Tax trends in the US, Latin America and Asia- Pacific amid

21 May 2020

Tax trends in the US, Latin America and Asia-Pacific amid COVID-19Global tax investing services webcast series

Page 2

Disclaimer

► This presentation is provided solely for educational purposes; it does not take into account any specific individual or entity’s facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting, or legal advice. Ernst & Young LLP expressly disclaims any liability in connection with the use of this presentation or its contents by any third party.

► Neither EY nor any member firm thereof shall bear any responsibility whatsoever for the content, accuracy, or security of any third-party websites that are linked (by way of hyperlink or otherwise) in this presentation.

► The views expressed by the presenters are not necessarily those of Ernst & Young LLP or other members of the global EY organization or of any other company or organization.

Tax trends in the US, Latin America and Asia-Pacific amid COVID-19

Page 3

moderatorToday’s

Kelly Sullivan

Senior Manager Ernst & Young LLP


Page 4

speakersToday’s

Lucy WangPartnerErnst & Young LLP

Jeong Hun YouPartnerErnst & Young - Korea

Gustavo CarmonaPartnerErnst & Young LLP

Deborah PfliegerPartnerErnst & Young LLP

Mariela GonzalezManagerErnst & Young LLP

Enrique Perez GrovasPartnerErnst & Young LLP

Douglas SawyerManaging Director Ernst & Young LLP

Young Ju SongSenior Manager Ernst & Young LLP


Page 5

United States

Page 6

Due dates


Page 7

FATCA Reporting on Forms 8966

• On 30 March 2020 IRS posted FATCA FAQ Q4 which extended the due date of Forms 8966 from 31 March 2020 to 15 July 2020 by

• Model 2 IGA FFIs and Participating FFI

• Extension is automatic, no need to file Form 8809-I

• IRS updated the FAQ to provide similar relief to other filers such as US withholding agents, registered deemed compliant FFIs, direct reporting NFFE and sponsored FFIs not under an IGA


Page 8

Model I IGA country FATCA reporting submissions to the US competent authority

• General requirement to submit 2019 FATCA data to the US by 30 September 2020

• On 14 April 2020 IRS posted FAQ Q5 in the reporting section of the FATCA FAQs which extended the due date for submitting 2019 data to 31 December 2020

• However, reporting Model I FFIs must look to their local tax authorities for any revisions in the due date for local country submissions


Page 9

• On 29 April 2020 IRS posted FATCA Certification FAQ Q21 which provides an automatic extension of time for entities required to submit a RO certification in 2020

• Due date has been extended from 1 July 2020 to 15 December 2020

• No application for the extension required as the revised due date will be reflected on the FATCA registration portal

FATCA RO certifications


Page 10

Forms 1099 and 1042-S

• No special relief provided to extend the normal due dates for filing

• Automatic 30 day extension of IRS copies by filing Form 8809

• Additional 30 day extension for “hardship” can be requested but is not granted automatically

• “Pandemic” is not a check box to select for the hardship however one would hope the IRS would consider it a good reason to grant the second extension

• Remember that extensions for the payee copies must be requested via letter sent to the IRS Service Center in Kearneysville, WV and the IRS Service Centers are currently closed


Page 11

Income tax returns Forms 1040-NR and 1120-F

• IRS Notice 2020-23 extended the filing deadlines for filing income tax returns Form 1040-NR (U.S. Nonresident Alien Income Tax Return) and Form 1120-F (U.S. Income Tax Return for Foreign Corporations)

• Return for individual’s with wages, Form 1040-NR that was due April 15, 2020 is now due 15 July 2020 and an extension to October 15, 2020 can be requested

• Returns for entities with a US trade or business or effectively connected income that was due 15 April 2020 is now due 15 July 2020 and an extension to 15 October 2020 can be requested

• Claims for refunds of overwithholding only on Forms 1040-NR or 1120-F for taxes withheld in 2019 AND 2016 are both now due 15 July 2020 instead of 15 June 2020


Page 12

Other items to note


Page 13

Taxpayer identification numbers

• Since IRS Service Centers are closed until further notice, taxpayers cannot contact the IRS via phone, fax or mail

• Non-US residents therefore cannot obtain an employer identification number (EIN) for a legal entity or an individual taxpayer identification number (ITIN)

• An EIN or ITIN may be required on a Form W-8 or on an US income tax return filed if the foreign entity has effectively connected income or for an entity or individual to claim a refund of overwithholding by a withholding agent


