VAT

UK: Online process for tax appeals

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Information posted to the UK government website on 3 August 2017 notes that an online service is now available for appeals which can be made directly to the First-tier Tax Tribunal, such as indirect tax appeals or applications for enquiry closure notices. The online appeal system may also be used in the case of appeals that were made first to HMRC, for example for most direct tax issues, but are then lodged with the Tax Tribunal because agreement cannot be reached with HMRC.

Using the online service the taxpayer can lodge an appeal and receive an acknowledgement with a reference number, and has the option to upload documents in support of the appeal. The taxpayer can at a later date revisit the appeal lodgment if necessary to find further information. As the information is validated when it is input to the system, applications are less likely to be rejected for incomplete or incorrect information.

Taxpayers have the option of using HMRC’s statutory review process before taking an appeal to the Tribunal. If an appeal is not making progress taxpayers may also consider alternative dispute resolution where there is a dispute about the facts and communication has broken down. In this case a third party mediator may help to resolve the impasse.

Argentina: Decree No. 593/2017 on incentives published in Official Gazette

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Decree No. 593/2017 regarding capital goods was published on July 28, 2017 in the Official Gazette. The Decree is effective from July 1, 2017. This decree modifies incentives under some articles of both Decree No. 379/2001 and Decree No. 594/2004. It also extends the amended incentives of Decree No. 379/2001 until December 31, 2017 in favor of domestic manufacture of capital goods, agricultural machinery and telecommunications equipment. A 14% incentive as a form of tax credit of the value of the goods produced (with some modification) can be charged against income tax, excise taxes and VAT. To apply for that incentive taxpayers have to file an affidavit within December 31, 2017. In this case taxpayers have to confirm that the figure of registered employees has not reduced from the number of employees registered from December 2011.

Uruguay: Executive Power formally proposes accountability bill 2016

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The Executive Power of Uruguay submitted to Congress for consideration the 2016 Accountability Bill on 20 June 2017. The Bill includes provisions on Internet services and the software industry. The bill would also modify the Free Zones (FZ) law. If enacted, the provisions of the bill would apply as of 1 January 2018.

According to the bill, net Uruguay-related revenue from the production or distribution of cinema movies and tapes, broadcasting services relating to cinema movies and tapes and television transmissions and other similar means of transmission would no longer be determined on the basis of the remuneration received for use in Uruguay. The bill would treat such income as Uruguayan sourced and, therefore, taxable. The bill would also address the income of non-resident companies providing services directly through the Internet, technological platforms, computer applications or similar means as total Uruguayan sourced income for income tax purposes.

Income received from mediation and intermediation in the supply and demand of services rendered through the internet, technological platforms, computer applications or similar means would be 100% Uruguayan sourced when the supplier and the acquirer of the service are located in Uruguay. The income would be considered as 50% Uruguayan sourced if either the supplier or the acquirers of the service are located abroad.

The Bill would consider services as located in a Uruguayan territory when the services are paid through electronic methods of Uruguay, including electronic money instruments, credit or debit cards, bank accounts, or other similar payment options established through regulations in the future.

In case of value added tax, income gained from mediation and intermediation services associated with supply and demand of services made through the internet, technological platforms, computer applications or other similar means would be considered as Uruguayan-sourced income and, therefore, would be subject to VAT when both parties are located in Uruguay.

According to the Bill, software amortization would be deductible only if the general deductibility requirements for corporate income tax (CIT) purposes are met and this would include the counterparty rule requirement by which expenses are deductible only if the counterparty is subject to income taxation in Uruguay or abroad at the rate of at least 25%. Taxpayers would no longer be able to deduct 1.5 times the actual amount of expenses incurred from software services rendered by taxpayers subject to the CIT. Income obtained from the performance of logical support and related services would be exempt from income tax subject to certain conditions.

Also, income gained from the use of intellectual property and other intangible goods would be exempt from income tax subject to the condition that the goods are the result of research and development activities within free trade zones and other requirements are met.

Companies in free trade zones would be able to provide services to taxpayers subject to CIT outside of the free trade zones, as long as the amount of those services does not exceed 5% of the other services provided within the fiscal year. Additional compliance regulations, such as regulations regarding revocation of the users’ agreement, information to be included in the users’ request and maximum period of the users’ agreement would be added.

According to the bill, a two- to eight-year prison sentence for tax fraud would be imposed when invoices or other equivalent documents used for documenting transactions were, totally or partially, ideologically or materially false.

OECD: Revenue Statistics in Asian Countries

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On 20 July 2017 the OECD published the latest edition of its publication Revenue Statistics in Asian Countries. This covers trends of revenue statistics in Indonesia, Japan, Kazakhstan, Korea (Rep), Malaysia, Philippines and Singapore between 1990 and 2015. The publication looks at tax ratios, tax structures and taxes by level of government, with a special feature on electronic services in tax administration. Of the countries covered Japan and Korea are members of the OECD but the other countries are not OECD members.

Tax-to-GDP Ratios

Developing countries need to mobilize government revenue to provide funds for public goods and services including health, education and infrastructure. Taxation is a reliable source of revenue compared to diminishing levels of development assistance and volatility of non-tax revenues relating to commodities. The tax-to-GDP ratio measures the total tax revenue of a country as a proportion of GDP. According to UNESCAP in 2014 a minimum tax-to-GDP ratio of 25% is essential for a country to become a developed economy.

