exhibits eligible for the preferential policies remains the same as those listed in Circular 5. Notably, certain imported goods such as tobacco, alcohol and automobiles do not qualify for these exemptions.

 

Effective from 1 January 2023 to 31 December 2025, qualifying enterprises established within the Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone (Qianhai Zone) can benefit from a reduced Corporate Income Tax (CIT) rate of 15% (Caishui [2024] No. 13).

On May 17th, 2024, eight government authorities in Shenzhen jointly issued public notice (PN) [2024] No. 1 (PN 1) clarifying the substantive operation criteria for enjoying such preferential CIT policies.

The criteria for substantial operations, as detailed in the newly issued PN1 compared to those stipulated in the 2023 PN No. 4, remain largely unchanged. Specifically, substantial operations typically require that production and business activities, personnel, accounting, and assets all be conducted within the Qianhai Zone.

According to the official interpretation of PN 1, enterprises that exhibit any of the following characteristics are considered non-compliant with the substantial operations requirement:

• Lacking production and operational functions, solely performing financial settlements, tax filings, and invoice issuance for businesses conducted outside the Qianhai Zone;
• Having a registered address that does not match the actual operating address, and either cannot be contacted or fails to provide a verifiable operating address upon contact.

Enterprises wishing to avail themselves of these tax incentives should self-assess compliance, declare their eligibility, and retain relevant documentation for follow up inspection. Tax authorities will conduct comprehensive audits on all newly qualified enterprises each year and sample audits on existing enterprises.

The primary update in the 2024 Public Notice, as compared to the 2023 version, is the inclusion of the Shenzhen Bao’an Tax Bureau, alongside the Shenzhen Qianhai Tax Bureau, as the in-charge tax authorities.

China will continue implementing the IIT preferential policy for the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) until the end of 2027. The policy subsidizes the tax burden difference between the mainland China and Hong Kong IIT rates (specifically, the tax amount paid exceeding 15% of the taxable income). This subsidy, which is exempt from IIT, applies to overseas (including Hong Kong, Macau, and Taiwan) high-end and high demand talents working across the nine cities of the Greater Bay Area.

On May 15th, 2024, relevant Shenzhen municipal government departments have released the “Application Guidelines of the financial subsidies on 2023 Individual Income Tax (IIT) for Overseas High-end and High-demand Talents in Shenzhen” (the Guidelines), detailing the application process for these subsidies.

• Starting from 15 May 2024, applicants should submit their application materials for review to their employers through the Guangdong Provincial Government Services Website (https://www.gdzwfw.gov.cn/). After reviewing the materials and providing a written statement and commitment, the employer shall submit the application through the system by 15 June 2024;
• An applicant who is reporting income from personal services may apply independently. Nevertheless, the application must be processed through the employer if the tax amount paid includes IIT from wages or salaries.

 The Government welcomed the passage of the Inland Revenue (Amendment) (Tax Concessions and Two-tiered Standard Rates) Bill 2024 by the Legislative Council today (May 22). The Bill gives effect to the Government's proposals announced in the 2024-25 Budget and the 2023 Policy Address, which include:

1. implementing a two-tiered standard rates regime for salaries tax and tax under personal assessment starting from the year of assessment 2024/25. In calculating the amount of salaries tax or tax under personal assessment at standard rates, the first $5 million of net income will continue to be subject to the standard rate of 15 per cent while the portion exceeding $5 million will be subject to the standard rate of 16 per cent;
2. reducing salaries tax, tax under personal assessment and profits tax for the year of assessment 2023/24 by 100 per cent, subject to a ceiling of $3,000 per case; and
3. allowing an additional deduction ceiling amount of $20,000 for home loan interest or domestic rents, on top of the basic deduction ceiling ($100,000), for a taxpayer if specified conditions (including the taxpayer should reside with his/her newborn child in Hong Kong for a continuous period of not less than six months, or a shorter period that the Commissioner of Inland Revenue considers reasonable in the circumstances) are met starting from the year of assessment 2024/25. Each taxpayer may be allowed an additional deduction ceiling amount for a maximum of 19 years of assessment.

The Secretary for Financial Services and the Treasury, Mr Christopher Hui, said:

"The Government takes into account various factors when adjusting different tax measures. In addition to balancing economic and social needs, we are also committed to maintaining the competitive advantage of a low and simple tax regime. The proposed two-tiered standard rates regime is expected to bring about an additional revenue of $905 million per annum for the Government, affecting only 0.6 per cent of taxpayers. We believe that it will not have adverse impact on Hong Kong's tax competitiveness and attractiveness to talent. On the other hand, the one-off tax concessions will benefit about 2.06 million taxpayers chargeable to salaries tax and tax under personal assessment as well as about 160 000 tax-paying businesses. The additional deduction ceiling amount for home loan interest and domestic rents will benefit all taxpayers meeting the specified conditions, alleviating their financial burden of housing."

