Month: June 2017

WTO: Measures to facilitate cross-border trade for MSMEs

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On 29 June 2017 the WTO’s Director General spoke during an informal dialogue on Micro, Small and Medium Enterprises (MSMEs). These entities face greater barriers to cross-border trading and WTO members have put forward some ideas to deal with the obstacles. Helping MSMEs to participate in trade flows will be a topic for discussion at the Global Review of Aid for Trade in July 2017.

MSMEs are important to the global economy because they are responsible for most of the job creation worldwide, are major employers of women and young people and foster entrepreneurship and innovation. Measures to assist more MSMEs to join global trade flows will build a more inclusive trading system by helping more agricultural firms and people in LDCs to benefit from trade, contributing to the achievement of the Sustainable Development Goals.

MSMEs face greater trade barriers than larger entities as they often do not have sufficient resources, ability to absorb risk or the necessary expertise. MSMEs have difficulty accessing trade finance and globally 58% of trade finance requests from MSMEs are rejected compared to 10% from multinationals.

The costs of trade are also an obstacle for MSMEs. Fixed costs connected with trade can be difficult for MSMEs as they have to deal with standards, border procedures and other non-tariff barriers. It has been estimated that increases in regulatory burdens have twice as much impact on MSMEs as on larger entities. The WTO has also found that variable costs are an issue and tariffs are considered by MSMEs to be a major obstacle.

Information

To help MSMEs organizations such as the WTO, UNDESA and ITC can help to disseminate information on regulations and standards in global markets. Last year the ePing notification alert system was launched to alert members about new measures and promote dialogue on addressing potential trade problems. These organizations could look at new ways to make available relevant data to their members.

Trade Finance

The WTO is working with the IMF and regional development banks to help MSMEs access resources required. Trade finance is a very low risk form of finance and the default risk on short term trade credit is only 0.02%. The issue of trade finance is to be discussed at the Global Review of Aid for Trade later in 2017.

Sharing experience

Local initiatives to support MSMEs could be shared with a wider audience to give an idea of the practical measures that work well and those that do not. Information sharing at a technical level could be constructive. This would also help the WTO to identify areas where it could be of help to MSMEs.

General measures to improve global trade

Measures to generally improve the trading system also help the firms facing the greatest barriers to participation in the system. So MSMEs are benefiting from the general work of the WTO including the Information Technology Agreement that facilitates access to new technologies. They also benefit from moves to strengthen capacity building to help people develop the skills and tools required to trade successfully.

OECD: Update on Global Forum peer reviews

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A report issued by the OECD on 28 June 2017 contains updates on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum has 142 member countries and aims to enhance global tax transparency, curtail banking secrecy and combat tax evasion. A series of international tax transparency standards has been developed and the Global Forum is monitoring the implementation of the standards by its members.

In July 2016 the G20 group of countries requested the Global Forum to draw up criteria for identification of those jurisdictions that has not reached an adequate level of implementation of the international standards. The standards include those in relation to Exchange of Information on Request (EOIR) and Automatic Exchange of Information (AEOI).

For the G20 summit in July 2017 the Global Forum is preparing a list of non-cooperative jurisdictions. To avoid inclusion on the list a jurisdiction has to meet at list two of the following benchmarks:

  • a rating that the jurisdiction is largely compliant with the AEOR standard;
  • a commitment to implement the standard on EOIR with the first exchanges to be made in 2018 at the latest; and
  • participation in the Multilateral Convention on Mutual Administrative Assistance on Tax Matters or participation in a sufficiently broad exchange network permitting both EOIR and AEOI.

However a jurisdiction may also be determined by the Global Forum’s peer review process to be non compliant; or it can be blocked from moving past Phase 1 of the process.

With the approach of the G20 summit a fast track review process was set up to evaluate the efforts of some jurisdictions to meet the transparency standards. The results of this fast track review indicate that most jurisdictions have made progress towards meeting the standards.

