Asia Tax Bulletin · 2021. 7. 23. · 8 | Asia Tax Bulletin CHINA (PRC) TAX TREATMENT OF...

Summer 2021

Asia Tax Bulletin

EUROPE

CHARLOTTE

RIO DE JANEIRO*VITÓRIA*

SÃO PAULO*

BRASÍLIA*

BRUSSELS

ORKGTON DC

PARISLONDON

FRANKFURT

DUBAI

SHANGHAI

HO CHI MINH CITY

HANOI

BEIJING

SINGAPORE

DÜSSELDORF

*TAUIL & CHEQUER OFFICE

TOKYO

HONG KONG

MAYER BROWN | 3

In This EditionWe are pleased to present the Spring 2021 edition of our firm’s Asia Tax Bulletin.

Dear Reader,

As the world struggles to recover from the pandemic, business continues regardless and the tax authorities appear to have little trouble keeping up, at least judging from developments over the past three months.

This edition of the Asia Tax Bulletin covers the highlights, inter alia including the tax proposals in the 2021 budgets in Hong Kong, India and Singapore; China’s draft stamp duty law and simplified APA procedure; the long-awaited carried interest concession proposed by the Hong Kong tax authority; India’s launch of the Faceless Penalty Scheme and an e-portal to report tax evasion; the Indonesian tax authorities’ clarification on the offshore tax exemption treatment of expats living in Indonesia – as well as the dividend withholding tax exemption criteria for Indonesian companies; Korea’s tax law changes for 2021; Malaysia’s Covid relief package and its ratification of the Multilateral (BEPS) Treaty; the first corporate tax rate reduction by the Philippines in 20 years; the IRAS (Inland Revenue Authority of Singapore) circular on

how to compute eligible IP (royalty) income for the reduced income tax rate; and Thailand’s introduction of VAT on overseas digital services consumed in Thailand with effect from 1 September 2021.

This edition also contains some interesting case law in various Asian countries. We hope you enjoy reading it.

Stay safe and don’t give in to the current challenges.

With kind regards,

Pieter de Ridder

Pieter de RidderPartner, Mayer Brown LLP+65 6327 0250 [email protected]

2 | Asia Tax Bulletin MAYER BROWN | 3

In This EditionWe are pleased to present the Summer 2021 edition of our firm’s Asia Tax Bulletin.

While the world is watching the progress on the OECD’s global tax proposals for taxing digital businesses and introducing a global minimum income tax rate, which were embraced and committed to by most Asian countries, there have been a number of other tax developments over the past three months which you will read about in this bulletin. The changes are diverse and we encourage you to read the country sections in this bulletin.

A special note perhaps in respect of the following changes which are particularly newsworthy: China’s tax treatment of cross-border hybrid payments and the tax exemption of deed tax in qualifying internal reorganisations, Hong Kong’s zero tax rate for qualifying carried interest which has now taken effect, the new specified thresholds in India as to what constitutes a ‘significant economic presence’ in the country and hence constitutes a permanent establishment, Japan’s new law

which allows the tax authority to appoint a local administrator as a representative of non-resident taxpayers and hence collect the latter’s tax from said administrator, the Philippines reduced corporate income tax rates and its simplication of tax treaty applications, Taiwan’s new rules which make it easier to conclude a bilateral or multilateral pricing agreement with the Taiwanese tax authority and its new rules to enable write-offs of bad debt for tax purposes and finally, Vietnam’s new e-commerce income tax and VAT circular.

We wish you happy reading.

