Policy announcements by legislature
Inland Revenue (Amendment) (No. 2) Ordinance 2017 (Amendment Ordinance) was gazetted June 16 and will come into effect on July 1, 2017. The Amendment Ordinance enables Hong Kong to implement automatic exchange of financial account information in tax matters (AEOI) more effectively.
As an international financial centre Hong Kong has been committed to enhancing tax transparency and combatting cross-border tax evasion. Hong Kong has been making preparations for the implementation of the common reporting standard for AEOI as set out by the Organisation for Economic Cooperation and Development (OECD). At the same time, both the OECD and the European Union (EU) have been closely monitoring jurisdictions’ progress in the implementation of AEOI.
The Amendment Ordinance can ensure that Hong Kong preserves the financial account information from the second half of 2017 for exchanging with other jurisdictions. This enables the effective implementation of AEOI without introducing an undue compliance burden to financial institutions.
To implement AEOI, from July 1, 2017, the list of “reportable jurisdictions” under the Inland Revenue Ordinance will be expanded to cover 75 jurisdictions, comprising 13 confirmed AEOI partners and 62 prospective AEOI partners. The 62 prospective AEOI partners include the following three categories:
(a) jurisdictions which have expressed an interest in conducting AEOI with Hong Kong or jurisdictions suggested by the OECD;
(b) Hong Kong’s tax treaty partners which have committed to AEOI; and
(c) all member states of the EU.
The Amendment Ordinance does not alter the privacy and data protection requirements on AEOI under the Inland Revenue Ordinance. Hong Kong would only conduct AEOI with jurisdictions which have signed dedicated exchange agreements with Hong Kong and have fulfilled the OECD’s standard and relevant safeguards for protecting data privacy and confidentiality of the information exchanged.
On June 6, 2017, the Finance and Economic Development Committee in the House of Representatives approved the second reading of the Finance Bill 2017. The Finance Committee of the House of Councilors opposes Article 8 bis of the Draft Finance Law (PLF) 2017. The House of Councilors approved the PLF-2017 in a plenary meeting. The inspection of PLF-2017 was noticed by the introduction of a number of amendments, specifically concerning Article 8 bis on the enforcement of judgments against the state and local and regional authorities, which was completely deleted. Article 8 bis of the PLF declares the property of the State exempt from seizure. It subjected the payment of a debt to the limit of the appropriations available to the budget of the territorial activities. It was the PJD group of the House of Representatives who introduced the article into the original draft.
The steering committee incorporate of federal and cantonal representatives has adopted recommendations on a balanced corporate tax reform proposal III (TP17) on 1st June 2017 for the attention of the Swiss Federal Council. The new proposals come less than four months after Swiss voters rejected a major renovate of the corporation tax aspect. Such Reform can have a significant impact on the tax burden of Swiss-based organizations and permanent establishments. The draft proposal incorporates the essence of these discussions and is designed as a recommendation to the Swiss Federal Council, which will craft the final proposal. One of the key objectives is to maintain Switzerland as an attractive tax and business location. It is expected that the new corporate tax law will be enacted at 2020.
The key recommendations of the steering committee for TP17 are the following:
- Termination of the current special cantonal tax status (holding, mixed, principal, and current finance branch notional interest deduction regimes) for companies;
- Under the scheme, minimum family allowances would rise CHF30 per month for each child in full-time education;
- Tax relief achieved through the patent box and the excess deduction for research and development costs may be restricted, up to a maximum of 50%;
- Introduced a special tax relief measures of 70% at cantonal level;
- Increase of profit tax assessment for individual generous shareholders (at least 10%): Direct government impose: 70% duty base and Cantonal level: least 70% expense base as a financing and remuneration measure;
- Increase of the cantons’ share of direct federal tax from 17% to 21.2% according to finance cantonal rate reductions and other corporate tax reform at cantonal level.
It is expected that the Federal Council will decide the essential parameters of the TRP 17 and decide on further procedures and the relevant timeline in June 2017. The corporate tax reform law (TRP 17) can then be presented to Parliament in the Spring Session of 2018.