The report points out that tax-to-GDP ratios tend to be lower in Southeast Asia compared to Japan and Korea. The main factors explaining this are low tax compliance in many of the countries (apart from Singapore) and narrow tax bases due to a high number of tax exemptions and incentives introduced to attract foreign investment. The survey shows that tax-to-GDP ratios in the surveyed countries range from 11.8% in Indonesia to more than 32% in Japan, all lower than the OECD average of 34.3% in 2015. All the countries other than Japan and Korea had tax-to-GDP ratios below 18%.

Tax-to-GDP ratios are affected by various domestic and international factors including the importance of agriculture in the economy; the presence of natural resources; openness to trade; the size of the informal economy; powers of the tax administration; levels of corruption; and tax morale. International factors such as tax policies of other countries can also affect the tax-to-GDP ratio.

Tax structures

The tax structure refers to the different taxes that contribute to total revenue. This is an important indicator because different taxes have different social effects. The structures in Japan and Korea are evenly divided between the main categories of tax revenue. In Korea 30.3% of tax revenue is from taxes on income and profits; 26.6% from social security contributions and 28% from taxes on goods and services. This structure is similar to the OECD average. In Japan almost 40% of total tax revenue is from social security contributions and a little below 20% of revenue was from tax on goods and services in 2014.

Indonesia, Malaysia, Philippines Singapore and Kazakhstan derive their tax revenue mainly from taxes on goods and services and taxes on incomes and profits. Together these make up more than 75% of their total tax revenue.

The share of value added tax (VAT) in total tax revenues increased significantly in most Asian countries between 2000 and 2015 including in five of the seven countries surveyed. However the percentage share of VAT revenue in Kazakhstan has decreased mainly owing to a decrease in the VAT standard rate from 20% in 2000 to 12% in 2015. The percentage contribution from VAT also decreased in Korea.  The share of VAT to total revenues in the countries remains smaller than the OECD average of 20% (except in Indonesia) partly owing to lower VAT rates in many countries.

In all the countries surveyed the share of corporate income tax revenue in their total tax revenue is higher than the OECD average of 8.8% in 2014. The figures is around 13% for Japan and Korea and higher in the other countries, ranging from 23% in Indonesia to 42.5% in Malaysia. The share of personal income taxes to total revenue rises from 9.4% in Kazakhstan to 21.5% in Indonesia. The Southeast Asian countries and Kazakhstan receive a higher proportion of total tax revenue from corporate income taxes than from personal income taxes, whereas Japan and Korea have a higher proportion from corporate income tax.

VAT Revenue Ratios

The VAT Revenue Ratio (VRR) is the difference between VAT revenue collected and the VAT that could be raised if the VAT standard rate was applied to the whole potential VAT base and all revenue was collected. Of the countries surveyed Japan, Korea and Singapore have quite high VRRs above 65%, mainly owing to the relatively broad VAT base in those countries. The report notes that these countries do not have many reduced rates whereas many OECD countries have one or more reduced VAT rates. This leads to a lower average VRR among OECD countries generally, currently measured at 56%.

 

UK: Revised timetable for introduction of digital tax system

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Following feedback from parliament including the Treasury Select Committee, business and professional bodies the UK government is delaying the introduction of a compulsory digital tax system for certain businesses and landlords.

The system called Making Tax Digital is intended to provide a streamlined online system to for maintaining tax records and providing information to HMRC. Under Making Tax Digital businesses would eventually be required to file quarterly tax returns online. Taxpayers would have an overview of all their tax affairs in one place, making it easier for them to offset overpayments on one tax against liabilities on others. The analysis of the information would also enable HMRC to more easily detect non-compliance and will therefore reduce their administration costs.

The timetable for introducing Making Tax Digital has been changed to give businesses more time to adapt to the changes. Under the revised timetable businesses with a turnover above the value added tax (VAT) threshold (currently GBP 85,000) will be required to keep digital records for VAT purposes from 2019 onward. Digital records for other taxes will not be required from business until 2020 at the earliest.

Businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

A trial of the digital system for VAT will start before the end of 2017, beginning with small-scale testing and then a wider trial starting in Spring 2018. There will therefore be more than year of testing before any businesses are obliged to use the system. After the changes to VAT reporting take effect from April 2019 businesses above the VAT threshold must provide their VAT information to HMRC through Making Tax Digital software.

 

Slovak Republic: Government declares new corporate tax measures

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The Government announced several changes in the corporate taxation area on 20th June 2017, including the introduction of a new patent box regime in line with the modified nexus approach developed as part of BEPS Action 5. The government also proposes the introduction of measures to comply with the EU anti-tax Avoidance Directive (Council Directive (EU) 2016/1164), including new exit taxation rules. The changes also include controlled foreign company (CFC) rules, and hybrid mismatch rules, as well as new transfer pricing rules regarding intangibles and measures against VAT fraud. The first draft texts are subject to further negotiations within the Government after which they will be submitted to the Slovak Parliament. These new measures are intended to be effective from January 1, 2018.

GCC develops VAT and excise tax framework

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The Gulf Cooperation Council (GCC) finance ministers held an extraordinary meeting on 16th June in Jeddah and approved in principle VAT and excise tax treaties. In order to keep pace with the changing economic landscape and through extensive development reforms, the GCC member states signed a framework agreement for the establishment of VAT on the supply of goods and services with a 5% standard in 2018.