Fifteen jurisdictions that had been given a less than satisfactory rating on against the EOIR standard were evaluated to assess whether their rating would be upgraded if they were to be reviewed again. Following this process the Global Forum assigned the following provisional ratings:

A number of jurisdictions were found to be largely compliance with the international standards, these being Andorra, Antigua and Barbuda, Costa Rica, Dominica, the Dominican Republic, Guatemala, the Federated States of Micronesia, Lebanon, Nauru, Panama, Samoa, the United Arab Emirates and Vanuatu. One jurisdiction, the Marshall Islands, was found to be partially compliant.

Discussions are continuing with Trinidad and Tobago, the only jurisdiction which has not yet made sufficient progress towards satisfactory implementation of the tax transparency standards and progress is anticipated soon.

In addition to the fast track process a full peer review of the jurisdictions is to be carried out to ensure that jurisdictions meet the revised international standard for exchange of information on request, which now includes an additional requirement relating to beneficial ownership.

Progress made by the reviewed jurisdictions includes the elimination of strict bank secrecy and bearer shares, improved access to accounting records and more rigorous enforcement of obligations to maintain information. More jurisdictions have signed the Multilateral Convention on Mutual Administrative Assistance on Tax Matters.

The results will be reported to the G20 Leaders Summit in July 2017. A second round of peer reviews has begun and jurisdictions that were involved in the fast track process will be reviewed at an early stage of the second round reviews.

 

Bangladesh: Parliament passes Budget for 2017-18

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On 29 June 2017, the parliament of Bangladesh has passed a Tk 4,00,266 crore national budget with some changes to the excise duty on bank accounts and Value Added Tax (VAT) proposals for the fiscal year 2017-18.

On 1 June 2017, the Finance Minister, Mr. Abul Maal Abdul Muhith presented the annual national budget with targeted a GDP growth rate of 7.4 per cent.

In accordance with the budget for fiscal year 18, Taka 2,41,253 crore has been allocated for non-development expenditure along with other expenses and Taka 1,53,331 crore has been earmarked for Annual Development Programme (ADP). The target of overall revenue collection for the next fiscal has seen set at Taka 287,990 crore of which Taka 248,190 crore will come from the National Board of Revenue (NBR) sources.

Corporate tax

Following the changes in the Finance Bill, corporate tax in garment sector will drop to 12% from the proposed 15%, but the tax on earnings from apparel exports will be 1%, up from 0.7 percent in the outgoing fiscal.

The income tax rate for green garment factories has been fixed at 10% and that of other garment factories at 12%.

VAT

The government has postponed the uniform 15% VAT plan for next 2 years, so the multiple rates of the indirect tax will continue until fiscal year 2018-19 under the 1991 VAT law.

Prime Minister Sheikh Hasina said “As the new VAT law received a lukewarm response from the business community, I will urge the finance minister to keep it like it was before and not to implement it for the next 2 years”.

In accordance with PM’s suggestion, the finance minister proposed some changes in the tax measures, which the House passed unanimously in voice vote.

Finance Minister also gave VAT waiver for meditation, mainly to Quantum Foundation, for the next 2 years.

Excise Duty on Bank Account

After the proposal to increase excise duty on bank accounts the government has faced extreme criticism from the general public as well as ministers, economists and business leaders. Finally, Finance Minister made the following changes:

Thresholds Proposal (Tk) Final (Tk)
Upto Tk 1 Lakh 0 0
Above Tk 1 Lakh – Tk 5 Lakh 800 150
Above Tk 5 Lakh – Tk 10 Lakh 800 500
Above Tk 10 Lakh – Tk 1 Crore 2500 2500
Above Tk 1 Crore – Tk 5 Crore 12000 12000
Above Tk 5 Crore 25000 25000

Vietnam Joins the Inclusive Framework on BEPS

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On 21 June 2017, the OECD published a new list of countries and jurisdictions participating in the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Based on this list, Vietnam has become the 100th jurisdiction to join the Inclusive Framework (IF) on BEPS.

BEPS refers to tax avoidance strategies that use gaps and mismatches in tax regulations to shift the profits artificially too low or non-tax locations. Within the framework of the IF, over 100 countries and jurisdictions work together to implement the BEPS measures and combat the BEPS.

