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.
On January 13, 2020, Nigeria’s President signed into Law the 2019 Finance Bill, which introduces key changes to the country’s corporate tax regime.
The new law amends the provisions of the Companies Income Tax Act to curb base erosion and profit shifting (BEPS) and broaden the triggers for domestic taxation of income earned by non-resident companies in Nigeria through dependent agents and via online market platforms.
A general exemption from corporation tax is provided for small companies earning lower than NGN 25 million turnover in any tax year. However, such companies would have to deduct withholding tax on dividends distributed.
Corporate income tax for companies with revenues between NGN 25 million and NGN 100 million is reduced from 30 percent to 20 percent.
Large companies, i.e. companies with annual turnover greater than NGN 100 million, will continue to pay the standard corporate income tax rate of 30 percent.
Finally, the law introduces thin capitalization rules aimed at preventing profit shifting and potentially increasing tax revenues by restricting interest expense deduction to 30 percent of EBITDA, with any excess interest expense to be carried forward up to five years.
See Press Release and Finance Bill, 2019
On January 15, 2020, the Directorate General of Internal Taxes of the Dominican Republic issued Notice No. 8-2020, which sets out the transfer pricing reporting threshold for the year 2020.
The Notice sets the transfer pricing reporting threshold for 2020 at DOP 11,552,402. Accordingly, related party transactions not exceeding this threshold do not attract the country’s transfer pricing reporting requirements.
The threshold for 2019 was set at DOP 11,144,913.
See Notice No. 8-2020
On January 3, 2020, the Uruguayan tax authority (Dirección General Impositiva – DGI) issued Resolution No. 001/2020, which contains a consolidated list of 40 low or no tax countries and jurisdictions.
The list names the following countries and jurisdictions: Angola, Antigua and Barbuda, Ascension, Brunei, Christmas Islands, Cocos Island, Commonwealth of Dominica, Djibouti, Falkland Island, Fiji Islands, French Polynesia, Grenada, Guam, Guyana, Honduras, Jamaica, Jordan, Kiribati, Labuan, Liberia, Maldives Islands, Niue, Norfolk Island, Oman, Pacific Islands, Palau Island, Pitcairn Island, Puerto Rico, Kingdom of Tonga, Saint Helena Island, Saint Martin, Saint Pierre and Miquelon, Solomon Islands, Svalbard, Swaziland, Tokelau, Tristan da Cunha, Tuvalu, US Virgin Islands, and Yemen.
The Resolution came into force on January 1, 2020.
See Resolution No. 001/2020
On January 17, 2020, the Dutch Tax and Customs Administration published frequently asked questions (FAQs) setting out guidance on the application of the EU Directive on mandatory reporting of cross-border tax arrangements (DAC6).
The guidance notes that an intermediary should report a cross-border arrangement to the tax authority unless it has evidence to show that the transaction has been reported by another intermediary, or where the intermediary has a right of non-disclosure.
In case of relevant taxpayers, information must be reported in situations where there is no intermediary, or the intermediary has a right of non-disclosure, the guidance states.
The guidance reiterates the reporting triggers and deadlines as stipulated in the EU Directive.
The guidance notes that the tax authority would soon publish examples to clarify the meaning and application of the hallmarks as stipulated in the EU Directive.
See FAQs on DAC6
On January 9, 2020, the Romanian Finance Ministry published a draft Law to transpose the EU Directive concerning reporting of cross-border arrangements (DAC6) into Romanian domestic tax law.
The definitions of “cross-border arrangement,” “intermediary,” and “relevant taxpayer” stipulated in the draft Law are broadly in line with the Directive. Intermediaries are exempt from the reporting requirement in situations where professional secrecy privilege applies.
The reporting triggers for relevant taxpayers and intermediaries are broadly in line with the Directive.
The draft Law would enter into force on July 1, 2020. However, where the first step of a reportable arrangement is implemented on or after June 25, 2018, and prior to July 1, 2020, the required information would need to be submitted by August 31, 2020.
Non-compliance with the reporting obligation would attract a fine of up to RON 100,000.
See Draft Law
A new tax treaty between Albania and Saudi Arabia entered into force on December 1, 2019.
The tax treaty provides for a withholding tax rate of five percent for dividend payments.
The withholding tax rate is six percent for interest payments.
Royalty payments for the use of, or the right to use industrial, commercial or scientific equipment are subject to a withholding tax rate of five percent. The rate is eight percent in case of other kinds of royalty payments.
The tax treaty applies from January 1, 2020.
See Tax Treaty between Albania and Saudi Arabia (in Arabic)
On January 8, 2020, the governments of Japan and Morocco signed a tax treaty in Rabat, Morocco.
Under the treaty, dividend payments would be subject to a withholding tax rate of five percent if the beneficial owner holds at least ten percent of the voting power (in case of Japanese residents), or the capital of the company (in case of Moroccan residents). The rate is ten percent in all other cases.
Interest payments would be subject to a withholding tax rate of ten percent.
Royalty payments would be subject to a withholding tax rate of five percent of the gross amount of the royalties for the use of, or the right to use, industrial, commercial, or scientific equipment. The rate is ten percent in all other cases.
Gains from the alienation of shares representing at least fifty percent of the capital of a company may be taxed in the source country subjected to the maximum rate at the five percent. However, gains derived from changes of ownership that would directly result from a corporate reorganisation of that company or that alienator will be exempt from tax.
The treaty includes an article entitled Entitlement to Benefits, under which, a tax treaty benefit would be denied if it is reasonable to conclude that obtaining such a benefit was one of the principal purposes of any transaction.
The treaty would come into force after both countries complete their necessary domestic procedures.
See Tax Treaty between Japan and Morocco
On December 19, 2019, Liechtenstein ratified the OECD’s Multilateral Instrument to tackle base erosion and profit shifting (BEPS).
Liechtenstein intends to cover 14 of its tax treaties under the BEPS MLI.
For Liechtenstein, the BEPS MLI will enter into force on April 1, 2020.
Till date, a total of 38 countries have ratified the BEPS MLI.
On December 23, 2019, Colombia’s tax authority, the National Directorate of Taxes and Customs, issued Decree No. 2345, which sets out key transfer pricing documentation deadlines.
The Decree provides that the deadline for filing informative transfer pricing returns and local files is July 7-July 21, 2020.
The deadline for filing country-by-country reports and master files is December 10-23, 2020.
See Decree No. 2345