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Asset & Wealth Management Tax Highlights – Asia Pacific

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Asset & Wealth Management Tax Highlights – Asia Pacific
Asset & Wealth
Management
Tax Highlights –
Asia Pacific
October to December 2015
In this edition’s asset and wealth management tax highlights for
the Asia Pacific region, we highlight industry developments from
Australia, China, Hong Kong, India, Indonesia, Korea, and the
Philippines, which may impact your asset and wealth
management business. We hope you find these updates of interest,
and will be pleased to discuss these developments and issues with
you further.
Australia
New tax system for Managed
Investment Trusts
On 3 December 2015, the Australian
Government introduced Bills into Parliament
containing legislation to implement the new
tax regime for managed investment trusts
(MITs) and a number of related
amendments.
The new MIT regime will apply to income
years commencing on or after 1 July 2016.
Eligible MITs will be able to elect to become
an Attribution MIT (AMIT) by irrevocable
choice. An ability to ‘opt in’ early (for income
years commencing on or after 1 July 2015) is
also available.
There will now be broadly three types of
MITs for tax purposes:
• Withholding MIT: has the same base
outcomes as an ordinary MIT but with the
benefit of concessional withholding
provisions in respect of certain ‘fund
payments’ because it has a substantial
proportion of its investment management
activities in Australia.
• Ordinary MIT: eligible to make the MIT
capital account election. This election
allows the MIT to treat its investments on
capital account and therefore, access the
capital gains tax discount concession.
• Attribution MIT: has the same base
outcomes as an ordinary MIT, however, it
is subject to the new AMIT provisions (as
contained in the Bill). An AMIT may or may
not be a withholdingMIT.
• A non-arm’s length rule has been
introduced such that the trusteeof an
MIT will be liable to pay tax on the
portion which exceeds the arm’s length
amount.
• There are certain rules under Division
6C of the Tax Act which taxes a public
unit trust that does not carry on eligible
investment business similar to a
company. The existing rule which
deems a trust to be a public unit trust
where certain exempt entities and
superannuation funds hold 20% or
more interest in the trust will be
repealed with effect from income years
on or after 1 July 2016. In addition,
Division 6B of the Tax Act which sought
to tax corporate unit trusts in a similar
manner to companies will be repealed
with effect for income years
commencing on or after 1 July 2016.
Other related changes include the
following:
Multinational integrity
measures
The Australian Parliament has passed
the following measures affecting
multinationals operating in Australia:
• The trustee allocates trust components
to members of an AMIT based on an
‘attribution’ on a fair and reasonable
basis in accordance with the trust deed,
rather than on a ‘present entitlement
basis’ under the old regime.
• The definition of MIT has been
expanded to include foreign life
insurance companies, entities that are
wholly owned by one or more qualified
investors, and limited partnerships
where all the limited partners are
qualified investors and the general
partner owns 5% or less interest. These
changes apply for income years on or
after 1 July 2014.
• Streaming of components to members
based on tax characteristics of members
is not allowed with certain exceptions
such as the allocation of capital gainsto
a redeeming unit holder where the
capital gain arises as a result of the
redemption.
• The start-up concession has been
increased to a maximum of 2 years
from the existing 18 months to give
additional time for MITs to meet the
widely held and closely held tests. This
change applies from the time the AMIT
provisions take effect.
Some of the key features of the AMIT
provisions are as follows:
• An AMIT is an MIT where interests of
members are ‘clearly defined’ and the
trustee has made an irrevocable
election to apply the regime. An MIT
that is a registered scheme will be
deemed to have clearly defined
interests. For unregistered schemes,
the rights to income and capital arising
from each of the interests in the trust
will need to be the same (disregarding
certain factors such as imposition of
different fees, issue and redemption
prices etc.).
• AMITs will be deemed to have fixed
trust status for tax purposes.
• The trustee has the option to recognise
classes of multi-class trusts as distinct
AMITs, and therefore, the tax position
of each class is kept separate.
• The tax treatment of tax deferred
distributions to members holding their
units of an AMIT on revenue account
has now been clarified (i.e. reduce the
cost base of the units rather than treat
as ordinary income).
• There have been modifications to the
withholding tax provisions to ensure
that withholding tax applies to
attributed amounts.
• The industry practice of recognising
‘unders and overs’ is codified. Unders
and overs are permitted to be carried
forward on a component by
component basis in the year of
discovery. There is generally a four
year time limit on the requirement to
‘discover’ unders and overs. As an
alternative to recognising unders and
overs, an AMIT could
re-issue its annual statements
(AMMA statements) to members.
