The outlook for global tax policy and controversy in 2019 ...€¦ · global tax policy and controversy in 2019: country chapters. 2 | The outlook for global tax policy in 2019 Contents

The outlook for global tax policy and controversy in 2019: country chapters

2 | The outlook for global tax policy in 2019

Contents

Argentina 3Australia 9Austria 19Belgium 25Brazil 33Canada 41Chile 49People’s Republic of China1 55Colombia 63Costa Rica 71Czech Republic 79Denmark 85Dominican Republic 91El Salvador 99Finland 107France 113Germany 121Greece 129Guatemala 135Honduras 143Hong Kong SAR 149India 157Indonesia 165Ireland 173

Israel 181Italy 187Japan 195Kazakhstan 201Luxembourg 207Malaysia 215Mexico 223The Netherlands 231New Zealand 239Norway 249Panama 255Peru 261Russia 267Singapore 275Slovakia 283Slovenia 289Spain 295Switzerland 303Taiwan 309Thailand 315Turkey 323United Kingdom 329United States 339

3The outlook for global tax policy in 2019 |


Argentina

EY key contacts

Tax policyAriel Becher [email protected] +54 11 4318 1686

Tax controversyFelipe Carlos Stepanenko felipe-carlos. [email protected] +54 11 4510 2268

Section 1: Tax rates (2018–2019)

1.1 Key tax rates

2018 2019 % Change

Corporate income tax (CIT) — headline rate

(where both national and local rates apply, provide the average of these)

30% 30% —

Personal income tax (PIT) — top rate


35% 35% —

VAT, GST, sale tax — standard rate

21% 21% —

The Perito Moreno Glacier

• This information current as of 31 January 2019.


2.2 Tax burdens in 2019

Tax types Likelihood of changes in 2019 Direction of change

1. Overall CIT burden � Change already proposed or known for 2019 ☐

� Change possible or somewhat likely in 2019 ☐

; changes expected in 2019 ☐

� Lower burden in 2019 ☐

; Same burden in 2019 ☐

� Increased burden in 2019 ☐

2. Overall size of corporate tax base in 2019

� Smaller corporate tax base in 2019 ☐

; Around the same corporate tax base size in 2019 ☐

� Larger corporate tax base size in 2019

3. Interest deductibility � Change already proposed or known for 2019 ☐


; No changes expected in 2019



� Increased burden in 2019

4. Hybrid mismatches � Change already proposed or known for 2019 ☐






5. Treatment of losses � Change already proposed or known for 2019 ☐






Section 2: Tax policy in 2019

2.1 Key drivers of tax policy change• Government has a commitment to reduce the fiscal deficit to

zero, as agreed with the IMF, which has provided significant aid to Argentina during 2018.

• In line with this commitment, the tax burden is set to increase in 2019, via the creation of new taxes (export duties on goods and services), prohibition of inflationary adjustment for tax purposes and postponement of certain tax reductions previously scheduled for 2019.

• Thus increasing the tax burden to a record level during the current government, which took office in December 2015.

• The reduction of public expenditures, public works/infrastructure and a progressive reduction of subsidies will also aid reduction of the fiscal deficit.


Argentina/Continued


6. Capital gains tax (CGT)(impacting corporations)

� Change already proposed or known for 2019 ☐


; No changes expected in 2019 ☐

� N/A, as there is no CGT




7. Withholding taxes � Change already proposed or known for 2019 ☐

; Change possible or somewhat likely in 2019 ☐

� No changes expected in 2019




8. Taxes on digital activity impacting businesses (including changes to the definition of permanent establishment, etc.)







9. Controlled foreign companies (CFC)



; No changes in 2019 ☐

� N/A, as there is no CFC regime ☐




10. Thin capitalization � Change already proposed or known for 2019 ☐



� N/A, as there is no thin capitalization regime




11. Transfer pricing changes � Change already proposed or known for 2019 ☐




� Same burden in 2019 ☐

; Increased burden in 2019

12. Research and development (R&D) incentives







13. Other business incentives — including depreciation/amortization/capital asset allowances, etc.







14. Changes to tax enforcement approach









15. VAT, GST or sales tax rate � Change already proposed or known for 2019 ☐



� N/A, as there is no VAT, GST or sales tax




16. VAT, GST or sales tax base � Change already proposed or known for 2019 ☐



� N/A, as there is no VAT, GST or sales Tax




17. Top marginal PIT rate � Change already proposed or known for 2019 ☐






18. PIT base � Change already proposed or known for 2019 ☐






19. Is your country undergoing tax reform in 2019

� Yes — comprehensive tax reform ☐

� Yes — significant tax reform ☐

; No — present tax changes are routine ☐

20. If you answered Yes to question 19 above, to what extent do you think your country’s tax reform is/was influenced by the need to form a policy response to US tax reform?

� It was significantly influenced ☐

� It was influenced somewhat ☐

� It was not influenced ☐

; N/A

2.3 Tax policy outlook for 2019 — summary

Overall CIT burden Overall PIT burden

Overall VAT/GST/sales tax burden

Lower HigherNo

changeLower Higher

No change

Lower HigherNo

change


2.4 Tax policy outlook for 2019 — detailCorporate income taxes

• After the last tax reform in force as of 2018, no significant changes are expected for 2019.

• ☐Inflation was 48% in 2018, resulting in no inflation adjustment, which in practical terms means a higher tax burden for companies. Tax reform included an inflationary adjustment if inflation was over 33%, but this threshold was retroactively amended to 55%.

Taxes on digital business activity

• No significant developments are expected for 2019.

• The government is expecting to introduce a major reform on this matter once the definitive report on BEPS Action 1 is agreed on by 2020.

• A new tax on the export of services for 2019 and 2020 (see below) would mean a higher tax burden for companies exporting software or other technological services.

Taxes on wages and employment

• No significant changes are expected.

• The consolidation of social security rates for small and big companies, as well as increase of a minimum deductible amount, continues as scheduled.

VAT/GST/sales taxes

• No changes in national VAT.

• Committed reductions in provincial turnover tax for 2019 have been postponed for one year considering the need to reduce fiscal deficit.

• New export taxes of 12% on the export of goods (with a limit of ARS 3 or 4 per dollar depending the type of goods) and a new tax on export of services (12% with a limit of ARS 4 per dollar) were introduced as a way to increase tax collection, in a context of a significant devaluation which took place during 2018.

2.5 Political landscape• The current government took office in December 2015 and has a

4-year term expiring in December 2019 (elections will be held in October 2019).

• The current president can be reelected for 1 more period.

• In response to a crisis in 2018 and the fall of GDP, the government is trying to grow the economy in 2019, which may make reelection possible.

• The election results are unpredictable, with a possibility that the current president (Mauricio Macri) may run against the former president (Cristina Fernandez de Kirchner).

2.6 Current tax policy and tax administration leaders

• Mauricio Macri, President

• Marcos Peña. Chief of Cabinet

• Nicolas Dujovne, Minister of Finance

• Secretary of Public Revenues: Vacant

• Cuccioli, Federal Administrator of Public Revenues (chief of the federal tax authorities)

2.7 What key tax policy changes did you experience in your country in 2018?

• The country went through a significant economic crisis during 2018, including a significant devaluation of the local currency against the US Dollar.

• The government had to agree to aid from the IMF, which led to a necessary commitment to reduce the public deficit by reducing expenditures as well as increasing the tax burden.

• The government intends to overcome this crisis in 2019 and be able to reinstate a more reasonable tax environment in the future.

2.8 Pending tax proposals• There are no significant pending tax proposals; however, certain

tax treaties recently signed (with Qatar, China and Turkey) still need legislative approval. The Multilateral Instrument signed by Argentina also needs legislative approval to be in force.

2.9 Consultations opened/closed• N/A

Argentina/Continued


Section 3: Tax enforcement in 2019

3.1 General approach to tax enforcement in 2019Which of the following statements most closely matches your expectations in regard to your national tax authority’s approach to tax enforcement in 2019?

A. Will proactively build trust-based relationships with taxpayers, encouraging cooperative compliance, while still insisting on substance-based approaches

B. Will be open to trust-based relationships, generally seen as non-aggressive in dealings with taxpayers, while also insisting on substance-based approaches

C. Will be neutral in approach — will not be viewed as overly open or openly aggressive in dealings with taxpayers

D. Will apply highly robust scrutiny to all taxpayers, using all available tools and laws, but will generally be seen as being fair and balanced when dealing with taxpayers

E. Will be viewed as generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening/using criminal sanctions

3.2 Current general approach to tax enforcement The approach to tax enforcement has not changed significantly in the past three years, but differs from the approach in force until 2015, when the position of the authorities was aggressive and non-cooperating with taxpayers. Authorities currently seem more open to discuss initiatives and to consult with the private sector when necessary, while paying attention to collection and the need to increase revenues and tackle tax evasion.

3.3 Key enforcement developments seen in 2018In 2018, there was an increase in the use of information and more information became available automatically to taxpayers as well as in tax audits.

3.4 Likely enforcement developments in 2019In 2019 there will likely be an increase in the use of information as well as an increase in the exchange of information with other countries.

3.5 Top risk factors and audit triggers in 2019

Issue/trigger name Description

1 Transfer pricing New transfer pricing rules (including master file, CbCR and new TP development included in the 2017 reform but recently regulated at the end of 2018) make TP and general cross border transactions more visible and more subject to scrutiny.

2 Tax treaties With the enforcement of new tax treaties with new and updated anti-abuse clauses and the potential enforcement of the Multilateral Instrument, the approach towards treaty compliance will likely strengthen.

3 Export duties New export duties on goods and services will bring more collection, but also the need to comply with new tax returns and payments. This will probably suffer changes during the first months of implementation and will trigger the need for new audit approaches.

4 Digital government New digital filings and the generalized use of electronic invoicing will give the government more and updated information on taxpayers, transactions, etc.

5 Inflation Suspension of the inflationary adjustment is a source of controversy as some taxpayers apply it anyway and afterwards seek litigation. New cases on this matter and new approaches by taxpayers may take place during the coming year.


Australia

Tax policyAlf Capito [email protected] +61 2 8295 6473

Tony Stolarek [email protected] +61 3 8650 7654

Tax controversyMartin Caplice [email protected] +61 2 9248 4977


1.1 Key tax rates

2018 2019 % Change



30% 1

(27.5% for “base rate entity”,i.e., income under $25m) 2

30% 3

(27.5% for “base rate entity”,i.e., income under $50m) 4

—



45% 5 45% 6 —


10% 7 10% 8 —

1 Section 23 (2)(b) of the Income Tax Rates Act 1986 2 Sections 23 (2)(a) and 23AA of the Income Tax Rates Act 1986

3 Section 23 (2)(b) of the Income Tax Rates Act 1986 4 Sections 23 (2)(a) and 23AA of the Income Tax Rates Act 1986 5,6 Schedule 7 of the Income Tax Rates Act 1986 7,8 Section 9-70 of a New Tax System (GST) Act 1999

EY key contacts

Crowds at Melbourne Cricket Ground





1. Overall CIT burden ; Change already proposed or known for 2019 ☐





; Increased burden in 2019 ☐


N/A � Smaller corporate tax base in 2019 ☐

� Around the same corporate tax base size in 2019 ☐

; Larger corporate tax base size in 2019

3. Interest deductibility ; Change already proposed or known for 2019 ☐






4. Hybrid mismatches ; Change already proposed or known for 2019 ☐













2.1 Key drivers of tax policy change• A Federal election is due in 2019, so tax policy can be expected to

have a populist element in 2019.

• The Federal Budget is typically handed down on the second Tuesday in May, but will be brought forward to 2 April 2019. This clears the way for a Federal election. The last possible date for a House of Representatives and half-Senate election is 18 May 2018.

• The current Government is expected to highlight good economic management with a smaller than expected budget deficit for 2018/19 and return to surplus ahead with some spending measures.

• Strong focus on multinational businesses continues including measures on hybrid structures starting from 1 January 2019, and early stage consultations on the taxation of the digital economy.

• Some measures to tackle the black economy were announced in 2018; progress has been made throughout 2018 and more is expected in 2019.


Australia/Continued



; Change already proposed or known for 2019 ☐




























10. Thin capitalization ; Change already proposed or known for 2019 ☐


� No changes expected in 2019 ☐






















; Lower burden in 2019 ☐



















16. VAT, GST or sales tax base ; Change already proposed or known for 2019 ☐













18. PIT base ; Change already proposed or known for 2019 ☐








; Yes — significant tax reform ☐

� No — present tax changes are routine ☐



; It was influenced somewhat ☐


� N/A


Overall CIT burden

Lower HigherNo

change


Lower HigherNo

change

Lower Higher

Overall PIT burden

No change



No CIT rate change expected in 2019

• The Labor opposition has vowed to keep existing and future CIT rate cuts from 2020/21 for so called Base Rate Entities which are entities with aggregated turnover of less than $50 million

• CIT rate cuts for companies with turnover of $50 million or more are off the agenda despite a much stronger Federal Budget position

Other measures

• ☐Businesses entering into Australian Government procurement contracts over $4 million will, from 1 July 2019, be required to provide a satisfactory statement of tax record (STR) from the ATO that that they are generally compliant with their tax obligations

• Consultation held and Bill to be introduced on proposed amendments to the Division 7A private company integrity rules, previously announced in 201 6 and deferred as part of the Federal 2018-19 budget to apply from 1 July 2019.

• ☐Business payments in excess of $10,000 to be received through the electronic payment system or by cheque from 1 July 2019 but not cash under Black Economy measures.

• ☐The Government has responded to a review of the Petroleum Resource Rent Tax (PRRT). A number of key changes are proposed to apply from 1 July 2019. The final Government response includes changes to both new and existing projects. Exposure draft legislation expected to be issued for comment by January 2019, with final legislation later in 2019.

• ☐The Government announced it will reform Australia’s Offshore Banking Unit (OBU) regime in order to strengthen the integrity of Australia’s tax system. The OECD’s Forum on Harmful Tax Practices had raised concerns, including the concessional tax rate and the ring-fenced nature of OBU regime.


Discussion paper on taxation of digital economy

The Discussion Paper (DP) of October 2018 explores a corporate tax system for the digital economy in Australia. The DP does not provide any recommendations nor express a clear preference for any particular measure for taxing the digital economy either on a long-term structural basis or an interim basis. However, it implies that an interim digital services tax (DST) may be warranted given the likelihood that no long term global solution is in sight. Ernst & Young Australia has been active in conversation with Treasury and made a submission.


• A legislated seven☐year plan to address tax bracket creep: low and middle☐income earners with adjustments to the 32.5% tax bracket are the first priority.

• ☐ By 2024–☐25 around 94 per cent of taxpayers are projected to face a marginal tax rate of 32.5 per cent or less, with top marginal rate of 45% plus 2% Medicare Levy applying from $200,000

• A bill has been debated in Parliament regarding a one-off, twelve month amnesty for employers to catch up on underpaid contributions for employee superannuation. This will result in top-up superannuation payments, including interest, ensuring employees receive their full entitlements. The amnesty addresses historical non-compliance. The Bill also provides relief for certain taxpayers with multiple superannuation accounts.

• Proposed changes to employee share schemes (ESS) framework liberalise the rules and their usability.

VAT/GST/sales taxes

• Currently, unlike GST-registered businesses in Australia, offshore sellers of Australian hotel accommodation are exempt from including sales of hotel accommodation in their GST turnover. This means they are often not required to register for and charge GST on their mark-up over the wholesale price of the accommodation. Legislation will extend Australia’s GST by ensuring that offshore sellers of hotel accommodation in Australia calculate their GST turnover in the same way as local sellers with effect from 1 July 2019.

• GST withholding tax at settlement: On or after 1 July 2018, certain purchasers of new residential premises or potential residential land will be required to withhold an amount from the price of the supply for payment.

2.5 Political landscape• ☐Australia’s 45th Parliament is fragmented. The Government no

longer has the majority in the lower house and is in constant danger of facing a vote of no confidence; in the Senate, decisions need the support of minor parties, which tend to adopt populist approaches.

• Comprehensive tax reform is not on the agenda for 2019. Tax policy is dominated by changes to existing law, with very little long-term economic reform.

• Scott Morrison became Australia’s 30th Prime Minister on 24 August 2018 after a leadership battle. Australia has had seven different Prime Ministers in 10 years, despite strong economic growth and full employment conditions.

• The Federal Election will likely occur on 11 or 18 May 2018. The Labor party will go into the election with a detailed plan on tax policy with measures such as relying on a worldwide gearing test for thin capitalization purposes. Their proposed changes to refundable franking credits, negative gearing and Capital Gains Tax (CGT) discount are already creating debate within the tax community.

Australia/Continued



Tax policy leaders

• Scott Morrison MP, Prime Minister

• Michael McCormack MP, Deputy Prime Minister

• Josh Frydenberg MP, Treasurer

• Stuart Robert MP, Assistant Minister to the Treasurer

• Zed Seselja, Assistant Minister for Treasury and Finance

• Kelly O’Dwyer MP, Minister for Jobs, Industrial Relations and Women

• Michaelia Cash MP, Minister for Small and Family Business, Skills and Vocational Education

• Michael Keenan MP, Minister for Human Services and Digital Transformation

• Senator Mathias Cormann, Minister for Finance

Tax administration leaders in Australian Taxation Office (ATO)

• Chris Jordan AO, Tax Commissioner and Registrar of the Australian Business Register

• Jeremy Hirschhorn, (Acting) Second Commissioner (Client Engagement)

• Andrew Mills, Second Commissioner (Law Design and Practice)

• Jeremy Hirschhorn, Deputy Commissioner, Public Groups and International

• Mark Konza, Deputy Commissioner, Public Groups and International


BEPS measures

• BEPS Action 1: GST was extended to low-value imported goods (valued at A$1,000 or less) to apply from 1 July 2018.

• BEPS Action 2: Australia’s hybrid mismatch law to implement the OECD hybrid mismatch rules enacted to apply application from 1 January 2019

• BEPS Action 4: Thin capitalization integrity measures to apply from 1 July 2019 removing the ability to recognize and revalue some types of assets for thin capitalization purposes only. Entities will have to rely on their financial statements for values in the thin capitalization safe harbor calculation. Also, certain inbound multinationals no longer have access to safe harbor calculation methods designed for outward investors only

• BEPS Action 15: OECD Multilateral Instrument (MLI) measures enacted in Australia and deposited with the OECD. The MLI will commence to alter certain Covered Tax Agreements from 1 January 2019.

Other measures

• Extended the $20,000 instant asset-write off to the end of the financial year 2018/19

• Measures enacted to accelerate lower corporate tax rates of 26% in 2020-21 and 25% from 2021-22 for Base Rate Entities (entities that derive no more than 80% of their income in passive forms and have an aggregated turnover of less than $50 million)

• R&D tax incentive reform measures proposed with significant impact for R&D entities including large businesses, many of which will see reduced incentives. The measures applied from 1 July 2018. However the process for passage of this Bill is postponed, which may create a significant impact.

• Stapled structures and other non-concessional managed investment trusts (MITs) income and foreign investor measures broadly apply from 1 July 2019. These:

• introduce a new 30% non-concessional category of income for MIT foreign resident withholding tax, so denying the concessional 15% (or 10% for clean buildings) rate, for certain:

• Stapled trust-company income (with exemptions for certain third party rent)

• Trading trust income

• Non-affordable residential housing income

• Agricultural land income

• limit foreign pension fund withholding tax exemptions for interest and dividends to portfolio investments in Australia

• codify rules for applying tax exemptions for certain income of foreign government investors, with new restrictions

• make thin capitalization changes to prevent double gearing arrangements (from 1 July 2018).

• A series of Managed Investment Trust (MIT) and Attribution MIT (AMIT) technical amendments (where AMIT measures apply from 2018-19), including Allowing a MIT with a single unitholder that is a specified widely-held entity to access the AMIT regime.

• ☐Measures proposed to extend the significant global entity (SGE) definition, targeting members of large groups headed by private companies, trusts or investment entities, which may fall out under the existing definition. SGE classification potentially exposes companies to increased tax penalties, country by country reporting (CbCR), obligations to lodge general purpose financial statements (GPFS), diverted profits tax (DPT) and multinational anti-avoidance law (MAAL). The changes to be effective from 1 July 2018 may impact private equity firms and their investees as well as other fund groups and large private groups.

• ☐Proposed black economy measures extending the Taxable Payment Reporting System (TPRS) to road freight, information technology and security, investigation or surveillance services — to ensure payments made to contractors in these sectors are reported to the ATO.


• Measures introduced to disallow deductions for payments including:

• salary, wages, commissions, employee bonuses or allowances;

• directors’ fees;

• under a labor hire arrangement; or

• for a supply of certain services where the payee has not quoted its ABN,

• if the payer did not withhold tax from the payment or did not notify the Commissioner when required. Measures to apply from 1 July 2019.

• ☐Updated draft Bill of the tax provisions for the proposed corporate collective investment vehicle (CCIV) regime was released including an expanded rollover for transfers from an AMIT to a new CCIV

• Superannuation Guarantee (SG) integrity package introduced to enforce penalties and various other integrity measures on employers and directors for failure to pay superannuation entitlements. The Bill also extends Single Touch Payroll reporting to all employers.

2.8 Pending tax proposalsMeasures announced in 2018 Federal Budget but remaining pending include:

• Removing the CGT discount for MITS and AMITs — MITs and AMITs will no longer be eligible to apply the 50% CGT discount at the trust level from 1 July 2019. MITs and AMITs will still be able to distribute a capital gain that can be discounted in the hands of the beneficiary, when entitled.

• Income to Individuals from image rights — From 1 July 2019, individuals (typically high profile persons) will no longer be able to alienate income from image or brand rights that are disposed of or licensed to a related entity. Such income will be assessable to the relevant individual.

2.9 Consultations opened/closed• Open Treasury consultation on tax impacts of new accounting

standard for insurance contracts (AASB17)

Consultations closed, but further actions possible:

• Corporate Taxation and Digital Economy Discussion Paper with questions on areas including:

• Input on issues relating to longer-term international income tax reforms including user-created value and value associated with intangibles, changes to existing profit attribution rules, changes to existing nexus rules, options for broader reform

• design considerations for interim options

• Discussion paper on proposed amendments to the Division 7A private company integrity rules

• Discussion paper on operational governance required for the ongoing management of the trans-Tasman (Australia-New Zealand) e-invoicing interoperability framework

• Discussion paper on satisfactory tax record for business tenders for Government procurement contracts valued at $4 million or more

• Senate Economics Legislation Committee (SELC) inquiry and review on R&D tax incentive reform measures

• Corporate Collective Investment Vehicle (CCIV) tax framework regime — updated draft Bill

• ☐Tax integrity measures on enhancing the integrity of small business CGT concessions in relation to partnerships

• SELC inquiry on MITs concessions and stapled structures Bills

• Thin capitalization reforms — Asset revaluations and outbound measures

Australia/Continued









3.2 Current general approach to tax enforcement The ATO is very focused on risk assessment and calibration of taxpayers, fine-tuning its compliance approaches. The ATO uses various risk filters to detect risks of non-compliant tax positions. Risk reviews may progress to a full ATO audit — particularly those with complex structures and international related-party dealings.

To achieve justified trust, the ATO seek objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax. ATO reviews the following key areas.

• Understanding a taxpayer’s tax governance framework

• Identifying tax risks flagged to the market

• Understanding significant and new transactions

• Understanding why the accounting and tax results vary

The Annual compliance arrangement (ACA) is an administrative arrangement developed to manage compliance relationships in an open and transparent environment.

Key taxpayer engagement (KTE) is a whole-of-tax approach used to engage the largest public and multinational businesses with the largest impact on the tax system. The KTE incorporates a multi-tax or whole-of-tax approach wherever practical and desirable. Under the KTE approach the ATO aim to work with key taxpayers (Top 100) in real-time on significant transactions to ensure they obtain tax outcomes consistent with the law and with our advice and guidance to market.

The Top 1,000 program aims to obtain additional evidence to achieve greater assurance the largest 1,000 public and multinational companies are reporting the right amount of income tax. ATO specialist tax performance teams engage with each relevant taxpayer using tailored compliance approaches to assure they are reporting the right amount of income tax or identify areas of tax risk for further action.

Reportable Tax Position Schedule disclosures call for certain supplementary reporting of arrangements and tax positions taken to be lodged with tax returns for taxpayers. This program has been broadened to require more disclosures, and the class of disclosing taxpayers is expanded to those with Australian turnover in excess of AU$250m from years ending on or after 30 June 2018.

3.3 Key enforcement developments seen in 20188

Tax Avoidance Taskforce

• Raising $10.5 billion in liabilities ($7 billion from large corporate groups and $3.5 billion from HNWI) and

• Collecting $ 6 billion in cash ($4 billion from large corporate groups $2 billion from HNWI)

Addressing related party debt following the ATO success in the Chevron case (transfer pricing of related pawrty debt), with a broad array of related party debt ATO guidance materials and enforcement activities.

Significant Global Entities targeted (MAAL, DPT, CbCR, GPFS and Penalties)

• More than $7 billion in extra sales expected to be reported as a result of the MAAL targeting artificial PE avoidance

• DPT now being enforced

• Penalties for failure to lodge documents ranging from $105,000-$525,000 and penalties for false and misleading statement as well as avoidance schemes doubled

• CbCR fully bedded down

• obligations to file GPFS with ATO which eventually become public

Tech Mahindra decision: Satyam Computer Services Limited v Commissioner of Taxation [2018] FCAFC 172 (11 October 2018)

• The Full Court decision, if it remains unchallenged, provides strong authority for the Commissioner to apply the deemed source provision in the Indian DTA (and DTAs more broadly) to create a liability to income tax in Australia absent a domestic tax provision first giving rise to that liability.


Australia/Continued



1 International structures and profit shifting

The Government and ATO have introduced various BEPS measures that apply from 2019 including:

• hybrid mismatch rules and ATO’s Part IVA (anti-avoidance rules) impact on hybrid restructures applying from 1 January 2019 which assists taxpayers to identify and manage their compliance risk

• OECD Multilateral Instrument in force from 1 January 2019 which may impact forward planning and may require stress testing of structures for multinational companies

2 Thin Capitalization • Thin capitalization asset valuations measures (see item 2.7) applying from 1 July 2019 triggering risks of adverse impact on safe harbor calculation

• ATO has planned release of additional guidance and rulings on thin capitalization measures in 2019 including:

• arm’s length debt test

• bifurcation of financial instruments

• thin capitalization debt deductions

• mining rights recognition and revaluation

• generated intangibles

Offshore hubs — compliance focus, settlements and litigation

• ATO has strong focus on countering use of offshore hubs relating to Australian activities. Practical Compliance Guide PCG 2017/1 includes a risk assessment framework for marketing hubs (Appendix A), Appendix B for non-core procurement and Appendix C for offshore shipping hubs — all with criteria for categorizing taxpayers through risk ratings. ATO compliance enforcement depends on the hub’s risk rating — with a low engagement for a low risk zone consequently followed by a detailed and comprehensive review for higher risk hubs.

Practical compliance guidelines include ATO compliance approaches for

• PCG 2018/5 — Diverted profits tax

• PCG 2018/6 — GST — inbound tour operators and agency

• PCG 2018/7 — anti-avoidance rules and restructures of hybrid mismatch arrangements

• PCG 2018/D3 — Income tax: central management and control test of residency: identifying where a company’s central management and control is located

• PCG 2018/D8 — Transfer pricing issues related to inbound distribution arrangements

Taxpayer Alerts

• TA 2018/1 — Structured arrangements that provide imputation benefits on shares acquired on a limited risk basis around ex-dividend dates

• TA 2018/2 — Mischaracterization of activities or payments in connection with intangible assets

• TA 2018/3 — GST implications of certain development lease arrangements

3.4 Likely enforcement developments in 2019The ATO Corporate Plan 2015-19 says that the ATO is reinventing how it interacts with taxpayers. For publicly listed (including multinational) entities, the tax authorities intend to:

• Help taxpayers self-evaluate their tax governance framework and tax risks

• Resolve issues and disputes more quickly and cooperatively

• Implement better systems for accessing information and services by taxpayers

• Offer guidance (through early engagement) before major transactions



3 Transfer pricing The ATO has released draft PCG 2018/D8 (“Transfer pricing issues related to inbound distribution arrangements”) guidance for transfer pricing strategy for inbound distributors, especially in motor vehicles, pharmaceuticals, medical implants, IT and e-commerce.

The PCG incorporates the use of both general and industry specific benchmarks, for the ATO to issue their view on industry specific “profit flags”. These profit flags are intended to be applied to measure a taxpayer’s risk in the context of a multi-year analysis of performance and will indicate ATO perceived level of transfer pricing risk relating to taxpayer activity represented as green, orange and red zones (or low, medium and high risk from ATO compliance perspective).

4 Taxation of digital economy Initial stage discussion paper (see item 2.4) released with open-ended questions of long-term solution and an interim solution to tax digital activities generating value through user participation. Digital tax is a globally sensitive issue and, with UK and EU progressing to implement interim solutions unilaterally, Australia might choose to commence developing its own version of unilateral digital tax next year which exposes eligible taxpayers to risks of double or multiple taxation.

5 Black economy measures From 1 July 2019, businesses seeking to tender for Australian Government procurement contracts over $4 million (including GST) will be required to provide a statement from the ATO indicating that they have a satisfactory tax record. A discussion paper released in 2018 is likely to lead to a draft bill. This measure leaves Government contracts from a wide range of sectors exposed to increased compliance risk and costs.


Austria

Tax policyMarkus Schragl [email protected] +43 664 60003 1268

Tax controversyMarkus Schragl [email protected] +43 664 60003 1268


1.1 Key tax rates

2018 2019 % Change



25% 25% 0%



Progressive PIT rate up to 55% (e.g., 50% Bracket: EUR 90.000 — EUR 1.000.000;

55% Bracket: > EUR 1.000.000

Progressive PIT rate up to 55% (e.g., 50% Bracket: EUR 90.000EUR 1.000.000;

55% Bracket:

> EUR 1.000.000

0%


20% 20% 0%

1 Section 23 (2)(b) of the Income Tax Rates Act 1986 2 Sections 23 (2)(a) and 23AA of the Income Tax Rates Act 1986

3 Section 23 (2)(b) of the Income Tax Rates Act 1986 4 Sections 23 (2)(a) and 23AA of the Income Tax Rates Act 1986 5,6 Schedule 7 of the Income Tax Rates Act 1986 7,8 Section 9-70 of a New Tax System (GST) Act 1999

EY key contacts

Ironman Austria







� changes expected in 2019 ☐





; Smaller corporate tax base in 2019 ☐






















2.1 Key drivers of tax policy change• Government sees it as crucial to reduce the tax burden to 40%

of GDP; in future years legislative steps are likely to be taken towards a lower CIT rate.

• Government plans on facilitating further tax incentives that will make it more likely for businesses to be set up in Austria which would otherwise be located in more tax-competitive countries.

• There is substantial evidence to suggest that BEPS recommendations will be likely to strongly influence future legislation.

• Reform of the government administrative structures and processes to create a leaner, more efficient and thus more competitive tax environment is on top of the government’s agenda. It is planned to reduce the number of tax offices in

Austria and to transfer them into one “Tax office Austria” in order to:

• Accelerate procedures

• Reduce bureaucracy

• Harmonize legal interpretation and enforcement throughout Austria

• Create better opportunities for specialization in the fight against tax fraud

• Major tax reform with amendments concerning the lowering of the CIT rate (currently 25%) as well as harmonization of profit determination according to local GAAP & tax law in planning


Austria/Continued


























� No changes in 2019 ☐




; Increased burden in 2019☐
































































; Yes — comprehensive tax reform ☐






; It was not influenced ☐

� N/A




Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change



• An amendment taking effect as of January 2019 will implement Art 7 and 8 of the ATAD, introducing new CFC rules. In general, these rules attribute low taxed passive income of foreign controlled corporations and permanent establishments to the Austrian parent company (CFC-rules)

• Amendments to the switch over clause regarding the way that a switch over from the exemption method to the credit method applies for distributions from international participations and qualified portfolio shareholdings over 5%, in case the foreign subsidiary obtains low taxed passive income.

• ☐Austria did not plan to introduce the “interest barrier” according to Art 4 Anti-Tax Avoidance Directive (ATAD) before 1 January 2024, taking the view that current Austrian measures are equally effective as Art 4 ATAD. The European Commission (EC) disagrees and desires implementation by 31 December 2018. This will likely result in proceedings before the EC.


• The government endorses new EC proposals allowing for fair and economic growth-supporting taxation of digital businesses in the EU.


• The government is highly in favor of reducing the PIT burden by means of lowering the PIT rate for brackets up to a personal income of EUR 6.000, but concrete legislative steps are as yet pending.

• Steps toward increasing the efficiencies in payroll tax administration are in planning

VAT/GST/sales taxes

• At this stage, no changes to VAT/GST/sales taxes are to be expected.

Federal Fiscal Code

• New definition of anti-abuse of law. Legal structures are examined with regard to their economic objectives, unusual nature and inappropriateness. Reasonable economic grounds should rule out abuse of law.

• Codification of horizontal monitoring: Effective as of 2019, horizontal monitoring will be applicable for companies who fulfil certain requirements. Applicants will be monitored by the authorities on an ongoing basis, making a retrospective (traditional) tax audit unnecessary.

• The Scope of advance binding rulings will be extended to questions concerning international tax law (as of 1 January 2019), abuse of law (as of 1 January 2019) and VAT (as of 1 January 2020). Previously the scope was limited to questions regarding only reorganizations, transfer pricing and the Austrian CIT group regime.

2.5 Political landscape• Notwithstanding that current policies strive for more tax

competitiveness, Austria is a key-driver in collaborating on an international level to implement the BEPS measures to prevent tax payers from looking into tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.

• Additionally further measures will be taken to effectively combat tax evasion.


• NA


• NA

2.8 Pending tax proposals• Government is striving towards a more efficient tax

administration. Hence, steps towards further enhancement of E-Government & digitalization services are likely.

• Lowering of statutory CIT rate (currently 25%)

• New codification of income tax act

• Harmonization of profit determination according to local GAAP & tax law

2.9 Consultations opened/closed• NA

Austria/Continued








E. Will be viewed as generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threateningusing criminal sanctions

3.2 Current general approach to tax enforcement Generally speaking, Austrian tax authorities were neutral in their approach to tax enforcement in 2018.

3.3 Key enforcement developments seen in 2018There were no significant tax enforcement developments of note in 2018.

3.4 Likely enforcement developments in 2019• N/A



1 Transfer Pricing Transfer pricing documentation, business restructurings, exit taxation

2 Deductibility of financing costs Tax deductibility of financing costs in particular with respect to inter-company financing and financing of share transactions (interest deduction)

3 Substance over form/ Business rationale

Review of (cross border) transactions from a substance-over-form perspective, business purpose review, treaty shopping, etc.


Belgium

EY key contacts

Tax policy

Tax controversy

Steven Claes [email protected] +32 2 774 9420

Leen Ketels [email protected] +32 2 774 6022


1.1 Key tax rates

2018 2019 % Change



29.58% 29.58% —



50% 50% —


21% 21% —

Aerial of Antwerp city along Scheldt river




2.1 Key drivers of tax policy change☐Comprehensive tax reform is entering into force in three successive waves (2018, 2019 and 2020).The reform focuses on corporate tax and is aimed at further improving the business-friendly tax environment and to increase attractiveness for foreign investments. The reform is intended to be budgetary neutral and to align the Belgian legislation with EU and OCDE developments.

The 2019 measures which were previously agreed are expected to be implemented include:

• ☐The Anti-Tax Avoidance Directive, i.e., interest limitation deduction, hybrid mismatches and CFC-rules

• ☐The Tax Consolidation regime

• ☐A Mobility budget in personal tax

• ☐A withholding tax obligation and reporting requirement on foreign professional income

• ☐A new VAT rules relating to immovable rent





� No Changes expected in 2019 ☐



























































































Belgium/Continued





































� N/A


Overall CIT burden5

Lower Higher Lower Higher

Overall PIT burden


Lower Higher

No change

No change

No change


2.4 Tax policy outlook for 2019 — detailTransparency

• Implementation of the EU Mandatory Disclosure Requirements (MDR): Belgium will be required to transpose EU Directive (2018/822) to implement the mandatory disclosure regime into national law by 31 December 2019.

Corporate income taxes

☐The key changes of the second wave of the tax reform of the Belgian tax reform include:

• Implementation of the 2018 summer measures regarding the interest limitation rule from 2020 to 2019 in order to fully comply with the ATAD.

• Implementation of the Anti-Tax Avoidance Directive:

• Interest deduction limitation

• Anti-hybrid mismatch rules

• CFC-rules

Introduction of a Tax Consolidation regimeTaxes on digital business activity• There are currently no taxes specific to digital business activity.

Belgium is expected to follow EU developments with this regards.

Taxes on wages and employment• There are plans for a broad personal income tax reform.

VAT/GST/sales taxes

• No significant changes are expected in 2019.

2.5 Political landscape• In 2019, elections will be organized on a State (Federal), regional

(Flemish, Brussels, Walloon) and European level.

• This may result in a change in the political composition of the respective governing bodies of the Federal and regional political levels.


• ☐Tax Policy Leader – Minister of Finance – Johan Van Overtveldt

• ☐Tax Administration leader – Head of Management Committee - Hans D’Hondt


Overview of the key measures of the Corporate tax reform for 2018

• The corporate tax rate is gradually reduced from 33.99% to 25% in 2020 (FYs starting as of 1 January 2020). For 2018 and 2019, the rate goes to 29.58% (29% plus 2% crisis surtax).

• As of 2018 (FYs starting as of 1 January 2018), small and medium-sized enterprises (SMEs) benefit from a 20.40% tax rate on the corporate tax base below 100.000 EUR (20% as of 2020).

• Dividends are fully exempt under the dividend received deduction (DRD) as of 2018 (FYs starting as of 1 January 2018). The conditions are unchanged (one-year holding period, minimum shareholding requirement of at least 10% or 2.500.000 EUR and subject-to-tax test).

• Capital gains on shares are also fully exempt as of 2018 (FYs starting as of 1 January 2018). The separate tax rate of 0.412% for capital gains on shares is abolished. The conditions to benefit from the capital gains exemption are brought in line with the participation exemption conditions.

• The payroll tax exemption for scientific personnel is extended to certain bachelor degrees as of 2018. As a result of the lower corporate tax rate, the effective tax rate on income that qualifies for the innovation deduction drops to 3.75% as of 2020. The R&D investment deduction and the R&D tax credit are maintained.

Belgium/Continued


Compensating measures of the Corporate Tax Reform as of 2018

• Limitation on certain tax deductions – Minimum tax base: As of 2018, the use of certain deductions is limited to 1.000.000 EUR plus 70% of the tax base exceeding this amount. The limitation applies to the carried forward tax losses, the carried forward participation exemption, the carried forward innovation income deduction and the carried forward notional interest deduction (NID), as well as the new “incremental” NID.

• ☐Reform of the notional interest deduction (NID) with a new calculation: The NID will be calculated on the average incremental net equity over the last five years, and no longer on the full prior-year net equity. Anti-abuse measures are provided.

• Pro rata allocation of capital reductions: Capital reductions will be pro rata allocated to the paid-in capital and to the reserves. The portion allocated to the reserves is considered as a dividend for tax purposes that is in principle subject to withholding tax.

• Fairness tax (FaTa) annulled: To further the annulment of FaTa by the Constitutional Court (Judgment of 1 March 2018), a formal abolition of the legal provisions relating to the FaTa was no longer required. The annulment applies as of assessment year 2019 (financial years ending on or after 31 December 2018).

• Tax prepayments: In order to encourage companies to make tax prepayments, the base interest rate of 1% to calculate the penalty in case of insufficient prepayments is increased up to 3%. For TY 2019 (FY’s starting as of 1/1/2018), the average percentage of the latter penalty amounts to 6.75%. The exception (no increase if calculated amount < 50% of tax or €50) is abolished.

2.8 Pending tax proposals• Bill of Program Law implementing so-called political summer deal

2018

• ☐Bill of Law aligning federal tax provisions (CIT, VAT and inheritance) to the new Code of companies and associations

• Bill of Law introducing the mobility budget

2.9 Consultations opened/closed• ☐ Consultation on transfer pricing circular letter opened (closing on

12 December 2018)









3.2 Current general approach to tax enforcement The relationship between taxpayers and tax authorities is overall neutral. Generally tax enforcement begins with request for information, and the process can be collaborative or adversarial, depending on behavior of parties. In order to improve the relations between taxpayers and authorities, the tax authorities are looking to implement a “horizontal monitoring” regime, which relies on collaboration between taxpayer and tax authorities and mutual trust. This regime is currently in pilot phase.

Regarding tax audits, each year the tax authorities announce a list of target areas on which they will focus their efforts (e.g. exemption of professional WHT for R&D). Furthermore, tax authorities are increasingly focusing on e-audits and have formed specialized teams for this purpose.

From a legislative point of view, the tax authorities’ investigative powers are being expanded, additional reporting requirements are implemented, exchange of information (both domestically as internationally) is further enhanced, statutes of limitation (both for conducting audits and establishing tax assessments) are being increased, penalties are increased and additional measures are implemented to ensure the recovery of taxes.

3.3 Key enforcement developments seen in 2018• ☐Introducing horizontal monitoring through a pilot project with a

limited number of large enterprises

• Encouraging tax compliance by implementing a minimum corporate tax base in case of adjustments further to a tax audit

• Extended statutes of limitation for tax audit with regard to movable WHT

• Access to the Ultimate Beneficial Owner registry for tax audit purposes

• More lenient policy regarding fines in VAT

• Increased focus on e-audits

3.4 Likely enforcement developments in 2019• Implementation in Belgian legislation of the EU Tax Dispute

Resolution Directive

• Measures to ensure recovery of movable WHT (e.g. additional debtor) in case of incorrect application of exemption

• Prosecution of money-laundering

• Increased international exchange of information currently included in the UBO registry

• Increased statute of limitation to establish tax assessment of 10 years in case of arrangements involving tax havens

• Increasing efficiency of cross- border recovery of taxes

• Implementation of horizontal supervision to SME’s

• Implementation in Belgian legislation of the EU Mandatory Disclosure Regime, resulting in obligation in respect of professionals to disclose cross-border arrangements

Belgium/Continued

33The outlook for global tax policy in 2019 | 33



1 Specific topics Annually, the tax authorities announce on which topics they will focus their audit efforts. This announcement has not yet been made for 2019.

