Welcome to the November edition of our Tax Newsletter, bringing you recent news and developments. Countries continue to reform their tax systems with the goal of becoming more globally competitive. While striving to meet international standards, it is more important than ever to keep up with trends and developments. In our November issue, we cover GCC tax updates and international tax developments.
The UAE Ministry of Finance (MoF) published answers to frequently asked questions (FAQs) pertaining to Country-by-Country Reporting (CbCR) on 16 October 2019.
The purpose of CbCR is to eliminate information gaps between taxpayers and tax administrations, with regard to where economic value is generated within a multinational enterprise (MNE) group. CbCR requirements are applicable to financial reporting years starting on or after 1 January 2019. Therefore, for the financial reporting year commencing 1 January 2019, the CbC report must be submitted by 31 December 2020.
2) Cautionary email from the FTA to apply for a special method of recovering input tax
Taxpayers engaged in providing exempt supplies (for example: banks, financial institutions, insurance companies, real estate companies, passenger transport providers) have the option either to follow the standard input method, or apply to the FTA for permission to use a special method (prescribed in the input tax apportionment guide). This method apportions input on common expenses that relate to both taxable and exempt supplies. If the special method is not applied for, the taxpayer can continue using the standard method. However, at the end of financial year, he or she will be required to compare the recovery as per the standard method with the special method, and adjust the excess/deficit if the difference is more than AED 250,000. The FTA issued a cautionary email to taxpayers who have not yet applied for special method approval, stating that if they foresee the amount of adjustment due to annual wash up to be substantial, they should apply for special method permission by 31 December 2019. If a taxpayer chooses not to apply for special method by this date, the FTA will prioritize such taxpayers for a tax audit in 2020.
Healthcare services necessary for the treatment of the “recipient of supply” are zero rated as per UAE VAT Law. The FTA has issued a public clarification on business-to-business healthcare services stating that if the recipient of supply is different from the patient who receives the treatment then such healthcare services should be subject to VAT at 5%.
4) The Appellate Authority waived penalties levied by the FTA on the filing of voluntary disclosures by the taxpayer
The Tax Dispute Resolution Panel (TDRC) delivered a judgment waiving penalties levied by the FTA on a taxpayer who filed voluntary disclosures to disclose errors and pay additional tax. The primary grounds of appeal were that the taxpayer had made a bona fide mistake for which the voluntary disclosure was filed within the statutory timeframe of 20 business days from the date of discovery of error. A formal clarification is expected from the FTA on the above judgment.
5) UAE: New date set for the application of excise tax on certain tobacco products and sweetened drinks
The FTA announced 1 December 2019 as the effective date for implementing excise taxes. All affected producers, importers and business owners of newly-introduced excise goods are required to comply with registration for the excise tax systems without delay to avoid penalties.
6) Establishment of a tax institution in Oman
Two Royal Decrees (RD) establishing a new structure for the tax authority of Oman were passed, effective 14 October 2019. RD 70/2019 appointed H.E. Sultan bin Salim bin Said Al Habsi (Deputy Chairman of the Board of Governors of the Central Bank of Oman) Head of the Tax Authority. RD 66/2019, relating to the Tax Authority, clarifies that:
All communications with tax authorities should now be addressed to the Tax Authority. This reform provides autonomy to the Tax Authority and may enable timely tax policy changes, such as formalizing local legislation for the Common Reporting Standard (CRS), signing up for automatic exchange of information with other countries and implementing minimum Base Erosion and Profit Shifting (BEPS) standards. The tax policies and stringent requirements should assist Oman in being excluded from the current EU blacklist. The Tax Authority is also likely to focus on the implementation of value added tax in the second half of 2020.
1) OECD releases guidance on the spontaneous exchange by no or only nominal tax jurisdictions
As part of BEPS Action 5 to curb harmful tax practices, jurisdictions may only maintain preferential regimes if certain "substantial activities" requirements are met. These requirements also apply to jurisdictions with zero or only nominal tax rates. The OECD guidance now contains rules on the timelines for the exchange of necessary relevant information about reportable entities; details about the international legal framework; and clarifications on the key definitions to ensure that jurisdictions receive coherent and reliable information on the activities of entities in no or only nominal tax jurisdictions and their owners.
2) The Netherlands begins consultation on tax blacklist
The Dutch government announced the consultation of the 2020 edition of the list of low-tax jurisdictions on 7 October 2019. This is for the purpose of enforcing anti-avoidance legislation intended to tackle BEPS. The following sixteen countries are included on the Dutch list: Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey, Cayman Islands, Kuwait, Qatar, Turkmenistan, Turks and Caicos Islands, Vanuatu and the UAE.
Belize and Saudi Arabia, which appeared on the 2019 blacklist, have been removed from the proposed 2020 version, while Turkmenistan has been added to the updated list. Withholding tax equal to the Dutch corporate tax rate will be imposed on interest and royalty payments to these jurisdictions from 2021. Under recently proposed changes to Dutch corporate tax legislation, the rate of corporate tax in 2021 is expected to be 21.7%.
On 15 October 2019, Italy approved a decree that amends a previous version of the Italian digital services tax as introduced by the Budget Law 2019. The digital services tax applies to revenue resulting from the following services:
Taxable revenue will include total gross revenues (net of VAT and other indirect taxes). The digital services tax at 3% will be effective from 1 January 2020.
The guidance concerning economic substance information was published by the Guernsey Revenue Service in early October 2019. The questions included in the guidance will need to be answered in corporate tax returns for accounting periods beginning on or after 1 January 2019.
5) New China double tax agreement administrative guidance
On 22 October 2019 the State Taxation Administration released new DTA administrative guidance in Announcement 35. This will take effect from January 2020 and replaces the existing guidance in Announcement 60.
The new guidance is in line with a broader government program to reduce regulatory burdens and red tape for businesses, and moves China further in the direction of a full self-assessment-based tax system. The potential tax exposures for withholding tax (WHT) agents are also reduced and may allow for more DTA relief to be granted upfront. However, ambiguities remain.
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