The Parliament has adopted a draft bill on 11th of April 2017, which contains some amendments on income tax code and VAT code. The Corporate Income Tax payment needs to be completed by six installments instead of eight. Note that, the first installment needs to be paid on the last working day of the month following the filing deadline and the rest of five installments must be paid by the last working day of the following five months. The first payment shouldn’t be paid during filing of the corporate tax return. Again, the individual income tax return has to be submitted by 30 June. The timeline has also been fixed on 12th of May 2017 for the farmers under the special farmers’ VAT regime who have to change to the standard VAT regime. So, late filing penalties will be cancelled or refunded to taxpayers. The provision applicable for 2016 regarding proportionate payment of road tax for vehicles has been extended to 2017. All these new provisions will effect from the 2016 financial year.
On 3 May 2017 the Prime Minister H E Sheikh Abdullah bin Nasser bin Khalifa Al-Thani chaired the Cabinet’s ordinary meeting. During its ordinary meeting, the Cabinet approved a draft law on income tax and some of its draft executive regulations. A draft law related to Value-Added Tax (VAT) was also approved by the Cabinet.
The Income Tax Law promulgated by Law No 21 of 2009 and Law No 17 of 2014 will be replaced by the draft legislation on income tax that exempts the share of non-Qatari investors in the profits of some corporations and investment funds from the income tax. The draft law also contains some development features of tax legislation to certify the simplification of process, strengthening the tax revenues and collection measures which in turn will help tax compliance.
The Finance Ministry has prepared the draft law regarding VAT under the unified GCC VAT agreement. This agreement requires each member state to take the necessary steps domestically for issuance of the relevant local law and procedural policies in order to implement the VAT with a view to executing the agreement’s provisions.
Though a firm date has not been fixed, policy makers in the six-nation Gulf Co-operation Council (GCC) are aiming to introduce a 5% VAT at the start of next year. The GCC has long planned to adopt the tax in 2018 as a way to increase non-oil revenues. The Cabinet accepted draft decision of the Council of Ministers to issue the executive regulation of the selective tax law.
The draft executive regulation contains provisions concerning tax declaration, tax entitlement, registration, the declaration of loss or damage to goods, methods of tax payment, inspection of defective goods, maintenance of accounting systems, the language of accounting records, and control and inspection.
The Cabinet has also approved a draft agreement on economic cooperation between Qatar and Poland, a draft memorandum of understanding for cooperation in the field of combating terrorism between Qatar and Australia and a draft memorandum of understanding between the Qatar Central Bank and Bangladesh Bank.
On 22 March 2017, the Brazilian Federal Revenue Service (RFB) released guidance in SC (Solução de Consulta) no. 153/2017 of 2 March 2017 regarding taxes on the importation of services. It primarily applies to the importation of services and the “triggering event” for the tax. The guidance clarifies that the triggering event is the date when the income becomes economically or legally available to the foreign creditor.
The Union Cabinet on 20 March 2017, approved four GST related bills and that would now be sent to Parliament and are likely to be presented in the Lok Sabha as money bills later this week.
These four supporting legislations are:
With the Compensation law, the states will get full compensation for the first five years for any shortfall in revenue, which would be calculated at 14% annual growth from the 2015-16 base year. The compensation will be funded through various cesses.
The Central GST would replace Central Excise Duty, Service Tax, Additional Duties of Excise & Customs, Special Additional Duty of Customs, and cesses and surcharges on the supply of goods and services.
The IGST relates to the taxation of inter-state transfer of goods and will provide for the cross empowerment of state and central officers.
State Taxes GST would replace VAT, Central Sales Tax, Purchase Tax, and Entry Tax, and Entertainment Tax, taxes on advertisements, lotteries, betting and gambling, and state cesses and surcharges.
In addition, a four-tier rate structure has been cleared by the GST Council, but which commodities fit in these slabs would be done after March 31. The slabs are 5%, 12%, 18% and 28%. Items of daily needs will be taxed at 5% while luxury items will be taxed at the higher end. GST is also expected to disincentives tax evasion, lower tax rates, and make business operations easier.