The rise of e-commerce has caused tax authorities around the world to struggle with keeping up with the rapid changes in consumer behaviour.
As a result, the Organization for Economic Co-operation and Development (OECD) has proposed global measures to create a mechanism for the taxation of the digital economy.
This means that suppliers will have to consider their tax obligations in jurisdictions where they may have no physical presence. GCC legislators have made strides in creating a fluid framework to capture the digital economy as part of the taxing rules, which places the responsibility on suppliers to determine the place of supply of the respective electronic services based on the global principle of “use and enjoyment.”
In this article, we will delve deeper into the complexities that have arisen as a result of the change in consumer behavior for e-commerce providers and what it means for tax authorities in the GCC.
As a starter, for those unfiamiliar with GCC, it is worth quickly describing what this refers to. The Gulf Cooperation Council is a political and economic alliance of six Middle Eastern countries:
The article refers to the tax and e-commerce regulations within these countries.
When it comes to the sale of physical goods via e-commerce, tax authorities can track and enforce VAT compliance adequately, as the goods have to be physically imported into the final destination and delivered to the end consumer.
The close relationship between Customs and VAT means that physical goods will seldom result in a VAT revenue loss for tax authorities.
However, in the case of non-resident GCC suppliers selling physical goods to GCC resident customers, the transfer of ownership generally occurs before the goods are shipped to the customer, and VAT will be due upon importation.
In these scenarios, international courier companies are tasked with shipping and delivering goods and will also be responsible for paying any import VAT associated with the importation of the goods, which will later be recovered from the end consumer upon actual delivery.
In this way, the non-resident GCC supplier of goods avoids having to register for VAT in the GCC on the basis that there is someone in the GCC member state who is responsible for paying the import VAT.
However, when it comes to the supply of electronic services via online marketplaces, there are two distinct issues that e-commerce providers face: determining the place of supply of electronic services and the challenges of VAT compliance obligations and enforcement by tax authorities.
GCC tax authorities use the principle of “use and enjoyment” to determine the place of supply in respect of electronic services. When the customer uses and enjoys the electronic service in the GCC, the place of supply will be in the GCC member state, which in turn triggers a VAT obligation.
However, determining the place where the customer uses and enjoys a service is more complex where consumers are able to obtain services from anywhere in the world via online marketplaces.
The use of virtual private networks or other location-masking software makes pinpointing the most accurate location of the online consumer even more challenging.
GCC VAT legislation provides a variety of indicators that can be used as guidance, including:
However, obtaining sufficient evidence to prove the place of use and enjoyment is challenging and requires addressing concerns such as whether meeting one criterion is sufficient to prove the customer’s location, what to do if conflicting pieces of information are obtained, and how many checks are expected to be completed by the supplier.
It is generally supported that the type of evidence to support the place of use and enjoyment should be sufficient to enable an “objective reasonable person” to draw the same conclusion as the supplier.
In conclusion, the rise of e-commerce has caused tax authorities around the world to struggle with keeping up with the rapid changes in consumer behaviour.
GCC legislators have made strides in creating a fluid framework to capture the digital economy as part of the taxing rules, which places the responsibility on suppliers to determine the place
If you have any queries about E-Commerce and Taxation in the GCC or GCC tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
The Web 3.0 industry has been expanding in Japan in recent years.
However, uncertainty around the tax treatment of Web 3.0 transactions and cryptoassets in Japan have been problematic for the businesses in this nascent space.
Web 3.0 refers to the next generation of the World Wide Web, which is characterized by a more decentralized, interconnected, and user-centric internet.
It is also known as the decentralized web or the semantic web.
Unlike Web 2.0, which was mainly focused on user-generated content and social networking, Web 3.0 aims to create a more open and decentralized internet using blockchain technology and other distributed systems.
This would allow for more peer-to-peer transactions and communication, reducing the need for centralized intermediaries and creating more privacy and security for users.
Web 3.0 also seeks to provide a more intelligent and personalized web experience, by using artificial intelligence, machine learning, and other technologies to make sense of the vast amounts of data available online. This could lead to more intelligent search engines, personalized content recommendations, and more efficient data processing.
Overall, Web 3.0 represents a significant shift in how we use and interact with the internet, with a greater focus on user control, privacy, and decentralization, as well as more intelligent and personalized web experiences.
One example of the difficulties is for those businesses who would like to issue tokens in Japan.
An illustration of this is that several blockchain companies have avoided issuing tokens in Japan, due to the tax burden derived from the application of the Year-End Mark to Market (MTM) Rules under the Corporation Tax Act (CTA) in Japan.