• There are administrative penalties
that may apply to the trustee of an
AMIT where any individual under or
over is considered to arise due to the
intentional disregard of a taxation law
or recklessness by the trustee as to the
operation of a taxation law.
• In addition to downward cost base
adjustments required under current
law as a result of distributions of tax
deferred amounts, AMITs are now
entitled to make upward adjustments
to cost bases of the units in the AMIT
where the distribution members
receive is less than their attributed
share of taxable trust components.
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Asset & Wealth Management Tax Highlights – Asia Pacific
• Financial reporting for multinationals.
“Significant global entities” (i.e. entities
that are part of a group with global
income of more than AUD 1 billion) will
be required to prepare general purpose
financial statements for their Australian
operations. The general purpose
financial statements will be need to be
submitted by the taxpayer to the
Australian Taxation Office (ATO) by
the time of filing the tax return if they
have not been previously filed with the
Australian Securities and Investments
Commission (ASIC). The ATO will
share the financial statements with
ASIC. Documents filed with ASIC are
available to the public. The new
financial reporting requirements will
apply from years beginning on or after 1
July 2016.
Hong Kong
Consolidated response from
the government for
implementing AEOI in Hong
Kong
• New multinational anti-avoidance law
(MAAL). The MAAL is designed to
counter the erosion of the Australian
tax base by multinational entities using
artificial or contrived arrangements to
avoid the attribution of business profits
to Australia through a taxable presence
in Australia. These measures will
generally apply in relation to schemes
where a taxpayer derives a benefit on or
after 1 January 2016.
• Country-by-Country (CbC) reporting.
Consistent with the OECD
recommendations, all Australian and
foreign groups with an Australian
presence with global turnover of more
than AUD 1 billion will be required to
file a master file and local file with the
ATO. The first reports will not be due
to be filed until late 2017.
• Increase in penalties: Penalties
imposed on significant global entities
that enter into tax avoidance or profit
shifting schemes have been
significantly increased (to apply in
relation to an income year
commencing on or after 1 July2015).
In addition to the above, the following
transparency measures have been
released:
• New transparency laws allowing certain
tax information of public companies and
Australian subsidiaries of foreign groups
with Australian turnover of AUD 100
million or more, and Australian private
companies with turnover of AUD 200
million or more to be published. For
public companies and Australian
subsidiaries of foreign groups, the ATO
has implemented these rules by
publishing this information in December.
• The Board of Taxation released a
consultation paper on a voluntary tax
transparency code in relation to
additional disclosure of tax information
by ‘large businesses’ (Australian
turnover of at least AUD 500 million)
and ‘medium businesses’ (Australian
turnover of at least AUD 100 million but
less than AUD 500 million).
Third party reporting
The Australian Parliament has passed
laws introducing new third party
reporting requirements designed to equip
the ATO with more data to enable prefilling of income tax returns for
individuals and for compliance and data
matching activities.
Under the regime, affected entities (such
as Government entities, ASIC listed
companies and trusts, fund managers and
custodians, and banks) will have annual
obligations to report information to the
ATO including Government grants and
payments to suppliers, transfers of real
property, transfers of shares and units,
and business transactions through
payment systems. Third party reporting
obligations will apply to transactions
happening on or after 1 July 2016 (for
transfers of real property and ASIC
market integrity data) and on or after 1
July 2017 (for other transactions).
OECD Common
Reporting Standard
On 3 December 2015, the Australian
Government introduced a Bill into
Parliament introducing the OECD’s
Common Reporting Standard (CRS)
for the automatic exchange of financial
account information.
China
PN60 – new tax treaty benefit
claim procedures
The State Administration of Taxation (SAT)
issued SAT Public Notice 2015 No. 60
(PN60) on 11 September 2015 to supersede
the prevailing Guishuifa[2009]No.124 on
tax treaty application. PN60 introduces a
new mechanism of self assessment on the
eligibility for tax treaty benefits (reduced
taxation or exemption) by non-resident
taxpayers. The pre-approval process or
record filing acknowledgement from the
Chinese tax authorities is no longer
necessary. Instead, the non-resident
taxpayers and their withholding agents will
be required to file certain prescribed forms
and other supporting documents when
performing tax filing to justify their claims
for the tax treaty benefits.
For further details, please refer to
http://www.pwchk.com.hk/home/eng/chi
natax_news_nov2015_44.html
http://www.pwchk.com.hk/home/eng/chi
natax_news_sep2015_40.html
http://www.pwchk.com.hk/home/eng/hkt
ax_news_sep2015_8.html
On 12 October 2015, the HKSAR
Government published a consolidated
response (the Response Paper) after
considering views from the public on the
implementation of automatic exchange of
information in Hong Kong. With only a
few months before a draft Bill will be
introduced to the Legislative Council, it is
not likely that there will be significant
deviations in the draft Bill from what
have been set out in the Response Paper.
