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Reforms Continue Apace, Offshore Centers Muscle In...

Kitty Miv, Editor
16 January, 2020

As people drift slowly back to work after their festive break (extended in some cases, but not in mine – no rest for the wicked!), you might expect things to begin slowing down on the tax reform front.

However, you would be very much mistaken; there are still quite a number of reform processes afoot as we head into January proper.

France, in particular, has not let the grass grow under its feet, with French Finance Minister Bruno Le Maire revealing that France and the United States would be attempting this month to reach a compromise over their ongoing dispute regarding France's new digital services tax (DST).

The French DST is a three percent tax on the revenue of digital companies providing advertising services, selling user data for advertising purposes, or performing intermediation services. Companies with global revenues of EUR750m (USD838m) or more and French sales of at least EUR25m are required to pay the tax.

The US argues that the tax unfairly discriminates against US-based companies and is currently threatening to retaliate against the measure, imposing additional duties of 100 percent on certain French imports with a trade value of USD2.4bn.

Addressing a press conference alongside the European Commissioner for Trade, Phil Hogan, Le Maire said that France and the US have agreed to "redouble our efforts in the coming days to try to find a compromise on digital taxation within the framework of the OECD."

Le Maire is hopeful that such a compromise can be reached by the time he is due to meet with US Treasury Secretary Steven Mnuchin at the World Economic Forum in Switzerland, which is due to start on January 21, 2020.

However, Hogan said, should the two governments fail to reach an agreement, the EU will consider countermeasures to any additional duties imposed on French products.

Going almost immediately back on the offensive, on January 6, a decree was published in the French Official Journal to modify the list of non-cooperative states and territories in tax matters.

The following jurisdictions have been added to the list because they do not have adequate tax information exchange procedures in place with France: Anguilla, the Bahamas, the British Virgin Islands, and Seychelles.

Another set of territories which have been added to the list because they do not meet at least one of the criteria set out in Annex V of the European Council conclusions of December 5, 2017, setting out the EU list of non-cooperative jurisdictions for tax purposes include American Samoa, Fiji, Guam, Oman, Samoa, Trinidad and Tobago, and the US Virgin Islands.

Vanuatu has been added to the list because it does not comply with the criterion, defined in Annex V, on Council conclusions relating to states or territories facilitating the creation of extraterritorial structures or arrangements intended to attract profits which do not reflect real economic activity in the jurisdiction.

Finally, Botswana, Brunei, Guatemala, the Marshall Islands, Nauru, and Niue have been removed from the list completely in this round of updates.

Staying on the subject of international financial centers, they have this week been keen to get in on the tax reform act, with jurisdictions such as tiny Vanuatu announcing plans this year to make various changes to tax processes and rules for companies and individuals in the Tax Administration Act No. 37 of 2018, which took effect on January 1, 2020.

The changes affect the interpretation and administration of value-added tax, excise, rent taxation, business license, and customs legislation. They are intended to harmonize administrative and procedural rules, enshrine in the law the fundamental rights and obligations of taxpayers, and modernize the tax agency and its processes.

According to guidance released by Vanuatu's customs and tax administration, the main changes in the new Tax Administration Act are as follows:

  • Businesses must obtain and use a Tax Identification Number;
  • New forms have been released and various existing forms will be revised;
  • Electronic filing will be extended to more tax processes;
  • The list of penalties and tax-related offenses has been revised, including late-filing penalties.
  • The authority has been granted improved powers to recover tax debt and collect a broader range of information on taxpayers;
  • Tax agents will be required to be registered, effective from April 1, 2020; and
  • Vanuatu will seek to improve how it cooperates with other countries' tax authorities.

The Maldives, meanwhile, on January 7 released an unofficial translation of the territory's new Income Tax Act.

Law No. 25/2019 became effective on January 1, 2020, for all taxes except provisions relating to tax on employee remuneration which will apply from April 1, 2020. The legislation replaces the Business Profit Tax Act, which has been repealed, and introduces a new personal income tax regime.

Under the Act, tax residents (except for temporary residents) of Maldives are taxed on their worldwide income, whereas non-residents are taxed on income derived from Maldives.

The Act provides for a new four-rate personal income tax regime, with rates of 5.5 percent, 8 percent, 12 percent, and 15 percent. The annual income thresholds for these rates are income above MVR720,000 (USD46,756), above MVR1.2m, above MVR1.8m, and above MVR2.4m, respectively. Income below MVR720,000 is exempt.

Employee withholding tax (on remuneration) is set at 5.5 percent on income from MVR60,000 to MVR100,000; 8 percent on income between MVR100,001 and MVR150,000; 12 percent on income between MVR150,001 and MVR200,000; and 15 percent on income exceeding MVR200,000.

Where a person that carries on any business in the Maldives makes a payment to a non-resident, withholding tax of 10 percent should be paid. The withholding tax's scope is set out in Section 55(a) of the Income Tax Act. Reinsurance premiums paid to non-residents are subject to a three percent withholding tax rate.

The tax rate on entities other than individuals and banks is 15 percent on income exceeding MVR500,000. Amounts under this threshold are exempt. Banks are subject to a 25 percent income tax rate.

Non-resident international transport operators are subject to a two percent tax on the gross amount of income derived from the Maldives.

New transfer pricing documentation rules require the maintaining of details of the commercial and financial relations between the two parties involved as respects the transaction in question, the terms and conditions made or imposed between the two parties involved as respects the transaction or arrangement; and/or "an explanation as to why the terms of the transaction are concluded as at arm's length", according to the Government of the Maldives, which further revealed that the documents must be prepared and finalized by the due date for the submission of tax return for the accounting period to which the transaction or arrangement relates.

Controlled foreign company rules are included in Section 70 of the Act, thin capitalization rules in Section 71, and rules concerning foreign tax credits in Section 72.

Until next week!

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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