Asia Tax Bulletin Autumn 2020 - Mayer Brown
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Asia Tax Bulletin Autumn 2020
In This Edition
We are pleased to present the Autumn 2020
edition of our firm’s Asia Tax Bulletin.
Dear Reader, On another headline note, Indonesia, Korea
and Malaysia have seen developments in
We hope you are well and are coping with connection with the Multilateral Agreement
the global virus situation affecting us all. (MLI) aimed at avoiding abuse of tax treaties
and shipping businesses are looking into the
SAN FRANCISCO CHICAGO
This edition contains news on various recent NEWpotential
YORK consequences of the US’ unilateral BEIJING
PALOtax
ALTO
developments in East and Southeast Asia. WASHINGTON
termination ofDC
its shipping tax treaty with
TOKYO
One development in particular has been CHARLOTTE Hong Kong.
LOS ANGELES HOUSTON SHANGHAI
dominating the headlines: the introduction, in
a number of jurisdictions, of an indirect tax We trust you will find this interesting and
DUBAI HONG KONG
liability on digital goods and services helpful and hope you will stay healthy. HANOI
MEXICO CITY
(e-books, music, movies, computer software,
games, online advertising, etc.) supplied by Pieter de Ridder BANGKOK HO CHI MINH CITY
overseas businesses. Over the past few
AMERICAS
months Indonesia, Malaysia and the
SINGAPORE
Philippines have come out with measures to
tax overseas businesses. You will find more
about them in this edition of the Bulletin.
BRASÍLIA* Pieter de Ridder
Partner, Mayer Brown LLP*
RIO DE JANEIRO
+65 6327 0250
SÃO PAULO *
pieter.deridder@mayerbrown.com
*TAUIL & CHEQUER OFFICE
2 | Asia Tax Bulletin MAYER BROWN | 3
Contents
China India Korea Singapore
Liaison office is not a
6 Corporate and individual tax
incentives in Hainan free trade port 14 permanent establishment 25 Multilateral convention (MLI)
enters into force 35
Tax framework for variable
capital companies
7 Import tax reduction of 14 Guarantee fees not subject to tax
25 Supreme court’s decision on 37 Tax avoidance penalty
certain commodities permanent establishment
15 Mandatory electronic invoicing Taxation of insurers under the revised
Preferential policy for integrated Amendments to tax law 37
8 circuits and software industry 15 Transparent taxation platform 26 proposals 2020
risk-based capital framework
Income tax exemption of certain
16 Preferential custom duty rates 27 Cryptocurrency transactions 37 interest payments
Hong Kong under treaties
Transfer pricing guidelines for
16 Withholding tax on certain 38 COVID-affected businesses
9 Profits tax exemption for funds domestic payments Malaysia
Withholding tax exemption of
10 Advance Pricing Arrangements (APAs)
28 Service tax for digital services 39 finance lease payments by
Indonesia shipping enterprises
Profits tax concession for insurance
10 businesses
VAT collection threshold for 29
Service tax treatment
of reimbursement and 40 International tax developments
18 e-commerce transactions disbursement charges
Sale and purchase of Hong Kong
11 stocks by ETF market makers
19 Value-added tax collectors for
29 Malaysia ratifies multilateral Taiwan
foreign digital goods and services convention (MLI)
Assessable profits, revenue
11 recognition and measurement of
The reduced tax rate for Special tax treatment of interest 41
Capital gains from sales of
inventories 19 public companies 30 income for banks and
unlisted shares
financial institutions Securities transfer tax on sales of
12 Tax treatment of regulatory
Mutual Agreement Procedure 41
capital securities 20 (MAP) guidelines
stock options
12 Exchange of information on request
Tax incentives for production sharing Philippines 42 Transfer pricing regulations
20 contracts in oil and gas sector
for intangibles
13 Internal tax developments
31 Digital transactions
21 Tax incentives Thailand
32 Related party disclosure
Tax treatment of assistance,
22 donations and grants 33 Deficiency tax assessments 43 Online filing and payment of taxes
22 Multilateral Convention (MLI)
33 Permanent establishment and tax 43 Transfer pricing and exchange
of information
residence for individuals
22 Electronic tax returns
44
34 Fair market value of shares Debt restructuring tax exemptions
Japan 45 Tax incentives for foreign investment
24 International tax developments
45 7% VAT rate is continued
MAYER BROWN | 5
Corporate and individual • The effective tax rate of the following income • photocopy machines;
derived by qualified individuals in the Hainan
tax incentives in Hainan Free Trade Port will be capped at 15% (the
• stored program control telephone switching
systems;
free trade port statutory progressive rate for IIT is from
3% to 45%): • microcomputers and peripherals;
China has granted corporate income tax • comprehensive income (which consists of • telephones;
(CIT) reductions, exemptions and accelerated employment income, income from personal
• wireless paging systems;
depreciation for enterprises and individual services, author’s remuneration and royalties);
JURISDICTION: • fax machines;
income tax (IIT) exemption for individuals • business income; and
located in the Hainan Free Trade Port in a
China (PRC)
• electronic calculators;
bid to boost the economy of the region. The • other income from subsidies recognised by the
incentives apply from 1 January 2020 to government of Hainan Province. • typewriters and text processors;
31 December 2024. • Income in excess of the effective tax rate of • furniture;
• Reduced CIT rate: a reduced CIT rate of 15% will be exempt.
• lamps/lighting instruments; and
15% applies to income derived by the • Eligible individuals may enjoy the above
head office and branches of enterprises • food materials (condiments, meat, eggs and
incentive during the filing of their annual tax
engaged in encouraged industries that vegetables, seafood, fruit, soft drinks, alcohol
returns and their tax settlements.
are registered and effectively operating drinks and dairy products).
in the Port, where more than 60% of the • The incentives were announced by the Ministry
total revenue is derived from the of Finance and the State Taxation
business listed in the Catalogue as Administration in Circular (2020) No. 31 and No.
encouraged industry business activity 32 that are both dated 23 June 2020.
(the statutory CIT rate is 25%).
