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Direct Tax

OECD invites public input on the Progress Report on Amount A of Pillar One

Excerpts from oecd.org, 11 July 2022

Following years of intensive negotiations to update and fundamentally reform international tax rules, 137 members of the Inclusive Framework joined the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy released in October 2021. Nine months after this historic agreement, significant work and progress have been achieved on the development of the technical rules of the new taxing right (Amount A), including through the valuable inputs received during the rolling public consultation held on various building blocks of Amount A. To seek further feedback from stakeholders and consistent with the revised schedule for completing the work on Amount A agreed by the Inclusive Framework, the OECD secretariat has prepared a Progress Report on Amount A of Pillar One, which includes a consolidated version of the operative provisions on Amount A (presented in the form of domestic model rules), reflecting the technical work completed thus far. This report does not yet include the rules on the administration of the new taxing right, including the tax certainty-related provisions, which will be released in due course and before the Inclusive Framework meeting in October 2022.

The Progress Report on Amount A of Pillar One is a consultation document released by the OECD Secretariat for the purpose of obtaining further input from stakeholders on the technical design of Amount A. The comments provided will assist members of the Inclusive Framework in completing the work on the technical development of Amount A. Comments are sought with respect to the rules in this document. Where relevant, the input should refer to the relevant Section of the rules. While comments are invited on any aspect of the rules, input will be most helpful where it explains the additional guidance that would be needed to apply the rules to the circumstances of a particular type of business, as well as input on whether anything is missing or incomplete in the rules.

OECD releases Tax Administration Report, 2022

Excerpts from oecd.org, 23 June 2022

The OECD's Tax Administration Comparative Information Series, which commenced in 2004, examines the fundamental elements of modern tax administration systems and uses an extensive data set, analysis, and examples to highlight key trends, recent innovations and examples of good practice. The primary purpose of the series is to share information that will facilitate dialogue among tax officials and other stakeholders on important tax administration issues, including identifying opportunities to improve the design and administration of their systems both individually and collectively.

This report is the tenth edition of the OECD's Tax Administration Series. It provides internationally comparative data on global trends in tax administrations across 58 advanced and emerging economies. The report intends to inform and inspire tax administrations as they consider their future operations and provide information on global tax administration trends and performance for stakeholders and policymakers. The report is structured around nine chapters that examine the performance of tax administration systems, using an extensive data set and a variety of examples to highlight recent innovations and successful practices. This edition also provides a first glimpse of the impact of the COVID-19 pandemic on the work of tax administrations. The underlying data comes from the International Survey on Revenue Administration and the Inventory of Tax Technology Initiatives.

Mauritius Revenue Authority rules, all incomes from Alternative Investment Fund (AIF) taxable as ‘dividend’ regardless of ‘initial characteristics’

Excerpts from Business Standard, 1 July 2022

According to the Mauritius Revenue Authority (MRA) ruling, Mauritius-based investment vehicles will have to pay more tax in the island country on the capital gains they made while exiting a business in India in which a Permanent Establishment (PE) or debt fund has invested. Earlier, the Mauritius-based investment vehicles only had to pay tax on income flows such as dividends and income distributed by these funds from India.

Indian Venture and Alternate Capital Association (IVCA) said the ruling could give rise to uncertainty and litigation, both of which are anathemas to capital flows and investments. "Mauritiusbased PEs already had to grapple with the Financial Action Task Force (FATF) grey-list issue during COVID-19; this sudden ruling during a bear market, when capital is being taken out and redistributed to LPs will sow the seeds for litigation and color LPs’ views of Mauritius as a PE pooling regime," Pai said.

Transfer Pricing

Saudi Arabia: Proposed amendments to TP bylaws to include TP Documentation⁵

The Zakat, Tax and Customs Authority (ZATCA) issued an amended draft of TP bylaws and invited comments from the public. The deadline for submitting feedback is 30 July 2022. Presently, the bylaws exempt 100% zakat payers from TP documentation provisions (which includes master file, local file, and disclosure forms, etc.), and only 100% income tax paying entities and mixed entities (paying both zakat and income tax) are subject to TP documentation requirements. The proposed amendment seeks to bring Zakat payers within the ambit of TP bylaws. The amended TP bylaws would be effective pursuant to the issuance of a board resolution by ZATCA. There are a few other proposed amendments as well for practical implementation of bringing zakat payers under the ambit of the TP Bylaws or minor adjustments in already existing definitions.

Hence, in Saudi Arabia now, even Zakatpaying groups may want to gear up for their preparedness and may want to review their TP processes in case the amendments are given effect.

Cyprus: Introduction of TP Rules and Documentation Requirements

While many EU countries have already adopted in their national legislation the OECD TP Guidelines, Cyprus is one of the last countries to introduce TP legislation in its income tax law. Until now, Cyprus has had no detailed TP legislation included in its income tax law. While a specific arm’s length provision was incorporated, however, there was no guidance on how to apply it. On 30 June 2022, the Cyprus Parliament voted on detailed TP requirements (effective from 2022) that are in line with the OECD TP Guidelines and within the framework of Action 13 of the BEPS project. Key aspects of these are:

• The definition of connected parties as per Section 33(3) has been amended by introducing a 25% relationship test.
• New rules for maintenance of TP documentation to support the controlled transactions with related parties, subject to certain thresholds being exceeded.
• The taxpayer must prepare a Local File if their transactions with connected persons exceed EUR 750,000 per annum in aggregate per category of transactions (sale/ purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licensing/ royalties, etc.).
• A Master File must be prepared when a company is a part of the MNE group as the Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE) for CbCR purposes and where the consolidated revenue of the group exceeds EUR 750 million.
• The taxpayers would be required to fill a Summary Information Table (SIT) that would contain highlevel information on related party transactions, including details of the counterparties, their jurisdiction of tax residency, the category of intercompany transactions entered into, as well as their value.
• Stringent Penalties are also introduced for failure to provide TP documentation or SIT.

OECD releases Progress Report on Amount A of Pillar One of BEPS 2.0 project⁶

• The Progress Report is a consultation document that covers many of the building blocks with respect to the new taxing right under Pillar One Amount A and is presented in the form of domestic model rules. It does not yet include the rules on the administration of the new taxing right, including the tax certainty-related provisions, which will be released in due course and before the Inclusive Framework meeting in October 2022. The purpose is to obtain further input from stakeholders on the technical design of Amount A by August 2022.