According to the Payment Services Act, corporations that hold cryptocurrencies that are traded in “active markets” must adhere to certain rules.
These rules require the corporations to update the acquisition price/booked price of their cryptocurrencies to reflect their current fair market values, a practice commonly referred to as “Mark to market (MTM).”
Additionally, any gains or losses resulting from these price updates must be realized at the end of each business year.
Further, there is also uncertainty more generally over the tax treatment of Web 3.0 related transactions.
Starting in 2023, there will be some changes to the tax rules for cryptocurrencies. If a cryptocurrency has been issued but not yet distributed to third parties, it will not be subject to certain tax rules at the end of the year, as long as certain conditions are met. These conditions include technical restrictions on transfer or entrusting the cryptocurrencies to a trustee under specific conditions.
Additionally, if a corporation borrows cryptocurrencies from a third party and sells them but does not buy back the same amount by the end of the year, they will have to recognize any gains or losses as if they had bought back the same amount.
These tax reforms will apply to corporations whose business year starts on or after April 1st, 2023. The specific details of the requirements for the first condition mentioned above will be disclosed in April 2023 or later.
In addition, the NTA (National Tax Agency) in Japan has released the first official guidelines on how NFTs (non-fungible tokens) are taxed.
These guidelines cover:
The guidelines use examples of art NFTs, which are backed by copyrights for digital designs, that have been distributed.
For a foreign business operator distributing NFTs in Japan, the tax treatment will vary depending on the legal characteristics of the NFTs. Therefore, it is recommended to consult with tax experts to determine the tax treatment for each NFT.
Regarding individual income taxes and corporate taxes, the NFT FAQs explain that an person who is UK resident for tax purposes who creates digital art and sells art NFTs related to such digital art through a marketplace in Japan is not subject to Japanese income or corporate taxation.
This is because a person who is not a tax resident in Japan and has no permanent establishment in Japan is generally not subject to Japanese taxation on the income derived from the issuance (first-sale) of NFTs, unless the NFTs are backed by real assets which trigger Japan-sourced income separately.
With regard to consumption taxes (Japanese value added taxes), the NTA deems the issuance of art NFTs as “cross-border provisions of electronic services.”
Therefore, the consideration for the issuance of art NFTs is taxable if the buyer of the art NFTs is an individual located in Japan or a Japanese corporation. A foreign issuer of art NFTs would be subject to consumption taxes in Japan in respect of the primary sale of the issued art NFTs to Japanese purchasers.
For withholding obligations, payment of the consideration for the issuance of art NFTs would generally be subject to Japanese withholding tax levied on royalties.
However, withholding obligations would not be triggered if it is difficult for the purchaser of the art NFTs to distinguish the consideration for the grant of copyrights from the total amount of NFT sales.
Under Japanese tax laws, an individual recipient of assets located in Japan by way of an inheritance/gift from another individual would be subject to inheritance/gift taxes even if the recipient is located outside of Japan.
In the NFT FAQs, NFTs are included in the scope of taxable assets so long as they have an economic value.
Like most jurisdictions around the globe, relevant authorities have been playing catch up in ensuring regulation and tax rules are fit for purpose in the new world of Web 3.0.
If you have any queries about Taxation of cryptoassets and Web 3.0 in Japan or Japanese tax matters in general, then please do get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The South Korean government passed a proposed bill in December 2022 that includes some changes to tax laws and enforcement decrees.
Here are the key changes that may affect foreign businesses and investors in South Korea.
Starting on January 1, 2023, the tax rate for each of the four corporate income tax brackets is cut by 1% to promote investment and job creation by businesses.
Starting on January 1, 2024, a parent company may consolidate its subsidiaries in Korea in its tax return if the parent directly and indirectly holds 90% of the issued and outstanding shares (excluding treasury shares). Before the amendment, the shareholding requirement was 100%.
Starting on January 1, 2023, a foreign worker may elect to apply the flat 19% rate (20.9% including local income tax) on his/her personal income tax for 20 years from the date he/she first started working in Korea.
Previously, it was limited to 5 years.
Starting on January 1, 2023, loss carry forward is increased to 80% of the net loss in a given fiscal year.
For small and medium-sized enterprises, it remains the same at 100%.
Starting on January 1, 2023, any dividends received by a company from another domestic company may be excluded from its taxable income according to the rates provided in a table.
In addition, any dividends received by a company from another foreign company may be excluded from its taxable income instead of getting a foreign tax credit if it meets certain criteria.
Starting on January 1, 2023, the five existing employment tax credits will consolidate into two employment tax credits.
For a new regular hire, a higher tax credit is given for hiring the young, the old, the disabled and career-interrupted women.
