Global Tax News Agosto 2018
Ago. 14, 2018
Big increase in referrals between member firms
Russell Bedford's annual Referral Analysis reveals that revenue from work referred between firms has increased by 35% on last time. Meanwhile, feedback from member firms' clients is testament to the successes achieved by teams working together within the network across multiple jurisdictions. The network has recruited more than 20 new member firms in the past 12 months and has registered 38% growth in Africa and 24% growth in the Middle East.
First member firm in Bahrain
Assure Consulting is Russell Bedford's first member firm in Bahrain. Russell Bedford CEO Stephen Hamlet said: “I am thrilled to announce the further development of Russell Bedford’s position in the Middle East and of course, to welcome Assure Consulting, our first ever member in Bahrain, to our expanding network. I wish Assure Consulting’s team every success in their new role as a member of Russell Bedford and look forward to working with them in the coming months and years.”
U.S. tax cuts to hit other countries’ bottom lines
The cuts to corporate tax rates introduced last year in the Tax Cuts and Jobs Act are set to reduce what other countries collect from multinational corporations by 1.6% to 13.5%, according to a recent paper from the International Monetary Fund. Mexico, Japan and the U.K. rank near the top of the paper’s list of countries likely to lose revenue, while Estonia, Poland and Pakistan should be less directly affected. Not only are companies more likely to put profits and real investment in the U.S. than before the rate was lowered from 35% to 21%, other countries are likely to lower their own rates to compete, according to Alexander Klemm, deputy division chief of the IMF’s tax policy division.
IRS blocks refunds for offshore profit tax overpayments
The IRS has published a legal memorandum stating that it will not rebate any such overpayments on this year’s repatriation taxes on foreign profits, or credit them toward tax bills not tied to repatriation, such as annual bills for corporate income. Multinationals that likely overpaid include those in the pharmaceutical and technology sectors, such as Pfizer and Apple, because they have the largest stockpiles of foreign profits, with Andrew Silverman of Bloomberg Intelligence adding that banks are also likely to be affected. The memorandum may face challenges, however; “There are lot of corporations in this boat and they have expressed concerns with the service’s legal basis for this answer,” according to independent tax and accounting expert Robert Willens.
Bloomberg Compliance Week
Treasury proposes rules on repatriating overseas corporate income
The U.S. Treasury has set out details of tax reforms to tackle $3tn worth of corporate earnings hoarded overseas, as it introduces a regime it hopes will boost investment in the country. The regulations on Section 965 set a one-time rate of 15.5% on cash and 8% on non-cash or illiquid assets, with payments spread out over eight years. Once that tax has been paid, those earnings can be brought back to the U..S without further tax liability, which the Treasury hopes will end the so-called “lockout effect” of earnings being stuck overseas. Previously, companies had to pay the old 35% corporate rate, but only if they brought the money back to the U.S. A 249-page proposed rulebook specifies which foreign holdings qualify for each rate and how much relief companies can expect from foreign tax credits. A final rule is expected by mid-2019.
White House mulls further $100bn tax cut
The Trump administration is reportedly considering creating a $100bn tax cut for the nation’s wealthiest, cutting capital gains tax by sidestepping Congress and using the Treasury Department’s own regulatory powers. The cut could be achieved by altering the definition of “cost” for calculating capital gains, allowing taxpayers to adjust the initial value of an asset, such as a home or a share of stock, for inflation when it sells. At present, capital gains taxes are determined by subtracting the original price of an asset from the price at which it was sold and taxing the difference, usually at 20%.
IRS wins Intel appeal
The IRS has emerged victorious in a court case against Intel subsidiary Altera, with the Ninth Circuit Court of Appeals upholding a regulation governing how corporations divide expenses between their domestic and foreign operations. The U.S. Tax Court had initially ruled in favour of Intel; however, the IRS appealed the decision, and has seen it reversed, with Chief Judge Sidney Thomas writing that the regulations “withstand scrutiny under general law principles.” The case involved what’s known as share-based compensation and where it should be deducted as a business expense. The IRS wrote a regulation that required companies to deduct more of it abroad as opposed to deducting it in the U.S. Eric Ryan of law firm DLA Piper said: “I just find the opinion surprising and a little dangerous. I think now the Treasury and the IRS can use this decision and say the rules for transfer pricing are whatever we say they are. It’s just completely ungrounded now from any sort of standard.”
Commerce announces tax on Canadian newsprint
The Commerce Department is going ahead with a tax on Canadian newsprint, hitting the paper used by newspapers and other publications with an anti-dumping border tax as high as 16.88%. The tariffs are a response to a complaint from a hedge fund-owned paper producer in Washington state, which argues that its Canadian competitors are taking advantage of government subsidies to sell their product at unfairly low prices.