Pieter de Ridder


2 | Asia Tax Bulletin

Contents

6 Easing of filing requirements for foreign currency payments

7 Imports of necessary equipment and materials for innovations

7 Super-deduction of R&D expenditure increase

7 Convertible loans and hybrid instruments

8 Integration of tax returns for various taxes

8 Exemption of deed tax for business restructurings

9 Extension of land

appreciation tax exemption for business restructurings

9 Stamp duty on IP

9 Tax incentives

10 Carried interest zero tax rate

10 Qualifying amalgamations and transfers or successions

11 International tax developments

China

Hong Kong

12 Taxable presence in India

12 Parliament passes amendments to Finance Bill 2021

14 Reimbursement paid for payments

made to employees not subject to withholding tax

14 Favourable dividend withholding

tax rate under the Netherlands Tax Treaty


India

Japan

Indonesia

15 Cryptocurrencies

15 Tax reform proposal to parliament


16 Tax reform

16 Appointment of tax administrator for non-resident taxpayers


Malaysia


19 New income tax rates

20 VAT amendments

21 VAT on previously zero-rated transactions

22 Guidelines for claiming tax treaty benefits

Philippines

23 Characterisation of certain hybrid instruments

25 Advance ruling on characterisation of disposal of certain investments


Singapore

27 More flexibility for BAPA and MAPA

Taiwan

28 Write off bad debt

31 Enhanced tax incentives for R&D and human resource development

32 Advance pricing agreement guidelines

Thailand

MAYER BROWN | 54 | Asia Tax Bulletin

MAYER BROWN | 7

China (PRC)

Easing of filing requirements for foreign currency payments

On 26 April 2021, China’s State Administration of Foreign Exchange (SAFE) and State Taxation Administration (SAT) jointly issued a draft supplemental public notice to ease filing requirements for persons making outbound payments such as dividends, interest, royalties, technical fees, etc. in foreign currency. The relaxation is given in the draft supplemental public notice on Issues Concerning Tax Filings for Outbound Payments for Trading and Services Projects (the Draft Notice).

According to Public Notice [2013] No. 42, institutions and individuals within China that remit funds abroad in excess of USD 50,000 (per transaction) are required to file records with the local tax bureau in-charge. The Draft Notice eases the tax filing procedure of Public Notice [2013] No. 42 and provides that the filing is only required for the initial payment where several payments or payments in instalments are made for the same contract. The filing obligation is exempt in the case of direct re-investment in China using funds derived from China and if the funds are transferred abroad for non-trade and non-business purposes by government institutions, semi-government units and social organisations.

The abovementioned draft was implemented via the Supplemental Public Notice on Issues Concerning Tax Filings for Outbound Payments for Trading and Service Projects (SAT and SAFE Notice [2021] No. 19). The notice applies as from the issuance date of 29 June 2021.

The filing can be done either by way of online filing, completing a downloaded form and sending it, or by completing a paper form at the local tax bureau in-charge.

JURISDICTION:

Imports of necessary equipment and materials for innovations

From 1 January 2021 to 31 December 2025, China exempts the import of necessary equipment and materials by scientific research institutions, technology development centres, universities and libraries from import duties, value-added tax (VAT) at the import stage and consumption tax, provided that such necessary items cannot be made in China.

In addition, China also exempts the import of books and teaching materials by institutions in charge of imported publications from VAT at the import stage. The exemptions were announced by the Circular of the Ministry of Finance, Customs Services and the State Taxation Administration [2021] No. 23.

The government has also announced import duty exemption on raw materials, certain equipment imported by enterprises engaged in manufacturing integrated circuits and storage machines from 27 July 2020 to 31 December 2030 (Circular of the Ministry of Finance, Custom Services and the State Taxation Administration [2021] No.4).

In addition, the government also exempts the materials used in development and manufacturing of new models of monitors/screens from import duties and VAT from 1 January 2021 to 31 December 2030 (Circular of the MoF, Custom Services and SAT [2021] No.19) (in Chinese). The above exemptions aim to support scientific and technological innovations in line with China’s 14th Five Year Plan.

Super-deduction of R&D expenditure increase

Effective 1 January 2021, a manufacturing enterprise engaged in research and development (R&D) activities may, in addition to the actual expenses, claim a special (super) deduction of 100% of the actual R&D expenses (increased from 75%) in the current tax period if the R&D activities have not yet created an intangible asset. Where the R&D activities have resulted in an intangible asset, the amortisation base of that intangible will be 200% of the cost incurred (increased from 175%). This increase is provided in Circular [2021] No. 13, jointly issued by the Ministry of Finance and the State Taxation Administration on 31 March 2021.

For the purpose of the Circular, a manufacturing enterprise is an enterprise with manufacturing activity as the main business and more than 50% of the enterprise’s total revenue being derived from that main business. In respect of the requirements and details relating to the super-deduction, taxpayers should refer to the rules contained in Circular [2015] No. 119 and Circular [2018] No. 64.