IMF report comments on Nicaragua’s fiscal position

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On 22 June 2017 the Executive Board of the IMF concluded consultations with Nicaragua under Article IV of the IMF’s articles of agreement and a report has been issued.

The report notes that Nicaragua’s economic performance in 2016 was robust with real GDP growth of 4.7%. Growth is projected to be 4.5% in 2017. The deficit of the consolidated public sector widened from 2.2% in 2015 to 2.4% in 2016, but is projected to slightly decrease to around 2.3% of GDP in 2017.

Tax revenues increased slightly in 2016 as a result of improvements in tax administration and the impact of full implementation of the 2012 tax reform. The IMF considers that fiscal buffers are required to confront risks. Fiscal consolidation may be achieved primarily by a rationalization of subsidies and of tax expenditures, especially a rationalization of VAT exemptions.

Reform of the social security system is considered to be a priority as increased government transfers to finance pensions and health benefits will otherwise be required from 2019. A combination of measures should be taken to improve sustainability of the social security system. As far as possible the measures should be introduced gradually.

Vulnerability to external shocks could be reduced by further improvements in competitiveness. Action is required to maintain investment in infrastructure, increase human capital development and address labor skills bottlenecks.

 

OECD: Meeting of Inclusive Framework on BEPS

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On 22 June 2017 the third meeting of the inclusive framework on base erosion and profit shifting (BEPS) took place in the Netherlands with representatives of 83 countries and jurisdictions and 12 international and regional organizations. The jurisdictions participating in the inclusive framework are involved in the development of the monitoring process for the four minimum standards under BEPS and in the review mechanisms for other parts of the BEPS package. The inclusive framework is also involved in developing toolkits to assist developing countries in BEPS implementation. The participating countries can provide input to the work on toolkits and the remaining BEPS standard-setting work. The inclusive framework now has 100 member jurisdictions.

Monitoring report

The meeting discussed and approved its first monitoring report, to be submitted to the G20 summit to be held on 7 and 8 July 2017. The monitoring report outlines progress since the first meeting in Kyoto in June 2016.

BEPS discussion drafts

The meeting also approved the release of discussion drafts on attribution of profits to permanent establishments (PEs) and on transactional profit splits. These are part of the continuing work on the OECD’s BEPS action plan. The discussion draft on the attribution of profits to permanent establishments sets out high level principles that countries can apply in attributing profits to PEs whether or not they have incorporated the authorized OECD method (AOA) into their law and regulations.

The discussion draft on the transactional profit split method sets out revised text for the guidance on profit splits in Chapter II of the OECD transfer pricing guidelines. Input is requested from interested parties on the continued inclusion in the guidelines of capital or capital employed as potential profit splitting factors; and on whether a head count of similarly skilled employees should be included as a potential profit splitting factor. The guidance also invites comments on how to determine whether a profit split should be based on anticipated profits or actual profits.

Competent Authority Agreement for CbC Reporting

The number of signatories to the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA) has risen to 64 following its signature by a number of further jurisdictions. The CbC MCAA is a multilateral agreement that allows the signatories to bilaterally exchange CbC Reports as recommended in Action 13 of the action plan on BEPS. The exchange of CbC reports is intended to combat tax avoidance and evasion by enabling tax administrations to gain an overview of how each MNE is structuring its operations. The agreement also aims to ensure the confidentiality and appropriate use of the information in the reports.

Toolkits

The countries involved in the Inclusive Framework also discussed the toolkits under development by the Platform for Collaboration on Tax, including the toolkit on comparables that was issued during the meeting. This toolkit is intended to help developing countries overcome the problem of lack of comparables to use in transfer pricing studies. It suggests measures such as safe harbor rules for transfer pricing; making better use of data available to the tax administration from taxpayer tax returns and other documentation; and further development of a framework for selecting and applying the most appropriate transfer pricing method.

 

Moldova authorizes to sign a DTA with UAE

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Moldova authorized to sign a Double Taxation Agreement (DTA) on 28 June 2017 with United Arab Emirates (UAE) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.