Asia Tax Bulletin - Mayer Brown...Indonesia’s parliament has approved the long-awaited tax amnesty programme. India and Mauritius have signed a protocol to their tax treaty which

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Asia Tax BulletinSummer 2016

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Pieter de RidderPartner, Mayer Brown LLP+65 6327 0250 | [email protected]

This EditionThere has been a lot happening in Asian taxation. Hong Kong is launching its treasury centre tax incentive, while in China, some of the major developments include abolishing business tax, services now being subject to VAT, and the issuing of various clarifications on how to apply the VAT. Indonesia’s parliament has approved the long-awaited tax amnesty programme. India and Mauritius have signed a protocol to their tax treaty which abolishes the Indian capital gains tax protection for investments in India – this amendment has an immediate effect on the Indian capital gains tax protection under India’s tax treaty with Singapore, which will have a major impact on investment structures into India.

The Asian countries are in the process of revising their information exchange laws to embrace the country-by-country report exchanges proposed by the OECD in the context of combating international tax avoidance. These and other tax developments are highlighted in this edition of the Asia Tax Bulletin. Our aim is to make this publication as interesting and beneficial as possible, so, if you have any questions or feedback, we’d like to hear from you.

With kind regards,

Pieter


ContentsPHILIPPINES

31 Treaty benefits for dividends, interest and royalty income

31 Paying taxes via credit, debit and prepaid cards

SINGAPORE

32 Employment

32 Transfer pricing

33 Singapore joins inclusive framework for implementing measures against BEPS

34 Panama Papers

34 Convention on Mutual Administrative Assistance in Tax Matters

34 International tax developments

TAIWAN

35 Rules on exchange of information published

36 New VAT rule on foreign online sale services expected

THAILAND

37 Personal income tax amendments

VIETNAM

38 FATCA agreement between United States and Vietnam

38 Penalty increase for tax fraud and evasion

INDONESIA

23 Tax amnesty

23 Foreign investment restrictions

24 Banks to disclose customers’ credit card transactions to DGT

25 Higher income base for healthcare insurance contribution

JAPAN

26 Tokyo tax rates for 2016 published

27 Consumption tax increase may be postponed again


KOREA


MALAYSIA

29 Companies Bill 2015 passed

29 Revised GST guides

30 Venture capital tax incentives

30 Public Ruling No.3/2016 published

30 Income tax exemption for individuals investing in SMEs

30 Income tax for online businesses

CHINA

6 VAT on disposals of real property

7 VAT rules on cross-region construction services

7 VAT rules on reinsurance, rental, educational and security services

8 VAT on financial services

8 Rules on tax inspection and administration of information on tax risks

9 Guideline on qualification of High-New Technology Enterprises

9 Rates of social security contributions reduced

9 New VAT regime for services and property transactions

9 VAT exemption guidelines for cross-border transactions

10 Tax incentives for software and integrated circuits enterprises

10 Filing period extended for tax exemptions/refunds on exports

10 VAT and deed tax, property tax, land appreciation tax

11 Announcement on resident certificates issued by Hong Kong

11 Resource tax


HONG KONG

12 Two major concessionary revenue measures of 2016-17 Budget passed

13 Revised forms for certificate of residence status

13 Implementation of new international standard for automatic exchange of financial account information in tax matters

13 Hong Kong commits to challenge base erosion and profit shifting

14 Tax exemption for offshore funds revised and released

15 Tax exemption for offshore private equity funds released

16 Interest deduction rules and profits tax incentives


INDIA

17 GAAR

17 Finance Bill 2016 passed

17 How can offshore funds avoid having taxable presence in India?

18 Guidelines for rewarding tax evasion informers

18 Foreign tax credit

19 Equalisation levy

19 Valuation rules in case of indirect transfer of assets


Key: Jurisdiction (Click to navigate)


China (PRC)VAT on disposals of real property

On 31 March 2016, the State Administration of Taxation (SAT) issued provisional measures (Public Notice [2016] No.14, released on 8 April 2016) concerning VAT on the disposal of real property. The tax treatment differs depending on the type of taxpayer (general taxpayers or small-scale taxpayers), the VAT calculation method selected by the taxpayer, the timing of the acquisition of real property and whether the real property is constructed by the taxpayer itself. The notice applies from 1 May 2016, and the main content is summarised below.

The notice applies to taxpayers who dispose of (i.e. supply) acquired real property. Developers supplying real property that they have themselves developed are not subject to this notice. An “acquisition” may refer to a direct purchase, gift, capital contribution, self-constructed property or redemption of a debt, etc. A general taxpayer may opt to apply the simplified calculation method if the real property is acquired before 30 April 2016. The tax amount is calculated as follows:

• The taxable amount = the total proceeds including the charged expenses associated with the transaction – the original purchase price or the value determined by a competent authority, such as a tax authority, or according to a court order

• The tax amount = the taxable amount × 5%

The tax return is to be submitted to the competent national tax office; however, the advance tax payment has to be made to the competent local tax office. If a general taxpayer opts to apply the general calculation method, the same calculation formula described above applies. The same formula also applies to taxpayers that acquire real property after 1 May 2016 and apply the general calculation method.

If the real property is constructed by the taxpayer itself before 30 April 2016, and the taxpayer applies the general calculation method, the tax amount is the total proceeds including the charged expenses associated with the transaction multiplied by 5%. The same applies to general taxpayers that construct real property after

1 May 2016. In the latter case, however, the general taxpayer is obliged to apply the general calculation method.

For small-scale individual taxpayers, the following formula applies:

• The taxable amount = the total proceeds including the charged expenses associated with the transaction – the original purchase price or the value determined by a competent authority, such as a tax authority, or according to a court order

• The tax amount = the taxable amount × 5%

In the case of real property constructed by the taxpayer itself, the tax amount is the total proceeds including the charged expenses multiplied by 5%.

In cases where a residential property is disposed of by an individual, some are taxed on the total proceeds and others are taxed on the basis of the balance between the total proceeds and the purchase price, depending on the regulations. The tax rate for both is 5%.

VAT rules on cross-region construction services

On 31 March 2016, the State Administration of Taxation (SAT) issued an announcement (SAT Gong Gao [2016] No. 17) concerning provisional measures of VAT on cross-region construction services. The notice applies from 1 May 2016.

The notice applies to taxpayers (including entities and individual entrepreneurs) providing cross-region (including counties, cities and districts) construction services outside the place of incorporation. Other individuals providing cross-region construction services are not subject to this notice.

Taxpayers providing cross-region construction services are required to make an advance tax payment to the competent national tax authority in the place where the services are rendered, and then file a tax return to the competent national tax authority in the place of incorporation. A general taxpayer may opt to apply

either the general calculation method or the simplified calculation method to make the advance tax payment to the competent national tax authority. However, a small-sized taxpayer is not given the option to use another calculation method other than the simplified method. For taxpayers subject to the general calculation method, the following formula applies:

• Advance tax payable = (the price paid for services including any additional fees received – payments made to subcontractors) ÷ (1 + 11%) × 2%

For taxpayers subject to the simplified method, the following formula applies:

• Advance tax payable = (the price paid for services including any additional fees received – payments made to subcontractors) ÷ (1 + 3%) × 3%

The advance tax payment may be deducted from the VAT payable for the current tax period. The amount of excess advance tax payment may be carried forward to the following tax period.

When making the advance tax payment on the cross-region construction services, taxpayers are required to submit the following documents to the competent national tax authority:

• VAT advance payment form;• original and copy of the construction contract

concluded with the contractee;• original and copy of the subcontract agreement

concluded with the subcontractor; and• original and copy of invoices obtained from the subcontractor.

VAT rules on reinsurance, rental, educational and security services

The Ministry of Finance (MoF) and the State Administration of Taxation jointly issued a notice clarifying VAT issues in respect of reinsurance, real estate rental services, educational services and security services on 18 June 2016 (Cai Shui [2016] No. 68). The notice retroactively applies from 1 May 2016.

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Taxpayers providing cross-region construction services are required to make an advance tax payment.

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Further, a system of feedback and statistics of the inspected and handled cases will be established for the evaluation and improvement of tax administration. The tax bureaus at the local level are authorised to issue detailed rules for implementation. The rules are subject to the Law of Data Protection and other regulations on privacy and confidentiality.

Guideline on qualification of High-New Technology Enterprises The Ministry of Science and Technology, the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) jointly issued the Guideline on qualification of “High-New Technology Enterprises” on 22 June 2016 (Guo Ke Fa Huo [2016] No. 195). The Guideline supersedes the Guideline of 2008 (Guo Ke Fa Huo [2008] No. 362) and retroactively applies from 1 January 2016, i.e. the date on which the old Guideline is abolished.

The new Guideline provides for the authorities that are involved in the qualification, procedures, conditions and administrative aspects of tax incentives. Moreover, the Guideline states that the qualification under the Guideline of 2008 remains valid within the period of the qualification.

Rates of social security contributions reduced

On 14 April 2016, the Ministry of Human Resources and Social Security and the Ministry of Finance jointly issued a notice (Ren She Bu Fa [2016] No. 36) regulating the rates of social security contributions. The reductions will be effective from 1 May 2016 and apply for the next two years.

An enterprise is required to contribute approximately 20% of its total wages to an old-age pension fund for employees; however, the actual percentage is left to the discretion of the municipal or provincial government. The notice provides that the rate of the employer’s contribution will be reduced to 20% in cases where the actual percentage exceeds 20%. For employers whose contribution rate is 20%, the rate will be reduced to 19%,

Reinsurance services provided by insurance companies in China to insurance companies outside China are exempt from VAT if these services are consumed entirely outside China. For VAT purposes, reinsurance services have to be treated in the same way as reinsured original insurances.