Taxpayers are generally selected for audit based on data mining processes. A limited number of taxpayers are handpicked for an audit.

2 Transfer pricing documentation

Lack of proper transfer pricing documentation readily available, which could trigger more in-depth transfer pricing review

3 Transparency An increase in transparency at the EU and international level (e.g. automatic exchange of tax rulings, payment to tax havens) may increase the likelihood of tax audit risk

4 Non-compliance Non-compliance with tax formalities (e.g. non timely filing of tax returns) would lead to additional scrutiny


Brazil

Tax policy

Tax controversy

International Tax Services

Washington Coelho [email protected] + 55 11 2573 3446

Rodrigo Munhoz [email protected] + 55 11 2573 3595

Gustavo Carmona [email protected] +1 212 773 9325


1.1 Key tax rates

2018 2019 % Change



34% 34%1 —



27.5% 27.5%2 —


18%–19% 18%–19%3 —

1 Law 9,430/1996, Article 2 and Law 7,689/88, Article 3. 2 Law 11,482/2011, Article 1.

3 Rates vary per State and are based in different laws issued per State.

EY key contacts

Rio de Janeiro Sunrise




2.1 Key drivers of tax policy change• ☐A tax reform proposal is expected to be submitted to the Congress in 2019

• This tax reform may address change in corporate income taxes and in indirect taxes

• The New Federal Government said that this tax reform is needed to simplify the current tax system, with less taxes, less bureaucracy and less tax burden

• ☐Maintain the goal of integrating Brazil with the OECD and international tax practices

• ☐Compliance with international tax practices (introduction of BEPS minimum standards, including Country-by-Country Reporting (CbCr)) and expected increase in the international exchange of information

• ☐Social security reform under discussion: before tax reform, social security reform will be submitted to the Congress, which can result in some impacts on personal and corporate contributions

• ☐Increased integration and exchange of information between federal, states and municipal tax authorities

• ☐Digital tax environment— tax authorities should keep the trend of becoming more digital and increasing control over taxpayer information by means of automated procedures

• ☐The Brazilian IRS is also proposing programs to enforce tax compliance by taxpayers

• ☐It is expected that no additional tax recovery [amnesty] programs will be implemented in the future































4 LNote that any changes introduced in 2019 should only be applied in the following calendar year, given the anteriority principle set forth in the Brazilian Federal Constitution































� Increased burden in 2019☐



































Brazil/Continued


































; It was significantly influenced ☐



� N/A


Overall CIT burden5


Overall PIT burden


Lower Higher

No change

No change

No change

5 Note that any changes introduced in 2019 should only be applied in the following calendar year given the anteriority principle set forth in the Brazilian Federal Constitution



• ☐The new Federal Government has raised the issue of reducing Brazil’s 34% corporate income tax. Dividends taxation could be paired with such a reduction in corporate income tax to make the Brazilian corporate tax system more competitive. There are no details available, but Paulo Guedes, Finance Minister, has already mentioned the reduction of the corporate income tax rate to 20% and the taxation of dividends in 15%.

• There has also been discussion regarding the disallowance of the deduction of interest on net equity payments for income tax purposes.

• It is unlikely that Brazil will enact tax legislation that will be effective in 2019, but it is generally understood that some action on the corporate income tax system will soon be necessary.

• It is expected that assessment activities will continue to focus on certain transactions involving goodwill in corporate restructuring and taxation of controlled foreign companies, as well as include the analysis of the compliance with conditions to enjoy from tax incentives and transfer pricing rules, among others.

• From an international perspective, the first CbCR and related notifications concerning the reporting period of 2016 were filed in 2017. The tax assessment plan for 2018 issued by tax authorities expressly referred to an increase in the access to information provided by foreign tax authorities. This should continue in 2019.

Taxes on digital business activity• ☐No new rules on direct taxes on digital activity have been issued.

In 2017, Brazilian tax authorities issued rulings to state its understanding on the taxation of payments abroad for the right to sell license to use Software as a Service (SaaS) and the right to market or distribute software.

• The National Council of Treasury Policy released ICMS Covenant n. 106/2017 to regulate the levy of ICMS (a tax on commerce and some services) on transactions involving the electronic sale of digital merchandise. The covenant allows the States to impose ICMS on such transactions and basically provides that: (i) the owner of websites / electronic platforms that commercializes digital merchandise through electronic transfer (download) is considered a taxpayer of ICMS; (ii) in order to collect the ICMS due, the taxpayer may either be required to make a simplified

registration in the State where the importation is carried out (preferably through the Internet), or pay the amount due through a tax payment voucher (GNRE) - each State will have the discretion to decide how to regulate this matter; (iii) States may attribute the responsibility to collect the ICMS due to other parties involved in the import transaction, including the final customer, the international credit card operator, commercial banks or even the collecting agent in Brazil. Note that these general rules should be further ratified and regulated by each State through the issuance of State Decrees (e.g. the State of São Paulo, for instance, has released Decree 63,099/2017 and Ordinance CAT 24/2018).

VAT/GST/sales taxes

• On 11 December 2018, the Special Committee on Tax Reform in the Lower House approved the value-added tax (VAT) reform bill, which proposes significant changes to indirect taxes. The proposed changes include:

• Replacing ISS (municipal indirect tax), ICMS (state indirect tax), PIS and COFINS (federal indirect taxes), and IPI (federal excise tax) with one federal VAT (Imposto sobre Bens e Serviços, the IBS), with a few exceptions and special regimes

• Charging IBS based on the destination of goods and services (rather than on origin)

• Centralizing the collection of IBS

• Distributing revenues to states and cities based on their contribution to the tax base and phase in the new distribution model over a period of years to avoid short-term impacts on the budgets of states and cities

• Fully implementing the IBS over 10 years

• The plenary of the Lower House and the Senate must analyze and approve the bill.

• ☐The proposal would provide transition rules to change from the current system to the new system in three stages, in order to avoid abrupt disruption in the collection of the IBS revenue by the different levels of government.

Brazil/Continued


2.5 Political landscape• ☐Brazilian elections for president, governors, National Congress

and state chambers were held in October and brought significant changes to the Brazilian political landscape. Jair Bolsonaro, a conservative and six-time federal deputy, won the Presidential election over Fernando Haddad from the left-wing Workers Party (PT) whose candidates prevailed in the previous four elections and led the country for the 14 years. The new President took office on 1 January 2019.

• ☐The election of all members of the Lower House and two-thirds of the Senate resulted in the most significant change in the National Congress since the redemocratization of Brazil in 1985. Many long-term members of the Houses were not re-elected and the number of representatives from left parties have declined.

• ☐President Bolsonaro has decided to merge the ministries of Finance, Planning, and Industry and Trade into a single Ministry of Economy led by Paulo Guedes who claims that social security reform, privatizations and tax simplification will be the basis for the government strategy to enhance Brazil’s growth. New people have been appointed to most of the key positions in the Ministry of Economy, including the leader of the Brazilian Federal Revenue Service.

• There are several rumors surrounding potential changes in Brazilian taxation, including a reduction of payroll charges, income tax rates and the number of taxes. However, it remains unclear which changes will indeed be implemented. Any tax change will depend on the approval of National Congress, whose leaders still need to be established, and it could generally become effective either in the next calendar year or within 90 days of the issuance of corresponding law.


Tax policy leader

• Paulo Guedes, Finance Minister

Tax administration leader

• ☐Marcos Cintra, Brazilian Federal Revenue Service Secretariat


• ☐Delay of 180 days on the 31 December 2018 deadline to disclose the final beneficiary of an entity

• Preparations for the 1 January 2019 effective date of the 2017 Protocol to the Double Tax Treaty between Brazil and Argentina

• ☐Brazil’s Revenue Authority gave more taxpayers access to Mutual Agreement Procedure in Brazil

• Brazil signed double tax treaties with Switzerland and Singapore

• Continued discussion of ICMS in the tax basis of PIS and COFINS — for some time, the national courts have discussed the exclusion of ICMS from the PIS and COFINS calculation basis levied on local transactions. On 15 March 2017, the Brazilian Federal Supreme Court (STF) ruled that the inclusion of ICMS in the social contributions (PIS and COFINS) tax basis is unconstitutional. There is still no regulation regarding the effects of the decision.

• Enlargement of the concept of input for PIS and COFINS purposes — in February 2018, the Superior Court of Justice issued an understanding regarding what can be considered as input for purposes of PIS and COFINS credits. As a result, the current understanding is moving from a more restrictive sense, that observed IPI legislation or more extensive according to Income Tax rules, to a moderate approach, that has the essentiality and relevance as guides to credit appropriation.

2.8 Pending tax proposalsBill 1485 – Taxation of dividends

Among the possible sources of new revenue, the taxation of dividends is always in debate in the Brazilian Congress. On 12 May 2015, the Congress undertook the consideration of Bill 1485, which proposes to revoke all exemptions from taxation on dividend payments, to both individual and corporate taxpayers, and to impose a 15% withholding tax (WHT) on dividends received by nonresidents from Brazilian companies (25% WHT applies to residents of “favorable tax jurisdictions”). Other bills aiming to establish taxation of dividends in different ways have been submitted to the Brazilian Congress and have been attached to Bill 1485. These bills have not been approved yet. On the other hand, the federal government has sustained the dividends taxation paired with a reduction of the corporate income taxes. This proposal has not been yet submitted to the Congress.


PIS and COFINS unification — CSS

The last Federal Government had the intention to unify the PIS and COFINS (social contributions). According to the proposal, PIS and COFINS would be unified in a single contribution (CSS) with a new methodology of calculation, in which all acquisitions that are subject to CSS would generate tax credits in the same amount as paid by the supplier. To avoid losses for the Government, CSS unified rates would be higher than the combined current PIS–COFINS rate (generally 9.25%). The intention was to implement the unification gradually.

This proposal would lose effectiveness with the approval of the creation of IBS, which would condense all indirect taxes (including PIS/cofins) into a single value-added tax. On the other hand, it is possible that the PIS and COFINS reform could have a lower impact on revenue distribution to the states and municipalities, and could work as a test for full IBS implementation.

Brazil/Continued

2.9 Consultations opened/closedOpen:

None

Closed:

A draft of Normative Instructions on the following subjects were released for public consultation in 2018:

• Ordinance that creates the Program for Stimulating Tax Compliance Pro-Conformity (Pro-Conformidade), aimed at encouraging companies to adopt good conduit practices, by establishing a classification of taxpayers according to their behavior towards the federal treasury

• Version 2.0 of the Brazilian Nomenclature of Services (NBS) and Note for Guidance of the Brazilian Nomenclature of Services (NEBS)

• The tax and custom treatment applicable to international shipments

• Special custom regimes i.e. RECOF and RECOF — dealing with customs clearance procedures for exports (payment in kind with gemstones)

• The report of information related to transactions involving cryptoassets

• Simplified customs clearance procedures of aircraft goods, equipment and components for repair and maintenance of aircraft and temporary admission or export of aircraft entering or leaving Brazil for repair and maintenance

• The imputation of tax liability

• The requirements and conditions to carry out the following type import transactions (a) import on account and on request of a third party, and (b) toll manufacturing

• The procedures for the control and verification of origin on the import of goods








E. Will be viewed as generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening / using criminal sanctions

3.2 Current general approach to tax enforcement The Brazilian Federal Revenue Service has a very well-developed, sophisticated electronic compliance and audit system. All tax returns are submitted electronically, and invoices are generally issued electronically. Therefore, the trend in the federal administration is toward digital audits. This has triggered thousands of notifications of deficiencies, audits and numerous assessments each month. The most developed states and municipalities are following the federal lead on this “e-tax” trend. High-income corporate taxpayers are audited at the federal level by specialized tax offices in São Paulo and Rio de Janeiro. These offices target issues such as tax planning and corporate restructuring, transfer pricing, controlled foreign corporation (CFC) rules and international tax

3.3 Key enforcement developments seen in 2018N/A

3.4 Likely enforcement developments in 2019N/A



1 Tax planning related to corporate reorganization that results in amortizable goodwill

Annually, the Brazilian IRS releases an assessment plan disclosing which type of transactions will be on their scrutiny. Even though the plan for 2019 is not yet published, it is expected that the focus of the Tax authorities will continue to be on transactions (usually carried out by large taxpayers) that result in goodwill. Tax authorities may keep auditing corporate restructurings, and also mergers and acquisitions where there was no business purpose and which resulted in the amortization of goodwill generated by transactions between related parties and/or which have not involved any actual payment.

2 Tax planning involving investment fund in equity holdings (FIP)

The focus of the tax authorities in 2019 should be the use of investment fund in equity holdings (FIP) for wealthy management planning, instead of as an investment entity.

3 Taxation of Controlled Foreign Corporation

The focus of the tax authorities in 2019 will be on the compliance with new CFC rules in force since 2015. As the first year of application of the new law is about to be covered by the statute of limitation in Brazil (5 years), inspections should take place this year and may focus mainly (i) criteria for computation and proof of foreign tax credits; (ii) compliance with the requirements for the utilization of the benefits foreseen in the Law (consolidation, presumed credit); and (iii) calculation itself of the tax basis, under the recently enacted rules.

4 Tax incentives The focus of the tax authorities in 2019 will be on the compliance with the requirements to enjoy tax incentives.

5 Transfer pricing rules compliance

The focus of the tax authorities in 2019 will be on the compliance with transfer pricing rules, including transactions connected to high value intangibles.


Canada

Tax policyFred O’Riordan [email protected] +1 613 598 4808

Angelo Nikolakakis [email protected] +1 514 879 2862

Tax controversyPaul Mulvihill [email protected] +1 613 598 4301

Daniel Sandler, EY Law [email protected] +1 416 943 4434


1.1 Key tax rates

2018 (for 2017 taxation year)

2019 (for the 2018 taxation year)

% Change



27.9% 27.89%1

Simple average combined federal rate (15%) and provincial/territorial rate (varies) on general income. By province/territory, combined rates range from 26.5% to 31%.

-0.036% Quebec is in the process of gradually lowering its CIT rate by 0.1% a year, from 11.8% in 2017 down to 11.5% by 2020.



54% 54%2

Top combined federal (33%) and provincial (21%) marginal rate is in Nova Scotia. Other top combined provincial/territorial marginal rates range from a low of 44.5% (Nunavut) to a high of 53.53% (Ontario).

—

1Federal Income Tax Act, s. 123; various provincial/territorial tax statutes2Federal Income Tax Act, s. 117; various provincial/territorial tax statutes

EY key contacts

Iguacu Waterfalls, Brazil



2.1 Key drivers of tax policy change• US tax reform and the resultant loss of Canadian tax competitiveness vis-à-vis the US continues to be a key tax policy driver. On 21

November 2018, Finance Minister Bill Morneau presented the annual Fall Economic Statement in the House of Commons. As a response to the loss of Canadian tax competitiveness relative to the United States, the statement introduced three key capital cost allowance (CCA) acceleration measures:

• Full expensing for manufacturing & processing (M&P) machinery and equipment

• Full expensing for clean energy equipment

• A broad accelerated investment incentive

• Although these new measures will lower Canada’s marginal effective tax rate (METR) below that of the US for those companies that can fully utilize them, these are temporary measures that will be phased out between 2024 and 2027 and are seen by many business groups as an inadequate policy response. The Canadian Chamber of Commerce (CCC) and the Canadian Professional Accountants (CPA Canada) will both engage in public policy advocacy activity to persuade each of the major political parties to include a commitment for a comprehensive tax review in their platforms in the 2019 federal general election campaign.

• The federal government fulfilled its election promise to legalize recreational use of cannabis (medical use is already legal in Canada) effective 17 October 2018 and it implemented a regulatory, as well as a 2-year taxation and revenue sharing, framework in consultation with the provinces. The economic, tax and social implications continue to be closely monitored.

• Finally, tax policy in the context of Canada’s approach to climate change and carbon pricing is certain to be a major issue in the 2019 federal election. The federal government’s “pan-Canadian approach to pricing carbon” that it had implemented in accordance with Canada’s Paris Climate Accord commitments, has hit some stiff federal-provincial political headwinds that were not evident last year. This approach requires provinces to meet certain minimum benchmark carbon price or cap-and-trade standards with the “backstop” that the federal government will introduce an explicit carbon pricing system in jurisdictions that do not meet the benchmark. Alberta had implemented a carbon tax of $20/ton on 1 January 2017 that increased to $30/ton on 1 January 2018, but has since been suspended in protest to an inadequate federal response to oil & gas pipeline construction. Ontario had joined an existing North American cap-and-trade market with Quebec and California in 2017, but a newly-elected Conservative government that replaced the incumbent Liberal government in 2018 withdrew its participation in this market. In addition, Saskatchewan and Ontario have both launched court actions that challenge the constitutional authority of the federal government’s “backstop” legislation (the Greenhouse Gas Pollution Pricing Act). British Columbia on the other hand, whose own $30/ton carbon tax increased to $35/ton effective 1 April 2018, has sought intervenor status in these two actions in support of the federal government’s position.

3Federal Excise Tax Act, s. 165; various provincial tax statutes

2018 (for 2017 taxation year)

2019 (for the 2018 taxation year)

% Change

VAT, GST, sale tax - standard rate

5% to 15%3 (Varies by province)

5% to 15%3 (Varies by province) Five provinces have a VAT system (or Harmonized Sales Tax “HST” that is harmonized with the federal GST) and is administered by the Canada Revenue Agency: New Brunswick, Nova Scotia, Newfoundland & Labrador, Ontario and Prince Edward Island. Four provinces have retail sales taxes: BC, Manitoba, Saskatchewan and Quebec. Quebec administers both the federal GST and its own QST. Alberta has no provincial sales tax, only the 5% federal GST applies, as is the case in the three Territories.

—



Canada/Continued









(Essentially the same burden given that the 0.01 percentage point reduction in the simple average rate is so small) ☐























(The new expensing provisions may create more losses, but the approach to treatment of these losses is not expected to change)






















(See reference to Quebec’s new digital tax)
































; Change already proposed or known for 2019







� Change already proposed or known for 2019
































(Some provincial PIT brackets and threshold income levels have changed, but no material change in the base.)



• ☐Given that 2019 is an election year, no significant changes are expected.

Taxes on digital business activity• ☐In its 2018 budget, presented on 27 March 2018, the Québec

government proposed to implement a new mandatory specified registration system for suppliers with no physical or significant presence in Québec to ensure the Québec sales tax (QST) is collected and remitted in the context of the digital economy.

• ☐There will be close monitoring and interest on the part of the federal government and other provinces, but no further changes are expected in 2019.


• ☐No changes expected in 2019.

VAT/GST/sales taxes

• No changes expected in 2019.

2.5 Political landscape• Canada seeks to regain tax competitiveness after United States

tax reform as well as regulate cannabis and carbon pricing.


Tax policy leaders:

• Bill Morneau, Minister of Finance

• Paul Rochon, Deputy Minister, Department of Finance

• Andrew Marsland, Senior Assistant Deputy Minister, Tax Policy, Department of Finance

• Brian Ernewein, Assistant Deputy Minister, Tax Policy, Department of Finance

• Wayne Easter, Chair of the House of Commons Standing Committee on Finance

• Pierre Poilievre, Finance Critic, Conservative Party of Canada

• Peter Julian, Finance Critic, New Democratic Party of Canada


Canada/Continued










� N/A

Overall CIT burden

Lower LowerHigher HigherNo

changeNo

change

Overall PIT burden


Lower HigherNo

change


Tax administration leaders:

• ☐Diane Lebouthillier, Minister of National Revenue

• ☐Bob Hamilton, Commissioner of the CRA

• ☐Ted Gallivan, Assistant Commissioner, International, Large Business and Investigations Branch, CRA

• ☐Anne-Marie Lévesque, Assistant Commissioner, Domestic Compliance Program Branch

• ☐Cathy Hawara, Assistant Commissioner, Appeals Branch

• Geoff Trueman, Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, CRA


• Canada experienced no fundamental tax policy changes in 2018, only routine refinements and tightening.

2.8 Pending tax proposals• ☐The only pending tax proposals are usual routine technical

amendments and refinements.


• 2019 pre-budget consultations

Closed:

• ☐Climate Action Incentive Payments and Launch of Fuel Charge Consultations (closed 23 November 2018)

• Draft Regulatory and Legislative Proposals Relating to the Taxation of Cannabis (closed 17 October 2018)

• ☐Draft legislative proposals, relating to sales, excise, and income tax measures announced in Budget 2018 that have not yet been legislated, as well as one other previously announced tax measure (closed 10 September 2018)

47








3.2 Current general approach to tax enforcement The Canada Revenue Agency is well resourced and has a mix of sophisticated electronic and manual audit tools at its disposal. It has historically adopted a relatively aggressive audit posture, in particular with regards to transfer pricing audits and assessing positions for large corporations with significant cross border transactions. In recent years, it has received substantial additional funding from the government earmarked for enforcement activities.

A report from the Office of the Auditor General of Canada released in November 2018, found inconsistencies on a regional basis in audit procedures and timeliness, processing times for audits, and in the provision of interest and penalty relief. In a previous audit in 2016, the OAG also concluded that the CRA did not process income tax objections in a timely manner. These external audits suggest that the CRA should consider a reallocation of at least some of its resources away from its enforcement activities toward its taxpayer services and dispute resolution services.

3.3 Key enforcement developments seen in 2018• ☐Restrictions implemented for taxpayer acceptance into the CRA’s

Voluntary Disclosure Program

• ☐Broadening of CRA project challenging hybrid debt structures

• ☐Emphasis on the enforcement of employer withholding liability for non-resident employees temporarily working in Canada

• Loss of transfer pricing litigation for government in Cameco case and settlement of transfer pricing challenge in Silver Wheaton case.4

3.4 Likely enforcement developments in 2019• ☐Canadian enactment of the MLI – enforcement impacts will

depend on the extent to which Canada removes its reservations on the model instrument

4https://www.ey.com/gl/en/services/tax/international-tax/alert--tax-court-of-canada-finds-for-taxpayer-in-cameco-transfer-pricing-case


Canada/Continued

3.5 Top five risk factors and audit triggers in 2019


1 Underground economy • Significant focus of CRA enforcement resources

2 Permanent establishment risk • ☐Non-residents providing services in Canada face greater scrutiny

3 Transfer pricing • ☐High CRA coverage of all transfer pricing transactions

4 Hybrid debt • Continuation of CRA project challenging hybrid debt structures

5 Business travelers • Continuing emphasis by CRA on employer withholding obligations for non-resident employees temporarily working in Canada



Chile

Tax policy

Tax controversy

Víctor Fenner [email protected] +562 2676 1442

Carlos Martínez C. [email protected] +562 2676 1453


1.1 Key tax rates

2018 2019 % Change



25% attributed system

25.5% semi-integrated system

25% attributed system

27% semi-integrated system

6% (for the semi-integrated system)



35% 35% —


19% 19% —

EY key contacts

Skyline of Santiago de Chile




2.1 Key drivers of tax policy changePass a currently pending tax reform bill in order to:

• Re-integrate the corporate tax system

• Further digitalize tax administration

• Incorporate a digital tax

• Foster taxpayers rights

• Implement a new small and medium business tax regime

• Create a new taxpayer’s defense office





; No Changes expected in 2019 ☐



























































































Chile/Continued





































� N/A


Overall CIT burden5


Overall PIT burden


Lower Higher

No change

No change

No change



• The core of the government’s tax reform is to re-establish the corporate tax system back to a position similar to what it was before the 2014 reform (i.e., a fully integrated system, where corporate taxes were creditable against PIT).

• As this would impact revenue negatively, the debate is focused on how to make up the shortfall.


• ☐The reform bill introduces a digital tax in the form of an indirect excise tax, applicable to individuals only for digital services rendered from abroad.

• ☐Credit card operators would serve as withholding agents with a rate of 10%.

• This could change as a result of congress negotiations. The bill had not passed Congress at the time this document was published.


• ☐While not currently part of the reform bill, the government could accept raising the marginal rate of PIT from 35 to 40% as part of the negotiations, in an effort to compensate for the re-integration of the system.

VAT/GST/sales taxes

• ☐The reform bill includes business to consumer mandatory invoicing (today only business to business is mandatory). This is expected to generate revenue that would also compensate reintegration.

2.5 Political landscape• ☐Support for the tax reform bill seems to have increased compared

to when the bill was first introduced in August 2018.

• Both the government and the opposition are willing to reach a compromise in order to have the bill passed.

• However, it remains to be seen to what extent the government will be willing to alter the bill’s key features.


• Felipe Larraín – Minister of Finance

• Fernando Barraza – IRS Director

• Carolina Fuensalida/Manuel Alcalde – tax reform bill coordinators in the Ministry of Finance


• 2018 was the second year in which the semi-integrated system established in the 2014 reform was fully operational and the definitive CIT rate started to apply (27%).

• The new tax reform bill was introduced to Congress.

2.8 Pending tax proposals• ☐The tax reform bill has yet to be approved by

Congress.

2.9 Consultations opened/closed• During November and December 2018, members of Congress

invited several players in the tax community (including EY) to voice their opinions on the tax reform bill introduced by the government.

Chile/Continued






C. Will be neutral in approach – will not be viewed as overly open or openly aggressive in dealings with taxpayers


E. Will be viewed as generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening / using criminal approaches

3.2 Current general approach to tax enforcement The Chilean IRS has strengthened its risk-based approach to auditing policy and strategy. This has sometimes resulted in high skepticism and a substance-based approach to (especially) large companies, though efforts have been made to keep the dialogue open (with transfer pricing being the highlight in this regard).

Many tax advisors and companies believe that the IRS is still too subjective and skeptical in its approach, but numbers show that this may be changing somewhat, as the amount of disallowed expenses (one of the spearheads of tax auditing) in Tax year 2018 showed a marked decrease.

3.3 Key enforcement developments seen in 2018• New crypto-currency pronouncements

• Aggressive tax planning via life insurance policies was tackled with more restrictive interpretations

• 13 new schemes were included in the “potentially elusive” operations catalogue

3.4 Likely enforcement developments in 2019• A whole set of new instructions are included in the tax reform bill



1 Cross border loans with related parties

The IRS has been adamant on auditing cross-border loans, both for transfer pricing and CIT purposes (especially thin cap rules). Companies having cash pooling arrangements and/or current accounts should be ready.

2 Recurring tax losses As Chile has unlimited carry-forward of losses – in which dividends are received by a tax-loss company, giving rise to tax refunds on the taxes paid by the company distributing the dividends – this is always an audit risk factor.

3 Crypto currencies The IRS, in late 2018, established new, unprecedented information obligations to cryptocurrency brokers. It is likely that this type of asset will be heavily audited in 2019.

4 Life insurance with savings The IRS has just introduced a new interpretation that has the life insurance industry very worried. It established that the savings (i.e. financial returns) of life insurance policies are subject to CIT (whereas the market had long understood, and so it was advertised to customers, that they were exempt). The issue has already risen to court.

5 Disallowed expenses Auditing the necessity / reasonability of expenses to produce taxable income has always been a focus in IRS audits and in 2019 is likely to be the case once again.


People’s Republic of China1

Tax policyBecky Lai [email protected] +852 2629 3188

Tax controversyMichael Lin [email protected] +86 755 2238 5780


1.1 Key tax rates

2018 2019 % Change



25%2 25% —

Individual income tax (IIT) – top rate


IIT rates are based on categories of income.3

Top rates for each type of income: 45% — employment 40% — independent service 35% — self-employment 20% — interest, dividend, capital gain, royalty and other income

IIT rates are based on categories of income.4

Top rates for each type of income:

45% — ☐consolidated income

35%☐ — business operation income

20%☐ — interest and dividend income, income from the leasing of property, income from transfer of property and incidental income

—

1This submission does not cover related tax policy and controversy updates in Hong Kong Special Administrative Region (SAR), Macau SAR and Chinese Taipei. 2Order of the President [2017] No. 64 - Chapter 1, Article 4. 3Order of the President [2011] No. 48. 4Order of the President [2018] No. 9.

EY key contacts

Shanghai, China



People’s Republic of China1

2018 2019 % Change


6%, 11% (10% from 1 May 2018) and 17% (16% from 1 May 2018) (depending on the industries) and 0% for certain eligible activities as well as export of goods and services5

The annual VATable revenue thresholds for small-scale VAT taxpayers have been unified to RMB 5million from 1 May 2018.6

Local surcharge of 12% on VAT and consumption tax (if any) for taxpayers located in urban areas

Small and micro-sized enterprises with monthly sales of services and intangibles not exceeding RMB 30,000 are exempted from VAT from 1 January 2018 to 31 December 2020.7

6%, 10% and 16% (depending on the industries) and 0% for certain eligible activities as well as export of goods and services

-6%, -9%

5The Interim Regulations of the People’s Republic of China on Value-added Tax (effective as of November 19, 2017) provides VAT rates of 17%, 11%, 6% and 0% (for specific exported goods).

The 17% and 11% rates have been reduced to 16% and 10% respectively from 1 May 2018. (Source: Circular MOF/SAT Caishui [2018] No. 32)

The 16% rate applies to most VATable goods.

The 10% rate applies to taxpayers who sell or import the goods listed in the Interim Regulations.

The VAT Reform was rolled out gradually to nationwide on 1 August 2013. New rates of 11% and 6% were introduced for certain industries. (Source: Circular MOF/SAT Caishui [2013] 37) Railway transport (applicable tax rate of 11%) and postal industries (applicable tax rate of 11%) were included in the VAT Reform from1 January 2014. (Source: Circular MOF/SAT Caishui [2013] 106). Telecommunications industry was included from June 1, 2014 with applicable rates of 11% and 6% for basic telecommunication services and value-added services respectively. (Source: Circular MOF/SAT Caishui [2014] 43. Caishui [2015] 118 has set out the VAT zero rating treatment for selected VATable services).

The final stage of VAT Reform started on 1 May 2016 (Source: Circular MOF/SAT Caishui [2016] 36) and the scope of the VAT Reform was further expanded to cover the Construction Industry (applicable tax rate of 11%), Real Estate Industry (applicable tax rate of 11%), Finance Industry (applicable tax rate of 6%) and Life Style service Industry (applicable tax rate of 6%). Since then, the Business Tax was phased out in PRC. 6Source: Circular MOF/SAT Caishui [2018] 33 http://www.chinatax.gov.cn/n810341/n810755/c3377957/content.html

5The Interim Regulations of the People’s Republic of China on Value-added Tax (effective as of November 19, 2017) provides VAT rates of 17%, 11%, 6% and 0% (for specific exported goods).

The 17% and 11% rates have been reduced to 16% and 10% respectively from 1 May 2018. (Source: Circular MOF/SAT Caishui [2018] No. 32)

The 16% rate applies to most VATable goods.

The 10% rate applies to taxpayers who sell or import the goods listed in the Interim Regulations.

The VAT Reform was rolled out gradually to nationwide on 1 August 2013. New rates of 11% and 6% were introduced for certain industries. (Source: Circular MOF/SAT Caishui [2013] 37) Railway transport (applicable tax rate of 11%) and postal industries (applicable tax rate of 11%) were included in the VAT Reform from1 January 2014. (Source: Circular MOF/SAT Caishui [2013] 106). Telecommunications industry was included from June 1, 2014 with applicable rates of 11% and 6% for basic telecommunication services and value-added services respectively. (Source: Circular MOF/SAT Caishui [2014] 43. Caishui [2015] 118 has set out the VAT zero rating treatment for selected VATable services).

The final stage of VAT Reform started on 1 May 2016 (Source: Circular MOF/SAT Caishui [2016] 36) and the scope of the VAT Reform was further expanded to cover the Construction Industry (applicable tax rate of 11%), Real Estate Industry (applicable tax rate of 11%), Finance Industry (applicable tax rate of 6%) and Life Style service Industry (applicable tax rate of 6%). Since then, the Business Tax was phased out in PRC. 6Source: Circular MOF/SAT Caishui [2018] 33 http://www.chinatax.gov.cn/n810341/n810755/c3377957/content.html 7Source: Circular MOF/SAT Caishui [2017] No. 76 http://www.chinatax.gov.cn/n810341/n810755/c2897233/content.html




































; N/A, as there is no CGT ☐Capital gains are taxed as ordinary income.





2.1 Key drivers of tax policy change• Enhance business friendly environment

• ☐Encourage new innovation and start-ups

• Reduce taxpayer tax costs (e.g. VAT, IIT, extending R&D coverage) and tax filing administrative costs (e.g. by integrating State and Local Tax Bureaus into one unified bureau, improving the efficiency of tax filing/reporting process, changing certain pre-approvals to pre-record filings

• Align more with international tax practices (FTA, BEPS and MLI participations)


































































China/Continued









17. Top marginal PIT rate ; Change already proposed or known for 2019 ☐




















� N/A


Overall CIT burden

Lower HigherNo

changeLower Higher

Overall IIT burden


Lower HigherNo

change

No change



• No significant changes in the headline rate or tax base are expected.

• To encourage innovation, more tax incentives may be provided in 2019.

• To encourage start-ups, from 1 January 2018 to 31 December 2020, qualified small and micro-sized enterprises (SMEs) that derive annual taxable income of RMB1 million or below are eligible for both the 50% reduction of taxable income and the reduced CIT rate of 20% (i.e., effective CIT rate of 10%); regardless they are taxed at an actual basis or deemed basis. [MOF/SAT Circular Caishui [2018] 77]

• Further tax measures may be introduced to enhance FDI, and to reduce taxpayer tax burdens.


• China may follow the G20-OECD recommendation on the taxation of digital economy, but will likely not introduce unilateral measures.


• ☐A new IIT Law took effect from 1 January 2019, introducing consolidated income which includes wages and salaries, remunerations for personal services, author’s remunerations and royalties for China tax residents. The law also extended tax brackets for low-and-middle income taxpayers and introduced new deductions for China tax residents deriving consolidated income and business operation income, especially for low- and middle- income groups. [Order of the President [2018] No. 9]8

• From 1 July 2018, qualified individual angel investors of start-ups in China are allowed to offset 70% of the investment cost against the taxable income of the enterprise; the unused balance can be carried forward against future taxable profits. This measure is also available to individual partners of limited partnerships investing in startups. [MOF/SAT Circular Caishui [2018] 55]9

• From 1 May 2018 to 30 April 2019, individuals in Pilot Areas10 are allowed to defer IIT on the portion of income they use to buy commercial pension insurance subject to a stipulated ceiling. Any investment income generated from the pension funds will not be taxed at the time when contributions are made. Nonetheless, when drawing pension from the funds upon meeting certain prescribed conditions, 25% of the policyholder’s pension will be exempt from tax, while the rest of the pension shall be subject to IIT at a rate of 10%. [MOF/SAT Circular Caishui [2018] 22]11

VAT/GST/sales taxes

• ☐Lower VAT rates are expected to reduce enterprises’ burden.12 The current three-tier VAT rate brackets (disregarding the 0% rate) are expected to be reduced to two. [Report on the Work of Government (2018)]

• From 1 May 2018, the 17% and 11% VAT rates have been reduced to 16% and 10%, respectively, resulting in a three-tier VAT rate structure comprising VAT rates of 16%, 10% and 6%. [MOF/SAT Circular Caishui [2018] 32]13

• From 1 May 2018, the annual VAT-able revenue thresholds for small-scale VAT taxpayers have been unified to RMB5 million. Businesses that have already been taxed as general VAT taxpayers are allowed to convert back to small-scale VAT taxpayers provided certain conditions are met. [MOF/SAT Circular Caishui [2018] 33]

2.5 Political landscape• ☐President Xi Jinping was re-elected as the General Secretary of

the Central Committee of the Communist Party of China until 2022.14

• No changes to the political landscape are expected in 2019.


• ☐Minister Liu Kun, the Minister of the MOF.15

• ☐Minister Wang Jun is the Commissioner of the SAT.16


• ☐New IIT law (addressed above) introduced consolidated income and the low and middle income tax group’s burden was addressed by extending rate bands and adding deductions

• ☐New anti-avoidance provisions

2.8 Pending tax proposals

VAT reform• ☐Reduction in VAT rate bracketsNew codification of income tax act

8http://www.gov.cn/xinwen/2018-09/01/content_5318233.htm 9http://www.chinatax.gov.cn/n810341/n810755/c3453868/content.html 10Shanghai, Fujian (including Xiamen) and the Suzhou Industrial Park 11http://www.chinatax.gov.cn/n810341/n810755/c3389866/content.html 12http://www.gov.cn/premier/2018-09/21/content_5324137.htm 13http://www.gov.cn/premier/2018-03/22/content_5276608.htm 14http://www.gov.cn/zhuanti/2017-10/25/content_5234340.htm#1 15http://www.chinatax.gov.cn/n810209/n810575/n811941/index.html 16http://www.npc.gov.cn/npc/xinwen/2018-04/27/content_2053820.htm


China/Continued

Tax Collection and Administration Law (TCAL)• ☐The new law is expected to set the framework for tax administration, outline the rights of taxpayers and tax authorities, set time

limitations for tax confirmation and appeals, introduce an advance ruling system, and facilitate the collection of information for the exchange of information with other governments.

Property tax/real estate tax reform• The pilot program on property tax (called a real estate tax in China) has been introduced in selected cities, including Shanghai and

Chongqing, since 2011. It is expected that this will be rolled out to other cities or nationwide. Real Estate Tax Law is listed under the preparatory legislative projects in the 2018 Legislation Plan of the NPC’s Standing Committee , however, timetable for those projects is still not available.

IIT reform• The “Implementation Rules of IIT law and Provisional Measures on Specific Additional Deductions for IIT Purposes” will be finalized

shortly. In the meantime, Administrative Measures on pre-withholding, tax reconciliation and specific additional deductions are expected soon. The modification of relevant IIT regulations will also follow.

2.9 Consultations opened/closedOpen: None

Closed:

• Stamp Duty Law (Discussion Draft): Public consultation closed on 30 November 2018.

• City Construction Tax Law (Discussion Draft): Public consultation closed on 19 November 2018.

• Implementation Rules of IIT law (Revised Discussion Draft): Public consultation closed on 4 November 2018. Provisional Measures on Specific Additional Deductions for IIT Purposes (Discussion Draft): Public consultation closed on 4 November 2018.

• Vehicle Purchase Tax Law (Draft): Public consultation closed on 4 October 2018.

• Farmland Occupation Tax Law (Draft): Public consultation closed on 4 October 2018.

• Implementation Measures Concerning Formulation of Regulations and Rules of Tax Administrations (Revised Discussion Draft): Public consultation closed on 11 August 2018.

• Administrative Measures on Informing about Taxation-related Illegal Acts (Discussion Draft): Public consultation closed on 1 March 2018.

• Administrative Measures for Self-employed industrial and Commercial Households Subject to Tax on Fixed Term and Fixed Amount Basis (Discussion Draft): Public consultation closed on 2 February 2018.

• Implementation Measures for Special Tax Adjustments (Discussion Draft): Public consultation closed on 16 October 2015.









3.2 Current general approach to tax enforcement China is expected to focus on large or major taxpayers, particular industries and particular transactions including cross-border transactions.

3.3 Key enforcement developments seen in 2018In 2018, China focused on tax audits of important taxpayers, particular industries (e.g., real estate) or transactions (e.g., equity transactions).

3.4 Likely enforcement developments in 2019• In 2019, China is expected to focus on post filing tax audits, profit

monitoring and the enhanced utilization of data analytics.



1 Cross border M&As and restructuring

Indirect equity transfers, asset re-organization etc.

2 Equity transfers By both companies and individuals

3 Tax incentives and tax benefits claim

Eligibility of preferential tax treatments e.g., tax treaty claims

4 Related party transactions Cross-border intercompany charges including substantial outbound payments, economic ownership of intangibles, and industries relying on the China market such as hotel, retail and automotive businesses

5 Individual Income Tax High-income individuals e.g., entertainers and senior management personnel


Colombia

Tax policy and controversy

Margarita Salas [email protected] (+57) 310 868 5080


1.1 Key tax rates

2018 2019 % Change



National Rate: 33%

Surcharge: 4% when taxable base exceeds USD$ 247.517

National Rate: 33%

Surcharge: 4% for financial sector exclusively

No change in rate but elimination of surcharge of 4% (except for financial sector)



Labor or retirement allowances income: top rate of 33%

Non-labor and capital liquid income: top rate 35%

Income tax for dividends or participations received by resident natural persons: top rate 10% (5% if less than USD 6453.38)

Progressive rate from 0% to 39%

Special rate for dividends or profit share: Top rate of 15%

Progressive rate increase for each income level


Standard rate of 19%

Standard rate of 19%

—

EY key contacts

Torre Colpatria (Bogota)















3. Interest deductibility ; Change already proposed or known for 2019






4. Hybrid mismatches � Change already proposed or known for 2019













2.1 Key drivers of tax policy changeRecent Colombian tax reform, signed on December 28, 2018, aimed to create a more favorable tax environment to attract foreign investment, while:

• Reducing rates for Science, Technology and Innovation (STI)

• Creating simpler taxation mechanisms for small taxpayers

• Implementing E-Invoicing requirements

• Strengthening the Colombian tax administration


Colombia/Continued










7. Withholding taxes ; Change already proposed or known for 2019 ☐

























































15. VAT, GST or sales tax rate ; Change already proposed or known for 2019 ☐


































� N/A

10See French Anti-Fraud Act



• ☐Same rate as in 2018 (33%)

• ☐Progressive rate reduction to 30% in 2022

• ☐Elimination of surcharge (4% for 2018), except for financial sector

• ☐Discount of up to 50% of paid turnover tax (100% after 2022), and 100% of all taxes related to the business activity


• 19% VAT on digital services rendered from abroad to clients in Colombia

• Exclusion from VAT of virtual education services

• ☐Income tax exemption for industries of technological added value


• ☐No changes are expected.