It is therefore imperative that financial
institutions analyse impact of the
Common Reporting Standard (CRS) on
their business and work towards
implementing CRS compliant processes
and procedures.
For further details, please refer to
http://www.pwchk.com/home/eng/crs_o
ct2015.html
Understanding the IRD’s views
on emerging corporate tax
issues, in particular the practice
on processing Hong Kong tax
resident certificateapplications
In the 2015 annual meeting between the
IRD and the HKICPA, the IRD expressed
its views on various emerging corporate
tax issues in the domestic as well as crossborder context, including: (1) taxation of
royalties from licensing of intellectual
property rights; (2) the IRD’s assessment
of Hong Kong tax resident certificate
applications; (3) application of tax treaties
to non-resident partnerships; (4) foreign
tax credit claims of Hong Kong branches
of overseas banks and (5) Hong Kong’s
responses to the Organisation for
Economic Cooperation and Development’s
Base Erosion and Profit Shifting (BEPS)
project.
Whilethe meeting minutes are not law
and are not legally binding, the minutes
serve as a good reference of the IRD’s
stance on various emerging tax issues. In
particular, thisyear’s minutes have shed
some light on the impacts of the BEPS
project on the tax regime in Hong Kong,
which are mainly in the areas of
consideration of corporate tax incentives,
preventing treaty abuse and transfer
pricing. Companies with business
operations in Hong Kong or doing
business with Hong Kong should take into
account the views expressed by the IRD
in the meeting minutes in both of their
tax planning and tax filing processes for
an effective management of their tax
matters.
For further details, please refer to
http://www.pwchk.com/home/eng/hkt
ax_news_nov2015_10.html
Asset & Wealth Management Tax Highlights – Asia Pacific
3
India
Regulatory updates
• Guidelines on overseas
investments and other issues /
clarifications for Alternative
Investment Funds (AIFs) or
Venture Capital Funds (VCFs) –
On 1 October 2015, the Securities and
Exchange Board of India (SEBI) issued
a Circular partially modifying their
circular dated 9 August 2007 on the
Guidelines on overseas investments
and other issues or clarifications for
AIFs/ VCFs. Under the Circular,
VCFs/AIFs are, from the date of the
circular, permitted to invest in Offshore
Venture Capital Undertakings which
have an Indian connection (being a
company which has a front office
overseas and back office operations are
in India) of up to 25% of the investible
funds of the VCF/AIF. Further,
VCFs/AIFs shall not invest in joint
ventures/wholly owned subsidiaries
while making overseas investments.
The Circular also clarifies that from the
date of the Circular, the tenure of any
scheme of the AIF shall be calculated
from the date of final closing of the
scheme.
• Foreign Direct Investment (FDI)
Reforms – On 10 November 2015,
the Indian Government published a
Press Note outlining significant
reforms in the FDI Policy. The
reforms are aimed at attracting more
foreign investments through further
easing, rationalising and simplifying
the process of foreign investments in
the country and putting more FDI
proposals under automaticroute.
• Insurance Regulatory and
Development Authority of India
(IRDAI) regulations for issue of
other forms of capital – On 13
November 2015, IRDAI released the
final regulations for issue of other
forms of capital (i.e. other than equity
shares). The regulations, IRDAI (Other
Forms of Capital) Regulations, 2015
permits insurers to issue following two
types of instruments with specific prior
approval from IRDAI and subject to
certain specified criteria.
1.
Preference share capital; and
2.
Subordinated debts (i.e.
debentures or any other debt
permitted by IRDAI)
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Asset & Wealth Management Tax Highlights – Asia Pacific
• Foreign Investment in AIF, Real
Estate Investment Trusts (REIT),
Infrastructure Investment Trusts
(InvIT) – On 16 November 2015, the
Reserve Bank of India (RBI) notified
the much-awaited regulations enabling
foreign investments under the
automatic route in AIFs, REITs and
InvITs and other entities regulated by
the SEBI or any other authority
designated for such purpose
(collectively referred to as “Investment
Vehicles”). NRIs and Registered
Foreign Portfolio Investors (RFPIs) are
also permitted to invest in units of
Investment Vehicles under this route.
Downstream investment by an
Investment Vehicle are classified as
foreign investment where neither the
Sponsor nor Manager nor Investment
Manager are Indian-owned and
controlled. For this purpose, the extent
of foreign investment in the corpus of
the Investment Vehicle is irrelevant.
Where the downstream investment is
regarded as foreign investment, it will
be subject to sectoral caps and
conditions/ conditions for FDI in LLP.