The Bill as passed will be gazetted on May 31, 2024. The one-off tax concessions will be reflected in taxpayers' final tax payable for the year of assessment 2023/24.  Moreover, in calculating the provisional salaries tax for the year of assessment 2024/25, the Inland Revenue Department will determine the amounts of home loan interest and domestic rents to be allowed based on the information provided by eligible taxpayers, and apply the two-tiered standard rates as appropriate.

Source: Inland Revenue Department

As India strives to become a $35 Tn economy, the role of the manufacturing sector is pivotal in driving the nation forward. A robust manufacturing industry is essential for boosting economic growth by contributing to the GDP, strengthening infrastructure, increasing imports, and creating job opportunities.

From fiscal year 2006 to 2012, India's manufacturing sector GDP grew by an average of 9.5% per year. However, over the following six years, growth slowed to 7.4% because of challenges like project delays due to cumbersome regulations and red tape, ill-targeted subsidies, low manufacturing base, low-value addition in manufacturing, and the presence of a large informal sector.

To revitalise the manufacturing sector, the Make in India initiative was launched in September 2014 to fostering foster innovation, and position India as a global manufacturing hub by attracting domestic and foreign investment, building best-in-class manufacturing infrastructure, enhancing skill development, protecting intellectual property, and streamlining regulatory processes to create a conducive environment for businesses to thrive.

Foreign Direct Investment Over the Years 

Due to the sustained efforts of the government, during 2014-2023, Foreign Direct Investment equity inflow in the manufacturing sector increased by 55% to reach $148.97 Bn compared to $96 Bn in the previous nine years (2005-2014).

This achievement is due to the various policy initiatives taken by the government over the years. Under the  existing FDI policy, nearly all sectors allow for 100% FDI, except for certain prohibited sectors. The defence industry allows 74% FDI under automatic route and 100% under the government route. For the broadcasting sector, FDI limits vary, differing between print and digital media.  While the automatic route requires no approval from the Government of India for either non-resident or Indian companies, the government route necessitates prior approval from the Government of India before investment can proceed.

The government introduced several other measures, such as the Goods and Services Tax (GST), to streamline indirect taxation. Before GST, manufacturers faced challenges with multiple tax filings and assessments by different tax authorities. The introduction of GST streamlined indirect taxation and automated tax compliances, easing the burden for businesses. Additionally, reductions in corporate taxes, along with simplified construction permits and and the abolition of archaic laws were implemented to improve the ease of doing business. Coupled with FDI policy reforms aimed at attracting foreign capital, these measures collectively aimed to bolster the business environment and stimulate economic growth.

At the global level as well, India also collaborated with other countries. To further propel innovation in manufacturing sectors, in 2015, India and Japan announced a $12 Bn 'Japan-India Make-in-India Special Finance Facility’ fund managed by the Nippon Export and Investment Insurance (NEXI) and Japan Bank for International Cooperation (JBIC). The fund “aims to promote direct investment of Japanese companies and trade from Japan to India, to support their business activities with counterparts in India, including the development of necessary infrastructure, and to help materialise Make-in-India policy of the Government of India.” Between 2000 and June 2023, Japan invested about $39.94 Bn in India, ranking fifth in FDI sources. Japanese investments mainly went into sectors like automobiles, electrical equipment, telecommunications, chemicals, finance (insurance), and pharmaceuticals.

Similarly, ‘Make in India Mittelstand (MIIM),’ a collaboration between India and Germany, focuses on driving innovation and enhancing economic cooperation by encouraging small and medium-sized German companies to invest and manufacture in India. Since its inception in September 2015, as of August 2021, the MIIM program has supported more than 151 German Mittelstand companies, resulting in a total declared investment exceeding €1.4 Bn. A majority of these investments came in the automotive, renewables, construction, consumer goods, electronics and electricals, chemical, waste/ water management sectors.

These liberalised policies, coupled with efforts to improve the ease of doing business, have positioned India as an attractive destination for foreign investors.

India's progress has been recognised internationally, with the World Bank's 2019 Ease of Doing Business report acknowledging a significant jump to a rank of 63 among 190 countries.

Current Landscape 

The Government has also introduced the Production Linked Incentive (PLI) Scheme, which has significantly boosted production, employment, economic growth, and exports in India. Under this scheme, companies are incentivise to promote domestic production, thereby enhancing India’s manufacturing competitiveness.  PLI scheme covers 14 key sectors with an incentive outlay of about $26 Bn. Sectors like Drugs and Pharmaceuticals (+46%), Food Processing Industries (+26%), and Medical Appliances (+91%) witnessed increased FDI inflows. The PLI scheme has prompted major smartphone companies like Foxconn, Wistron and Pegatron to shift suppliers to India, resulting in the manufacture of top-end phones in the country.

In line with the Make in India initiative, several Indian states have also launched their localised initiatives like Tamil Nadu Global Investors Meet, Make in Odisha, Vibrant Gujarat, Happening Haryana, and Magnetic Maharashtra.

According to the parliamentary data, from October 2019 to December 2023, the total foreign investments in the manufacturing sector, as reported by the States through FDI equity inflow, were $20.8 Bn. The top five states receiving the maximum investment are Maharashtra (29.6%), Karnataka (22.6%), Gujarat (16.3%), Delhi (13.5%), and Tamil Nadu (4.7%).