Exxon loses fight for federal fuel tax refund
Exxon Mobil has lost its legal battle with the U.S. government over a request for a $337m refund for fuel excise taxes. A Dallas federal judge sided with the government over how to apply so-called mixture credits against the fuel excise tax. The company is now "reviewing the ruling and evaluating our next steps," according to a spokesman.
Hammond considers ‘Amazon tax’ for online retailers
UK Chancellor Philip Hammond is considering introducing a so-called “Amazon tax” that would impose charges on online retailers in an attempt to save Britain’s struggling high street. He revealed the plans on the day that House of Fraser became the latest British retailer to collapse into administration. The chancellor said: “We want to ensure . . . that taxation is fair between businesses doing business the traditional way, and those doing business online. We may have to look at temporary tax measures to rebalance the playing field until we can get international agreements sorted out.” Mr Hammond added that the EU had discussed plans to tax online platform businesses based on the value they generate. “That’s certainly something we’d be prepared to consider,” he said. Amazon paid just £4.5m in corporation tax in 2017, despite soaring UK sales of close to £2bn.
Finance sector pays biggest share of income tax
Bankers and insurance brokers in the UK are shouldering a bigger income tax burden than ever, according to HMRC’s annual statistics on the distribution by industry of tax. The finance and insurance industry made up 17.1% of the total amount HMRC collected in the 2016-17 tax year, a record high and a 0.5 percentage point increase on the amount of tax taken in 2015-16. The tax liability of the burgeoning "Stem" field (science, technology, engineering, and mathematics) is the second highest, making up 12.2% of the Revenue's income tax pot. The agriculture, forestry and fishing industry accounted for the least amount of income tax paid, at just 0.3%.
US banks call for tax cuts in UK
Wall Street banks have called on the British government to cut taxes and regulation or risk financial services jobs leaving the UK after Brexit. An unnamed Wall Street executive said: “If this government stays in place it realises it has to swing back to the middle ground after Brexit, otherwise it risks losing some of this. The question is [do we move business to] New York; that is the real risk.” City leaders admitted that tax cuts and deregulation in the US have increased pressure on the UK to be more competitive.
HMRC reaps extra £300m from the super-rich
HMRC’s High Net Worth Unit collected almost £300m more this year than last, according to analysis of data by UHY Hacker Young. It found that the unit’s tax take increased 29% to £1.2bn for the 2017-18 tax year, compared with £919m in 2016-17. HMRC set up the unit in 2009, but has been pushing hard to collect more tax from those worth more than £10m since the Commons’ public accounts committee last year said that it needed to crack down on tax evaders. Andrew Snowdon, head of tax at UHY Hacker Young, said: “HMRC sees these individuals as a segment of the market that it can target aggressively because, with little public sympathy for tax avoidance among the wealthy, it knows its tough approach is unlikely to be reined in.” Meanwhile, there was a 23% fall in people claiming non-domiciled status (almost 27,000 fewer people) between 2016 and 2017, according to HMRC.
Tax raid on contractors who used offshore tax avoidance schemes
Tens of thousands of contractors who used offshore tax avoidance schemes are facing a crackdown by HMRC, the Telegraph reports. The schemes allow people to avoid tax by taking loans from trusts based overseas, but they now face a charge on any loans that remain outstanding in April next year. HMRC estimates that 50,000 people are engaged in schemes which were effectively outlawed in 2010 following the collapse of Scottish football giant Rangers. A cross-party group of over 70 MPs are calling for an exemption for those who used schemes before the rules were changed last year with the Finance Bill.
Winkerkorn probed for tax evasion
Former Volkswagen CEO Martin Winterkorn, already facing criminal investigation on both sides of the Atlantic for his role in Dieselgate, is now being investigated by German prosecutors see if he evaded taxes too, according to a recent report. State prosecutors in the city of Braunschweig possess documents suggesting that Mr Winterkorn transferred around €10m ($11.6m) to Swiss bank accounts in 2016 and 2017. The money was sent on a roundabout route, including via accounts held by his tax consultant.
Handelsblatt The Daily Telegraph The Daily Telegraph
Germany plans crackdown on online shopping tax fraud
Germany is planning tougher rules for online shopping platforms to help combat sales tax fraud, a finance ministry spokeswoman said, making companies liable for any German taxes unpaid by users of their platforms, especially in cases where sellers who are unregistered for tax purposes sell their goods to German customers. The government estimates that it loses hundreds of millions of euros annually due to sales tax fraud.
Putin wants discussion about miners tax
Leaked details about a Russian proposal to raise 500bn roubles ($7.5bn) a year from a tax on metal and mining firms triggered a sell-off in shares in the sectors on Friday. Vladimir Putin has ordered that the proposed tax be looked at, but the Russian president has not decided whether to approve the plan by Kremlin economic aide Andrei Belousov. Russia needs extra budget revenue if economic goals outlined by Putin are to be satisfied. The government has already announced plans to raise value added tax from next year.
