Direct Tax
G7 Finance Ministers and Central Bank Governors Reiterate Commitment to OECD's Two-Pillar Solution
[Excerpts from Orbitax News, 23 May 2022]
The US Department of the Treasury has published the official communiqué issued after the G7 Finance Ministers and Central Bank Governors Meeting held from 18 to 20 May 2022, which includes a continued commitment to the implementation of the Organisation for Economic Co-operation and Development’s (OECD's) two-pillar solution for international tax reform. In this regard, the communiqué includes the following:
"We reiterate our strong political commitment to the timely and effective implementation of the OECD/G20 Inclusive Framework Two-Pillar Solution to address the tax challenges arising from globalization and the digitalization of the economy with a view to bringing the new rules into effect at a global level. We will provide support to developing countries for the implementation of this historic agreement. We welcome the report by the OECD Secretariat on tax co-operation for the 21st century and ask the OECD to continue its work in this area and to report back on further developments."
OECD releases public comments on CARF and amendments to CRS
[Excerpts from oecd.org, 2 May 2022]
On 22 March 2022, interested parties were invited to provide comments on the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS). The OECD is grateful to the commentators for their input and now publishes the public comments received.
ICAI
- Suggests that the scope should be limited/restricted only to the products for financial purposes. The transactions through e-wallet should be excluded for reporting purposes. Any purchases/payments made within the threshold limit for personal usage per se should be outside the scope of CRS Reporting.
- An appropriate account balance threshold states that the significance of the threshold varies from jurisdiction to jurisdiction. It suggests that initially, to start with and to bring all jurisdictions at par, the threshold may be fixed at an amount determined after duly carrying out a global survey of the volume of transactions. The threshold can alternatively be fixed on the basis of purpose/usage.
Tax Justice Network
- Suggests that all “Retail Payment Transactions” should be covered without applying thresholds as thresholds can be circumvented.
- Notes that the framework excludes closed-loop crypto-assets because they are supposed to pose limited tax compliance risks. However, points out that it’s not clear how the restrictions would apply in practice, especially in cases where a secondary market is created for these closed-loop crypto assets. It states that if there’s no way to prevent closed-loop cryptoassets from being transferred in a secondary market or being used as an investment, they should also be within the scope of reporting.
China deposits an instrument for the approval of the Multilateral BEPS Convention
[Excerpts from oecd.org, 25 May 2022]
China has deposited its instrument of approval for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) Convention, which now covers over 1820 bilateral tax treaties, thus underlining its strong commitment to preventing the abuse of tax treaties and BEPS by multinational enterprises. China's instrument of approval also covers Hong Kong (China)'s bilateral tax treaties. The Convention will enter into force on 1 September 2022 for China.
On 1 June 2022, over 880 treaties concluded among the 76 jurisdictions which have ratified, accepted or approved the BEPS Convention will have already been modified by the BEPS Convention. Around 940 additional treaties will be modified once the BEPS Convention has been ratified by all Signatories.
Transfer Pricing
Transfer Pricing Amendments introduced in the Finance Bill 2022 in Kenya
A. Introduction and Amendments to Transfer Pricing Regime in Kenya
Kenya introduced Transfer pricing rules in 2006 to supplement the provisions of Section 18(3) of the ITA, 2006, Cap 470 and the said rules were significantly in line with the OECD’s Transfer Pricing Guidelines.
Furthermore, the Finance Act 2021, introduced key changes with respect to (i) expanding the definition of control (ii) enhanced the definition of permanent establishment (iii) Introduction of Country-by-Country Reporting (CbCR).
Recently, the Finance Bill 2022 presented at the National Assembly in April 2022 has introduced a raft of changes with respect to Transfer Pricing, which inter-alia includes changes in the documentation requirements, which are in line with OECD BEPS Action Plan 13.
The aforesaid changes were introduced with an aim to increase international tax transparency and access to information between member nations with respect to the global allocation of income, the taxes paid, retained earnings, tangible assets, etc.
Pre & Post Finance Bill 2022 – Changes
| Pre-Finance Bill 2022 | Post Finance Bill 2022 |
|---|---|
Requirement to meet Arm’s Length Pricing(ALP) principle and maintain prescribed documentation. ALP principle is largely modeled around OECD guidance. No requirement for Master File and CbCR. |
Provides for three-tier Transfer Pricing Documentation structure:
Bill proposes to repeal the current Section 18A of the ITA to the effect of expanding the transactions subject to transfer pricing rules between resident persons and persons in a preferential tax regime. |
B. Three-tiered documentation requirements
1. Country-By-Country Reporting
| Particulars | Documentation requirements |
|---|---|
| Notification requirement |
|
| Filing of CbCR | |
| Applicability | MNE resident in Kenya is required to file the CbCR with the Commissioner with respect to the financial activities of the Group in Kenya as well as other jurisdictions where the Group has a taxable presence. |
| Threshold | KES 95 billion (including extraordinary or investment income). |
| Due Date | CbCR needs to be filed within 12 months after the last day of the reporting financial year of the MNE group |
2. Local File (LF) Reporting
| Particulars | Documentation requirements |
|---|---|
| Filing of Local File | |
| Threshold | Presently, no threshold criteria prescribed for the preparation and maintenance of the Local File. |
| Due Date | Local File needs to be filed within six months from the end of the financial year. |
| Information to be submitted |
|
3. Master File (MF) Reporting
| Particulars | Documentation requirements |
|---|---|
| Filing of Master File | |
| Threshold | Presently, no threshold criteria are prescribed for the preparation and maintenance of the Master File. |
| Due Date | Master File needs to be filed six months from the end of the financial year. |
| Information to be submitted |
|
C. Penalties for Non- Compliance
A taxpayer who fails to comply with the reporting requirements will be subject to the penalties prescribed under the Tax Procedures Act.
Indirect Tax
Labelling of 0% goods mandatory
[Excerpts from zawya.com]
The Consumer Protection Authority (CPA) has directed all the shopping centers and stores in various governorates of the Sultanate of Oman to make a label identifying all the goods exempted from VAT. This compliance has been imposed as a result of fallacies that occur in shopping centers and exploitation by some traders due to a lack of awareness among customers.
Elimination of food sales tax
[Excerpts from various sources]
Kansas Governor Laura Kelly has signed a petition which will gradually decrease the state’s sales tax on groceries by 2025. The sales tax will be reduced from 6.5% to 4% effective from 1 January 2023. Subsequently, the tax will be reduced from 4% to 2% on 1 January 2024 and completely repealed by 1 January 2025. This proposal will have no effect on local grocery sales taxes, which are in addition to the 6.5% state tax charged currently.
Two months’ sales tax holiday
[Excerpts from mcall.com]
Owning to the rising inflation in the economy, Pennsylvania State Senator Lisa Boscola has proposed suspending the state’s 6% sales tax for June and July, giving the citizens a two months’ tax holiday. However, various concerns and doubts have been raised regarding the same.