On February 19, 2020, the US Government issued corrections to Treasury Decision 9885, on the base erosion and anti-abuse tax (BEAT).
Treasury Decision 9885 – issued under section 59A of the Internal Revenue Code – is designed to prevent the reduction of tax liability by certain large corporate taxpayers through certain payments made to foreign related parties and certain tax credits.
According to the Government, Treasury Decision 9885 contained “errors that may prove misleading and therefore need to be corrected.”
The correction is effective from February 19, 2020, and is applicable from December 6, 2019.
On February 18, 2020, Singapore’s Deputy Prime Minister and Minister for Finance, Heng Swee Keat, delivered the country’s 2020 Budget, which includes key corporate tax measures.
The Budget seeks to increase the corporate income tax rebate for the 2020 assessment year (AY) from 20 percent to 25 percent of tax payable, capped at SGD 15,000 per company (currently SGD 10,000).
Further, under the enhanced carry-back relief scheme for AY 2020, qualifying deductions for AY 2020 may be carried back up to three (currently one) immediate preceding AYs, capped at SGD 100,000 of qualifying deductions and subject to conditions.
Taxpayers may elect to carry back to the relevant preceding AYs an estimated amount of qualifying deductions available for AY 2020, before the actual filing of their income tax returns for AY 2020.
Further details on the enhanced carry-back relief will be available by end of February 2020.
See Overview of 2020 Budget
On February 12, 2020, a bill to expand the definition of a significant global entity (SGE) was submitted before the Australian House of Representatives.
The Treasury Laws Amendment (2020 Measures No.1) Bill, 2020 extends the definition of a SGE to include members of large business groups headed by proprietary companies, trusts, partnerships, investment entities, and individuals.
Schedule 1 to the Bill broadens the definition of SGE in the tax law so that it:
The amendments made by Schedule 1, if approved, would apply in relation to income years or periods commencing on or after July 1, 2019.
The move was first announced in the country's 2018-19 Budget to ensure that the multinational tax avoidance rules apply to all relevant entities. SGE is a concept to define a group of entities, interrelated by a control relationship that could enable non-arm’s length dealings and therefore be of special interest to tax authorities.
See Treasury Laws Amendment (2020 Measures No.1) Bill 2020
The Indian Cabinet has approved the signing and ratification of a protocol amending the country’s tax treaty with Sri Lanka.
The protocol seeks to update the text of the treaty’s Preamble and to incorporate a principal purpose test to tackle tax avoidance and treaty shopping.
As members of the OECD’s Inclusive Framework on BEPS, both countries are committed to implementing the BEPS minimum standards on tackling treaty abuse.
A press release issued by the Indian Government states: “India is a signatory to the [BEPS] MLI. However, Sri Lanka is not a signatory to the MLI as of now. Therefore, amendment of the India-Sri Lanka tax treaty bilaterally is required to update the Preamble and also to insert principal purpose test to meet the minimum standards on treaty abuse under BEPS Action 6.”
The tax treaty was signed on January 22, 2013, and entered into force on October 22, 2013.
On February 11, 2020, the OECD released a report entitled Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10.
In October 2015, as part of the final BEPS package, the OECD published the reports on Action 4 (Limiting Base Erosion Involving Interest Deductions And Other Financial Payments) and Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation).
Those reports mandated follow-up work on the transfer pricing aspects of financial transactions.
This is the first time that the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions, the OECD noted.
According to the OECD, the guidance will contribute to consistency in the interpretation of the arm’s length principle and help avoid transfer pricing disputes and double taxation.
The guidance also includes a number of examples to illustrate the principles discussed in the report.
On February 6, 2020, the Costa Rican Government gazetted Resolution No. DGT-R-2-2020, which sets out a list of 14 jurisdictions that the country’s tax administration considers non-cooperative for the purposes of Costa Rican tax law.
The list features the following jurisdictions: Bosnia and Herzegovina, Cuba, Iraq, Kyrgyzstan, Maldives, Montenegro, Norfolk Island, North Korea, North Macedonia, Oman, Palestine, Timor-Leste, Uzbekistan, and Wallis and Futuna.
The tax authority will not allow any expense incurred in these jurisdictions as a deduction for the purposes of Costa Rican tax law.
See Resolution No. DGT-R-2-2020
Irish Revenue has published Revenue e-Brief No. 029/20 pertaining to the “main benefit test” used in the domestic law implementing the EU Directive on reportable cross-border tax arrangements (commonly referred to as DAC6).
Revenue e-Brief No. 029/20 notes that Revenue Tax and Duty Manual Part 33-01-01 has been updated to include a reference to the EU mandatory disclosure regime, which comes into operation on July 1, 2020, and includes a “main benefit test.”
According to the updated Manual, disclosure of a transaction under the mandatory disclosure regime is, in some cases, linked to what an “informed observer” would conclude.
“For example, a loss scheme is disclosable if an informed observer could reasonably conclude that the creation of an income tax loss is a main outcome of the transaction. This test is objective in that what the taxpayer actually intended is irrelevant. What an informed observer would reasonably conclude, from the facts, is the test in law,” the Manual notes.