France to introduce plastic tax
France is to increase the cost of products packaged in non-recycled plastic, saying the economy needs to be "transformed" if the "war on plastic" is to be won. Taxes on rubbish buried in landfills will also be increased, while levies on recycling plants will be reduced.
Israeli bank rejects U.S. tax settlement
Mizrahi-Tefahot Bank, Israel's third-largest bank, has said it would not accept a proposal from the U.S. Department of Justice to pay a fine of $342m to settle a U.S. tax evasion investigation, adding that any “reasonable calculation” based on the behaviour of its employees would result in a smaller fine. Hapoalim and Bank Luemi, Mizrahi’s larger rivals, have both either settled or are planning to settle charges that they helped their U.S. clients evade taxes.
Boost for digital accounting
More than 20,000 small businesses in the UAE have moved from manual to digital accounting following the mandate issued by the government to submit tax returns online in the wake of the UAE introducing value-added tax (VAT) at the beginning of the year. Digitalisation has helped businesses to manage timely and accurate record-keeping, whilst preventing errors associated with manual processes, said Vikas Panchal, business head at Tally Solutions in the Middle East.
Morocco offers corporate tax holiday
Morocco is offering a five-year corporate tax holiday to new industrial companies to spur investment in sectors including automotive, aeronautical, textile, manufacturing, food and pharmaceuticals. One analyst said the move by the country's finance and economy ministry indicated the existing tax system was failing in encouraging investment. “There is a need for an overall review the Moroccan tax system to make it conducive to industrial development,” said Rachid Aourrazz at the Moroccan Institute for Policy Analysis.
Hong Kong workers could be handed tax exemption
Political advisers to Beijing have drafted a proposal to call for an exemption for Hong Kong workers living in China from a plan to tax them for overseas income. The proposal was prompted by a recent plan to amend the personal income tax law on the mainland, where tens of thousands of Hongkongers are working. The amendment would require Hongkongers who stay and make their main income on the mainland for more than 183 days a year to pay tax for their other earnings around the world. Andrew Yao Cho-fai, chairman of the Hong Kong Shanghai Alliance Holdings, said China must go for two directions in its tax reform to create a more attractive environment for businesses and skilled workers. “It must reduce the overall tax burden by lowering the rates, and gradually replace transactional taxes with profit taxes,” Yao said.
South China Morning Post
China launches tax evasion probe in media sector
China's tax bureau is to commence a tax evasion probe focused on the country's film and television industry. “If violations of tax laws and rules are found, they will be dealt with in accordance with the law,” said the State Administration of Taxation.
Argentina weighs delay to tax reform plan
An Argentinian government official has said the South American country may delay implementing elements of a tax reform passed last year to meet its fiscal deficit goals as part of a deal with the IMF. The official said: “Our priority is to go the way of cutting spending. If we see that we are not reaching our targets with spending cuts, then we could go more slowly with the tax reform.”
Deal reached over Puerto Rico sales tax bonds
Puerto Rico has reached a deal with bondholders and insurers of debt issued by its bankrupt sales tax financing corporation, COFINA, the U.S. territory’s governor and federal oversight board has announced – an agreement that will reduce its sales-tax-backed debt by more than 32%, and result in about $17.5bn in debt service savings. Puerto Rico has been in bankruptcy court since May 2017 trying to restructure about $120bn of debt and pension obligations.
Tax haven needs attention
The Guardian’s Oliver Bullough profiles the tax haven of Nevis, which has been criticised for doubling down on secrecy at a time when other tax havens are becoming more transparent.
Europeans press for digital tax at G20 meeting
European finance leaders have called for progress on global rules to tax the digital economy at a meeting of G20 finance ministers and central bankers in Argentina, putting them at odds with U.S. counterparts. Some 200 companies would fall within the scope of the new turnover tax, European officials have claimed, potentially raising €5bn ($6bn) annually. Although the U.S. delegation is yet to comment on the proposals, Treasury Secretary Steven Mnuchin said earlier this year that he “firmly opposes proposals by any country to single out digital companies,” noting that those companies were key contributors to the U.S. economy.
Time to overhaul tax for the 21st century
An Economist leader argues that global tax systems need to be reshaped so that they are fit for the 21st century. It says windfall gains in property should be an obvious source of revenue, yet property taxes have stayed roughly constant at 6% of government revenues in rich countries. Tax systems have also failed to adapt to technological change, according to the paper. It says the rising importance of intellectual property means that it is almost impossible to pin down where a multinational really makes money, with tech giants paying too little tax as a result. It concludes that all countries should tax both property and inheritance more: “A conservative first step would be to roll back recent cuts to inheritance tax. A more radical approach would be to introduce a land-value tax”.