Foreign workers are excluded.
The timeline of the securities transaction tax reduction has been adjusted.
The imposition of 20% tax on income from transferring or lending digital assets has been postponed by two years and is scheduled to begin on January 1, 2025.
If you have any queries relating to the South Korea Budget, or Korean tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
In a recent court case, the Court of Justice in the European Union (EU) has ruled that it is legally acceptable for Italy to impose a withholding tax (WHT) and data-gathering obligations on non-resident online platforms that facilitate short-term property rentals like holiday lets.
However, the obligation to appoint an Italian tax representative liable to pay the WHT was prohibited by the EU law fundamental freedom to provide services.
The ruling has implications for other EU member states with similar rental markets, as they might also be tempted to bring in their own WHT regimes that could impact non-resident platforms.
The case began when Italy introduced three obligations on non-resident platforms in the short-term letting sector in 2017:
(1) collecting income-related data on Italian rentals,
(2) withholding tax on rental income, and
(3) appointing a local tax representative with responsibility for withholding the tax.
Airbnb challenged these rules, arguing that they were incompatible with the freedom to provide services.
The ruling is part of the EU’s ongoing attempts to regulate the economic models of online platforms in areas such as tax and data-protection.
The judgment concerns tax and data-collection and sharing obligations imposed on online platforms and the extent to which tax authorities can use platforms as a de facto compliance arm for the ‘gig’ economy.
The court held that the obligations to collect data and withhold tax at source did not constitute a restriction on the freedom to provide services. However, the obligation to appoint a tax representative in Italy was deemed a breach of the freedom to provide services.
The ruling confirms that direct taxation is not an EU-competence yet, and in principle, each member state could introduce its own WHT regime applicable to online platforms.
One key part of the case is DAC 7, a council directive that requires most online platforms to conduct due diligence on their service-providing users and report the information to one or more EU tax authorities.
DAC 7 does not require platforms to act as tax collectors; only as information providers.
In the short-term, the case allows Italy to impose WHT obligations on non-resident platforms.
The long-term implication is that other EU member states might be tempted to introduce their WHT regimes, which could impact non-resident platforms in the medium term.
If you have any queries relating to the Airbnb WHT case or Italian tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Monaco’s fiscal system is based on the principle of a total absence of direct taxation. There are two exceptions to this principal;
Monaco has signed no other bilateral fiscal agreements with other countries.
Monaco residents (except French nationals) are not required to pay taxes on income, betterment or capital gains. For French nationals, two categories exist:
The following rates of inheritance tax apply to assets located in Monaco:
There is no direct tax on companies. Besides the tax on profits mentioned in the previous cases above, companies are not required to pay directly for taxes.
Registration duties are collected from those registering real estate transfers or changes of ownership.
For official civil and judicial acts, fiscal stamps are required. Furthermore, all documents which could be used as evidence in court must be stamped to be valid. Stamp costs vary depending on the document’s format or value involved.
If you have any general queries about this article, please do not hesitate to get in touch.
On 30 June 2022, the Cyprus Parliament approved amendments to the Cyprus Income Tax Law and new Regulations to introduce Transfer Pricing (“TP”) documentation compliance obligations (Master File, Cyprus Local File, Summary Information Table).
The documentation requirements apply to Cypriot tax resident persons and Permanent Establishments (PE’s) of non-tax resident entities that engage in transactions with related parties. The aim of the new law and regulations is to ensure compliance of covered entities with the arm’s length principle.
In addition, the law has been amended to update the definition of related parties by introducing a minimum 25% relationship threshold relevant for companies.
The law amendments and Regulations are effective from the tax year 2022 onwards.
The new transfer pricing law and regulations cover all types of transactions between related parties in excess of €750.000 per category of transaction.
Different types of transactions include sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others.
A relevant notification has been issued by the Cyprus Tax Department (“CTD”) providing (amongst others) the required detailed contents of the Master File and Cyprus Local File.
The Summary Information Table (SIT) must be prepared by all taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions. There is no threshold for the SIT, and this must be submitted electronically together with the Income Tax return for the relevant tax year.
The following exemptions shall apply:
A person who holds a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another approved by the Council of Ministers body of certified auditors
in Cyprus is expected to perform a Quality Review of the Cyprus Local File.
The TP Documentation File must be prepared on an annual basis, by the deadline of filing the Income Tax Return for the relevant tax year.