VAT/GST/sales taxes

• ☐Overall change in the taxable base as several products and services labeled as excluded from VAT are now taxed

• ☐VAT to restaurants that use franchises, previously charged with consumption tax

2.5 Political landscape• ☐The current Government (led by Iván Duque Marquez) was

elected in 2018 for a term of 4 years

• The implementation of peace agreements signed in 2016 have forced the government to shift resources and personnel to attend to post-conflict needs

• A heavy wave of migrants from Venezuela due to the harsh conditions there is creating the need for social assistance and new jobs in Columbia

• The country is currently undergoing a fiscal deficit that necessitated tax reform as a way of gathering additional resources

• The tax reform was major, including changes in the rates, procedure, and public expense

• Additional minor changes to the tax system are expected as some aspects of the reform must be regulated through administrative orders

• The main economic goal is to make the country more competitive for companies and more attractive for foreign investment


• ☐Tax Authority Director: Jose Andres Romero

• ☐Minister of Finance: Alberto Carrasquilla Barrera


Overall CIT burden

Lower HigherNo

changeLower Higher

Overall PIT burden


Lower HigherNo

change

No change

Colombia/Continued



• ☐Adoption of measures to become an OECD member

• ☐Adoption of OECD standards

• ☐Introduction of a new mechanism for early termination of tax related processes

• ☐Introduction of a new mechanism for normalization of unregistered assets owned abroad with a rate of 13% or 7.5% if the assets are brought to Colombia

2.8 Pending tax proposals• N/A


69








3.2 Current general approach to tax enforcement The latest tax reform approved new tools and greater resources for the tax authority, so that it can develop the control and inspection activities more efficiently.A new mechanism for early termination of tax related processes was introduced. This allows the administration to agree to terms with tax payers for collecting taxes or imposing penalties, without having to develop the full administrative and judicial process.

A new mechanism was introduced for normalization of undeclared assets owned abroad, with a rate of 13% or 7.5% if the assets are brought to Colombia. Tax payers that don´t adhere to this initiative may be subject to civil and criminal prosecution


Progressive adoption of the obligation to issue electronic invoicing

3.4 Likely enforcement developments in 2019

Implementation of special tax regimes to control tax evasion and smuggling

Mandatory electronic invoicing, beginning in the second half of 2019, will generate new and better control mechanisms

An increase in the number of audits is expected as the tax authority will have increased personnel for 2019


Colombia/Continued



1 Transfer pricing Close supervision from the administration of the fulfilling of transfer pricing obligations.

2 Tax reimbursements A new automatic reimbursement mechanism was included in the latest tax reform, for tax payers that are considered well behaved according to the administration and that carryout most of their operations through the electronic invoice mechanism.

This will leave more room for the administration to deeply audit the requests from the taxpayers that do not match the previously stated characteristics.

3 Territorial taxes (Turnover/Public lighting)

Territorial taxes paid can now be deducted in the depuration process of the income taxable base if the specific requirements are met.

It´s expected that the tax authorities will follow closely the returns that include this kind of deduction.

4 Implementation of electronic invoice

The implementation for mandatory Electronic Invoice was pushed to the second half of 2019, and no penalties issued before June 30, 2019.

It is expected that after that deadline, the administration will start specific audit programs to verify the fulfillment of the related obligations.

5 Increased tax authority’s personnel and increased resources

The latest tax reform authorized larger human and physical resources for the tax administration for the specific purpose of developing an increased number of auditing processes.



Costa Rica

Tax policy

Tax controversy

Luis Eduardo Ocando B. [email protected] +507 208 0144

Isabel Chiri [email protected] +507 2208 0112

Rafael Sayagués [email protected] +506 220 9880

Randall F. Oquendo [email protected] +506 2208 9874


1.1 Key tax rates

2018 2019 % Change



30%1 30% —

Personal income tax (PIT) — top rate2


25%3 25% —


13%4 13% —

1Section 15 a) of the Income Tax Law2Applies to self-employment and business income3Section 15 c) of the Income Tax Law 4Section 10 of the Sales Tax Law

EY key contacts

San Jose, Costa Rica















3. Interest deductibility ; Change already proposed or known for 2019






4. Hybrid mismatches ; Change already proposed or known for 2019






5. Treatment of losses ; Change already proposed or known for 2019 ☐







2.1 Key drivers of tax policy change• The government’s intention to become an OECD member continues driving tax policy. The government will likely implement compromises

and BEPS measures that are necessary to demonstrate the country’s commitment to the OECD international tax standards.

• The government keeps trying to raise tax collection as the fiscal deficit continues to grow. This, combine with the call for transparency, fair taxation and effective exchange of information, has brought domestic and international tax matters into public debate.

• ☐Tax policymakers and tax authorities remain aggressive in their approaches and positions.

• ☐The Strengthening of Public Finances Bill, which contains comprehensive tax reform, was approved by the Costa Rican Congress in the first of two votes.


Costa Rica/Continued



























; N/A, as there is no CFC regime ☐







; N/A, as there is no thin capitalization regime



































































� N/A



The Strengthening of Public Finances Bill proposed several changes to the current income tax law, including:

• ☐Capital income and capital gains tax with a general rate of 15%

• ☐Non-deductibility of expenses paid to entities which are residents of non-cooperative jurisdictions, however, taxpayer’s are able to demonstrate to Tax Authorities that expenses were real.

• ☐An express reference to the arm’s-length principle to transfer pricing purposes

• ☐Some BEPS actions, including an interest limitation rule under which interest expenses (excluding financial interest expenses) that exceed 20% of taxpayer’s EBITDA would not be deductible for corporate income tax purposes (BEPS Action 4) and a provision regarding the treatment of hybrid mismatch arrangements.


• ☐The Strengthening of Public Finances Bill states that telecommunication, radio and television services are taxable when provided in Costa Rica territory, regardless of the medium or technological platform by which the services are provided.

• ☐The Bill also includes a disposition regarding entities that issue credit or debit cards for international use must act as VAT collector, when its clients purchases goods or services through the internet or any other telecommunications platform.


• ☐☐The Strengthening of Public Finance Bill states that employment income taxation would be subject to two additional tax brackets with rates of 20% and 25%. Currently highest rate is of 15%.

VAT/GST/sales taxes

• ☐☐The Strengthening of Public Finance Bill intends to tax services, the most dynamic sector of the Costa Rican economy, which is mostly unaffected by the current sales tax.

• The Bill would eliminate the sales tax and establish a value added tax (VAT) of 13% on the sale of goods and the supply of all types of services within Costa Rica. A reduced rate of 4% would apply to certain goods and services such as private health and plane tickets. A 2% rate would apply to medicines and inputs for their production, amongst others. Certain basic foods would be subject to a rate of 1%. Only a certain number of goods and services would be exempt.

2.5 Political landscape• Presidential and Congressional elections took place in 2018.

• Carlos Alvarado, from the ruling party, was elected as President during the presidential second ballot.

• One of the government drivers is the reduction of the fiscal deficit by approving tax reforms and adopting measures to reduce the public expenditure.


Overall CIT burden

Lower HigherNo

changeLower Higher

Overall PIT burden


Lower HigherNo

change

No change




Current Tax Policy leaders:

• ☐☐Carlos Alvarado, President of the Republic of Costa Rica

• Rocío Aguilar, Minister of Finance

• ☐Nogui Acosta, Vice-minister of Finance

• Priscilla Piedra, Director-General of Finance

Current Tax Administration leaders:

• ☐Carlos Vargas, Director-General of Taxation

• ☐Wilson Céspedes, Director-General of Customs


• Resolution regarding Country-by-Country reporting requirements

• Amendments to the Free Trade Zone regulations in order to comply international standards (BEPS)

• Ultimate Beneficiary Owners Registry Regulations

• Electronic vouchers resolutions

• Modifications to the CRS Due Diligence resolution

• ☐Amendments to the Customs Law Regulations

2.8 Pending tax proposals• ☐Strengthening of Public Finances Bill (already approved in the

first of two votes at the Costa Rican Congress)

• ☐No other tax proposals are currently pending or proposed, but are expected as to complement the Strengthening of Public Finances Bill

2.9 Consultations opened/closed

Open

• ☐Amendments to the Country-by-Country reporting requirements draft resolution

• Ultimate Beneficiary Owners Registry draft resolution

• Advance pricing agreements draft resolution

77




1 International transactions Costa Rican tax authorities will continue the trend of focusing on international transactions made by taxpayers, including transfer pricing issues.

2 VAT and Income Tax Law Taxpayers will experience extensive examination by the tax authorities regarding the VAT and Income Tax Law, with special attention on deductible cost and expenses, withholding taxes and tax credits, amongst others.

3 Transparency and substance Tax authorities will keep on carrying out greater scrutiny of transparency and business substance in order to determine economic reality of taxpayers regarding their income, activities and transactions.








3.2 Current general approach to tax enforcement The Costa Rican tax authorities will continue demonstrating aggressiveness during tax audit and in the interpretation of the tax law. Authorities will take advantage of information requested and received from exchange of information agreements, as well as information obtained from the implementation or operationalization of certain laws and tools (i.e. electronic vouchers, Ultimate Beneficial Owner Registry). Tax fraud criminal accusation will remain as a mechanism of pressure against taxpayers.


No relevant key enforcement developments were seen in 2018.


Developments will probably be aligned and oriented to the enforcement of the Strengthening of Public Finances Bill if approved in a second vote at the Congress.




Czech Republic

Tax policy and controversyLucie Rihova [email protected] +420 225 335 504


1.1 Key tax rates

2018 2019 % Change



19% 19% —

Personal income tax (PIT) – top rate


Basic tax rate of 15% applied on “supergross salary” (i.e., including social security and health insurance paid by the employer), leading to an effective tax rate of approximately 20%

Solidarity surcharge of 7% levied on employment and business income exceeding approximately EUR 55,500 per year.

Basic tax rate of 15% applied on “supergross salary” (i.e., including social security and health insurance paid by the employer), leading to an effective tax rate of approximately 20%

Solidarity surcharge of 7% levied on employment and business income exceeding approximately EUR 60,500 per year.

—


21% 21% —

EY key contacts

Czech national museum in Prague


































2.1 Key drivers of tax policy changeGenerally, the main drivers of tax policy change are resourcing tax collection and providing guidance and clarification inareas where the interpretation has not previously been clear.

The ongoing and further anticipated changes support and are in line with the BEPS initiative.

Other drivers include:

• ☐More intensive action against tax fraud and tax evasion, with a key focus on VAT fraud

• Enhancements to mutual assistance and exchange of tax information procedures by the tax authorities

• Efforts to increase the effectiveness of tax collection and administration

• Efforts to improve attractiveness for foreign investment

• Efforts to decrease the repatriation of profits of foreign investors


































































Czech Republic/Continued





































; N/A


Overall CIT burden

Lower Higher

Overall PIT burden


No change

Lower HigherNo

change

Lower HigherNo

change



• The biggest ongoing and anticipated changes are in line with the EU Anti-Tax Avoidance (ATAD) Directive, i.e., rules related to:

• ☐Limitation of interest deductibility

• Exit tax

• Abuse of the tax system

• Controlled foreign companies

• Hybrid mismatches


• The Czech Republic recognizes the need to flexibly react to the changing business environment in the context of digitalization. The Czech Republic supports the common approach within the EU. However, so far there is no consensus neither on introduction of the Digital Services Tax directive (DST) nor on introduction of a long-term measure.

• The Czech Republic supports the technical discussions on refining the DST as a short-term solution. Nevertheless, the view of the government is that any long-term solution needs to be reached on a global (i.e., OECD/G20) level.

• The Czech Republic is trying to find positive aspects in the short-term solutions, while on the other hand the concept of taxing business profits through an indirect tax is completely new in many European tax systems, driving the government to remain cautious.



VAT/GST/sales taxes

• A significant amendment to the Czech VAT Act is being prepared for 2019.

• A key driver is the transposition of new EU legislation and the alignment of certain provisions with the applicable EU legislation.

• Following the VAT Directive and the ECJ case law, some of the concepts that are essential for the application of VAT, such as economic activity, are specified. The amendment further deletes provisions that are incompatible with EU law.

• In addition, following consultations with representatives of the tax audience in this law, certain terminological specifications are introduced, aiming at a clearer and more transparent legislative regulation of VAT, as well as some new implementing measures and rules aimed at strengthening the principle of neutrality of VAT.

2.5 Political landscape• In the Czech Republic, tax policy is governed centrally by the

Cabinet, with the Ministry of Finance playing a key role and holding responsibility in this area. The Ministry drafts the majority of tax laws and initiates the legislative process.

• Since December 2013, a seemingly stable center left government is in power. As such, the legislation process has become viewed as being smooth and efficient.

• The next election should take place in October 2021 which may bring changes to current agreements and coalitions.


• Andrej Babis, Prime Minister

• Alena Schillerova, Minister of Finance

• ☐Jiri Volf, Deputy Minister of Finance

Tax administration leader

• ☐Martin Janecek, General Director of the General Financial Directorate (has currently resigned and will be replaced)


• No significant changes were experienced in 2018.

2.8 Pending tax proposals• Except the above mentioned more significant amendments,

minor amendments to the VAT Act, Income Taxes Act and Tax Code are commonly made. At the present time, an amendment to all three Acts is in negotiation and the approval process is ongoing.

2.9 Consultations opened/closed• N/A — no major amendments are currently open for consultation.

Czech Republic/Continued









F. 3.2 Current general approach to tax enforcement

The law on tax collection and tax enforcement is contained in The Tax Code.

The Tax Code regulates the procedures for the enforcement of taxes, including separate tax adjustments, notions and procedural practices of the tax administrator as the executing body.

The tax administrator may also secure enforcement of arrears through a court bailiff. Further, the tax authorities can initiate insolvency proceedings or organize a public auction.

When selecting the method of enforcing tax arrears, the tax administrator chooses such a way that the amount of recovery costs that the taxpayer is obliged to pay is not in clear disproportion to the amount of arrears.

3.3 Key enforcement developments seen in 2018No significant changes were experienced in 2018.

3.4 Likely enforcement developments in 2019No significant changes are expected in 2019.



1 Tax liabilities Significant change in the tax liability, large tax losses (CIT), large VAT overpayment

2 Transfer pricing The tax administrators initiate tax audits focused on transfer pricing more commonly and are now better equipped and trained to be able to challenge the transfer pricing positions they find suspicious.

3 R&D deduction R&D deduction is a key area of tax administrator challenge. Auditors remain very focused on documentation requirements.

4 Withholding taxes The tax administrators commonly require beneficial ownership declaration as well as other documents proving that exemption requirements have been met.

5 Tax fraud The tax administrators initiate tax audits when they suspect any tax fraud (carousel, chain).


Denmark

Tax policy

Tax controversy

Jens Wittendorff [email protected] +45 5158 2820

Sune Hvelplund [email protected] +45 51582604


1.1 Key tax rates

2018 2019 % Change



22% 22% —



52.02% 52.02% 00.06%


25% 25% —

EY key contacts

Copenhagen Skyline


































2.1 Key drivers of tax policy change• Fight international tax avoidance

• Increase legal certainty for taxpayers

• Boost economic growth via tax incentives


































































Denmark/Continued





































; N/A



• ☐Multilateral instrument will be enacted by Parliament


• ☐No changes expected.


• ☐No major changes expected.

VAT/GST/sales taxes

• No major changes expected.

2.5 Political landscape• Parliamentary elections are set to take place no later than 17

June 2019. A change of government or a change in the balance between the political parties forming the current government may have an impact on the tax regime in general


• ☐Karsten Lauritzen, Minister of Taxation.


• ☐ATAD was enacted in December 2018. However, due to government discussions, the CFC taxation scheme was delayed and is expected to be enacted during spring 2019.

2.8 Pending tax proposals• CFC taxation scheme in accordance with ATAD.

2.9 Consultations opened/closed• Open: MLI


Overall CIT burden

Lower Higher Lower HigherNo

change

Overall PIT burden


Lower HigherNo

change

No change

Denmark/Continued









3.2 Current general approach to tax enforcement Normally, taxable revenues and deductible expenses of individuals are always reported automatically to the tax authorities. The income statement of each individual taxpayer is provided electronically at the homepage of the tax authorities. Therefore, individuals are usually not required to file a tax return, but they must report changes to the information reported automatically to the tax authorities, if any. Companies must now also report their tax return electronically.

3.3 Key enforcement developments seen in 2018No new developments were experienced.

3.4 Likely enforcement developments in 2019No new developments expected.



1 Transfer pricing Compliance with the arm’s length principle

2 Withholding taxes Compliance with withholding tax on dividends, interests and royalties, including a review of beneficial owner and the general anti-avoidance rule (PPT).

3 Organized tax fraud Close review of organized fraud in the context of direct and indirect taxation

4 International tax avoidance Compliance with general and specific anti-avoidance rules dealing with hybrid mismatch, limitation on interest deductibility, etc.


Dominican Republic

Tax policy

Tax controversy

Luis Eduardo Ocando B. [email protected] +507 208 0144





1.1 Key tax rates

2018 2019 % Change



27%1 27% —



25%2 25% —


18%3 18% None

1Article 297(II) of the Dominican Tax Code2Article 296 of the Dominican Tax Code

EY key contacts

Punta Cana. Dominican Republic





1. Overall CIT burden � Change already proposed or known for 2019

� Change possible or somewhat likely in 2019



; Same burden in 2019






� Smaller corporate tax base in 2019

; Around the same corporate tax base size in 2019


3. Interest deductibility � Change already proposed or known for 2019



















2.1 Key drivers of tax policy change• International cooperation and transparency

• In 2018, the Dominican Tax Authorities announced the inclusion of the Dominican Republic to the inclusive framework on BEPS. The formal agreement has not been yet published

• Exchange of information

• ☐☐Optimize requirements for information and the mechanisms for collection and processing of information

• ☐Effective launching of electronic invoices pilot plan

3Article 341 of the Dominican Tax Code







; N/A, as there is no CGT

























10. Thin capitalization � Change already proposed or known for 2019







11. Transfer pricing changes ; Change already proposed or known for 2019 ☐




















Dominican Republic/Continued












































; N/A




• ☐☐Potential integral tax reform has been discussed, but no formal proposal has been made by the Government.

• ☐Draft proposals have also been prepared by the private sector, but these proposals are not binding or definitive.


• ☐☐There are no changes known or expected for 2019.

• ☐The Tax Authorities did announce the launching of a pilot plan on electronic invoices in early 2019 with respect to BEPS Action plan 1 initiatives, however no official documentation has been issued.


• ☐☐☐There are no changes known or expected for 2019 regarding taxes on wages and employment.

• ☐The inflation adjustment will be applicable to the amounts established in the tax brackets for determination of income tax.

VAT/GST/sales taxes

• ☐There are no changes known to date for VAT, GST and sales taxes for 2019.

2.5 Political landscape• There are no changes known to date.


• ☐Magín Díaz. General Director of the Tax Authorities

• Eric Medina, Head of Legal Department of the Tax Authorities

• Sylvia Báez, Head of the Collection Department of the Tax Authorities

• Rita Mena, Head of the Planning and Development Department of the Tax Authorities

• Julissa Mejía, Head of the Transfer Pricing Department of the Tax Authorities


• Change in valid tax invoice formats

• Change of mechanisms for the processing and collection of information

• Changes regarding money laundering including implementation of general regulations and modifications of tax forms

• Changes related to VAT forms





Lower HigherNo

changeLower Higher

No change

Lower HigherNo

change


2.8 Pending tax proposals• ☐A draft bill on patrimonial declaration and revaluation that

establishes certain requirements for Dominican taxpayers, on an exceptional basis, to voluntarily make all their undeclared movable and immovable property before the DTA transparent, and revalue their assets, according to the current prices of the market, through a special tax regime with transient character.

• A draft bill that amends article 91 of Law 479-08 of Commercial Companies, relating to the capital stock of limited liability companies. The amendment refers especially to the elimination of the minimum amount of authorized capital stock for limited liability companies, which is currently set at an amount of DOP100,000.00.

• A draft bill for regulation of waste management, that contributes

to the prevention and protection of environment and natural resources. This legislation establishes a new excise tax known as “green burden” and establishes certain tax incentives and benefits for those that assume the benefits and environmental costs generated by their economic activities. Likewise, a tax incentive on accelerated depreciation is established within a five year period for companies and individuals that make facilities for reusing and recycling plants.

2.9 Consultations opened/closed• ☐N/A

97








3.2 Current general approach to tax enforcement The Dominican Tax Authorities have taken a very aggressive approach regarding the computation of taxes and are encouraging cooperation, compliance and transparency from taxpayers.


The Dominican Tax Authorities have taken a very aggressive approach regarding Valued-Added Tax inputs and the application of proportionality rules.

The Dominican Tax Authorities have taken an aggressive approach on transfer pricing requirements.

The Dominican Tax Authorities have taken an aggressive approach regarding the capital gains tax, focusing on the computation of the purchase price and usually questioning the amount, even in cases where the result is positive. Thus, in practice, the amount is usually determined by a valuation.


The Dominican Tax Authorities are expected to continue their aggressive approaches to VAT, transfer pricing and capital gains tax while also seeking cooperative compliance and information requirements with/to taxpayers.




1 Input proportionality According to Article 349 of the Dominican Tax Code, when a taxpayer cannot distinguish if the acquisitions made have been used in taxable or exempt operations, VAT credits should be applied in proportion to the amount of taxable operations over the total of operations carried out in the relevant fiscal period. On this matter, the Tax Authorities have taken an aggressive approach, notifying taxpayers of such inconsistency and claiming the VAT credited in excess, plus surcharges and interest.

2 Permanent establishment risks

Taxpayers will experience extensive examination by the tax authorities regarding the VAT and Income Tax Law, with special attention on deductible cost and expenses, withholding taxes and tax credits, amongst others.

3 Valid tax invoices and information formats

Tax authorities will keep on carrying out greater scrutiny of transparency and business substance in order to determine economic reality of taxpayers regarding their income, activities and transactions.

4 Capital Gains Tax The Dominican Tax Authorities will continue to have an aggressive approach with regards with the report and payment of capital gain tax derived from the direct or indirect transfer of capital assets located or economically used in the Dominican Republic.




El Salvador

Tax policyLuis Eduardo Ocando B. [email protected] +50 7 208 0144

Isabel Chiri [email protected] +50 7 208 0112

Tax controversyRafael Sayagués [email protected] +50 62 208 9880

Randall F. Oquendo [email protected] +50 62 208 9874


1.1 Key tax rates

2018 2019 % Change



30% 30% —



30% 30% —


13% 13% —

EY key contacts

Tazumal Mayan Ruins in El Salvador, Santa Ana


































2.1 Key drivers of tax policy change• ☐Correct the imbalance in public finances and achieve a trend towards fiscal sustainability.

• Improve the allocation of resources and the quality of public spending, while protecting investment and social spending.

• Implement a progressive tax policy to generate sufficient income in a sustained way to finance public spending and public investment

• Have efficiency and equity in the administration of the tax and customs system.

• Strengthen, modernize and innovate the processes and services oriented to the satisfaction of taxpayers


El Salvador/Continued





































































































� N/A



• ☐There are no known changes to date


• ☐There are no known changes to date


• ☐There are no known changes to date.

VAT/GST/sales taxes

• ☐There are no known changes to date.

2.5 Political landscape• ☐El Salvador will have presidential elections during February 2019.

Due to changes in government, changes in tax policy could be significant.

• The Congress has elected new Judges of the Constitutional Chamber of the Supreme Court of Justice (CC-SCJ). Jurisprudential criteria established in previous resolutions could be changed by the new members of the CC-SCJ.


Current tax policy leaders:

• ☐Salvador Sánchez Cerén, President of the Republic of El Salvador

• Luz Estrella Rodríguez, Ministry of Economy

• Oscar Ortiz, Vice-president of the Republic

Current tax administrators:

• ☐Nelson Fuentes, Ministry of Treasury

• Sergio de Jesús Gómez Pérez, Tax Authorities Director

• José Armando Flores Alemán, Customs Authorities Director

• Yoni Adalberto Girón, President of the Administrative Board of Appeals


Unconstitutionality of Decrees 762, 763 and 764

• ☐The Constitutional Chamber of the Supreme Court declared Legislative Decrees 762, 763 and 764 were unconstitutional.

• Legislative Decree 762 repealed the Income Tax exemptions established in the Printing Press Law.

• Legislative Decree 763 contained reforms to the Tax Code by incorporating transfer pricing rules, statute of limitations rules, expiration of legal term rules, equipment, machinery and computerized systems controls, and publicity of the Tax Authorities resolutions.

• Legislative Decree N° 764 contained the Financial Transactions Taw Law establishing a 0.25% income over financial transactions and a 0.25% withholding over withdrawals, deposits and payments that exceed USD$5,000.

• ☐The grounds for the unconstitutionality determination is a formal violation to the law-making process, and therefore the content of the Financial Transactions Taw Law was not revised in the constitutional process.

• However, the Legislative Decrees were in force until 31 December 2018, by court ruling, in order to prevent a deficit of the national budget as a result of the unconstitutionality.

• The Salvadoran Congress, if deemed necessary, can amend the formal violations (lack of deliberation and discussion) and approve the Legislative Decrees meeting with all the constitutional requirements for the law-making process, otherwise such decrees will definitively invalidated.





Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change


2.8 Pending tax proposalsProposed amendments to the Criminal Code

• On August 17, 2016, El Salvador’s Treasury Minister, instructed by the President, submitted for consideration of Congress a draft bill containing amendments to the Criminal Code. The decree aims to reform the sections relating to tax crimes and fraud, adding requirements and accountability for public officials, fraudulent registration of the single registry of taxpayers and obstruction to the Tax Authorities.

• The Decree includes a reform of Section 249-A of the Criminal Code, in a way which broadens the crime of defrauding the Tax Authorities. In this sense, it adds to such crime the actions of simulation, maneuver concealment or any other form of fraud resulting undue advantage; and does not specifically define what exactly each of the before mentioned actions consists, but instead leaves it for the interpretation of the law enforcer.

Proposed amendments to the Tax Code

• On August 17, 2016, El Salvador’s Treasury Minister, instructed by the President, submitted a tax reform bill to Congress for discussion. The bill introduces amendments to the Tax Code; including:

• An assertion that accountants, auditors, consultants or collaborators that have power of decision over a legal entity’s

matters, will be jointly liable with the entity’s representatives when they are actively involved with the breach of tax obligations

• A transfer pricing specific legal framework that includes methods, content, obligations and penalties and a taxpayer obligation to submit a Transfer Pricing Study, which the designated Tax Auditor for a certain FY will not be able to perform in that FY.

• New requirements to be considered as domiciled in El Salvador for tax purposes

• That the period granted for the payment of additional taxes determined from a tax audit process is now counted from the date of notification of the resolution instead of the date the resolution becomes final, reducing the period and implying the payment must be made even if the resolution is still under review if it was appealed by the taxpayer

• A taxpayer requirement to justify proofs offered in the administrative phase of a process that were not provided during the tax audit


105









3.2 Current general approach to tax enforcement Generally, the Tax Authorities (TA) have focused on taxpayers fulfilling obligations. There has been an increase in audits and in information requirements made by the TA, as well as the type of information that the TA requests. The TA has especially been requiring, in an exhaustive way, proof to justify the deductibility of expenses by taxpayers.

3.3 Key enforcement developments seen in 2018• Increase in tax audits

• Increase in the application of transfer pricing rules

• Greater demands in the fulfillment of requirements

• Fiscal amnesty program in effect until October 2018

3.4 Likely enforcement developments in 2019• Increase in tax audits

• Increase in the application of transfer pricing rules

• Greater demands in the fulfillment of requirements



1 Materialization of services rendered between related parties

The TA is focusing on the rendering of related party services and the supporting documentation on the materialization of these services.

2 Formal requirements of legal documents

Formal requirements of legal documents including VAT Credit Notes, VAT Debit Notes and invoices.

3 Withholding applicable to international transportation services

The TA is focusing on the application of the 5% income tax withholding applicable to international transportation services.

4 Transfer Pricing audits The Administrative Board of Appeals of the Tax and Customs Administration has recognized that the TA has acted illegally in applying the OECD Guidelines on transfer pricing, in order to make adjustments to taxpayers. In spite this, it is noted that the TA continues to perform audits of this nature and to make adjustments using such methodology.

5 Accounting records to support deductions

The TA is examining company accounting records regarding the deductibility of expenses.




Finland

Tax policy and controversyJukka Lyijynen [email protected] +35 840 844 7522

Section 1: Tax rates (2018—2019)

1.1 Key tax rates

2018 2019 % Change



20% 20% —



Top rate 55.75% highest state-, municipal – and church tax combined.

Top rate 55.85%, highest state-, municipal – and church tax combined.

0.18%


24% 24% —

EY key contacts

San Jose, Costa Rica


































2.1 Key drivers of tax policy change• ☐Ensuring revenue to the government and the future tax base

• ☐A digital tax with the view that in the digital and traditional economy value should be taxed where generated

• ☐Increasing economic growth to ensure welfare state


Finland/Continued





































































































; N/A



• The Finnish government closely monitors tax competition between countries, especially CIT rates in the Nordics


• ☐Finland, along with other Nordic countries, is generally at the forefront of the global fight against tax avoidance, and has actively participated in the work done within the EU and in the OECD to combat base erosion and profit shifting (BEPS).

• ☐In a joint statement, the Finance Ministers of Denmark, Finland and Sweden called for reform of the digital tax system by the OECD at the global level and for the European Commission’s proposals in this area to be put on hold as they would complicate international cooperation in the tax area and could trigger retaliation from the EU’s partners.

• ☐Finland will continue to participate actively and constructively in work of OECD and will support an acceleration of the OECD discussions on the digital taxation system.


• ☐☐There is a general trend to decrease the level of taxes on wages and employment.

• ☐The maximum amounts for the basic deduction and the deduction amount for work related apartments are being increased slightly

• ☐The estimated impact of the above adjustments is that the combined national income tax and local tax accumulation will decrease by approximately 499 million EUR.

VAT/GST/sales taxes

• ☐☐Easements for small businesses providing digital services

• ☐The VAT treatment of vouchers will be unified and clarified

• ☐The VAT law will be updated based on the social welfare and health care reform

2.5 Political landscape• ☐☐There will be a parliamentary election in 2019, which seems to be

stunting political developments.

• ☐The current government has postponed the already suggested changes to real estate taxes and the reform of income baskets to FY22 and the

• ☐EU directive based mandatory changes to the local laws affecting tax deductibility of interest expenses will be put in place in 2019


• ☐☐Aim is to implement tax policy which would support Finnish economic growth and labor policy.


• ☐☐No significant changes

2.8 Pending tax proposals• ☐Interest deduction limitation rules – 2019

• ☐CFC legislation – 2019

• ☐Income baskets – 2020

• ☐Real estate tax – 2022





Finland/Continued

Lower HigherNo

change

Lower HigherNo

change

Lower HigherNo

change









3.2 Current general approach to tax enforcement The Finnish Tax Authority has updated tax procedures to advance real time and self-initiated taxation as well as to increase collaborations with both corporate and individual taxpayers. Updates relate to more real time processes and eliminating the excess bureaucracy within the processes.

3.3 Key enforcement developments seen in 2018Increasing trend for the tax authorities to contact companies in order to have informal meetings instead of tax audits to discuss tax treatment transactions etc. carried out by groups of companies.

3.4 Likely enforcement developments in 2019• The trend to engage in informal meetings is likely to increase.



1 Transfer pricing Transfer pricing will trigger more tax audits in 2019.

2 Debt push downs Debt push downs, especially group internal debt push downs, will be scrutinized by tax authorities.

3 VAT on financial activities The recoverability of VAT relating to financial activities is receiving attention.


France

Tax policyJean-Pierre Lieb [email protected] +33 155 611 610

Tax controversyCharles Ménard [email protected] +33 155 611 557


1.1 Key tax rates

2018 2019 % Change



33.33%1 (28% on first 500 k€)

The CIT nominal rate is expected to decrease as follow:

• 2019: 31% (28% on first 500 k€)

• 2020: 28%

• 2021: 26.5%

• 2022: 25%

The additional 3.3% social tax will still be owed on the amount of CIT exceeding €763 000

7%



2018 top rate applicable to the 2017’s revenues:

45% 2

2019 top rate applicable to the 2018’s revenues:

45%

—


203% 20% —

1Article 219 I of the FTC2Article 197 of the FTC3Article 278 of the FTC

EY key contacts

Eiffel tower from Arc de triomphe


































2.1 Key drivers of tax policy changeThe following key drivers and goals were reaffirmed by the Macron government:

• ☐Lowering household tax burdens

• Promoting work and improving companies’ attractiveness

• Increasing the taxes on harmful behavior to health (e.g., cigarettes)

However, the French National debate in the wake of the gilets jaunes (yellow vest) movement might slow the reforms, bring new ones to the table or even overturn the reforms already voted.

For example, before the gilets jaunes movement started, the government intended to lower the share of expenses on the sale of equity interests from 12% to 5%. Because €10b were promised to the gilets jaunes in the meantime, the government decided not to go forward with this change.

4Article 34 of the 2019 Finance Law 5Article 38 of the 2019 Finance Law


France/Continued


























































6 Article 36 of the 2019 Finance Law7Article 34 of the 2019 Finance Law8Article 37 of the 2019 finance law: linked to the adjustment of the tax regime applicable to patent-related income9Article 55, 56 and 69 of the 2019 finance law: three new super-depreciations10See French Anti-Fraud Act












































� N/A

10See French Anti-Fraud Act



• ☐The CIT nominal rate will be decreased as follow:

• 2019: 31% (28% on first 500 k€)

• 2020: 28%

• 2021: 26,5%

• 2022: 25%

• ☐In an effort to comply with the European Union (EU) Anti-Tax Avoidance Directive (ATAD), the Finance Bill provides for major changes to the current French interest deductibility limitation rules.

• ☐The Finance Bill modifies the favorable French tax regime (reduced 15% tax rate applicable to income derived from patents and to capital gains realized on patents held for at least two years) in an effort to make it compatible with the so-called nexus approach of BEPS2 Action 5, thereby conditioning its application to the actual performance by the claiming taxpayer of research and development (R&D) activities in France.

• ☐For FYs beginning on or after 1 January 2019, royalties paid for the licensing of intellectual property (IP) rights by a French entity to a related entity that is not a resident of an EU or European Economic Area (EEA) Member State will no longer be fully tax deductible for French Corporate Income Tax (CIT) purposes if the beneficiary entity is not subject to tax on the royalty income at an effective rate of at least 25%.

• ☐Adjustment of the French tax consolidation regime


• ☐☐Separate from the Finance Bill for 2019, French Prime Minister Edouard Philippe announced – during a press interview on 17 December 2018 – that a tax on digital activity would apply in France as from 1 January 2019. This new tax, which might affect major digital actors, was not included in the Finance Bill

for 2019 and will only be discussed before the French Parliament in early 2019.Philippe announced – during a press interview on 17 December 2018 – that a tax on digital activity would apply in France as from 1 January 2019. This new tax, which might impact major digital actors, is NOT included in the Finance Bill for 2019 and will only be discussed before the French Parliament in early 2019.


• ☐☐PAYE system: withholding tax will has been implemented for French salaries (also pensions and French property income) since 1 January 2019.

• ☐Companies will benefit from the transformation of the tax credit for employment and competitiveness (CICE – Crédit d’impôt compétitivité emploi) into a long-term reduction of charges

VAT/GST/sales taxes

• ☐n/a

2.5 Political landscape• ☐French President Emmanuel Macron was elected on a platform

that aims at:

• Making France more competitive (France is currently one of just a few countries with a deficit higher than the EU-mandated rate)

• Boosting jobs in an increasingly globalized world

• Attracting business angels and investors

• ☐As such, he began his mandate by passing labor reforms in an attempt to enhance growth and job hiring.

• ☐From a tax standpoint, the government program can be described as business friendly.

• ☐The gilets jaunes protests have accelerated some of the pro-households’ reforms and put a hold on some of planned reforms such as the tax increase on fuel.


Overall CIT burden

Lower HigherNo

changeLower Higher

Overall PIT burden


Lower HigherNo

change

No change

France/Continued



• ☐Bruno Lemaire, Finance Minister

• ☐Gérald Darmanin, Public accounts minister

• ☐Laurent Martel; tax advisor of Emmanuel Macron (French President) and Edouard Philippe (Prime Minister)

• ☐Bruno Parent, director of the General Directorate for Public Finances

• ☐Christophe Pourreau, director the tax legislation service

• Edouard Marcus, director of the legal department

• Maïté Gabet, director of the tax audit department


• ☐Abolition of various employee contributions that only affect employees, transferring them to the CSG (increased by 1,7 percentage point), which applies to all forms of income, including capital income and pensions.c

2.8 Pending tax proposals• ☐A tax on digital business activity


119









3.2 Current general approach to tax enforcement Based on the tax reassessment notices received by the clients of EY France, it seems that in FY 2018 and in 2017, the French tax administration was focused on the following:• ☐Intragroup financing terms especially when the money lender is

non-French

• ☐Provisions for depreciation of intragroup loans

• ☐Restructurings and reorganizations: use of the abuse of law theory

• ☐Sales of participations at a discounted or increased price

• ☐Management fees and the realty of the services provided

• ☐Withholding taxes and their tax deductibility in France

Moreover, as from 1 January 2014, French taxpayers must be in a position to provide the FTA, at the beginning of a tax audit, with an accounting entry file (AEF) containing specific accounting data (article L 47 A I of the French Code of Fiscal Procedures) and a reliable audit trail (invoices requirements).

The French Tax Administration almost systematically asks for those at the beginning of a tax audit. It however still has difficulties using heavy AEF and has not inflicted any penalties on the grounds of an incomplete/missing reliable audit trail yet (to our knowledge).


On August 10th 2018, the Act for a State serving a trustworthy society was published in the official journal (OJ). It aimed to introduce a spirit of support and advice into the relationship between the administration and its citizens.

On 24 October 2018, the French Anti-Fraud Act (loi relative à la lutte contre la fraude, the Act) was published in the OJ. The Act was designed to strengthen the measures to fight against taxpayers’ failure to comply with their tax and social duties.

These laws seem to be more contradictory than complementary and undermine business friendly inclination of the government all the more so as the gilets jaunes require an increase in taxation of high net worth individuals.

3.4 Likely enforcement developments in 2019It’s been several years now that the French Tax administration has launched a program that is aiming at using all the information it has access to through multiple databases.

• ☐The program detects the potential flaws and unlawful behaviors after gathering all the information available on those multiple databases.

The first tax audit based on this program might be launched this coming year.

For efficiency reasons, the tax administration is using its ability to carry on on-site audits less and instead chooses to carry-on documentary audits based on the Accounting entry file (so-called “accounting examination”).

France/Continued




1 Criminal dimension of tax audits

Until the publication of the anti-fraud Act on October 24th 2018, prosecutions alleging tax fraud were based on the filing of a complaint by the tax authorities after obtaining a favorable opinion from the tax offences commission. The Act allows tax authorities to automatically bring some cases to the public prosecutor, who remains free to instigate legal proceedings or not. The case must be moved forward where the amount of taxes avoided exceeds €100,000 and the tax administration applied:

• ☐The 100% penalty for opposition to control11

• ☐The 80% penalty provided for concealed activity12, fraudulent practices or abuse of law13, non-declaration of foreign accounts, life insurance or trusts14 or for smugglers15

• ☐The 40% penalty for deliberate breach, abuse of law16 or failure to file a tax return after a formal notice to pay17 if during the six previous calendar years, the taxpayer had borne, during a previous audit, one of the 40%, 80% or 100% penalties listed above or been the subject of a complaint from the tax administration for tax fraud

Many companies undergo reassessments of more than €100 000 and, in many cases, the tax administration applies the 40% or 80% penalties, especially in TP cases. Automatic transfer of cases to the Prosecutor is expected to be a frightening pressure means in the hands of the FTA

2 Restructurings and reorganizations

Following the 2018 trend, the focus of the Tax authorities in 2019 will be restructurings and reorganizations, in particular through the abuse of law theory a

3 Transfer pricing and intra-group transactions

TP cases will see increased scrutiny.

4 Intra-group financing

5 European Mandatory disclosure regime

11Article 1732 of the FTC12Article 1728, 1, c of the FTC13Article 1729 b and c of the FTC14Article 1729-0 A of the FTC15Article 175816Article 1729, a et b of the FTC17Article 1728, 1, b of the FTC


Germany

Tax policyHermann Gauss [email protected] +49 302 5471 16242

Tax controversyAlexander Groß [email protected] +49 761 1508 16493


1.1 Key tax rates

2018 2019 % Change



Top federal (national) CIT rate: 15% (plus solidarity surcharge of 5.5%)

Trade tax (local): 7%–19.25%

Total average: ~30%

Top federal (national) CIT rate1: 15% (plus2 solidarity surcharge of 5.5%3)

Trade tax (local): 7%–19.25%4

Total average: ~30%

7%



45% (plus solidarity surcharge of 5.5%)

45%5 (plus6 solidarity surcharge of 5.5%7)

—


19% (reduced rate of 7% applies in many areas)

19% (reduced rate of 7% applies in many areas)8

—

1Sec. 23, para. 1, KStG (Corporation Tax Act).2The combined burden of CIT and Solidarity Surcharge is 15.825%.3Sec. 4, SolzG (Solidarity Surcharge Act). Starting in 2020, the government wants to decrease the burden. 4Sec. 11 and Sec. 16 GewStG (Trade Tax Act); two negligible municipalities with less than 100 inhabitants have higher trade tax rates. 5Sec. 32a, para. 1, EStG (Personal Income Tax Act).6The combined burden of PIT and Solidarity Surcharge is 47.48%.7Sec. 4, SolzG (Solidarity Surcharge Act). Starting in 2020, the government wants to decrease the burden.8Sec. 12, para 1, UStG (VAT Act).

EY key contacts

Berlin Spree River


































2.1 Key drivers of tax policy change• ☐Extension of anti-avoidance rules and the OECD as a standard-setter in taxation

• ☐Increased focus on tax evasion and tax transparency as a result of the Panama Papers, Paradise Papers etc.

• ☐Legislation relating to Brexit

• ☐EU-wide harmonization, including an ongoing willingness to transfer additional legislation competencies to the EU level and strong support of the OECD-BEPS initiative against tax avoidance

• ☐Preservation of the Euro as currency and the strengthening of European institutions

• ☐Balanced federal budget and most state budgets allows room for major tax policy adjustments, but no action thus far


Germany/Continued





































































































; N/A



• ☐As an addition to the individual income tax, the German tax law provides a 5.5% solidarity surcharge on that burden. After successful economic cycles, a reduction of that levy was proposed by the grand coalition. The grand coalition indicated that the tax burden will not increase. Furthermore, the solidarity surcharge on PIT will phase out for 90% of the former payers during this legislative term as of 2021. It is unclear whether the expected reduction will also affect corporations.

• ☐Implementation of the EU Anti-Tax Avoidance Directive is scheduled to take place in 2019, with major Transformation Tax Acts to be expected for CFC rules and hybrid mismatches.

• ☐If the DST initiative fails at EU level by March 2019, German tax policy makers may discuss options to introduce a unilateral DST.

• ☐R&D activities will likely be incentivized through a tax credit; details are not yet decided (there may be limitations to small – and medium-sized enterprises).