• Investment by Foreign Portfolio
Investors (FPI) in debt
instruments which are under
default – On 26 November 2015, the
RBI has decided to permit FPI to
acquire NCDs/bonds, which are under
default, either fully or partly, in the
repayment of principal on maturity or
principal installment in the case of
amortising bond. The revised maturity
period of such NCDs/bonds,
restructured based on negotiations
with the issuing Indian company,
should be three years or more.
• SEBI Circulars in relation to SEBI
(Listing Obligations and
Disclosure Requirements)
Regulations, 2015 – On 30
November 2015, the SEBI issued
circulars prescribing additional
requirements and disclosures to be
made under specified clauses of the
SEBI (Listing Obligations and
Disclosure Requirements) Regulations,
2015, and to avail exemption under rule
19(7) of Securities Contract
(Regulations) Rules, 1957 in the
following areas:
1. Requirements for Scheme of
Arrangement of Listed Companies:
The circular provides the
responsibilities of the listed
company and stock exchange in
relation to a particular Scheme of
Arrangement.
2.Manner of achieving minimum
public shareholding: The circular
prescribes the various modes in
which the minimum public
shareholding is achieved by a listed
company.
• External Commercial
Borrowings (ECB) Policy – New
Framework – On 30 November 2015,
RBI issued a Circular outlining the new
framework for ECB, replacing the
existing guidelines issued about a
decade ago. The overarching principle
of the new framework has been to
liberalise and encourage long term
ECBs denominated in foreign currency
and ECBs denominated in INR. For
this purpose, these ECBs have been
segregated from other ECBs as separate
‘Track II’ and ‘Track III’ respectively
under the new framework. Further,
there have been various amendments
made in respect of other ECBs having
average maturity of less than 10 years.
• Enrolment of Foreign
Companies with the Registrar of
Companies – On 11 December 2015,
the Indian Government issued a press
release which stated that every foreign
company, as defined under Section
2(42) of Companies Act, 2013 (the Act),
is required to get itself registered with
Registrar of Companies, New Delhi
within 30 days of its establishing a
place of business in India in
accordance with Section 380 of the Act.
Such foreign companies also include
those which have a place of business in
India established through electronic
mode.
• IRDAI norm on issuance of
capital by Indian Insurance
Companies transacting other
than Life Insurance Business –
On 15 December 2015, the SEBI
notified that no Indian insurance
company transacting the General
insurance or Health insurance or
Reinsurance business shall approach
the SEBI for public issue of shares and
for any subsequent issue without the
specific previous approval of IRDAI.
Tax updates
No Minimum alternative Tax
(MAT) on foreign companies for the
period prior to 1 April 2015
On 23 December 2015, the Indian
Government issued instruction no.
18/2015 to reiterate its earlier stand
mentioned in the press release dated 24
September 2015 and the commitment
made by the Government before the
Supreme Court by stating that with effect
from 1 April 2001 the provisions of section
115JB shall not be applicable to a foreign
company (including an FII/FPI) if –
1. The foreign company is a resident of a
country with which India has a Double
Taxation Avoidance Agreement
(DTAA) and such foreign company
does not have a permanent
establishment in accordance with the
provisions of the relevant DTAA,or
2.The foreign company is a resident of a
country with which India does not
have a DTAA and such foreign
company is not required to seek
registration under section 592 of the
Companies Act, 1956 or section 380
of the Companies Act, 2013.
Taxation of rupee denominated
offshore bonds
The Central Board of Direct Taxes (CBDT)
issued a press release on 29 October 2015
stating that:
1. interest income from investment in
Rupee Bonds shall be subject to a
withholding tax of 5% (which is in the
nature of final tax), as applicable for
offshore dollar denominated bonds
2. capital gains arising from appreciation
of rupee between the date if issue and
the date of redemption against the
foreign currency in which investment is
made shall be exempt from tax.
The CBDT proposes to introduce an
amendment to the law during thenext
Union Budgetpresentation.
Asset & Wealth Management Tax Highlights – Asia Pacific
5
Indonesia
Exchange of information
– and update
Following some noteworthy international
tax agreements that Indonesia has
committed to, the Minister of Finance
(MoF) has updated the Indonesia’s
provisions on Exchange of Information
(EoI) through the issue of Regulation
No.125/ PMK.010/2015 (PMK-125) dated
7 July 2015, which amends the MoF
Regulation No.60/PMK.03/2014(PMK60).