• Exemption: foreign income of an Import tax reduction of
enterprise engaged in tourism, modern
services and new-high technology that is
certain commodities
attributable to an increase in foreign
direct investment is exempt from CIT if With effect from 5 August 2020, China allows the
the following requirements are satisfied: reduction of import duties and VAT or consumption
tax on imports of 20 listed commodities that were
>> the increase is brought about by previously prohibited in the Notice of State Council
business profits derived from a [1994] No. 64. The repeal of the prohibition was
branch newly established in a foreign announced in Circular [2020] No. 36, jointly issued
country/jurisdiction or by dividends by the Ministry of Finance, General Customs and
repatriated from foreign subsidiaries the State Taxation Administration. The 20
in which the enterprise has a commodities concerned are:
shareholding of at least 20%; and
• televisions;
>> the CIT rate of the invested foreign
country/jurisdiction is not less • video cameras;
than 5%. • video recorders;
• Accelerated depreciation/amortisation: • video players;
the purchase costs of fixed assets
(excluding building and real property) • audio equipment;
and intangible assets of up to CNY 5 • air-conditioning equipment;
million may be fully written off in the year
of purchase. Fixed assets and intangible • refrigerators and freezers;
assets of more than CNY 5 million may • washing machines;
be depreciated or amortised at an
accelerated rate. • cameras;
CHINA (PRC) MAYER BROWN | 7
Preferential policy for integrated Profits tax
circuits and software industry exemption for funds
China has renewed its policy of promoting the development of high-quality integrated circuits The Inland Revenue Department (IRD) has
(ICs) and software, including tax and other incentives, for the industry. The main tax incentives provided clarification on the profits tax
announced are as follows: exemption for funds through the
Departmental Interpretation and Practice
JURISDICTION: Note No. 61 (DIPN No. 61) of 30 June 2020.
Minimum period of
Exemption from Post-exemption DIPN No. 61 sets out the IRD’s
Incentives manufacturing
Hong Kong
enterprise income tax reduced tax rate
operations interpretation and practice relating to the
provisions of the Inland Revenue (Profits Tax
Enterprises or projects engaged in first 10 years none (normal rate 15 years Exemption for Funds) (Amendment)
manufacturing ICs with a line width of not of 25%) Ordinance 2019, which removed the ring-
more than 0.8 microns
fencing features for funds, unifying the tax
Enterprises or projects encouraged by the first 5 years 12.5% for 5 years 10 years treatment of onshore and offshore funds by
state that are engaged in manufacturing
ICs with a line width of not more than extending the scope of profits tax
65 nanometres exemption to privately offered funds
first 2 years 12.5% for 3 years
operating in Hong Kong whether domiciled
Enterprises or projects encouraged by the 10 years
state that are engaged in manufacturing in or outside Hong Kong. Key topics
ICs with a line width of not more than covered by the DIPN are the following:
130 nanometres*
first 2 years 12.5% for 3 years
• applicability of the due diligence and
Enterprises engaged in the design, none
assemble, materials, packing and testing of starting from first reporting obligations under the Foreign
ICs, and software enterprises that are profit-making year
Account Tax Compliance Act and
encouraged by the state
Common Reporting Standard to
Key encouraged enterprises engaged in the first 5 years 10% none privately offered funds;
design of ICs and software enterprises starting from first
profit-making year
• transfer pricing considerations for
investment managers, especially in
respect of management fees and
transfer pricing documentation;
The tax incentives commence from the first It is noted that the incentives are available to all ICs
profit-making year of the enterprise or, in the case and software enterprises established in China that • the definition of a fund and an overview
of projects, the first year in which revenue is have fulfilled the requirements stated therein, of the tax regimes related to funds both
derived from manufacturing. A list of enterprises regardless of the source of their investment capital before and after 1 April 2019;
and projects that are eligible for the incentives will (thus regardless of whether they are state-owned or • scope of exemption and
be compiled by the relevant ministries. In respect private, or domestic or foreign invested). qualifying transactions;
of indirect taxes:
The State Council issued Notice of State Council • application of the exemption for
• the current preferential policy on value-added [2020] No. 8, which came into effect on 4 August special purpose entities and
tax (VAT) for ICs and software enterprises in 2020 for the above incentives. In addition, Notice of investments in private companies;
relation to the refund of VAT exceeding 3% of State Council [2000] No. 18 and Notice of State
the total VAT burden (thus after offset against Council [2011] No. 4 remain effective. However, in • treatment of losses incurred by funds
input tax) continues to apply; and case of divergence, the provisions of Notice of and special purpose entities;
State Council [2020] No. 8 will prevail. • clarification of the anti-round tripping
• qualified enterprises are exempt from import
duties on certain items and key IC projects may provisions; and
be allowed to pay VAT on import of new • determination of the tax residence of
equipment in instalments. funds and special purpose entities.
8 | Asia Tax Bulletin CHINA (PRC)
necessary, and greater focus on identifying and
Advance Pricing appropriately considering collateral issues Sale and purchase of HKFRS 15 replaces a number of Standards and
Interpretations, in particular HKAS 11 (Construction
Arrangements (APAs) (paragraphs 29-30); Hong Kong stocks by Contracts) and HKAS 18 (Revenue). HKFRS 15 took
effect on 1 January 2018 and provides
• the right of the tax authorities to refuse to make ETF market makers comprehensive guidance on the recognition of
Hong Kong’s IRD has updated the guidance on its an APA (such as where fees have not been paid)
advance pricing arrangement (APA) regime to revenue from contracts with customers. Under
and the applicant’s right to withdraw an APA
The Inland Revenue Department (IRD) will exempt HKFRS 15, revenue is recognised when
reflect recent legislative changes and the application (paragraphs 152-154);
from stamp duty the sale and purchase of Hong performance obligations of the contract are
streamlining of the APA process.
• the management of the APA process, Kong stocks involving the activities of Exchange satisfied. In contrast, profits tax is charged when
A new version of Departmental Interpretation and particularly by the Deputy Commissioner Traded Fund (ETF) market makers in the course of the profit is derived and the expense is incurred.
Practice Note (DIPN) No. 48 was issued by the (Technical), who takes overall charge of the APA allotting and redeeming ETF shares or units listed Nevertheless, there should be no significant
Inland Revenue Department on 15 July 2020, programme (paragraph 181); in Hong Kong upon meeting the prescribed practical difference since the accounting treatment
replacing the previous DIPN issued in March 2012. conditions. The stamp duty exemption, which is follows a substance-based approach which is
• introduction of offences and penalties,
It contains the following changes: effective from 1 August 2020, was announced in based on the transfer of control of the goods or
including penalties on more/less serious
Stamping Circular No. 03/2020 of 17 August 2020. services, using the following five-step revenue
• the definition of controlled transactions, which offences, additional tax, and consideration for
refers not only to transactions between recognition model:
taking penal action (paragraphs 182-196); and
associated persons, but also transactions
• three updated annexes (Appendix 2, 3 and 5)
Assessable profits, • identifying the contract(s) with a customer;
between different parts of the same person
(such as between branches and head offices). In
on a model APA case plan, contents of an APA revenue recognition and • identifying the performance obligations in
application and a Model APA respectively; the contract;
addition, attribution of profits to a permanent
establishment of a non-resident person in Hong
three new annexes (Appendix 1, 4 and 6) on measurement of inventories
• determining the transaction price;
details to be provided in a request for early
Kong can be the subject matter of an APA
engagement, a template for spontaneous The Inland Revenue Department (IRD) has • allocating the transaction price to the
(paragraph 5);
exchange of information on cross-border substantially revised its guidance on the performance obligations in the contract; and
• the latest relevant domestic legislation in unilateral APAs and a model annual compliance determination of assessable profits for profits tax
relation to the APA regime, i.e. the Inland • recognising revenue when (or as) the entity
report respectively. purposes. Notably, the guidance sets out the
Revenue (Amendment) (No. 6) Ordinance 2018, satisfies a performance obligation.