Real estate developers letting real properties that they had previously developed may elect to apply the simplified calculation method at a rate of 5% if they are general taxpayers. If the real properties that are let were developed after 1 May 2016, the simplified calculation method applies at a rate of 3%. Small-sized taxpayers that let real properties that they had previously developed are only subject to 5% VAT based on the simplified calculation method.

General taxpayers engaged in educational services that do not award a degree may elect to apply the simplified calculation method at a rate of 3%.

Taxpayers engaged in security services have to be treated in the same way as taxpayers engaged in labour secondment services (general taxpayers may be taxed at a rate of 5% and small-sized taxpayers may be taxed at a rate of 3% on the gross amount received or 5% on the difference between the gross amount received and the amounts paid on salaries and social security contributions).

VAT on financial services The Ministry of Finance (MoF) and the State Administration of Taxation (SAT) issued a notice on 29 April 2016 (Cai Shui [2016] No. 46), which applies from 1 May 2016. The notice provides clarifications with regard to which financials fall within the scope of financial services as referred to in Cai Shui [2016] No. 36, which subjects financial services to VAT at a rate of 6%.

According to Cai Shui [2016] No. 46, intra-bank interest as referred to in Cai Shui [2016] No. 36 includes interest derived from collateral purchase-and-buy-back financial products and bonds issued by development and policy-controlled institutions. VAT-exempted life insurance with a duration of more than 1 year and a guarantee

for refund of the original contributions includes other annuities, i.e. annuities other than old-age pension insurance. Rural credit institutions, banks in townships and villages, agricultural fund corporations and other agricultural financial co-ops and banks at the town and county level may elect to apply the simplified calculation method (i.e. low rate without input tax credit) at a rate of 3% to the income from loans or other financial products for VAT purposes. The same method can be applied to the income on loans provided to farmers and enterprises/organisations of farmers by the China Agriculture Bank through a special department called “Financial Affairs of Three Categories of Farmers”.

Rules on tax inspection and administration of information on tax risks The State Administration of Taxation (SAT) issued a notice on 19 May 2016 (Shui Zong Fa [2016] No.71) concerning rules on the tax inspection of high-risk taxpayers and the administration of cases subject to tax inspection including collecting, storage of the information, processing the information on tax fraud and tax evasion, and initiating the tax inspection.

The notice applies from 1 July 2016 and addresses issues such as collecting data on high-risk taxpayers (from tax returns and other information provided by taxpayers, click boxes, exchange of information with other countries, juridical institutions and public information resources), coordination between the state and local tax bureaus, information sharing and the process of effective use of the collected data.

The data will be divided into nine categories depending on the origin and source of the information. The relevant tax authority is required to analyse the data and identify tax risks to determine whether a case is eligible for suspension, verification or immediate tax investigation. The findings of the tax authority will be submitted to the head of the tax inspection unit of the relevant tax authority through a form specially designed for this purpose.

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provided that by the end of 2015 the fund balance of the enterprise can cover more than nine months of the old-age pension insurance payment. Local governments at provincial and municipal levels must issue detailed rules for implementation.

The total contribution rate of the unemployment insurance shared by an employer and employee was reduced by 1% in 2015. According to the notice, the total contribution rate may be reduced to 1%-1.5%, and the employee’s contribution must not exceed 0.5%.

Further, local governments are urged to implement the decision of the State Council of 2015, which has reduced the average contribution rates for occupational injury insurance and maternity insurance by 0.25% and 0.5%, respectively. Relevant regulations on the combined collection of both maternity insurance and basic medical insurance will be issued by the State Council.

New VAT regime for services and property transactions

On 1 May, China began to implement a new value added tax regime for services and intangible and immovable property transactions under Caishui [2016] 36, issued by the Ministry of Finance and State Administration of Taxation on 23 March. As a result, China’s business tax regime is entirely abolished and replaced by the new VAT regime.

The new regime covers all sectors of the economy that were under the regulation of business tax. It will have a profound impact, particularly on the construction, real estate, financial and living service sectors.

VAT exemption guidelines for cross-border transactions

On 6 May the State Administration of Taxation issued a public notice that provides guidelines for a VAT exemption for cross-border services and intangible property transactions carried out by entities and individuals in China.


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The notice clarifies more details on which transactions qualify for the VAT exemption and which do not. The notice also stresses the requirements taxpayers must meet to sign contracts with foreign parties regarding qualifying cross-border VAT exemption transactions, unless otherwise provided. Under the new guidelines, taxpayers must file designated documents and retain them for examination, or they will not receive the VAT exemption.

Tax incentives for software and integrated circuits enterprises The Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission and the Ministry of Industry and Information Technology jointly issued a notice on 4 May 2016 (Cai Shui [2016] No. 49) clarifying the tax incentives for enterprises engaged in software and integrated circuits (IC). In addition, on 16 May 2016, the same four government departments jointly issued another notice (Fa Gai Gao Ji [2016] No. 1056) clarifying the requirements in respect of key software and IC design for enterprises to be eligible for the incentives specified by Cai Shui [2016] No. 49. Both notices apply from 1 January 2015, and their main content is summarised below.

Prior approval is no longer required for software and IC enterprises eligible for the tax incentives stipulated by Cai Shui [2012] No. 27. However, qualifying enterprises are required to submit relevant documents to the tax authorities as part of their final annual tax settlements. Based on Notice Cai Shui [2012] No. 27, Notice Cai Shui [2016] No. 49 clarifies the requirements for the following enterprises to be eligible for the tax incentives:

• Enterprises engaged in manufacturing IC;• Enterprises engaged in designing IC; • Software enterprises; and• Key software enterprises designated by the state.

Based on Notice Cai Shui [2016] No. 49, Notice Fa Gai Gao Ji [2016] No. 1056 defines which businesses are regarded as key software and key IC design enterprises, thus being eligible for tax incentives.

Filing period extended for tax exemptions/refunds on exports

On 7 April 2016, the State Administration of Taxation (SAT) issued an announcement (SAT Gong Gao [2016] No. 22) extending the filing period for tax exemptions/refunds on exports. The filing deadline for goods and services eligible for VAT exemptions/refunds and exported by export enterprises after 1 January 2015 is extended to the final date of VAT filing in June 2016. An export enterprise entitled to VAT exemption may file an exemption application to the competent tax authority before 31 July 2016.

An export enterprise engaged in an import processing business may file an application for the import processing verification with the competent tax authority. The filing deadline for the application for 2015 is extended from 20 April 2016 to 20 June 2016. An export enterprise engaged in a contract or toll processing business may file an application with the competent tax authority for VAT exemption verification on the goods to be processed and exported. The filing deadline for the application for 2015 is extended from 15 May 2016 to 15 July 2016.

A commissioned party may file an application with the competent tax authority for the issuance of an export certificate. The filing deadline for the application is extended from 15 April 2016 to 15 June 2016. A commissioning party may file an application with the competent tax authority for the issuance of an export certificate. The filing deadline for the application with the competent tax authority is extended from 15 March 2016 to 15 May 2016.

VAT and deed tax, property tax, land appreciation tax

The Ministry of Finance (MoF) and the State Administration of Taxation (SAT) issued a notice on 25 April 2016 (Cai Shui [2016] No. 43) concerning the calculation of the tax bases for deed tax, house property tax, land appreciation tax and individual income tax. The changes are due to the transformation from business tax to value added tax (VAT).

Business tax is deductible in computing the tax base of the taxes mentioned above, and from 1 May 2016 business tax ceases to apply. According to the notice, from 1 May 2016 the VAT charged will generally not be included in the tax bases for deed tax, house property tax and land appreciation tax. In the case of land appreciation tax, the VAT that cannot be deducted as input tax of the preceding transactions is deductible in computing the tax base (the proceeds) of land appreciation tax. Further, the notice clarifies that the taxable income from the disposal of residential property by an individual does not include VAT. The same applies to the taxable rental income derived by an individual. Finally, the notice provides that the VAT will be included in the tax base (therefore it does not reduce the proceeds or income of the transaction) if the entire transaction for the tax is VAT exempted.

Announcement on resident certificates issued by Hong Kong On 6 June 2016, the State Administration of Taxation (SAT) issued an announcement (SAT Gong Gao [2016] No. 35) concerning the use of certificates of residence issued by Hong Kong. The rules contained in the announcement apply from 15 April 2016 based on the exchange note issued between mainland China and Hong Kong. The rules also apply to certificates of residence issued before 15 April 2016.

The announcement states that a certificate of residence issued for a certain year is valid for that year and the subsequent two years (i.e. if the certificate is issued for 2016, it is valid for 2016, 2017 and 2018). If a taxpayer’s circumstances have changed and the conditions for residence status are no longer satisfied, the certificate issued cannot be used to prove the residence status following the change of circumstances.

Resource tax

The Ministry of Finance and the State Administration of Taxation jointly issued a notice on 9 May 2016 concerning the resource tax reform (Cai Shui 2016 No. 54). From 1 July 2016, a new system of resource tax will

be introduced. The notice provides guidance on the tax base, assessment of sale proceeds, the applicable tax rate (which is left to local governments to determine), the preferential policy, tax administration, place at which the tax should be assessed and paid and other issues related to resource tax. However, the notice does not cover the resource tax on water, which is regulated separately.

International tax developments

BahrainOn 1 April 2016, the amending protocol, signed on 16 September 2013, to the Bahrain - China Income Tax Treaty (2002) entered into force. The protocol generally applies from 1 January 2017.