Conclusion

The Make in India initiative has been instrumental in transforming India's manufacturing landscape and attracting significant investments to the country through a series of reforms geared towards improving the ease of doing business, liberalising FDI policy and promoting domestic manufacturing, The COVID-19 pandemic also presented an opportunity for India to transform its economic landscape by leveraging the disruption caused by the crisis into a growth opportunity. As of 2023, the manufacturing sector accounted for 17% of the GDP and provided employment to more than 27.3 Mn individuals in India. The government plans to increase manufacturing's share to 25% of the economy by 2025.

India has emerged as an attractive destination for foreign investors. The success of the Make in India policy is evident from the substantial increase in FDI equity inflows in the manufacturing sector and increased production of high-value goods.

India's continued focus on innovation, technology adoption, and skill development will be crucial for sustaining the momentum in the manufacturing sector. Initiatives like the Production-Linked Incentive (PLI) scheme and ongoing reforms to improve infrastructure and regulatory environment will play a key role in enhancing India's competitiveness on the global stage.

Source: Invest India

India recently signed a landmark free trade agreement with the European Free Trade Association (EFTA). The historic signing of the India-EFTA trade deal was the successful conclusion of 21 rounds of negotiations spanning 15 years. The deal strengthens India’s plans to diversify its trade partners worldwide and enhances its export capabilities, foreign investments, and supply chain integrity.

Established in 1960, the EFTA, comprised of Iceland, Liechtenstein, Norway, and Switzerland, is an intergovernmental organisation promoting economic cooperation and free trade in Europe. The trade deal is slated to bring forth investments amounting to $100 Bn and a million direct jobs in India in the next fifteen years. India has offered 105 sub-sectors to the EFTA and secured commitments in 128 from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland.

Government Initiatives Fostering India-EFTA Trade Deal

The Government of India has offered 82.7% of its tariff lines, which covers 95.3% of EFTA exports, to foster bilateral trade. The reductions in customs duty on goods imported from the EFTA countries are to help lower the prices of items like Swiss cheese, chocolate, wine, and other processed food products, along with watches, clocks, and more. Moreover, India has offered concessions on 105 sub-sectors, including accounting, IT, healthcare, etc. Concessions are expected to increase the nation’s services exports in the sub-sectors to the EFTA countries.

Concessions and policy support will help EFTA countries chart their journey in India with confidence and assurance. The deal would stimulate India’s services exports in sectors of its key strength, such as IT, business, personal, cultural, sporting, recreational, education, and audio-visual services.

Investment Opportunities Under India-EFTA Trade Deal

A distinctive and unprecedented element of the India-EFTA trade deal is the binding commitment on the part of the EFTA bloc to invest $100 Bn in India in the next 15 years. Investments will focus on manufacturing companies in India within industries like chemicals, pharmaceuticals, machinery, and food processing, which are some of the nation’s primary exports, along with service exports like IT services, accounting, and more. The investments are also to be directed towards infrastructural sectors.

The trade deal will strengthen India’s manufacturing & services infrastructure, spur innovation, create jobs and upskill the workforce. The deal will encourage domestic manufacturing in infrastructure and connectivity, manufacturing, machinery, pharmaceuticals, chemicals, food processing, transport and logistics, banking and financial services and insurance. The deal offers an opportunity to integrate India into EU markets. With over 40% of Switzerland’s global services exported to the European Union (EU), it is a compelling opportunity for Indian companies to make Switzerland their base to reach the EU market.

Enhanced Market Access for India & EFTA Members

The trade agreement is expected to enhance India's trade relations with Europe. Moreover, it is expected to improve market access for India and the EFTA bloc. As the vanguard of European countries to secure an FTA with India, the EFTA bloc now has market access to the nation that is estimated to become the fifth-largest consumer market across the globe by 2025. The agreement also benefits India, as exporters now have market access to Europe, especially those who manufacture and export within food processing, pharmaceuticals, and organic chemicals industries.

According to the agreement, the EFTA bloc is offering 92.2% of its tariff lines to Indian exporters. Rather significantly, the EFTA bloc offers 100% market access to India for non-agricultural products along with tariff concessions on Processed Agricultural Products (PAP).

Strategic Priorities of the Trade Deal

The trade deal, which focuses on foreign investments and bilateral trade, has prioritised tariff reductions and simplification of trade procedures between India and the EFTA bloc. This is specifically for high-value fish from Iceland and Norway, advanced chemicals, pharmaceuticals, machine equipment, and Swiss chocolate.

EFTA countries can now export processed foods and drinks, electrical machinery, and other engineering items to a market base of 1.4 Bn strong nations at low tariffs. Meanwhile, India is seeking foreign investments from EFTA countries in manufacturing companies (private and government-supported) along with mobility and market access to other European countries through the EFTA bloc.