generally accepted accounting principles (in other
which incorporated the international transfer words, the Hong Kong Financial Reporting HKAS 2 is still recognised as the accounting
pricing rules into the tax law and provided a Profits tax concession for Standards [HKFRS]) that provide the starting point treatment for inventories as it was in the earlier
statutory framework for the APA regime insurance businesses for computing assessable profits, revenue DIPN, and the basic rule remains that inventories
(paragraph 14 – 16); recognition and inventory valuation for tax should be valued at the lower of cost or net
• suitability of concluding an APA, with purposes. The key aspects as provided in the realisable value. The revised DIPN provides
The Legislative Council passed a profits tax
indicators provided where the Commissioner Departmental Interpretation and Practice Note additional guidance on the basis of valuation,
concession on 15 July 2020 that will reduce the rate
may be more/less likely to enter into an APA (DIPN) No. 1 (revised) are set out below. DIPN No. including the deduction of inventory expenses, the
from 16.5% to 8.25% for all general reinsurance
(such as whether the transfer pricing 1 replaces the previous DIPN issued in July 2006. use of alternative valuation bases, implications of
business of direct insurers, selected general
methodology adopted is consistent with OECD changes to the basis of valuation, the applicable tax
insurance business of direct insurers and selected Financial statements prepared in accordance with
guidelines, the complexity of the transfer provisions in the case of a cessation of business and
insurance brokerage business. The government and the HKFRS form the basis for computing assessable
pricing issues, the probability of double appropriation of inventory for non-business use,
the Insurance Authority will proceed with the next profits, including the recognition of profits on an
taxation or non-taxation, and whether the and relevant case laws. For profits tax purposes,
stage of preparatory work, which includes the accrual basis, and outgoings and expenses. The
proposed arrangements are primarily tax- the guidelines note that the IRD generally does not
formulation of implementation details and drafting guidance also discusses the interaction between
driven), the treatment of carried forward losses, have the right to substitute one valid basis for
of subsidiary legislation. The tax concession is accountancy and tax laws and the need for
and the presence of tax avoidance issues another valid basis, or to adopt a different basis in
expected to take effect by the end of 2020 or adjustments under tax law to arrive at the correct
(paragraphs 18-28); computing profits.
early 2021. amount of taxable profits. Companies incorporated
• streamlining of the APA process from five in Hong Kong are required to prepare annual
stages to three stages, namely early financial statements in compliance with the HKFRS.
engagement, APA application and monitoring Companies incorporated outside Hong Kong are
and compliance. The key changes made are allowed to follow other financial reporting
delivery of a more balanced approach to standards, as long as they reflect true profits
understand the totality of the controlled and losses.
transactions, deliberate early engagement
stage with a more rigorous approach if
10 | Asia Tax Bulletin HONG KONG HONG KONG MAYER BROWN | 11
Tax treatment of regulatory Exchange of information permission from the competent authority
(paragraphs 45 and 47);
exemption” under section 883(a)(1) of the Code,
which exempts certain gross international shipping
capital securities on request • retrospectivity of information exchanged, in
income from U.S. income taxation.[1] As a result of
the termination or suspension of the Shipping
particular that for tax matters involving
The Inland Revenue Department (IRD) has updated The Inland Revenue Department (IRD) has issued Agreement, Hong Kong residents and Hong Kong
intentional conduct which is liable to
its guidance on the tax treatment of regulatory Departmental Interpretation and Practice Note corporations will be subject to U.S. income taxation
prosecution under the criminal laws of the
capital securities (RCSs) to reflect the latest (DIPN) No. 47 (revised) of 10 July 2020, which has to the extent such income is from U.S. sources
requesting jurisdiction, information relating to
legislative changes. The revised Departmental been updated to include the Convention on Mutual under section 863(c)(2). The precise effective date
taxable periods beginning on or after 1 January
Interpretation and Practice Note (DIPN) No. 53 Administrative Assistance in Tax Matters as one of of this action and the particulars of its effect remain
of the third year (i.e. 1 January 2015) preceding
reflects the legislative changes made by the Inland the instruments for exchange of information (EOI) unclear, leaving the U.S. Department of Treasury
the one in which the Convention entered into
Revenue (Amendment) Ordinance 2019 which with other jurisdictions and reflect the latest with the obligation to provide more detailed
force in respect of Hong Kong (i.e. 1 September
expanded the definition of an RCS to include international standard of EOI on request. DIPN guidance.
2018) is required to be provided to the
loss-absorbing capacity (LAC) debt instruments No. 47 (revised) replaces the previous DIPN issued requesting jurisdiction (paragraph 54); SERBIA
issued by financial institutions or LAC banking in 2014.
entities. DIPN No. 53 (revised) replaces the • procedural matters, i.e. the notification and The Hong Kong–Serbia Income and Capital Tax
DIPN No. 47 contains updates in the review system (in particular, Hong Kong’s Agreement was signed in Belgrade on 14 August
previous DIPN issued in February 2017.
following areas: reservation under article 4(3) of the Convention 2020 and in Hong Kong on 27 August 2020. Due to
• RCS is to be treated as a debt security. that a Hong Kong resident may be informed Covid-19 travel restrictions, the signing ceremony
• addition of the latest relevant domestic
Generally, any payments under an RCS which before information concerning that resident is took place by courier separately in Belgrade first
legislation, i.e. the Inland Revenue
are not repayments of principal are to be transmitted to the requesting jurisdiction and then in Hong Kong.