PMK-125 expands the list of
international tax agreements which are
the basis of EoI, to be as follows
(additions are highlighted in red):
a) Double Taxation Agreement
(DTA/ taxtreaty)
b) Tax Information Exchange
Agreement (TIEA)
Tax treaties update
India – Israel – On 7 October 2015, the
Union Cabinet, through a press release,
approved the protocol amending the tax
treaty with Israel to provide for
internationally accepted standards for
effective exchange of information on tax
matters including bank information and
information without domestic tax
interest. The amended protocol further
provides that information received from
Israel in respect of an Indian resident
can be shared with other law
enforcement agencies with
authorisation of Competent Authority
of Israel and vice versa, and the
limitation of benefit clause, which
permits application of domestic law
provision and measures concerning tax
avoidance in the event of treatymisuse.
India – Japan – On 2 December 2015,
the Union Cabinet, through a press
release approved the protocol amending
the treaty with Japan. The Protocol will
facilitate exchange of information, as
per accepted international standards,
on tax matters including bank
information and information without
domestic tax interest. There is a further
provision in the Protocol for sharing
any information received from Japan,
with the authorisation of the competent
authority in Japan and vice versa, in
respect of a resident of India,
6
with other law enforcement agencies.
The Protocol also has a provision for
India and Japan to lend assistance to
each other incollection of revenue
claims, as well as for exemption of
interest income from taxation in the
source country, with respect to debtclaims insured by the Government or
Government-owned financial
institutions.
India – Thailand – On 1 December
2015, the Indian Government notified
the treaty between Government of India
and Government of Kingdom of
Thailand signed on 29 June 2015. The
treaty will be effective from 1 April 2016.
India – Turkmenistan – On 5
November 2015, the Union Cabinet,
through a press release approved the
protocol amending the treaty with
Turkmenistan to provide for
internationally accepted standards for
effective EOI on tax matters including
bank information and information
without domestic tax interest. The
amended protocol also inserts the LOB
clause which enables use of domestic
law provisions and measures
concerning tax avoidance in the event of
treaty misuse. It further provides that
information received from
Turkmenistan in respect of an Indian
resident can be shared with other law
enforcement agencies with
authorization of respective Competent
Authorities.
Asset & Wealth Management Tax Highlights – Asia Pacific
c) Convention on Mutual Administrative
Assistance in Tax Matters
(Convention)
d) Intergovernmental Agreement (IGA)
e) Multilateral or bilateral
Competent Authority Agreement
(CAA)
f) Other agreements
The types of EOI and the
associated application procedure
stipulatedin PMK-125 remain the
same as in PMK-60.
For EoI purposes, the DGT can request
supporting data from the relevant
taxpayers (including permanent
establishments) or other third parties
having information relevant to the
disputed taxpayer, such as financial
institutions (FIs) in Indonesia as well as
its customers, and offshore entities whose
information is possessed or stored by
Indonesian parties. If the data requested
is restricted banking information, the
written request should come from the
MoF and should be addressed to the Head
of the Financial Services Authority
(Otoritas Jasa Keuangan/OJK), where
previously it would have been addressed
to the Governor of Bank Indonesia.
Under PMK-125, the DGT is authorised to
provide information under automatic EoI
to a country partner on detailed
information on tax withholding/collection,
or financial information related to FI
customers.The scope of financial
information includes: account balances,
total income generated from assets
maintained in FIs, securities sale proceeds,
and income paid or credited to bank
accounts.
Debt to equity ratio
What is consideredequity
Offshore loan reporting requirement
After having been stipulated in the
Income Tax Law for over three decades,
the MoF has finally issued the
implementing regulation on Debt to
Equity Ratio (DER) for tax calculation
purposes through the issuance of
Regulation No.169/PMK.010/2015 (PMK169)dated 9 September 2015 which is
applicable starting from fiscal year 2016.
PMK-169 defines equity as:
Taxpayers who have an offshore private
loan must submit a report to the
Directorate General of Tax (DGT)
regarding the amount of this offshore
loan. Failure to do this will result in nondeductibility of the relevant financing
cost. The reporting mechanism will be
governed under a separate DGT
regulation.
This ratio is applicable to corporate
taxpayers that are established or domiciled
in Indonesia whose capital consists of
shares, with the following exemptions.
Financing costs are defined as all costs
of funds, as follows:
Exempt parties
PMK-169 provides an exemption from
the application of this ratio to the
following taxpayers:
a.
Banks
b.
Financing institutions
c.
Insurance and reinsurance
companies
d.
Taxpayers in oil and gas mining,
general mining, and other mining
companies under a Profit Sharing
Contracts, Contract of Works, or
Mining Cooperation Agreements, and
the relevant contract/agreement
contains provisions governing DER. If
the contract/agreement does not
contain such a provision or the
contract/ agreement has expired, the
relevant taxpayer is subject to the 4:1
ratio
e.
