Latest news from international tax and transfer pricing

Draft ruling on corporate tax residency

On 15 March 2017, the Australian Taxation Office (ATO) released Draft Tax Ruling TR 2017/D2 setting out the Commissioner's 'preliminary but considered view' on how to apply the central management and control test for determining the tax residency of a company that is not incorporated in Australia, following the recent High Court decision in Bywater Investments Ltd & ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation. 

The Draft Ruling is proposed to apply from 15 March 2017 and replaces TR 2004/15 which was withdrawn on the same day.

A key issue to note is that the draft ruling indicates that, having regard to the High Court decision, if a company has its central management and control in Australia and it carries on business, it will satisfy the central management and control test of residency. That is, the central management and control of a business is considered to be factually part of carrying on that business. 

Refer to this TaxTalk Alert, which reviews this draft ruling and other issues concerning corporate residency. 

High Court refuses special leave application to appeal in Tech Mahindra

The High Court has refused the taxpayer's application for special leave to appeal against the decision of the Full Federal Court in Tech Mahindra Limited v Commissioner of Taxation [2016] FCAFC 130. In this case, the Full Federal Court held that Australia has the right to tax 'royalties' under the Indian Treaty in relation to payments received from services performed in India. Refer to TaxTalk Monthly: November 2016 for a background of the case.

Singapore-Australia Free Trade Agreement

On 20 March 2017, the Minister for Trade, Tourism and Investment tabled the agreement to amend the Singapore-Australia Free Trade Agreement and the accompanying National Interest Analysis in the House of Representatives. The review of the free trade agreement is a key plank of the SingaporeAustralia Comprehensive Strategic Partnership, which was announced in 2015.

Double tax agreement with Israel

Prime Minister Malcolm Turnbull and the Prime Minister of Israel, Benjamin Netanyahu, indicated in a joint statement that Australia and Israel will work towards concluding a Double Taxation Agreement which would remove tax impediments to bilateral economic activity and enhance the integrity of the respective tax systems.

New Zealand's next steps in the BEPS journey

The New Zealand (NZ) Government is consulting on a range of new measures to tackle Base Erosion and Profit Shifting (BEPS). It has released three consultation papers proposing new measures in relation to permanent establishments, interest limitation rules and transfer pricing to strengthen NZ's rules for taxing large multinationals. In addition, stricter administrative measures have been proposed to give the NZ Inland Revenue extensive new powers when collecting information from multinational taxpayers who they consider to be non-cooperative. Refer to NZ TaxTips Alert for further information on the proposed measures.

OECD developments

The Organisation of Economic Co-operation and Development (OECD) has released the Economic Survey of Australia for 2017, which examines recent economic developments, policies and prospects. The survey also includes special chapters which cover innovation-driven productivity and boosting Research and Development outcomes.

The OECD and the International Monetary Fund (IMF) have jointly released a report which explores the nature of tax uncertainty, its main sources and effects on business decisions, and outlines a set of concrete and practical approaches to help policymakers and tax administrations shape a more certain tax environment. Over 80 per cent of survey respondents identified tax certainty as a very high or extremely high priority of their tax administration. Recommendations made in the report include: clarity, consultation/cooperative compliance and timely tax policy design and legislation; improvements to tax administration for avoiding and resolving disputes; and cooperation and coordination on the development of coherent international standards and guidance.

OECD and BEPS

2017 is the year of implementation of the measures delivered under the G20/OECD BEPS Project. In this regard, the OECD Secretary-General has released a report to G20 Finance Ministers which consists of:

  • an update report by the OECD Secretary-General regarding the latest developments in the international tax agenda, including the G20/OECD Inclusive Framework on BEPS implementation; tax transparency (in particular, on automatic exchange of information) and tax and development, and
  • a Progress Report to the G20 by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

In the Communiqué from the G20 Finance Ministers and Central Bank Governors Meeting in Germany, it was confirmed that work will continue on achieving a globally fair and modern international tax system. Some of the key commitments include:

  • The OECD will report back on the progress of BEPS implementation by the G20 Leaders Summit in July 2017.
  • The first signing round of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS will occur on 7 June 2017.
  • The first automatic exchange of financial account information under the OECD Common Reporting Standard (CRS) will commence in September 2017.
  • All jurisdictions were called on to sign and ratify the multilateral Convention on Mutual Administrative Assistance in Tax Matters and were urged to commit to implementing the CRS, and to take all necessary actions in order to start exchanges under the CRS by September 2018 at the latest.

In other developments:

  • Belgium, Canada, Guernsey, the Netherlands, Italy and Mexico have signed a competent authority agreement with Hong Kong.
  • Panama deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters. Panama is expect to start exchanging CRS information in 2018. The Convention will enter into force for Panama on 1 July 2017.
  • Malaysia has joined the inclusive framework on BEPS.

UK Spring Budget 2017

The United Kingdom (UK) Chancellor of the Exchequer announced his first budget on 8 March 2017. Although no significant new announcements regarding UK corporation tax were reflected in the budget, it reaffirmed the new government's commitment to previously announced measures, including:

  • cutting the UK corporate tax rate to 17 per cent,
  • changing the interest deductibility (refer to Tax Insights from International Tax Services for further information) and loss relief rules, and
  • simplifying the UK participation exemption (the substantial shareholdings exemption).

The budget also includes announcements of several reviews and consultations, giving rise to the potential for legislative changes in the forthcoming 2017 Autumn Budget.

For a detailed analysis of the key budget measures, refer to Tax Insights from International Tax Services and the PwC UK budget website.

South African Budget

The South African 2017 Budget was handed down by the South African Minister of Finance on 22 February 2017. Highlights include:

  • Personal Income Tax: a new 45 per cent tax bracket for individuals, which will apply to taxable income in excess of R1.5 million
  • Corporate Tax: increase in the dividend tax rate from 15 per cent to 20 per cent and a commitment to focus on BEPS, including automatic exchange of financial information from 1 September 2017.

Refer to PwC South Africa’s 2017 Budget highlights.

US President Trump calls for action on tax reform and other priorities

In his first address to a joint session of Congress, President Donald Trump called for action on tax reform to "restart the engine of the American economy – making it easier for companies to do business in the United States (US) and much harder for companies to leave." While offering few details, President Trump said his economic team is "developing historic tax reform that will reduce the tax rate on our companies so that they can compete and thrive anywhere and with anyone." President Trump also said his plan "will provide massive tax relief for the middle class." Refer to Tax Insights from Washington National Tax Services for further information.

US: IRS guidance on safe harbour for information reporting penalties

The US Internal Revenue Service (IRS) has issued a Notice to provide guidance on a de minimis error safe harbour from information reporting penalties for failure to file correct information returns or correct payee statements. The Notice applies to information returns required to be filed and payee statements required to be furnished after 31 December 2016. Refer to Tax Insights from Financial Markets for further information. TaxTalk Monthly April 2017 PwC 5

US: Denial or revocation of US passports if certain taxes are unpaid

The IRS will begin enforcing a new law in early 2017 that could result in the US State Department revoking, limiting, or refusing to renew a US passport for travelers with 'seriously delinquent tax debt.' This new enforcement action appears to encourage individual taxpayers to be in compliance with their tax debts before availing themselves of the privilege of travelling with a US passport. Refer to Tax Insights from Global Mobility for further information.