Convertible loans and hybrid instruments

The State Taxation Administration (SAT) has clarified the tax treatment of interest from convertible bonds and foreign hybrid investments, assets after a change in tax assessment method and the timing of recognition of government payments. These clarifications are laid down in SAT Public Notice [2021] No. 17 and will apply from the tax year 2021 onwards.

TAX TREATMENT OF CONVERSION OF DEBT TO EQUITY

Interest derived from convertible bonds is taxable income of the holder (purchaser) of such bonds and must be included in the enterprise income tax return. When the purchaser converts the bonds plus any unreceived interest into equity, the interest is taxable regardless of whether or not it is recorded as income. All the taxed interest and associated expenses will be treated as the purchase cost in the calculation of the acquisition price of the shares after the conversion.

CHINA (PRC)

8 | Asia Tax Bulletin CHINA (PRC)

TAX TREATMENT OF CROSS-BORDER HYBRID INVESTMENTS

Foreign investors who make hybrid investments in China and have satisfied the requirements in SAT Public Notice [2013] No. 41 may be treated according to the provisions of the notice. This means that the interest paid by the invested enterprise must be recognised on the due date of the interest (including guaranteed minimum interest, fixed profit or fixed dividends) and included in the taxable income of the investing enterprise. The same interest is deductible by the paying enterprise. However, this rule does not apply if:

• the foreign investor and the invested enterprise in China are related; and

• the residence state of the foreign investor treats the income as equity income and does not tax such income.

TAX TREATMENT OF ASSETS AFTER A CHANGE IN TAX ASSESSMENT METHOD

Assets may, after a change in the tax assessment method from a deemed profit basis to an actual basis, be depreciated according to the amount stated in the invoice or, in the absence of an invoice, on the basis of the amount mentioned in the purchase contract, evidence of payment or other records. Furthermore, the assets must be depreciated according to the depreciation period and method prescribed by the laws and regulations, after deduction of the years that the assets have been put in use.

TIMING OF RECOGNITION OF PAYMENTS FROM GOVERNMENT

Payments (wholly or partly) received from the government for goods and services supplied by an enterprise according to the supplied quantity and the market price must be recognised on an accrual basis. However, other payments such as subsidies, allowances, compensation or tax refunds must be recognised at the time that the payments are received (on a cash basis).

Integration of tax returns for various taxes

In order to reduce the compliance burden of taxpayers, the State Taxation Administration has integrated separate tax returns for ten types of taxes into a single return. Effective 1 June 2021, taxpayers may use a single tax return for filing one or more of the following taxes:

• urban land use tax;

• house property tax;

• vehicle and vessel tax;

• stamp duty;

• farmland use tax;

• resource tax;

• land appreciation tax;

• deed tax;

• environmental tax; and

• tobacco tax.

Furthermore, effective 1 May 2021, taxpayers may file a single return for value-added tax, consumption tax, urban maintenance and construction tax, education surcharge and local additional education charges in Hainan province, Shanxi province, Dalian and Xiamen as a pilot project.

The simplified filing was announced in SAT Public Notice [2021] No. 9 together with the templates of the new returns. Consequently, several circulars or public notices concerning the previously separate filing of returns of the different taxes have been abolished.

Exemption of deed tax for business restructurings

From 1 January 2021 to 31 December 2023, transfers of land and housing properties in business restructurings of enterprises and semi-government organisations, mergers and divisions, bankruptcies, asset reallocations, debt restructurings and transfer of shares are exempt from deed tax, subject to certain conditions.

The exemptions are laid down in Circular [2021] No.17 jointly issued by the Ministry of Finance and State Taxation Administration on 26 April 2021. This circular replaces Circular [2018] No.17 which granted almost the same exemptions and expired on 31 December 2020.

Extension of land appreciation tax exemption for business restructurings

The government has extended the land appreciation tax exemption for the transfer of land-use rights, buildings and other properties attached to the buildings under a change in legal form or business restructuring until 31 December 2023. The exemption also applies to capital contributions in kind made by an entity or an individual that brings in these assets for similar purposes.

Change in legal form includes, among others, conversion of an unincorporated business as a whole into a limited liability company, whereas business restructuring includes, for example, mergers and divisions.