(Amendment) Ordinance 2018 which provides
treated as interest for both deduction and (paragraph 66)), processing of disclosure
the legal framework for Hong Kong to
taxation purposes. These include coupon requirements and information collection; and
implement multilateral tax arrangements under
payments, premiums paid and discounts given.
the IRO, and the Inland Revenue (Convention • a new annex on data security and
• The debt-like tax treatment is not intended to on Mutual Administrative Assistance in Tax confidentiality.
cover RCSs with essentially equity-like features. Matters) Order which gives effect to the
Convention in Hong Kong. The Convention
• The tax treatment of profits and losses of
entered into force in Hong Kong on 1 International tax
issuers of RCSs and their specified connected
persons is set out, including restrictions on
September 2018 (paragraphs 15-17); developments
deductions. • the standard of “foreseeable relevance”
(paragraphs 22-25), including for the purpose of MACAO
• Specific anti-avoidance provisions were enacted
requests for bank information (paragraph 28)
to prevent financial institutions and LAC On 20 August 2020, the Hong Kong–Macau
and in respect of a third party (paragraph 44),
banking entities from issuing RCSs for tax Income Tax Agreement (2019) entered into force.
and in various examples;
avoidance purposes. Chargeable profits from The tax agreement generally applies from
an RCS transaction between an issuer of the • common types of information that may be 1 January 2021 for Macau and from 1 April 2021
RCS and its associates will be determined in requested, such as tax returns, financial for Hong Kong.
accordance with the arm’s length principle. statements, tax paid abroad, property owned
USA
or used, income and expenses, company
• Taxable profits of the Hong Kong branch of a
information, etc. (paragraphs 26 and 27); The U.S. Department of State informed the Hong
non-resident financial institution with capital
Kong authorities on 19 August 2020 that the United
raised through the issue of RCSs will be • Hong Kong’s reservation in relation to the taxes
States–Hong Kong International Shipping
determined in accordance with the separate of other jurisdictions described in Article 2(1)(b)
Agreement (Shipping Agreement) has been
enterprises principle. of the Convention (paragraph 32);
suspended or terminated – the exact treatment is
• use of information requested for other not yet clear. The State Department made its
purposes, particularly for non-tax use including announcement pursuant to Executive Order 13936
by law enforcement agencies such as the Joint (July 14, 2020), which reflects growing tensions
Financial Intelligence Unit (JFIU) jointly run by between the United States and the People’s
the Hong Kong Police Force and the Hong Republic of China (PRC) regarding the PRC’s rule
Kong Customs and Excise Department, which over Hong Kong. The Shipping Agreement was
in general requires that such use is allowed in enacted by an exchange of diplomatic notes and
the EOI instrument and the domestic law, and provides that Hong Kong has an “equivalent
12 | Asia Tax Bulletin HONG KONG HONG KONG MAYER BROWN | 13
Liaison office is not a the taxpayer to the Dutch company cannot be The faceless assessment and faceless appeal
covered in the definition of fees for technical schemes aim to simplify the assessment and appeal
permanent establishment services as per article 12 of the treaty. process, ensure anonymity of taxpayers and
minimise direct contact between taxpayers and
The Tribunal also considered the decision in
Courtesy Khaitan & Co in Mumbai, it was income tax officers. In this regard, the Central
Johnson Matthey Public Ltd. Company v. DCIT (88
reported that in a recent ruling, the Supreme Board of Direct Taxes issued an order under section
taxmann.com 127), which held that guarantee fees
Court ruled that unless ‘core business 119 of the Income Tax Act 1961 dated 13 August
are not subject to tax as “interest” or FTS or
activities’ are carried on in India by a project 2020 to support various e-governance initiatives,
business income. However, it could be subject to
JURISDICTION: office, it cannot be regarded as a fixed place instructing that all assessment orders from now on
tax under the Other Income article of a tax treaty.
permanent establishment (PE) in India to be passed by the National e-Assessment Centre
The tax treaty with the Netherlands does not have
India
attract taxation in India. This ruling also through the Faceless Assessment Scheme 2019,
an article on “Other Income”. Hence, the corporate
reiterates an important principle that the except for:
guarantee is not subject to tax in India.
burden of proof that a foreign entity has a PE
• assessment orders in cases assigned to Central
in India is initially on the Tax Authorities.
Charges; and
Additionally, in relation to tax treaties to
Mandatory
• assessment orders in cases assigned to
which the provisions of the Multilateral electronic invoicing International Tax Charges.
Instrument (MLI) regarding specific activity-
based exemption apply, it will be important The cases taken up for faceless assessment would
The Central Board of Indirect Taxes and Customs
to examine whether a particular activity in include a mix of returns filed by individuals and
has updated the scope of the mandatory electronic
the exclusion clause of PE (advertising, businesses (micro, small and medium-sized
invoicing (e-invoicing) requirement which will be
storage, delivery, etc) is indeed ‘preparatory enterprises, as well as large companies) and would
effective from 1 October 2020. The following
or auxiliary’ in nature. be determined based on risk parameters and
changes were announced in Notification No.
mismatches by a central computer. The National
Lastly, one cannot overemphasise the 61/2020 – Central Tax of 30 July 2020:
e-Assessment Centre would then allocate the cases
importance for Indian taxpayers to maintain
• taxpayers whose aggregate turnover exceeds to assessment units through an automated
adequate and accurate documentation on an
INR 5 billion (from the previous limit of INR 1 allocation system to ensure taxpayer anonymity.
ongoing basis in order to substantiate its
billion) in a financial year will be required to Assessees should then respond to notices
position against any future challenges from
issue e-invoices; and electronically to the National e-Assessment Centre.
the Tax Authorities.
• a special economic zone unit is exempt from Taxpayers are assured of fair, courteous and
the requirement. rational behaviour with the introduction of the
Guarantee fees Taxpayers’ Charter 2020, which lists the Income Tax
The increase in the revenue threshold for
not subject to tax mandatory e-invoicing aims to provide relief on
Department’s commitments to taxpayers, including
treating taxpayers with honesty, providing
compliance requirements for small companies.
mechanisms for appeal and review, providing
The Income Tax Appellate Tribunal has held Insurance companies, banks, financial institutions,
complete information, and reducing the cost of
that corporate guarantee fees are not including non-banking financial institutions, goods
compliance, among other things, as well as the
taxable in India under its tax treaty with the transport agencies and passenger transportation
department’s expectations from taxpayers.
Netherlands. The Tribunal rendered its services, which are covered by different invoicing
decision in the case of Lease Plan India rules, are exempt from the e-invoicing requirement. The faceless assessment and the Taxpayers’
Private Ltd v. DCIT (ITA No. 6461 & 6462/ Charter are effective from 13 August 2020, while
Del/2015) on 15 June 2020. the faceless appeal is available across the country
Transparent from 25 September 2020 onwards.