GermanyOn 5 April 2016, the China - Germany Income and Capital Tax Treaty (2014) entered into force. The treaty generally applies from 1 January 2017. From this date, the new treaty generally replaces the China - Germany Income and Capital Tax Treaty (1985).

MultilateralOn 12 May 2016, China joined the Multilateral Competent Authority Agreement (MCAA) (2016) on the automatic exchange of country-by-country reports (CbC MCAA), which is based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol. The agreement was developed within the scope of the OECD’s BEPS project on corporate taxation and was signed by 31 jurisdictions on 27 January 2016.

Russia On 9 April 2016, the China - Russia Income Tax Treaty (2014) and the amending protocol, signed on 8 May 2015, entered into force. The treaty and the amending protocol generally apply from 1 January 2017. From this date, the new treaty and the protocol will generally replace the China - Russia Income Tax Treaty (1994).


Hong KongTwo major concessionary revenue measures of 2016-17 Budget passed

On 19 May 2016, Amendment No. 2 to the Inland Revenue Bill 2016 was passed by the Hong Kong Legislative Council.

The legislative amendment enables Hong Kong to implement the major concessionary revenue measures proposed in the 2016-17 Budget. The measures include:

• A 75% one-off reduction in profits tax, salaries tax and tax under personal assessment for the year of assessment 2015-16, subject to a maximum of HKD20,000 per case; and

• The increase of the following allowances under salaries tax and tax under personal assessment for the year of assessment 2016-17:

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The tax agreement will only take effect after both states have completed their ratification procedures.

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Allowance

Year of assessment 2015-16 (HKD)

Year of assessment 2016-17 (HKD)

Basic allowance 120,000 132,000

Married person’s allowance 240,000 264,000

Single parent allowance 120,000 132,000

Allowance for maintaining a dependent parent/grandparent (per dependant):

– Parent/grandparent aged 60 or above– Parent/grandparent aged between 55

and 59

40,00020,000

46,000 23,000

Additional dependent parent/grandparent allowance (per dependant who is residing with the taxpayer continuously throughout the year):

– Parent/grandparent aged 60 or above– Parent/grandparent aged between 55

and 59

40,00020,000

46,000 23,000

• The deduction ceiling for elderly residential care expenses is proposed to be increased from HKD 80,000 to HKD 92,000 from the year of assessment 2016/17.

Revised forms for certificate of residence status

The Inland Revenue Department of Hong Kong announced that the revised application forms for the certificate of Hong Kong residence status in respect of the Mainland China and Hong Kong Tax Arrangement will apply as from 20 June 2016. Any person applying for a certificate of Hong Kong residence status in respect of the Hong Kong Tax Arrangement is required to complete the following revised forms as from the same day:

• IR1313A (06/2016) for companies, partnerships, trusts or other bodies of persons; and

• IR1314A (06/2016) for individuals.

In general, with respect to claiming tax benefits under the Hong Kong Tax Arrangement in Mainland China, where a person has been granted a certificate of Hong Kong residence status by the Hong Kong competent authority for a particular calendar year, it will not be necessary for the person to apply for the certificate of Hong Kong residence status for the two subsequent calendar years.

Implementation of new international standard for automatic exchange of financial account information in tax matters

The Inland Revenue (Amendment) (No. 3) Ordinance 2016 came into effect on 30 June 2016. By providing a legal framework in Hong Kong for implementing automatic exchange of financial account information in tax matters (AEOI), the Amendment Ordinance enables Hong Kong to deliver its pledge of support for the new international standard on AEOI as promulgated by the OECD. Under the AEOI standard, a financial institution (FI) is required to identify financial accounts held by tax residents of reportable jurisdictions in accordance with the OECD due diligence procedures. FIs are required to collect the reportable information of these accounts and furnish such information to the Inland

Revenue Department (IRD). The IRD will exchange the information with the tax authorities of the AEOI partner jurisdictions on an annual basis.

Following the passage of the Amendment Ordinance, Hong Kong will start identifying partners from among the 42 economies that have signed agreements with Hong Kong on comprehensive avoidance of double taxation or on tax information exchange.

According to the statement, Hong Kong aims to conclude AEOI negotiations and include the relevant partners in a new Schedule to the Inland Revenue Ordinance by the end of 2016.

With the Legislative Council’s approval, FIs can start conducting the due diligence procedures to identify and collect information on the relevant financial accounts in 2017 and furnish the information to the IRD in 2018 for transmission to the AEOI partners concerned.

Hong Kong commits to challenge base erosion and profit shifting

On 20 June 2016, the government announced that it will join the OECD as an Associate in the inclusive framework for the implementation of the package of measures against base erosion and profit shifting (BEPS).

In becoming an Associate to the BEPS Project, Hong Kong has committed to the comprehensive BEPS package, including its four minimum standards:

• Action 5: countering harmful tax practices; • Action 6: preventing treaty abuse; • Action 13: transfer pricing documentation in respect of

country-by-country reporting requirements; and • Action 14: making dispute resolution mechanisms

more effective.

According to the announcement, Hong Kong, as an Associate, will become a member of the BEPS Project and work with the OECD, G20 and many other countries and jurisdictions on an equal footing to implement the BEPS package and to develop standards.


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As Hong Kong’s commitment to implement the BEPS package is subject to the timely passage of the legislative amendments, the government will consult the industry on the strategy for implementing the relevant proposals at an appropriate juncture; and carry out the necessary legislative amendments.

Tax exemption for offshore funds revised and released

On 31 May 2016, the Hong Kong Inland Revenue Department (HKIRD) issued the revised Departmental Interpretation and Practice Notes No. 43 (DIPN 43) on profits tax exemption for offshore funds to replace those issued in February 2010. As the Revenue (Profits Tax Exemption for Offshore Funds) Ordinance 2006 was enacted in March 2006 and the Inland Revenue (Amendment) (No. 2) Ordinance 2015 was enacted in July 2015, the DIPN 43 (Revised) reflects the legislative changes brought about by the amendment ordinances. The following are the key features of DIPN 43 (Revised).

Profits derived from specified transactions and incidental transactions are exempt from profits tax, provided that the trading receipts from the incidental transactions do not exceed 5% of the total trading receipts from both the specified transactions and the incidental transactions. If the 5% threshold is exceeded, all of the trading receipts from the incidental transactions will be subject to profits tax. However, profits from the specified transactions will remain fully exempt. To qualify for the exemption, a taxpayer has to satisfy the following conditions:

• The person is a non-resident person; • The specified transactions are carried out through

or arranged by a specified person or the person is a qualifying fund; and

• The person does not carry on any trade, profession or business in Hong Kong involving transactions other than the specified transactions and transactions incidental to the carrying out of the specified transactions.

Typical transactions carried out by offshore funds in Hong Kong are defined as specified transactions, including transactions:

• In securities;• In futures contracts;• In foreign exchange contracts;• Consisting in the making of a deposit other than by way

of a money-lending business;• In foreign currencies; and• In exchange-traded commodities.

As profits from the specified transactions are exempt from profits tax, losses from such transactions in a year of assessment are not allowed to be set off against any of the assessable profits for any subsequent year of assessment. An offshore fund may carry out transactions in Hong Kong which are not specified transactions but are incidental to the carrying out of the specified transactions. However, the term “incidental transaction” is not defined by the DIPN 43 (Revised), which is a question of fact and can only be determined with reference to the particular mode of operation of the offshore fund concerned. Typical incidental transactions include custody of securities and receipts of interest or dividends on securities acquired through the specified transactions.

To prevent abuse, a resident person who, alone or jointly with his associates, holds direct and/or indirect beneficial interest of 30% or more in a tax-exempt offshore fund or any percentage if the offshore fund is the resident person’s associate, will be deemed to have derived assessable profits in respect of:

• The trading profits earned by the offshore fund from specified transactions and incidental transactions carried out in Hong Kong; and

• The trading profits earned by the special purpose vehicle (SPV) from transactions in securities of an interposed SPV or of an excepted private company.

The amount of deemed profits is ascertained by taking into account the percentage of the resident person’s beneficial interest in the offshore fund and the length of ownership within the relevant year of assessment. A resident person is required to report his deemed assessable profits for the assessment year ended 31 March 2007 and subsequent years in his tax returns. The exemption provisions apply with retrospective

effect from the year of assessment commencing on 1 April 1996. The deeming provisions apply from the year of assessment commencing on 1 April 2006.

Tax exemption for offshore private equity funds released

The Hong Kong Inland Revenue Department (HKIRD) issued the Departmental Interpretation and Practice Notes No. 51 (DIPN 51) on profits tax exemption for offshore private equity funds on 31 May 2016. The DIPN 51 sets out the Inland Revenue Department’s interpretation and practice in relation to the relevant provisions under the Inland Revenue (Amendment) (No. 2) Ordinance 2015 which extended the profits tax exemption for offshore funds to offshore private equity funds. The following are the key features of DIPN 51. Private equity funds generally set up one tier or multiple tiers of special purpose vehicles (SPVs) to hold their private companies. Offshore private equity funds are exempt from tax in respect of profits derived from disposal of securities of an SPV in:

• Shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by, an SPV;

• Rights, options, or interests (whether described as units or otherwise) in an SPV; or

• Certificates of interest or participation in or warrants to subscribe for or purchase an SPV.

To qualify for tax exemption, an SPV must be a corporation, partnership, trustee of a trust estate or any other entity that:

• Is wholly or partially owned by a non-resident person (i.e. an offshore fund);

• Is established solely for the purpose of holding, directly or indirectly, and administering one or more excepted private companies;

• Is incorporated, registered or appointed in or outside Hong Kong;

• Does not carry on any trade or activities except for the purpose of holding, directly or indirectly, and administering one or more excepted private companies; and

• Is not itself an excepted private company.

