Liability to Tax

India: CBDT publishes a draft notice on special transitional provisions for a foreign company based in India

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The Finance Ministry on 15 June 2017, issued a draft notification of transitional provisions for foreign companies in the first year of becoming resident based on their place of effective management.

The notification has clarified that the tax on foreign companies qualifying as resident firms due to their place of effective management (POEM) will be the same as that for any foreign company and will be imposed at a rate of 40%.

The draft notification by the Central Board of Direct Taxes (CBDT) provides exceptions, modifications and adaptations for computation of total income, treatment of unabsorbed depreciation, set off or carry forward of losses, collection, recovery and special provisions for tax avoidance.

The notification, once finalised, will come into effect from April 1, 2017.

Australia: Draft Taxation Ruling TR 2017/D2 – Central Management and Control test of residency

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The Australian Tax Office has now released a new draft ruling TR 2017/D2 and has withdrawn its preceding ruling TR 2004/15 on the tax residence of foreign incorporated companies.

Following the decision in Bywater Investments Limited & Ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45; 2016 ATC 20-589 the Commissioner has formed the view that the position expressed in former TR 2004/15 on when a company carries on business in Australia can no longer be sustained. At [57] the majority of the High Court rejected the contention that to be a resident of Australia, a company must have its central management and control in Australia and in addition it must also carry on its business operations in Australia.

Therefore, if a company carries on business and has its central management and control in Australia, it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and its trading operations are conducted outside Australia.

The draft ruling incorporates a number of changes from the standard ATO rulings template with the intent of providing more practical and streamlined advice. The ruling sets out the Commissioner’s view as to the principles relevant to applying the central management and control test of residency.

Thailand- new tax on e-commerce to be introduced in April 2017

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The Revenue Department of Thailand is planning to enforce a new law to tax cross-border e-commerce transactions by April 2017.

Currently, a foreign operator which carries on e-commerce business but does not enter Thailand or does not have any employee, agent or representative and/or server located in Thailand, were not regarded as carrying on business in Thailand and therefore are not subject to income tax in Thailand.

But now the Thai Revenue Department (TRD) is intended to improve and increase revenue collection from the e-commerce business.


Canada: The Federal Budget 2017 announced

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The Canadian government presented the 2017 federal budget on 22nd March 2017 in Ottawa. The main highlighting points of this budget are given below:

  • The budget dedicates $11.2 billion to cities and provinces for affordable housing over 10 years as part of the second wave of the government’s infrastructure program, $5 billion of which is to encourage housing providers to pool their resources with private partners to pay for new projects;
  • The budget still doesn’t include any plans to balance the books;
  • Statement on gender equality and a discussion of the ways in which the government has run its policies, and its spending commitments, through a gender-based analysis;
  • Some budgets allocate for indigenous communities;
  • Despite calls from the United States for Canada to increase its contributions to international military efforts, there is no increase in defense spending in the 2017 budget;
  • Excise duty rate on cigarettes goes from $21.03 up to $21.56 per carton of smokes and the duty rate for alcohol goes up to 2%. Both will be adjusted every April 1 starting next year, based on the consumer price index;
  • Canadian exploration expense in case of oil and gas wells
  • Budget 2017 proposes that expenditures related to drilling or completing a discovery well generally be treated as a Canadian development expense (30% depreciation rate) instead of a Canadian exploration expense (eligible for a 100% deduction in the year incurred). This measure will generally be applicable to expenses incurred after 2018 and expenses incurred in 2019 that could have been considered to have been incurred in 2018 because of the “look-back” rule.
  • Reclassification of expenses renounced to flow-through shares
  • The Income Tax Act recognizes two forms of control of a corporation: de jure (legal) control and de facto (factual) control.
  • Timing of recognition of gains and losses on derivatives
  • Extending the base erosion rules to foreign branches of life insurers
  • The public transit tax credit, which allows the cost of transit passes to be deducted, is being eliminated effective July 1.
  • Employment insurance premiums are going up 5% to $1.68 per every $100 of insurable earnings, up from $1.63.

Norway proposes new corporate residency rules

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The Finance Minister opened a public hearing regarding the corporate tax residency rules under section 2-2 of the Tax Law (Skatteloven) on 16 March 2017. There is no definition of residence is available now in the Norwegian tax legislation for legal entities. Generally the place of residence depends on the location of the central management and control of the company basically where the central business decisions of the company are made. However, a company is normally deemed to be a resident if it is incorporated under Norwegian law.

According to the hearing, section 2-2 of the Tax Law should be amended and the term “residence” would include companies established in Norway and companies having their effective management in Norway. The amendments will be effective from fiscal year 2018.


India: Clarification on determination of POEM provision

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The Central Board of Direct Taxes (CBDT) has issued Circular No. 8/2017 of 23 February 2017 clarifying that the existing provisions in place of effective management (POEM) will not apply to a company with a turnover or gross receipts of INR 500 million or less in a financial year.

The concept of POEM in determining the residential status of a company, other than an Indian company, was introduced by the Finance Act, 2015 and will take effect from 1 April 2017. The CBDT previously issued Circular No. 6/2017 of 24 January 2017 providing guiding principles for determining the POEM of a company.

India: CBDT Publishes draft guidelines for determination of the POEM

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The Central Board of Direct Taxes (CBDT) on 24 January 2017, has issued the guiding principles to be followed for determination of the place of effective management of a company (POEM). The concept of PoEM for deciding the residential status of a company was introduced by the Finance Act, 2015. The guideline was effective from 01.04.2016, and accordingly, shall apply from the assessment year 2017-18 onwards.