Amendments to tax provisions in the Finance Bill for 2019 mostly concern the hydrocarbon sector. The Finance Bill for 2020 introduced tax incentives for small and medium-sized enterprises (SMEs) in the digital sector. In addition, there are tax implications for onshore/offshore contract split tax issues.
Significant changes to the Finance Bill for 2019 concern the following items.
To support start-ups in the digital sector, tax incentives for small and medium-sized enterprises (SMEs) were introduced in the Finance Bill for 2020.
EPC (engineering, procurement, construction) contracts used for infrastructure development projects are often split between onshore and offshore activities:
However, entities (i.e., state, local bodies or national companies) often requested that the contractor’s entity having the greatest financial profile take responsibility for the overall project (so as not to have to deal with two different entities with different sets of responsibilities). There are two reasons for the split of EPC contracts: (1) the resources relating to the services are usually located abroad in the state of the offshore entity; and (2) the offshore entity wishes to repatriate the contract’s revenues tying to its functions through a direct payment from the client in foreign currency (euros or U.S. dollars).
In some cases (such as joint liability or when the activities carried out are not distinct enough under the contract(s)), the local tax administration has tried to assert that part (or all) of the offshore profits are within the taxable onshore entity’s profits. When faced with this situation and the related risk of double taxation, different parameters can be appropriately combined, depending on the tax rules of the project’s country and of the contractor’s country, such as:
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