The exemption was announced jointly by the Ministry of Finance and the State Taxation Administration in Circular [2021] No. 21 and applies from 1 January 2021. Open land appreciation tax issues may be settled according to this circular.

Stamp duty on IP

On 10 June 2021, the 29th Meeting of the Standing Committee of the 13th National People’s Congress passed the Stamp Duty Law of the People’s Republic of China (the “Stamp Tax Law”), effective from 1 July 2022. Changes made to the Stamp Tax Law in respect of intellectual property rights compared with the Interim Regulations on Stamp Duty are:

• abolishing the stamp duty of RMB 5 for each documentation of rights or licenses. This means that trade mark and patent registration certificates and licenses will not be subject to stamp duty in the future; and

• reduction of tax rates for IP transactions (i.e. transfer of the exclusive right to use trade marks, copyrights, patents or the use of proprietary technology) from 0.05% to 0.03%.

Tax incentives

China has extended various tax incentives that have expired such as a one-off deduction for fixed assets of less than CNY 5 million, tax incentives for enterprises providing heating services and others. The extended tax incentives are mainly related to providing support for the development of micro enterprises, innovation in technology and relevant social developments.

The extension was jointly issued by the Ministry of Finance and the State Taxation Administration in the Circular [2021] No.6 dated 15 March 2021 and the main extensions are set out below:

• 16 incentives, such as the one-off deduction for fixed assets with a value of less than CNY 5 million (Circular [2018] No. 54) and tax incentives for enterprises providing heating (Circular [2019] No.38) have respectively been extended to 31 December 2023 and the year 2023.

• The individual income tax incentives in Ping Tan in Fujian Province (Circular [2014] No. 24) and tax incentives relating to domestic relocation in the framework of poverty reduction (Circular [2018] No. 135) have been extended to 31 December 2025.

• Six other incentives (Circular [2016] No.114) will be continued without an expiry date.

The taxes that have been collected before the publication of Circular [2021] No.6 can be deducted against the tax payable of the taxpayer in the following months or refunded accordingly.

CHINA (PRC) MAYER BROWN | 9

Hong KongJURISDICTION:

Carried interest zero tax rate

On 7 May 2021, the Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance was gazetted and came into effect. The Carried Interest Ordinance amends the Inland Revenue Ordinance (Cap. 112) to introduce a concessionary 0% tax rate for ‘carried interest’ paid by eligible private equity (PE) funds operating in Hong Kong to their managers. The concessionary tax treatment applies retroactively to eligible carried interest received by or accrued to qualifying PE fund managers on or after 1 April 2020. Reference is made to the previous editions of this bulletin. No amendments were made to the draft legislation during its passage through the Legislative Council.

Qualifying carried interest recipients have to fulfil substantial activities requirements (including the number of qualified full-time employees and operating expenditure incurred in Hong Kong) for the tax concessions to apply. The Bill also expands the classes of assets that may be held and administered by a special purpose entity on behalf of a fund for the purpose of profits tax exemption regime for funds, with a view to facilitating the operation of funds in Hong Kong.

Qualifying amalgamations and transfers or successions

On 2 June 2021, the Legislative Council passed the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021. The Bill deals with profits tax and stamp duty and implements four areas of amendments to the Inland Revenue Ordinance, namely the tax treatment of amalgamations of companies under court-free procedures as provided for under the Companies Ordinance; the tax treatment of transfers or successions of specified assets under

MAYER BROWN | 11HONG KONG

certain circumstances; changes refining the statutory framework for the furnishing of tax returns; and changes enhancing the foreign tax deduction regime.

The Ordinance will be gazetted and come into operation on 11 June 2021. Amendments in relation to foreign tax deductions will take effect from the year of assessment 2021/22.

International tax developments

GEORGIA

On 1 July 2021, the Georgia - Hong Kong Income and Capital Tax Agreement entered into force. The agreement generally applies from 1 January 2022 in respect of Georgia and from 1 April 2022 in respect of Hong Kong.

India

Taxable presence in India

Through Notification No. 41/2021 of 3 May 2021, the Central Board of Direct Taxes (CBDT) has specified the thresholds in determining significant economic presence (SEP) of a non-resident in India under section 9(1)(i) of the Income Tax Act (ITA) for the purpose of attributing income in India. Under the ITA, the SEP of a non-resident constitutes a business connection in India, which in turn determines the non-resident’s taxable income in India.