In case of late submission or non-submission of files, the law and regulations prescribe the following penalties:
| Non-submission of Table of Summarized Information within deadline | € 500 |
| Late filing of the Local &/or Master File: | |
| – within the 61st and 90th day from request | € 5,000 |
| – within the 91st and 120th day from request | € 10,000 |
| – after the 121st day from request or non-filing | € 20,000 |
If you have any queries about this Cyprus Transfer Pricing update, or Cyprus tax matters generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The UK’s R&D regime has been incredibly attractive for many years.
Further, HMRC has consistently taken a ‘light touch’ approach to its supervision of the regime.
However, it has been clear for a number of years that there is a core of ‘specialist’ companies that might have taken a somewhat bullish approach to some of their claims.
As such, for some time, there has been speculation over whether the regime is ripe for reform.
To an extent, we are now starting to see that reform reflected in the changes recently announced / confirmed at the recent fiscal events.
Further, over the weekend, we have seen the Treasury open a consultation on reforming the R&D regime. The proposal is that the current dual system of an SME and a RDEC regime is merged into one.
Change is certainly coming…
There will be material changes to the UK’s Research & Development Tax regime.
These will be introduced with effect from 1 April 2023.
The changes will impact:
It is stated that the measures will ensure that:
It is clear that the changes to the SME scheme are being introduced as a response to perceived error and abuse of the regime. It is a shame that some bad actors have resulted in a dialling back of the benefits for all SMEs.
In addition, the new consultation release suggests the government is eye-ing up a merged, unified regime.
The rate and form of relief depends on whether the company can claim under the SME regime or only under the R&D expenditure credit (“RDEC”) regime. Large companies can only claim under RDEC along with some SMEs who are outside of the SME regime.
Under the SME regime relief is available as follows:
As referred to above, this is targeted at larger companies. However, in certain circumstances, it might be an SMEs claiming RDEC.
The RDEC uses a different method of calculating corporation tax relief on R&D expenditure. This is sometimes referred to as an “above the line” credit claimed as a cash payment.
For expenditure incurred on or after 1 April 2023 the various rates will change. The old and new rates are as follows:
| Profile of taxpayer | Up to 31 March 2023 | From 1 April 2023 |
| RDEC Company | RDEC Credit: 13% Corporation tax (“CT”) rate: 19% Benefit: 10.5% | RDEC credit: 20% CT rate: 25% Benefit: 15% |
| SME (in profit) | Enhanced deduction: 130% Benefit: 24.7% | Enhanced deduction: 86% Benefit: 21.5% |
| SME (loss-making) | R&D credit: 14.5% Benefit: 33.4% | R&D credit: 10% Benefit 18.6% |
In addition to the above, the Government is also introducing territorial restrictions to the regime.
These rules will apply to subcontracted R&D expenditure along with payments for externally provided workers (“EPWs”).
Subcontracted R&D activity will need to be performed in the UK.
EPWs will need to be subject to UK PAYE.
Expenditure in respect of overseas activity will still qualify in some limited circumstances.
In better news, expenditure on the cost of data licences and cloud computing will now constitute qualifying expenditure.
Companies will be subject to a new online pre-notification requirement where:
The new procedure means that the company must inform HMRC of:
within six months of the end of the relevant accounting period (unless the full claim has been submitted within the six-month deadline.) Previously, the only deadline has been the two year (following the end of the relevant accounting period) deadline for making a claim.
As stated above, these changes are also now joined by the announcement over the weekend of a new Government consultation on a new, unified R&D regime.
In a previous consultation, had asked views around whether the two schemes should be merged into one. This new consultation develops that idea further.
It appears that the government is coalescing around an ‘above the line’ credit for all parties. In other words, the SME regime will be replaced by a regime that looks more like RDEC for all.
The consultation document also alludes that additional relief might be available to either “R&D intensive companies” and / or “different types of R&D”. In the case of the latter, it might be that relief is targeted at activity with a “social value”.
Following on from any consultation, the new unified regime will be announced at a future fiscal event and implemented, as things stand, for expenditure incurred from 1 April 2024.
The reduction in the rate for SMES is disappointing. This is particularly the case for start-ups for which the ability to claim the repayable tax credit can be an important source of cash.
On the other hand, the increase in the RDEC is to be welcomed and should make the UK’s scheme more competitive internationally.
It is good to see that the categories of qualifying expenditure will be expanded to include data and cloud computing.
The changes in the process for making an R&D claim will be particularly relevant for companies who have not made a claim in the past. They will need to get their affairs in order much more quickly bearing in mind the new six-month deadline.
Finally, the enthusiasm for a unified system is perhaps not wholly unexpected either. The UK is perhaps unusual in offering a dual system.
It is hoped that the Government and all stakeholders can bash into shape a unified system t that preserves the attractive benefits for those currently utilising SME relief and RDEC but manages to ensure that relief is properly targeted and abuse minimised.