• ☐Permanent abolishment of the partial loss forfeiture rule for ownership changes of more than 25% up to 50%, the provision was removed retroactively for transfers that took place after 31 December 2007 and prior to 1 January 2016.

• ☐Special tax incentives for the construction of residential buildings as well as for energy-saving building refurbishments may be introduced.

Taxes on digital business activity• ☐Germany supports European efforts on introducing taxes on

digital activity by the so called ‘digital services tax’. No national laws are planned at this time. As noted, if the DST initiative fails at EU level by March 2019, German tax policy makers may discuss options to introduce a unilateral DST.


• ☐☐☐The basic income-tax-free allowance was increased by €180 to €9,000 in 2018 and grows by a further €180 to €9,168 in 2019. In addition, the taxation brackets shifted downward by 1.65% in 2018 and will shift by a further 1.84% in 2019, resulting in lower taxes on the same income.

• ☐The grand coalition indicated that the tax burden will not increase. Furthermore, the solidarity surcharge on PIT will phase out for 90% of the taxpayers during this legislative term as of 2021. There are discussions about the total abolition in parliament.

• ☐The 25% flat rate withholding tax on all capital income of private persons has come under criticism. It is possible to abolish or amend the principle of 25% flat rate for capital income.

VAT/GST/sales taxes

• ☐☐No significant changes are expected in 2019.

• ☐There will be further EU harmonization initiatives, with changes due from 2019 (extension of the Mini One-Stop Shop to online goods trade, followed by the introduction of One Stop Shop/certified taxpayer/liability of online platforms for trader VAT).

• ☐Push towards the taxation of financial transactions.

2.5 Political landscape• ☐In the 2017 federal election, the governing parties (the CDU

and the SPD) suffered a major defeat. However, the two parties were able to initiate a grand coalition again for four years. The Alternative for Germany (AFD), a far-right party, entered into the Bundestag (the parliament) for the first time and presents the biggest opposition party, while the Free Democratic Party (FDP) returned to the Bundestag.


Overall CIT burden

Lower HigherNo

changeLower Higher

Overall PIT burden


Mixed

Germany/Continued

Lower HigherNo

change


• Dr. Angela Merkel did not stand during the last party leadership election but officially plans to be chancellor until the end of the legislative period in 2021.

• ☐☐New party leader is Annegret Kramp-Karrenbauer and is probably the preferred conservative candidate for chancellor for next federal election in 2021. It cannot be ruled out that she will succeed Angela Merkel as Chancellor even before the elections in 2021.

• In 2019, a number of important elections will be held. On the same day of the EU elections on 26 May 2019, Bremen will elect a new state parliament and in 10 German states municipal elections will occur. In September and October 2019, state parliaments in Brandenburg, Saxony and Thuringia will be elected.

• ☐In the federal council (Bundesrat), which has to approve most tax law adjustments, there are no clear majorities at the beginning of 2019. Instead, the CDU, the SPD and the Greens have the option to block legislation via the Bundesrat, based on their governmental position in the states.


Tax policy leaders:

• ☐Dr. Angela Merkel (CDU), Chancellor

• ☐Helge Braun (CDU), Head of Chancellery

• ☐Olaf Scholz (SPD), Finance Minister, Vice Chancellor

• ☐Peter Altmeier (CDU), Federal Minister of Economics and Energy

• ☐Christine Lambrecht, Parliamentary State Secretary, Federal Ministry of Finance

• ☐Ralph Brinkhaus, Chairman of the CDU/CSU Parliamentary Group

• ☐Achim Post (SPD), Deputy Chairman of the SPD Parliamentary Group

• ☐Bettina Stark-Watzinger (FDP), Chairman of the Bundestag Finance Committee

• ☐Albert Füracker (CSU), Bavarian State Minister of Finance

• ☐Lutz Lienenkämper (CDU), State Minister of Finance of North Rhine-Westphalia

• ☐The “Big 8” business associations and other representative bodies

• ☐Finance policy speakers of the Bundestag Parliamentary Groups


• State Secretary, Federal Ministry of Finance

• Dr. Rolf Möhlenbröck, Head of the Tax Division of the Federal Ministry of Finance

• 16 heads of tax departments at state level


• On 25 June 2018, the German federal ministry of finance released the German Tax Act 2018.

• Under the superordinate term of an implementation of VAT-liabilities for provider of online-marketplaces, it affects several other tax fields.

• This includes the partial repeal of the current loss forfeiture rule for assessment periods between 2008 and 2015 or the reactivation of tax exemption rule for restructuring profits as a consequence of ECJ decisions.

2.8 Pending tax proposals• ☐Implementation of EU mandatory disclosure rules for cross-

border tax arrangements. Germany might add rules that cover some domestic arrangements as well.

• ☐Legislation relating to Brexit

• ☐Land Tax Reform: the current appraisal system used for determining the tax base is under pressure and deemed to be unconstitutional. At the end of 2018, the Federal Ministry of Finance published a key issue paper containing two different mechanism, one depending on the fair market value of the land and the housing property and the other depending on the size of the land and the buildings

• ☐The German state finance ministers have agreed on a Real Estate Transfer Tax reform proposal that aims at an increased taxation of share deals, a draft bill is expected in early 2019.

2.9 Consultations opened/closed• ☐Please see section 2.8

127









3.2 Current general approach to tax enforcement • ☐Influenced by the ongoing discussions around BEPS, tax

enforcement has become more assertive in Germany in recent years. There is an increasing focus on transfer pricing, but also sector related specialties.

• ☐While there are still differences in the way tax authorities in different states operate tax enforcement, increased exchange and coordination leads to a more aligned approach.

• ☐State tax authorities are proactively influencing federal tax policy in order to close (alleged) loopholes, backed by an increasing public awareness around recent discussions about BEPS and tax-driven dividend transactions.

• Current developments in electronic transmission of tax relevant data (tax returns, balance sheets, profit and loss statements and other reports) have led to an increasing availability of digital data to the tax authorities. Slowly but steadily tax authorities extend the use of such digitally available data, e.g., to identify potential audit subjects and areas.

3.3 Key enforcement developments seen in 2018Other than the general themes described above, there have not been specific developments in 2018.

3.4 Likely enforcement developments in 2019Tax audits are expected to further strengthen the general tendency towards more integrated audits between different federal states and increasing focus on international topics (e.g., transfer pricing).

Germany/Continued




1 Transfer Pricing: IP allocation, unilateral adjustments

• ☐Influenced by the ongoing BEPS discussions, tax authorities increasingly question the location of intellectual property (IP) based on an analysis of the respective functions of developing, enhancing, maintaining, protecting and exploiting of such IP (DEMPE functions).

• ☐A viable global transfer pricing model and respective documentation is required.

• ☐Risk of unilateral adjustments can be countered with multilateral instruments such as advance pricing agreements, joint audits or mutual agreement procedures.

2 Direct taxes: Accruals and capitalization of expenses

• ☐The disallowance of accruals and the capitalization of expenses are prevailing areas of adjustments in German tax audits, often triggered by sector specific knowledge of the tax auditors.

• ☐Missing documentation in later tax audits due to time laps and personnel changes can be avoided by timely preparing documentation and having tax requirements in mind.

• ☐Knowing the industries’ typical tax audit issues and best practices helps companies to defend their positions in tax audits.

3 VAT: Missing or incomplete documentation

• ☐German VAT law imposes many formal requirements when it comes to documentation of tax-exempt supplies such as exports or intra-community supplies. In many cases failure in meeting these requirements leads to significant additional tax charges.

• ☐Knowing the requirements and implementing respective documentation processes help taxpayers to mitigate these audit risks.

4 Tax policies and controls • ☐Missing or ineffective tax compliance policies and controls can lead to a lack in oversight of tax positions and inaccuracies or omissions in tax returns.

• ☐Initiating the rights steps after discovering such inaccuracies is crucial to protect the company and its employees against potential tax criminal investigations based on the accusation of gross negligence.

• ☐Tax compliance management systems (Tax CMS) help manage tax compliance risks and are an instrument acknowledged by the tax authorities that mitigates criminal accusations in cases of potential negligence.

5 Digital tax • ☐Tax auditors are making more and more use of the digital data available to them and it is opening new ways of auditing, e.g., identifying potential areas of investigation.

• ☐Knowing the data provided to the tax authorities and predicting potential focus areas of the audit can help companies to better defend their positions.


Greece

Tax policy

Tax controversy

Stephanos Mitsios [email protected] +30 210 2886 368

Konstantina Galli [email protected] +30 210 2886 355

Tassos Anastassiadis [email protected] +30 210 2886 592


1.1 Key tax rates

2018 2019 % Change



29% 28% The CIT rate is gradually reduced as follows: 28% for FY 2019, 27% for FY 2020, 26% for FY 2021 and 25% for FY 2022 onwards.

—3.4%



• ☐(PIT) top rate 45%>Solidarity tax 10%(>€220,000)

No change No change


24%

Reduced VAT rates of 13% and 6% are provided for specific goods and services.

24%

Reduced VAT rates of 13% and 6% are provided for specific goods and services.

0%

EY key contacts

Santorini sunset at dawn village of Oia Greece




Tax types Likelihood of changes in 2019 Direction of changew






























2.1 Key drivers of tax policy change• E-invoicing and electronic maintenance of books

• ☐Abolition of stamp duty and replacement with another tax on transactions that will be determined and easily calculated and paid electronically

• ☐Implementation of ATAD (Anti-Tax Avoidance Directive 2016/1164)

• ☐Tax incentives for investment in research and development (R&D)

• ☐Upgrading customs controls structure, by creating a flexible body of customs officers that will perform controls throughout the country under the guidance of a central directorate dedicated to this purpose

• ☐Elimination of existence of unprocessed VAT refund claims dating more than 90 days



























































Greece/Continued












































; N/A




• ☐☐The CIT rate is to be gradually reduced, as follows:

• 28% for FY 2019, 27% for FY 2020

• 26% for FY 2021

• 25% for FY 2022 onwards

• ☐ ☐Furthermore, a reduction of dividend tax from 15% to 10% as of 01.01.2020, may be introduced.


• ☐In favor of the EU Digital Tax proposals towards the imposition of an EU tax that should aim at taxing multinational group of companies and should not burden the Greek taxpayers.


• ☐☐☐There are no significant changes, except for a forthcoming reduction of social security contributions.

VAT/GST/sales taxes

• ☐☐☐There are no significant changes.

• ☐In an attempt to facilitate trade, the tax authority issued a decision to exempt from VAT the domestic goods and merchandise from third countries, after payment of customs duties, that are stored in designated customs warehouses

• ☐The tax authority plans to reduce the stock of arrears of VAT refund and eliminate the existence of unprocessed claims dating more than 90 days.

2.5 Political landscape• ☐Stable political landscape

• ☐Aim to establish a solid and trusted tax administration


• ☐George Pitsilis - leader of the Greek Tax and Customs Administration


• ☐Filing of short term rentals through sharing economy platforms

• ☐Imposition of occupancy tax

• ☐Application of more favorable tax fines regime

2.8 Pending tax proposals

N/A


N/A




Greece/Continued

Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change









3.2 Current general approach to tax enforcement While there are efforts coming from the Greek tax authorities to increase electronic compliance and their audit systems sophistication, there are no discernable consistent trends within 2018 in terms of tax enforcement.

3.3 Key enforcement developments seen in 2018• ☐Investment development

• ☐Combating bureaucracy in the Greek tax administration

• ☐Systematization and modernization of the tax framework regarding transformations of companies.


N/A



1 Vat refund claim Taxable persons may opt to claim the refund of input VAT on a monthly basis via their periodic VAT return rather than carrying forward the VAT credit balance to the following fiscal period.

2 Statute of limitation of the fiscal year 2013

The Tax Administration may issue a tax assessment note within five (5) years from the end of the year within which the deadline for submitting a tax return is due. Therefore, the statute of limitation of fiscal year 2013 will take place in the end of the fiscal year 2019, meaning that tax audits of 2013 will take place within 2019.

3 Stamp duty issues Stamp duty is generally imposed on documents drafted or issued by private individuals or legal entities. Due to the general character of its scope of application and taking into account that the stamp duty - contrary to VAT- is not tax neutral in the sense that it is a (tax deductible) cost, the stamp duty has been an area of rising dispute between the tax authorities and taxpayers during the course of tax audits.

4 Income tax issues Income tax audits are often triggered by the submission of a claim for the refund of income tax.

5 Withholding tax issues Withholding tax audits are often triggered by the submission of a claim for the refund of withholding tax.

6 Tax certificate under reservation

The "Annual Tax Certificate" refers to companies whose annual financial statements are audited by statutory auditors; the statutory auditors also carry out a tax audit on specific tax items. If any tax issues are identified in the course of the tax audit by the statutory auditors, the Annual Certificate is issued under reservation. This often triggers a tax audit by the tax authorities.


Guatemala

Tax policy

Tax controversy

Luis Eduardo Ocando B [email protected] +507 2080 144





1.1 Key tax rates

2018 2019 % Change



25% or 5% or 7% 25%1 or 5% or 7%2 —



25% or 5% or 7% 25%3 or 5% or 7%4 —


12% 12%5 —

1The 25% rate applies to taxpayers registered under the Regime on Profits from Business Activities. (Section 36 of the Tax Legislation Update, Decree 10-2012 of Guatemalan Congress—TLU)2Taxpayers under the Simplified Optional Regime on revenue from business activities are subject to 5% over the first GTQ30,000 (approximately US$4,004), and the exceeding amount will be subject to a 7% rate. (Section 44 of the TLU)3Section 36 of the Tax Law Update.

EY key contacts

Antigua City at Sunrise


































2.1 Key drivers of tax policy change• ☐The new Electronic Online Invoice Regime (FEL, using its local acronym) is gradually being implemented, which will issue, certify

and store tax documents (i.e., invoices, credit notes, debit notes, etc.) completely by electronic means, and through real-time online submission to the Tax Authorities for a pre-approval process.

• ☐The Tax Authorities intend to continue to issue guidance in order to provide clarity on obscure matters.

• ☐Section 30 “C” of the Tax Code, which relates to the Tax Authority’s ability to access taxpayer banking information, may be deemed unconstitutional. If it is, there may be pressure on local government to implement other tools to remain compliant with global policies, such as adhere to the BEPS inclusive framework or other legal amendments.

• ☐Guatemalan Tax Authorities are reported to have taken aggressive measures in collecting taxes, such as the filing of criminal charges against taxpayers for tax offenders in order to encourage taxpayers to comply with tax payments and to avoid unintended tax charges.

4Compensation paid to employees is taxed at a 5% rate over the first GTQ300,000 (approximately US$40,040) of taxable income and a 7% over the exceeding amount. (Section 73 of the TLU)5Section 10 of the Value Added Tax Law, Decree 27-92 of Guatemalan Congress.



























































Guatemala/Continued












































; N/A


2.4 Tax policy outlook for 2019 — detailCorporate income taxes• ☐ No changes are expected to the corporate income tax regime in

2019.


• ☐☐No changes are expected to taxes on digital business activity in 2019.


• ☐☐☐☐No changes are expected to taxes on wages and employment in 2019.

VAT/GST/sales taxes

• ☐No changes are expected on VAT in 2019.

2.5 Political landscape• ☐☐In 2019, the popular elections for President, Vice President,

Congress and municipalities will be held, with the new authorities assuming power in 2020. Therefore, the political landscape could be subject to several changes during the election process in 2019 and 2020.

• Additionally, the Tax Authorities are currently taking very aggressive positions in their audit procedures and interpretation due to several tax fraud scandals in which government officers were prosecuted.


• ☐☐Abel Francisco Cruz Calderón, Superintendent of the Superintendence of Tax Administration (SAT)

• ☐Jose Fernando Suriano Buezo, Intendent of Collection

• ☐Werner Florencio Ovalle Ramírez, Intendent of Customs

• ☐Leonel Augusto Villamar Quiroa, Intendent of Auditing

• ☐Zulma Maite Ávila Herrera, Intendent of Legal Affairs

• ☐Salvador López García, Intendent of Attention to the Taxpayer

• ☐The Board of Directors of the Tax Authorities:

• Victor Manuel Martínez Ruiz

• Carmen Lily Abril Gómez

• Silvia Liliana Castillo Martinez

• Adriana Estévez Clavería

• Abel Francisco Cruz Calderón


• ☐The Guatemalan tax Authorities issued several pieces of institutional guidance on tax issues that have previously generated some controversy and misinterpretations, leading to tax audits and adjustments.


Guatemala/Continued



Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change


• Implementation of FEL

• A new electronic form through which taxpayers may register as regular exporters in accordance with the VAT Law. As of July 2018, taxpayers should file form SAT-0471 and electronically file information to register as exporters. The improved electronic filing process reduces registration time from 70 to 3 business days.

• Suspension of Section 30 “C” of the Tax Code

2.8 Pending tax proposals• ☐Reform to the Free Trade Zone tax incentive regime is underway

with no currently expected implementation date.

2.9 Consultations opened/closed• ☐There are no current open public consultations.

141








3.2 Current general approach to tax enforcement The general approach of the Tax Authorities has been to improve and increase tax enforcement in Guatemala by developing aggressive tax policies.

3.3 Key enforcement developments seen in 2018• ☐☐The Tax Authorities issued several institutional guides in order to

improve the tax enforcement on tax issues that have previously generated some obscurity or controversy.

• On 2018, the Tax Authorities focused on establishing several controls in order to mitigate smuggling and customs fraud in Guatemala.

• The Tax Authorities implemented certain electronic tools (i.e. FEL regime) to improve tax enforcement.

• The Tax Authorities extended the attributions of the Management of Large Taxpayers (“Gerencia de Contribuyentes Grandes”) for the purpose of improving audits and reporting requirements.

• The Tax Authorities continued its efforts to be more efficient in the process of refunding VAT credits generated by Guatemalan Taxpayers.

3.4 Likely enforcement developments in 2019• ☐The Tax Authorities intend to continue the issuance of

institutional criteria in order to provide certain clarity over the obscure and controverted tax matters.

• ☐The Tax Authorities will continue to implement the FEL regime in 2019 until all taxpayers are duly incorporated.




1 Omitted taxes Taxpayers with missing tax returns or tax payments risk audit.

2 Transactions not duly documented

Taxpayers carrying out transactions without the appropriate documentation (i.e. invoice, contract, etc.) risk receiving questions about the deductibility of expenses, the recognition of VAT credits or on other legal issues.

3 Smuggling and customs fraud The Tax Authorities have been focusing on customs operations in order to detect activities that could trigger customs fraud or smuggling in the country.

4 Compliance with Transfer Pricing Rules

Transfer Pricing (TP) rules apply over transactions made between local taxpayers and their related parties abroad. To that effect, a risk will be generated if taxpayers do not comply with the TP requirements (i.e. Transfer Pricing Study)

5 Simulation of expenses and lack of economic reality

The Tax Authorities will continue to focus on audits of business groups in order to determine the existence of simulated costs and expenses through intercompany transactions, and operations performed by taxpayers without substance and economic reality.

Guatemala/Continued



Honduras

Tax policy

Tax controversy


Juan Carlos Chavarría Pozuelo [email protected] +506 2208 9844

Randall Oquendo [email protected] +506 2208 9874


1.1 Key tax rates

2018 2019 % Change



25% 25% —



25% 25%4 —


15% 15%5 —

EY key contacts

Aerial View downtown Tegucigalpa Honduras


































2.1 Key drivers of tax policy change• ☐The economic downturn increased the need for higher tax revenues.



























































Honduras/Continued












































; N/A



• ☐ ☐No changes are expected for 2019.


• ☐No changes are expected for 2019.


• ☐☐☐☐ ☐No changes are expected for 2019..

VAT/GST/sales taxes

• ☐No changes are expected for 2019..

2.5 Political landscape• ☐Juan Orlando Hernández was re-elected as President of

Honduras for a four-year period (2018 – 2022).



• ☐☐Juan Orlando Hernandez, current President of the Republic of Honduras

• ☐Rocío Tábora, Finance Secretary

• Current tax administrators:

• ☐☐ Miriam Guzmán, Internal Revenue Minister.


• ☐None

2.8 Pending tax proposals• None

2.9 Consultations opened/closed• ☐N/A


Honduras/Continued



Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change









3.2 Current general approach to tax enforcement The government is not aggressive in dealings with taxpayers, but does insist on substance-based approaches.

3.3 Key enforcement developments seen in 2018• N/A.

3.4 Likely enforcement developments in 2019• N/A



1 Amendment of tax returns Amendments to prior tax returns could trigger an audit, especially if the amended returns reflect a lower tax payable.

2 Transfer pricing information returns

TTransfer Pricing Information Returns that were filed by taxpayers are being subject to audits, therefore the Tax Authorities will continue reviewing the support documentation, transfer pricing studies and transfer pricing information returns..

3 Certificate or Final Stamp A Tax Amnesty and Regularization Program has been applied in Honduras and the taxpayers that applied for the certificate or final stamp for the open tax years should not be subject to audits. However, there is a chance that the Tax Authorities may audit those taxpayers that did not make the corresponding payment to request the certificate or final stamp.


Hong Kong SAR

Tax policyBecky Lai [email protected] +852 2629 3188

Tax controversyWilson Cheng [email protected] +852 2846 9066


1.1 Key tax rates

2018 2019 % Change



16.5% 16.5%

Commencing from the year of assessment 2018/19, a two-tiered profits tax rates regime will apply in Hong Kong. Under the two-tiered regime, the rate of tax for the first HK$2m of profits of corporations will be reduced by half to 8.25% (7.5% for unincorporated business). The remainder of the profits will continue to be taxed at the normal applicable rate of 16.5%.

—

EY key contacts

Aerial scene of Hong Kong



2018 2019 % Change

However, each group of “connected entities” can only elect one entity in the group to benefit from the two-tiered regime for a given year of assessment.



15%

Note: The PIT charge is the lower of: (a) the standard rate of 15% applying to net chargeable income before personal allowances and (b) the progressive rates of 2%, 7%, 12% and 17% applying to net chargeable income.

15%

Note: The PIT charge is the lower of: (a) the standard rate of 15% applying to net chargeable income before personal allowances and (b) the progressive rates from of 2%, 6%, 10%, 14% and 17% applying to net chargeable income.

Slight reduced as the progressive rates were slightly adjusted.


N/A% 13% —














































Hong Kong SAR/Continued


2.1 Key drivers of tax policy change• ☐The HKSAR Government’s objective continues to be to maintain a simple and low tax regime, which is one of the important competitive

advantages of Hong Kong.

• ☐Per recent statements, tax measures will be introduced to promote the development of maritime leasing and insurance in HKSAR.
























































; N/A, as there is no VAT, GST or sales tax







; N/A, as there is no VAT, GST or sales Tax






• ☐☐It is expected that the HKSAR Government will continue adopting a more interventionist approach to drive the economy of Hong Kong through the introduction of tax incentives catered for certain targeted industries/sectors in HKSAR. In this regards, it is expected that there will be new tax incentives for maritime leasing and marine insurance.

• Further reduction of the headline corporate tax rate is not expected as the two-tiered profits tax rates system was implemented in 2018.

• Introduction of new types of taxes are not expected as the HKSAR Government is sitting on a huge fiscal reserve.




Overall CIT burden

Lower HigherNo

change

Overall PIT burden
























; N/A

Lower HigherNo

change

Lower HigherNo

change



• ☐No changes are expected

VAT/GST/sales taxes

• ☐☐Not applicable.

2.5 Political landscape• ☐☐Ms. Carrie Lam was elected as Hong Kong’s Chief Executive in

March 2017 and began her five-year term on 1 July 2017.

• ☐She promised to set a new, proactive style of governance, as well as a new fiscal philosophy to manage Hong Kong’s public finances wisely.

• ☐More tax incentives are expected to further enhance the tax competitiveness of Hong Kong.



• ☐Financial Secretary, Mr. Paul Chan Mo-po;


• ☐Commissioner of Inland Revenue, Mr. WONG Kuen-fai


• ☐☐The Inland Revenue Amendment (No. 6) Ordinance 2018 was enacted in July 2018, which implements the following key changes to the HKSAR tax regime:

• Codification of transfer pricing rules that cover domestic and cross-border transactions (subject to certain specified exemptions)

• Mandatory three-tiered transfer pricing documentation requirements, with some exemptions, and a general approach of following general OECD guidelines

• An advance pricing arrangement regime to include unilateral, bilateral and multilateral APAs

• ☐☐The Inland Revenue Amendment (No. 7) Ordinance 2018 was enacted in October 2018, which grants enhanced tax deductions for expenditures on qualifying research and development (R&D) activities. Qualifying R&D expenditure incurred or after 1 April

2018 will be eligible for enhanced tax deductions: the first HK$2 m being eligible for a 300% deduction and the remainder, not subject to any cap, deductible at 200%.

• The Inland Revenue (Amendment) (No. 5) Ordinance 2018 was enacted in June 2018 to expand the scope of profits tax deductions for capital expenditures incurred by enterprises for the purchase of intellectual property (IP) rights from five types to eight.

• The Inland Revenue (Amendment) (No. 3) Ordinance 2018 was enacted in March 2018 to implement the two-tiered profits tax regime.

• Inland Revenue (Amendment) (No. 9) Ordinance 2018 was enacted to provide for separate personal assessment, to accelerate tax deductions for capital expenditure incurred in relation to environmental protection installations and to provide for tax exemption to cover certain debt instruments issued on or after 1 April 2018.

• ☐The Inland Revenue (Amendment) (No. 2) Ordinance 2018 was enacted in March 2018 to extend the profits tax exemption to certain open-ended fund companies.

2.8 Pending tax proposals• ☐Inland Revenue (Amendment) (No. 6) Bill 2018 – to treat certain

loss-absorbing capacity (LAC) debt instruments issued by authorized institutions and relevant group companies as debt securities.

• Inland Revenue (Amendment) (No. 7) Bill 2018 – to allow computation of tax assessable profits arising from financial instruments on a fair value basis.

• Inland Revenue (Amendment) (No. 8) Bill 2018 – to remove ring-fencing features identified by the European Union in respect of the offshore fund regime and offshore private equity fund regime. The Bill will extend the current tax exemption regime for offshore funds to onshore funds and remove the limitations on investment in Hong Kong private companies.

• Inland Revenue (Amendment) (No. 9) Bill 2018 – to introduce tax concessions for deferred annuity premiums and mandatory provident fund tax deductible voluntary contributions.


155









3.2 Current general approach to tax enforcement The tax authority of Hong Kong built up a comprehensive and integrated IT infrastructure with different types of computer application systems and platforms.

The assessment process is automated by the “Assess-First-Audit-Later” (AFAL) system. Data in the returns submitted by taxpayers are first input into the AFAL system. The AFAL system screens out the returns which meet the pre-set criteria for automated assessment. A certain percentage of these automated assessments are then selected based on additional criteria for audit and investigation by assessing officers.

Returns not meeting the pre-set criteria for automated assessment are screened manually by assessing officers to determine whether they should be subject to in-depth examination prior to assessment.

Under the AFAL system, a customized computer-assisted case selection program has been devised. Depending on the facts of each case, cases selected will be allotted to the assessing officers to conduct “desk audit”, to the field auditors to conduct “field audit” or to the investigators to conduct an in-depth “investigation”. The audit trilogy has enhanced the effectiveness in identifying high-risk cases for audit and investigation.

The AFAL system has been built on an analytical solution adopted by the tax authority of Hong Kong to select cases for post assessment audits and investigations. After providing parameters to chosen criteria via the application interface, the required numbers of cases can be selected online. Additional selection criteria can be added to the case selection functions via the application interface, in response to compliance trends and emerging business practices

3.3 Key enforcement developments seen in 2018Hong Kong uses a territorial source principle of taxation. Only profits which have a source in Hong Kong are taxable here. Nonetheless, the OECD BEPS initiatives have made the HKSAR Government more concerned whether its policies and practices would be seen by other tax jurisdictions as tax base erosion/tax haven or as encouraging multinational companies to arrange transactions subject to double non-taxation. As such, the tax authority of Hong Kong will likely be more stringent in scrutinizing offshore claims.

3.4 Likely enforcement developments in 2019It is expected that the focus of the tax authority of Hong Kong in 2019 will be transfer pricing. As mentioned above, the HKSAR Government has codified the transfer pricing rules and OECD’s three-tiered documentation into the Hong Kong tax code in 2018. The transfer pricing documentation requirements will provide the tax authority with more information and facilitate its assessment of whether Hong Kong taxpayers are transacting with their associated entities at arm’s length.





1 Transfer pricing Related party transactions will likely be subject to more stringent scrutiny.

2 Offshore claim Taxpayers lodging an offshore claim and not subject to tax overseas would likely be required to explain the purposes and roles of their Hong Kong establishments.

3 Capital gain claim Capital gain is not taxable in Hong Kong. The determination of capital and revenue nature of gain/income is a usual contentions matter.

4 Offshore companies The use of offshore companies in the business operation would be one of the focus in tax audit.

5 Residence status The application of comprehensive double tax agreement and the qualification as Hong Kong tax resident could be an issue.


India

Tax policyGanesh Raj [email protected] +91 120 671 7110

Tax controversyRajan Vora [email protected] +91 226 192 0440


1.1 Key tax rates

2018 2019 % Change



Domestic Company

• ☐Where Total turnover or gross receipts in FY 2016-17≤ 2500 m

• Income > 10 m, but <100 m – 27.82%

• Income > 100 m-29.12%

• ☐Optional tax rate for new manufacturing companies set up/ registered on or after 1 March 2016 (s.115BA)

• Income > 10 m, but <100 m – 27.82%

• Income > 100 m- 29.12%

• Other companies

India will be holding its general elections in April 2019. It is expected that an interim budget would be presented on February 1st 2019. At this stage it is not clear whether the tax rates will be changed in the interim budget. After the new Government is formed, it is expected that the full budget would be presented sometime in end of June/beginning of July 2019.

—

EY key contacts

Mumbai City , India



2018 2019 % Change

• Income > 10 m, but <100 m – 33.38%

• Income > 100 m – 34.94%

However, each group of “connected entities” can only elect one entity in the group to benefit from the two-tiered regime for a given year of assessment.



• Upto INR. 250000-Nil

• INR 250,001-500,000 – 5%

• INR. 500,001-1,000,000 – 20%

• Above 1,000,000 – 30%

India will be holding its general elections in April 2019. It is expected that an interim budget would be presented on February 1st 2019. At this stage it is not clear whether the tax rates will be changed in the interim budget. After the new Government is formed, it is expected that the full budget would be presented sometime in end of June/beginning of July 2019.

Slight reduced as the progressive rates were slightly adjusted.


GST Rates of 5, 12,18 and 28% are applicable to bulk of Goods and Services

Exports are zero rated

A special rate for 3% for Gold, gold jewellery, precious stones and precious metals

GST Rates of 5, 12,18 and 28% are applicable to bulk of Goods and Services

Exports are zero rated

A special rate of 3% applies to jewellery, precious stones and precious metals

The GST Rates for specific goods and services may undergo revision from time to time based on the decisions taken by the GST Council.

In the recent Council meetings, decisions were taken to lower the tax rates for many goods and services. Further, the Prime Minister recently announced that the Government aims to include 99% of the items under the sub – 18% tax slab.

—








































India/Continued


2.1 Key drivers of tax policy change• Stimulation to economic growth and investments

• Simplification of tax law and procedures

• Making tax administration simpler and fairer

• Improving ease of doing business for tax payers

• Expansion of the tax base in the country

• Incentivising micro, small and medium entrepreneurs

• Providing relief to the middle and low-income taxpayers

• Strengthening infrastructure


India/Continued


































































Overall CIT burden

Lower HigherNo

changeLower Higher

Overall PIT burden


Lower HigherNo

change

No change

India/Continued









(There are continuing discussions about including the petroleum goods – which are currently excluded from GST – in the GST base. If this happens, base will get broadened)

















(Note: The government of India has constituted a Task Force on new Direct Tax Law with a view to suggest changes to the existing income tax law in line with international best practices and India’s own priorities. The Task Force is expected to submit its report by the end of February 2019. It is expected that the report would be made public for comments, post which the Government may introduce changes in the current Income Tax Law.)





� N/A

(While the headline PIT rate may remain the same, the tax slabs may see a change to reduce the overall tax burden for small and middle-income tax payers.)



The Government has been following a policy of lowering the overall corporate tax burden along with phasing out the incentives. In Budget 2018 the headline CIT has been reduced to 25% from 30% for select companies. With this, according to the Government, about 99% of the companies registered in India are now subject to 25% CIT.

The Government has been hesitant to reduce the CIT to 25% across all companies as it would entail a significant revenue outgo. At the same time, it recognizes the need for lowering the tax burden in line with international trends. It is expected that the Government may lower the headline CIT rate in a phased manner.


• Direct taxes (including enforcement approaches such as a DPT or tech sector audit focus)

India introduced an equalization levy in 2016 – A levy of 6 % of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment (‘PE’) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.

India may not look at immediate expansion of this levy.

• “Business Connection” to include “Significant Economic Presence”

Finance Bill 2018 has introduced provisions for inclusion of Significant Economic Presence (“SEP”) within the scope of “Business Connection” under the Income Tax Act (“ITA”). The objective is to address the direct tax challenges arising in digital businesses and to provide purposeful and sustained interaction of an enterprise with the economy of a country via technology and other automated tools to create taxable presence. The amendment will take effect from 1st April 2019 and shall apply in relation to assessment year 2019-2020 and subsequent assessment years.

For this purpose, Significant Economic Presence shall mean-• Any transaction in respect of any goods, services or property

carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transactions or transactions during the previous year exceeds the amount as may be prescribed; or

• Systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means

• Indirect taxes

India is one of the most comprehensively taxed jurisdictions so far as indirect taxes on digital activities is concerned. It is anticipated that there may be more Rules to cover newer digital transactions..


The Government has been following a policy of imposing a higher tax burden of HNIs while providing a respite to middle and lower income taxpayers. In the Budget 2018, a marginal incentive has been provided to small and middle class wage earners by way of standard deduction of Rs. 40,000 in lieu of existing deduction of Rs 15,000 for medical reimbursement and Rs 19,200 for transport allowance.

It is expected that the same approach will be followed in 2019.

VAT/GST/sales taxes

The Center and State Governments have collectively decided the GST base and rates. It is expected that in 2019, the GST base may be further broadened to include some petroleum products. The rates may see a further rationalization in terms of fewer number of rates. The current focus of the Government is to stabilize the implementation and procedural aspects of the GST

2.5 Political landscapeIndia will be holding its general elections in April-May 2019 and the new Government will be formed by the end of May 2019. 5 out of 29 States held their assembly elections in November/December 2018. In 3 major States — Rajasthan, Chhattisgarh and Madhya Pradesh, the opposition party (Congress) has won the majority votes. Most of the other States are expected to hold their assembly elections around April-June 2019..



• ☐Arun Jaitley, Finance Minister

• ☐Shiv Pratap Shukla, Minister of State for Finance

• ☐P. Radhakrishnan, Minister of State for Finance

• ☐Ajay Bhushan Pandey, Finance and Revenue Secretary


• ☐Sushil Chandra, Chairman, Central Board of Direct Taxes (CBDT)

• ☐S. Ramesh, Chairperson, Central Board of Indirect taxes and Customs (CBIC)

• ☐Akhilesh Ranjan, Member (Legislation), Central Board of Direct Taxes (CBDT)


Please see this EY website:https://www.ey.com/in/en/services/tax/ey-budget-connect-2018

163








E. Will be viewed as generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening/using criminal sanctions.

3.2 Current general approach to tax enforcement The government is encouraging electronic compliances, return filing and most of the returns are filed electronically. The audit system is also migrating from manual to electronic and the Indian system is also moving towards virtual audits of return. The government is making significant efforts in the directions of reducing litigation.

Significant efforts are being made for simplification of the tax laws and ensuring non-adversarial taxation regime for the assessees. New laws/rules are enacted with prior consultation with the stakeholders.The government is also exploring the possibility of implementing faceless and nameless electronic audit and assessments.

3.3 Key enforcement developments seen in 2018• In the current revenue audits, the focus of the government was

on analyzing issue of shares on premium by Indian companies and verifying the basis of valuation of shares.

• Withholding tax defaulters are being prosecuted.

3.4 Likely enforcement developments in 2019• Shell companies who do not file return of income shall face

prosecution

• Audit of Return of Income showing large cash deposits (pursuant to demonetization carried out by Government in 2016)

As a part of Transparency Framework for spontaneous exchange of rulings under BEPS Action 5, India is receiving templates containing information in respect of various taxpayer-specific rulings from other jurisdiction rulings relating to preferential regimes; permanent establishment (PE) rulings etc. The Government will analyze this information to ensure that there is no tax base erosion.

2.8 Pending tax proposalsThe government of India has constituted a Task Force on new Direct Tax Law with a view to suggest changes to the existing income tax law in line with international best practices and India’s own priorities. The Task Force is expected to submit its report by the end of February 2019. It is expected that the report would be made public for comments, post which the Government may introduce changes in the current Income Tax Law.


India/Continued




1 Cash deposits • Audit of Return of Income showing large cash deposits (pursuant to demonetization carried out by Government in 2016).

2 Tax planning related to corporate reorganization

• The focus of the Tax authorities in 2019 will be transactions (usually carried out by large taxpayers) that result in goodwill

• Tax authorities intend to audit corporate restructurings, and also mergers and acquisitions where there was no capital gains tax paid.

• In certain cases of merger/demerger, etc, filed with National Company Law Tribunal (NCLT) Tax Authorities may also proactively examine that transaction is not covered by General Anti Avoidance Rules (GAAR)

3 High refund cases In 2019, the government is likely to focus on cases where the refund claimed is very high as compared to the total tax payable by the assessee.

4 Issue of shares at a premium Issue of shares at a premium will continue to be in focus.

5 Steps against black money The government will also focus on the shell companies to unearth the black money.


Indonesia

Tax policy and controversyYudie Paimanta [email protected] +62 215 289 5585


1.1 Key tax rates

2018 2019 % Change



25%1 25%1 —



30%2 30%2 —


10% for domestic deliveries and 0% for export of goods and for export of certain services3

10% for domestic deliveries and 0% for export of goods and for export of certain services3

1Article 17 (2a) of Indonesian Income Tax Law Number 36 Year 20082Article 17 (1a) of Indonesian Income Tax Law Number 36 Year 20083Article 7 of Indonesian Value Added Taxes Law Number 42 Year 2009

EY key contacts

Jakarta by Night, Indonesia




2.1 Key drivers of tax policy changeThe following issues are currently viewed as key drivers in relation to tax policy in Indonesia:• To increase tax revenues in 2019, as compared to 2018

• Improvement of tax ratio as a result of expanding the tax base

• Being more competitive for foreign investment

• Demand for a new taxation system that can provide justice and legal certainty to support development

• ☐Growing transparency in the global financial system and the intensified exchange of information that has made it difficult for taxpayers to hide their assets overseas

• Development of the business sector and economy, for example digital economy







































































































Indonesia/Continued


India/Continued





























; N/A




Lower HigherNo

changeLower Higher

No change

Lower HigherNo

change



• ☐2019 will likely see rising tax revenues via increasing compliance, oversight and realization of tax potential. This will be accomplished by data and information sharing and joint-audits between the Directorate General of Taxes and the Directorate General of Customs and Excise.

• Implementation of Automatic Exchange of Information (AEol), Double Tax Avoidance Agreements (P3B), Multilateral Instrument (MLI), Country by Country Reporting (CBCR), and Authorized Economics Operators (AEO) for Small and Medium Enterprises

Taxes on digital business activityOn July 21, 2017, the President of Indonesia issued Presidential Regulation Number 74 Year 2017 regarding the Road Map E-Commerce Year 2017-2019 with consideration that electronic-based economy has a high economic potential for Indonesia, and is one of the backbones of the national economy. Tax is one of the key strategic issues to develop e-Commerce in Indonesia. Road Map 2017-2019 includes the following programs: • Funding

• Taxation

• Consumer protection

• Education and human resources

• Communications infrastructure

• Logistics

• Cyber security

• Establishment of Implementing Management of Road Map 2017-2019

• The taxation regulation regarding e-commerce has not yet been issued.

Taxes on wages and employment• ☐There are currently no developments expected for 2019.

VAT/GST/sales taxes• There are currently no developments expected for 2019.

2.5 Political landscape• On 17 April 2019 there will be elections of President, members

of Parliament (Central and Regional) conducted nationwide. Politically, it may somewhat effect the appetite of foreign investors to invest in Indonesia during that period.


• Director General of Taxes : Mr. Robert Pakpahan


Ministry of Finance (MoF) issued a new Tax Holiday policy through Regulation No.35/PMK.010/2018 (PMK-35).

The Tax Holiday is available for new investments by taxpayers that meet the following requirements:• Are in a pioneer industry as listed in the PMK-35

• Meet the new capital investment plan

• Satisfy the debt to equity ratio

• Have never had a Tax Holiday application granted or rejected by the MoF

• Incorporated in Indonesia (no limitation on the date of establishment)

New type of Bonded Logistic Center

The MoF issued a new regulation introducing a new type of Bonded Logistic Centres (“BLC”).

Changes on imported goods subject to Article 22 Income TaxThe MoF issued Regulation No.110/PMK.010/2018 (PMK-110) as a new regulation on Article 22 Income Tax that will be effective starting 13 September 2018.

The regulation states that:• Imports of certain stated consumer goods are taxed at either

10% or 7.5% depending on the type of the goods, regardless of whether the goods are imported using an Importer Identification Number (Angka Pengenal Impor/API) or not.

• Imports of soybeans, wheat, and flour wheat are taxed at a rate of 0.5%.

• Imports of any other goods are taxed at a rate of 2.5% if the goods are imported using API or 7.5% if not using API

Indonesia/Continued


Tax Audit Policy The Director General of Taxes (“DGT”) issued Circular Letter Number SE-15/PJ./2018 on Tax Audit Policy, outlining non-compliance indicators for corporate taxpayers that could trigger an audit, including:

• ☐Transactions with related parties, especially with affiliated parties domiciled in countries that have an effective tax rate that is lower than the effective tax rate in Indonesia

• An internal affiliate transaction (intra-group transaction) with a transaction value of more than 50% of the total transaction value

• Domestic affiliate transactions with members of business groups that have compensation for losses

• No examination of all types of taxes in the last three years

• More than 25% of the total tax invoices issued in one tax period are to buyers that do not have a Tax ID Number

• Non-compliant with payment and submission of tax returns.