The Future of Bilateral Trades for India-EFTA

The trade deal is expected to increase foreign investments from EFTA nations, with the Norwegian Sovereign Wealth Fund at their discretion and Switzerland’s existing trade interests in India. These investments and job creation opportunities are expected to ensure both revenue for India and stability for the country’s economy.

The agreement is also projected to boost bilateral trade in technology and knowledge in the manufacturing sector, including pharmaceuticals, food processing, automobiles, and more.

Conclusion

With a total population of 13 Mn, the EFTA countries are the tenth-largest traders of merchandise in the world and the eighth-largest providers of commercial services. Accounting for a combined GDP of $1 Tn when considering the population size would be staggering enough if it were not for their long-standing and illustrious history as trading partners in goods and services for the EU.

India’s free trade deal with EFTA puts the nation on the front foot towards its ascension to greater heights and success in international commerce.

Source: Invest India 

Increase in CPF Ordinary Wage ceiling

The CPF Ordinary Wage (OW) ceiling will be raised to $8,000 by 2026. The increase took four steps since 1 September 2023 to allow employers and employees to adjust.

Please refer to the table below for the CPF OW and annual salary ceilings from 2023 to 2026:

Increase in CPF Contribution Rates

From 1 January 2025, the CPF contribution rates for employees aged above 55 to 65 will be increased to strengthen their retirement adequacy. The changes apply to wages earned from 1 January 2025:

  Source: cpf.gov.sg

The 2nd round of negotiations on an EU-Thailand Free Trade Agreement took place in the week of 22 January 2024 in Bangkok. This round built upon the positive kick-off round held in September 2023. Constructive discussions took place on the full range of areas under the scope of the future agreement, with 20 negotiating groups meeting during the week. The respective negotiating teams were led by Mr Christophe Kiener (Directorate General for Trade of the European Commission) and Ms Chotima Iemsawasdikul (Ministry of Commerce of Thailand).

The negotiating groups started consolidating text, on the basis of the draft proposals tabled by the EU, in several chapters - including Trade in Goods, Trade remedies, Services and Investment, Technical Barriers to Trade, State Owned-Enterprises, and Small- and Medium-Sized Enterprises. In areas which are newer to Thailand, such as Government Procurement, Energy and Raw Materials, or Sustainable Food Systems, discussions focused on providing additional clarifications, in order to pave the way for advancing towards text-based work as of the next round.

All negotiating groups will carry out intersessional work to prepare the ground for further engagement in text-based negotiations during the 3rd round, which is planned to take place in the week of 17 June 2024 in Brussels.

Details per negotiating area

Trade in Goods

The negotiating group agreed to work on a consolidated common text and completed discussions on provisions concerning the scope of the chapter, national treatment on internal taxation, customs valuation, and preference utilisation. The two sides also converged towards a common understanding on the provisions of import and export restrictions, standstill, and import licensing procedures, and discussed other provisions under the scope of the chapter.

The negotiating group examined bilateral trade and tariff data exchanged prior to the round, and clarified issues concerning different tariff structures and current applied tariff rates.

Rules of origin

The negotiating group engaged in discussions on the basis of the text proposal tabled by the EU. The negotiating group identified potential areas of convergence which will be further explored during the upcoming rounds of negotiation.

Customs and trade facilitation

The negotiating group held discussions on the full scope of the text proposed by the EU, making substantial progress on several provisions, including by reaching agreement on the articles concerning issues such as risk management, post-clearance audits, authorised economic operators, customs brokers, customs valuation, review and appeal, and relations with the business community.

Trade remedies

The negotiating group had a very fruitful discussion and reached agreement on several provisions. Further discussions are needed on a few outstanding issues, such as the public interest test, the lesser duty rule in the anti-dumping/anti-subsidies section, or the period for consultations in the global safeguard section.

Specific measures concerning the management of preferential treatment and Mutual Administrative Assistance

The negotiating group discussed on the basis of the EU text proposals, aiming at clarifying the respective approaches on the objectives, scope, and structure for the provisions. Both sides started to identify areas of convergence and divergence, including with respect to their placement and legal format.

Technical Barriers to Trade

The negotiating group had very productive discussions, reaching agreement on a number of articles, including those concerning the objectives and the scope of the chapter, and provisions on standards. Both sides concurred on the importance of a chapter which aims at reducing the existing non-tariff barriers, such as excessive administrative and financial burden for manufacturers and exporters as regards certificates of conformity, test reports or diverging standards.

Sanitary and Phyto-sanitary (SPS) matters

Both sides confirmed their common intention of including a comprehensive SPS chapter in the agreement. The negotiating group engaged in text-based discussions, on the basis of the proposal tabled by the EU, focusing on provisions related to the objectives of the chapter, its scope, definitions, relations to the WTO SPS Agreement and trade facilitation. Both sides shared information on their respective relevant systems and exchanged views on the rationale for various provisions included in the text and how they could work in practice.