Page 14

Non-US individuals unable to leave the US due to COVID-19: Rev. Proc. 2020-20

• Substantial presence test

• The Revenue Procedure provided relief for the calculation of whether a non-US individual is present in the US for an amount of time such that they are considered a US resident alien subject to US income tax

• The non-U.S. individual is allowed to exclude up to 60 days of physical presence in the US during the “COVID-19 Emergency Period” (February 1, 2020 to April 1, 2020)


Page 15

Non-US individuals unable to leave the US due to COVID-19: Rev. Proc. 2020-20 continued

• Treaty relief on compensation for personal service

• Non-US residents receiving compensation for personal services performed in the US may be eligible for reduced treaty rates of withholding

• Treaty relief is obtained by filing Form 8233 (Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual) with the withholding agent

• In many treaties, individuals are eligible for treaty benefits if they are in the US under a certain number of days, typically 183 days

• Individuals that have been in the US longer than expected due to COVID-19 should update their Form 8233 with withholding agents by writing “COVID-19 MEDICAL CONDITION TRAVEL EXCEPTION”


Page 16

IRS mission-critical functions during COVID-19

• Paper income tax returns cannot be processed since service centers are closed

• Customer service live phone lines are not supported at this time

• US Residency Certifications, Forms 6166, processing has been temporarily suspended

• Forms and publications cannot be mailed at this time

• New automated liens and levies are suspended

• No new field, office or correspondence examinations at this time

• Collections initiated by field revenue officers are suspended

• Office of Chief Counsel, Appeals and Taxpayer Advocate Service continue to work but are not holding in-person meetings


Page 17

FATCA reporting of US TIN for pre-existing accounts

IRS updated FATCA General FAQ 3 to confirm the end of Notice 2017-46 transition relief on December 31, 2019

• For calendar year 2020 (information returns to be filed in 2021), Model 1 Foreign Financial Institutions (FFIs) must report US taxpayer identification numbers (US TINs) for preexisting accounts

• If Model 1 FFIs do not report US TINs or report US TINs that are clearly invalid for US-person accounts…

FFI has 120 days to correct Error Notice from competent authority

IRS assess significant non-compliance, if error not corrected after 120 days

IRS notify competent authority if determined significant non-compliance

FFI has 18-month to remediate

• Establishing good faith efforts

• FFIs may consider requesting US TINs that are missing on a regular basis and maintaining a record if the account holder responds to the request along with their reason why the US TIN could not be provided


Page 18

Latin America

Page 19

Latin America

Agenda• LATAM response to COVID-19

• Brazil update

• Chile update

• Mexico update


Page 20

Current landscape in LATAM

• Significant increase in COVID-19 cases

• Health care systems saturated

• Mandatory shutdowns on non-essential activities

• Focus on government spending and social programs

• Impact on overall economic and financial indicators

• No major tax incentives or relief programs announced


Page 21

Brazil tax reforms

• Intention to reduce rate, tax dividends and adjust tax basis.

Corporate income tax

• Agreement to move towards OECD arm’s-length principle.

Transfer pricing

• Need to be prepared for future changes on reduction or elimination of tax incentives.

• Modelling scenarios for potential impacts on current operations and future investments highly advisable

Key considerations

• Simplification by means of consolidating taxes in a single Federal VAT

Indirect tax

• Congressman proposed a bill to tax digital transactions

Digital taxation:


Page 22

Brazil: action points

Measures with cash/profits and

loss impacts

Cashing in tax credits from

previous periods

Cash repatriation alternatives/

financing local operations

Review of intragroup

transactions and practices


Page 23

2020 Chilean tax reform

• Dividend withholding tax:

• One mandatory tax regime for large Chilean entities - semi integrated regime (available as an alternative to attributed tax regime, both established in 2017)

• 27% corporate income tax (exceptions available for small size companies)

• Overall 35% / 44.45% depending on country of residence of non-Chilean shareholder

• Changes in withholding mechanism:

• 8% WHT for dividends remitted to residents in countries that have signed a tax treaty with Chile before 2020 (this includes the US).

• 17.45% for dividend remitted to residents in countries without a tax treaty with Chile (this includes The Netherlands, Germany, Luxemburg, and preferential jurisdictions).

• Any difference (to compound the 35%/44.45% is calculated and paid by the local company in April 2021)


Page 24


• Reduced dividend rate

• Overall 30% reduced rate (instead of 35% / 44.45%)

• Only available to earnings generated before year 2017

• 30% is offset by corporate tax paid by the respective earnings

• Interest withholding tax

• Reduced domestic interest withholding rate of 4% (instead of generally available of 35%) is no longer available under back-to-back structures

• Restriction does not apply to loans granted before 2020 (to the extent it is not significantly amended)


Page 25


• Other provisions

• Digital 19% tax

• New regional contribution

• Temporary accelerated depreciation regime

• Gradual prohibition for Chilean holdings to obtain refund for taxes paid by local subsidiaries.


