Tax and Legal News - April 2017 | KPMG | QA

Tax and Legal News - April 2017

Tax and Legal News - April 2017

We bring you our regular overview of tax and legal news in the Slovak legislation.

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New double tax treaties

The list of countries with which Slovakia concluded the double tax treaty was extended by Malaysia, Armenia and United Arab Emirates.

The international double tax treaties are subject to approval (ratification) in accordance with the legal procedures of both contracting states and enter into force within the set deadline following the completion of the respective legal procedures.

The respective provisions of the international double tax treaties however, become effective in case of taxes withheld at source with respect to amounts of income derived on or after the first day of January in the calendar year following the year in which the treaty entered into force.

In respect of taxes levied for the tax period, the provisions of the double tax treaty apply to tax periods beginning on or after the first day of January in the calendar year following the year in which the treaty entered into force.

Given the above the provisions of the double tax treaty concluded between the Slovak Republic and Malaysia apply in case of withholding taxes to income derived by the taxpayer as of 1 January 2017 and in case of taxes levied for tax period the provisions of the treaty apply to periods beginning as of 1 January 2017.

As regards the double tax treaties concluded between Slovakia and Armenia or United Arab Emirates, which already entered into force, the respective provisions apply in case of withholding taxes to income derived by the taxpayer as of 1 January 2018. In case of taxes levied for tax periods the treaties’ provisions would apply to tax period beginning on or after 1 January 2018.

Please see below an overview of withholding tax rates for the respective income

Income / % withholding tax
Malaysia
Armenia
United Arab Emirates
Dividends
0 % / 5 % 5 % / 10 % 0 %
Interest
10 % 10 % 10 %
Royalties
10 % 5 % 10 %

OECD: Technology offers critical solutions to prevent, identify and tackle tax evasion and tax fraud

According to OECD, technological solutions offer a clear route for dramatically reducing tax evasion and tax fraud costing governments billions in lost revenue annually. OECD issued a report Technology Tools to Tackle Tax Evasion and Tax Fraud on 31 March 2017 (the “Report”).

The Report demonstrates how technology is currently being used by tax administrations in some countries to prevent, identify and tackle tax evasion and tax fraud.

According to OECD these solutions can offer a win-win situation:

  • better detection of crime, 
  • higher revenue recovery, and 
  • synergies that can make tax compliance easier for both - businesses and for tax administrations.

Drawing on the experience of 21 countries, the report provides examples of best practices in the effective use of technology in the fight against tax crimes:

  • In Rwanda, the introduction of point of sale technology to address electronic sales suppression resulted in a 20% increase in VAT collected on sales.
  • In the Canadian province of Quebec, similar technology was introduced in the restaurant sector, resulting in the recovery of approximately EUR 822 million in taxes, projections amount to EUR 1.44 billion by 2018 - 2019.
  • In Hungary, electronic cash registers increased VAT revenue by 15% in the concerned sectors.
  • In Sweden implementing cash registers connected to a fiscal control unit increased tax revenues by some EUR 300 million on an annual basis.

According to the Report, due to domestic invoicing fraud Slovakia lost in 2014 and 2015 the amount of some EUR 500 million in VAT. Mexico lost some EUR 3 billion on tax revenue due to forged invoices. Some countries implemented electronic invoicing to handle this issue. The impact in Mexico also was that mandatory electronic invoicing brought 4.2 million micro-businesses into the formal economy.

The report was launched during the 2017 OECD Global Anti-Corruption and Integrity Forum in Paris. The event brings together stakeholders from government, academia, business, trade and civil society to engage in dialogue on policy, best practices, and recent developments in the fields of integrity and anti-corruption.

The report was prepared by the OECD's Task Force on Tax Crimes and Other Crimes, which works to further the Oslo Dialogue. Launched by the OECD in 2011, the Oslo Dialogue promotes a whole-of-government approach to tackling financial crimes by fostering inter-agency and international co-operation.

Proposals to modernize VAT for e-commerce

In December 2016, the European Commission introduced its proposals to simplify and modernize VAT rules for e-commerce. The proposals are split into individual phases from now to 2021.

The proposals cover the following areas:

  • Extension of the existing Mini One Stop Shop (MOSS) system to distant sales of goods, to other than digital services to end consumers, as well as to distant sales from third countries. Removal of limits for distant sales within the EU.
  • Introduction of a new yearly threshold within the application of the Mini One Stop Shop (MOSS) scheme, under which businesses selling cross-border can continue to apply the VAT rules of their home country.
  • Removal of low value consignment relief for import of goods from third countries. Introduction of simplified rules for global reporting and settlement of VAT upon import of goods designated for final consumers. In order to qualify for the special scheme, consignments must have a value not exceeding EUR 150.
  • Simplified rules for customer identification.
  • Allowing EU suppliers to apply the invoicing and record keeping rules of their home country.
  • Improvement of coordination among EU member states when performing VAT audits on business entering into cross-border transactions. 
  • In addition to the above, the European Commission published a legislative proposal for introduction of reduced VAT rates for e-publications.

The proposals follow up on the commitments made by the European Commission in the VAT Action plan released on 7 April 2016 and are subject to further stages of the legislative process.

The legislative proposals can be viewed here.

In brief: OECD Guidance on country-by-country reporting

The Organisation for Economic Cooperation and Development (OECD) released on 6 April 2017 additional guidance for tax administrations and multinational enterprises to use in implementing country-by-country (CbC) reporting pursuant to the base erosion and profit shifting (BEPS) Action 13 recommendations.

The Guidance clarifies several interpretation issues related to the data that is to be included in the CbC report as well as applying the model legislation contained in the BEPS Action 13 report, to assist jurisdictions with introducing consistent domestic rules.

The guidance addresses five specific issues:

  • The definition of revenues
  • The accounting principles/standards for determining the existence of and membership in a group
  • The definition of total consolidated group revenue
  • The treatment of major shareholdings
  • The definition of related party

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