Services and investment

The negotiating group started consolidating text and reached a better understanding of each side’s positions. In the areas where there is more convergence (particularly on entry and temporary stay of natural persons for business purposes, domestic regulation, and international maritime transport services), the negotiating group was able to agree on substantial parts of the texts. Progress was also made in the consolidation of text in several other areas, such as such as general provisions, investment liberalisation, cross-border trade in services, financial services and capital movements. In areas of divergence, both sides agreed to continue consultations and discussions.

Government Procurement

The negotiating group held detailed discussions, in a constructive and positive spirit, although there was no text consolidation at this stage. Both sides further clarified their respective approaches and provided additional details on domestic rules and procedures for government procurement. Both sides will exchange further information intersessionally in order to prepare the ground for starting work on text consolidation at the next round.

Intellectual Property (IP)

The discussion on the IP chapter continued based on the EU’s text proposal. All sections were covered: general provisions, copyright and related rights, trade marks, designs, patents and undisclosed data as well as provisions on the enforcement of IP rights. Both sides identified areas of convergence in the EU proposed text as well as the main concerns and divergences based on applicable IP frameworks. Areas that require more in-depth technical discussion were also identified.

On geographical indications (GIs), both sides continued to exchange views on the basis of the text proposal tabled by the EU and discussed the EU’s proposal on working arrangements. A preliminary alignment of positions was identified on a certain number of areas. The work will continue before the next round with a particular focus on the modalities for the exchange of GI lists.

Competition and subsidies

The negotiating group was able to make substantial progress on the section on anticompetitive conduct and merger control, reaching overall agreement on most of the text. With regards to the section on subsidies, the negotiating group made progress in clarifying the respective objectives and identifying common elements with a view to engaging in text-based discussions in the next round.

State-owned enterprises (SOEs)

Good progress was made on the State Enterprises, Enterprises Granted Special Rights or Privileges and Designated Monopolies chapter, and the negotiating group was able to agree on substantial parts of the texts. Provisions on scope and definitions will be further discussed in the next round.

Energy and Raw Materials (ERM)

The negotiating group held constructive exchanges. Discussions focused on clarifying the main elements of the text proposal tabled by the EU, in particular regarding the scope of provisions on dual pricing, import/export monopolies, as well as environmental impact assessment and off-shore risk and safety.

Digital Trade

The negotiating group worked on text consolidation, on the basis of EU’s text proposal, reaching agreement or broad convergence on substantial parts of the texts, including with regard to provisions on personal data protection, open government data, electronic authentication and electronic trust services, conclusion of contracts by electronic means, cross-border data flows, online consumer trust, and electronic invoicing. On the issues where different perspectives exist, both sides agreed to continue discussing and, where possible, exploring potential options for consideration in preparation for the next round of negotiations.

Trade and Sustainable Development (TSD)

The negotiating group carried out a full second reading of the EU text proposal, and engaged in an in-depth discussion on that basis, aiming at deepening the understanding of each side’s objectives and priorities. Both sides agreed to aim at concluding the phase of clarifications ahead of the next round, to pave the way for starting text-based negotiations by then.

Small and Medium-sized Enterprises (SMEs)

The negotiating group engaged in text consolidation on the basis of the EU proposal, and reached agreement on a large part of the text. Further discussions will take place in the next round on the provisions on information sharing. Both sides also delivered presentations on their respective trade information platforms.

Sustainable Food Systems

The negotiating group held discussions on the basis of the EU text proposal, with both sides concurring on the importance of increasing awareness and strengthening cooperation towards achieving sustainable food systems. Both sides concurred on aiming at starting work on text consolidation at the next round, once internal consultations will be more advanced.

Transparency and Good Regulatory Practices (GRP)

The negotiating group continued discussion on both chapters, with the common objective to facilitate mutual trade through transparent and predictable legislative environment, both in Thailand and in the EU. In this respect, both sides agreed on the importance of measures such as fair access to information, transparent legislative processes, or the possibility for economic operators to appeal against decisions of public authorities.

Dispute Settlement

The negotiating group engaged in constructive discussions, on the basis of the text proposal tabled by the EU, identifying areas where there is convergence in principle and areas where further internal deliberations are needed. Discussions on the section on mediation, the rules of procedure and the code of conduct will continue intersessionally.

Final Provisions and Exceptions

Building on the exchanges held intersessionally, the negotiating group held in-depth discussions on the basis of the EU’s text proposals, and was able to agree in principle on several parts of the provisions on general and security exceptions.

Source: European Commission - Directorate General for Trade

Details of the economic conditions for April relative to the previous month are as follows:

The number of foreign tourist arrivals and tourism revenue, after seasonal adjustment, increased due to higher Muslim tourists, especially from Malaysia and the Middle, after the Ramadan fasting season came to an end. In addition, Chinese and Russian tourists picked up after a decline in the previous month.

Private investment indicators, after seasonal adjustment, increased from the previous month. Investment in machinery and equipment rose from higher domestic machinery sales as well as higher numbers of registered commercial vehicles, while imports of capital goods declined mainly from computer category. Investment in construction increased from both higher sales of construction materials and permitted areas for construction, especially areas for industries and factories, as well as dwellings.