The Tribunal observed that the nature of
services provided by the Dutch holding taxation platform
company as guarantor could at best be a
financial service and cannot be called a With a clear agenda to build trust between the
consultancy service. Even otherwise, it does taxpayers and the administration, the Prime
not satisfy the “make available” test under Minister has launched the “Transparent Taxation”
article 12(5)(b) of the treaty. Therefore, the platform to honour honest taxpayers amid the
Tribunal held that the guarantee fee paid by COVID-19 pandemic. The said platform focuses on
major reforms such as faceless assessment, faceless
appeal and the Taxpayers’ Charter.
INDIA MAYER BROWN | 15
The claim may also be disallowed without further
Preferential custom duty verification when:
The 1% withholding tax requirement under section
194-O of the Income Tax Act, 1961 (the Act), as
• The proposed TCS under section 206C(1H) of
the Act will not apply to payments received for
rates under treaties • the importer relinquishes the claim; or introduced by the Finance Act, 2020, will not apply fuel supplied to non-resident airlines in
to the following situations: Indian airports.
• the information or documents furnished by the
The Ministry of Finance has issued administrative • transactions in securities and commodities The clarifications aim to minimise the anticipated
importer and available on record are sufficient
rules for importers of goods claiming preferential traded on recognised stock exchanges or difficulties in the application of the new withholding
to prove that the goods do not meet the
duty rates under treaty agreements. The cleared and settled by the recognised clearing requirements set to begin on 1 October 2020. The
prescribed origin criteria.
procedures in the Customs (Administration of Rules corporation; new withholding tax requirements under section
of Origin under Trade Agreements) Rules of 2020 An importer must provide information or 194-O and section 206C(1H) of the Act were
(the Rules) require that an importer or his agent documents requested for verification by an officer • transactions in electricity, renewable energy
introduced in the Finance Act, 2020. Section 194-O
claiming the preferential duty rate: within 10 working days from the date of request. certificates and energy savings certificates
requires e-commerce operators to deduct 1% tax of
Where the importer fails to comply by the traded on certain registered power exchanges;
• declare that the goods qualify as originating the gross amount of sales of goods or services, or
prescribed date or where the information and • payment gateway operators will not be required both, in transactions facilitated through a digital or
goods for preferential rate of duty under an
documents are found to be insufficient, the officer to deduct the tax on a transaction if the electronic platform, with exceptions to certain
agreement at the time of filing the bill of entry;
shall forward a verification proposal for the CO e-commerce operators have already deducted individuals and Hindu undivided family. Section
• indicate the respective tariff notification from the designated verification authority in the the tax on the same transaction; and 206C(1H) requires sellers that receive an
against each item on which preferential duty exporting country or country of origin. aggregate value in previous year’s domestic sales
rate is claimed; • insurance agents or aggregators will not be
Where it is established that an importer has of INR 5,000,000 to withhold 0.1% of the sale from
required to deduct the tax for the years
• produce the certificate of origin (CO) covering suppressed the facts, made wilful misstatement or the buyer.
following the first year if they have no
each item on which the preferential rate is colluded with the seller or any other person, with involvement in transactions between
claimed; and the intention to avail undue benefit of a trade insurance companies and buyers for the
agreement, his claim of preferential rate of duty will subsequent years. However, insurance
• enter certain details from the CO in the bill of
be disallowed and the importer will be penalised companies will be required to deduct the tax on
entry as prescribed by the Rules.
accordingly. The Rules came into force on any commission payment made to insurance
Importers claiming preferential rate of duty are 21 September 2020. agents or aggregators.
expected to:
• For the financial year 2020/21, the calculation of
• possess information as indicated in Form I of Withholding tax on certain the gross amount of sales of goods and services
the rules;
domestic payments in relation to the withholding threshold of INR
500,000 is counted from 1 April 2020 up to 30
• keep all supporting documents related to Form
I for at least five years from the date of filing of September 2020. Thus, the withholding
The Central Board of Direct Taxes (CBDT) has requirement will apply to any sum credited or
the bill of entry and submit the same to the
clarified that certain domestic payments made by paid on or after 1 October 2020. The calculation
proper officer on request; and
electronic commerce (e-commerce) operators to applies both to withholding requirements under
• exercise reasonable care to ensure the e-commerce participants are exempt from the 1% section 194-O and section 206C(1H) of the Act.
accuracy and truthfulness of the information withholding tax imposed under the Finance Act,
and documents. 2020. The CBDT also clarified the withholding tax • In the case of tax collected at source (TCS)
threshold, the effect of adjustments for sales imposed under section 206C(1H) of the Act, no
The claim of preferential duty rate may be denied adjustment is required to be made on account
returns, discounts and indirect taxes, and the
without verification if the CO: of sales returns, discounts or indirect taxes since
applicability of the withholding tax requirement to
• is incomplete and not in accordance with the the sale of motor vehicles and fuel supplied to the collection is made with reference to receipts
format prescribed in the Rules of Origin; non-resident airlines. of the sale consideration.
• has an alteration not authenticated by the • Sales of motor vehicles to a dealer will be
issuing authority; subject to TCS under section 206C(1H) of the
Act if it is not taxed under section 206C(1F) of
• is produced after its validity period has the Act. Sales of motor vehicles to consumers
expired; or will be subject to TCS under section 206C(1H) of
• is issued for an ineligible item. the Act if the consideration exceeds INR
500,000 in the previous year.
16 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 17
VAT collection threshold Appointed VAT collectors are required to comply value-added tax (VAT) collectors for foreign digital
with the following procedures: goods and services sold to customers in Indonesia.
for e-commerce • activate their account in the DGT system prior
The appointment requires the companies to collect
transactions to the effective date of their appointment;
the 10% VAT on the sale of foreign digital products
and services to consumers in Indonesia and remit
The Directorate General of Taxation (DGT) • collect 10% VAT from the sales value from the the same to the DGT. The list of companies recently
issued a regulation that stipulates the details Indonesian customers and issue commercial appointed as VAT collectors effective 1 October
regarding the registration thresholds for invoices, billings, order receipts, or similar 2020 are LinkedIn Singapore Pte. Ltd; McAfee
JURISDICTION: value-added tax (VAT) collections, documents as proof of VAT collection; Ireland Ltd; Microsoft Ireland Operations Ltd,
appointment of VAT collectors and other Mojang AB, Novi Digital Entertainment Pte. Ltd,
• remit the VAT collected to the DGT
Indonesia
compliance requirements for the PCCW Vuclip (Singapore) Pte. Ltd, Skype
electronically or by other means determined
implementation of the Ministry of Finance Communications SARL, Twitter Asia Pacific Pte. Ltd,
by the DGT by the end of the month following
Regulation No. 48/PMK.03/2020 (PMK-48) of 5 Twitter International Company, Zoom Video
the month where the transaction was
May 2020. PMK-48 sets out the procedure Communications, Inc, PT Jingdong Indonesia First;
undertaken; and
regarding the collection, depositing and and PT Shopee International Indonesia.
reporting of VAT to be imposed on the import • file a quarterly report via the DGT’s designated
tax filing system on the VAT collection and
of digital products in the form of intangible
payment with details of the number of users in The reduced tax rate for
goods and services by domestic consumers.