Page 26

Mexico tax reform

• Limitation based on an (earnings before income tax, depreciation and amortization) EBITDA-type calculation

• Some exceptions apply

Limitation for deducting interest expenses

• Consider recharacterization of transactions

• Tax benefits higher than economic purpose

• Step-transaction abuse

General anti-avoidance rule

• Payments to low-tax jurisdictions • Transactions which are considered as

“hybrid transactions”• Some exceptions apply

Limitation for deducting payments abroad

• Starting on 2021• Taxpayer responsible for pre-2020

Disclosure Regime

Limitation for deducting

payments abroad

Limitation for deducting interest

expenses

General anti-avoidance

rule

Tax compliance requirements

Digital economy

Disclosureregime


Page 27

What to do next in Mexico?

• Ensure tax positions are aligned with the business performance and cash-flow needs

• Prepare tax positions to face COVID-19 and post-COVID environment considering no-tax relief/no-tax incentives are being granted by government

• Cash repatriation and entity rationalization (mergers, wind-ups, prepayments, dividend distributions, capital redemptions)

• Effective use of tax assets and tax positions (e.g., net operating loss (NOL’s), tax favorable balances, depreciation rates, refunds, credits, review monthly corporate tax payments, inventories management)

• Deductions for loss positions (e.g., transactions under loss position) and penalties by claiming fortuitous event/force majeure

• Cash-flow producing transactions (e.g., disposition of receivables accounts/factoring)

Next steps


Page 28

Asia Pacific

Page 29

OIV regime in Korea

► A special rule to withhold tax for OIV was introduced in 2012

► OIV means an investment entity that distributes profits to its investor(s) and is established overseas

► A foreign investor is regarded as a substantive owner of the income received through OIV

► The substantive owner is defined as a de facto owner who bears legal and economic risks and holds right to dispose the Korea-source income

► Uncertainty exists whether a substantive owner is interchangeable with BO. Tax treaty benefits may be awarded to a substantive owner as opposed to BO

Investment through OIV

Investors InvestorsInvestors

OIV&

OPCIV

Korean Investments

Overseas

Korea


Page 30

OIV Regime in Korea

At source filing

• Investors

• Investors are required to submit appropriate treaty claim forms along with certificate of tax residence.

• OIV

• OIV/OPCIV is required to file appropriate OIV report together with treaty claims forms collected from investors.

Withholding reclaim

• Withholding reclaim is available within the five-year period beginning on the last day of the month in which taxes are withheld.



OIV&

OPCIV

Korean Investments

Overseas

Korea

Obtaining treaty benefits

Forms+

CoTRForms

+ OIV report

Custodian

Brokerage


Page 31

Historical issues

Issue 1: entity classification

• Mixed opinion exists OIVs in the form of limited partnerships which own an asset, become a party to a lawsuit, or directly hold a right or owes an obligation, independent of its members should be treated as opaque or transparent entities.

Issue 2: documentation requirements

• Tracing investors and collecting forms to comply with relevant laws are challenging.

Issue 3: BO determination

• BO is defined broadly and determined based on facts and circumstances.



OIV&

OPCIV

Korean Investments

Overseas

Korea

Forms+

CoTRForms

+ OIV report

Custodian

Brokerage


Page 32

Recent legislative changes

Definition of foreign corporation (Issue 1)

• The term ‘foreign corporation’ no longer includes an organization that owns an asset, becomes a party to a lawsuit, or directly holds a right or owes an obligation, independent of its members.

• Limited partnerships, other than corporate-type, would be treated as transparent entities.

OIV as deemed BO (Issue 2)

• Beginning on January 1, 2020, OIV is treated as deemed BO provided that OIV is liable to tax in its country of residence and no intention exists to wrongfully evade tax in Korea.

• This simplifies documentation requirements for corporate-type OIVs.

Supreme Court determination on BO (Issue 3)

• Recently, regulated vehicles (Lux SICAVs & German public funds) are determined as BOs. The Court looked at if the fund is able to obtain CoTR, make its own investment decision, retain a legal ownership of investments and enjoy the right to use income.

• The regulated vehicles are likely to be found as BOs if CoTR is available and considered that it is not established to avoid tax.


Page 33

Potential implication to portfolio investors

Corporate type/regulated vehicle (SICAF, SICAV, US RIC, etc.)