An SPV, to the extent corresponding to the percentage of shares or interests held by the offshore private equity fund, is exempt from tax in respect of assessable profits derived from the following transactions carried out for any year of assessment commencing on or after 1 April 2015:

• Transactions in shares, stocks, debentures, loan stocks, funds, bonds or notes of, or issued by, an interposed SPV or an excepted private company;

• Transactions in rights, options or interests in, or in respect of, such shares, stocks, debentures, loan stocks, funds, bonds or notes; and

• Transactions in certificates of interest or participation in, temporary or interim certificates for, receipts for, or warrants to subscribe for or purchase, such shares, stocks, debentures, loan stocks, funds, bonds or notes.

Losses of an SPV in a year of assessment are not allowed to be set off against any of the assessable profits for any subsequent years of assessment. An offshore private equity fund deriving profits from transactions in securities of an excepted private company can enjoy tax exemption. The term “excepted private company” refers to a “private company”, incorporated outside Hong Kong, which at all times within the three years before a transaction in securities of the SPV or private company:

• Did not carry on any business through or from a permanent establishment in Hong Kong;

• Falls within either of the following descriptions: - It did not hold (whether directly or indirectly)

share capital (however described) in one or more private companies carrying on any business through or from a permanent establishment in Hong Kong;

- It held such share capital, but the aggregate value of the holding of the capital is equivalent to not more than 10% of the value of its own assets; and

• Falls within either of the following descriptions: - It neither held immovable property in Hong Kong,

nor held (whether directly or indirectly) share capital (however described) in one or more private companies with direct or indirect holding of immovable property in Hong Kong; or


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GAAR

The Central Board of Direct Taxes (CBDT) issued Notification No. 49/2016 (the Notification) dated 22 June 2016 on the effective date of the general anti-avoidance rules (GAAR). Based on the Notification, the amendments to the Income Tax Rules, 1962 are as follows:

• As per Rule 10U(1)(d), the GAAR provisions do not apply to any income accruing or arising to, or deemed to accrue or arise to, or received or deemed to be received by, any persons from the transfer of investments made before 1 April 2017 (previously

30 August 2010); and • As per Rule 10U(2), the GAAR provisions apply to any

arrangement, irrespective of the date on which it was made, whereby any tax benefit is obtained from such arrangement on or after 1 April 2017 (previously

1 April 2015).

Finance Bill 2016 passed

On 14 May 2016, the Finance Act 2016 received the assent of the President and became law. The Finance Bill 2016 (the Bill) was introduced in Parliament on 29 February 2016 and presented before the Lok Sabha (the lower house of Parliament) on the same day. The Lok Sabha passed the Bill with a few amendments and presented it before the Rajya Sabha (the upper house of Parliament) on 5 May 2016. Subsequently, the Rajya Sabha passed the Bill on 11 May 2016. An important change to the proposals made is that a gain on a sale of unlisted shares will be treated as a long-term capital gain only provided the shares were held for at least 36 months.

How can offshore funds avoid having a taxable presence in India?

On 15 March 2016, the Central Board of Direct Taxes (CBDT) issued Rule 10V through Notification No. 14/2016 providing guidelines on the application of section 9A of the Income Tax Act, 1961 (ITA). Section 9A was introduced by the Finance Act 2015, stating

FIs are required to collect the reportable information of these accounts and furnish such information to the Inland Revenue Department (IRD).”

“- It held such immovable property or share capital

(or both), but the aggregate value of the holding of the property and capital is equivalent to not more than 10% of the value of its own assets.

The excepted private company cannot carry on a business through or from a permanent establishment in Hong Kong. However, it is allowed to have some insignificant business activities in Hong Kong but the business activities must be of a purely preparatory or auxiliary character and the place of business does not constitute a permanent establishment in Hong Kong. The excepted private company may also hold share capital, subject to the 10% safe harbour rule, in one or more private companies carrying on any business through or from a permanent establishment in Hong Kong. The term “share capital” covers all forms of participation interests or equity interests which entitle the holders to participate in or share profits accrued to a private company, with or without a share capital.

If a resident person, either alone or jointly with his associates, holds a beneficial interest of 30% or more in a tax-exempt offshore private equity fund, or any percentage if the offshore private equity fund is the resident person’s associate, the resident person is deemed to have derived assessable profits in respect of the profits earned by the fund from the specified transactions and incidental transactions carried out in Hong Kong. When the fund has a beneficial interest in an SPV that is exempt from the payment of tax in respect of its assessable profits from the stipulated transactions, the resident person is deemed to have derived assessable profits in respect of profits earned by the SPV.

Interest deduction rules and profits tax incentives

On 3 June 2016, the Inland Revenue (Amendment) (No. 2) Ordinance 2016 (the Amendment Ordinance) was gazetted. The legislative amendment enables the government to implement the measures proposed in the Inland Revenue (Amendment) (No. 4) Bill 2015, including a new interest deduction rule for the intra-

group financing business of corporations and the concessionary profits tax rate for qualifying corporate treasury centres.

According to the Amendment Ordinance, under specified conditions, the interest payable on money borrowed by a corporation carrying on an intra-group financing business in Hong Kong is deductible in determining profits liable for profits tax on or after 1 April 2016. In addition, the concessionary profits tax rate at 8.25% for qualifying corporate treasury centres applies to relevant profits accrued on or after 1 April 2016. The Amendment Ordinance also clarifies profits tax and stamp duty treatments in respect of regulatory capital securities (RCSs) issued by banks to comply with the Basel III capital adequacy requirements. The Inland Revenue Department (IRD) is expected to issue the Departmental Interpretation and Practice Notes to explain the operation of the above tax measures within a short time frame.


LatviaOn 13 April 2016, the Hong Kong - Latvia Income Tax Agreement (2016) was signed in Riga.

Romania The Hong Kong Chief Executive in Council has issued an Order to implement the Hong Kong - Romania Income Tax Agreement (2015). The Order was published by way of Legal Notice No. 61 in Gazette No. 19, Vol. 20 of 13 May 2016 and scheduled at the Legislative Council on 18 May 2016 for negative vetting. The tax agreement will only take effect after both states have completed their ratification procedures. Further details of the agreement will be reported as they become available.

RussiaThe Hong Kong Chief Executive in Council has issued an Order to implement the Hong Kong - Russia Income Tax Agreement (2016). The Order was published by way of Legal Notice No. 62 in Gazette No. 19, Vol. 20 of 13 May 2016 and scheduled at the Legislative Council on 18 May 2016 for negative vetting. The tax agreement will only take effect after both states have completed their ratification procedures. Further details of the agreement will be reported as they become available.


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that an offshore fund would not constitute a business connection in India, nor would it be considered a person resident in India solely due to the presence of its investment manager in India (subject to the fulfilment of conditions stated therein).

The new Rule 10V provides the following clarifications in this respect:

• In the case of institutional investors, in determining if the conditions for the minimum number of members and their participation in the offshore fund are met, this will include looking through said institutional investors that were set up for the sole purpose of pooling funds.

• In the case of non-individual investors and the condition of no or negligible participation of Indian residents in an offshore fund, the offshore fund must carry out an appropriate due diligence investigation to ascertain the level of participation of Indian investors. For certain specified investors (such as government/sovereign funds or appropriately regulated funds like pension/mutual funds), the offshore fund must obtain a statement in writing from such investors regarding the level of participation of Indian residents.

• The offshore fund will not be denied benefits under section 9A if failure to satisfy compliance conditions is due to reasons beyond the fund’s control and if the delay does not exceed a period of 90 days as

required therein. • In respect of the condition of no control or

management of an Indian investee company, the offshore fund may not hold more than 26% of the share capital or voting power of the investee company.

• Remuneration paid by the offshore company to an investment manager in India must be at arm’s length, and transfer pricing provisions will apply as they would have applied to international transactions between associated enterprises.

• The investment manager in India will be required to maintain documentation and submit Form 3CEJ. Failure to maintain documentation and file a report using the prescribed form will result in the offshore fund not being eligible for benefits under section 9A. The offshore fund is also required to submit Form 3CEK every financial year.

• The offshore fund may opt to seek approval from the CBDT regarding its eligibility for the purposes of section 9A. Such approval must be requested three months before the start of the tax year. Once granted, the approval applies to the said tax year as well as the subsequent tax year, unless it is withdrawn.

Guidelines for rewarding tax evasion informers The Ministry of Finance issued a press release on 29 April 2016 addressing guidelines for rewarding tax evasion informers. The competent authority may grant rewards not exceeding 10% of additional income tax and wealth tax levied and actually collected. However, this is subject to a ceiling amount of INR1,500,000, provided that the aforementioned taxes are directly attributable to the information, including documents, supplied by the informant.

Through Circular No. 20/2015 of 31 July 2015, the Central Board of Excise and Customs issued new reward guidelines for informers (including government servants) providing information on tax evasion. Under the Circular, informers will be eligible for a reward of up to 20% of the net sale proceeds of the contraband goods seized (except for items listed in paragraph 5.2), and/or the amount of duty or service tax evaded plus the amount of the fine or penalty levied/imposed and recovered.

Foreign tax credit

On 18 April 2016, the Central Board of Direct Taxes (CBDT) issued a draft report on the granting of foreign tax credit (FTC) relief against Indian taxes. A committee was established by the CBDT to suggest the methodology on the granting of FTC after examining the issues raised by various stakeholders. Taking into account the report of the committee and the provisions of the Income Tax Act 1961 (ITA), the draft report proposes the following key measures:

• FTC is to be allowed in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India.