Indonesia, amount of payment excluding VAT, public companies
The above measures are included in DGT and amount of VAT collected and remitted not
Regulation No.PER-12/PJ/2020 of 25 June later than the end of the month following the
On 27 June 2020, the Directorate General of
2020 which came into effect on 1 July 2020 end of the quarterly tax period. A detailed VAT
Taxation announced additional conditions that must
and the following are the key aspects. report for each calendar year may also be
be met to be eligible for the reduced corporate tax
requested by the DGT.
rate from fiscal year 2020 by public companies with
• Foreign sellers and foreign service
Where the VAT collectors have imposed the VAT at least 40% of their total paid-up capital traded on
providers, foreign e-commerce
and the customers have also paid VAT on a self- the Indonesia Stock Exchange. The standard tax
marketplaces and domestic
assessment basis, the self-assessed VAT can be rate will be reduced by 3% if the conditions
e-commerce marketplaces that conduct
converted to other tax payments, refunded to specified under Government Regulation No. 30 of
e-commerce transactions in Indonesia
customers, regarded as input tax credit or claimed 2020 (GR 30/2020) are met, and the rates
will be appointed as VAT collectors and
as a deductible expense in the income tax applicable will be 19% in fiscal years 2020 and
be required to register for VAT
calculation of the customers. 2021, and 17% in fiscal year 2022.
collection purposes if they meet the
following criteria: The additional conditions stipulated under GR
>> the value of transactions with
Value-added tax collectors 30/2020 are as follows:
Indonesian customers exceeds for foreign digital goods • 40% of the total issued and fully paid-up shares
IDR 600 million annually or IDR 50 listed on the Indonesia Stock Exchange must
million monthly; and/ or and services be owned by at least 300 shareholders
(excluding the issuers and controlling
>> the amount of traffic or access in In addition to Amazon Web Services Inc; Google shareholders/ major shareholders);
Indonesia exceeds 12,000 users Asia Pacific Pte. Ltd; Google Ireland Ltd; Google • total ownership by each shareholder must be
annually or 1,000 users monthly. LLC; Netflix International B.V.; Spotify AB, Facebook less than 5% of the total issued and fully
Ireland Ltd; Facebook Payments International Ltd; paid-up shares; and
• The appointment as a VAT collector will Facebook Technologies International Ltd; Amazon.
be made officially by the DGT or by com Services LLC; Audible, Inc; Alexa Internet; • the abovementioned requirements must be
self-notification to the DGT. Once Audible Ltd; Apple Distribution International Ltd; fulfilled for a minimum of 183 calendar days
appointed, the VAT collector will be Tiktok Pte. Ltd; The Walt Disney Company within a fiscal year.
provided with a VAT collector ID, tax (Southeast Asia) Pte. Ltd., on 8 September 2020, The above provisions do not apply in the case of
registration letter and the appointment the Directorate General of Taxation (DGT) companies conducting share buybacks under a
becomes effective from the beginning of appointed the following 12 companies as government policy or regulated by the Financial
the following month.
18 | Asia Tax Bulletin INDONESIA MAYER BROWN | 19Services Authority according to Government
Regulation No. 29 of 2020 (GR 29/2020).
• The DGT will follow up on the requests for the
implementation of a MAP as referred to above
Regulation 67/2020 provides a comprehensive
regulatory framework for the tax incentives with the
Tax incentives
GR 29/2020 stipulates that public companies that by conducting MAP negotiations with aim of enticing investors to invest in the upstream
conduct share buybacks and, as a result, do not fulfil competent authorities of treaty partners within oil and gas activity. The tax incentives consist of the The Ministry of Finance (MOF) has extended the
the requirements above, will be given exceptions the time limit as stipulated in PMK-49. following: incentives period previously provided under the
until 30 September 2020 so that they can continue MoF Regulation No.44/PMK.03/2020 (PMK-44) up to
• Where a request for a MAP implementation has • Exemptions from collecting value-added tax December 2020 and further expanded the list of
to qualify for the lower income tax rate.
been made without a mutual agreement being (Pajak Pertambahan Nilai or “PPN”) and luxury- business sectors that may qualify for the tax
reached, a renewal of request can be made goods sales tax (Pajak Penjualan Atas Barang incentives available to taxpayers that are affected by
Mutual Agreement accordingly, subject to conditions. Mewah or “PPnBM”) in relation to certain the COVID-19 pandemic in the country.
activities and objects which are used during oil
Procedure (MAP) guidelines • A request for the implementation of a MAP by
operation activities, as follows: (i) procurement In this regard, the MOF has issued Regulation
the DGT based on a request from a resident No.86/PMK.03/2020 (PMK-86) and the salient
of taxable goods and/or taxable services; (ii)
taxpayer that is of the opinion that the DGT’s tax features of PMK-86 are set out below.
The Directorate General of Taxation (DGT) has utilisation of intangible taxable goods from
treatment is not in accordance with treaty
issued guidelines on the procedures to request and outside the customs areas within the customs The following incentives may be availed by
provisions, must comply with the requirements
follow-up on the implementation of a Mutual areas; and/or (iii) utilisation of taxable services qualifying taxpayers up to December 2020
specified under PER-16.
