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Global Tax News -June 2019

Global Tax News : a monthly media round-up of news, views and comment pertaining to global taxation

RUSSELL BEDFORD NEWS

RBI appoints Shinsei International

Russell Bedford International has appointed Shinsei International Tax Co. as the global professional services network’s member in Tokyo, Japan. Shinsei, which was established in 2011, has a strong focus on tax and transfer pricing and supporting clients’ global activities in the areas of international tax, financial matters and accounting. The firm’s services  include tax filings for small businesses, start-ups, individuals and families, and support for clients facing tax inspections/audits. Shinsei also provides support for international corporate M&A and reorganisation, transfer pricing reviews and documentation, and cross-border asset reporting and inheritance tax planning.

Russell Bedford International

Record numbers attend Russell Bedford International Tax and EMEA Conference

Record numbers attended the Russell Bedford International Tax and EMEA Conference 2019 held between 17-18 May in Nice, France. The conference comprised topical sessions and workshops led by several professional industry speakers, and included networking and social activities for our member firms from around the world.

Russell Bedford International

NORTH AMERICA

Tax cuts did little to boost economy in 2018

New research from the nonpartisan Congressional Research Service, an arm of the Library of Congress, claims that the Tax Cuts and Jobs Act, signed into law by President Donald Trump at the end of 2017, had little impact on the U.S. economy’s strong performance in 2018. Economists Jane Gravelle and Donald Marples said that, while GDP rose 2.9% for the full calendar year, the economy was poised to perform well regardless. The study indicated that the tax changes contributed only marginally to the overall economic gains, at around 0.3% of a “feedback effect.” “The initial effect of a demand side is likely to be reflected in increased consumption and the data indicate little growth in consumption in 2018,” the report said, adding “Much of the tax cut was directed at businesses and higher-income individuals who are less likely to spend. Fiscal stimulus is limited in an economy that is at or near full employment.”

Los Angeles Times   CNBC

Tax breaks are popular – even when wealthiest benefit the most

New research published in the journal Political Behavior says that U.S. taxpayers are generally in favour of expanding benefits via the tax code, even when it is apparent that higher-income households will get the majority of the benefits. The study found that Republicans have a much stronger preference for delivering nutrition and workplace training aid through the tax code, when compared to Democrats. Democrats were actually indifferent, on average, between the direct deposit and tax credit versions of the job training policy. Additionally, Republicans express a strong preference for the job training tax credit, believing that citizens are less likely to misuse it and less likely to grow dependent on government assistance than they would with the direct deposit.

Washington Post

U.S. business contributes smallest share of taxes in generation

U.S. corporations are contributing the smallest share of federal tax revenue in a generation, according to the Data Book for 2018 published by the IRS. In the fiscal year covered, the IRS processed more than 250m tax returns and collected nearly $3.5tn in federal taxes paid by households and businesses – 57% of which was paid by individuals. Thirty-three per cent came from employment taxes, with corporations contributing only 7.6% of the overall take, the lowest share since at least 1960. The Data Book also revealed that around two-thirds of respondents agreed it’s their civic duty to pay their fair share of taxes, although around three in 100 said it’s acceptable to cheat “as much as possible.”

Bloomberg

IRS is auditing Uber’s tax bills

Uber has revealed that the IRS is auditing its 2013-14 tax bills. The ride-hailing firm also said a decade’s worth of its taxes remain open across multiple jurisdictions, including the United States, United Kingdom, Brazil, Mexico, Australia, Singapore, Australia, India, and the Netherlands. Those countries have not yet signed off on their tax bills from 2010, when Uber offered its first ride, through 2019. Although Uber says it believes it has sufficient money set aside for any additional tax liability it could face, it acknowledged the timing of the resolution « is highly uncertain. » Uber says it can apply about $5.1bn in losses to offset U.S. federal taxes and $4.4bn for state taxes – but conceded that the investigation may reduce that tax benefit.

Financial Times   Voice of America   Bloomberg

U.S. Senate urged to approve international tax treaties

Over 70 companies in the U.S. have signed a letter to Senate Majority Leader Mitch McConnell (R-KY) and Sen. James Risch, Senate foreign relations committee chairman (R-ID), urging that a myriad of international tax treaties be approved. The Senate is currently considering tax conventions with Chile, Hungary and Poland and four amended tax treaties with Luxembourg, Spain, Switzerland and Japan. The letter, published on behalf of the companies by the U.S. National Foreign Trade Council, emphasizes the role of the treaties in supporting investment in U.S. business through « fostering bilateral trade » and protecting U.S. businesses from double taxation of income earned from business in foreign markets.