The manufacturing production index, after seasonal adjustment, increased especially in 1) automotive, following a higher production of vehicles for export but the overall level remained low, 2) food and beverages from higher output in sugar, palm oil and alcohol beverages, which were in line with improvement in the tourism sector, and 3) electrical appliances, especially air conditioners due to higher demand as a result of hotter-than-usual weather. However, production of petroleum declined corresponding to a weak export of petroleum.

The value of merchandise exports, excluding gold, after seasonal adjustment, continued to improve in several categories, particularly in 1) electronics, due to exports of parts and telecommunication devices to the U.S. and Hong Kong, 2) exports of commercial vehicles to ASEAN and Australia as well as passenger vehicles to ASEAN, and 3) agricultural products, following higher exports of durian to China. Nevertheless, some export products decreased from the previous month, including petroleum as well as chemical and petro-chemical products.

The value of merchandise imports, excluding gold and after seasonal adjustment, decreased from the previous month, especially in 1) fuels due to lower imports of crude oil and natural gas, 2) intermediate goods, excluding fuel, from lower imports of electronic parts, which had accelerated in the preceding period, as well as from imports of  chemical and petro-chemical products, and 3) capital goods, excluding aircrafts, from lower imports of computers which had accelerated in the previous month. However, imports of consumer goods increased, due to higher imports of vehicles, following the Motor Show exhibition, as well as higher imports of electrical appliances.

Public spending, excluding transfer payments, contracted from the same period last year. Current and capital expenditure of the central government contracted sharply due to the delay of the Budget Act, B.E. 2567, while investment from state-owned enterprises displayed a good expansion thanks to a front-loaded disbursement of utility projects.

On the economic stability front, headline inflation turned positive from higher raw food prices in vegetable, following a lower output, which was affected by a hot weather condition, while pork prices edged up from a lower supply. Energy inflation also increased due to higher benzene and diesel prices, which picked up after the reduction measures of excise tax came to an end. Core inflation remained stable from the previous month. The labor market slightly improved mainly from higher employment in service sector. The current account was approximately balanced with trade surplus being offset by a deficit in the service, income and transfers. In terms of private sector financing, the outstanding of business funding increased from the previous month in all channels. Corporate bond funding rose mainly from businesses in the energy sector, while business credit increased from tourist-related businesses. Finance from equity slightly increased from businesses in consumer goods, financial services, real estate, and construction. As for exchange rates, the baht against the U.S. dollar, on average, depreciated due to external factors. These included changes in the market expectations regarding the delay in interest rate reductions by the U.S. Federal Reserve and concerns of conflict in the Middle East, which could be escalated.

Source: Bank of Thailand

The Port Authority of Thailand (PAT) provided an update on the progress of the Laem Chabang Port Phase 3 project.

Currently, PAT is expediting infrastructure work, land reclamation, and utility systems. The CNNC joint venture is expected to complete land reclamation by June. Afterward, the stability of the reclaimed land will be inspected before handing it over to the GPC joint venture for further construction of the F1 terminal, expected to be completed by 2025, with the entire project finishing by 2026.

For infrastructure, including buildings, berths, roads, and utilities, China Harbour Engineering Co., Ltd. won the bid but has yet to sign the contract due to an appeal. The PAT is preparing to open bids for two additional public investment sections worth over 3 billion baht, including railway construction and procurement, assembly, and installation of cargo handling equipment.

Laem Chabang Port Phase 3 is a public-private partnership under the Eastern Economic Corridor (EEC) development plan, with a total project value of approximately 114 billion baht. The PAT is responsible for 47% and the private sector for 53%. The project has a 35-year concession period and, once completed, will increase container capacity from 11 million TEUs per year to 18 million TEUs per year.

Additionally, the project aims to increase the proportion of rail transport from 7% to 30% and boost vehicle handling capacity from 2 million units per year to 3 million units per year. This will reduce transportation costs from 14% of GDP to 12% of GDP, saving approximately 250 billion baht, and positioning Laem Chabang Port as a gateway for trade and investment.

Source: thailand.prd.go.th

The Federal Tax Authority (FTA) has published the tax guide on free zone persons. The guide provides clarification on the following aspects:

• the conditions required to be met for a free zone person to be a qualifying free zone person and to benefit from the 0% Corporate tax rate; and
• the activities that are considered qualifying activities and excluded activities for a qualifying free zone person.

The guide covers the following areas:

• the free zone corporate tax rules;
• the requirements to be considered as a qualifying free zone person;
• the rules for calculating the corporate tax for a free zone person;
• the rules for maintaining adequate substance;
• the rules related to foreign permanent establishment or domestic permanent establishment;
• the rules related to immovable property;
• the rules related to intellectual property;
• the qualifying activities;
• the excluded activities; and
• the compliance rules.

The FTA published the guide to Free Zones for Persons on 17 May 2024.

Source: IBFD Tax Research Platform News

The Federal Tax Authority (FTA) has published a tax guide on investment funds and investment managers.