Agreement Procedure (MAP). In this regard, the from outside the customs areas within the (previously available from April to September 2020):
DGT has issued Regulation No. PER-16/PJ/2020 • Where a mutual agreement has been reached, customs areas; and
(PER-16) as the implementing regulation for MoF the Director of International Taxation of the DGT • withholding tax on employment income (article
• Reduction of land and building tax (Pajak Bumi 21 of the Income Tax Law (ITL)) borne by the
Regulation No. 49/PMK-03/2019 (PMK-49), is required to follow up with the drafting and
dan Bangunan or “PBB”) amounting to 100% government for employees earning annual
previously issued regarding the procedures to signing of the decree on the mutual agreement
of payable PPB, as set out under the relevant income not exceeding IDR 200 million;
implement a MAP. Where the request for MAP reached not later than one month from:
tax returns.
implementation has been made before PER-16 came • exemption from tax on import (article 22 of
>> the receipt of written notification from the
into effect, a renewal of request can be made As an overview, Gross-Split Production Sharing the ITL);
competent authority of the treaty partner; and
before 25 April 2021 subject to conditions. PER-16 Contracts (each, a “Gross-Split PSC”) were
came into force on 11 August 2020. >> the delivery of the respective written introduced under the Minister of Energy and • reduction of 30% in monthly tax instalment
notification by the DGT to the competent Mineral Resources (the “MEMR”) Regulation No. 8 payment (article 25 of the ITL); and
• Resident taxpayers may submit requests for the
authority of the treaty partner. of 2017 dated January 16, 2017 on Gross-Split • preliminary value-added tax (VAT) refund
implementation of a MAP to the DGT as the
Production Sharing Contracts, as lastly amended by automatically granted up to a maximum of
competent authority, in the event that the tax
MEMR Regulation No. 20 of 2019 dated August 29,
treatment by the tax authorities of a treaty Tax incentives for production 2017 (“Regulation 8/2017”). A Gross-Split PSC is
IDR 5 billion.
partner is not in accordance with the provisions The qualifying taxpayers are:
of the tax treaty. sharing contracts in oil and defined as a production sharing contract in the
upstream oil and gas business activities based on • companies engaged in specific industries as
• Requests for implementation of a MAP may also gas sector the principle of distributing gross production listed in the attachments to PMK-86;
be made by Indonesian citizens through the without the mechanism of operating costs recovery.
DGT, the DGT, or the tax authorities of the • companies granted the Import Facility for
On June 16, 2020, the Minister of Finance (the The above tax incentives are applicable only to
treaty partner through the competent authority Export Purposes; or
“MOF”) issued Regulation No. 67/PMK.03/2020 of contractors meeting the following criteria:
of the respective jurisdiction concerned. 2020 on Incentives of Value-Added Tax or Value- • companies licensed as businesses in the
Added Tax and Luxury-Goods Sales Tax, and Land • Contractors that operate under cooperation Bonded Zone area.
• A request for the implementation of a MAP by
and Building Tax on Upstream Oil and Gas Business contracts signed prior to the enactment of GR
the DGT may be made if according to the The 0.5% final tax on the gross revenue of qualifying
Activity through Gross-Split Production Sharing 53/2017 which were subsequently amended to
resident taxpayer, the DGT’s tax treatments are small to medium enterprises (SMEs) borne by the
Contracts (“Regulation 67/2020”). Regulation adjust to GR 53/2017;
not in accordance with treaty provisions in the government incentive will also be extended until
67/2020 is an implementing regulation of Article 25
case of: • Contractors that operate under the Gross-Split December 2020.
of Government Regulation No. 53 of 2017 dated PSCs signed before GR 53/2017, provided that
>> double taxation from transfer pricing December 28, 2017 on Tax Treatment for Upstream PMK-86 also further expanded the list of industries
the Gross-Split PSCs are consistent with GR
adjustments; and Oil and Gas Business Activity through Gross-Split that are eligible for the incentives applicable to
53/2017; or
Production Sharing Contracts (“GR 53/2017”). articles 21, 22 and 25 of the ITL and the VAT
>> differences in the interpretation of
Regulation 67/2020 enters into force as of July 16, • Contractors that operate under the Gross-Split refund accordingly. Taxpayers may refer to the
treaty provisions.
2020. PSCs signed after GR 53/2017 which are specific list of business classification codes under
consistent with GR 53/2017. PMK-86 here to confirm their eligibility for the
aforesaid tax facilities.
20 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 21Pursuant to DGT Regulation 04/PJ/2017 of
Taxpayers that are eligible for the incentives • transactions conducted between independent
31 March 2017, taxpayers that meet the following
applicable to articles 21, 22 and 25 of the ITL and parties where there is no business,
criteria are obligated to submit electronically the
the SME final tax incentive will be required to employment, ownership or control relationship
periodic returns for tax withheld under articles 23
prepare and submit a monthly realisation report in between the contributor and the recipient.
and 26 of the ITL:
the prescribed format via www.pajak.go.id by the
If an ownership or control relationship exists
20th day of the following month. Taxpayers who • the taxpayers have issued more than 20 proofs
between the transacting parties, profits due to the
have submitted the notification or application of deduction under articles 23 or 26 of the ITL
contributor or income from the contributions
under the previous regulations are not required to within a tax period;
received by the recipient will remain excluded from
re-submit the application while taxpayers already
taxable income provided that the contributor and • the gross income amount subject to WHT is
granted with the said incentives earlier will still
recipient are religious, educational or social more than IDR 100 million under one proof of
qualify for the incentives under PMK-86.
bodies including foundations. All contributions WHT deduction;
PMK-86 also includes examples for the calculation made are deductible from the contributing party’s
• the taxpayers have submitted the periodic tax
of withholding taxes borne by the government, gross income.
returns electronically; and
notification procedures, the reporting format for
Further information on the above tax treatment is
the utilisation of tax incentives and other • the taxpayers are registered at selected
detailed in MOF Regulation No. 90/PMK.03/2020
administrative details. PMK-86 came into force on tax offices.
of 21 July 2020, which came into force on that
16 July 2020 and PMK-44 is revoked accordingly.
same date. The following taxpayers are also required to submit
electronically the periodic returns for tax withheld
Tax treatment of assistance, Multilateral Convention (MLI) under articles 23 and 26 of the ITL once they have
met the criteria above:
donations and grants
On 1 August 2020, the Multilateral Convention • taxpayers registered before 1 September 2020
(MLI) entered into force in respect of Indonesia. but have yet to meet the criteria above; or
The Ministry of Finance (MOF) has issued
guidelines regarding the tax treatment of income Indonesia signed the convention on 7 June 2017 • taxpayers who register on or after 1
derived from assistance, donations or grant of and deposited its final MLI Position on 28 April September 2020.
assets (collectively known as “contributions”) 2020, including the 47 tax treaties that it wishes to
transferred or received by taxpayers. The assistance be covered by the MLI. For a treaty to be covered
or donations referred to may be in the form of cash by the MLI, both signatories need to have a) joined
or goods. the convention, b) included each other in their list
of covered tax agreements, and c) deposited their
Income from the contributions (for the recipient) as instruments of ratification.