Bonded Zone

MoF Regulation Number 131/PMK.04/2018 (PMK-131) revokes the previous MoF Regulation and offers simplification of procedures and streamlining of the structure of the regulation. The previous regulations differentiate the tax facilities mainly based on the type of goods, while PMK-131 mainly categorizes the facilities based on the origin and destination of the goods.

New DGT Form

The DGT issued DGT regulation number PER-25/PJ/2018, effective 1 January 2019, which simplifies the administration process for Non Resident Taxpayers to enjoy tax treaty benefits.

2.8 Pending tax proposals• The Indonesian Government will expand the types of services that

are qualified for the 0% VAT on the export of services.

• The export of services subject to the 0% VAT includes information technology services, research and development services, legal services, accounting and bookkeeping services as well as audits, interconnection services, transportation equipment and freight forwarding services for transportation equipment management.










3.2 Current general approach to tax enforcement In common with prior years, we expect the Indonesian tax authorities to continue triggering many tax disputes in 2019.

3.3 Key enforcement developments seen in 2018• Focus on transfer pricing

• Use of big data owned by the tax authority

• ☐Focus on VAT compliance and administration




1 Related parties transactions • Focus on transactions with related parties, especially with affiliated parties domiciled in countries that have an effective tax rate that is lower than the effective tax rate in Indonesia

2 Intra-group transactions Focus on internal affiliate transaction (intra-group transaction) with a transaction value of more than 50% of the total transaction value

3 Affiliate transactions within groups that have loss compensation

Domestic affiliate transactions with members of business groups that have losses from prior years that can be compensated to the current and subsequent fiscal years.

4 Have no tax audit for the last 3 years

Taxpayers that have never been examined with the scope of all types of taxes in the last three years.

5 Issue tax invoice with buyer with no Tax ID Number

Taxpayers who issue Tax Invoice to buyers with no Tax ID Number within more than 25% of their total tax invoices issued in one tax period.

Indonesia/Continued



Ireland

Tax policy

Tax controversy

Kevin McLoughlin [email protected] +353 1 221 2478

Enda Jordan [email protected] +353 1 221 2449

Joe Bollard [email protected] +353 1 221 2457

Suzann McDonnell [email protected] +353 1 221 2708


1.1 Key tax rates

2018 2019 % Change



12.5% Rate

A 25% rate applies in some instances

12.5% Rate

A 25% rate applies in some instances

—



40%Income Tax

11% Universal Social Charge

40%Income Tax

11% Universal Social Charge

—


Standard Rate 23%

Reduced Rates 9% and 13.5%

Standard Rate 23%

Reduced Rates 9% and 13.5%

David Fennell [email protected] +353 1 221 2448

EY key contacts

Ha’penny Bridge in Dublin




2.1 Key drivers of tax policy changeIn September 2018, the Irish Department of Finance issued “Ireland’s Corporation Tax Roadmap Incorporating implementation of the Anti-Tax Avoidance Directives and recommendations of the Co☐ey Review” (the Roadmap). The Roadmap sets out the principles and objectives underlying Ireland’s international tax policy.• In line with EU and OECD outcomes, Ireland’s corporate tax

regime will continue to adapt and evolve, while maintaining the 12.5% corporate tax rate.

• Ireland is committed to a corporation tax system that it competitive, transparent and stable. Ireland is also committed to the global automatic exchange of tax information, in line with existing and emerging EU and OECD rules.

• Ireland remains fully committed to the BEPS process. The final legislative step required to allow Ireland to complete the ratification of the Multilateral Instrument was taken in Finance Act 2018.

• ☐In Finance Act 2018, Ireland legislated for the ATAD compliant CFC rules (Option B approach). The CFC rules are effective from 1 January 2019.

• ☐Ireland introduced an ATAD compliant exit tax charge, effective from 10 October 2018. The exit tax will apply where a company migrates tax residence offshore of Ireland and to certain other offshore asset transfers. The exit tax will apply at a rate of 12.5%.

• Legislation will be introduced in Finance Bill 2019 to bring the first tranche of anti-hybrid rules into effect from 1 January 2020. Further legislation relating to anti-reverse hybrid provisions will be introduced in a subsequent Finance Bill, in line with the ATAD schedule.

• Legislation will also be introduced in Finance Bill 2019 to update Ireland’s transfer pricing rules with effect from 1 January 2020.
































































































Ireland/Continued





































� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• The Irish Government remains committed to the 12.5% rate of corporation tax.

• The Irish exchequer returns for 2018 have reported a small surplus of €0.1 billion. On this basis, no major fiscal developments are expected for the remainder of 2019.

Finance Bill 2019 will likely be published in October 2019, and its’ fiscal measures will not be expected to apply until 2020.

Taxes on digital business activity• Ireland will continue to actively engage in how tax systems should

reflect the increasing digitalization of the economy through the OECD’s Task Force on the Digital Economy. Ireland will also continue to engage with fellow Member States with regard to the European Commission’s digital taxation proposals.

• ☐Ireland is strongly committed to global tax reform and believes that global agreement is the only way to ensure tax is paid by companies where value is actually created.

Taxes on wages and employment• ☐The marginal rate of income tax remains at 40%.

Universal Social Charge• ☐0.5% for income up to €12,012 (unchanged)

• 2% for income between € 12,012.01 and €19,874 (wider band)

• 0.25% decrease in rate (to 4.5%) for income between €19,874.01 to €70,044

• No change to higher USC rates

• PAYE modernization and Real Time reporting for the operation of the PAYE system went live on 1 January 2019

• 0.1% increase in employer contributions to the National Training Fund Levy

VAT/GST/sales taxes• Headline VAT remains at 23%

• Increase of 9% to 13.5% targeted VAT rate (broadly tourism and hospitality sector)

• Reduction in the VAT rate from 23% to 9% for books, newspapers and periodicals supplied electronically

• Excise increase on tobacco products

2.5 Political landscape• The current Irish Government is a “Partnership” minority

Government, which consists of Fine Gael (centre-right), Fianna Fail (centre-right), the Independent Alliance and independent TDs (Teachta Dála- Member of Dail Eireann).

• The Government relies on the support of the largest opposition party with which a “Confidence and Supply Arrangement” will remain in place until 2020.


Tax policy leaders:

• Paschal Donohoe, Minister for Finance and Minister for Public Expenditure and Reform

• Derek Moran, Secretary General Department of Finance

• Niall Cody, Chairman, Revenue Commissioners

• Michael Gladney, Revenue Commissioner

• Gerry Harrahill, Revenue Commissioner


• ☐Ireland introduced a share option incentive scheme, targeted at the SME sector (Key Employee Engagement Programme (KEEP)). KEEP provides, subject to certain conditions, a deferral of taxation on employee shares until the sale of the shares. Gains will be subject to capital gains tax, instead of income tax, USC and employee PRSI.

• Finance Act 2018 extended the Employment Investment Incentive (EII) and the Start-up Relief for Entrepreneurs (SURE), for a three year period to 31 December 2021.

• The system of “pre-clearance” was replaced with a system of “self- certification”.

• Finance Act 2018 extended the corporation tax relief for investment in films by four years to December 2024. It also contains administrative provisions to facilitate a move away from Revenue certification to a more efficient self-assessment system.

• In Finance Act 2018, Ireland legislated for the ATAD compliant CFC rules (Option B approach). The CFC rules are effective from 1 January 2019.

• Ireland introduced an ATAD compliant exit tax charge, effective from 10 October 2018. The exit tax will apply where a company migrates tax residence offshore of Ireland and to certain other offshore asset transfers. The exit tax will apply at a rate of 12.5%.

Ireland/Continued

179The outlook for global tax policy in 2019 | 179The outlook for global tax policy in 2019 |

2.8 Pending tax proposals• Legislation will be introduced in Finance Bill 2019 to:

• Implement anti-hybrid rules and further legislation will be introduced in a subsequent Finance Bill to introduce reverse-hybrid rules

• Update Ireland’s transfer pricing rules

• Ensure that Ireland fully implements the DAC6 Directive on

• ☐Regulations will be issued before July 2019 to implement the Dispute Resolution Mechanism Directive. This will provide Irish taxpayers with access to this new arbitration framework.

• A public consultation will be launched in early 2019, seeking input on the alternative options of moving to a territorial regime or conducting a substantial review and simplification of the rules for the computation of double tax relief.

• Legislation will be introduced in a subsequent Finance Bill to introduce an interest limitation ratio rule. The timing of this legislation is yet to be determined.

• The ratification documentation for the Multilateral Instrument is expected to be lodged with the OECD in early 2019.

2.9 Consultations opened/closedClosed:

• Public Consultation on the Central Bank (National Claims Information Database) Bill (March 2018)

• Invitation for submissions: European Commission proposal for a Directive on cross-border conversions, mergers and divisions of companies (May 2018)

• Consultation on the implementation of the Agri-taxation Review 2014 and income stabilization and taxation (May 2018)

• Public Consultation on Review of Local Property Tax (LPT) (May 2018)

• Public Consultation on Review of EIIS (Employment and Investment Incentive) and SURE (Start-Up Refunds for Entrepreneurs) (May 2018)

• Consultation on The Feasibility of an Insurance Claim-By-Claim Register (June 2018)

• Public Consultation on Review of Issues re Possible Introduction of a Vacant Property Tax (June 2018)

• ATAD Implementation Controlled Foreign Company (CFC) Rules – Feedback Statement (September 2018)

• IDPRTG Public Consultation on Pensions (Interdepartmental Pensions Reform and Taxation Group) (October 2018)

• Public Consultation on the development of a new strategy for Ireland’s International Financial Services sector (October 2018)

• ATAD Implementation – Hybrids and Interest Public Consultation (January 2019)









3.2 Current general approach to tax enforcement Revenue collects data from tax returns, domestic third party sources and from exchanges with other tax administrations. Revenue use statistical modelling and machine-learning techniques to mine this data for insights that enable the identification of risk, improve customer service and influence compliance behavior. Ireland also operates a voluntary co-operative compliance program. This is based on relationship building and the identification of compliance risks.

3.3 Key enforcement developments seen in 2018On 17 November 2017, Revenue confirmed that an inquiry was underway to identify and pursue customers engaged in offshore tax evasion and avoidance. This work is done in close cooperation with the tax authorities in other jurisdictions. Extensive information on the offshore assets and income of Irish residents is now available through initiatives such as FATCA, the EU Directives on Administrative Cooperation and the OECD’s Common Reporting Standard.

Large multinational enterprises (MNE) are required to file a Country-by-Country (CbC) Report that provides a breakdown of revenue, profits, taxes and other indicators of economic activities, for each tax jurisdiction in which the MNE group does business. The first exchanges of CbC data between tax administrations took place in 2018. Irish Revenue will use this information in high-level transfer pricing risk assessments and to evaluate other BEPS-related risks. Revenue will also review all the data becoming available, to identify and pursue those who have attempted to evade or avoid their tax obligations.

3.4 Likely enforcement developments in 2019Ireland will continue to invest in and develop data analytics functions, to help manage risk, address non-compliance and allocate resources cost-effectively.

The move to PAYE Real Time reporting is likely to assist PAYE compliance and reduce payroll tax collection risks.

Revenue will continue to review all the CbC reporting data becoming available, to identify and pursue those who have attempted to evade or avoid their tax obligations.

Ireland will continue to implement the EU Anti-Tax Avoidance Directives to timelines set out in the Directives.

The Irish Revenue will continue to work in close cooperation with other tax administrations, in the framework of the OECD’s Joint International Taskforce on Shared Intelligence and Cooperation.

Ireland/Continued




1 Offshore assets Information Tax evasion and avoidance will continue to be on top of the Irish Revenue’s agenda. Revenue will focus on analyzing the information received under International Exchange of Information Agreements. This may identify potential tax defaulters with assets offshore.

2 Research and Development Claims

The uptake in Research and Development tax credit and associated tax refund claims has increased significantly in recent years. This is likely to remain a key area of Revenue scrutiny as both the accounting and science is reviewed.

3 PAYE Modernisation Revenue will be providing extensive support for employers and their agents to support the transition to new reporting requirements under PAYE Modernisation (PAYE Modernisation is a new real time reporting regime, operational for all employee payments being made from 1 January 2019). Once implemented, the system is expected to yield additional exchequer savings from increased compliance levels.


Israel


Gilad Shoval [email protected] +972 3 623 2796


1.1 Key tax rates

2018 2019 % Change



23% 23% —



Up to 50% (+2% Surplus Tax)

Up to 50% (+2% Surplus Tax)

N/A


17% 17% N/A

EY key contacts

Jerusalem Old City at Night, Israel




2.1 Key drivers of tax policy change• The current Israeli government is willing to adopt the BEPS recommendations in coming years.

• In an effort to attract multinational corporations to centralize their R&D operation in Israel, the government enacted a new preferred tax regime for technological enterprises to centralize their IP and R&D in Israel.
































































































Israel/Continued





































; N/A



• ☐There is no tax reform currently expected, however, tax reforms may take place with immediate effect without notifying taxpayers in advance.

Taxes on digital business activity• The Israeli Tax Authority has published a tax circular concerning

digital activities that may have an effect on the relevant taxpayers in 2019.

Taxes on wages and employment• N/A

VAT/GST/sales taxes• N/A

2.5 Political landscape• ☐Stated willing to adopt the BEPS recommendations in

upcoming years

• Goal to encourage multinational corporations to centralize their R&D operation in Israel


• ☐Eran Yaacov — Director General of the Israel Tax Authority


• ☐In 2018, the Israeli Tax Authority published a list of reportable tax positions, as well as several tax circulars concerning, inter alia, transfer pricing issues and digital business activities.

2.8 Pending tax proposals• Legislation will be introduced in Finance Bill 2019 to:


Israel/Continued


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change









3.2 Current general approach to tax enforcement In general, the Israeli Tax Authority acts in a fair and professional manner and can use their authority to levy a deficit fine on taxpayers and even use criminal approaches

3.3 Key enforcement developments seen in 20182018 saw an increased focus on transfer pricing issues and digital business activities.

3.4 Likely enforcement developments in 2019The focus on transfer pricing issues and digital business activities are expected to continue.Ireland will continue to implement the EU Anti-Tax Avoidance Directives to timelines set out in the Directives.

The Irish Revenue will continue to work in close cooperation with other tax administrations, in the framework of the OECD’s Joint International Taskforce on Shared Intelligence and Cooperation.



1 Transfer pricing The Israeli Tax Authority is currently challenging taxpayers with respect to their chosen TP methodology, and subsequently, Israeli companies performing important development functions under a cost plus arrangement are at risk of being assessed a greater return based on the value of their contributions.

In addition, the Israeli Tax Authority has recently published two tax circulars regarding appropriate TP methods for distribution, marketing and sales activities by MNCs in the Israeli market, as well as specific profitability ranges for certain transactions.

2 Transfer pricing: cost plus basis,

Recent two Supreme Court rulings determined that companies that are remunerated on a cost-plus basis, should include in their income calculation, costs related to stock based compensation.

3 Transfer pricing: post-acquisition restructuring

Exposures from post-acquisition IP migrations - almost any post-acquisition restructuring which involves a change to the existing IP or business model is aggressively targeted by the Israeli Tax Authority with specific focus on capital gains and IP valuation.

4 Bookkeeping cancelation The Israeli Tax Authority has and uses the authority to cancel taxpayers' books.

5 Indirect tax and the digital economy

Foreign entities operating in Israel face various challenges concerning indirect tax in all aspects of operation (provision of services, customs, registration, compliance etc.)

In addition, a 2016 tax authority’s circular expands Israel’s corporate taxation and VAT rights in cases that involve “substantial digital presence” in Israel. The circular also discussed scenarios that can trigger a “digital permanent establishment (PE)”.


Italy

EY key contacts

Tax policy and controversyMaria Antonietta Biscozzi [email protected] +39 02 85141


1.1 Key tax rates

2018 2019 % Change



24% (except for banks and other financial entities subject to higher tax rates). According to 2018 Budget Law, as from 2018, the investment companies (so called “SIM”) are no longer subject to higher 3.5% tax rate.

24% —



43%, depending on the amount of income declared.

At the local level, a surcharge is levied; the rate ranges between 0.7%-0.33%, depending on (i) the municipality where the taxpayer is resident and (ii) the amount of income declared.

43%, depending on the amount of income declared.

At the local level, a surcharge is levied; the rate ranges between 0.7%-3.33%, depending on (i) the municipality where the taxpayer is resident and (ii) the amount of income declared.

—


22% 22% —

Venice




2.1 Key drivers of tax policy change• ☐Cooperation between the Italian tax authority and taxpayers: The Italian Parliament introduced urgent measures aimed at reducing

potential and pending tax controversies

• Flat tax on professional income up to 65,000 euro

• Conformity with European standards - during 2018 Italian Government introduced a Legislative Decree for the transposition of European Union (EU) Directive n. 1164/2016 also known as the EU Anti-Tax Avoidance Directive (ATAD) as amended by EU Directive n. 952/2017 (ATAD 2)

• Digitalization of tax administration - from 2019 e-invoicing is mandatory for all B2B and B2C transactions among VAT subjects established in Italy
































































































Italy/Continued





































; N/A


Overall CIT burden5


Overall PIT burden


Lower Higher

No change

No change

No change



• The Budget Law :

• Introduces a preferential taxation for gains reinvested by company in new hiring and purchasing capital goods (so called “Mini IRES”)

• Extends “Hyper depreciation” – this measure provides a 170% amortization rate on the purchase or leasing of new tangible and intangible assets, devices and technologies, note that “super depreciation” is no longer applicable

• Repeals Economic Growth Aid (“ACE”)

• Legislative Decree no. 148/2018 implementing the EU Directive 2010/1164 (ATAD) against tax avoidance practices starting from FY 2019 provides:

• A limitation on EBITDA replaces Article 96 of the Italian Tax Code regarding interest expense deduction rules. Starting from FY2019/2020 interest expenses could be deducted for an amount corresponding to the total of annual interest income plus any excess interest income from prior fiscal years (FYs), with any excess being deductible within the limit of the current FY 30% EBITDA plus any 30% EBITDA carried forward from previous FYs. In addition, qualifying EBITDA would no longer be based on accounting figures as it should now be computed on the basis of corporate income tax (CIT) relevant values. Excess 30% EBITDA can be carried forward for five FYs (while there was no limitation under the old rule).

• The deferred payment of the exit tax will be no longer available. If the country of destination is an EU/SEE State, the exit tax may be paid in five yearly installments.

• A CFC regime under which a company is considered a CFC if the effective tax rate in the foreign country is lower than 50% of the Italian one and more than 1/3 of the revenues derives from passive income of intragroup transactions.

• In case of “hybrid mismatches” a double deduction or a double non taxation is not allowed.

Taxes on digital business activity• The Budget Law introduces a tax on digital services.

• This New Web Tax, at a 3% rate on the revenues derived from digital services is due by entities:

• Resident and non-resident

• Reporting revenues higher than 750m euro in digital services

• Reporting revenues of services to Italian users higher than 5.5m euro

• ☐A specific Decree will be issued by the Minister of the Economy and Finance at a later date (the Law refers to 30 April 2019).

Taxes on wages and employment• Raising of the de minimis threshold to apply 15% “Flat tax” to

professional income from 30.000 to 65.000 euro.

• Some special substitute tax have been introduced for new residents

VAT/GST/sales taxes

• Starting from 2019, E-invoicing is mandatory for all the transactions, but no penalty will be imposed in the first quarter

• A longer time to register sales invoices

• Advance deduction of the Input VAT

• Digital registration and transmission to tax authority of daily earnings

• VAT Group regime will be effective and is extended to banking cooperative groups

• The so called Spesometro (a VAT reporting obligation) was abolished but it could be replaced by the so called Esterometro (a VAT reporting obligation applicable only to the transaction with not resident companies)

Italy/Continued


2.5 Political landscape• In March 2018, there were general elections to the Italian

Parliament and new political forces now compose the government.

• This change had a deep impact on Italian economic politics.

• ☐Italian tax policy could also be influenced by the next election to EU Parliament that will take place in May.


Tax Policy Leader

• Giuseppe Conte, Prime Minister

• Matteo Salvini, Deputy Prime Minister

• Luigi Di Maio Deputy Prime Minister

• Giovanni Tria, Minister of Economy and Finance

Tax Administration leader

• Antonino Maggiore, Head of the Italian Revenue Agency


• The Italian Parliament introduced a series of urgent measures aimed at reducing potential and pending tax controversies

• Italy issued a fiscal decree to simplify Italian e-invoicing process

• Italian Revenue Agency issuesd landmark clarifications on VAT implications of transfer pricing adjustments and implementation of Skandia to Italian VAT grouping

• Italian Revenue Agency ruling clarifies tax issues regarding sale-and-repurchase agreements

• Italy issues draft legislative decree for ATAD implementation

• Italian Customs Agency clarifies implementing procedures regarding authorization to store energy products in third-party warehouses

• Italian Supreme Court rules coinsurance fees are subject to VAT

• Italian High Court confirms social security basis for outbound assignees working in countries with a social security agreement with Italy

• Italian Tax Authorities issue guidance on mandatory e-invoicing

• Colombia signs tax treaty with Italy

• Italian Budget Law introduces mandatory E-invoicing

• Italy launches public consultation regarding implementation measures for transfer pricing provisions

• Italian Tax Authorities clarify requirements to benefit from reduced treaty rate on dividends under Italy-US treaty

• Italian 2018 Budget Law amends VAT Law

• Italian VAT law implements Skandia principles affecting intra-group supplies

2.8 Pending tax proposals• ☐ None

2.9 Consultations opened/closed• ☐ None









3.2 Current general approach to tax enforcement Law Decree No. 119 of 24 October 2018 was introduced in order to reduce tax litigation, providing for an optional tax amnesty covering pending and potential litigations (so called “Pace fiscale”).

The most relevant tax measures include:

• Settlement of tax audit reports

• Settlement of tax assessments

• Settlement of tax collection deeds

• Annulment of tax debts up to €1,000

• Settlement of tax collection deeds concerning the “own resources” of the European Union (EU)

• Settlement of pending tax litigations

3.3 Key enforcement developments seen in 2018• The Italian tax authority developed a sophisticated digital audit

system. It is also carrying out administrative investigations on the basis of information provided in an electronic tax register (i.e., Anagrafe Tributaria) and is encouraging recourse to other measures to avoid tax litigation and long and costly proceedings.

3.4 Likely enforcement developments in 2019• One objective of tax change is to reduce tax litigation and

assessment procedures by introducing a tax amnesty.

• E-invoice should simplify the communication duties of taxpayers and facilitate the action of tax authorities.

Italy/Continued




1 Transfer pricing The tax authorities will focus heavily on transfer pricing in 2019.

2 Permanent Establishment The tax authorities will focus determining the existence of PE.

3 WHT Tax authorities are challenging the beneficial ownership clause for the Interest and Royalties Directive and for double tax treaties reduced WHT rate.

In addition, the correct application of the parent-subsidiary directive could be object of tax authority’s assessments.


Japan


Koichi Sekiya [email protected] +81 90 6030 8393


1.1 Key tax rates

2018 2019 % Change



29.74%

(Regular effective corporate income tax rate including local corporate income taxes)

29.74%1

(Regular effective corporate income tax rate including local corporate income taxes)

—



45%

(In addition, local individual income tax of 10% is levied)

45%2

(In addition, local individual income tax of 10% is levied)

—


8%

(The national rate of 6.3% and local rate of 1.7%)

8% (10% on 1 October 20193)

(The national rate of 7.8% and local rate of 2.2%)

25%

1The top national marginal tax rate is 23.2%.2This is the top national marginal tax rate.3The tax rate will increase from 8% to 10% on 1 October 2019. Also, the reduced tax rate of 8 % will be introduced for food and beverages (excluding alcoholic drinks and dining out) and newspaper subscriptions on 1 October 2019.

EY key contacts

Osaka, Japan




2.1 Key drivers of tax policy change• A key policy goal affecting Japanese tax policy is the desired reduction of the national deficit in order to achieve fiscal health and cope

with an aging population and low future birthrate. For years, the consumption tax hike has been the most important agenda to aid such goals.

• The government is worried about a decline in expenditures after the consumption tax hike (from 8% to 10%) slated for October 2019.

• The government is considering fiscal policy to prevent or mitigate depression. Under the 2019 tax reform, a lot of tax measures to level the economy will be implemented.







































































































Japan/Continued


MixedNo

change





























� N/A


Overall CIT burden


Overall PIT burden


Lower HigherNo

change



• The commensurate with income standard will be introduced in 2020 (transfer pricing rules)

• Discount cash flow method will be introduced as an evaluation method of HDVI in 2020

• Earning stripping rules will be revised in 2020

• CFC rules regarding a paper company will be relaxed

• R&D credit regime will be revised

Taxes on digital business activity• An information collection regime regarding transactions related

to cryptocurrencies and sharing economy will be started in 2020.

Taxes on wages and employment• No significant changes

VAT/GST/sales taxes• Consumption tax rate will increase from 8% to 10% on

1 October 2019

• A reduced tax rate of 8 % will be introduced for food and beverages (excluding alcoholic drinks and dining out) and newspaper subscriptions on 1 October 2019

2.5 Political landscape• Prime Minister Shinzo Abe was reconfirmed as the LDP party

leader in September 2018. The leader’s term of service is three years (until September 2021).

• In 2019, the nationwide local elections (in spring) and the upper house election (in summer) will be carried out.


Tax policy leaders:

• Shinzo Abe, Prime Minister

• Taro Aso, Minister of Finance

Tax policy leaders:

• Takeshi Fujii, Commissioner of National Tax Agency


• New CFC rules became effective on 1 April 2018

• The diet ratified the MLI in May, 2018

• Some synthesized tax treaties will be effective in January, 2019

2.8 Pending tax proposals• The MOF is considering implementation of BEPS Action 11

(Mandatory disclosure rules)

• The government’s tax advisory committee is planning to discuss the revision of consolidated tax return regime and the taxation regarding digital economy and sharing economy.

2.9 Consultations opened/closed• Public consultations regarding tax policies are not common

Japan/Continued









3.2 Current general approach to tax enforcement For malicious taxpayers who try to evade their tax liability, the NTA (National Tax Agency) conducts strict tax audits by making full use of its organizational strength. For other taxpayers, the NTA takes care of its administration processes in an effective and efficient manner. Also, the NTA establishes the trustful relationship with large corporations under favorable corporate governance on tax matters, with prolong intervals until the next tax audits for them.

3.3 Key enforcement developments seen in 2018In 2018, Japan began providing information for foreign tax authorities and also began receiving information equivalent to a CbC report from other countries.Automatic exchange of information on financial accounts of non-residents based on the common reporting standards (CRS) started in 2018. The NTA receives the report from financial institutions located in Japan and provides information for foreign tax authorities. The NTA also receives financial account information of Japanese residents from foreign tax authorities.

3.4 Likely enforcement developments in 2019More wealthy people will be subject to tax audit and investigation as the NTA receives information based on the CRS.



1 International transactions The NTA clarifies the accuracy of increasing overseas investments and cross-over transactions and conducts in-depth examinations by utilizing information from various sources and the exchange of information based on the tax treaties.

2 Wealthy individuals Proper taxation of wealthy individuals is one of NTA’s top priorities. Specifically, the NTA is working on imposing taxes on investment profits generated from diversified and globalized asset management. Also, the NTA actively conducts examinations on the inheritance tax.

3 Consumption tax The NTA works to prevent the filing of fraudulent refunds by conducting sufficient tax audits.


Kazakhstan

Tax Controversy

Tax policy

Dinara Tanasheva Partner, Tax & Law Services Leader for Kazakhstan and Central Asia [email protected] +7 727 258 5960

Doniyorbek Zulunov Partner, Tax Services [email protected] +7 727 258 5960

Gulnar Bokpayeva Senior Manager, Tax services [email protected] +7 7172 58 0400

Aziz Abdukarimov Director, Law services [email protected] +7 727 258 5960

Gulnar Bokpayeva Senior Manager, Tax services [email protected] +7 7172 58 0400


1.1 Key tax rates

2018 2019 % Change



20% 20% —

Individual income tax (IIT) – top rate


a) 10% — for tax residents and non-residents on employment income taxed by local tax agent

b) 20% for tax non-residents (non-employees) on Kazakh source income

10% - for tax residents and non-residents on employment income taxed by local tax agent if employee’s monthly income is more than 25 times the monthly calculation index* (MCI) (approximately USD 160 for 2018)

If monthly employment income does not exceed 25 MCI then effectively PIT will be 1% of taxable income.

b) 20% for tax non-residents’ non-employment Kazakh source income

Effectively the PIT % will be changed only for employees with monthly employment income less than 25 MCI

EY key contacts

Astana cityscape




2.1 Key drivers of tax policy change• Efforts to increase revenues and attract foreign investment in Kazakhstan

• Goal to improve current tax legislation

• Digitalization of tax administration in Kazakhstan

2018 2019 % Change


12% 12%
































































































Kazakhstan/Continued


No change

No change




































; N/A


Overall CIT burden


Overall PIT burden


Lower HigherNo

change



• The corporate income tax rate, income recognition and deductions will remain the same.

Taxes on digital business activity• An information collection regime regarding transactions related

to cryptocurrencies and sharing economy will be started in 2020.

Taxes on wages and employmentSome observations on tax policy beyond 2019:• ☐There is a goal to increase compliance among self-employed

individuals who did not comply with tax obligations before.

• There will be low tax rate for employees with low income

• Beginning 1 January 2020, employers should pay OPFC from the employees’ income at 5% in addition to what is paid now by employees only.

• Beginning 1 January 2020, the obligatory social medical insurance contributions must be paid by employees at 2% in addition to what is now paid by employers.

• Beginning in 2020, the universal declaring will come into force, requiring individuals to disclose detailed information on income and assets. This will not increase the tax burden for individuals per se, but is aimed at finding potential taxable income derived from the reportable assets

VAT/GST/sales taxes• No changes

2.5 Political landscape• ☐No significant changes are known for 2019.


• Mr. Timur Suleimenov - Minister of National Economy (tax policy)

• Mr. Marat Sultangaziev – Head of State Revenue Committee of the Ministry of Finance (tax administration)


Kazakhstan adopted a new Tax Code in 2018. Key policy changes included:• Excess profit tax removed for mining sector

• Alternative tax introduced for subsoil users operating under certain specific types of projects (e.g. very deep)

• Significant modifications of the CFC rules implemented

2.8 Pending tax proposals• There are no tax proposals currently public

2.9 Consultations opened/closed• ☐There are currently no draft tax policy suggestions or pieces

of legislation

Kazakhstan/Continued









3.2 Current general approach to tax enforcement • ☐To prove tax violations, tax authorities should substantiate their

arguments and disclose the circumstances of the case. Any ambiguities and outstanding issues in tax legislation should be interpreted in favor of the taxpayer in the case of appeal. There are no specialized tax courts in Kazakhstan.

• ☐Tax audits can be lengthy and burdensome, especially for large taxpayers. A risk-based approach is applied for the selection of taxpayers for tax audits. The tax code allows for significant administrative fines, interest on late payments and potential criminal liability.

• Tax enforcement practices and regulations in Kazakhstan are evolving.

• Freezing of bank account(s) as a forced tax collection measure

3.3 Key enforcement developments seen in 2018• Enforcement tools such as E-invoicing, virtual warehouse and

“VAT account” for VAT purposes are currently being used

3.4 Likely enforcement developments in 2019• A horizontal monitoring regime (on a voluntary basis ) for large

taxpayers is expected to be introduced



1 VAT refunds Generally, VAT refund audits are conducted prior to refund upon the taxpayer filing the application for refund in the quarterly VAT return.

2 Transfer pricing Kazakhstan transfer pricing legislation differs from OECD Guidelines, with heavy reliance on certain specified price sources and documentary supports, multiple cases of tax assessments are observed as a result of TP adjustments.

3 Invalid transactions qualifications

Tax authorities are making tax assessments as a result of certain transactions qualified as invalid.

4 Ambiguities in tax law Generally, Kazakhstan tax legislation contains ambiguities and unclear rules, which contribute to the majority of the tax audit assessments for taxpayers acting in good faith.


Luxembourg

Tax policy and controversyBart Van Droogenbroek [email protected] +352 42 124 7456

Marc Schmitz [email protected] +352 42 124 7352


1.1 Key tax rates

2018 2019 % Change



26.011% 25.01% as per government announcement

3.8%



The maximum income tax rate is 44.94% or 45.78%2 including the contribution of 7% or 9% to the employment fund3

The maximum income tax rate is 44.94% or 45.78% including the contribution of 7% or 9% to the employment fund

—


17%4 17% —

1Article 174 of the law of 4 December 1967 on income tax, as amended. The rate consists of 18% of CIT with additional 7% of employment fund surcharge and 6.75% of municipal business tax for companies located in Luxembourg City. Furthermore, CIT is levied at a reduced rate for taxable profits not exceeding €30,000.2Article 118 of the law of 4 December 1967 on income tax3Article 6 of the law of 30 June 1976 on creation of an employment fund, as amended4Article 39 of the law of 12 February 1979 on value tax added, as amended.

EY key contacts

Cty of Luxembourg




2.1 Key drivers of tax policy changeFollowing the legislative elections that took place in October 2018, the new government in formation has released its coalition agreement for the period 2018-2023, providing for the following key objectives:

• Attract new investors and companies and develop the activities and income of domestic businesses rather than increase tax pressure

• Accelerate the digitalization of tax administration

• Elaborate and implement a predictable and coherent tax policy

• Guarantee the international competitiveness of Luxembourg regarding business taxation while remaining strongly committed to the path of transparency and the fight against tax evasion







































































































Luxembourg/Continued






























� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• On 1 January 2019, an interest limitation rule, CFC rules and anti-hybrid rules was introduced into Luxembourg law in accordance with EU Council Directive 2016/1164 of 12 July 2016 which laid down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD).

• In implementing the aforementioned Directive, the definition of a domestic permanent establishment in a treaty country will be based exclusively on the criteria set forth by the double tax treaty concluded with that country as determined on a case-by-case analysis. Additionally, the Luxembourg taxpayer may be requested to provide a confirmation, e.g., a tax assessment or certificate issued by the foreign tax authorities, that the other country recognizes the existence of a permanent establishment.

• The draft law approving the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) is currently pending before Luxembourg Parliament. It is expected that it will be approved in the course of 2019.

• The government is committed to reduce the global nominal tax rate by 1% in 2019 and to broaden the tranche of income to which the reduced corporate income tax rate of 15% applies (from currently €25,000 to €175,000). State grants should also be tax exempt in the future.

Taxes on digital business activity• Luxembourg shares the view that the current rules are not always

adapted for taxing digital activities and intends to collaborate to find adequate solutions.

• The new government endorses the objective of a fair and efficient taxation of digital businesses.

• In the interest of the competitiveness of Europe in the international context, Luxembourg favors a global solution, negotiated and implemented at OECD level.

• In the meantime, the government is not opposed to the implementation of a transitional European solution, provided it is clearly limited in time

Taxes on wages and employmentAs per the coalition agreement, numerous changes are expected, among which:

• Move towards a general individual taxation with the objective of terminating the joint taxation

• Introduction of a unique tax scale, not taking into account the family status of the taxpayer

• Possible simplification of tax system

• Legislation on participation of employees to employer’s profits and the gradual phasing out of existing stock option tax regime.

VAT/GST/sales taxesThe extra-low VAT rate of 3% may be extended to

• A capped amount of dwelling renovations for buildings of 10 years

• Repair works eligible within the framework of European law

• Electronic books, online media and other electronic publications

• Basic hygiene products

In addition, plant protection products authorized by the Council Regulation on organic production may be taxed at the low VAT rate

2.5 Political landscape• Following the elections held in October 2018, the new

government is composed of three parties, the DP, LSAP and Déi Gréng, which also formed the previous coalition already.

• The next legislative elections are scheduled for October 2023


Tax policy leaders• Xavier Bettel, Prime Minister

• Pierre Gramegna, Minister of Finance, Treasury and Budget

Tax administration leaders• Pascale Toussing, Director of the Direct Tax Administration

• Carlo Fassbinder, Director of Taxation at the Ministry of Finance

• Romain Heinen, Director of the Administration in charge of Registration tax, VAT and Inheritance Tax

• Alain Bellot, Director of the Customs & Excise Administration




Corporate Income taxes• Besides the decrease of the corporate income tax rate for

the year 2018, the benefit of the Investment Tax Credit has been extended, as of 1 January 2018, to passenger cars with zero emissions and to acquired software (subject to limits and conditions).

• A new intellectual property regime that endorses the “nexus approach” as agreed to at both international and EU level, has been introduced into Luxembourg tax law

Taxes on wages and employment• ☐As from 1 January 2018, simplified conditions apply for married

non-resident taxpayers to be assimilated for tax purposes to resident taxpayers and the deadline for married resident taxpayers for communicating the choice on the type of taxation (i.e. joint taxation, pure separate taxation and separate free allocation taxation) has been clarified.

• The tax allowance sustainable mobility5 (“abattement pour mobilité durable”) has been extended to rechargeable hybrid electric cars for individual use with CO2 emission not exceeding 50g CO2/km, with an allowance amounting to 2,500€.

• The reduced rate on long term capital gains derived from the sale of real estate has been extended until 31 December 2018.

• The tax regime applicable to stock option plans has been amended, i.e., the taxable basis for freely transferable options, which are taxable when they are granted, has been increased to 30% of the value of the underlying assets as from 1 January 2018.

VAT/GST/sales tax• The existing VAT exemption has been extended to management

services provided to collective internal life insurance funds whose investment risks are borne by policyholders and which are subject to the supervision of the Luxembourg Insurance Commission.

• As of 31 July 2018, the VAT group regime was introduced, allowing members of a VAT group, upon option, to be considered as one taxable person. Consequently, any supply of goods and services performed between members will be treated for VAT purposes as “self-supplied”, i.e., VAT-free transactions.

• The law transposing Council Directive (EU) 2016/1065 on the VAT treatment of vouchers entered into force on 1 March 2018

2.8 Pending tax proposals• As mentioned above, ax proposals relating to the approval of the

MLI are currently pending before Parliament.

• A draft law aiming to transpose Directive (EU) 2016/2341 of the European Parliament and of the Council of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs) is still running through the legislative process. The intention of the Directive is to better frame the activities and supervision of such institutions. The pension funds referred to in Luxembourg are those of the second pillar of retirement provision, i.e., the supplementary pension schemes of collective nature that an employer sets up for his employees

2.9 Consultations opened/closedN/A

5The he above mentioned tax allowance for sustainable mobility entered in force on 1 January 2017 by the law of 23 December 2017 (the 2017 tax reform).









3.2 Current general approach to tax enforcement Mandatory e-filing for corporate income taxes and VAT, the Country-by-Country notifications and reports or the cross-border exchange of information in tax matters are some of the elements that allow tax authorities nowadays to assess a taxpayer’s compliance with existing laws and regulations and to improve and pursue tax enforcement measures and activities.

3.3 Key enforcement developments seen in 2018The increased amount of penalties introduced by the 2017 tax reform are being applied more systematically by tax authorities, e.g., in case of non-filing of tax returns within a given deadline. Tax authorities increasingly involve directors or managers in personal liability in case of failure for a company to pay its outstanding tax debts.

As regards VAT, the authorities progressively increased requests for the standard e-audit file called “Fichier Audit Informatisé AED” (FAIA) within the scope of VAT audits.

3.4 Likely enforcement developments in 2019Not known at this stage




1 Transfer pricing The focus of the Tax authorities in 2019 will most likely be on transfer pricing aspects.

2 VAT deduction methods It is expected that tax authorities will pay more attention to the VAT deduction methods (direct allocation vs. prorate method).

3 Application of the ATAD provisions

It is anticipated that the tax authorities will have a closer look at the new provisions introduced into domestic law as a result of the transposition of ATAD, mainly the new CFC and interest limitation rules and the amended GAAR.

4 Permanent establishments As a result of the amendments made to the domestic permanent establishment definition, one can expect tax authorities to reinforce controls on the existence or not of foreign permanent establishments of resident taxpayers



Malaysia

Tax policy

Tax controversy

Amarjeet Singh [email protected] +6 0374958383

Chan Vai Fong [email protected] +6 0374958317

Shalini Chanrarajah [email protected] +6 0374958281


1.1 Key tax rates

2018 2019 % Change



24% 24% —



28% 28% —


6% 6% —

EY key contacts

Petronas Towers




2.1 Key drivers of tax policy change• To implement institutional reforms to strengthen fiscal

administration, restructure and rationalize government debt and raise government revenue.

• To ensure the socio-economic well-being of Malaysians by safeguarding the welfare and quality of life, improving employment and employability, enhancing health and social welfare protection and raising real disposable income.

• To foster an entrepreneurial economy by unleashing the power of the new economy, seizing opportunities in the face of global challenges, redefining the role of government in business and ensuring equitable, sustainable economic growth and easing education for a better future.

• For the next three years, the Government will maintain a path of fiscal consolidation to achieve a deficit of 3.4% in 2019; 3.0% in 2020










































7. Real Property Gains Tax (RPGT)







































































Malaysia/Continued



























; It was significantly influenced ☐



� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• Corporate income tax rates for Small Medium Enterprise (“SME”) reduced by 1% on the first RM500,000

• Tightening of Group Relief provisions

• Carry forward period of unabsorbed losses and unutilized allowances limited to 7 years

• Special Voluntary Disclosure Program.

Taxes on digital business activity• Service tax on imported services - provision of digital products

and services such music, video, or digital advertising by foreign service providers to consumers in Malaysia will be subject to service tax starting 1 January 2020.

Taxes on wages and employment• ☐Review of income tax relief on contributions to an approved

provident fund or takaful or life insurance premiums

• Increase of tax relief on net savings made in the National Education Savings Scheme (“SSPN”)

• Income tax deduction for contributions to social enterprises

VAT/GST/sales taxes• Service tax on imported services by business

• Service tax on imported services by consumers

• Introduction of a credit system for sales tax deduction

2.5 Political landscape• In 2018, the government changed after a 60-year rule. The

transition was peaceful and the new government aims to deliver on its election promises in the next few years.

• It pledged to lower the cost of living and has already replaced the goods and services tax (GST) with a sales and services tax (SST).

• ☐Government infrastructure projects will either be cancelled or renegotiated in order to save cost to contain the level of public debt.