The guide provides clarification on the following aspects:

• the definitions of qualifying investment fund and investment manager;
• the conditions for a qualifying investment fund to be exempt from corporate tax;
• the conditions for a real estate investment trust (REIT) for being exempt from corporate tax;
• the tax implications for an investor investing in a qualifying investment fund;
• the conditions for a foreign person to benefit from the investment manager exemption as specified under article 15 of the Corporate Tax Law; and
• the tax compliance requirements for investment funds and investment managers.

The FTA published the Tax Guide for Investment Funds and Investment Managers on 6 May 2024.

Source: IBFD Tax Research Platform News

The UK tax authority, His Majesty's Revenue and Customs (HMRC), has announced a consultation on draft regulations relating to the reformed penalty system for the late payment of tax.

The new regime is covered in Schedule 26 to the Finance Act 2021 and the penalty is proportionate to the length of time the tax is outstanding. In brief, unless a "time-to-pay arrangement" has been made, a first penalty of 2% is charged on the tax unpaid 15 days after the due date and 2% on the amount unpaid 30 days after the due date. A second late payment penalty is charged on unpaid tax at 4% per year until payment is made.

The existing legislation allows HMRC to assess the second late payment penalty once, when the amount of outstanding tax is paid in full, within a 2-year assessment time limit, but this would mean the charge could be avoided by delaying payment until after that date. The proposed regulations would enable HMRC to assess and charge the second late payment penalty towards the end of the two-year time limit. Paragraph 17 of Schedule 26 then allows HMRC to charge a supplementary penalty at 4% a year if the original assessment is insufficient.

The new penalty regime applied to VAT payers from 1 January 2023 and from 6 April 2024 for income tax self-assessment taxpayers who have volunteered for the Making Tax Digital (MTD) service. The regime will apply to all other income tax self-assessment taxpayers as MTD is rolled out from 6 April 2026.

Source: IBFD Tax Research Platform News

This measure extends the window to claim the tax reliefs available in Freeport and Investment Zone special tax sites from 5 to 10 years. The new sunset dates for the reliefs are:

• 30 September 2031 for all special tax sites in respect of English Freeports
• 30 September 2034 for all special tax sites in respect of Scottish Green Freeports and Welsh Freeports
• 30 September 2034 for all special tax sites in respect of Investment Zones

The tax reliefs available in special tax sites are:

• enhanced structures and buildings allowances (eSBA)
• enhanced capital allowances (ECA) for plant and machinery
• secondary Class 1 National Insurance contributions relief for eligible employers on the earnings of eligible new employees up to £25,000 per annum for up to 3 years
• Stamp Duty Land Tax (SDLT) relief, in respect of special tax sites in England

These reliefs will benefit businesses investing and hiring new employees in, or connected with, freeport or investment zones. By extending the period over which the above tax reliefs are available, it is hoped that this will stimulate investment by providing greater certainty to investors.

Extending the duration of the tax reliefs available in Freeport and Investment Zone special tax sites will:

• deliver benefits to businesses to stimulate investment
• provide greater certainty to investors to maximise the programme’s impact

This measure will take effect from 21 May 2024.

Source: gov.uk

The Streamlined Sales Tax Governing Board has adopted a best practice for states to give remote sellers 30 days to register and start collecting and remitting sales tax after meeting the economic nexus threshold. However, the Board failed to pass its proposal for US states to use gross sales as basis in gauging whether remote sellers meet a state's monetary economic nexus threshold.

The proposal to adopt the best practice to use gross sales in determining whether a remote seller meets a US state's economic nexus threshold got 15 votes. However, it failed to meet the required three-fourths supermajority of the 22 full member US states (i.e. 17 votes). As a result, the Board would not update the Streamlined Sales and Use Tax Agreement to include the gross sales basis proposal.

While best practices are not binding on the compact's 24 member states, supporters of the proposal said adopting it could encourage US states to be uniform in measuring economic nexus thresholds.

Note: The SST is a membership organization, comprising 24 member states currently, with the goal of simplifying and modernizing sales and use tax administration in order to substantially reduce the burden of tax compliance.

Source: IBFD Tax Research Platform News

The US Treasury Department and the Internal Revenue Service (IRS) have finalized regulations for clean vehicle credits under the Inflation Reduction Act of 2022 providing taxpayers with long-awaited guidance. The final regulations will come into effect on 5 July 2024.

While closely aligned with previously proposed drafts, the final regulations provide key clarifications on the rules for taxpayers intending to transfer the new and previously owned clean vehicle credits to dealers who are eligible to receive advance payments, as well as provide rules regarding the process for dealers to become eligible entities to receive advance payments of the transferred credits. The final regulations also provide guidance regarding the IRS compliance process in case of a taxpayer's omission of a correct vehicle identification number. In addition to this guidance, taxpayers will now be able to avail themselves of the credit at point of sale rather than waiting for the refund on their federal income tax return.

The regulations also finalize the rules for qualified manufacturers of new clean vehicles to determine if the battery components and applicable critical minerals contained in a vehicle battery are foreign-entity-of-concern (FEOC) compliant with the newly created "traced qualifying value add test."