Taxpayers whose whole income is
subject to final tax
f.
Taxpayers in the infrastructure
industry
What is theratio?
A single ratio of 4:1 is applicable across
the board, which means the amount of
debt allowable in order to obtain full
deductibility of the financing cost is
limited to four times the equity amount.
Debt amount exceeding four times of
equity will result in an adjustment on
the deductible financing cost amount.
What is considereddebt
Falling under the category of debts are:
a. Long-term debt
b. Short-term debt
a. all items that are recorded under the
equity section based on the
prevailing accounting standards; and
b. an interest-free loan from
related parties.
What is considered financingcost
a.
Loan interest
b.
Discount and premium related to
the loan
c.
Arrangement of borrowings
d.
Financing cost in leasing
arrangement
e.
Guaranteefee
f.
Foreign exchange derived from
the financing costs in points (a)
to (e) above.
Although the applicability of the DER
starts in the 2016 fiscal year, taxpayers
may want to review the potential impact
of this regulation on the deductibility of
their future financing costs under the
current financing arrangement.
How to apply the ratio in
a tax calculation
The amount of debt for the purpose of
calculating DER is the monthly
average debt balance during the fiscal
year or part of the fiscal year.
Similarly, the amount of equity for the
purpose of calculating DER is the
monthly average equity balance during
the fiscal year or part of the fiscal year.
In the case where the balance of equity
is zero or minus, all financing costs of
the taxpayer cannot be deducted.
If the actual ratio of the debt and
equity exceed 4:1, the deductible
financing costs must be adjusted to an
allowable amount based on the 4:1
ratio. It is silent on the treatment if the
ration is less than 4:1.
When some of the income is subject to
final tax, the taxpayer must first
calculate the DER, apply it to the total
financing cost to derive a deductible
financing cost amount, then later adjust
the deductible amount based on a
proration of the final and non-finaltaxed income.
However, if some of the debt is used to
generate non-taxable income, the loan
and relevant financing costs are
excluded prior to calculating the DER.
Real estate investment fund
The Minister of Finance issued
RegulationNo.200/PMK.03/2015 (PMK200) on 10 November 2015 regarding
income tax and Value Added Tax (VAT)
treatment for certain Collective
Investment Contracts to enhance the
financial sector.
This regulation stipulates the tax
treatment for a Collective Investment
Contract in the form of a Real Estate
Investment Fund (Kontrak Investasi
Kolektif – Dana Investasi Real
Estate/KIK-DIRE).
c. Trade payables which bear interest
There is no differentiation between debt
from a third party and from a related party,
although it is mentioned that the
deductibility of financing cost derived from
a related party loan is still subject to arms’
length principle on top of the DER.
Asset & Wealth Management Tax Highlights – Asia Pacific
7
Definition
VAT Treatment
A KIK-DIRE is a collective investment
contract that raises public funds in order
to invest these in real estate assets,
assets related to real estate, and/or cash
and cash equivalent.
The SPC or KIK DIRE is considered as a
low risk entrepreneur and therefore can
enjoy the preliminary VAT refund
process. To enjoy this facility, the
taxpayer must submit an application
(through a VAT return or a separate
application letter) and meet the following
criteria:
A KIK-DIRE scheme can be established
with or without a Special Purpose
Company (SPC). The SPC is owned at
least 99.9% by the KIK DIRE.
Income Tax Treatment
Dividend from SPC to KIK DIRE
Under the scheme where the KIK DIRE is
established with a SPC, the SPC is
considered an integral part of the KIK
DIRE. Therefore, any dividend received
by the KIK DIRE from the SPC is not
taken into account as taxable income at
KIK level. This means that the dividend
is not considered taxable income and no
withholding tax is due.
To be eligible for the above treatment,
the KIK DIRE must attach the following
documents in their annual Corporate
Income Tax Return (CITR) for the fiscal
year where the dividend was received:
a.
Copy of notification letter of
statement of effective registration of
the KIK DIRE that is issued by the
Financial Services Authority
(Otoritas Jasa Keuangan/OJK);
b.
Explanation from OJK that the
taxpayer is a SPC under KIK DIRE;
and
c.
Statement letter with stamp duty
stating that the SPC is formed
solely for KIK DIRE purposes.
Transfer of real estate from original
asset owner (“originator”) to the SPC or
KIK DIRE
The transfer of the real estate assets from
the originator to the SPC or KIK DIRE is
not subject to the 5% final tax on the
transfer of land and building rights. No tax
exemption letter (Surat Keterangan Bebas)
is required for this treatment. However,
the gain is subject to income tax.