well as the profits resulting from the transfer of
assets from the contributions (for the contributor)
are excluded from the taxable income of the Electronic tax returns
recipient and contributor for the following:
• contributions made to: The Directorate General of Taxation (DGT) has
issued a decree that requires all taxpayers to
>> biological parents or biological children; submit electronic withholding tax (WHT) returns
>> religious bodies which are under articles 23 and 26 of the Income Tax Law (ITL)
non-profit oriented; to submit the proof of tax withheld and periodic
WHT tax returns online, effective 1 September
>> education agencies which are 2020. The decree was issued through DGT
non-profit oriented; Regulation No. KEP-368/PJ/2020 of 10 August 2020
>> social bodies, including foundations, which fully implements the requirement to report
which are non-profit oriented; periodic returns for tax withheld under articles
23 and 26 of the ITL electronically according to the
>> cooperatives; and provisions under DGT Regulation No. PER-04/
>> Individuals who run micro and small PJ/2017.
businesses; and
22 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 23International tax Multilateral Convention
developments (MLI) enters into force
On 1 September 2020, the Multilateral
On 17 October 2020, the Japan–Uzbekistan
Convention (2016) (MLI) entered into force.
Income Tax Treaty will enter into force. The
Korea signed the convention on 7 June 2017
treaty generally applies from 17 October
and deposited its final MLI Position on
2020 for the provisions of article 25
13 May 2020, including the 73 tax treaties
JURISDICTION: (Exchange of Information) and article 26 JURISDICTION:
that it wishes to be covered by the MLI. For a
(Assistance in the Collection of Taxes) and
treaty to be covered by the MLI, both
Japan Korea
from 1 January 2021 for other taxes. Once
signatories need to have a) joined the
in force and effective, the new treaty will
convention, b) included each other in their list
replace Japan’s former USSR Income Tax
of covered tax agreements, and c) deposited
Treaty concluded in 1986 in relations
their instruments of ratification.
between Japan and Uzbekistan.
Supreme court’s
decision on permanent
establishment
On 25 June 2020, the Korean supreme court
rendered an important decision on the
determination of corporate income tax and
value-added tax (VAT) imposed on a
permanent establishment (PE) of a foreign
enterprise. The Supreme Court has set forth
a specific standard on the determination of
corporate income tax and the VAT amount
for a PE. The Court confirmed that corporate
income tax may only be imposed on profits
attributable to a PE in accordance with the
tax treaty; in particular, even if a PE is found,
the Court concluded that VAT is not due on
all revenues earned from Korea.
A foreign company, “A”, recruited casino
gamers outside of Korea, who would gamble
at a casino in Korea operated by a Korean
corporation, “B”. “A” received commission
for such recruitment services including the
provision of the below-mentioned services
in Korea.
The Korean tax authorities concluded that A’s
performance of activities related to the
gamers (including provision of guidance to
gamble and exchange gambling chips at an
office located at the casino in Korea)
constitutes A’s PE. Therefore, the taxauthorities imposed corporate income tax and VAT tax law amendments of 2020, which will take effect Cryptocurrency transactions
on all commission earned by A based on the view from 1 January 2021, unless stated otherwise.
that the commission in its entirety is attributed to
Following the Tax Development Review Committee
the PE. CORPORATE TAXATION meeting of 22 July 2020, the Ministry of Economy
The supreme court first held that where a foreign and Finance (MoEF) announced its decision to tax
• increase of carry-forward period for net
enterprise carries on business through a PE in Korea, profits derived from cryptocurrency transactions.
operating losses (NOL) from 10 years to 15
only the profits that have been derived from Under the new framework, any gains made from
years; and
transactions that it had independently (as a distinct virtual assets (including cryptocurrency) will be taxed
and separate enterprise) engaged with the foreign • increase of carry forward period for tax credits at 20%, with the exception of those that fall below
enterprise, would be attributed to the PE and under the Special Tax Treatment Control Law the minimum threshold of KRW 2.5 million per year.
taxable in Korea. The supreme court continued that up to 10 years (previously it varied from five to
Reporting and payment of such gains must be made
the tax authorities would bear the burden of proof 10 years).
annually in May. Korean stock exchanges will be held
on the amount of profits attributable to a PE. responsible for deducting and paying the taxes from
INDIVIDUAL TAXATION
transactions of a non-resident or foreign corporation
Based on the above conclusions, the supreme court trading on the South Korean stock exchange. The
• new top marginal income tax rate of 45% for
found that: rules will be presented to the parliament for further
individuals with taxable income over KRW
1 billion. deliberation. If they are passed, they will be effective
• even if activities performed by A’s employees at
from 1 October 2021.
A’s office in Korea constitute A’s essential and
CAPITAL GAINS
significant activities, A’s most essential and
significant work took place outside of Korea and • gains from transactions of listed shares between
the costs of such work were mostly incurred KRW 50 million and KRW 300 million will be
outside of Korea; taxed at 20%, while gains above KRW 300
million will be taxed at 25%. This is applicable
• the revenues attributable to A’s PE are limited to from 1 January 2023; and
the consideration that A received for work that it
• gains from virtual assets will be taxed at 20%.
had performed at its office in Korea and that it
cannot be concluded that the attributable
INTERNATIONAL TAXATION
revenues include the consideration for A’s
activities performed outside of Korea; and • increase of carry-forward period for foreign tax
credit and deduction of unused credits from five
• the revenues attributable to A’s head office are years to 10 years, subject to the condition that
clearly part of the commission that A received, the current brought forward foreign tax credits
and such attributable revenues would also be are not expired when the corporate or personal
significant. Accordingly, the Supreme Court income tax return is filed on or after 1 January
determined that the tax authorities’ assessment 2021; and
of corporate income tax and VAT would have to
• the maximum roll-back period for the advance
be cancelled in its entirety, because there were
pricing agreement (APA) will be extended from
no materials upon which the profits and
three years to five years for unilateral APAs and
revenues attributable to the PE may be
five years to seven years for bilateral APAs. This
calculated in order to compute the justifiable
is applicable for applications filed on or after 1
tax amount.
January 2021.
Amendments to tax law VALUE-ADDED TAX (VAT)
proposals 2020 • the eligibility for the simplified VAT reporting
system scope will be expanded for taxpayers
Further to the Tax Development Review Committee with yearly turnovers from KRW 48 million to
meeting on 22 July 2020, the Ministry of Economy KRW 80 million. This will take effect from
and Finance (MoEF) has released several proposed July 2021.
26 | Asia Tax Bulletin KOREA KOREA MAYER BROWN | 27You can also read