The test will require manufacturers to account for the value added at each step of the supply chain — extraction, processing and recycling — to assess the amount of minerals in the battery that meet the domestic content requirements for the critical minerals portion of the credit. The test is a departure from an earlier draft proposing the 50% Value Added Test which critics held to lack precision.

The new test will become mandatory in 2027 and manufacturers may continue to use the 50% Value Added Test until then with the caveat that they must submit a report demonstrating how they will comply with the FEOC restrictions once the transition rule is no longer in effect. Taxpayers will be able to rely on vehicle eligibility information provided by manufacturers so that taxpayers are not penalized for manufacturers mistakes.

In the interim period, and until 2027, small amounts of graphite and other minerals used in batteries would be exempt from FEOC restrictions. Officials state that the carve-out for graphite and similar minerals used in batteries was intentional as "their country of origin is nearly impossible to trace." Furthermore, according to the Treasury official, "without the exemption, some vehicles that met nearly all of the requirements could get knocked out of tax credit eligibility due to tiny amounts that couldn't be traced."

The final regulations provide for a program to review compliance with both critical mineral and battery component requirements and the FEOC restrictions starting this summer. The IRS, with assistance from Department of Energy (DOE), will conduct upfront review of documentation and certifications addressing materials sourcing requirements to ensure that qualified manufacturers are accurately representing their battery contents.

Source: IBFD Tax Research Platform News

The DC Circuit Court of Appeals has ruled unanimously that the IRS has the authority to directly assess penalties for failure to file international information returns. In so doing, the court reversed the decision of the Tax Court that had held the IRS lacked that power.

Issue on Appeal

The issue on appeal before the D.C. Circuit Court was whether the penalty for failure to file could be assessed by the IRS, or whether the Department of Justice had to sue and obtain a judgment from a federal district court before it could enforce a taxpayer penalty assessment. Ruling in favor of the IRS, and overturning the US Tax Court decision, the D.C. Circuit Court held that "based on the statute's text, structure, and function, that penalties imposed under § 6038(b), like the related penalties under § 6038(c), are assessable."

The holding centered on four primary conclusions:

• first, the Court reasoned that the amended code in 1982 intended for § 6038 (b) to be assessable based on a reading of the section's legislative history noting that it was amended with the goal of streamlining the penalty recovery process;
• second, requiring a federal court's entry of judgement prior to penalty collection would run contrary to the Congressional intent of streamlining the collection process outlined in the legislative history;
• third, the penalties under § 6038(b) and (c) are subject to a "reasonable cause" affirmative defense which requires the taxpayer to establish that she "exercised ordinary business care and prudence" in attempting to adhere to her reporting obligations. § 6038(c)(4)(B) empowers the IRS, not a court, to grant or deny a defense by requiring reasonable cause to be "shown to the satisfaction of the (IRS) Secretary."; and
• fourth, the court declined to adopt a reading of § 6038(b) which would create a potential bifurcation of the review of penalties arising from the same violation. Such a view would produce parallel and substantively overlapping judicial tracks for determination of twinned penalties for the same noncompliance: federal district court for the subsection (b) penalties, and Tax Court for the subsection (c) penalties. Based on the legislative history, such a reading of § 6038 (b) would be both ineffective and counterproductive to the Congressional intent.

Background of Appeal

The case on appeal centered around Alon Farhy, who, during tax years 2003 to 2010, had failed to file IRS Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations detailing his foreign corporation ownership interests as required under IRS § 6038(a).

In response to the failure to file, the IRS imposed USD 10,000 per year in initial penalties under § 6038(b) and USD 50,000 per year in continuation penalties with a total assessment of well over USD 500,000 in failure to file penalties.

Upon receipt of the IRS levy notice, Fahry submitted a request for a collection due process hearing arguing that the issued assessment was unlawful as the IRS did not have the legal authority as § 6038(b) did not have a provision authorizing assessment. Rejecting Fahry's argument, the IRS issued a notice of determination and continued its proposed collection action upon which Farhy filed a petition with the US Tax Court for review. Siding with Fahry, the US Tax Court agreed that § 6038(b), unlike many other penalty sections, did not include a provision authorizing assessment of the penalty and found that the § 6038(b) penalty is not an assessable penalty. The IRS appealed the decision to the D.C. Circuit Court.

IRS Assessment of Penalties

The IRS computer system has been programmed to systematically assess penalties under § 6038(b) when it receives delinquent income tax returns with Forms 5471 attached. In the last decade alone, the IRS has assessed nearly 10,000 § 6038 penalties per year, with an average abatement rate of 69% per year.

In light of this, taxpayer advocates argue that a Congressional fix as matter of resource management and efficiency is needed to make international information returns subject to deficiency procedures. Legislation subjecting these reporting penalties to deficiency procedures rather than assessments would additionally allow for situations where taxpayers have reasonable cause for non-filing. The current ruling leaves open the remote possibility for such forthcoming legislation.

Source: IBFD Tax Research Platform News