International Investment

Mnuchin says no plan to change carried interest tax treatment

There are no plans to eliminate the preferential tax treatment of carried interest profits, Treasury Secretary Steven Mnuchin has said. Carried interest is an investment manager’s share of profits – typically 20% – from a fund, and is taxed at the long-term capital gains rate of 20%, instead of the top ordinary income rate of 37%. Acknowledging it is something President Donald Trump has expressed an interest in doing, Mr Mnuchin told reporters that making the change would require new legislation. « We’ll see, » he said, adding “Maybe during a technical corrections bill, if we ever get something from Congress, we can contemplate it. »

Bloomberg

Canada settles with KPMG clients involved in offshore tax scheme

The Canada Revenue Agency has reached an out-of-court settlement with wealthy KPMG clients who were found to have used what it described as a “grossly negligent” offshore “sham” set up to avoid detection by tax authorities. The scheme enabled clients to dodge tens of millions of dollars in taxes in Canada by making it look as if multimillionaires had given away their fortunes to anonymous overseas shell companies and get their investment income back as tax-free gifts.

CBC News

Sony settles ‘Netflix tax’ tab with Chicago

Sony ’s gaming division has paid $1.2m to Chicago’s Department of Finance to settle unpaid liabilities under the city’s first-in-the-nation “Netflix tax.” In 2015, Chicago extended the city’s 9% amusement tax to online entertainment providers such as Apple and Spotify in the music-streaming sphere, Netflix and Hulu for television and movies, and Sony, Microsoft and Nintendo for gaming.

Bloomberg Tax

EUROPE

EU countries get tough on state aid

The number of notifications to the EU Commission about potentially unlawful tax breaks has leapt over the last five years as countries take a tougher stance on state aid. Figures compiled by law firm Pinsent Masons show the commission was notified about 385 potentially unlawful tax breaks, up from 80 between 2007 and 2013. Jason Collins, head of tax at the firm, said: « Offering favourable tax treatment on a selective basis to multinational businesses has become an important method by which many countries attract inward investment. However, in this era of the war on tax avoidance this has become more controversial. »

City AM

U.K. is the biggest enabler of corporate tax dodging

An index published by the Tax Justice Network shows that the U.K. is the world’s biggest enabler of corporate tax dodging, with four of the top 10 countries allowing multinationals to avoid paying billions in tax on their profits shown to be British overseas territories. Topping the list was the British Virgin Islands, while the U.K. itself comes in thirteenth. Tax haven territories linked to Britain are responsible for around a third of the world’s corporate tax avoidance risk. Alex Cobham, chief executive at the Tax Justice Network, described the U.K., Netherlands, Switzerland and Luxembourg as “the Axis of Avoidance” and warned that “a handful of the richest countries have waged a world tax war so corrosive, they’ve broken down the global corporate tax system beyond repair.”

Daily Mail   Daily Mirror

Swiss voters back controversial overhaul of corporate taxes

Swiss voters have approved a government plan to eliminate certain tax breaks for multinational companies, a measure aimed at bringing the country in line with international norms while maintaining its status as a low-tax centre. The measure passed by a margin of 66% to 34%. Switzerland had come under pressure from the European Union and other international institutions to reform its system and eliminate the special deals that individual Swiss states, known as Cantons, have been able to strike with multinational corporations.

Wall Street Journal   The Local Switzerland

German authorities raid banks in offshore tax fraud probe

Eleven banks and eight private homes and offices across Germany have been raided by police and tax investigators as part of a wide-ranging investigation into tax evasion. The eight individuals under investigation are alleged to have founded companies in offshore tax havens aided by a former British Virgin Islands branch of Deutsche Bank.

Financial Times   Deutsche Welle  The Guardian

IFS: Tax system helps reduce wealth inequality

The Institute for Fiscal Studies (IFS) says the U.K. tax system helps reduce wealth inequality in the country. Their report shows that the top 20% of earners had an income 12 times that of the bottom 20% before taxes and benefits took effect, with this dipping to five times afterwards. While benefits account for the majority of that narrowing of the inequality gap, the role of taxation was noted. Shadow Chancellor John McDonnell said the study shows the Government is wrong to plan tax cuts, commenting: “The IFS has confirmed the importance of taxation and social security in creating a fairer society.”