• Foreign tax means taxes as defined under the relevant tax treaty – and in its absence, taxes paid in the other country of the same nature as that under the ITA.

• FTC will not be available against any interest, fee or penalty and foreign tax which is disputed by

the taxpayer.• FTC will be computed separately for each source of

income arising from a particular country. The FTC will be the lower of the Indian tax or foreign tax paid on such income.

• FTC will be determined by the currency conversion of the payment of foreign tax at the telegraphic transfer buying rate on the date on which such tax has been paid or deducted.

• FTC will be available against the tax payable under the provisions of minimum alternate tax (MAT). However, if the FTC exceeds the amount of tax credit available against the normal provisions, such excess will be lost.

• FTC will not be allowed unless the following documents are furnished:

- Acknowledgement of payment of said foreign tax;- Declaration that the amount of foreign tax, in

respect of which the credit is being claimed, is not under any dispute; and

- Certificate of income tax paid from the tax authority of the foreign country or certificate of withholding tax from the payer, specifying the nature of income and amount of tax withheld.

Equalisation levy

The Central Board of Direct Taxes (CBDT) issued Notifications no. 37 and no. 38 of 27 May 2016 providing for the Equalisation Levy Rules, 2016 which are effective from 1 June 2016. As per Chapter VIII of the Finance Act, 2016, an equalisation levy of 6% is imposed on the consideration for specified services payable by an Indian resident carrying on a business, or an Indian permanent establishment, to a non-resident. The equalisation levy is applicable only to consideration exceeding INR100,000 per annum. Specified services include online advertisements, any provision for digital

advertisement space, etc. In this respect, the CBDT issued the Notifications to provide the procedural framework for the implementation of the equalisation levy and its related obligations, key features of which are as follows:

• The consideration, equalisation levy, interest and penalties are to be rounded off to the nearest multiple of INR10;

• The payer is required to withhold 6% equalisation levy and pay the amount to the central government;

• The payer is required to furnish a Statement of Specified Services in Form 1, duly verified in the manner indicated therein, by 30 June immediately following the relevant financial year;

• The tax authority is empowered to issue a notice to furnish such a statement. Should the payer fail to furnish the same and where any equalisation levy, interest or penalty is payable, the tax authority will serve a tax demand notice; and

• The payer may appeal against a penalty order before the Commissioner (Appeals) within 30 days, and before the Appellate Tribunal within 60 days of receipt of the penalty order.

Valuation rules in case of indirect transfer of assets

The Central Board of Direct Taxes (CBDT) issued for public discussion the draft rules of 23 May 2016 (F No. 142/26/2015-TPL) (the Rules) on the computation of the fair market value (FMV) of assets (both tangible and intangible) held by a foreign company/entity in relation to the taxation of the indirect transfer of assets located in India under section 9(1)(i) of the Income Tax Act, 1961 (ITA).

The provisions of section 9(1)(i) of the ITA state that any shares or interest in a foreign company or entity deriving its value substantially from assets located in India would be deemed to be situated in India. Accordingly, any income arising from the transfer of such share or interest is deemed to accrue or arise in India. The share or interest is said to derive its value substantially from


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assets located in India, provided that the FMV of the assets located in India comprises at least 50% of the FMV of the total assets of the company or entity. The Rules are therefore proposed to be amended to prescribe the manner in which the FMV of the Indian and global assets are to be computed, and set out the reporting requirements of the Indian group.

Proposed Rule 11UB sets out the computation of the FMV of Indian assets held by a foreign company/entity as follows.

• Where the shares of an Indian company are listed on a stock exchange, the FMV of said shares as held by the foreign entity would be the observable price of such shares on the stock exchange. The Rules define “observable price” as the average of the weekly high and low of the closing prices of the shares quoted during six months or two weeks preceding the specified date, whichever is higher. In the case of listed shares that confer management rights or control in relation to the Indian company, the FMV will be a summation of market capitalisation and book value of liabilities as at the specified date.

• Where the shares of the Indian company are not listed on a recognised stock exchange as at the specified date, the FMV will be the FMV as at such date as determined by a merchant banker or an accountant in accordance with any internationally accepted pricing methodology for the valuation of shares on an arm’s-length basis, as increased by the liability, if any, considered in such determination.

• Where the asset is an interest in a partnership firm or in a limited liability partnership or association of persons, the FMV will be the proportional enterprise value as at the specified date of such firm or limited liability partnership or association of persons, as determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology, and increased by the liability, if any, considered in such determination.

• In all other cases, the FMV of such asset will be estimated at the price it would be sold for in the open market as at the specified date, as determined by a report from a merchant banker or an accountant and increased by the liability, if any, considered in

such estimate.

In determining the FMV of the global assets of the foreign company/entity, the following rules have been proposed:

• Where the transfer of shares of the foreign company is made between non-associated persons and the consideration is determined on the basis of the valuation report prepared by an accountant or merchant banker, the FMV of all the assets of the foreign company/entity will be the value determined in such report, and increased by the aggregate amount of liabilities, if any, that have been reduced for computing the value of assets for determination of such consideration.

• In all other cases, the FMV of all the assets owned by the foreign company or entity shall be determined by adding a) market capitalisation (in the case of a listed company) / FMV of the foreign company/entity and its subsidiaries on a consolidated basis as determined by a merchant banker or an accountant as per the most appropriate internationally accepted valuation methodology; and b) the book value of liabilities of the company or the entity as at the specified date.

When the provisions for taxation of the indirect transfer of assets located in India are triggered, the income attributable to assets located in India will be determined based on the FMV of Indian assets in proportion to the FMV of the entity’s global assets.

The transferor of the shares of, or interest in, a company or entity that derives its value substantially from assets located in India will obtain and furnish, along with the return of income, a report in Form 3CT duly signed and verified by an accountant providing the basis of the apportionment in accordance with the formula and certifying that the income attributable to assets located in India has been correctly computed.

Proposed Rule 114DB requires every Indian group, under Sec. 285A, to maintain and furnish the information and documents prescribed in the said Rules. The information must be furnished using Form 49D electronically under digital signature to the tax authority within 90 days of the end of the financial year in which the transfer of the shares of, or interest in, a foreign company/entity has taken place. Furthermore, where the transaction in respect of the shares or interest had the effect of directly or indirectly transferring the right of management or control in relation to the Indian group, the information must be furnished in the said form within 30 days of the transaction.


MauritiusOn 10 May 2016, India and Mauritius signed an amending protocol (the protocol) to the India-Mauritius Income Tax Treaty (1982) in Port Louis, Mauritius. A new provision is introduced whereby the source state is entitled to tax capital gains on the disposal of shares of its resident companies only when the shares are acquired on or after 1 April 2017. Accordingly, India is allowed to tax capital gains arising from alienation of shares acquired on or after 1 April 2017 in the capital of an Indian resident company whereas gains on shares acquired before 1 April 2017 will not be subject to tax. Furthermore, a transition period is applicable whereby capital gains arising from 1 April 2017 to 31 March 2019 will be taxable at a maximum rate of 50% of the Indian domestic tax rate, subject to the fulfilment of the limitation of benefits (LOB) provision. As of 1 April 2019, capital gains arising from the disposal of shares of an Indian company will be taxable in India at the domestic tax rate.

The benefit of the 50% reduction in the capital tax rate during the transition period from 1 April 2017 to 31 March 2019 will be subject to an LOB test. Accordingly, a resident of Mauritius (including a shell company or a conduit company) will not be entitled to the 50% reduction if it fails the LOB test provided under the treaty. A resident company is deemed to be a shell

company or a conduit company if its total expenditure on operations in Mauritius is less than IRU2,700,000 in the 12 months immediately preceding the transfer of shares.

Article 6 of the protocol to the India-Singapore Income Tax Treaty (1994) (as amended through 2011) provides that the exemption of capital gains arising to Singapore residents from the disposal of shares of an Indian company will only remain in force as long as the India-Mauritius treaty continues to provide for exclusive residence taxation on shares. Consequently, the amendment to the India-Mauritius treaty with respect to taxation of capital gains would trigger that the exclusive residence taxation under the India-Singapore treaty will no longer apply. While the protocol to the India-Mauritius treaty includes a provision which guarantees exclusive residence taxation for shares acquired before 1 April 2017, it is seemingly not possible to extend such treatment to investments made under the India-Singapore treaty. Therefore, the disposal after 1 April 2017 of shares in an Indian company, acquired before 1 April 2017 by a Singapore-resident person, will not be eligible for exclusive residence taxation as will be the case under the India-Mauritius treaty. Interest arising in India and paid to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt claims created or loans granted after 31 March 2017. However, interest income paid to Mauritian resident banks in respect of debt claims existing on or before 31 March 2017 will be exempt from tax in India.

The protocol provides for the update of the exchange of information article according to international standards. Furthermore, an article on assistance in the collection of taxes and a provision allowing for source-based taxation with respect to other income have been introduced.

MultilateralOn 12 May 2016, India joined the Multilateral Competent Authority Agreement (MCAA) (2016) on the automatic exchange of Country-by-Country reports (CbC MCAA), which is based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters, as amended by


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the 2010 protocol. The agreement was developed within the scope of the OECD’s BEPS project on corporate taxation and was signed by 31 jurisdictions on 27 January 2016.

Singapore It has been reported that the Indian government has expressed its intention to revise the India - Singapore Income Tax Treaty (1994), as amended by the 2005 and 2011 protocols.

The Netherlands It has been reported that the Indian government has expressed its intention to revise the India - Netherlands Income and Capital Tax Treaty (1988), as amended by the 2012 protocol. Further details will be reported as they become available.