• Minister of Finance - Lim Guan Eng

• Tax Reform Committee Chairperson - Tan Sri Hasmah Abdullah

• Tax Department Secretary - Datuk Khodijah Abdullah

• Tax Department Deputy Secretary - Mohd Sakeri Abdul Kadir

• Fiscal and Economic Department Deputy Secretary - Mohd Hassan Ahmad


• Abolishment of GST and reintroduction of SST

• Changes in local tax legislations to comply with requirements of the OECD’s Forum on Harmful Tax Practices (FHTP)

• Proposed restriction of the carry forward of unabsorbed losses, capital allowance and investment tax allowance

2.8 Pending tax proposals• A new comprehensive study on the Malaysian taxation system to

make it more efficient, neutral and progressive


Malaysia/Continued









3.2 Current general approach to tax enforcement The Inland Revenue Board (IRB) is using a softer approach to taxation instead of “rough house” tactics such as office raids. The Royal Malaysian Customs Department (RMCD) will practice the friendly approach towards the payers and they have started a SST “handholding” program, which provides assistance in the implementation of SST.

3.3 Key enforcement developments seen in 2018Continuous efforts were made in strengthening and enhancing voluntary compliance, including the introduction of a new penalty regime (lower penalty).

The IRB began conducting desk audits only.

3.4 Likely enforcement developments in 2019GST Closure Audits are to be performed, with a targeted completion of the audits by June 2020. RMCD is seeking assistance from the Big 4 firms and Mid-tier firms to complete the GST Closure Audit.

An Aggressive Tax Planning Unit is to be set up under the Special Task Department to curb tax leakages and evasion. This unit will also review on multinationals, conglomerates, financial instruments and government linked companies.

Big data analytics tools will be used to ease the sharing of data to enhance efficiency in tax collection and compliance. This will be an Establishment of Collection Intelligence Arrangement (“CIA”) under MOF, comprising IRB, RMCD and CCM




1 Personal Income Tax • ☐Individuals who are involved in multi-level marketing schemes

• Individuals who are involved in businesses which contribute towards their high net worth

• Classification of business income and business expenses

• Expatriates

2 Transfer Pricing • Robust contemporaneous transfer pricing documentation

• Substantial preference to use local benchmarking studies

• Tangible goods and services transactions

• Intangible transactions

• Transactions with Labuan companies

• Aggressive tax planning

• EY appointed as the advisor to Malaysia’s first Bilateral Advanced Pricing Arrangement

3 Goods and Service Tax • Companies in GST refund position

• Deemed supplies (e.g. gift rule, asset put to private use)

• Recovery of cost and expenses (i.e. reimbursement is a supply of services)

• Imported services

• Closure GST audits

4 Corporate Tax • Gain or receipts (Revenue gain vs. Capital gain)

• Deductibility of expenses (including timing)

• Compliance with incentive conditions

• Withholding tax

Malaysia/Continued



Mexico


Enrique Ramírez Figueroa [email protected] +52 55 5283 1367


1.1 Key tax rates

2018 2019 % Change



30% 30%1 —



35% 35%2 —


16% 16%3 —

1Income Tax Law, article 9. Through a Tax Incentives Decree for the Northern Border Region, tax rate is reduced to 20% for activities carried out in the northern region by companies that are residents of such region.2Id, article 152. Through a Tax Incentives Decree for the Northern Border Region, tax rate is reduced to 20% for activities carried out in the northern region by persons that are residents of such region (taxable for business activities).3Value Added Tax Law, article 1. Through a Tax Incentives Decree for the Northern Border Region, tax of 8% can be applied by residents of the northern border region with respect to sales, rendering of services or leasing activities conducted in such region.

EY key contacts

Guanajuato City - Aerial View at Twilight




2.1 Key drivers of tax policy change• This is the first year of the new administration, which made campaign promises on not raising taxes or creating new ones for at least 3

years, which are likely to be honored as confirmed by the 2019 Federal budget.

• The new administration has not made tax policy a key point in going forward, but the expectation is to increase tax collection by reducing corruption, and simplifying the tax system.

• Mexico’s tax environment is almost completely digital, which combined with the automatic exchange of information mechanisms, allows the tax authorities to have all the information they need to make an effective enforcement campaign







































































































Mexico/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• While there is no tax reform, the new administration has focused on reducing/redistributing public spending in order to sustain public finances, as the CIT burden has been reduced to 20% for northern border States (applicable under a list of requirements), and remains the same for the rest of the country.

• As new functionaries take their place in the tax administration, we expect a strict enforcement policy based on formal requirements rather than substance

Taxes on digital business activity• No changes expected.

Taxes on wages and employment• No changes expected

VAT/GST/sales taxes• Reduced tax rate for northern border states

2.5 Political landscape• On July 1, 2018, Mexico held the biggest election in its modern

history, with a new President and the complete house of Senators and Representatives elected and local elections were held in 30 out of 32 states.

• The biggest political force in the country (PRI) was almost completely removed from power by the new left political party MORENA (National Regeneration Movement), the party of the new president, Andrés Manuel López Obrador.

• MORENA currently holds the absolute majority in Congress, which translates into a smooth path for the President to enact any and all changes.


Tax policy leaders• Andrés Manuel López Obrador, President

• Carlos Manuel Urzúa García, Secretary of Finance and Public Credit

• Arturo Herrera, Undersecretary of Finance

• José Teodoro Barraza López, Chairman of the Finance and Public Credit Commission, Chamber of Deputies

• Alejandro Armenta Mier, Chairman of the Finance and Public Credit Commission, Senate

Tax administration leaders• Margarita Ríos-Farjat, Head of the Tax Administration Service

(SAT)

• Antonio Martínez Dagnino, Head of the High-Income Taxpayers Division

• Rosalinda López Hernández, Head of Federal Tax Audit Division


• Since Federal elections were held on July 1, and a change in government was predictable, the tax policy in 2018 focused on closing open audits and negotiations that were based in the previous administration approach (aggressive audits based on substance over form).

• No other changes were experienced

2.8 Pending tax proposals• N/A


Mexico/Continued









3.2 Current general approach to tax enforcement Mexico has an almost fully electronic tax environment. Today, tax compliance is digital, every single invoice is issued digitally through the tax authority’s server, the accounting books and records have to be submitted on monthly basis. Since tax authorities have almost all of the relevant information of taxpayers, plus access to financial system information, it is possible for them to perform electronic audits, notifying potential tax liability assessments via the taxpayer’s electronic tax drop box.

Likewise, tax authorities are now receiving information related to the foreign bank accounts of Mexican taxpayers, under CRS and FATCA.

All of this, along with an enforcement policy focused on substance over form, and challenging current MNE structures per BEPS principles, creates an aggressive tax enforcement environment

3.3 Key enforcement developments seen in 2018The digital tax environment was consolidated in 2018. In addition, the MLI was recently sent to the Senate for ratification

3.4 Likely enforcement developments in 2019The new administration has set forth a seven-point plan in order to achieve the desired tax collection and efficiency: audits, fight tax evasion, ease the process of paying taxes, improvements to the tax drop box, creation of a tax refund registration, review of the taxpayers base, and elimination of corruption in customs




1 Technical Assistance and management fees (services)

Mexican Tax Authorities require detailed documentation that supports the deductibility of service fees, in order to establish that the services were actually received, and that specific and quantitative benefits were obtained.

The requirements are greater when talking about allocations made by headquarters or payments made under cost contribution agreements.

2 Substance-over-form Tax authorities have determined that Mexican income tax law reference to the OECD transfer pricing guidelines along with some Court precedents allows them to characterize the taxpayer’s transactions according to their actual economic substance.

3 Interest deduction Taxpayers must have full support documentation, i.e. the agreement, the invoices and documentation that proves that the principal amount was indeed received.

Tax authorities are asking taxpayers to prove that the principle amount was invested in the Company.

In some cases the deduction of interest payments may be questioned if the taxpayer does not demonstrate that interest was effectively paid, even when the income tax is not determined in a cash flow basis.

4 Advertisement costs The deduction of advertising and promotion expenses may be denied when the costs are incurred by a party other than the owner of the brand, disallowing the deduction if the taxpayer is using a licensed brand.

The deduction may be disallowed when a payment for advertising is made and at the same time the Mexican taxpayer is paying royalties for the use of the brand.

5 Interest deduction Regarding dividends, interest and royalties payments, the tax authorities are questioning the benefits of the treaties if the Mexican payers are unable to demonstrate that the recipient of the payment was indeed the beneficial owner.

Besides having the residence certificate, taxpayers have to obtain sufficient evidence regarding the beneficial ownership of the recipient. In some cases, demonstrate substance in the other country, no obligation to re-pay for example the dividends received, or that the income was indeed accrued, among others

Mexico/Continued



The Netherlands


Arjo van Eijsden [email protected] +31 88 407 8411


1.1 Key tax rates

2018 2019 % Change



25%1 25%1 —



51.95%2 51.75%2 -0.4%


21%3 21%3 —

1Article 22 Dutch CIT Act. Taxable amount up to € 200.000 is taxed against 20% in 2018 and 19% in 2019.2Article 2.10 Dutch PIT Act. Applicable towards a taxable income from € 68,507. 3Article 9 Dutch VAT Act. Reduced VAT rate is 6% in 2018 and 9% in 2019

EY key contacts

Night city view of Amsterdam, the Netherlands




2.1 Key drivers of tax policy change• ☐Tax budget proposals for fiscal year 2019 primarily mirror the plans that the cabinet previously announced in the coalition agreement

“Confidence in the future”. The priorities are the decrease of labor costs, prevention of tax avoidance and evasion, and the improvement of the Dutch business climate. The cabinet is also focused on a greener and more workable tax system.

• New rules (earnings stripping, CFC) introduce various ATAD1 measures in Dutch domestic legislation for fiscal years starting on or after 1 January 2019.

• Measures to further reduce the corporate income tax (CIT) rate, to facilitate innovation, and to further strengthen the business and investment climate in the Netherlands were announced while previously announced plans to abolish the dividend withholding tax were repealed.

• Stricter requirements for the issuance of international tax rulings are planned














































































































Netherlands/Continued























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change


• CIT rate reduction: From 2020 onwards, the headline statutory CIT rate will be gradually reduced from 25% to 20.5% in 2021. As of 2019, the CIT rate for the first €200,000 profits shall be gradually reduced from 19% in 2019 to 15% in 2021.

• Abolishment limitation rules for offsetting of holding and financing losses: The rules that limit the possibility to set off holding and financing losses will be abolished for fiscal years starting on or after 1 January 2019.

• Abolishment interest deduction limitation rules: As a result of the

introduction of the earnings stripping measure as general interest deduction limitation rule, the specific interest deduction limitation rules relating to participation debt and to acquisition debt will be abolished for fiscal years starting on or after 1 January 2019.

• Restrictions of carryforward loss compensation: The carry forward of losses will be reduced from nine years to six years for fiscal years starting on or after 1 January 2019. The carryback loss compensation remains one year.

• Additional restrictions on depreciation on real estate: For fiscal years starting on or after 1 January 2019, real estate may only be depreciated up to the value of the real estate in accordance with the Real Estate Appraisal Act (WOZ-value).



• Implementation of ATAD measures: New rules introduce various ATAD1 measures in Dutch domestic legislation for fiscal years starting on or after 1 January 2019.

• ☐The following ATAD1 measures will be implemented as per 1 January 2019:

• Earnings stripping rule

• CFC rule

• Exit taxation rule

• GAAR

• ☐Introduction of a conditional withholding tax on interest and royalty payments: The Dutch Government plans an introduction of a conditional withholding tax on intercompany interest and royalty payments from Dutch taxpayers to low-tax jurisdictions or jurisdictions included on the EU Blacklist as of 2021.

• Amendments to the Dutch fiscal unity regime: Draft legislation with retroactive effect until 1 January 2018 has been proposed that disregards the fiscal unity with respect to certain rules

Taxes on digital business activity• The Netherlands do not have any specific direct or indirect taxes

or rules on digital activity.

Taxes on wages and employment• The Personal income tax rate on substantial shareholding will

increase from 25% in 2019 to 26.25% in 2020 and 26.9% in 2021.

• The carry forward of losses in substantial shareholding is limited from nine to six years.

• As of 1 January 2020 a large number of tax allowances will be scaled back.

• Energy investment allowance reduced to 45%

VAT/GST/sales taxes• The reduced VAT rate will be increased from 6% to 9% per 1

January 2019.

• The Dutch VAT exemption for sport and sport-related activities will be expanded per 1 January 2019.

• Simplification of VAT rules for electronic services

• Simplification of the VAT small business scheme

2.5 Political landscape• The four-party coalition Government (VVD, CDA, D66 and

ChristenUnie) was formed following extensive negotiations after the elections that were held on 15 March 2017. The current Prime Minister is Mr. Mark Rutte.

• The next election for the Dutch Lower House will be held in March 2021.

• The next election for the Dutch Upper House will be held in March 2019.


Tax administration leaders:• Drs. M. Snel (Menno), State Secretary of Finance

• Dr. P.F. Hasekamp (Pieter), Acting Director-General Fiscal Affairs

• Dr. J.J.M. Uijlenbroek (Jaap), Director-General Tax Authorities

• Besides the tax changes introduced in the tax reform 2018 (see The Outlook for global tax policy 2018), tax reform 2019 and the coalition plan of the new government, there are some ongoing discussions about different tax subjects, such as the Multilateral Instrument, Mandatory Disclosure, country-by-country reporting, the automatic exchange of information with respect to tax rulings and tightening substance requirements (in the light of tax avoidance and tax evasion).

2.8 Pending tax proposals• Proposal to amend the Dutch fiscal unity regime

• Ratification of the Multilateral Instrument (MLI)

• Proposal to implement the Tax Dispute Resolution Mechanism Directive

2.9 Consultations opened/closed• Consultation on public disclosure of penalized advisors

• Consultation on Directive 2018/822 of 25 May 2018 with respect to mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements

• Consultation on the implementation of ATAD 2

• Consultation on tax treaty policy and list of low-tax jurisdictions

• Consultation on review of the ruling practice

• Consultation of Directive proposal regarding cross border conversion, merger and splitting









3.2 Current general approach to tax enforcement The Dutch tax authorities has a very well-developed sophisticated electronic compliance and audit system. The Dutch tax administration is known for its high quality, reliability, approachability and provide a high degree of customer service.

3.3 Key enforcement developments seen in 2018Top priorities for the Netherlands are to remain an attractive jurisdiction for foreign investors (with substance), while being compliant with the implementation of certain anti-tax avoidance measures in line with the OECD and EU recommendations for abusive situations.

3.4 Likely enforcement developments in 2019• It is not expected that the tax authorities shift their audit focus

onto new or different issues in 2019. It is not known whether the tax authorities launch any new audit programs and/or new pre- or post-filing dispute resolution mechanisms.

• Stricter requirements for the issuance of international tax rulings are planned



1 Competitive tax investment climate, tax avoidance and tax evasion

• The Netherlands aims to continue to offer a competitive tax investment climate for companies but at the same time it addresses the developments on tax avoidance in line with the OECD and EU recommendations.

• The Dutch tax authorities will focus on tax fraud and prevention of tax avoidance and tax evasion.

2 CIT rate reduction and broadening of the corporate income tax base

CIT reduction:

• ☐The headline statutory CIT rate will be gradually reduced from 25% to 20.5% in 2021. As of 2019, the CIT rate for the first €200,000 profits shall be gradually reduced from 19% in 2019 to 15% in 2021.

Broadening of the corporate income tax base: :

• Additional restrictions on depreciation on real estate: For fiscal years starting on or after 1 January 2019, real estate may only be depreciated up to the value of the real estate in accordance with the Real Estate Appraisal Act (WOZ-value).

• Restrictions of carryforward loss compensation: The carry forward of losses will be reduced from nine years to six years for fiscal years starting on or after 1 January 2019. The carryback loss compensation remains one year.

• Introduction of earnings stripping rule and CFC legislation. As a result of the introduction of the earnings stripping measure as general interest deduction limitation rule, the specific interest deduction limitation rules relating to participation debt and to acquisition debt will be abolished for fiscal years starting on or after 1 January 2019




3 Emergency response measures fiscal unity

The Dutch Ministry of Finance announced emergency response legislation with retrospective effect to 1 January 2018 intended to provide an introduction of the ”per-element approach” in certain domestic situations, with the aim to restrict certain benefits of the current fiscal unity regime

4 Implementation of ATAD1 and ATAD 2

The Netherlands introduces various ATAD1 measures in Dutch domestic legislation for fiscal years starting on or after 1 January 2019.

• Earnings stripping rule: Net borrowing costs of loans from both related and unrelated parties by a Dutch taxpayer will only be deductible for Dutch corporate income tax (CIT) purposes up to the highest of the following amount: (i) 30% of a taxpayer’s adjusted taxable profit or (ii) a threshold of € 1 million. The earnings stripping rule will not include the optional group-ratio exception, grandfathering provision or specific exemptions for financial institutions. An exemption is introduced regarding existing infrastructure spending. Together with the introduction of this earnings stripping rule, various other interest deduction limitation rules will be abolished, except for a specific interest deduction limitation against tax base erosion.

• CFC rule: Under the CFC rule, a foreign entity (or permanent establishment) is considered a CFC if the Dutch taxpayer has a direct or indirect interest of more than 50% (vote or value) in that foreign entity (control test) and the statutory tax rate in that jurisdiction is less than 9% (low-taxed test). If the CFC is tax resident in a low-taxed jurisdiction (i.e., a jurisdiction with a statutory rate lower than 9% and included on a to-be-published exhaustive list by the Dutch Ministry for Finance) or in a jurisdiction that is included on the EU list of non-cooperative jurisdictions (EU Blacklist), then undistributed tainted passive income (calculated in accordance with Dutch tax standards) is included in the Dutch taxpayer’s taxable income. The CFC rule will not apply to CFCs that carry out a substantial economic activity in the foreign jurisdiction. In this context, a CFC can be considered to carry out a substantial economic activity if the CFC has sufficient relevant substance in the foreign jurisdiction. There is sufficient relevant substance if the following cumulative conditions are met:

• At least half of the total number of statutory and decision-making board members of the taxpayer reside or are actually established in the state in which the taxpayer is established;

• These board members possess the required knowledge to execute their tasks;

• The taxpayer has qualified personnel for the adequate execution and registration of the transactions to be concluded by the taxpayer;

• The taxpayer’s decisions are taken in the state referred to under the first indent;

• The taxpayer’s main bank accounts are retained in the state referred to under the first indent;

• The taxpayer’s accounts are kept in the state referred to under the first indent;

• The requirement to pay a salary of at least EUR 100,000 annually. This amount is multiplied with a multiplayer which depends on the country in which the company is established; and

• The company must have an office building at its disposal for a subsequent period of at least 24 months

The Dutch Government confirmed that the anti-hybrid rules will not be introduced before 1 January 2020



5 Stricter requirements for international tax rulings

Through rulings from the Dutch tax authorities, such as advance tax rulings (ATRs) and advance pricing agreements (APAs), taxpayers can obtain certainty in advance regarding the Dutch tax consequences of specific (international) transactions and the arm’s-length nature of transfer prices and the allocation of profits. On 22 November 2018, the Dutch Government issued a letter that sets out a proposal for a new policy in relation to rulings with an international character. This proposal should be seen as another step to be more transparent and to further combat undesired international structures that e.g., lack relevant substance, while maintaining an accessible and robust ruling process for genuine operations. The Dutch Government aims to implement the amended policy as of 1 July 2019. Further updates on the implementation are expected in April 2019


New Zealand

Tax policy

Tax controversy

David Snell [email protected] +64 218 453 61

Tori Sullivan [email protected] +64 274 899 734


1.1 Key tax rates

2018 2019 % Change



28% 28% —



33% 33% —


15% 15% —

EY key contacts

Cardboard cathedral in Christchurch, New Zealand




2.1 Key drivers of tax policy change• A main priority of the Government is to increase fairness by

enhancing inclusiveness and minimise inequality using the tax system, including ensuring the tax system:

• Treats all income and assets in a fair, balanced and efficient manner, with special regard to housing affordability

• Provides a progressive tax and transfer system for individuals and families

• Sustainability remains a key focus, with the Government aiming for a tax system that promotes the long-term sustainability and productivity of the economy. The system is intended to support a sustainable revenue base to fund government operating expenditures around its historical level of 30% of GDP.

• Another key focus is on enhancing productivity by encouraging private sector investment in research and development and innovation.

• Technology/digital and information will continue to be drivers of change, including technology-led modernization of tax administration, with major investments in upgraded systems for Inland Revenue (the “Business Transformation” project) remaining a key focus.

• The Government established Tax Working Group (“the Group”) in 2017 to provide recommendations to improve the “structure, fairness and balance of the tax system” over the next ten years. The Group released its Interim Report in September 2018, with its final report due by February 2019 (at the latest). The Government is likely to adopt many of the Group’s eventual recommendations, but has not firmly committed to doing so
































































































New Zealand/Continued





































� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• No major change to the corporate tax rate is anticipated.

• The Tax Working Group has rejected a possible progressive corporate tax rate for small businesses in its Interim Report in favour of considering measures to reduce compliance costs.

Taxes on digital business activityPossible digital services equalization tax.

• The Tax Working Group’s Interim Report notes New Zealand is currently participating in discussions around digital taxation at the OECD level. The Group supports this process, but recommends the Government stand ready to implement an equalization tax on digital services should a critical mass of other countries move in that direction.

• The Government’s tax policy work program for 2018-19 includes reference to “consideration of measures NZ may look at in response to concerns with the expansion of the digital economy”. Some form of interim digital services equalization tax is possible, although the Government has noted any long-term solution would ideally be a global one

Other comments

• Inland Revenue continues to expand its analytics capabilities and use of data, allowing a greater focus on digital activity.

• Many of the BEPS reforms (effective for income years beginning on or after 1 July 2018), including the permanent establishment (“PE”) anti-avoidance rule for large multinationals and wide-reaching transfer pricing changes, will also impact the taxation of digital activity.

• Inland Revenue has published initial guidance regarding the tax treatment of cryptocurrency. This guidance confirms cryptocurrency is to be treated as property for tax purposes and subject to ordinary tax rules

Taxes on wages and employment• A number of changes have been legislated for or proposed to

take effect from 1 April 2019

• Payday reporting where most employers will be required to provide Inland Revenue with payroll information in electronic form within two working days of payday (with early adoption available from 1 April 2018).

• Release 3 of the Business Transformation project will see payroll fully integrated into Inland Revenue’s online system.

• The Taxation (Annual Rates for 2018–19, Modernizing Tax Administration, and Remedial Matters) Bill was introduced on 28 June 2018 and includes proposed changes aimed at simplifying the administration of individual’s income tax

VAT/GST/sales taxes• No changes expected to GST rate

• The Tax Working Group has signalled it will not be recommending any major changes to the GST regime in its final report.

• The Government has announced proposals for the introduction of GST on low-value imported goods. The proposed changes would require offshore suppliers to register, collect, and return New Zealand GST on goods valued at or below $1,000 that are supplied to consumers in New Zealand.

• The Government may release a general discussion document on various elements of the GST system, including options for GST on cryptocurrencies

2.5 Political landscape• New Zealand’s current Government is led by the Labour Party in

coalition with the New Zealand First Party and with confidence and supply support from the Green Party.

• The policies of the three Government parties do not always align, meaning there could be potential difficulty in reaching agreement in certain cases.

• The Government is likely to use the tax system as a way of forwarding its policy agenda, for example, regarding perceived fairness/redistribution issues, to address concerns regarding an unbalanced housing market, to increase innovation and to deliver sustainable economic outcomes.

• Following the Tax Working Group’s final report, the Government is likely to consult on the detailed design of a capital gains tax. Debate around the merits of capital gains taxes is likely to be a major issue throughout 2019


Tax policy leaders• Jacinda Ardern, Prime Minister

• Grant Robertson, Minister of Finance

• Stuart Nash, Minister of Revenue

Tax administration leaders• Naomi Ferguson, Commissioner of Inland Revenue

• Cath Atkins, Deputy Commissioner, Policy and Strategy, Inland Revenue

• Martin Smith, Chief Tax Counsel, Inland Revenue




BEPSLegislation containing BEPS-related changes was enacted in June 2018, effective for income years beginning on or after 1 July 2018. Main changes include

• New rules taxing hybrid and branch “mismatch arrangements”, closely following OECD’s recommended approach published in 2015.

• A new permanent establishment (“PE”) anti-avoidance rule to prevent large multinational enterprises from making sales in New Zealand without recognising a PE to which those sales can be attributed and profits taxed.

• A new “restricted transfer pricing rule” which may limit the interest rate that can be charged on cross-border loans (over NZ$10m in total) between members of a multinational group. Taxpayers will be unable to deduct the cost of any interest amount in excess of the new limit imposed under the rules. This rule applies in addition to the thin capitalisation rules that limit the quantum of the loan itself.

• Other wide-reaching transfer pricing changes bringing New Zealand’s regime in line with the OECD transfer pricing guidelines and Australian transfer pricing rules.

• Changes to the thin capitalisation rules, including a requirement for non-debt liabilities to be netted off assets in thin capitalisation gearing calculations.

• Inland Revenue’s powers to access multinationals’ information and documents held offshore have been increased, including information about other non-resident group companies

MLI• New Zealand signed the Multilateral Convention to Implement Tax

Treaty Related Measures to Prevent BEPS (MLI) in June 2017 and deposited the instrument of ratification on 27 June 2018.

• The MLI entered into force for New Zealand on 1 October 2018, with modification of New Zealand’s double tax treaties likely to begin from January 2019

Other reforms• Investment income information - changes relating to investment

income were enacted in 2018, with most coming into force on 1 April 2020. The changes include a requirement for payers of investment income to provide Inland Revenue with taxpayer specific information on a monthly basis through an electronic data transfer process or online form.

• Employee share schemes (ESS) – includes deferral of the time at which an employee derives income from ESS in certain situations and the provision of a deduction to employers which matches the income to employees. The new rules generally apply to benefits provided under ESS from 29 September 2018, with certain grand-parenting provisions available.

• Extension of “bright line” test –part of the Government’s commitment to addressing property speculation, the “bright line test” that previously taxed capital gains made on property (other than the family home) sold within two years of purchase has been extended to five years. This increase applies to property acquired after 29 March 2018.

• Business Transformation – Release 2 of the Business Transformation project occurred in April 2018. Following this upgrade, businesses can:

• File, pay and amend fringe benefit tax, gaming machine duty and portfolio investment entity returns through Inland Revenue’s online system.

• Continue to file, pay and amend GST.

• Continue to file employer monthly schedules.

• Inland Revenue restructure –an internal restructure within Inland Revenue saw the turnover of senior leadership effective February 2018.

• RD numbers for non-residents – the Commissioner of Inland Revenue now has discretion to issue IRD numbers to offshore persons who do not have a functional New Zealand bank account.

• Automatic Exchange of Information (AEOI) – first information exchange in relation to G20/OECD global standard for AEOI in September 2018.

• Government’s Families Package – extension of Working for Families tax credits from 1 July 2018 and reinstatement of the Independent Earners’ Tax Credit from 1 April 2018.

• Customs – major overhaul of Customs legislation to strengthen border management and simplify compliance from October 2018



2.8 Pending tax proposals• The Government introduced draft legislation in October 2018,

proposing a 15% R&D tax credit for certain businesses with eligible expenditures during the 2019/20 income year.

• A number of proposals are under consideration for modernizing tax administration which support the Business Transformation project and are aimed at helping to get tax right from the start. Many of the proposed changes are centred on simplifying the administration of income tax for individuals and include:

• Simplifying year-end income tax processes for individuals

• Providing Inland Revenue with more powers to collect repeat datasets from third parties and to use information for purposes other than that for which it was collected

• Increasing the scope of the private binding rulings regime and introducing “short-process rulings”

• Providing the Commissioner of Inland Revenue with the ability to address gaps or inconsistencies in the tax legislation (“legislative anomalies”) that do not reflect the clear policy intent of a provision

• GST on low-value imported goods

• Ring-fencing rental losses - under the proposal, taxpayers will only be able to offset losses from renting residential property against taxable profits or gains from that property or other residential property that they own.

• Potential capital gains tax

• Expect an increased focus on the tax gap/black economy.

• Possible taxpayer favourable reforms to the tax treatment of carried forward losses when business ownership changes.

• Possible consultation in early 2019 around symmetry requirement for asset prices adopted for sale and purchase agreements.

• Increased focus on the New Zealand Treasury’s Living Standards Framework when developing tax policy. The Minister of Finance has commended this framework which acknowledges that higher living standards for New Zealanders require growing the country’s human, social, natural, and financial/physical capitals


Open• Public consultation on draft legislation introducing GST on low-

value imported goods

Closed:• Public submissions on the draft R&D tax credit legislation were

due by 14 December 2018.

• Consultation on the tax treatment of leasing income and expenditure given the adoption of NZ IFRS 16 Leases closed at the end of November 2018.

• The Tax Working Group ran a two-month public consultation between 1 March and 30 April 2018, prior to the release of its Interim Report in September 2018.

• Submissions on proposals to extend an existing information sharing agreement between Inland Revenue and the New Zealand Police to include the Serious Fraud Office and the New Zealand Customs Service closed on 30 October 2018.

• Submissions on the current Omnibus Tax Bill closed in August 2018.

• Inland Revenue issued draft guidance material to help taxpayers comply with the new BEPS legislation. Consultation on the draft guidance material closed in September 2018.

• A discussion paper on a proposed R&D tax incentive was released for consultation in April 2018 along with a related consultation paper on the transition of the previous grants scheme to the proposed R&D tax incentive.

• The Government released a discussion document in May 2018 proposing to introduce GST on low-value imported goods through an offshore supplier registration system. Public submissions on this discussion document closed at the end of June 2018.

• Submissions on an officials’ issues paper relating to GST on assets sold by non-profit bodies closed in June 2018. Proposed changes have been included in the current Omnibus Tax Bill.

• An officials’ issues paper proposing to ring-fence rental losses was issued at the end of March 2018 and submissions closed in May 2018.

• Submissions on the draft BEPS legislation closed in February 2018. This legislation was enacted in June 2018 with effect for income years commencing on or after 1 July 2018.









3.2 Current general approach to tax enforcement Inland Revenue has continued its proactive “intelligence” approach to tax enforcement building on the changes it made when it introduced the requirement for significant enterprises to submit an annual “basic compliance package” comprising a copy of the group structure, financial statements and tax reconciliations.

Inland Revenue is now increasing its capacity to use technology in the collection of data through its Business Transformation project which will facilitate a faster and greater collection of information by Inland Revenue from taxpayers and third parties. Inland Revenue has confirmed its increased use of artificial intelligence in audit selection. The use of technology will aid the automatic processing of the information and greatly improve Inland Revenue’s ability to use data analytics in its enforcement approach. However, the internal restructure of Inland Revenue as part of the transformation process has created uncertainty over delegations and reporting lines.

Once a taxpayer is under audit, there is an increasing trend towards greater evidence gathering, such as interviewing the staff of corporate taxpayers and reviewing staff emails, especially in transfer pricing audits. Inland Revenue has continued to aggressively pursue (alleged) tax avoidance arrangements. It has also been pushing transfer pricing audits towards litigation, with the intention of obtaining a favorable (to Inland Revenue) precedent in the courts

3.3 Key enforcement developments seen in 2018Following enactment of the BEPS reforms from 1 July 2018 Inland Revenue has focused its attention on multinational groups. In particular, it is targeting inbound associated lending arrangements and domestic intangibles for transfer pricing.

3.4 Likely enforcement developments in 2019Likely to see an increase in transfer pricing audits as Inland Revenue continues to struggle with consequential adjustments to income and expenditure of New Zealand-resident taxpayers arising from transfer pricing adjustments mandated by overseas jurisdictions (as such adjustments provided under the relevant double tax treaty, if applicable, but not under domestic law).

Inland Revenue’s active pursuit of alleged tax avoidance arrangements may be curtailed by recent case law apparently limiting the application of the general anti-avoidance rule.

Likely to also experience the greater use of information and technology in a crackdown on tax avoidance




1 Related party lending Relating party lending is subject both to a specific limitation rule and general scrutiny by Inland Revenue. The terms and pricing of intra-group funding, and any parental guarantee, are now becoming routine parts of all multinational enterprise audits.

2 Transfer pricing adjustments mandated by overseas jurisdictions

New Zealand legislation does not provide for consequential transfer pricing adjustments reducing the domestic tax base mandated by overseas revenue authorities. Several disputes have arisen regarding the taxpayer’s entitlement to make that adjustment and the timing of any adjustment.

3 Dividend stripping Inland Revenue issued Revenue Alert 18/01 regarding alleged dividend stripping in order to prevent tax free capital gains arising from small-to-medium sized enterprise (“SME”) restructuring.

4 Continued losses Year-on-year losses suffered by SMEs are increasingly being questioned by Inland Revenue. Intra-group transactions contributing to that loss are particularly targeted for potential non-market pricing under the strengthened transfer pricing rules.

5 Permanent establishment (“PE”) issues

New PE and PE-avoidance rules were enacted in July 2018 as part of the BEPS package. Accordingly, MNEs (particularly in the tech sector) are facing increased scrutiny over their trading structures and the extent of profits returned on sales to New Zealand customers.



Norway


Arild Vestengen [email protected] +47 982 06 292


1.1 Key tax rates

2018 2019 % Change



23 22 -4.3%



46.6 46.4 -0.46%


25 25 —

EY key contacts

Bergen, Norway. View of historical buildings in Bryggen- Hanseatic wharf in Bergen, Norway




2.1 Key drivers of tax policy change• Transaction costs

• Interest limitation

• The substance of transactions

• Deduction of losses

• Cross border transactions







































































































Norway/Continued






























; N/A


No change

No change


• Lower CIT rate (from 23 % to 22 %)

• A more burdening interest limitation rule might offset the benefit of decreased CIT rate

Taxes on digital business activity• Changes in the tax residence criteria may affect this policy.

Taxes on wages and employment• No significant changes

VAT/GST/sales taxes• ☐No significant changes

2.5 Political landscape• No significant changes


• ☐No significant changes


• No significant changes

2.8 Pending tax proposals• ☐Possibility of withholding tax on royalties

2.9 Consultations opened/closed• ☐Nothing significant

Norway/Continued


Overall CIT burden


Overall PIT burden


Lower Higher

Mixed









3.2 Current general approach to tax enforcement Fairly neutral

3.3 Key enforcement developments seen in 2018Increased focus on transaction costs, allocation of income and the substance of transactions

3.4 Likely enforcement developments in 2019There will be increased focus on the new interest limitation rule



1 Transaction costs Deduction of transaction costs

2 Cross border transactions Cross border transfers of assets

3 Losses Deduction of losses in relation to shares or receivables

4 Corporate restructures Whether corporate restructures are mainly tax motivated or not

5 Formal mismatches Cases where there is a mismatch between corresponding sections in the tax return


Panama

Tax policy and

Tax controversy

Luis Eduardo Ocando [email protected] +507 208 0144

Rafael Sayagués [email protected] +2127734761




1.1 Key tax rates

2018 2019 % Change



25% 25%1 —



25% 25%2 —


7% 7%3 0%

1Article 699 of the Fiscal Code.2Article 700 of the Fiscal Code3Paragraph 6, article 1057-V of the Fiscal Code

EY key contacts

Downtown Panama City Skyscrapers, Panama




2.1 Key drivers of tax policy change• The government will continue to comply with international standards regarding transparency and the exchange of information.

• ☐Panama carried out the first automatic exchange of information under the CRS in September 2018 with 31 jurisdictions.

• ☐The government will continue to implement minimum standards of the BEPS Action Plan.

• ☐Certain preferential tax regimes were amended to comply with the requirements set out in Action 5 of BEPS.

• Panama signed the MLI, which would align Panama’s treaty network with the BEPS minimum standards







































































































Panama/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• There are no changes expected.

Taxes on digital business activity• ☐There are no changes expected

Taxes on wages and employment• ☐There are no changes expected

VAT/GST/sales taxes• ☐There are no changes expected

2.5 Political landscapeIn 2019, Panama will have elections in order to elect the President and members of the National Assembly.


Tax policy leaders• Juan Carlos Varela – President of Panama

• Eyda Varela de Chinchilla – Minister of Economy and Finance

Tax administration leaders• David Hidalgo – Director of the General Directorate of Revenue


FATCA and CRS• Panama exchanged information automatically with the US in

compliance with FATCA.

• Panama activated bilateral exchange relationships with 47 jurisdictions, which are currently in place for the automatic exchange of CRS information under Article 6 of the Multilateral Convention and the CRS MCAA

BEPS• Panama signed the MLI4.

• A bill was issued that amends the Multinational Head Quarters (MHQ) regime to comply with Action 5 of BEPS5.

• A bill was issued that establishes new rules for call center activity6.

2.8 Pending tax proposals• Panama’s Minister of Commerce and Industries proposed to the

National Assembly a bill that would amend the Panama-Pacifico regime to comply with Action 5 of BEPS, which is still under the legislative process of approval.

• Panama’s Minister of Economy and Finances proposed before the National Assembly a bill for calculating income subject to preferential tax treatment under an IP regime in order to comply with Action 5 of BEPS, which was approved but still pending Presidential approval.

• Panama’s Minister of Economy and Finances proposed a bill to establish tax procedures, including provisions to establish criminal repercussions for tax fraud in Panama


OpenNone

CloseNone

4Source: https://www.ey.com/gl/en/services/tax/international-tax/alert--panama-signs-multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-beps5Source: https://www.ey.com/gl/en/services/tax/international-tax/alert--panamas-national-assembly-approves-bill-to-amend-multinational-headquarters-regime6Source: https://www.ey.com/gl/en/services/tax/international-tax/alert--panama-establishes-new-rules-for-call-center-activity

Panama/Continued


7Source: https://www.ey.com/gl/en/services/tax/international-tax/alert--panama-establishes-a-pilot-program-for-using-electronic-invoices








3.2 Current general approach to tax enforcement The General Revenue Directorate of Panama has a very well-developed electronic compliance system. It launched the “e-tax 2” software which is designed to enable improved taxpayer compliance matters by allowing tax returns to continue to be submitted electronically, but with certain tax forms being updated (e.g., capital gains tax returns now include the option to determine if the WHT will be considered definitive).

Also, the Tax Authorities issued a Resolution which establishes a pilot program for using electronic invoices for certain companies, updating the data sheet with the procedures for implementing electronic invoices7.

3.3 Key enforcement developments seen in 2018No key enforcement developments occurred in Panama in 2018

3.4 Likely enforcement developments in 2019No new enforcement developments are expected in 2019.



1 Compliance with FATCA and CRS obligations

In 2019, the tax authorities will focus on complying with CRS and FATCA obligations by Reporting Financial Institutions

2 Transfer pricing compliance The Tax Authorities will continue to focus on entities engaged in transaction with related parties, specifically regarding their compliance with transfer pricing rules and the arm’s length principle.

Moreover, with the amendments introduced to certain preferential regimes, entities under such regimes will have to comply with filing obligations and have their transfer pricing study available to the tax authority.

3 Sales tax (VAT – ITBMS) The Tax Authorities will continue to monitor the correct remittance of ITBMS (VAT) by taxpayers and withholding agents. Moreover, the tax authorities issued a pilot program for the electronic issuance of invoices for certain companies. Therefore, the trend in the tax administration is towards virtual monitoring.


Peru

Tax policy

Tax controversy

David de la Torre [email protected] +51 1 411 4471

Maria Eugenia Caller [email protected] +51 1 411 4412

Monica Byrne [email protected] +51 1 411 4444


1.1 Key tax rates

2018 2019 % Change



29.5% 29.5% —



30% 30% —


18% 18% —

EY key contacts

Impressive view over Machu Picchu,Peru, South America




2.1 Key drivers of tax policy change• Tax revenues - as a share of GDP - are expected to reach an amount equivalent to 14.9% in 2019. However, the amount of revenue

remains low in comparison to other Latin American Countries. The revenue increase is mainly due to new tax policy measures to reduce tax elusion and evasion.

• As a consequence of a recent tax reform, new tax measures will be in force in 2019. Among others, a general anti avoidance rule will be applicable in tax audits and the new law on thin capitalization will limit the deduction of interests. On the other hand, the Convention on mutual administrative assistance in tax matters is already in force to achieve greater transparency among tax administration.

• Overall, tax enforcement in 2019 will be driven by tax planning transactions, transfer pricing issues and the increase in tax audits mainly on multinationals entities







































































































Peru/Continued






























� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change


Peru/Continued



Taxes on digital business activity• ☐No changes are expected.

Taxes on wages and employment• ☐No changes are expected

VAT/GST/sales taxes• ☐No changes are expected

2.5 Political landscape• While the political landscape is generally clear, there are pending

reforms to implement measures to combat corruption in the government.

• There is also opposition by congress of Presidential decisions that may deter growth in Peru in the near term.


Tax policy leaders• ☐Claudia Suarez Gutierrez – leader of SUNAT


Several amendments to the tax rules in Peru were introduced:

• General Anti Avoidance Rule (GAAR)

• New definition of accrued for CIT

• Disclosure of the ultimate beneficial owner of Peruvian Entities

• Thin capitalization rules to third parties loans

• Indirect transfer of shares Tax

• New assumptions of Permanent Establishment

2.8 Pending tax proposals• None

2.9 Consultations opened/closed• None









3.2 Current general approach to tax enforcement Peruvian Tax Administration continues to improve its very well-developed, sophisticated electronic compliance and audit system. All tax returns are submitted electronically, and invoices also are issued electronically and submitted online.

With the inclusion of the GAAR in the Peruvian Tax Code, tax auditors will have a new tool to persecute tax avoidance. High-income corporate taxpayers are audited at the federal level by special appointed tax auditors. Main targets are tax planning and corporate restructuring transactions, transfer pricing issues and international tax matters.

3.3 Key enforcement developments seen in 2018• ☐General Anti Avoidance Rule (GAAR)

• New definition of accrued for CIT

• Disclosure of the ultimate beneficial owner of Peruvian Entities

• Thin capitalization rules to third parties loans

• Indirect transfer of shares Tax

• ☐New assumptions of Permanent Establishment

3.4 Likely enforcement developments in 2019• ☐Tax Authorities audits will focus on transfer pricing transactions,

mergers and acquisitions and also on tax planning structures

• Tax authority will continue to perform audit programs regarding large taxpayers

• Country by country transfer pricing reports will be required for taxpayers who had non-Peruvian resident parent companies

• No tax resolution disputes (BEPS Action 14) are in placed yet



1 Transfer pricing rules Focus of the Tax authorities in 2019 will remain on transfer pricing transactions (usually carried out by large taxpayers) that result in adjustment of income tax base.

2 Capital Gain Tax – mergers and acquisitions of businesses

Tax authorities also will audit corporate restructurings and also mergers and acquisitions where there was no capital gain tax paid.