The Times   Financial Times   The Times   The Guardian

Wealthy families dominate use of U.K. inheritance tax breaks

Tax Justice has called for a review of inheritance tax after finding the U.K.’s wealthiest families were taking the lion’s share of business and agricultural reliefs designed to help small businesses and landowners. In 2015-16, 234 families with more than £1m in business assets shared £458m in relief, representing almost 80% of the total given in the financial year. The study also found that 261 families owning more than £1m in agricultural property shared £208m in tax relief in 2015-16 – 62% of the year’s total. Tax Justice claims the situation is fuelling property inflation, with investors increasingly seeing opportunities such as agricultural property as a tax-efficient target.

Financial Times   The Guardian

France claims jurisdiction in Hallyday inheritance dispute

The late French singer and actor Johnny Hallyday spent much of his time in Los Angeles and frequently argued with French authorities over his claims to be exempt from French taxes as an expatriate, The Telegraph reports. Hallyday’s will, drafted in English in California, cut out his son and daughter, leaving everything to his wife. However, in France it is illegal for parents to disinherit their children and a court has now agreed with Hallyday’s children that Instagram posts provide enough evidence that the singer’s true home was France. His widow will appeal. The ruling means the French state also gets a slice of the estate. The star told French reporters in 2014, the year when he obtained his green card and made his will, “I’ll come back to live in France if the tax laws are changed.” France had a 75% supertax on annual earnings above €1m at the time.

The Daily Telegraph

Italy may cite Gucci tax deal to avoid EU penalty

Italy’s government may cite a €1.25bn payment by Kering  to end a dispute over Italian subsidiary Gucci’s back taxes as evidence to the EU that it can get its house in order over its debt load. The European Commission is weighing whether to propose a disciplinary procedure that could lead to a multi-billion-euro penalty, but the Kering deal could allow ministers to claim progress in solving its debt problems.

Bloomberg

Hungary to cut payroll tax to boost economy

Hungarian Finance Minister Mihaly Varga has said payroll tax will be reduced by another 2 percentage points to 17.5% as Budapest seeks to boost job creation and help government efforts to keep economic growth 2 percentage points above the European Union average. “If we expect that economic growth will be sustained, then it could also lead to more tax revenue,” added Mr Varga.

Reuters

U.S. funds settle Denmark tax fraud case

Danish Tax Minister Karsten Lauritzen says that 61 pension funds based in the U.S. have agreed to pay a total of DKr1.6bn ($238m) in connection with the Nordic country’s efforts to settle a dividend tax fraud case.

Bloomberg Tax

AFRICA

Ghana overhauls tax agency

Ghana is revamping its tax agency after missing its collection forecast by 9.7% in the first quarter, according to finance ministry data. Senior executives are to be replaced and more than one thousand staff rotated in an attempt to improve collections. The ministry said in a statement that the changes are necessary to make the agency “a much better performing institution.”

Bloomberg

South African carbon tax becomes law

South Africa’s President Cyril Ramaphosa has signed into law a long delayed carbon tax which aims to lower emissions in an effort to meet agreements on global climate change. A tax of around $8 per tonne of carbon dioxide is to be levied, although due to tax breaks the amount of money paid will often be far less.

BBC Africa   Reuters Africa

MIDDLE EAST

VAT collections in UAE exceed expectations

UAE residents paid Dh27bn in value added tax (VAT) last year, or 1.7% of 2018 nominal GDP, beating the government’s target of Dh12bn. Analysts expect revenues to increase further in a boost to government spending plans for infrastructure and public welfare programmes. Surandar Jesrani, managing partner and chief executive of MMJS Consulting, said the robust revenues in the levy’s first year can be seen as a consequence of the Federal Tax Authority’s promotion of the importance of compliance.

Khaleej Times

Supermodel ordered to pay back £1.7m in tax

Supermodel Bar Refaeli has been ordered to pay £1.7m to the Israeli tax authorities after medical receipts showed that she spent months in Israel while claiming to live abroad. Key to the case was whether Israel had been one of Ms Refaeli’s main residences during a period in which she was earning millions from working in fashion campaigns around the world.