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This means that residents of the Netherlands could miss out on entitlement to treaty benefits.”“

Tax amnesty On 28 June 2016, the Indonesian parliament approved the tax amnesty bill. We refer to the previous editions of this bulletin. The amnesty tax rates proposed in the draft bill are:

• 2% to 5% for taxpayers who declare and repatriate back their untaxed wealth. The funds, however, must be kept in Indonesia for 3 years; and

• 4% to 10% for taxpayers who only declare their untaxed wealth.

Foreign investment restrictions

The Indonesian government issued a new Negative Investment List (Daftar Negatif Investasi, DNI) on 18 June 2016 as stipulated in the Presidential Decree No.44 of 2016 (PD 44/2016) that came into effect on the same date. PD 44/2016 replaces the previous DNI as stipulated in PD No.39 of 2014. The 2016 DNI provides the list of business activities under different sectors that are open or closed to investment along with specific conditions, as follows: • Investment reserved for or subject to partnership with

micro, small and medium enterprises (SMEs);• Foreign ownership limitations;• Special licensing;• Location requirements;• 100% domestic ownership; and• Higher foreign ownership for the Association of

Southeast Asian Nations (ASEAN) member countries.

Investments that have already received approval from the Investment Coordinating Board prior to the issuance of PD 44/ 2016 will not be affected if there is any reduction in the permitted level of foreign investment. Some of the changes noted in the 2016 DNI are summarised below.


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Health industrySeveral business fields are now open for 100% foreign ownership, e.g. raw materials for medicine, business and management consulting services and/or hospital management services, health services support, and healthcare equipment (special license required from the Ministry of Health). Foreign investors from ASEAN countries can now own a higher stake (up to 70%) for investments in hospitals and clinics.

Maritime and fisheryCoral breeding is now open for 100% foreign ownership subject to the investor receiving a recommendation from the Ministry of Environment and Forestry.

Tourism and creative economy Businesses such as restaurants, bars, cafés, sports activities, film studios, processing laboratories and other film facilities (e.g. voice dubbing, editing, subtitling, etc.), film production, and movie theatres that were limited or closed from foreign investment are now open for 100% foreign ownership. Foreign investors from ASEAN countries can own up to a 70% shareholding while other foreigners can own up to a 67% shareholding in businesses such as museum management, catering services, motels, billiard halls, bowling alleys, golf courses, and meeting, incentive, conference and exhibition (MICE) centres.

Communication and informationInvestments in telecommunication kiosks and the establishment of a telecommunication device testing agency are now fully open to foreign ownership. The foreign shareholding limit has been increased to 67% for investments in internet service providers, data communication system services, internet telephony services for the public and other multimedia services.

Banks to disclose customers’ credit card transactions to DGT

The Ministry of Finance (MoF) issued MoF Regulation No. 39/PMK.03/2016 (PMK-39/2016) on 22 March 2016 regarding details of data and information and the procedures for delivery of data and information relating to taxation. This is the fifth amendment made to MoF

Regulation No. 16/PMK.03/2013. PMK-39/2016 came into effect from 23 March 2016.

Under PMK-39/2016, the MOF instructed 23 banks and credit card providers to provide their customers’ credit card transaction details to the Directorate of Taxation (DGT) on a monthly basis. The first report needed to be furnished to the DGT by 31 May 2016.

The banks or institutions involved are Pan Indonesia Bank, Ltd. Tbk, PT Bank ANZ Indonesia, PT Bank Bukopin Tbk, PT Bank Central Asia Tbk, PT Bank CIMB Niaga Tbk, PT Bank Danamon Indonesia Tbk, PT Bank MNC Internasional, PT Bank ICBC Indonesia, PT Bank Maybank Indonesia Tbk, Bank Mandiri (Persero) Tbk, PT Bank Mega Tbk, PT Bank Negara Indonesia 1946 (Persero) Tbk, PT Bank Negara Indonesia Syariah, PT Bank OCBC NISP Tbk, PT Bank Permata Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Sinarmas, PT Bank UOB Indonesia, Standard Chartered Bank, The Hongkong & Shanghai Banking Corp (HSBC), PT Bank QNB Indonesia, Citibank N.A. and PT AEON Credit Services.

The DGT requires information regarding customers’ credit card transaction details, including the bank’s name, credit card account number, merchant’s name and identification number (ID), name and address of the owner of the card, card owner’s national ID or passport number, card owner’s tax ID, month of billing, the date and details of the transaction, the value of transactions in Indonesian Rupiah and the credit limit.

Panama Papers On 4 April 2016, the Minister of Finance announced that the information in the so-called “Panama Papers” will be the subject of examination for the identification of possible hidden funds kept abroad by Indonesian nationals. He added that this measure may also result in an increase of tax revenue for Indonesia that would help to meet the government’s tax revenue target for this year.

The Panama Papers document leak occurs at a time when the Indonesian government is deliberating a tax amnesty bill to encourage taxpayers to disclose

undeclared wealth abroad without having to face financial penalties or prosecution.

Higher income base for healthcare insurance contribution

Following the issuance of Presidential Decree 19/2016 of 29 February 2016, the maximum monthly wage to be used for the calculation of contributions of wage earners under healthcare insurance (BPJS Kesehatan) has been revised to IDR8,000,000 effective from 1 April 2016. This decree amends Presidential Decree 12/2013 of 18 January 2013 (as amended by Presidential Decree 111/2013 of 27 December 2013). Previously, the monthly wage threshold was set at twice the non-taxable income, which amounted to IDR4,725,000. The Decree also sets out additional healthcare insurance contributions for family members and late payment penalties.

The NetherlandsOn 8 April 2016, the Netherlands State Secretary for Finance sent Letter IZV/2016/324M (the Letter) answering questions relating to the amending protocol to the Indonesia-Netherlands Income Tax Treaty (2002) (the Protocol) to the lower house of the parliament. In the Letter, the State Secretary answered questions from members of the parliament relating to, inter alia, (i) the inclusion of an anti-abuse provision in the Protocol; (ii) the 2009 Indonesian Circular on beneficial ownership; and (iii) the status of the (re)negotiation of (existing) income tax treaties with developing countries with regard to anti-abuse provisions.

Members of the parliament had noted that the Protocol contained no anti-abuse provision, despite the fact that the government had stated that it had approached Indonesia to include such a provision. The State Secretary explained that at the time the government approached Indonesia about the inclusion of such a provision, negotiations for the Protocol were already at an advanced stage. As such, the Indonesian government felt that, in order to avoid possible uncertainty and complications, it would be best to address the inclusion of an anti-abuse provision in a separate (later) protocol. The State Secretary expects discussions on this issue to take place in the near future.

As regards the Indonesian Circular from 2009 on beneficial ownership, the State Secretary stated that the term “beneficial owner” had been defined more narrowly in that Circular than in the OECD and UN Model Commentaries. This means that residents of the Netherlands could miss out on entitlement to treaty benefits. To end this, Indonesia and the Netherlands agreed to interpret the term “beneficial owner” in accordance with the interpretation provided by the OECD.

ArmeniaOn 8 April 2016, the Armenia - Indonesia Income and Capital Tax Treaty (2005) entered into force. The treaty generally applies from 1 January 2017.


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Tokyo business tax rates for 2016 published

The reduced size-based business tax rates for Tokyo were promulgated in the Tokyo Metropolitan Ordinance for Prefectural Taxes on 31 March 2016. In general, companies with stated capital of over JPY100 million are subject to the size-based business tax rates.

The Tokyo business tax rates for companies liable to size-based business taxes are as follows:

In general, companies with stated capital of over JPY 100 million are subject to the size-based business tax rates.

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Tax year

From1 April 2015to31 March 2016


Taxable base (taxable income) Under JPY 4 million

1.755% 0.395%

Taxable base (taxable income) JPY 4 million – JPY 8 million

2.53% 0.635%

Taxable base (taxable income) Over JPY 8 million

3.4% 0.88%

Income component

The above rates do not include special local corporation tax.

The reduced tax rates for taxable income of JPY8 million or less are not applicable to companies that have offices in three or more different prefectures.

Added value and capital components

Tax year


From1 April 2016

Added value component

0.756% 1.26%

Capital component 0.315% 0.525%

Note. The Tokyo tax rates to be applied for fiscal years beginning on or after 1 April 2017 have yet to be determined.

Consumption tax increase may be postponed again

On 30 May 2016, it was reported that the Prime Minister has proposed to his party’s senior officials to delay the April 2017 consumption tax increase from 8% to 10%. The consumption tax increase to 10% was first proposed to take place on 1 October 2015, this was however subsequently postponed in the 2015 budget to 1 April 2017. The scheduled increase may now be postponed to 1 October 2019. The Prime Minister’s concerns apparently lie in the weak global economy, and analysts fear the repercussions on Japan’s national debt, which is nearing USD10 trillion.


TaiwanOn 13 June 2016, the Japan - Taiwan Income Tax Agreement (2015) entered into force. The agreement generally applies from 1 January 2017. Details of the agreement will be reported in due course.



British Virgin IslandsOn 2 October 2015, the British Virgin Islands - Korea Exchange of Information Agreement (2014) entered into force. The agreement generally applies from 2 October 2015 for criminal tax matters, and from 1 January 2016 for Korea (Rep.) and from 1 April 2016 for the British Virgin Islands for other tax matters.

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On 2 October 2015, the British Virgin Islands - Korea Exchange of Information Agreement (2014) entered into force.

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The objective of this PR is to explain the tax incentives in relation to the venture capital industry in Malaysia.