3 Personal Income Tax After the conclusion of the “Tax Amnesty” for non-declared income of individuals, it is expected that individuals that did not enter in the amnesty may be audited.

4 Submission of refund requests, according to the Peruvian Tax Code

Submission of a request for a tax refund empowers Peruvian Tax Administration (SUNAT) to initiate a tax audit.

5 Submission of rectified tax returns

When a taxpayer submits changes to tax returns of CIT and VAT, SUNAT might consider initiating a tax audit.


Russia

Tax policyAlexandra Lobova [email protected] +7 495 7559700

Alexei Kuznetsov [email protected] +7 495 75597001

Tax controversyAlexei Nesterenko [email protected] +7 495 7559700


1.1 Key tax rates

2018 2019 % Change



Standard rate — 20% (3% Federal Budget and 17% Local Budget for 2017–2020)1

Low rates: 0%, 10%, 13%,15% 15,5%

Standard rate — 20% (3% Federal Budget and 17% Local Budget for 2017-2024) 2

Low rates: 0%, 10%, 13%,15% 15,5%

—



Standard rate: 13%

Low rate: 9%

Increased rates: 35%, 30%, 15% 3

Standard rate: 13%

Low rate: 9%

Increased rates: 35%, 30%, 15% 4

—


Standard rate: 18%

Low rates: 0%, 10% 5

Standard rate: 20%

Low rates: 0%, 10% 6

11%

1 2 Article 284 of the Tax Code of the Russian Federation 3 4 Article 224 of the Tax Code of the Russian Federation

5 6 Article 164 of the Tax Code of the Russian Federation

EY key contacts

Cathedral of St. Basil






; Change possible or somewhat likely in 2019








� Larger corporate tax base size in 2019 ☐


































2.1 Key drivers of tax policy change• Fiscal consolidation

• Fighting tax evasion and capital flight (BEPS initiatives)

• Anti-crisis measures and investment incentives


Russia/Continued























































































; N/A




Lower HigherNo

change

Lower HigherNo

changeLower Higher

No change



• No major changes are expected for the general profits/income tax regime apart from so-called ‘fine-tuning’ envisaged for the whole system of taxation in Russia.

• ☐”Fine-tuning” improves tax regime for the residents of two “inner offshores’ — special administrative regions — which will enjoy same tax and legal treatment as in many foreign low tax jurisdictions.

• Tax regime for newly-introduced ‘international holding companies’ (Russian-owned foreign holding companies re-domiciled/re-registered in Russia) is also expected to improve. Income of such re-domiciled holding companies from their controlled foreign companies shall be tax exempted through 2029 on certain conditions, while their received dividends shall also be exempted or taxed at the minimum rate of 5%.


• No changes expected


• No changes expected

VAT/GST/sales taxes

• VAT rate increase from 18% to 20%

2.5 Political landscape• No changes expected


• Anton Siluanov — Head of the Ministry of Finance

• Mikhail Mishustin — Commissioner of the Federal tax Service


• Raise of VAT rate from 1 January 2019.

• Creation of ‘inner offshores’ — two special administrative regions

• Introduction of “international holding companies’.

• Abolition of movable property tax for companies/legal persons from 1 January 2019

2.8 Pending tax proposals• There are Government proposals to streamline existing non-tax

payments — freezing their overall number and including them into the Tax Code of Russia.

• If introduced, such proposals will increase business tax burden, especially, with regard to so-called ‘utilization’ and ‘ecological’ fees, which currently are not paid by the companies that choose to recycle waste themselves.

2.9 Consultations opened/closed• All amendments by the Government bodies (ministries, agencies

and alike) to tax legislation are submitted for public consultations and discussion (through Internet site www.regulation.gov.ru).

Russia/Continued



3.1 General approach to tax enforcement in 2019A. Will proactively build trust-based relationships with taxpayers,

encouraging cooperative compliance, while still insisting on substance-based approaches





3.2 Current general approach to tax enforcement The general approach to tax enforcement is to further digitalization (cloud storage and similar services are actively introduced) and improve services for taxpayers while also increasing pressure to non-bona fide taxpayers.

Under that approach the VAT became the most digitalized tax — most data is submitted to the tax authorities in electronic form through the specially created system ‘ASK VAT-2’. Also, a new system of tracking payments between taxpayers (both legal persons and individuals) is introduced — ‘ASK VAT-3’. That system does not only cover VAT issues but any transactions to fight tax evasion.

3.3 Key enforcement developments seen in 2018The term of a desk audit with regard to VAT is reduced from 3 months to 2. Tax authorities obtained new the rights, including to freeze a company’s bank accounts after 10 days of non-submitting a calculation of social insurance fees payments and to conduct a new field audit of a taxpayer who provides a new tax calculation resulting in a lower tax obligation.

Also, tax authorities may now request data, which was not submitted by a taxpayer, from his auditor. However, tax authorities may not again request data from the taxpayer, which was earlier submitted by him for whatever reason.

Additionally, tax authorities may now themselves offset a taxpayer’s liabilities including charges and fees for late payment against that taxpayer’s overpaid taxes for the last three years. However, taxpayers still retain the right to personally request such an offset.

3.4 Likely enforcement developments in 2019More digital services will be introduced to improve efficiency and transparency of the tax system.

An experiment to fight tax evasion by 15 million ‘self-employed’ people will begin in Moscow, Moscow and Kaluga regions and Tatarstan. Such persons shall be liable to pay 4% of their overall income instead of all other taxes and social security fees. The experiment will last through 2028 and in case of success will cover all other regions of Russia in an attempt to fight tax evasion and the shadow economy.


Russia/Continued



1 Tax audits related to the beneficial owner concept

The Tax authorities will continue in 2019 to analyze the issues related to the detection of the improper use of tax benefits based on double tax treaty provisions and implementation aggressive international tax structures. Also the tax authorities will be focused on intercompany transactions.

2 Tax incentives (including property tax exemption)

Tax authorities will scrutinize conditions of tax incentive application and whether they comply with the law and nature of transactions.

Legitimacy of applying incentives would be analyzed due to:

economic basis of application the incentive (meant by legislator) and the taxpayer’s business purpose

3 Requalification (qualification on transactions nature)

The tax authorities will focus on the requalification of transactions.

Hidden distribution — income requalified by tax authorities received under certain transactions of taxpayer to hidden distribution of profits in favor of parent company

Direct investment — payments requalified by tax authorities in favor of foreign counterparties under the contracts for provision of services to “passive” income for the purposes of withholding tax

4 Unjustified tax benefits Tax authorities will pay close attention to the presence of good faith in the taxpayer’s actions and attempt to prove if the reality of the transactions or intentional actions are aimed at tax evasion.




1 Tax audits related to the beneficial owner concept

The Tax authorities will continue in 2019 to analyze the issues related to the detection of the improper use of tax benefits based on double tax treaty provisions and implementation aggressive international tax structures. Also the tax authorities will be focused on intercompany transactions.

2 Tax incentives (including property tax exemption)

Tax authorities will scrutinize conditions of tax incentive application and whether they comply with the law and nature of transactions.

Legitimacy of applying incentives would be analyzed due to:

economic basis of application the incentive (meant by legislator) and the taxpayer’s business purpose

3 Requalification (qualification on transactions nature)

The tax authorities will focus on the requalification of transactions.

Hidden distribution — income requalified by tax authorities received under certain transactions of taxpayer to hidden distribution of profits in favor of parent company

Direct investment — payments requalified by tax authorities in favor of foreign counterparties under the contracts for provision of services to “passive” income for the purposes of withholding tax

4 Unjustified tax benefits Tax authorities will pay close attention to the presence of good faith in the taxpayer’s actions and attempt to prove if the reality of the transactions or intentional actions are aimed at tax evasion.


Singapore

Tax policy

Tax controversy

Russell Aubrey [email protected] +65 6309 8690

Angela Tan [email protected] +65 6309 8804


1.1 Key tax rates

2018 2019 1 % Change



17% 17% —



22% 22% —


7% 7% —

1Any changes in the CIT, PIT and GST rates for 2019 will be known during the Budget 2019, which is expected to be delivered in early 2019.

EY key contacts

Singapore sky line




2.1 Key drivers of tax policy change• To support the transformation and restructuring of the economy from one that is value-adding to one that is value-creating, by

developing a conducive environment for businesses to restructure, innovate and internationalize.

• ☐To anchor Singapore as Global-Asia node of technology, innovation and enterprise, to welcome investments, talents and ideas to Singapore, and be bold in venturing out into new markets.

• ☐To provide support to companies that innovate and expand through globalization, so that they can restructure to upgrade productivity and achieve quality growth.

• To sustain a fair and progressive fiscal system.






























































; N/A☐








; N/A



































Singapore/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• ☐ No change in the corporate tax rate of 17%.

Taxes on digital business activity• GST on imported services consumed in Singapore will be

implemented on 1 January 2020

Taxes on wages and employment• No change in the top marginal rate of 22%.

VAT/GST/sales taxes• The GST rate will increase from 7% to 9% sometime between

2021 and 2025. The exact timing will depend on the state of the economy, how much expenditures grow, and the buoyancy of existing taxes.

• A GST on imported services consumed in Singapore will be implemented on 1 January 2020

• Business-to-Business imported services will be taxed via a reverse charge mechanism. Only businesses that make exempt supplies or do not make any taxable supplies need to apply the reverse charge.

• The taxation of business to consumer imported services will take effect through an Overseas Vendor Registration (OVR) Regime, which requires overseas suppliers and electronic marketplace operators that make significant supplies of digital services to local consumers to register with the Inland Revenue Authority of Singapore (IRAS) for GST.

• The proposed OVR does not affect e-commerce for low value goods. For imports of low-value goods (where the goods are imported by air or post and the value is below S$400), the S$400 threshold is still under review by the government

2.5 Political landscapeAs the People’s Action Party remains the single dominant party in Parliament, tax policy is likely to remain stable and consistent


Tax policy leaders• ☐Lee Hsien Loong, Prime Minister

• Heng Swee Keat, Minister for Finance

• Tan Ching Yee, Permanent Secretary (Finance), Permanent Secretary (Special Duties) in the Prime Minister’s Office and Chairman of the Board of Inland Revenue Authority of Singapore

Tax administration leaders• Ng Wai Choong, Commissioner of Inland Revenue.


Intellectual Property Development Incentive Regime

• Intellectual Property (IP) income will be incentivized under a new IP regime named the IP Development Incentive (IDI) which incorporates the BEPS-compliant modified nexus approach.

• The IDI is effective from 1 July 2018 to 31 December 2023.

• Under the IDI, an approved company will enjoy a concessionary tax rate on a percentage of “qualifying intellectual property income” from a “qualifying intellectual property right” for a specific period of time

Singapore/Continued


Tax framework for Variable Capital Companies

• A tax framework has been introduced for Variable Capital Companies (VCCs) which is a new structure designed for collective investment schemes.

• The objective is to further develop and strengthen Singapore’s position as a hub for both fund management and fund domiciliation, as the existing fund structures in Singapore (such as limited companies under the Companies Act, limited partnerships and unit trusts) have limitations when used as vehicles for investment funds. The VCC is essentially a corporate entity, but incorporated under the VCC Act instead of the Companies Act.

• The VCC can be set up as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets.

• The VCC will be eligible for existing tax incentive schemes for funds and an extension of the Financial Sector Incentive – Fund Management scheme to cover an incentivized VCC.

Increase in the tax deduction for qualifying expenditure on qualifying research and development (R&D) projects performed in Singapore

• To support businesses in building their own innovations, the tax deduction for labor costs and consumables incurred on qualifying R&D projects performed in Singapore will be increased from 150% to 250%.

• This change will be effective from YA 2019 to YA 2025.

Carbon tax

• ☐As a signal of Singapore’s commitment to reduction of greenhouse gas emissions, a carbon tax will be levied from 2019. A carbon tax of S$5 per ton of carbon dioxide-equivalent (tCO2e) of emissions will be imposed from 2019 to 2023 on all facilities that produce 25,000 tCO2e or more of emissions in a year.

• The carbon tax rate will be reviewed by 2023 and it is intended that it be increased to between S$10 and S$15 per tCO2e of emissions by 2030.

• The carbon tax will apply uniformly across all sectors without exemption

2.8 Pending tax proposals• There are no pending tax proposals

2.9 Consultations opened/closedPublic consultations conducted by the Ministry of Finance/IRAS and closed as of 30 Nov 2018 include:

• ☐2018 Survey on IRAS’ Publishing of Advance Rulings

• Draft Income Tax (Amendment) Bill 2018

• Draft GST Guide on Taxing imported services by way of reverse charge

• Draft GST Guide on Taxing imported services by way of an overseas vendor registration regime

• Draft Goods And Services (GST) (Amendment) Bill 2018

5The he above mentioned tax allowance for sustainable mobility entered in force on 1 January 2017 by the law of 23 December 2017 (the 2017 tax reform).









3.2 Current general approach to tax enforcement The IRAS generally adopts a risk-based approach of identifying compliance risk and prioritizing and tailoring specific compliance programs. IRAS will take enforcement actions against non-compliant businesses and will not hesitate to penalize taxpayers for non-compliance as well as for incorrect tax filings.

The IRAS conducts relationship programs with large corporations to understand their businesses and developments, to engage them in forging an open and transparent relationship and to facilitate the resolution of issues and voluntary compliance. The IRAS also organizes regular industry dialogue and feedback sessions to build a partnership with taxpayers, and public seminars to educate taxpayers and enhance voluntary compliance.

Assisted Compliance Assurance Program (ACAP) is an initiative that provides a holistic framework for GST-registered businesses to proactively better manage their GST risks and incorporate tax risk management into part of their corporate governance. Participation is voluntary and those with adequate and effective GST controls will be awarded an ACAP status, the benefits of which include the step down of IRAS-GST compliance activities and expeditious GST refunds, subject to conditions.

There is a voluntary disclosure program where taxpayers can come forward to disclose their errors (covering individual and corporate income tax, GST, withholding tax and stamp duties) in exchange for reduced penalties, subject to conditions.

The IRAS recognizes tax agents/advisors as its partners in the administration of the tax system and in facilitating tax compliance, and it rolls out programs to foster a closer working relationship with them.

3.3 Key enforcement developments seen in 2018A mandate that returns of companies with turnover of more than S$10 million in YA 2017 be e-filed in YA 2018. Companies with turnover of S$1 million in YA 2018 will need to e-file in YA 2019. All companies are required to e-file their returns from the YA 2020 onwards.

The IRAS continued to strengthen their compliance capabilities by applying advanced analytics techniques in their compliance work including audit selection and fraud detection. Periodically, the IRAS publishes areas of focus for compliance and audit reviews

Effective from YA 2018, a company must complete a Form for reporting of related party transactions (RPT Form) and submit it together with the corporate income tax return (Form C) if the value of related party transactions exceeds S$15m (US$10.9 m) for the relevant YA.

Singapore entered into bilateral Automatic Exchange of Information (AEOI) relationships with 60 jurisdictions; these facilitate the automatic exchange of CbC Reports for the Ultimate Parent Entity of Singapore multinational enterprise groups.

Singapore met most of the elements of the OECD BEPS Action 14 Minimum Standards on improving tax dispute resolution mechanisms, per OECD peer review reports.

Singapore implemented the CRS, with the first exchange taking place in September 2018.

Singapore’s exchange of information upon request regime has been rated as compliant with international tax transparency standards, by the Global Forum on Transparency and Exchange of Information for Tax Purposes in the peer review report issued in October 2018

OECD’s Phase 1 peer review report for Action 13 (country-by-country reporting) published on 13 May 2018 indicates Singapore’s implementation of Action 13 minimum standard as meeting all applicable terms of reference

Singapore/Continued




1 Related party transactions Transactions must be conducted at arm’s length and substantiated with contemporaneous and adequate TP documentation.

2 Withholding tax provisions Withholding tax must be deducted in accordance with the tax provisions with penalties imposed for non-compliance.

3 Sector focus Car dealers, private hire car operators and food & beverage establishments.

4 Financing and IP structures Financing and IP structures must be set up are for bona fide commercial reasons and not for tax avoidance/treaty shopping.

5 Incentivized taxpayers Measures must be put in place to identify and allocate income and expenses between concessionary tax rates and normal tax rate correctly.

3.4 Likely enforcement developments in 2019Singapore has initiated the spontaneous exchange of information with other tax jurisdictions (subject to conditions) on cross-border unilateral advance pricing agreements and permanent establishment rulings. Further, certain key information on tax incentives that multinationals are enjoying in Singapore may also be shared with foreign tax authorities upon request and subject to conditions. The peer review process of the preferential tax regimes and exchange of ruling information under Action 5 has started and will continue through to 2020.

The contemporaneous and adequate documentation of transfer pricing is required and there are penalties for non-compliance from YA 2019 (fine not exceeding S$10,000) onwards.

With effect from YA 2019, 5% surcharge will be imposed on transfer pricing adjustments for non-compliance with the arm’s length principle


Slovakia

Tax policy

Tax controversy

Richard Panek [email protected] +421 2 333 39109

Peter Feiler [email protected] +421 2 333 39155


1.1 Key tax rates

2018 2019 % Change



21% 21% -



19% / 25% on portion of gross income exceeding €2 939,01 per month

19% / 25% on portion of gross income exceeding €3 021,36 per month

—


20%/10% [applicable for some foodstuffs, pharmaceutical products, medical equipment for disabled persons, books (excluding e-books)]

20%/10% [applicable for some foodstuffs, pharmaceutical products, medical equipment for disabled persons, books (excluding e-books) and as of 1 January 2019 also for accommodation services]

—

EY key contacts

Kosice, Slovakia




2.1 Key drivers of tax policy changeTax policy key drivers:

• Fiscal consolidation — main driver

• Increase of state income

• Minimization of inequality in tax system

• Fight against tax fraud and tax evasion

• To keep public finance deficit below 3% of gross domestic product
































































































Slovakia/Continued





































; N/A


Overall CIT burden5


Overall PIT burden


Lower Higher

No change

No change

No change



• No significant changes expected compared to 2018 tax year.


• Slovakia will likely implement a new Digital Service Tax (DST) if introduced by the European Commission.


• New exemption for employees’ accommodation (those with employment contracts) up to €60

• Tax deductibility of costs have been amended

• A new exemption for recreation vouchers

VAT/GST/sales taxes

☐Recent amendments to the Value Added Tax (VAT) have been approved, including:

• New definition of turnover

• Supply and lease of immovable property, i.e. abolition of taxation applied to supply of a construction, change in the definition of a construction’s first approval

• New rules in respect of goods and services supplies where vouchers are used

• Change to the place of delivery of digital services

2.5 Political landscape• Parliament elections were held in 2016 and The Social

Democratic Government party (governing party in previous election cycle) won and formed a government.


Tax policy leaders:

• Peter Kažimír (Minister of Finance) has recently resigned and the new minister has not been introduced so far

• Dana Meager (State Secretary, Ministry of Finance)


• Lenka Wittenbergerová (President of Financial Directorate)

• Dušan Pátek (Vice-President of Financial Directorate)


• The measures described in section 2.4 were proposed and/or legislated for in 2018.

2.8 Pending tax proposals• ☐☐No other pending tax proposals

2.9 Consultations opened/closed• Open: N/A

• Closed: N/A

Slovakia/Continued









3.2 Current general approach to tax enforcement As of 1 January 2018, all taxpayers (except individuals without business activities) and tax advisors representing taxpayers must file tax returns and communicate with Slovak tax authorities electronically.

In 2019, the broader use of electronic cash registers with on-line connection to tax authorities is planned.

3.3 Key enforcement developments seen in 2018• No key developments

3.4 Likely enforcement developments in 2019Index of taxpayer’s reliability: The Finance Directorate of the Slovak Republic (FRSR) intends to create its own internal index, which will assess tax and excise duty reliability of taxpayers while keeping the information private. For the future, it is planned to provide certain benefits for reliable and less aggressive taxpayers based on this index and also stricter regime for aggressive and less reliable taxpayers.



1 Transfer pricing The focus of the Tax authorities in 2019 will continue to be transfer pricing arrangements and tax deductibility of management fees charged by foreign entities from preferential tax regime jurisdictions.

2 Tax planning related to corporate reorganization

Based on the recent legislative developments (introduction of stricter GAAR, ATAD implementation) and experience from latest tax audits, it is expected that tax authorities would increase their focus on the tax aspects of corporate reorganizations.

3 Tax deductibility of management fees

There is an increasing trend during the tax audits on the review of appropriateness of management fees. Audits are expected to continue to review the TP aspects of the charges as well as the fulfillment of general tax deductibility test, i.e. that the taxpayer is able to demonstrate that the services were necessary in order to generate, assure and maintain taxable income.


Slovenia


Lucijan Klemenčič [email protected] +386 1 583 17 21


1.1 Key tax rates

2018 2019 % Change



19% 19% —



50% 50% —


22% 22% —

EY key contacts

Bled lake, island




2.1 Key drivers of tax policy changeTax goals as per Coalition agreement 2018-2022:

• Introduction of a Real Property Tax, to increase tax for owners of properties.

• Inclusion of personal income from capital gain and rent in the tax basis for assessment of personal income tax.

• Introduction of a surcharge on all transactions into tax havens.

• Introduction of minimum effective tax rate of Corporate Income Tax, which legal entities will have to pay, to be set at 5%.

• Introduction of a tax deduction of up to 5% of the annual income tax base of individuals for funds invested in the fields of culture, sport, health and craftwork







































































































Slovenia/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• Proposed amendments are based on the Council directive (EU) 2016/1164 of 12 July 2016. The changes entered into force as of 1 January 2019

• The proposal requires that tax be paid where profits and value are generated

• The proposal introduces the general anti-abuse rule to tackle abusive tax practices, the rule is used only when all other rules set in CITA-2 cannot prevent tax abuse

• The proposal introduces a new Controlled Foreign Company (CFC) regime

• Definition of the foreign company control which is based on participation and entitlement to profit and on actual taxation, comparable to possible taxation in Slovenia

• Definition of the income of controlled foreign company, its inclusion in the tax base of the taxpayer

• Rules for calculation of income which is included in the tax base as well as rules for preventing and eliminating possible double taxation

Taxes on wages and employment• No significant changes are planned in 2019.

• Changes in the field of tax treatment of expats’ income - when fulfilling the statutory conditions, the tax base does not include the amount of income in the amount of 20% of the salary or wage compensation received (but not more than EUR 1,000 for payments in each month) – in force since 2018

VAT/GST/sales taxes• ☐Proposed changes define vouchers, types of vouchers,

chargeability and taxable amount. A voucher is defined as an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services.

• Proposed rules include a change in the amount of late interest in the case of self-disclosure. The proposed rate would be unified at a rate of 3% per year and would thus comply with the provisions of the Tax Procedure Act

2.5 Political landscape• Parliamentary elections are in June 2018.

• The government consists of 5 different parties.


• ☐Andrej Bertoncelj - Minister of Finance in September 2018


• The most important changes occurred in the field of personal income tax. The most adjustments were needed by employers, where workers were sent to work abroad

2.8 Pending tax proposals• ☐No significant proposals

2.9 Consultations opened/closed• The public may comment on any amendment within a specified

time limit, however there are no open discussions

Slovenia/Continued









3.2 Current general approach to tax enforcement The tax authorities function in the framework of the Tax Procedure Act, or according to the provisions of special tax laws.

3.3 Key enforcement developments seen in 2018There were no significant enforcement developments in 2018

3.4 Likely enforcement developments in 2019Some minor developments regarding administrative simplifications for taxable persons (Regulation on the enforcement of the VAT Act).



1 Tax losses carried forward Taxpayers incurring losses over a long period of time that have inter-company transactions are scrutinized.

2 Interest deduction (Thin cap and transfer pricing)

Taxpayers with inter-company financing that also incur high financing costs are scrutinized.

3 Service fee deductions Taxpayers with inter-company services, which incur high service costs, are scrutinized.


Spain

Tax policy

Tax controversy

Javier Seijo Pérez [email protected] +34 91 572 74 14

Maximino Linares Gil [email protected] +34 91 572 71 23


1.1 Key tax rates

2018 2019 % Change



25%

30% (for financial and oil and gas companies)

15% (newly created companies

25%

30% (for financial and oil and gas companies)

15% (newly created companies)

—



General base: 45% Saving base: 23%

General base: 45% Saving base: 23%

*These rates may change in 2019 if the 2019 draft State Budget Bill is enacted

—


21% general VAT rate

10% reduced VAT rate

4% (super-reduced VAT rate)

21% general VAT rate

10% reduced VAT rate

4% (super-reduced VAT rate)

—

EY key contacts

Lighthouse of Cap de Formentor Mallorca Spain around Sunset




2.1 Key drivers of tax policy changeThe key drivers of the tax policy change include:

• ☐The introduction of two new taxes:

• A tax on financial transactions based in the shares acquisitions for companies which the share capitalization value is higher than €1 million.

• A tax on digital services for companies with net turnover worldwide higher than €750M and gross incomes for digital services supplied in Spain higher than €3 M

• ☐Net increase in the CIT enforcement with the following measures:

• Limitation in the dividends and capital gains exemption to 95%

• Minimum tax over the tax base

• Reduction in the tax rate for small companies

• ☐Net increase in the PIT enforcement with increases in the tax rates

• ☐Introduction of an Act with the best international practices in the prevention of and fight against tax avoidance
































































































Spain/Continued





































� N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• The 2019 draft State Budget Bill (the Bill), under consideration in Congress includes tax proposals. Based on the current political situation in Spain, there is still uncertainty on whether the Government will be successful in passing all or part of the tax measures being proposed. As this publication was being drafted, the Spanish Parliament on 13 February 2019 voted against the 2019 State Budget Bill (the Budget Bill) proposed by the Spanish Council of Ministers on 11 January 2019.

• This new development not only has an impact on the tax measures which were included as part of the Budget Bill, but also increases the uncertainty with respect to other relevant tax amendments which were proposed during the past several months.

• The Bill includes some changes in the CIT Law, including

• ☐95% limitation in the dividends and in the positive capital gains for share transactions when the percentage of the direct or indirect holding in the share capital or in the equity amount to, at least, 5%, or when the acquisition value of the holding is higher than 20 M €

• A minimum tax on the positive taxable base when the net turnover of the company in the previous 12 months is at least €20 M

• Reduced tax rate of 23% for small companies (net turnover lower than 1 M €)

• Increase in the interim payments when the tax base method applies up to 19/20 to the tax rate

• 10% deduction in the wages paid to women who become Directors or members of the Board of Directors, in the year they become such

Taxes on wages and employmentA temporary digital services tax is under consideration in Congress, details include that:

• The taxable event would be the provision of the following services: i) online advertising; ii) online intermediation; iii) data transmission services

• The taxable base would be the gross income received for the services provided, VAT excluded

• The taxable person would be companies with a net turnover in the previous fiscal year higher than €750 M worldwide that exceed €3 M

• A company would be subject to the digital services tax when the customers are Spanish tax residents, excluding customers that did not pay any compensation

• The tax rate would be 3%

Taxes on wages and employment• ☐The 2019 draft State Budget Bill would increase the marginal

general tax rate in the PIT, which taxes wages and employment, by 4 percentage points.

VAT/GST/sales taxes• ☐No significant changes

2.5 Political landscapeThe 1 June 2018 government change in Spain shifted policy from liberal policies lowering the tax burden to socialist policies intended to increase the tax burden on “the large companies and the high wealth”.

Notwithstanding the above, the government is a minority in the Congress, so any change or act enforcement must be supported by a majority of votes to be passed. In any case, the introduction of the aforementioned changes is uncertain.

The next general elections in Spain are to take place in autumn 2020, however, due to political uncertainty; it is possible that the Government will call early elections. If the draft State Budget Bill in Congress fails to pass, it may be enough of a reason for calling early elections.


• Maria Jesús Montero Cuadrado, Ministry of Finance

• Jesús Gascón Catalán, Central Tax Administration Director

• Inés María Bardón Rafael, Secretary of State for Finance


• The European Union General Court issued a decision on Spanish tax amortization of financial goodwill for foreign shareholding acquisitions

• The Spanish Council of Ministers released a draft anti-tax evasion Bill for public consultation( 26 October 2018 )

• Spanish Government proposes to exclude EU ETFs from traspasos (deferral) regime

• Spain issued a draft bill on Financial Transaction Tax

• Japan signed a revised income tax treaty with Spain

• The OECD released the peer review report on implementation of Action 14 minimum standard for Spain

Spain/Continued

https://www.ey.com/gl/en/services/tax/international-tax/alert--the-european-union-general-court-issues-decision-on-spanish-tax-amortization-of-financial-goodwill-for-foreign-shareholding-acquisitions



https://www.ey.com/gl/en/services/tax/international-tax/alert--spanish-council-of-ministers-releases-draft-anti-tax-evasion-bill-for-public-consultation

https://www.ey.com/gl/en/services/tax/international-tax/alert--spanish-council-of-ministers-releases-draft-anti-tax-evasion-bill-for-public-consultation

https://www.ey.com/gl/en/services/tax/international-tax/alert--spanish-government-proposes-to-exclude-eu-etfs-from-traspasos-deferral-regime

https://www.ey.com/gl/en/services/tax/international-tax/alert--spanish-government-proposes-to-exclude-eu-etfs-from-traspasos-deferral-regime

https://www.ey.com/gl/en/services/tax/international-tax/alert--spain-issues-draft-bill-on-financial-transaction-tax

https://www.ey.com/gl/en/services/tax/international-tax/alert--japan-signs-revised-income-tax-treaty-with-spain

https://www.ey.com/gl/en/services/tax/international-tax/alert--oecd-releases-spain-peer-review-report-on-implementation-of-action-14-minimum-standard

https://www.ey.com/gl/en/services/tax/international-tax/alert--oecd-releases-spain-peer-review-report-on-implementation-of-action-14-minimum-standard


2.8 Pending tax proposalsFour proposals are under discussion in Congress, and are pending approval

• State budget bill

• Financial transaction tax bill

• Digital services tax bill

• ☐Measures into the prevention of, and fight against, tax avoidance bill









3.2 Current general approach to tax enforcement Annually, the Spanish Tax Agency (STA) publishes a resolution determining the broad guidelines for the tax control plan. The one for the year 2019 establishes the guidelines based on four pillars:

• Information and assistance to taxpayers and non-compliance prevention – the STA strategy consists of using new tools and warning systems with the aim of complying with tax obligations by the due date, with the purpose of increasing the overall taxable base

• Research and audit for tax and customs avoidance – the promotion of voluntary compliance and tax avoidance prevention

• Tax avoidance control in the enforcement phase

• Cooperation between the Spanish Tax Agency and the autonomous regionals tax agencies

3.3 Key enforcement developments seen in 2018No developments of note

3.4 Likely enforcement developments in 2019☐Efforts to develop the “Code of good practices” between the taxpayer and the tax agency.




1 Large size companies and multinational groups

The STA will focus the audit activities in the following files: i) tax avoidance; ii) transfer pricing; iii) permanent establishment; iv) tax havens and preferential tax regimes.

2 E-commerce business models The STA will research and audit the new business models based on e-commerce (they will: do a preliminary study in the FINTECH technology, continue auditing the new distribution model linked to e-commerce and analyze the new payment methods).

3 Out of range companies The STA will audit entities out of range in terms of activities, profits, sales, and receipts within a given sector of economy.

4 Consolidated tax group These groups are automatically under intense investigation given their significant contributions to enforcement.

5 VAT schemes The STA will audit all the operations carried out between intra-EU companies when they comply with some requirements focused on obtaining some tax benefit in the VAT refund system.

Spain/Continued

303The outlook for global tax policy in 2019 |The outlook for global tax policy in 2019 |


Switzerland

Tax policy

Tax controversy

Roger Krapf [email protected] +41 58 286 21 25

Martin Kistler [email protected] +41 58 286 62 06


1.1 Key tax rates

2018 2019 % Change

Corporate income tax (CIT) – headline rate

Overall tax rate on profit before tax taking into account federal, cantonal and communal taxes varies between 12% and 24% (thereof approx. 7.8% federal tax).

Overall tax rate on profit before tax taking into account federal, cantonal and communal taxes varies between 12% and 24% (thereof approx. 7.8% federal tax).

—



Federal: 11.5%

Overall tax rate taking into account federal, cantonal, communal and church tax varies between 23.5% and 41.5%.

Federal: 11.5%

Overall tax rate taking into account federal, cantonal, communal and church tax varies between 23.5% and 41.5%.

—


7.7% 7.7% —

EY key contacts

Zermatt village with view of Matterhorn in the Swiss Alps




2.1 Key drivers of tax policy change• ☐Currently, Swiss tax policy is mainly driven by international developments relating to the OECD BEPS Project.

• ☐Accordingly, international acceptance and transparency are important drivers for current Swiss tax policy.

• ☐Nonetheless, Switzerland as a whole and also the Swiss cantons are striving to remain competitive from a tax point of view.

• ☐There is also “tax competition” among the Swiss cantons themselves.







































































































Switzerland/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change


2.4 Tax policy outlook for 2019 — detail


• ☐☐In September 2018 the Swiss parliament accepted a tax reform act (Tax Reform and AHV Financing act, TRAF, formerly known as Tax Reform 17, TR17) in reaction to rejection of the Corporate Tax Reform III by Swiss voters in February 2017.


• ☐Direct taxes (including enforcement approaches such as a DPT or tech sector audit focus) N/A

• ☐Indirect taxes As of 1 January 2019 new rules for mail order businesses will enter into force which are targeted at (but not limited to) web-based businesses.


• ☐No material changes expected

VAT/GST/sales taxes

• Importers of low-value goods to Swiss customers have to register for Swiss VAT once they exceed a turnover threshold of CHF 100’000. The regulation is targeted at foreign mail order businesses such as Amazon.

2.5 Political landscape• The TRAF (see comments provided in section 2.8) is of high

importance for future Swiss tax policy developments.

• Next elections on federal level are in 2019.


Tax policy leaders

• ☐Ueli Maurer, Head of Federal Department of Finance


• Adrian Hug, Head of Swiss Federal Tax Administration

• Jörg Gasser, Head of Swiss State Secretariat for International Finance Matters


• There were no material changes in terms of Swiss tax policy in 2018.

2.8 Pending tax proposals• In September 2018 the Swiss Parliament adopted the latest

corporate tax reform package called Tax Reform and AHV-financing (TRAF), formerly known as Tax Proposal 17. The tax reform package is similar to Corporate Tax Reform III, rejected in February 2017 by the Swiss voters. In particular, it includes the following measures:

• Abolishment of special tax regimes such as holding company, domicile company, mixed company, principal company and Swiss finance branch

• Introduction of patent box (mandatory at cantonal level)

• Introduction of R&D super deduction (optional at cantonal level)

• Introduction of transitional measures upon change of tax status

• Introduction of target relief of capital tax (optional at cantonal level)

• In addition to the tax measures, the law includes additional social security contributions (AHV-financing).

• The new law will probably be subject to a public referendum (signatures may be collected until early January 2019), a possible vote will be held on 19 May 2019.

• If the law passes the vote (or the referendum fails), the law will be enacted as of 1 January 2020.

• Beside this federal tax reform, the reform will have to be implemented on cantonal level. Therefore all cantons will conduct a similar reform project in parallel to the federal reform (possibly also subject to public referendum).

2.9 Consultations opened/closedClosed:

• Implementation of the recommendations of the Global Forum on Transparency and the exchange of information in the report on Phase 2 of Switzerland

Switzerland/Continued



3.1 General approach to tax enforcement in 2019Which of the following statements most closely matches your expectations with regard to your national tax authority’s approach to tax enforcement in 2019?






3.2 Current general approach to tax enforcement No general approach for all tax authorities may be identified, as in Switzerland direct taxes are assessed by the 26 cantonal tax authorities based on their cantonal law (which is only partially harmonized).

3.3 Key enforcement developments seen in 2018No general developments. While some cantons and some divisions of the Federal Tax Authority seem to scrutinize tax filings, other still are dealing with tax payers as clients and proactively building trust-based relationships.

3.4 Likely enforcement developments in 2019None



1 Transfer pricing Transfer pricing will remain a main topic of tax audits, especially with regards to interest payments.


Taiwan

Tax policy

Tax controversy

Yi-Shian Lin [email protected] +886 2 2757 8888 ext. 88870

Chien-Hua Yang [email protected] +886 2 2757 8888 ext. 88875


1.1 Key tax rates

2018 2019 % Change



20% 20% —



40% 40% —


5% 5% —

EY key contacts

Skyline of Taipei City




2.1 Key drivers of tax policy change• ☐Respond to the developments of BEPS & CRS

• Encourage the repatriation of foreign earnings, however, the Ministry of Finance (MOF) has not agreed to work on any tax incentive proposals.






























































Note: There is a CFC regime under the Income Tax Act, however, due to political reasons, the rules has not come into force.










































Taiwan/Continued






























; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change




• Taiwan will implement the CRS rules starting from 1 Jan 2019 and expect to initiate the information exchange in 2020.


• ☐Taiwan has been levying 5% VAT on digital services provided to natural person consumers by foreign businesses. In addition, these foreign businesses should issue tax e-invoice from 1 Jan 2019.


• ☐No significant changes are expected.

VAT/GST/sales taxes


2.5 Political landscape• Due to political reasons, The Cross-Strait Double Taxation

Agreement (CSDTA, i.e., Taiwan-China tax treaty) has not yet been passed by the legislative body of Taiwan and consequently the implementation of CFC and PEM has been postponed and China, Hong Kong and Macau are excluded from the scope of CRS.


• Su, Jain-Rong, Minister of the MOF.


Corporate Income Tax, CIT

• CIT rate increased from 17% to 20%

• Undistributed earnings tax rate reduced from 10% to 5%

• Dividend imputation credits for resident individuals repealed

• Dividend withholding tax rate increased from 20% to 21% for non-tax resident shareholders

• Surtax credit repealed for non-tax resident shareholders

Personal Income Tax, PIT

• The top personal income tax rate reduced from 45% to 40%

• New dividend taxation for resident taxpayers:

• Option 1: 8.5% of dividend income available as tax credits, capped at NTD $80,000

• Option 2: dividend income separately taxed at 28%

• Various deductions increased

Transfer Pricing

• Companies which meet threshold are required to submit Country-by-Country Report (CBCR) and Master File

2.8 Pending tax proposals• The MOF is drafting a proposal to introduce itemized deductions

for salary incomes that the taxpayer can elect to deduct

• A fixed amount (NTD$200,000 for 2018) or

• Itemized deductions which may include: clothing, training, occupation-related membership fees, and work tools.


Taiwan/Continued









3.2 Current general approach to tax enforcement3.3 Key enforcement developments seen in 20183.4 Likely enforcement developments in 2019 The tax authority cross-checks data among several records, such as VAT returns, CIT returns, PIT returns and Customs declarations. In addition, the ongoing implementation of electronic uniform tax invoice gives the tax authority more robust and timely data of business transactions.

The MOF has developed many electronic tax filing systems which expedite the return preparation for taxpayers and tax enforcement for the tax authority. For example, the PIT return system can extract complete lists of incomes and itemized deductions thus the preparation time has been reduced to only a few minutes for most individuals.



1 Deductions of service fees allocated from the foreign affiliates

The tax authority may ask for additional information, i.e. the relevant details of allocation methods, calculation details and other supporting documents to justify the substance of service received and support the tax deduction claim.

2 Deductions of expatriate employee expenses

The tax authority focuses on expatriate employee expenses for multinational enterprises, since sending employees abroad is becoming increasingly common.

Salaries, traveling expenses, meals, and any other miscellaneous expenses for the employees who are dispatched to an overseas related party would be disallowed if the company does not recognize any relevant revenues derived from the service provided by those dispatched employees.

3 Country-by-Country Report (CBCR) and Master File

CBCR and Master File provide the tax authority visibility into a group’s holding structure, profit allocation, operational substance or tax paid status, thus possibly triggering a transfer pricing audit.

4 Deductions of amortization of goodwill

The tax authority frequently questions the valuation report supporting the calculation of goodwill and whether the transaction itself should give rise to goodwill.

5 VAT compliance for cross-border e-commerce business

Foreign e-commerce business that meet the threshold requirements should register with the tax authority and file bi-monthly VAT returns since 1 May 2017, and issue tax e-invoice from 1 Jan 2019. Noncompliance with these requirements may lead to penalty.

The tax authority may initiate the tax audit in 2019 over the VAT return filings and in 2020 over the issuance of tax e-invoice.


Thailand

Tax policy

Tax controversy

Yupa Wichitkraisorn [email protected] +66 2264 9090 ext 55003

Kamolrat Nuchitprasitchai [email protected] +66 2264 9090 ext 77062


1.1 Key tax rates

2018 2019 % Change



20%1 20%1 —



35%1 35%1 —


7%1 7%1 —

1 Revenue Department website (http://www.rd.go.th/publish/index_eng.html)

EY key contacts

Bangkok cityscape




2.1 Key drivers of tax policy change• ☐☐E-commerce in Thailand is booming, and supported by government efforts to develop a national e-payment system to move Thailand

towards a cashless society. This has led to the introduction of specific e-payment tax laws. These are directed at enabling taxation of online vendors, including the income of non-salaried vendors, and levying VAT on all e-commerce transactions – both to increase the tax base and to level the playing field for local vendors whose transactions are currently subject to VAT while those of overseas vendors (such as Google, Amazon and Alibaba) are not.

• The Finance Ministry is focused on reducing the deficit to strengthen Thailand’s fiscal position as a cushion against any potential economic crisis. With the government planning to invest massive amounts in big-ticket infrastructure projects, particularly the transport system, fiscal tightening and responsibility are being increasingly emphasized and current plans envisage not only the use of methods to reduce direct government expenditure on the infrastructure projects, but also a significant increase in tax collection.

• The Revenue Department aims to transform into a fully digital organization by 2020 and to increasingly use AI to help curb tax evasion. In 2020, e-tax filing, e-tax invoice and e-receipt systems will be implemented. These will not only strengthen Thailand’s competitive advantage and boost the ease of doing business but are also likely to help to make tax avoidance more difficult.

• Since 2017, Thailand has become a member of two global groups combatting international tax avoidance, i.e., Global Forum on Transparency and Exchange of Information for Tax Purposes and Inclusive Framework on Base Erosion and Profit Shifting (BEPS IF), which work together to prevent the use of transfer pricing for tax avoidance. As one immediate consequence, in early 2018, a draft bill to amend the transfer pricing law was approved. This requires that companies or registered partnerships must prepare reports that disclose the details of their relationships with other entities and their interconnected transactions in each accounting period.
































































































Thailand/Continued





































; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change




• ☐Thailand’s Transfer Pricing Act was published in the Royal Gazette on 21 November 2018 and will be effective from accounting years starting on or after 1 January 2019.