The Times   Jerusalem Post

Saudi tax on e-cigarettes and sugary drinks

Saudi authorities have imposed a 50% selective tax on sugary drinks and a 100% « sin tax » is to be levied on electronic smoking devices and tools. There is already a tax on three commodities – 100% for tobacco and its derivatives, 100% for energy drinks, and 50% for soft drinks.

Gulf Daily News

LATIN AMERICA

Mexico aims for $7.3bn tax relief for troubled state oil firm

Mexico’s government aims to give tax relief for heavily-indebted state oil firm Pemex of 138.7bn pesos ($7.28bn) in 2020-2021, according to a document seen by Reuters. The reductions would be achieved by lowering a profit sharing tax to 54% by 2021 from a current 65%. Meanwhile, Mexican President Andres Manuel Lopez Obrador has announced he is to issue a decree to eliminate tax forgiveness for large companies. « This mechanism has been abused and it will be eliminated. During the last two governments large tax contributors had taxes of some 400bn pesos ($20.9bn) forgiven, » he said.

Reuters

Argentina waives import tax on machinery and soy

Argentina’s Treasury Minister Nicolas Dujovne has said an import tax on goods that are used in the production of exports, such as soybeans and machinery to develop unconventional hydrocarbons in the Vaca Muerta shale play, is to be waived. “So as not to hinder this process (of exporting) and not to damage the competitiveness of companies, we are exempting those products,” the minister said in an interview with Argentina’s Radio Mitre. Argentina is the world’s top soymeal exporter.

Reuters

ASIA-PACIFIC

China’s five-year tax breaks for chip makers and software developers

China’s semiconductor makers and software developers are to get a five-year tax break as Beijing seeks to boost its homegrown industries as the trade war with the U.S. shifts to the tech sector. Manufacturers of integrated circuit makers and software companies will be exempt from paying corporate taxes for two years, starting in 2019, and their tax payments will be halved from the 25% universal rate levied on Chinese companies in the following three years, the finance ministry said. “The government is acting very quickly this time to support the domestic high-technology industry after Huawei was targeted in the rising trade tension,” said Wu Kan, an investment manager at Soochow Securities in Shanghai.

South China Morning Post

Indian industry wants tax rate cut

The Indian government is being urged by the Confederation of Indian Industry (CII) to cut the corporate tax rate to 25% from the current range above 30% when its budget for the financial year 2019/20 is presented next month. Uday Kotak, president-designate of the CII and head of Kotak Mahidra Bank, said substantive tax rates were one of the challenges facing local industry. Industrialists have noted that India’s corporate tax rates, which range from 32%-35% depending on the size of a company’s sales, compare unfavourably with those of other major economies, including the United States and several other Asian countries.

Reuters India

Indonesia seeks foreign companies with tax breaks

New tax incentives are on offer from the Indonesian government to attract more foreign manufacturers as Southeast Asia’s largest economy seeks to profit amid the nascent U.S.-China trade war. From this month, Indonesia will offer a deductible tax of up to 200% to both domestic and foreign companies for research and development, said Industry Minister Airlangga Hartarto, noting that for every $100m a company invests in R&D, it will receive a tax allowance of $200m.

Nikkei Asian Review

Japan could be derailed by sales tax hike, says policymaker

A member of the board of Japan’s central bank says a sales tax hike scheduled for later this year could derail Japan’s economic recovery. Newly-appointed Bank of Japan (BoJ) board member Yutaka Harada said more monetary stimulus would be needed if a slowdown hindered attempts to boost prices. “By raising the sales tax when the economy is at such a critical juncture, Japan risks sliding into recession,” he said.

Reuters

GLOBAL

AICPA sets out principles for global digital taxes

Following a request from the Organization for Economic Co-operation and Development for ideas on how to tax a global digital economy, AICPA has put forward a number of suggestions that could lead to “a consensus-based, equitable, and successfully durable rebalancing of multi-jurisdictional taxing rights.” Ideas include: nexus rules for businesses that don’t have a physical presence in a jurisdiction should be “clear, measurable, predictable and applied consistently and neutrally across all industries, business models and jurisdictions”; and having all jurisdictions introduce meaningful mechanisms for resolving controversies over taxing rights.

Accounting Today

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