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Companies Bill 2015 passed

On 4 April 2016, the parliament passed the Companies Bill 2015 (the Bill). The objective of the Bill is to replace the existing 50-year-old Companies Act 1965 by streamlining the corporate legal structure based on current international standards and to improve the ease of doing business in Malaysia.

Key points of the Bill are as follows:

• Private companies will be allowed to have only one director and one shareholder (the current law requires a minimum of two shareholders and two directors);

• Annual general meetings for private companies will be abolished;• Previously, a unanimous “pass” by shareholders was

required for private companies to pass a resolution. According to the Bill, only a majority of shareholders is required to sign off a written resolution to pass as an ordinary resolution;

• No-par value regimes for shares issued by a company will be introduced;

• New companies will no longer have a Memorandum and Articles of Association, but may opt to adopt a Constitution. For existing companies, the Memorandum and Articles of Association will be deemed to be the new Constitution;

• Different variants of a new “solvency test” will be introduced to safeguard third parties doing business with companies and their rights as creditors; and

• The number of possible types of criminal and civil sanctions for company directors who breach or commit any crime will be increased.

It is anticipated that the Companies Act will not enter into force for another year, as the requisite rules, regulations and guidelines still need to be drafted.

Revised GST guides

Royal Malaysian Customs has released four revised GST guides, as follows:

• Guide on Fund Management (revised as at 11 April 2016);


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• Guide on Designated Area (revised as at 11 April 2016);• Guide on Entertainment Industry (revised as at 18 April 2016); and • Guide on Land and Property Development (revised as

at 18 April 2016).

Venture capital tax incentives On 9 May 2016, the Inland Revenue Board of Malaysia issued Public Ruling No. 2/2016 (PR 2/2016). The objective of this PR is to explain the tax incentives in relation to the venture capital industry in Malaysia.

A venture capital company (VCC) that invests in a venture company is eligible for a full income tax exemption on all sources except for interest arising from savings or fixed deposits and profits from syariah-based deposits (subject to conditions). On the other hand, a resident company (including a VCC) or individual is eligible for a deduction on investment in a venture company. The tax exemption and deduction are mutually exclusive; therefore, a company that has applied for one incentive is not entitled to apply for the other.

The PR also provides various examples on the computation of tax exemption and deduction scenarios.

Public Ruling No. 3/2016 published

On 16 May 2016, the Inland Revenue Board of Malaysia issued Public Ruling No. 3/2016 (the PR) to explain the tax treatment of interest income received by a person carrying on a business. Generally, the PR provides various examples to distinguish between the sources of interest income that would fall under section 4(c) of the Income Tax Act, 1967 (ITA) and interest income that is assessed as business income under section 4(a) of the ITA.

The PR also explains the tax treatment of any unabsorbed losses and capital allowances with respect to interest income which is not from carrying on of a money lending business but has been assessed under section 4(a) of the ITA prior to year of assessment 2013. Several examples are given in the PR to provide guidance to taxpayers in this matter.

Income tax exemption for individuals investing in SMEs

The Income Tax (Exemption) (No. 3) Order 2016 [P.U.(A) 113/2016] (the Order) was published in the Official Gazette on 26 April 2016. The Order is deemed to have come into operation on 1 April 2016. The Order exempts resident individuals from income tax on profits derived from qualifying investments made from 1 April 2016 to 31 March 2019 and received within a period of three consecutive years of assessments starting from when the profits are received by the individual.

• The qualifying investment must be made through the investment account platform established by a licensed Islamic bank or prescribed institution and operated by a person recognised by the Bank Negara Malaysia; and

• The qualifying investment is used to finance any venture or project undertaken by a small or medium-sized enterprise (SME) (subject to conditions).

Income tax for online businesses On 23 May 2016, the Inland Revenue Board of Malaysia (IRBM) released a press statement explaining and clarifying the tax treatment of online businesses. Key points from the press statement are:

• The income tax treatment of online businesses will be in line with that of conventional businesses;

• The income tax rate for individuals carrying on online businesses will follow the individual’s progressive tax rate (i.e. between 0% to 28% for year of assessment 2016); and

• For online businesses carried on by companies, the income tax rate will be between 19% and 24% (i.e. the corporate income tax rate for year of

assessment 2016).

For further information, taxpayers are encouraged to read the technical Guidelines on Taxation of Electronic Commerce, which were published on 1 January 2013.

PhilippinesJURISDICTION:

Treaty benefits for dividends, interest and royalty income

On 23 June 2016, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 27-2016 on the new procedures for claiming preferential tax treaty benefits on dividend, interest and royalty payments to non-residents.

The effect of this Order is to allow Philippines taxpayers to directly apply the treaty rates on their dividend, interest and royalty payments to qualifying non-residents. As such, the filing of the tax treaty relief application (TPRA) for such payments is no longer required. Instead, taxpayers will be required to keep their records based on the guidelines outlined in the Order as supporting documentation for any future tax audit. In the case of other income, the procedures under RMO No. 72-2010 continue to apply and obtaining a ruling is still required.

Paying taxes via credit, debit and prepaid cards

On 23 March 2016, the Bureau of Internal Revenue (BIR) published Revenue Regulations No. 3-2016 of 12 January 2016, which prescribe the policies and guidelines on the adoption of credit, debit and prepaid card payments as additional voluntary or optional modes of paying taxes. Any convenience fee or other charges imposed by the banks or credit card companies for the use of such payment facilities are absorbed by taxpayers and not to be deducted from the tax amount due to the BIR. The full version of the Regulations is available on the BIR’s website.

In the case of other income, the procedures under RMO No. 72-2010 continue to apply and obtaining a ruling remains to be required.

”

“


SingaporeJURISDICTION:

Employment

Effective from 1 April 2016, Singapore has amended the Employment Act (EA) as follows:

• Employers must issue itemised pay statements to all employees covered under the EA at least once per month, and keep a record of all issued pay statements;

• Employers must issue Key Employment Terms in writing to all employees who have continuous employment with the employer of more than

14 days; and• The Ministry of Manpower would treat minor

infractions of the EA as civil infringements instead of criminal offenses.

Transfer pricing

The Base Erosion and Profit Shifting (BEPS) Action Plan, adopted by the OECD and G20 countries in 2013, has devoted considerable effort to transfer pricing documentation, as detailed in Action Plan 13. Under these guidelines, which were finalised in October 2015, a three-tiered approach should be applied to transfer pricing documentation.

i. A Master file – The Master file will provide tax administrations with high-level global information regarding the overall global business and transfer pricing policies of the multinational enterprises (MNEs) that are adopted by the group for each category of related party transaction.

i. A Local file – A Local file is akin to more transactional transfer pricing documentation where information on related party transactions, the transfer pricing method and third party transactions are included.

ii. Country-by-country report (“CbCR”) – This requires the group to report allocation of income, taxes paid, economic activity and taxes accrued on an annual basis, in a previously set format, for each tax jurisdiction in which they do business.

Though all MNEs are meant to prepare the Master file and Local file, the CbCR is only required provided the group’s revenue meets the specified revenue threshold.

The Ministry of Manpower would treat minor infractions of the EA as civil infringements instead of criminal offenses.

”

“In line with these changes in transfer pricing documentation guidelines, the IRAS has committed to implement CbCR for financial years beginning on or after 1 January 2017 for MNEs whose ultimate parent entities are in Singapore and whose group turnover exceed S$1,125 million. These enterprises are required to file the CbC reports with the IRAS within 12 months from the last day of their financial year. IRAS will then exchange these CbCRs with jurisdictions that Singapore has entered into bilateral agreements with for automatic exchange of CbCR information, having established that they meet the following conditions: (i) these jurisdictions have a strong rule of law and can ensure the confidentiality of the information exchanged and prevent its unauthorised use, and (ii) there must be reciprocity in terms of the information exchanged.

Further guidance on the exact implementation of CbCR processes is expected by September 2016. This is a much awaited and much expected development, given the current scrutiny that other tax jurisdictions (e.g. Australia) have placed on transactions with Singapore-based taxpayers. By embracing CbCR, the Ministry of Finance and IRAS have demonstrated alignment with BEPS Action Plan 13. However, Singapore’s current documentation rules do not explicitly detail the three-tiered approach as stated in Action Plan 13. Specifically, where the group revenue thresholds are not met, Singapore-based taxpayers are still required to prepare the Master file and Local files for various entities, in line with local requirements. We advise Singapore-based taxpayers to review the status of their transfer pricing documentation to ensure compliance with the Singapore Transfer Pricing Guidelines as well as Action Plan 13.

Singapore joins inclusive framework for implementing measures against BEPS

On 16 June 2016, the Ministry of Finance announced that Singapore will join the inclusive framework for the global implementation of the Base erosion and profit shifting (BEPS) Project. The inclusive framework

was proposed by the OECD and endorsed by the G20 in February 2016. Under this framework, all state and non-state jurisdictions that commit to the BEPS Project will participate as BEPS Associates of the OECD’s Committee on Fiscal Affairs. BEPS Associates have the same rights and obligations as OECD and G20 countries involved in BEPS work. Every jurisdiction that participates in the framework as a BEPS Associate will have an equal voice in reviewing and monitoring the implementation of the BEPS measures.

Singapore supports the key principle underlying the BEPS Project, namely that profits should be taxed where the real economic activities generating the profits are performed and where value is created. As a BEPS Associate, Singapore will work with other jurisdictions to help develop the implementation and monitoring phase of the BEPS Project.

Singapore is committed to implementing the four minimum standards under the BEPS Project, namely the standards on countering harmful tax practices, preventing treaty abuse, transfer pricing documentation and enhancing dispute resolution. Details of Singapore’s position on the four BEPS minimum standards are detailed below.