• ☐A Royal Decree regarding International Business Centers (IBC) became effective from 29 December 2018. This was issued in response to the Harmful Tax Practices – 2017 Progress Report on Preferential Regimes (Inclusive Framework on BEPS: Action 5). Tax incentives under the IBC regime replace all previous tax-incentivized regional/international headquarters regimes, namely: Regional Operating Headquarters, International Headquarters (IHQ), Treasury Center (TC) and International Trading Center (ITC).

• ☐Major developments include parity of tax incentives on incomes earned from local and overseas associated enterprises, the removal of tax incentives earned from international trading activities (i.e., out-out trading) and an increase in required minimum local spending.


☐Two Emergency Decrees on the taxation of digital assets came into force on 14 May 2018.

• Emergency Decree on Digital Asset Business Operation B.E. 2561 to announce legislation related to the regulation of digital assets

• Emergency Decree on Amendment of the Revenue Code (No.19) to announce that shares of profits or any gains derived from holdings of digital tokens, as well as the excess of any proceeds derived from transfers of cryptocurrency or digital tokens over the cost of investment will be subject to 15% withholding tax


• ☐The Royal Decree regarding IBC entitles qualifying expatriates working full time for the qualifying IBC to a flat PIT rate of 15% on employment remuneration.

VAT/GST/sales taxes

• The reduced VAT rate of 7% has been extended for a further year, to 30 September 2019.

• While a return to the 10% rate remains desirable from a tax collection standpoint, the economic outlook does not appear favorable to such a move in 2019.

Excise tax

• A comprehensive tax package, including excise tax on electric vehicles (EVs), motorcycles based on carbon dioxide emissions and high-sodium and trans-fat foods is in progress. The package is aimed at supporting targeted S-curve industries, helping people avoid health problem and reducing long-term public spending on health. Tax incentives are planned for EVs, which are meant to draw EV and parts manufacturers to invest in Thailand

2.5 Political landscape• The election date will likely be delayed from Feb 24 to avoid

poll-related activities overlapping with those of the coronation ceremony.

• Investor sentiment in Thailand’s capital market may be affected negatively if the delays are significant, with many foreign investors likely to delay investment plans until after elections.

• Any poll deferral may also cause a delay in the drafting of the 2020 fiscal budget, but this many not immediately affect economic growth, as public investment plans are already in place and likely to remain on course.

Thailand/Continued

321The outlook for global tax policy in 2019 | 321The outlook for global tax policy in 2019 |


Tax policy leaders

• Mr. Apisak Tantivorawong, Minister of Finance

• Mr. Lavaron Sangsnit, Director General of Fiscal Policy Office

Tax administration leaders

• Dr. Ekniti Nitithanprapas, Director General of Revenue Department

• Ms. Apinya Jongwattanatam , Director of Bureau of Large Business Tax Administration

• Ms. Duangjai Asawachintachit, Secretary General of the Board of Investment

• Mr. Krisada Chinavicharana, Director General of Customs Department

• Mr. Patchara Anuntasilpa, Director General of Excise Department.

2.7 What key tax policy changes did you experience in your country in 2018?• Digital transformation and data analytics (through the risk-based

audit system (RBA) and supply chain analysis) are key approaches that have been utilized by the Thai Revenue Department with a view to increasing both the ease of doing business and the efficiency of tax collection.

2.8 Pending tax proposals• Draft amendment to the Thai Revenue Code to entitle the sale

of goods or provision of services to certain intergovernmental organizations to the 0% VAT rate

• Draft amendment to the Thai Revenue Code regarding exchange of information for tax purposes

• Draft amendment to the Petroleum Income Tax Act to introduce a new functional currency method that may be adopted by certain entities that use functional currency for accounting purposes

• Draft amendment to the Thai Revenue Code to introduce a new functional currency method that may be adopted by certain entities that use functional currency for accounting purposes

2.9 Consultations opened/closed• ☐Consultations are closed for currently pending tax proposals.


Thailand/Continued








3.2 Current general approach to tax enforcement There is currently effort to increase tax audit activities, especially on transfer pricing related matters (including domestic related party transactions), and developing the application for the Risk Based Audit System (RBA), used to identify which taxpayers to audit.

There is also movement to adopt a secondary adjustment (i.e. deemed dividend) on profit uplift resulting from a transfer pricing audit.

In general, there is focus on tax planning transactions, especially on group reorganizations and transfer pricing issues.

3.3 Key enforcement developments seen in 2018Enactment of the new Transfer Pricing Act

Enforcement of Emergency Decree on Amendment of the Thai Revenue Code (No.19) to announce the applicable withholding tax rate on digital assets

Introduction of International Business Center (IBC) scheme to replace the Regional Operating Headquarters (ROH), International Headquarters (IHQ) and International Trading Center (ITC) regimes

Improvement of data analytics in order to help increase the efficiency of tax collection and tax investigation

3.4 Likely enforcement developments in 2019The tax enforcement approaches implemented in 2018 will be strictly applied to taxpayers in 2019.

A number of developments in the area of tax enforcement in relation to

e-commerce and transfer pricing are expected in 2019.

According to the draft National e-Payment Master Plan, prescribed financial institutions and/or persons will need to provide financial transaction information of prescribed persons to the Revenue Department.

A draft amendment is expected to the Thai Revenue Code authorizing the Director-General of the Revenue Department to order collection and delivery of tax-related and other information requested by officials or required under agreements with other countries or international organizations, or between the Thailand Trade and Economic Office and foreign agencies.




1 Corporate reorganizations The focus of the tax authorities in 2019 will be transactions (usually those carried out by large taxpayers) that result in profit shifting. The tax authorities intend to audit corporate restructurings, mergers and acquisitions and focus on those they feel are conducted without business rationale or other substance.

2 E-commerce Due to the rapid growth in e-commerce, the tax authorities are rapidly developing and implementing tax laws and regulations governing e-commerce and online payment transactions. The tax authorities will strongly focus on internet/online transactions in 2019.

3 Transfer pricing (TP) The focus of the tax authorities in 2019 will include negative margins, cost allocation, management fees and royalty payment.

4 Permanent establishment (PE) The tax authorities are likely to increase challenges on PE issues. In particular, they will look at whether secondees are effectively employees of a foreign company providing services to a Thai company and whether the remuneration received in return should be regarded as a management service fee. Depending on how long the secondee has a presence in Thailand, the foreign company may be deemed to have a PE in Thailand.


Turkey


Erdal Çalıkoğlu [email protected] +90 212 408 53 75

Gökçe Sarısu Kanmaz [email protected] +90 212 408 5489


1.1 Key tax rates

2018 2019 % Change



22% 22% —



35% 35% —


18% 18% —

EY key contacts

Istanbul the capital of Turkey




2.1 Key drivers of tax policy changeThe Government is striving to be more competitive from a tax standpoint and minimize the inequality of the tax system.

As per the Medium Term Fiscal Plan designed for 2019–21 and prepared by the Turkish Ministry of Development and High Planning Council, the following issues shape tax policy:

• Public income policies will focus on providing the financing needed for public expenditures, supporting socio-economic development and justice, increasing the competitiveness of the economy at the international level and contributing to domestic savings.

• Income policies will be based on stability and predictability in order to strengthen tax justice, enlarge the tax base, increase voluntary compliance to the tax, accelerate the transition to the registered economy and strengthen the analysis and audit capacity.

• Tax incentives will be reviewed and the public will be informed regularly about tax expenditures and their financial impacts.

• Ineffective tax exceptions, tax exemptions and tax deductions will be gradually abolished and the tax system will be more integrated, simple and effective. The tax base will be expanded so justice in taxation will be reinforced.

• In order to contribute to the economic stabilization process, high-end and imported goods will be identified and regulated accordingly.

• The real estate taxation system will be reviewed to increase collection of title deed fees and real estate taxes on the real values of immovable property.

• Tax policies will support increased qualified employment through high value-added investments and the sustainable potential production level will be increased.
































































































Turkey/Continued





































; N/A


Overall CIT burden


Overall PIT burden


Lower Higher

No change

No change

No change



• ☐No significant change is expected

Taxes on digital business activity• In order to comply with BEPS Action Plans and the Multilateral

Convention to Implement Tax Treaty Related Measures to Prevent BEPS, (MLI) as well as the need for a new taxation system concerning digital businesses, new regulations may be developed through the course of 2019

Taxes on wages and employment• No significant change is expected.

VAT/GST/sales taxes• No significant change is expected

2.5 Political landscape• The Turkish tax agenda seems to be changing due to economic

issues that the country currently faces

• No significant short-term tax amendment is prioritized under the economic policy document declared on 10 August by the Ministry of Finance and the Treasury of Turkey

• However, there are a few goals marked for 2020-2022 intending to improve tax equality by balancing direct and indirect taxation

• Pursuant to this policy document, income tax reform would not be a priority in the short term agenda of the government


• Berat Albayrak, Minister of Treasury and Finance

• Bülent Aksu, Osman Dinçbaş and Nureddin Nebati; Deputy Ministers

• Burcu Aydın Ozudogru, General Director at the General Secretariat of Revenue Policies

• Necmi Keskinsoy, General Director of the Revenue Administration (by proxy)

• Huseyin Karakum, General Director of Tax Inspection Board


• The CIT rate was increased to 22% from 20%

• The Tax Amnesty Law (“The Law on the Restructuring of Taxes and Other Certain Receivables and Amendments to Some Laws No. 7143”) as published in May 2018, allowed taxpayers to increase their corporate tax base, withholding tax base and VAT bases, without being subject to future audits for the years in which they were raised, and with no further assessment to be made for these tax types for those years, if the Law was followed by taxpayers regarding the payment necessary.

• There were reduced tax applications covering Special Consumption Tax, VAT and title deed and for delivery of goods, for a limited time period

2.8 Pending tax proposalsN/A


Turkey/Continued









3.2 Current general approach to tax enforcement As per the Medium Term Fiscal Plan designed for 2019–21, tax regulations designed to reduce the informal economy will continue while the audit system will be strengthened and its capacity increased. A Tax Data Analysis Center is expected to be established, which will increase efficiency in collection and reduce informality

3.3 Key enforcement developments seen in 2018N/A

3.4 Likely enforcement developments in 2019N/A



1 Permanent Establishment It is expected that tax authorities will intensify audits regarding the digital workplace and virtual PE.

2 Reduced Tax Rate Applications provided under DTTs

Application of the reduced withholding tax rates provided under the DTTs are generally scrutinized by the tax authorities. Recent experience has been that the tax inspectors started to scrutinize the reduced dividend withholding tax application, claiming that the recipient is not the beneficial owner of the payment. Several taxpayers are under such a tax audit. There is no precise criteria concerning the beneficial ownership concept in Turkey, however it is expected that the tax authority will determine the criteria and increase inquires.

3 Tax free structuring transactions

Tax free M&As as well as partial and full spin-offs have always drawn administrative attention and this is expected to continue.


United Kingdom

Tax policy

Tax controversy

Chris Sanger csanger.uk.ey.com +44 20 7951 0150

Jim Wilson [email protected] +44 20 7951 5912


1.1 Key tax rates

2018 2019 % Change



19% 19% —



45% 45% —


20% 20% —

EY key contacts

Rush hour at Liverpool Street Station/ London (UK)




2.1 Key drivers of tax policy change• As the UK negotiates its departure from the European Union,

significant uncertainty remains in regards to the UK’s future economic relationship with its major trading partner. With much of the political bandwidth taken up by the Brexit issue, the Government has pursued only a few specific changes to the tax system, rather than introduce large scale changes.

• The UK Government remains committed to having the lowest corporation tax rate in the G20, which is set to reduce to 17% in April 2020.

• In order to encourage investment and consumption, the Government has also announced an increase in the amount of plant and machinery qualifying for immediate tax depreciation from £200,000 to £1m, as well as a new 2% non-residential Structures and Buildings Allowance. For individuals, the Government has increased the thresholds before income attracts tax and before the higher tax rate of 40% needs to be paid.

• Wider global tax developments such as BEBS and the continued growth of the digital economy continue to shape the tax policy debate.

• In regards to the digital economy, the UK Government has made a number of announcements. From April 2020, the UK will introduce a Digital Service Tax of 2% on UK revenues of certain digital businesses to reflect the value they derive from the participation of UK users. The tax will apply to annual UK revenues above £25m from activities ranging from search engines, social media and online marketplaces
































































































United Kingdom/Continued





































; N/A




Lower HigherNo

changeLower Higher

No change

Lower HigherNo

change



• Annual Investment Allowance (AIA) – The amount of qualifying investment in plant and machinery made on or after 1 January 2019 will go up from £200,000 to £1m, until 30 December 2020.

• Capital allowances – A new 2% non-residential Structures and Buildings Allowance is available where contracts for physical construction works were entered into on or after 29 October 2018. The capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6% from 6 April 2019.

• Intangible fixed assets – The cost of goodwill in acquiring businesses with eligible intellectual property will attract relief from April 2019.

• Withholding tax: royalties – With effect from April 2019, withholding tax obligations will be extended to royalty payments, and payments for certain other rights, made to low or no tax jurisdictions in connection with sales to UK customers. The rules will apply regardless of where the payer is located.

• Profit Fragmentation – From April 2019, this targeted legislation aims to prevent UK traders and professionals from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The counteraction will be effected by adding those profits to the profits of the UK trade

Taxes on digital business activity• Digital Services Tax — Introduction of a Digital Services Tax of

2% from April 2020 on revenues of certain digital businesses to reflect the value they derive from the participation of UK users. The tax will apply to annual UK revenues above £25m on activities ranging from search engines, social media and online marketplaces. Consultation on this is taking place in 2019.

• Change in Permanent Establishment definition — UK government will change the Permanent Establishment rules from April 2019 to deny exemption from permanent establishment to a non-UK resident company if they are part of a fragmented business operation

Taxes on wages and employment• Personal Allowance (PA) and higher rate threshold — The PA

and higher rate threshold will rise to £12,500 and £50,000 respectively from April 2019. Both will remain at the same level in 2020-21 and then the PA will increase by Consumer Price Index.

• Off-payroll working — To aid compliance, the government will reform the off-payroll working rules (known as IR35) in the private sector so that the responsibility of operating these rules will move from individuals to the organization, agency or third party engaging the worker. This change will not be introduced until April 2020.

VAT/GST/sales taxes• VAT threshold — The VAT registration threshold will be frozen at

£85,000 for two more years.

• VAT grouping — From 1 April 2019, an individual or a partnership will be allowed to join a VAT group, as long as it controls the companies it is grouped with and is entitled to register for VAT in its own right.

• Unfulfilled supplies — A change will be made to the VAT treatment of deposits on services or goods that have been paid for in advance but which the customer does not use/collect. This change is due to take effect from 1 March 2019.

• Remote gaming duty — The rate of remote gaming duty, which is payable by online gaming businesses, will increase from 15% to 21% with effect from April 2019.

• Duties — Fuel duty will be frozen for another successive year, as will duty rates on beer, most cider and spirits. Duty on wine will increase in line with the Retail Price Index. Duty rates on all tobacco products will increase by two percentage points above Retail Price Index inflation until the end of this Parliament

2.5 Political landscape• The UK political landscape continues to be wholly occupied by the

process of the UK leaving the European Union. This will continue into 2019 as the Government seeks to pass legislation to allow an orderly exit from the EU on 29 March 2019. The bandwidth of Government will likely be full for the remainder of year with negotiations over its future trade agreement with the EU.



• The Conservative led Government remains reliant on its alliance with the Northern Ireland Democratic Unionist Party to achieve a majority.

• As such, the UK Government is unlikely to introduce radical changes to the UK tax system until the future relationship with the EU is confirmed


• Government officials: Jon Thompson (Permanent Secretary of HMRC, and Chief Executive); Jim Harra (Second Permanent Secretary HMRC), Tom Scholar (Permanent Secretary HM Treasury).

• Political leaders: The Rt. Hon Theresa May MP (Prime Minister), The Rt. Hon Phillip Hammond (Chancellor of the Exchequer), The Rt. Hon Elizabeth Truss MP (Chief Secretary to the Treasury), The Rt. Hon Mel Stride MP (Financial Secretary to the Treasury).


The 2018 Finance Bill received Royal Ascent on 15 March 2018. The key reforms it brought in were

Personal Tax and Employment

• ‘Foreign service relief’ in respect of overseas work whilst non-UK tax resident will cease to be available to UK tax residents.

• The 3% diesel surcharge for company cars is increased to 4%.

Business and Corporate Tax

• Corporate indexation allowance was frozen from 1 January 2018. This means no relief will be available for inflation accruing after this date.

• The Research & Development Expenditure Credit rate increased from 11% to 12% for expenditure incurred on or after 1 January 2018.

• The rules for qualification under the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) now include a requirement for the shares to include a “risk to capital”. More generous conditions have been introduced for “knowledge-intensive companies”.

Other Taxes

• Online marketplaces will be held jointly and severally liable for the VAT liabilities of vendors on their sites.

2.8 Pending tax proposalsThe following consultations were annouced in the 2018 Autumn Budget

• Taxation of trusts — the Government is currently inviting views on the principles that it believes should underpin the taxation of trusts, namely, transparency, fairness and simplicity. The consultation document provides examples of areas where government believes these may not be fully met and seeks views and evidence on the case for and against reform to these and other areas.

• Digital Services Tax — the government has announced that it will introduce a new Digital Services Tax in April 2020. This is designed as an interim response, pending global reform, to the challenges that digital businesses create for the international corporate tax system, as set out in the government’s previous position papers. The government is consulting on the detailed design and implementation of that tax ahead of its inclusion in the 2019-20 Finance Bill.

• Corporate Capital Loss Restriction — this consultation concerns company taxation, specifically the introduction of a restriction for carried-forward capital losses arising in a company to no more than 50% of the capital gains arising in an accounting period. The measure will include an allowance that gives companies unrestricted use of up to £5 million capital or income losses each year



• Digital Services Tax (28 February 2019)

• Corporate Capital Loss Restriction: consultation on delivery (25 January 2019)

• Amendments to tax returns - Call for Evidence (06 February 2019)

• The Taxation of Trusts: A Review (30 January 2019)

• Stamp Taxes on Shares Consideration Rules (30 January 2019)

Closed:

• Amending HMRC’s civil information powers (02 October 2018)

• Off-payroll working in the private sector (10 August 2018)

• Tax and administrative treatment of short term business visitors from overseas branches (06 August 2018)

• Alternative method of VAT collection – split payment (29 June 2018)

• Insolvency and phoenixism risks (20 June 2018)

• The role of online platforms in ensuring compliance by their users - call for evidence (08 June 2018)

• Taxation of self-funded work-related training (08 June 2018)

• Extension of the existing security deposit legislation to include CT and CIS deductions (08 June 2018)

• Profit fragmentation (08 June 2018)

• Capital Gains Tax: Payment window for residential property gains (06 June 2018)

• VAT Registration Threshold - call for evidence (05 June 2018)

• Cash and digital payments in the new economy” - call for evidence (05 June 2018)

• VAT, Air Passenger Duty and tourism in Northern Ireland - call for evidence (05 June 2018)

• Gaming duty- revalorisation (04 June 2018)

• Employment Status (01 June 2018)

• Tackling the plastic problem - call for evidence (18 May 2018)

• Allowing Entrepreneurs’ Relief on gains made before dilution (15 May 2018)

• Extension of offshore time limits (14 May 2018)

• Review of the corporate intangible fixed assets regime (11 May 2018)

• EIS: Knowledge Intensive fund consultation (11 May 2018)










3.2 Current general approach to tax enforcement HMRC applies a risk-based approach to enforcement and compliance. It has a “promote, prevent, respond” strategy to tackle non-compliance which aims to:

• Promote compliance by designing it into systems and processes

• Prevent noncompliance at or near the time of filing

• Respond effectively to non-compliance

It focuses on:

• Maximizing collection of revenues

• Bolstering resources to tackle evasion and non-compliance in the tax system

• Using data more efficiently, to identify the root causes of non-compliance among different taxpayer groups and deliver digital services to make things easier for them and for HMRC

• Stopping non-compliance before it happens through:

• More frequent reporting, intended to lead to fewer errors and less opportunity to evade tax obligations

• New powers to acquire information from online intermediaries and increased sanctions for offshore evasion to allow HMRC to address tax risks more effectively

3.3 Key enforcement developments seen in 2018The government is investing a further £155 million in additional resources and new technology for HMRC. This investment is forecast to help bring in £2.3 billion of additional tax revenues. This will enable HMRC to utilize new technology to tackle the hidden economy, marketed tax avoidance schemes, enablers of tax fraud, non-compliance and to recover greater amounts of tax debt.

3.4 Likely enforcement developments in 2019Controlled Foreign Company rules — the Government will make two changes to the Controlled Foreign Company (CFC) rules. These changes relate to the definition of control and the treatment of certain profits generated by UK activity. These changes will take effect from 1 January 2019 and will ensure that the UK CFC rules comply with Council Directive (EU) 2016/1164.

Anti-avoidance measure for insurance offshore loops — Legislation will be introduced to further restrict the ability of insurance intermediaries to recover VAT from March 2019.

Offshore compliance — The Government has announced it will publish an updated offshore tax compliance strategy. This is expected to set out how HMRC will tackle tax evasion and non-compliance related to income/profits and assets located outside the UK on which UK tax is payable




1 HMRC’s general approach to risk and audit selection

HMRC generally applies a risk-based approach to the audit of business taxpayers, with its framework for risk assessing large business based on a combination of inherent and behavioral risk factors. Low-risk businesses benefit from fewer interactions with HMRC and greater certainty that their tax returns will not be challenged.

Inherent risk factors include complexity (including size and scope of the business and its tax interests), boundary (i.e., international structures, financing and connected party issues) and the degree and pace of change affecting the business and its tax obligations.

Behavioral risk factors include governance (management of risk and openness and cooperation with HMRC), ability to deliver the “right tax at the right time” through processes, systems and skills, and tax strategy (including use of tax planning that does not support genuine commercial activity).

Alongside its general approach tailored to taxpayer-specific risk, as above, HMRC takes a crosscutting approach to investigating and challenging avoidance schemes, with an anti-avoidance strategy relying on enhanced disclosure requirements, enhanced penalties for users and enablers of avoidance schemes, and a strategic approach to litigation where the taxpayer has not conceded 100% of the liability HMRC regards as due




United States

Tax policy

Tax controversy

Michael Mundaca [email protected] +1 202 327 6503

Ray Beeman [email protected] +1 202 327 7397

Michael Dell [email protected] +1 202 327 8788

Cathy Koch [email protected] +1 202 327 7483

Gary Gasper [email protected] +1 202 467 4302

Arlene Fitzpatrick [email protected] +1 202 327 7284

Heather Maloy [email protected] +1 202 327 7758

Frank Ng [email protected] +1 202 327 7887

Steve Wlodychak [email protected] +1 202 327 6988


1.1 Key tax rates

2018 2019 % Change



26%1 26% —



37%2

Additionally, a 20% deduction for individuals for domestic “qualified business income” from a partnership, S corporation, or sole proprietorship creates an effective 29.6% tax rate for certain pass-through income

37%

Additionally, a 20% deduction for individuals for domestic “qualified business income” from a partnership, S corporation, or sole proprietorship creates an effective 29.6% tax rate for certain pass-through income

—


0%3 0% —

1The top federal marginal rate, enacted in December 2017 as part of the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97), is 21%, but many states and US municipalities also levy their own corporate income taxes, as well as other types of business taxes determined on other bases, such as net worth or gross receipts. Among other changes, the law repealed the US federal corporate alternative minimum tax. These rates vary widely from no income tax to a rate as high as 12%. In addition, for corporations, these state and local income taxes are generally deductible for federal income tax purposes and thus, the federal benefit reduces the overall effective rate. On average, the effective state income tax rate is 5%, which is assumed for purposes of this document.

EY key contacts

US Capitol



2In addition to the federal rate, US state and municipal individual income tax rates apply, ranging from 0% to 13.3%. The TCJA imposed an annual $10,000 limitation on the deductibility of most state and local taxes ($5,000 for married filing separately) and any such taxes deducted remain taxable under the federal personal alternative minimum tax. The TCJA also doubled the standard deduction, moderating the SALT deduction limitation. Additionally, a federal net investment income tax (NIIT) went into effect on 1 January 2013. The 3.8% tax applies to certain net investment income of individuals, estates and trusts that have income over statutory threshold amounts. All of these complex federal and personal income tax adjustments are not included in the rate used here. Only the highest federal regular tax rate is displayed.3However, many state and local governments impose sales taxes, with combined rates varying from 0% to 10.25%. It is estimated that there are more than 9,000 separate sales tax rate jurisdictions in the United States4US Government Accountability Office, “Financial audit: Bureau of the Fiscal Service’s Fiscal Years 2018 and 2017 Schedules of Federal Debt,” 8 November 2018. https://www.gao.gov/products/GAO-19-113


2.1 Key drivers of tax policy changePlease provide 3-5 bullet points outlining the government’s key tax policy objectives

• The political dynamic of a divided federal government will likely be a significant driver of tax policy in the year ahead, lessening the likelihood that substantial tax legislation will be enacted in the short term. In late 2017, Republican control of both the federal executive and legislative branches enabled a major overhaul of the US federal income tax code. Boosting economic growth and increasing US international competitiveness were among the stated objectives of the Tax Cuts and Jobs Act of 2017 (TCJA). The result was large reductions in business and individual income tax rates, a base expansion including elimination of many deductions, and a shift to a more territorial international tax system.

• House Democrats, who will control the legislative agenda in the coming year, have said that they may try to reexamine parts of the TCJA to further lower taxes on middle-income taxpayers and possibly raise the corporate rate to offset the cost. President Trump, a Republican, has indicated he might be willing to work with Democrats to again lower taxes on the middle class.

• Democrats have also suggested they do not want to increase the federal debt to pay for additional tax reductions, so deficits and debt are likely to be part of the tax policy conversation in 2019. During fiscal 2018, the federal deficit was $779 billion, up from $666 billion in the prior year.4 The US Treasury Department is expected to issue $1.34 trillion in debt in 2018, more than double what was issued in 2017.

• An uncertain global trade environment, shifting multilateral and bilateral trade agreements, tensions between the United States and China and new rounds of tariffs may also shape the legislative agenda this year. It is expected that in 2019 Congress will vote on the US-Mexico-Canada agreement, the successor to the North American Free Trade Agreement that leaders of the three countries signed 30 November 2018


United States/Continued




































































































































; N/A






Lower HigherMixed



• TCJA implementation will still be a focus in 2019, as the US Treasury Department and Internal Revenue Service (IRS) continue to issue administrative guidance on some areas of the tax law. The Treasury Department’s goal is to issue all final regulations by June 2019, which would allow them to be applied retroactively from 1 January 2018.

• Major federal legislation that would raise or lower corporate income tax rates is less likely in 2019 because of the divided Congress. While the Democrats controlling the House have said they would like to explore rolling back some of the TCJA’s business tax cuts, Republican control of the Senate and the White House suggest it would be an uphill battle.

• It is possible that Congress will take up so-called “technical corrections” legislation that would fix technical errors in the TCJA, as well as legislation to temporarily extend tax provisions that have expired. The fate of these potential measures will depend on the willingness of lawmakers to compromise, since bipartisan support will likely be needed for legislation to pass in the Senate.

• At the state and local level, activity is expected to vary depending on the party in control of the executive and legislative branches within the state or local taxing jurisdiction. Other factors affecting individual state action include the wide variations in imposition of corporate income taxes, tax rates and states’ conformity to various provisions of the TCJA. Issues that may drive state tax policy include continuing challenges from budget shortfalls, increasing public pension and retirement benefit demands, balanced budget requirements, and a desire to balance tax relief against the need to fund services and infrastructure.

Taxes on digital business activity• As taxation of the digital economy has become a prominent

policy issue globally, the United States has been actively involved with other G7 and G20 countries on developing a digital tax solution. The United States opposed the European Union’s interim Digital Services Tax proposal released in March 2018 and has reportedly supported an alternative model involving a minimum tax. The EU proposal would levy a 3% sales tax on revenues, to be collected where the users involved are located, for companies

with total annual worldwide revenue of at least €750 million and annual EU revenue of at least €50 million. US Treasury Secretary Steven Mnuchin has said the United States opposes singling out digital companies for different tax treatment. This issue is likely to remain a high policy priority as the Organisation for Economic Co-operation and Development (OECD) is aiming to reach a consensus agreement on a digital tax solution by 2020.

Taxes on wages and employment• The IRS has stated that moving expenses incurred through 31

December 2017, but paid or reimbursed in 2018, follow the employment tax rules that applied before the change under the TCJA.

• The changes under the TCJA affecting individual taxpayers require significant changes to the Form W-4, which the IRS is delaying until 2020..

VAT/GST/sales taxes• On 21 June 2018, the US Supreme Court, in its historic

decision in South Dakota v. Wayfair, overturned over 50 years of precedent and concluded that under the US Constitution, a physical presence in a state was not necessary to create taxable nexus for sales and use tax purposes. As a result of the Court’s decision, US states can require remote sellers to register, collect and remit taxes on transactions with in-state customers regardless of the seller’s physical presence within the state.

• During 2019, state and local taxing jurisdictions are expected to adapt and expand the application of their taxes to remote sellers. Non-US based businesses are reminded that the states believe the model US tax treaty with other countries does not apply to their state or local taxes, and consequently, the treaty “permanent establishment” benefits do not apply to such taxes.

• States have already begun to respond by clarifying, and in some cases revising, their sales and use tax rules, and they are likely to continue to do so in 2019.

• Even though the Supreme Court did not expressly approve of the South Dakota law, most states are viewing the parameters laid out by the Court in its opinion as a “safe harbor” for similar laws, and most states are expected to mirror the South Dakota provision considered by the Court in the Wayfair case


2.5 Political landscape• The results of the November 2018 midterm elections shifted the

tax policy environment considerably. With Democrats picking up a majority of seats in the House, and Republicans maintaining only a slim majority in the Senate, the era of divided government has returned. As a result, Congress is less likely to enact major tax changes in 2019.

• In the Senate, most legislation requires 60 votes to pass, and Republicans hold only 53 seats. That means any legislation will need some bipartisan support, and gridlock is a distinct possibility. The President and the Republican-controlled Senate will serve as a backstop on partisan proposals by House leaders; and House Democrats will likely block some proposals from advancing beyond the Senate.

• A potential area of bipartisan agreement is infrastructure legislation, which both US House Speaker Nancy Pelosi (D-CA) and President Trump see as a priority. However, obstacles to passage include disagreements over how to pay for the increased spending, the size of a package and the impact on the deficit.

• House Democrats have also suggested they plan to conduct extensive oversight of the Trump Administration, which could detract from consideration of more substantive policy issues


Tax policy leaders

• Donald Trump, President

• Steven Mnuchin, Treasury Secretary

• David Kautter, Treasury Assistant Secretary (Tax Policy)

• Rep. Richard Neal (D-MA), Chairman, House Ways and Means Committee

• Rep. Kevin Brady (R-TX), Ranking Member, House Ways and Means Committee

• Sen. Charles Grassley (R-IA), Chairman, Senate Finance Committee

• Sen. Ron Wyden (D-OR), Ranking Member, Senate Finance Committee

• Thomas Barthold, Chief of Staff, Congressional Joint Committee on Taxation


• Charles Rettig, Internal Revenue Service (IRS) Commissioner

• Douglas O’Donnell, IRS Large Business and International Commissioner


Following enactment of the TCJA in December 2017, much of the past year has been spent interpreting, administering and implementing the new tax law. The comprehensive tax reform legislation ushered in lower business and individual tax rates, a new 20% deduction for certain qualified pass-through business income, a new international tax regime and executive compensation changes, among other provisions.

Given the large scale and complexity of these tax changes, the rules have needed additional explanation and fine-tuning. The IRS and Treasury Department issued administrative guidance on various provisions during 2018 and are expected to release more in the coming year. The Joint Committee on Taxation’s (JCT) “Bluebook” was released 20 December 2018; it includes descriptions of prior law, an explanation of the new law and the effective date of the change

2.8 Pending tax proposalsNone at this time

2.9 Consultations opened/closedNot applicable










3.2 Current general approach to tax enforcement The IRS continues to solidify and broaden the issue-based examination approach that it began moving toward in 2017, in which selection of tax returns for audits is based on identified campaign issues. Throughout 2018, the IRS added a number of new Large Business and International (LB&I) compliance campaigns that focus primarily on international and withholding tax issues.

These campaigns are designed to select returns with identified potential compliance risks, and noncompliance is addressed through different “treatment streams” that include issue-based examinations, outreach, education and other approaches.

The campaigns have been identified through data analysis and suggestions from IRS compliance employees, with a goal of improving return selection, better identifying issues representing a risk of non-compliance, and making the greatest use of limited resources.

3.3 Key enforcement developments seen in 2018Congress adopted a new regime for the audit of partnerships as part of the Bipartisan Budget Act of 2015 (Budget Act), which replaced the existing partnership audit regimes. The Budget Act generally applies to partnership tax years beginning after 31 December 2017.

The Budget Act rules can change which partners bear the burden of paying tax, how much tax is paid and how the IRS will conduct partnership audits. Throughout 2018, the IRS and Treasury Department released a series of proposed Budget Act regulations explaining how the IRS would administer partnership audits for partnership returns for the 2018 tax year and beyond.

In early 2018, LB&I released five directives concerning how agents conduct transfer pricing audits. These adjustments to transfer pricing audits were a result of LB&I’s need to better manage transfer pricing examinations with shrinking resources.

Finally, the IRS has begun evaluating enforcement initiatives in conjunction with the implementation of the TCJA.

3.4 Likely enforcement developments in 2019With tax reform enacted and being implemented, compliance and enforcement activity is likely to shift to areas covered by the TCJA. International tax areas such as the new transition tax and the calculation of post-1986 earnings, which comprise the basis of that tax, are expected to be one area of focus





1 Section 965 transition tax The TCJA amended Section 965 to impose a one-time transition tax on a US shareholder on certain previously untaxed post-1986 accumulated earnings of its relevant foreign corporate subsidiaries. Section 965 generally requires a special inclusion of the post-1986 accumulated earnings of the foreign corporation in subpart F income of its US shareholder, but it also provides certain deductions depending on the nature of those earnings for the purpose of imposing the transition tax at lower effective tax rates than would otherwise apply. Because of the importance of historical earnings and profits in determining the transition tax, it is anticipated that the IRS will be paying close attention to this area of reporting. In addition, the Section 965 transition tax has a six-year statute of limitations, providing the IRS three additional years to audit.

2 Domestic Production Activity Deduction under Section 199

The IRS in September 2018 announced a new LB&I campaign focusing on business entities that file refund claims based on the Domestic Production Activity Deduction under Section 199. The TCJA repeal of this deduction beginning after 31 December 2017, along with the corporate income tax rate decrease in 2018, has made it advantageous for many taxpayers to increase their formally claimed Section 199 deduction or claim it for the first time. With the Section 199 campaign, the IRS aims to ensure taxpayer compliance through a claim risk review assessment and issue-based examination of claims with the greatest compliance risk.

3 Tax rate strategies Because of the decrease in the corporate tax rate starting in 2018, it is anticipated that the IRS will focus a portion of its compliance resources on tax strategies designed to take advantage of the higher rate in 2017, the last year before the rate change. This focus will likely include accounting method changes and other strategies that are designed to include tax items in the 2017 tax year.

4 Foreign Account Tax Compliance Act (FATCA)

The IRS in October 2018 announced that it would increase its focus on compliance with the Foreign Account Tax Compliance Act (FATCA). Foreign financial institutions, in particular, can expect more questions about data collection. The IRS is also interested in learning what kinds of systems the withholding industry is using to check for data accuracy and reporting of errors, and users of reliable systems could eventually receive preferential treatment by the government.

5 Withholding and international individual compliance

The IRS in spring 2018 announced a number of LB&I campaigns focused on the withholding and reporting of tax on cross-border payments, focusing on payors that are withholding agents with withholding and reporting obligations, as well as on nonresident alien individuals who claim reduced rates of withholding tax under a tax treaty. The IRS will address noncompliance and errors by withholding agents and treaty claimants through a variety of means, including traditional examination.



Vietnam


Huong Vu [email protected] +84 24 3831 5100


1.1 Key tax rates

2018 2019 % Change



20% 26% —



Resident: 35%

Non-resident: 20%

Resident: 35%

Non-resident: 20%

—


10% 10% —

EY key contacts

Ho Chi Minh city, Vietnam




2.1 Key drivers of tax policy change• The submission of draft amended tax laws (amending VAT, CIT, PIT, SCT, tax administration, etc.) to the National

Assembly for approval is expected

• The adoption of digital tax administration techniques is becoming widespread, and electronic invoices are applied and used widely

• Tax audits on transfer pricing are becoming increasingly focused and robust







































































































Vietnam/Continued






























� N/A





Lower HigherNo

change

No change

No change



• The headline corporate tax rate remains unchanged at 20%, but is reduced to 15% for micro enterprises and 17% for SMEs.

Taxes on digital business activity• As taxation of the digital economy has become a prominent

policy issue globally, the United States has been actively involved with other G7 and G20 countries on developing a digital tax solution. The United States opposed the European Union’s interim Digital Services Tax proposal released in March 2018 and has reportedly supported an alternative model involving a minimum tax. The EU proposal would levy a 3% sales tax on revenues, to be collected where the users involved are located, for companies with total annual worldwide revenue of at least €750 million and annual EU revenue of at least €50 million. US Treasury Secretary Steven Mnuchin has said the United States opposes singling out digital companies for different tax treatment. This issue is likely to remain a high policy priority as the Organisation for Economic Co-operation and Development (OECD) is aiming to reach a consensus agreement on a digital tax solution by 2020.

Taxes on digital business activity• No change..

Taxes on wages and employment• The salary levels at which social insurance is charged will

increase, meaning that the tax base to calculate PIT will also change accordingly.

• The Ministry of Finance is proposing to amend PIT rates

VAT/GST/sales taxes• The Ministry of Finance is proposing to amend VAT rates: the 5%

rate will increase to 6%, and the 10% rate will increase to 12%.

2.5 Political landscape• No changes to the political landscape are expected in 2019


Tax policy leaders

• Nguyen Duc Hai, Head of Financial & Budget Committee of The National Assembly

• Vu Thi Mai, Deputy Minister of Ministry of Finance

• Cao Anh Tuan, Deputy Director of General Department of Taxation

• Dang Ngoc Minh, Deputy Director of General Department of Taxation

• Pham Dinh Thi, Director of Tax Policy of Ministry of Finance

• Ngo Huu Loi, Director of Legal Department of Ministry of Finance


• Tran Xuan Ha, Deputy Minister of Ministry of Finance

• Bui Van Nam, General Director of General Department of Taxation

• Nguyen Dai Tri, Deputy Director of General Department of Taxation

• Phi Van Tuan, Deputy Director of General Department of Taxation


• Decree 36/2018/ND-CP on guidelines for Law on support for small and medium sized enterprises

• Decree 119/2018/ND-CP on electronic invoices for sale of goods and provision of service

• Decree 143/2018/ND-CP on social insurance and occupational safety and hygiene regarding compulsory social insurance for employees who are foreign nationals working in Vietnam

• Circular 25/2018/TT-BTC on guidelines for the Government’s decree No.146/2017/ND-CP dated December 15, 2017 and amendments to some articles of the Circular 78/2014/TT-BTC dated 18 June 2004 of the Ministry of Finance and Circular 111/2013/TT-BTC dated 15 August 2013 of Ministry of Finance

• Circular 87/2018/TT-BTC on amending and supplementing a number of articles of the ministry of finance guiding the enforcement of tax administrative decisions

Vietnam/Continued


• Decree 82/2018 on management of industrial parks and economic zones

2.8 Pending tax proposalsThe Ministry of Finance has issued draft proposals to amend the law on Tax Administration and five tax laws (i.e., value-added tax, corporate income tax, special consumption tax, personal income tax, natural resource tax) to the Government


• ☐Draft Circular amending and supplementing a number of articles of Circular No. 110/2015/TT-BTC dated 28 July 2015 of the Ministry of Finance guiding electronic transactions in the field of tax

Close:

• Draft Decree regulating e-invoices for the sale of goods and services

• Draft Circular amending and supplementing a number of articles of Circular No. 215/2013/TT-BTC dated 31 December 2013 of the Ministry of Finance guiding the enforcement of tax administrative decisions









3.2 Current general approach to tax enforcement The Vietnamese tax authorities currently have a heavy focus on transfer pricing, tax incentives and capital gains tax audits, especially after indirect transfer and transfer pricing transactions have concluded. The VAT refund method continues to be inefficient, resulting in a long process for taxpayer and driving many tax disputes. The Ministry of Finance and the General Taxation Department have been reviewing several VAT refund dossiers that have been completed by local tax authorities. Customs authorities are doing more audits of post customs clearance, concentrating on the dutiable value of imported goods and HS code classification.

3.3 Key enforcement developments seen in 2018For a number of areas where regulations are ambiguous, tax authorities are becoming more aggressive and tend to present unfavorable interpretations of regulations in order to collect more tax.

3.4 Likely enforcement developments in 2019Historically, taxpayers have often tried to settle disputes (via explanation, arguments to convince authorities or trying to compromise on issues) rather than pursuing litigation. Recently there have been a greater number of tax appeals to higher level tax authorities and more tax court cases.

Vietnam/Continued



1 Capital gains tax: The tax authority pays much attention on indirect capital transfer transactions in order to impose capital gain tax.

2 Transfer pricing Under the new regulations, transfer pricing documentation requirements have become far stricter, demanding three tiers of documentation (global master file, local file and country-by country report). Moreover, the timeline to submit transfer pricing documentation is also specified. No APA application dossiers submitted to the tax authorities accepted. More focus is also on intra-group services and royalty payment to related parties.

3 Technology transfer: The tax authority is paying closer attention to technology transfer agreements, especially between related parties. Technology transfer contracts and some part of technology transfer in specific circumstances as specified by certain laws (e.g., investment project, capital contribution by technology, franchising) from overseas to Vietnam or from Vietnam to overseas must be registered with the competent authority. The price of technology transfer between related companies shall be audited.

4 VAT refund The tax authorities are paying more attention to the conditions for VAT refunds, not only in relation to the regulations of VAT, but also in relation to other relevant provisions.


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