Hong Kong signs AEOI agreement with Indonesia

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Hong Kong has signed an agreement with Indonesia for conducting automatic exchange of financial account information in tax matters (AEOI), a Government spokesman said on June 16, 2017.

The spokesman added that they have been seeking to expand Hong Kong’s AEOI network with their tax treaty partners. Including the agreement with Indonesia, Hong Kong now has 13 AEOI partners. The others are Belgium, Canada, Guernsey, Ireland, Italy, Japan, Korea, Mexico, the Netherlands, Portugal, South Africa and the United Kingdom.

The spokesman also added that the Government plans to extend the application of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters to Hong Kong. An amendment bill will be introduced into the Legislative Council in late 2017.

Indonesia: New regulation on exchange of information

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The Indonesian Minister of Finance issued Regulation No. 39/PMK.03/2017 of 3 March 2017 on the exchange of information as required under the international agreements entered into by the government including tax agreements, tax information exchange agreements, multilateral or bilateral competent authority agreements, the Convention on Mutual Administrative Assistance in Tax Matters, and intergovernmental agreements.

The regulation sets out, inter-alia, the information that could be released, conditions for the release of information requested and the reporting requirements of the reporting entities. The information could be exchanged through formal requests to the competent authorities, voluntarily or through automatic periodical reporting.

Indonesia, Laos DTA enters into force

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The Double Taxation Agreement (DTA) between Indonesia and Laos was entered into force for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, on 11 October 2016. The treaty was applied from 1 January 2017 for withholding taxes and from 1 January 2018 for other tax matters.

7 more countries sign tax co-operation agreement to enable BEPS Action 13

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According to a press release of 27 January 2017, published by the OECD, as part of continuing efforts to boost transparency by multinational enterprises (MNEs), Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), bringing the total number of signatories to 57. Lithuania and Hungary joined the Agreement in October and December 2016 respectively.

The CbC MCAA is an efficient mechanism that allows signatories to bilaterally and automatically exchange Country-by-Country Reports with each other, as contemplated by Action 13 of the BEPS Action Plan. It will help ensure that tax administrations obtain a better understanding of how MNEs structure their operations, while also ensuring that the confidentiality and appropriate use of such information is safeguarded. Information on the activation of exchange relationships under the MCAA will be released in due course.

Gabon, Indonesia, Malta, Mauritius and the Russian Federation signed the Agreement at a signing ceremony held during the second meeting of the Inclusive Framework on BEPS on 26-27 January 2017. The inclusive framework brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) package.

Indonesia revises TP documentation requirements

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The transfer pricing (TP) documentation rules has been revised by Indonesian tax authority to match global standards and curb practices of tax avoidance. Head of the international department at the finance ministry’s tax office, Mr John Hutagaol said “this is so that taxpayers can explain to the tax office that its special transaction with an affiliate is still within fair boundaries”.

In accordance with the rules, a multinational group with an annual consolidated turnover of not less than $1.2 billion has to make a country-by-country (CbC) report with details on how much tax the group pays in each country of operation, what type of business it does, its turnover, balance sheets and global structure.

UK: New tax measures announced in autumn statement

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The autumn statement delivered by the Chancellor on 23 November 2016 provided for new tax measures, many of which will be included in the Finance Bill 2017. The measures include the following:

Restriction on tax deduction for interest

The UK has confirmed its intention to introduce rules limiting the tax deductions claimed by large groups for their UK interest expense. This implements the recommendations of Action 4 of the OECD project on Base Erosion and Profit Shifting (BEPS).

Interest deductions will be restricted if a group has net interest expense of more than GBP 2 million per annum in the UK and the net interest expense in the UK exceeds 30% of UK tax EBITDA (earnings before interest, tax, depreciation and amortization). The tax deduction for interest will be subject to a further test of whether the group’s ratio of net interest to earnings in the UK exceeds that of the worldwide group. Draft legislation to implement the proposals was published on 5 December 2016.

Measures to tackle tax evasion

New measures are being introduced to clamp down on tax evasion and aggressive tax avoidance. These measures will yield an extra GBP 2bn in tax this parliament. The measures include the removal of a tax break on employee benefits in salary sacrifice schemes with some exclusions for certain schemes.

Corporation tax rate

The Chancellor announced that the corporation tax rate would fall to 17% by 2020.

Patent Box rules

The government has been working to incorporate the changes resulting from action 5 of the BEPS project relating to harmful tax practices. This requires implementation of a nexus approach to the patent box regime. Most of these changes were already enacted on 15 September 2016 in the Finance Bill 2016 and came into effect from 1 July 2016, the date on which the current patent box regime closed to new entrants.

The UK will introduce specific provisions in the Finance Bill 2017 to set out how these changes will apply to companies within a cost sharing arrangement. The provisions will aim to ensure that companies within a cost sharing arrangement would be in the same position as other claimants under the patent box regime.

Research and development

Two new funds are to be introduced in relation to innovation, research and industrial strategy. A review of the current R&D tax incentives will be carried out.

Also investment is planned for innovative start-up businesses through venture capital funds.

Substantial shareholding exemption

Changes are being made to simplify the Substantial Shareholding Exemption (SSE) rules that relieve UK companies from tax on capital gains on the sale of substantial shareholdings. The rules will remove the investing requirement from the SSE and will provide a broader exemption for companies owned by qualifying institutional investors.

Hybrid mismatch arrangements

The government has issued a technical note in relation to the legislation on the new hybrid mismatch regime. Further technical modifications are being made in relation to financial sector timing claims and the rules concerning deductions for amortization.

Income tax personal allowance

The income tax threshold will increase to GBP 11,500 in April, from the current level of GBP 11,000. The threshold for the higher rate of tax to apply is to increase to £50,000 by the end of the current Parliament.

Income tax on termination payments

The government is changing the tax and national insurance contribution treatment of termination payments. For termination payments from 6 April 2018 any payment in lieu of notice (PILONs), whether contractual or not, will become fully subject to tax and national insurance.

Insurance premium tax

The insurance premium tax is to increase from 10% to 12% from June 2017.

National insurance contributions

Employee and employer national insurance thresholds are to be set at GBP 157 per week.

Indonesia announced tax incentives for apparel, leather and footwear industries

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A government regulation No. 9, 2016 increases the locations where tax incentives are available for investments. According to this regulation, tax incentives previously either not available or limited to investments in certain regions and are being available for the apparel industry and for the leather and footwear sector in all regions. There are no changes to the tax incentives themselves. Accordingly, the incentives including a 30% deduction of the amount of capital investment in tangible fixed assets (including land), accelerated method for depreciation, a 10% rate of withholding tax on dividends paid to foreign taxpayers, and expanded use of tax loss carry forwards to 10 years instead of five years.