As do many other jurisdictions, Singapore uses tax incentives to promote investment in certain areas of the economy. Incentive recipients would have to anchor substantive operations in Singapore and contribute meaningfully to the growth of the overall economy. Singapore’s tax incentives are legislated and granted for defined periods of time on qualifying activities. Non-qualifying activities of incentivised companies are taxed at the prevailing corporate tax rate. Singapore regularly reviews its tax incentives to ensure that they remain relevant and competitive, and as a result some tax incentives were allowed to lapse and several others were refined over the years.

Singapore does not condone treaty shopping. A number of Singapore’s bilateral tax treaties contain anti-treaty shopping provisions to prevent abuse. Singapore is currently part of a group of jurisdictions working together under the aegis of the OECD and G20 to


Singapore cont’d

JURISDICTION:

develop a multilateral instrument for incorporating BEPS measures into existing bilateral treaties to counter treaty abuse. Singapore will consider whether to join the instrument after it is finalised and ready for jurisdictions to sign.

Singapore adheres to the internationally agreed arm’s-length principle and commits to implement Country-by-Country Reporting (CbCR) for financial years beginning on or after 1 January 2017 for multinational enterprises whose ultimate parent entities are in Singapore and whose group turnover exceeds SGD1,125 million. These enterprises are required to file the Country-by-Country (CbC) reports with the Inland Revenue Authority of Singapore (IRAS) within 12 months from the last day of their financial year. IRAS will exchange CbC reports with jurisdictions that Singapore has entered into bilateral agreements with for the automatic exchange of CbCR information, having established that they meet the following conditions:

• These jurisdictions have a strong rule of law and can ensure the confidentiality of the information exchanged and prevent its unauthorised use; and

• There must be reciprocity in terms of the information exchanged.

IRAS will consult Singapore-headquartered multinational enterprises further on the implementation details of CbCR, and release further details by September 2016.

IRAS has been active in engaging foreign tax authorities to resolve cross-border tax disputes via the mutual agreement procedure provided in its bilateral tax treaties. As a BEPS Associate, Singapore will work closely with other jurisdictions to monitor the implementation of minimum standards on dispute resolution developed under the BEPS Project. This will complement the other BEPS minimum standards and ensure that taxpayers have access to effective and expedient dispute resolution mechanisms under bilateral tax treaties.

Panama Papers On 5 April 2016, the Minister of Finance and the Monetary Authority of Singapore announced that Singapore government agencies are reviewing information reported by the so-called “Panama Papers” and investigating if Singaporean individuals or entities are involved with tax avoidance or evasion. The Minister of Finance stressed that Singapore takes a serious view on tax evasion and will not tolerate its business and financial centre being used to facilitate tax-related crimes.

Convention on Mutual Administrative Assistance in Tax Matters

On 1 May 2016, the multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol, entered into force in respect of Singapore. The convention and the amending protocol generally apply from 1 January 2017.


CambodiaOn 20 May 2016, the Cambodia - Singapore Income Tax Treaty (2016) was signed in Singapore. Further details of the treaty will be reported as they become available.

Russia On 23 June 2016, the Russian president signed Law No. 184-FZ ratifying the amending protocol, signed on 17 November 2015, to the Russia - Singapore Income Tax Treaty (2002).

TaiwanJURISDICTION:

Rules on exchange of information published

The Ministry of Finance (MoF) issued procedural rules on the exchange of information with treaty partners on 21 April 2016 (TW Finance No. 10524504090). The rules apply from the date of issuance, its main provisions being summarised below.

In handling a request for the exchange of information, the relevant provisions of the tax treaty apply. In cases where it is not provided for in the relevant tax treaty, domestic laws and regulations apply, such as the Tax Collection Law, Income Tax Law, the Law on Personal Data Protection, the Regulations on International Financial Business and other regulations on application of tax treaties.

The contracting state requesting the exchange of information has to provide the details of the case, including information on the person concerned, type of tax and the pertinent period. Unless the provision on the exchange of information in the tax treaty provides otherwise, the person is restricted to the resident of Taiwan or the other contracting state, the tax is restricted to the income tax and the pertinent period refers to the valid period of the tax treaty concerned. Taiwan and the other contracting state have no obligation to:

• Carry out administrative measures at variance with the laws and administrative practice of Taiwan or of the other contracting state;

• Supply information which is not obtainable under the laws or in the normal course of the administration of Taiwan or of the other contracting state;

• Supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process;

• Supply information the disclosure of which would be contrary to public policy (ordre public); and

• Supply information in other circumstances under which non-provision of information can be justified on the basis of the provision on the exchange of information of a tax treaty.

Currently, the recipients of sale services have to file the tax return and pay the tax.

”“


Taiwan cont’d

JURISDICTION:

ThailandJURISDICTION:

Personal income tax amendments

On 19 April 2016, the Royal Cabinet approved the following personal income tax amendments, which will apply to income taxable from the year 2017:

• Raising the top two income brackets as follows:

The personal and child allowances will double up to THB 60,000 and THB 30,000 (per child), respectively.

”

“The tax administration may only request the exchange of information after having exhausted all the procedures and remedies available in Taiwan to obtain the information. The request may be submitted by completing the special form for that purpose (in English) detailing the legal grounds, taxpayer, tax and tax period, the reason for the request, including the information on tax avoidance, the content of the requested information, the period concerned and other related materials. If a request from the other contracting state meets the requirements and does not represent one of the circumstances for declining the request, the tax authority must supply the information. In cases where a separate investigation is required, the Taiwanese tax administration must provide the information if it is in the interest of tax collection by Taiwan or, even if it is not in the interest of tax collection by Taiwan, Taiwan has to respect the provision on the exchange of information of the tax treaty and cannot refuse to provide the information solely because it is not in the interest of its own tax collection. If the information requested is within the orbit of the Regulations on International Financial Business, the tax administration cannot refuse to provide the information by arguing that the information is in the possession of the bank or other financial institutions.

Further, the rules contain provisions on the confidentiality and scope of the information exchanged. Taiwan is prudent with regard to the exchange of information. In the past 10 years, Taiwan has handled only 28 exchange of information requests from another contracting state; in 12 cases, Taiwan refused to provide the information requested. However, due to the increase in the number of tax treaties and international co-operation between tax authorities, Taiwan envisages an increase in the exchange of information and finds it necessary to issue the above rules.

New VAT rule on foreign online sale services expected

The Ministry of Finance released a document stating that Taiwan has plans to enact amendments to the registration regime of value added tax (VAT) for foreign online service providers selling to individuals in Taiwan. According to the proposed amendment, all foreign enterprises outside Taiwan that provide online sale services to individuals in Taiwan are required to register with the tax authority and pay VAT in Taiwan.

Currently, the recipients of sale services have to file the tax return and pay the tax. Given the fact that the number of consumers is increasing and the onus of tax compliance is on a wide range of recipients of services, it is considered to be more appropriate to shift tax compliance obligations to the foreign suppliers. Registration of foreign suppliers for purposes of indirect tax on e-commerce in the jurisdiction in which they are doing business is also recommended by the OECD.

Current amount (THB)

Rate (%)New amount (THB)

Rate (%)

2,000,000 – 4,000,000

302,000,000 – 5,000,000

30

over 4,000,000 35over 5,000,000

35

• The salary, wage, personal contracting income and royalties (only copyright fees) expense deduction is increased to 50% of gross income but capped at THB100,000. Currently, only 40% of gross income is allowed as a deduction and the cap is at THB60,000.

• The personal and child allowances will double up to THB60,000 and THB 30,000(per child), respectively. The child allowance cap at three children will be lifted.


VietnamJURISDICTION:

FATCA agreement between United States and Vietnam On 19 April 2016, the US Treasury Department released the official text of the intergovernmental agreement (IGA) that the United States has signed with Vietnam for implementation of the Foreign Account Tax Compliance Act (FATCA).

The US-Vietnam IGA is based on the non-reciprocal Model 1B Agreement (No TIEA or DTC). Accordingly, Vietnamese financial institutions will be required to report tax information about US account-holders to the government of Vietnam, which will in turn relay that information to the US Internal Revenue Service (IRS). Article 12(1) of the US-Vietnam IGA provides that the IGA will enter into force on the date of Vietnam’s written notification to the United States that Vietnam has completed its necessary internal procedures for entry into force of the IGA. The US Treasury Department states on its web page that Vietnam is not treated as having an IGA in effect, and further that Vietnamese financial institutions cannot be treated as covered by a Model 1 IGA (including for withholding or registration purposes) until the US-Vietnam IGA has entered into force.

Penalty increase for tax fraud and evasion

On 6 June 2016, the General Department of Taxation announced an increase in the maximum penalty that may be imposed for tax fraud and evasion to VND50 million. It also announced an increase in the fines for lost or damaged tax invoices (unless damaged by natural disasters) to between VND4 million and VND8 million. The increased penalties take effect from 1 August 2016.

The increased penalties take effect from 1 August 2016.”“


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Pieter de Ridder is a Partner of Mayer Brown LLP and is a member of the Global Tax Transactions and Consulting Group. Pieter has over two decades of experience in Asia advising multinational companies and institutions with interests in one or more Asian jurisdictions on their inbound and outbound work.

Prior to arriving in Singapore in 1996, he was based in Jakarta and Hong Kong. His practice focuses on advising tax matters such as direct investment, restructurings, financing arrangements, private equity and holding company structures into or from locations such as mainland China, Hong Kong, Singapore, India, Indonesia and the other ASEAN countries.

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Asia Tax Bulletin - Mayer Brown...Indonesia’s parliament has approved the long-awaited tax amnesty programme. India and Mauritius have signed a protocol to their tax treaty which