The originator must submit a written
notification to the tax office of such asset
transfer using the template provided in
the regulation. This notification letter
and the documents outlined in point a, b,
and c in the above section must be
provided to the authorised officials (such
as a notary) for them to be able to sign
the transfer document.
8
• The taxpayer has been appointed as a
low risk entrepreneur;and
• There is an input VAT claim from
the acquisition of the real estate.
To be appointed as a low risk
entrepreneur, the SPC or KIK DIRE must
submit an application and attach it with
the documents outlined in point a, b, and
c in the above section. The Director
General of Tax (DGT) must issue a
decision within 15 working days,
otherwise the application is deemed
approved and a decision must be issued
within 15 working days from the initial
deadline. The decision is applicable for 12
months. Should this period end, the
taxpayer may reapply for appointment as
a low risk entrepreneur.
The appointment decision is declared
invalid if the taxpayer is (i) subject to a
preliminary evidence tax audit or
investigation; or (ii) subject to a tax
audit where it is discovered that the
taxpayers does not carry out the KIK
DIRE scheme.
Upon application for the preliminary VAT
refund, the DGT will conduct an
examination and issue a decision within
one month from the complete application,
otherwise the application is deemed
approved and a decision must be issued
withinseven days from the initial
deadline.
The preliminary VAT refund process
may be rejected if:
• The taxpayer is not a SPC or KIK DIRE
that has obtained the appointment as
low riskentrepreneur;
• There is no input VAT claim from
the acquisition of the real estate;
• Attachment of the VAT return
is incomplete;
• There is no overpayment of VAT;and/or
• VAT payment made by the taxpayer
is incorrect.
The DGT shall notify this rejection and
process the VAT refund process under
the normal procedures for which the
deadline is 12 months.
Asset & Wealth Management Tax Highlights – Asia Pacific
Korea
Introduction of new transfer
pricing documentation
requirements
On 15 December 2015, Korea’s Ministry
of Strategy and Finance (MOSF)
introduced the Combined Report of
International Transactions (CRIT) to
better align the transfer pricing
documentation requirements contained
in the Law of the Coordination of
International Tax Affairs (LCITA) with
Action 13 of the OECD’s Base Erosion
and Profit Shifting (BEPS) project. The
CRIT, in its current form, is comprised of
a Master file and a Local file.
Proposed amendments to the
Presidential Enforcement Decree
(LCITA-PED) released on 24 December
2015 provide further guidance on the
specific application of the CRIT
requirements. According to the proposed
amendments, all corporations (domestic
or foreign) engaging in cross-border
related party transactions exceeding
KRW 50 billion and reporting sales
revenue exceeding KRW 100 billion
during the relevant fiscal year will be
required to submit both a Master file and
a Local file to the local tax office by the
corporate tax return filing deadline (i.e.
three months after fiscal year end). The
new requirements will apply to taxpayers
with fiscal years beginning on 1 January
and after.
Adoption of Automatic
Exchange of Information –
Common Reporting Standard
Korea has begun implementing the
Common Reporting Standard (CRS)
on 1 January 2016 and will participate
in the automatic exchange of
information in 2017 with other
participating jurisdictions. Korea’s
Financial Services Commission issued
final guidance on Automatic Exchange
of Financial Information in December
2015.
Individual income tax
exemption on gains from funds
investing in foreign listed
securities
Pursuant to recent amendments to the
Restriction of Special Taxation Act
(RSTA), capital and foreign exchange
gains earned by individual investors
arising from investments in qualifying
funds that invest 60% or more of assets
in listed securities traded on foreign
stock exchanges will not be taxed for 10
years form the date of buying such funds.
The tax exemption is effective for
investments made in qualifying funds
beginning on or after 1 January 2016.
For further information on the above,
please refer to
http://www.pwc.com/kr/en/industry/fin
ancial.html
The Philippines
A foreign corporation may be
treated as an NRFC even if it
has a branch or RO
(BIR Ruling No. ITAD 274-15 and 269-15
dated 11 September 2015)
As a rule, dividends paid to a nonresident foreign corporation (NRFC) are
subject to withholding tax of 30%.
However, these dividends may be
subjected to a reduced or preferential tax
rate to the extent required by any treaty
obligation on the Philippines.
In these rulings, the treaty applied was the
Philippines-Japan tax treaty, which
provides that if the dividends are paid to a
company that has a permanent
establishment in the Philippines, and the
same is effectively connected with the
permanent establishment, the treaty rate
shall not apply. Instead, the dividends shall
be subject to 30% income tax rate. The
Bureau of Internal Revenue (BIR), in these
rulings, held that the dividends came from
transactions that are separate and
independent from the Philippine branch
and representative office (RO) of the
foreign company. Thus, the dividends are
covered by the preferential treaty rates.