Revenue e-Brief No. 029/20 states that a Revenue Tax and Duty Manual setting out guidance on the practical operation of the mandatory disclosure regime will be issued in due course.
See Revenue e-Brief No. 029/20
On January 31, 2020, the Uruguayan tax authority issued Resolution No. 234/2020, which extends the deadline for filing country-by-country (CbC) reports.
According to the Resolution, the deadline for filing CbC reports for financial year ending between January 1, 2019, and February 28, 2019, is extended until March 15, 2020.
See Resolution No. 234/2020
On February 6, 2020, Uruguay ratified the OECD’s Multilateral Instrument to tackle base erosion and profit shifting (BEPS).
Uruguay intends to cover 20 of its tax treaties under the BEPS MLI. For Uruguay, the BEPS MLI will enter into force on June 1, 2020.
Till date, a total of 42 countries have ratified the BEPS MLI.
On February 6, 2020, the OECD published for public comments a consultation on the review of the base erosion and profit shifting (BEPS) Action 13 minimum standard.
BEPS Action 13 provides for a three-tiered standardized approach to transfer pricing documentation, including a country-by-country Report (CbC report). CbC reporting is one of the four BEPS minimum standards, which all members of the BEPS Inclusive Framework have committed to implementing.
The public consultation document comprises three chapters. Chapter 1 contains general topics concerning the implementation and operation of BEPS Action 13. Chapter 2 contains topics concerning the scope of CbC reporting, and Chapter 3 contains topics concerning the content of a CbC report.
Specific questions upon which comments are sought are set out in each chapter. The consultation is open until March 6, 2020.
See Public Consultation Document
In what is considered to be a bold move, Indian Finance Minister, Nirmala Sitharaman, has announced that the Government would abolish the controversial dividend distribution tax (DDT).
The announcement was made in the Budget Speech that Sitharaman delivered on February 1.
“In order to increase the attractiveness of the Indian equity market and to provide relief to a large class of investors, I propose to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT,” the Minister said in her Budget Speech.
Currently, companies are required to pay DDT on the dividend paid to its shareholders at the rate of 15 percent, plus applicable surcharge and cess, in addition to the tax payable by the company on its profits.
Under the proposal, the dividend shall be taxed only in the hands of the recipients at their applicable rate. It is also proposed to allow deduction for the dividend received by holding company from its subsidiary to remove the cascading effect.
See Finance Bill, 2020
On January 31, 2020, the Inclusive Framework on BEPS issued a statement reaffirming its commitment to reaching a consensus-based long-term solution to the tax challenges arising from the digitalisation of the economy by the end of 2020.
The Inclusive Framework on BEPS, which groups 137 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, decided during its January 29-30 meeting to move ahead with a two-pillar negotiation to address the tax challenges of digitalisation.
Participants agreed to pursue the negotiation of new rules on where tax should be paid ("nexus" rules) and on what portion of profits they should be taxed ("profit allocation" rules), on the basis of a "Unified Approach" on Pillar One, to ensure that MNEs conducting sustained and significant business in places where they may not have a physical presence can be taxed in such jurisdictions.
The Statement by the Inclusive Framework on BEPS takes note of a proposal to implement Pillar One on a "safe harbour" basis, as proposed in a December 3, 2019, letter from US Treasury Secretary Stephen Mnuchin to OECD Secretary-General Angel Gurría. It recognises that many Inclusive Framework members have expressed concerns about the proposed "safe harbour" approach.
The Statement also highlights other critical policy issues that must be agreed under Pillar One before a decision can be taken. The "safe harbour" issue is included in the list of remaining work, but a final decision on this issue will be deferred until the architecture of Pillar One has been agreed upon, the OECD noted.
The Inclusive Framework also welcomed the significant progress made on the technical design of Pillar Two, which aims to address remaining BEPS issues and ensure that international businesses pay a minimum level of tax. They noted the further work that needs to be done on Pillar Two.
On January 17, 2020, the US’ Internal Revenue Service (IRS) announced that the agency may in some limited circumstances provide relief from double taxation resulting from application of the repatriation tax under section 965, as amended by the Tax Cuts and Jobs Act (TCJA).
The IRS said that, in unique circumstances, such as where a corporation paid an unusual dividend for business reasons, not because of the enactment of TCJA, it may be appropriate to provide relief from double taxation.
“When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result,” it noted.
The IRS announced that it is open to considering relief from such double taxation where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid.
Registration is open for the OECD’s upcoming international tax webcast.
The live webcast will be held on January 31, 2020, between 14:00-15:00 (CET).
The webcast will feature experts from the OECD’s Centre for Tax Policy and Administration who would provide an update on the work relating to the tax challenges arising from the digitalisation of the economy.
See Registration Details
On January 23, 2020, Cyprus and Saudi Arabia ratified the OECD’s Multilateral Instrument to tackle base erosion and profit shifting (BEPS).
Cyprus and Saudi Arabia intend to cover 59 and 55 of their tax treaties, respectively, under the BEPS MLI.
For both countries, the BEPS MLI will enter into force on May 1, 2020.
Till date, a total of 41 countries have ratified the BEPS MLI.