The thresholds, which will apply beginning 1 April 2022, are set as follows:

• payment threshold: transactions involving goods, services or property carried out by a non-resident with any person in India, including data or software downloads in India, equivalent to INR 20 million or more of the prior year’s total payments; or

• user threshold: systematic and continuous soliciting of business activities or engaging in interaction with 300,000 or more users in India.

Parliament passes amendments to Finance Bill 2021

On 1 February 2021, the Finance Minister presented the Finance Bill, 2021 in the lower house (Lok Sabha) of Parliament. On 23 March, the lower house of Parliament passed the Bill with amendments. We refer to the previous edition of this Bulletin for details. The most significant changes are set out below.

EQUALISATION LEVY

The scope of the equalisation levy is further clarified so that “consideration received or receivable from e-commerce supply or services” does not include any consideration for the sale of goods or provision of services which are owned or provided by a resident in India or by a permanent establishment (PE)

JURISDICTION:

in India, if the sale of such goods or the provision of such services is effectively connected with the PE.

DEFINITION OF “LIABLE TO TAX” REPHRASED

The definition of “liable to tax” is rephrased to mean that, in relation to a person and with reference to a country, there is an income tax liability on such person under the law of that country for the time being in force and shall include a person that has subsequently been exempted from such liability under the law of that country.

CLARIFICATION OF RREATMENT OF EXISTING GOODWILL IN A BLOCK OF ASSETS

Existing blocks of assets will be reduced by an amount equal to the actual cost of goodwill within the block of assets as reduced by:

• the amount of depreciation actually allowed to the taxpayer for such goodwill prior to assessment year (AY) 1988-89; and

• the amount of depreciation that would have been allowed to the taxpayer for such goodwill after AY 1988-89, as if the goodwill was the only asset within such a block.

This amendment will take effect from AY 2021-22 where tax depreciation was claimed on goodwill in AY 2020-21. Further, the reduction shall not exceed the written down value of the block of assets.

FAIR MARKET VALUE (FMV) OF CAPITAL ASSETS TRANSFERRED UNDER SLUMP SALE

The FMV of the transferred undertaking shall be deemed to be the full value of consideration in a slump sale. Further, the value of goodwill that has not been purchased by the taxpayer shall be considered as nil for the purpose of computing net worth of the undertaking.

TAX ON TRANSFER OF MONEY OR PROPERTY BY A FIRM, ASSOCIATION OF PERSONS (AOP) OR BODY OF INDIVIDUALS (BOI) TO ITS PARTNERS OR MEMBERS

The amended bill proposed to simplify the earlier proposed version of section 45(4) of the Income Tax Act (ITA), which provided for the taxability of capital assets received by specified persons upon the dissolution of a firm, AOP or BOI representing their share in their capital account, and provide that any profits from money or capital asset received by a specified person on account of reconstitution of a

specified entity shall be deemed to be the capital gains of the specified entity.

MINIMUM ALTERNATE TAX (MAT) RELIEF FOR SECONDARY ADJUSTMENT OR ADVANCE PRICING AGREEMENT (APA)

As proposed earlier, a corporate taxpayer can make an application before an assessing officer to recompute the book profit of past years on account of a secondary adjustment or an APA. The provisions will apply to the AY beginning on or before 1 April 2020 only if the taxpayer does not utilise the MAT credit in any subsequent AY. No interest shall be payable on a refund arising out of this provision.

TAX ON INTEREST EARNED ON PROVIDENT FUND (PF) CONTRIBUTION

In cases where contributions to the PF are made only by the employee, interest accruing on such contributions in excess of INR 500,000 will be taxable.

NO TAX ON INCOME OF DEVELOPMENT FINANCIAL INSTITUTIONS

Income of institutions established for financing infrastructure and development may be tax exempt for 10 consecutive assessment years and income of developmental financing institutions licensed by the Reserve Bank of India may be tax exempt for the first five consecutive assessment years. Qualified transfer of capital assets for the abovementioned institutions may also be exempt from capital gains tax.