BIR issues rules on
Philippines-Qatar Tax Treaty
(Revenue Memorandum Circular No.
72-2015 dated 28 October 2015)
The Commissioner of Internal Revenue
(CIR) circularised the treaty
(Agreement) entered on 19 May 2015
between the Government of the Republic
of the Philippines and the Government of
the State of Qatar for the Avoidance of
Double Taxation and the Prevention of
Fiscal Evasion with respect to taxes on
Income and Capital Gains.
Pursuant to Article 28 of the
Agreement, the same shall have effect
with respect to taxes on income and
capital gains, including taxes withheld
at source on income paid to a nonresident, for any taxable period
beginning on or after 1 January 2016.
The BIR reiterated that tax treaty relief
applications invoking the Philippines-Qatar
Double Taxation Agreement should be filed
with the International Tax Affairs Division
(ITAD) of the Bureau of Internal Revenue.
A Qatari resident income earner or his
authorised representative should file a duly
accomplished BIR Form 0901 (Application
for Relief from Double Taxation) with the
required documents specified at the back of
the form pursuant to Revenue
Memorandum Order No. 72-2010.
However, in a 2013 Supreme Court case
it was held that an administrative
issuance requiring the filing of a tax
treaty relief application within a
prescribed period cannot take
precedence over a tax treaty for the
availment of treaty benefits.
Tax sparing rule applies to
Australia
(BIR Ruling No. 389-2015
dated 29 October 2015)
Dividends paid to an Australian resident
are subject to 15% final tax
In a ruling, the BIR recognised the
application of the tax sparing rule on a
dividend payment to an Australian
resident. The BIR said that because the
Australian tax law exempts from tax the
dividends from the Philippines, in effect,
Australia allows a credit for taxes deemed
paid in the Philippines of at least 15%. The
BIR cited a Supreme Court case where it
held that such exemption satisfies the
condition for the application of the tax
sparing rules. As such, the lower dividend
tax rate of 15% (normally it is 30%) under
the Tax Code shall apply.
Either party pays DST but not
on bank loans
(CTA Case No. 8459 dated 23 November
2015)
When one of the parties in a taxable
transaction subject to DST is a bank, the
remittance of the payable DST shall be the
responsibility of such bank.
The Court of Tax Appeals (CTA) voided a
Documentary Stamp Tax (DST)
assessment against a taxpayer-corporation
on its borrowings from banks. The CTA
said that Revenue Regulation No. 09-00
provides that if any of the parties to a
transaction subject to DST shall be a bank,
the remittance of DST on the loan shall be
the responsibility of the lender-bank, and
not of the borrower.
DST assessment computed on
year-end balances of
intercompany accounts is void
The CTA also voided a DST assessment
which was computed on year-end balances
of advances/loans to affiliates as indicated
in the audited financial statements.
According to the CTA, theseamounts do
not actually represent new transactions
entered into by the corporation within the
taxable year. As a rule, deficiency
assessmentsmust be based on actual facts
and not merely a result of arbitrary
computation. Thus, mere presumptions on
the balances as basis for DST assessment
is void, and would not prevail under
judicialscrutiny.
Asset & Wealth Management Tax Highlights – Asia Pacific
9
For more information, please contact the following territory partners:
Country
Partner
Telephone
Email address
Australia
Ken Woo
+61 (2) 8266 2948
[email protected]
China
Jeremy Ngai
+852 2289 5616
[email protected]
Hong Kong
Florence Yip
+852 2289 1833
[email protected]
India
Gautam Mehra
+91 (22) 6689 1155
[email protected]
Indonesia
Margie Margaret
+62 (21) 5289 0862
[email protected]
Japan
Akemi Kitou
+81 (3) 5251 2461
[email protected]
Stuart Porter
+81 (3) 5251 2944
[email protected]
Kwang-Soo Kim
+82 (10) 3370 9319
[email protected]
Korea
Malaysia
Jennifer Chang
+60 (3) 2173 1828
[email protected]
New Zealand
Darry Eady
+64 (9) 355 8215
[email protected]
Philippines
Malou P. Lim
+63 (2) 845 2728
[email protected]
Singapore
Anuj Kagalwala
+65 6236 3822
[email protected]
Taiwan
Richard Watanabe
+886 (2) 2729 6666 26704
[email protected]
Thailand
Prapasiri Kositthanakorn
+66 (2) 344 1228
[email protected]
Vietnam
Van Dinh Thi Quynh
+84 (4) 3946 2231
[email protected]
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2016 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC network. Each member
firm is a separate legal entity. HK-20160128-3-C2
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