• It would be positively considered as deemed BO. Thus, treaty benefits could be obtained with less administrative burden at source.

Non-corporate type vehicle (partnership, CCF, FCP, etc.)

• This type OIV/OPCIV could file appropriate forms with more certainty to claim treaty benefits.

Prospective reclaim opportunities

• Recent legislative changes and court decisions enable us to seek tax reclaim opportunities.

• The type of services that we could provide as follows:

• Feasibility study• BO test• Tax ruling service• Tax reclaimsPage 33


Page 34

Legislative updates

Treaty updates

• Singapore• A country where the gains from a transfer of shares arise may

impose tax only if a taxpayer holds directly or indirectly 25% of the total shares issued by the company. If not, a country where the taxpayer resides may impose tax.

• A county where royalties arise may impose tax at a rate of 5%. It used to be taxed at a rate of 15%.

• The provisions became effective on December 31, 2019.

• The United Arab Emirates • A country where royalties arise may impose tax at a rate of 10%.• A country where the gains from a transfer of shares arise in which a

taxpayer owns at least 25% in the company may impose tax at a rate of 10%.

• The provisions became effective on February 29, 2020.

• Czech Republic• A country where dividend income arises may impose tax at a flat rate

of 5%. • A county where interest income arises may impose tax at a rate of 5%.

It used to be taxed at a rate of 10%. • The provisions became effective on December 20, 2019.

• India• Korean tax authority clarifies that the local income tax is covered

under the tax treaty.


Page 35

Legislative updates

International tax law updates

• On 13 May 2020, Korea deposited its instrument of ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI) with the OECD. At the time of depositing the instrument of ratification, jurisdictions must confirm their MLI positions. Accordingly, Korea submitted the definite list of 45 tax treaties entered into by Korea and other jurisdictions that Korea would like to designate as Covered Tax Agreements (CTAs), i.e., tax treaties to be amended through the MLI and the list of reservations and notifications. The MLI will enter into force for Korea on the first day of the month following the expiration of a period of three calendar months beginning on the date of the deposit by Korea of its instrument of ratification.


Page 36

China’s new rule in claiming tax treaty benefits for non-residents

New changes

• Public Notice [2019] No.35 was issued in October 2019 and took effective from January 1, 2020

• It applies to non-resident taxpayers for their China Corporate Income Tax and Individual Income Tax implications

• It introduces a new approach to claim tax treaty benefit, which is to conduct self-assessment, declare tax treaty benefits, and retain information for future inspection

What to be mindful

• Taxpayer will take more responsibilities and face more uncertainties

• Non-resident taxpayer may need to work with its withholding agent (where applicable) in the process

• Possible late payment interests or penalties may be imposed if failing in future tax authority’s inspection

It is important to conduct a full technical analysis in self-assessment and to well maintain all relevant documents (including supporting information and technical analysis, etc.) in-house


Page 37

China further opens up in financial services sector

On January 15, 2020, the US and China signed the phase one trade deal

• China shall allow US financial services suppliers to apply for asset management company (AMC) licenses that would permit them to acquire non-performing loans (NPL) directly from Chinese banks, beginning with provincial licenses.

The cap for foreign investors in their China invested enterprises such as securities, fund management and futures brokers companies has been phased out on April 1, 2020

• More wholly foreign owned invested enterprises being in the market

Developments in QFII and RQFII investments

• Quota limitation for investment will be removed in June 2020• Profits repatriation procedures are expected to be simplified


Page 38

Possible NPL investment structures by foreign investors

• Structure 1: Direct Investment from offshore


Page 39

Possible NPL investment structures by foreign investors

• Structure 2-a: Indirect Investment through onshore structure

• Structure 2-b: Indirect Investment through onshore structure


Page 40

Key tax considerations for doing NPL in China

Investment holding

structure

Fundingoptions

Peoplearrangement

On-goingconsiderations

• Tax implications under different structure?

• Feasibility based on business goals

• Incentive and financial subsidies?

• Funding options for pre-establishment expenses?

• Foreign exchange implications?

• PE risk?

• ITT implications?

• Secondment of Local people arrangement?

• China tax compliance, NPL collection and disposal, pricing model and negotiations?

• TP considerations?


For more information,

please visit:

https://www.ey.com/en_us/covid-19.

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. For more information about our organization, please visit ey.com.

© 2020 Ernst & Young LLP.All Rights Reserved.

2004-3468359ED NoneSCORE no. 09411-201US

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

ey.com

Documents

Tax trends in the US, Latin America and Asia- Pacific amid