CAPITAL GAINS TAX ON UNIT LINKED INVESTMENT PLANS (ULIPS)

The proposed minimum equity component of 65% or 90%, as the case may be, must be satisfied throughout the term of a ULIP in order to be eligible for the concessional long-term capital gains tax rate of 10%.

RELOCATION OF OFFSHORE FUNDS TO INTERNATIONAL FINANCIAL SERVICES CENTRES (IFSCS)

The proposed capital gains tax exemption on the transfer of shares of an Indian company acquired or relocated from an offshore fund will also apply to a specified fund.

MAYER BROWN | 13INDIA

14 | Asia Tax Bulletin INDIA

GLOBAL DEPOSITORY RECEIPTS (GDRS) CREATED IN AN IFSC

The scope of section 115ACA of the ITA, which deals with the taxation of income from GDRs in the hands of specified resident individuals, will include GDRs created in an IFSC.

INCOME FROM AIRCRAFT LEASING

The proposed tax exemption on royalty received by a non-resident from an IFSC unit for the lease of an aircraft will also apply to interest income.

The scope of the proposed 100% deduction allowed to an IFSC unit in respect of income arising from the transfer of a leased aircraft will apply to any person (previously, to domestic companies only).

Reimbursement paid for payments made to employees not subject to withholding tax1

The Mumbai bench of the Authority for Advance Rulings held that a reimbursement made by an Indian company, to a foreign company for certain obligatory payments made to expatriate personnel on behalf of the Indian company, would not be taxable as fees for technical services. The reimbursement was held not to be fees for technical services as there was an employer-employee relationship between the Indian company and the expatriate personnel. Payments made to reimburse obligated expenses such as social security contributions, insurance and relocation expenses were held to be a reimbursement since they do not accrue to the offshore company.

Favourable dividend withholding tax rate under the Netherlands Tax Treaty

As a result of the cancellation of the previous dividend distribution tax in 2020, foreign investors in India can now achieve tax savings and reduce Indian tax by applying for tax treaty benefits

provided that the jurisdiction of the foreign shareholder has a favourable tax treaty with India. One such jurisdiction is the Netherlands, whose tax treaty with India provides for a 10% dividend withholding tax rate, but which also contains a Most Favoured Nation clause (MFN) which stipulates that a more beneficial withholding tax rate applies if India subsequently enters into a tax treaty with an OECD member state, which has a lower than 10% dividend withholding tax provision.

Courtesy Khaitan & Co in Mumbai it was reported that the Delhi High Court in its recent judgment in the case of Concentrix Services Netherlands BV WP (C) 9051/2020 and Optum Global Solutions International BV WP (C) 882/2021 (Taxpayer), ruled that instead of the 10% tax rate on dividends under the India-Netherlands tax treaty (Tax Treaty), because of the Most Favourable Nation clause in the dividend article of the Tax Treaty, the 5% rate applies (by reference to India’s tax treaty with Slovenia), notwithstanding the fact that Slovenia was not an OECD member state at the time that India’s treaty with Slovenia was executed. The Delhi High Court ruled that a reasonable application of the MFN clause in the Tax Treaty requires Slovenia to be an OECD member state at the time of application of the MFN clause. As Slovenia had become an OECD member state when the Tax Treaty application was made by the taxpayer, the 5% dividend withholding tax rate should apply under the Tax Treaty.


IRAN

According to an update of 1 April 2021, published by the Indian Ministry of Finance, the income tax treaty with Iran entered into force on 29 September 2020. The treaty generally applies from 21 March 2021 in respect of Iran and from 1 April 2021 in respect of India.

MAURITIUS

On 1 April 2021, the Comprehensive Economic Cooperation Partnership Agreement (CECPA) between India and Mauritius, signed on 17 February 2021, entered into force.

Indonesia

Cryptocurrencies

It has been reported that the Directorate General of Taxation is currently reviewing the features of cryptocurrency transactions in order to determine the appropriate type of tax to be imposed on cryptocurrency transactions. Currently, cryptocurrencies may be traded as commodities, but not used as a mode of payment, in Indonesia.

Tax reform proposal to parliament

The government has submitted a comprehensive tax reform proposal to the parliament that includes measures such as a VAT rate increase, new income tax brackets for individuals, a tax amnesty programme to allow taxpayers to declare undisclosed assets, an alternative minimum tax for operating loss-making businesses and a carbon tax. There is also a proposal to introduce VAT on financial services which are currently exempt from VAT.