Watch this space.
If you have any queries relating to the Research & Development Tax Changes in the UK or tax matters in the UK more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
In 2020, the EU’s Anti-Tax Avoidance Directive II (“ATAD II“) came into force.
This led to EU Member States being required to implement into domestic law a suite of so-called “anti-hybrid” laws.
The aim of the anti-hybrid rules is, unsurprisingly, to eliminate the potential to exploit ‘hybrid features’ in a structure.
For example, the rules might address a hybrid instrument that is treated as debt in one jurisdiction but equity in another jurisdiction. Alternatively, they might target a hybrid entity which is treated as tax transparent in one jurisdiction and tax opaque in another jurisdiction.
One such anti-hybrid rule is the “reverse hybrid” rule.
This was introduced in a number of countries including Luxembourg.
The purpose of the “reverse hybrid” rule is to counteract “double non-taxation outcomes”.
Such an outcome might arise where an entity, e.g. a Luxembourg fund partnership, is treated as tax transparent in Luxembourg but tax opaque in the jurisdiction of one of its investors.
Why might this lead to ‘double non-taxation?’
Running with the example above, the Luxembourg fund partnership is not taxed in Luxembourg because it transparent for tax purposes. In other words, the entity does not pay tax, only the partners in the partnership.
However, that same income is also untaxed in that investor’s jurisdiction as a result of that jurisdiction deeming the income to have been paid by an opaque entity.
The rule may be triggered if:
This is subject to certain aggregation or “acting together” rules.
Where it is engaged, our fund partnership would be treated as a corporate for tax purposes in Luxembourg. As such, it becomes subject to Luxembourg corporate income tax.
Luxembourg amended its “reverse hybrid” on 23 December 2022.
This was to clarify certain conditions that must be satisfied in order for it to be engaged.
The conditions can be summarised as follows:
The reason for the amendment was that they overreached and counteracted certain mismatches that were not caused by hybridity – but rather as a result of an investor’s tax exempt status.
The amendment has retrospective effect from 1 January 2022.
If you have any queries relating to Luxembourg’s Reverse Hybrid Rule Amendments or tax matters in the Luxembourg more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
In December 2022, Kazakhstan amended its tax legislation.
We set out some of the relevant amendments in this article.
New restrictions will be imposed in relation to Kazakhstani companies seeking to apply double tax treaty benefits.
The changes relate to the following payments made to a foreign related party:
In particular, where a related party is in receipt of income, then the treaty rates may only be applied if the recipient is subject to an effective income tax rate of at least 15% on receipt in its home country.
This change was effective from 1 January 2023.
Here, individuals that are not classed as independent contractors will now become withholding agents in relation to capital gains in respect of share deals.
As such, they will need to deduct and withhold capital gains tax from the purchase price of shares. They will then need to pay this over to the authorities.
This change will take effect from 21 February 2023.
For those with, or clients with, subsidiaries in Kazakhstan, we would suggest reviewing these changes in line with any proposals to pay dividends, royalties or interest.
Further, those dealing with individuals who will now be brought within the capital gains tax withholding requirements then they should ensure they consider their compliance with these obligations.
If you have any queries relating to the Kazakhstan’s recent tax amendments or tax matters in Kazakhstan more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
Draft legislation has been approved by Thailand’s cabinet paving the way for the introduction of a Financial Transactions Tax (“FTT”).
The tax will apply to securities traded on the Stock Exchange of Thailand (“SET”).
This does away with a tax exemption that has been in place for over three decades.
Assuming that it ultimately finds its way onto the statute book, it is envisaged that it will apply to transactions starting from April 2023.
As alluded to above, the sale of securities through SET has been exempt from specific business tax since the end of 1991. The rationale was that this would stimulate trading on the secondary market and providing a shot in the arm for the domestic economy.
The FTT essentially acts to repeal this exemption. It is an indirect, transactional tax imposed on income from the gross receipts from share disposals.
Broadly speaking it will be those that are selling securities who will be liable for FTT.
However, the draft law also requires brokers to withhold FTT from the share sales income and to pay these amounts to the Revenue on behalf of the seller.
It is anticipated that the new FTT tax will be introduced in two phases.
These phases are as follows:
| Which phase? | Rate of FTT (inc local tax) | Expected date of commencement |
| Phase one | 0.055% x gross income from share disposals | With effect from April 2023 |
| Phase two | 0.11% x gross income from share disposals | With effect from January 2024 |
The FTT will apply to the following:
Some persons are specifically exempted.
If you have any queries relating to the new Thailand Financial Transactions Tax or tax matters in Thailand more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article