SINGAPORE

On 11 May 2021, Indonesia ratified the new Indonesia-Singapore Income Tax Treaty, by way of Presidential Decree No. 35 of 2021, as published in Official Gazette No. 114 of 2021. Once in force and effective, the new treaty will replace the current tax treaty between the two countries. The new tax treaty will be favourable for investments into Indonesia from Singapore, especially for private equity investors and investment funds. At this point the waiting is still for Singapore to ratify the tax treaty.

JURISDICTION:

1 Courtesy of Nishith Desai Associates.

MAYER BROWN | 17JAPAN

JapanJURISDICTION:

Tax reform

On 26 March 2021, the government enacted the 2021 tax reform legislation that introduced tax incentives for investments in carbon reduction efforts and digital transformation and provides inheritance tax exemption to foreign citizens, among other measures, effective 1 April 2021.

We refer to the previous edition of this Bulletin for details of the tax reform.

Appointment of tax administrator for non-resident taxpayers

On 26 March 2021, the Japanese parliament passed into law a new measure that allows the Japanese tax authorities to assign a tax administrator to a non-resident taxpayer that the authorities believe has a Japanese tax payment obligation. Under this new measure, the tax authorities will have the ability to designate certain domestic parties, either related or unrelated to the non-resident taxpayer, as a tax administrator. They can do so if the non-resident taxpayer has not itself appointed a Japan-based party as its tax administrator or have not done so within 60 days after receiving a notice to do so from the Japanese tax authority.

Tax administrators are typically responsible for dealing with the tax administration on behalf of the non-resident taxpayer, including filing tax returns, receiving tax notices and making tax payments. Under the previous law there were no such measures in place for the tax authority.


GEORGIA

On 23 July 2021, the Georgia - Japan Income Tax Treaty will enter into force. The treaty generally applies from 1 January 2022. The provisions of Articles 25 (exchange of information) and 26 (assistance in the collection of taxes) will have effect from 23 July 2021, without regard to the date on which the taxes are levied or the taxable year to which the taxes relate. From these dates, the new treaty will replace the former USSR-Japan Income Tax Treaty, in relations between Georgia and Japan. On the same day, the investment protection agreement (IPA) between Japan and Georgia, signed on 29 January 2021, will enter into force. The agreement will be effective for a period of 10 years and shall continue to be in force unless terminated by either contracting party.

URUGUAY

On 23 July 2021, the Japan-Uruguay Income Tax Treaty will enter into force. The treaty generally applies from 1 January 2022. The provisions of article 25 (Exchange of information) and article 26 (Assistance in the collection of taxes) will have effect from 23 July 2021, without regard to the date on which the taxes are levied or the taxable year to which the taxes relate.

RCEP

On 25 June 2021, Japan deposited its instrument of acceptance with the depositary, the Secretary-General of ASEAN, for the Regional Comprehensive Economic Partnership Agreement (RCEP) between the Association of Southeast Asian Nations (ASEAN) and ASEAN’s free trade agreement partners (Australia, PRC, Japan, Korea and New Zealand), signed on 15 November 2020. The agreement will enter into force 60 days after the date on which at least six signatory states which are member states of ASEAN and three signatory states other than member states of ASEAN have deposited their instrument of ratification, acceptance or approval with the depositary for those signatory states. Singapore was the first RCEP Participating Country (RPC) to complete the official ratification process by depositing its instrument of ratification on 9 April 2021. PRC followed as second country on 15 April 2021.


JAPAN

On 1 June 2021, the amending protocol, signed in Tokyo on 27 February 2019 and in Siem Reap on 2 March 2019, to the 2008 Comprehensive Economic Partnership Agreement (CEPA) with the Association of Southeast Asian Nations (ASEAN), will enter into force in respect of Malaysia. The protocol has already entered into force in respect of Japan, Brunei, Cambodia, Laos, Myanmar, Singapore, Thailand and Vietnam and will enter into force for the Philippines on 1 May 2021.

MalaysiaJURISDICTION:

Philippines

New income tax rates

The Bureau of Internal Revenue (BIR) has issued the implementing regulation for, among other things, the new income tax rates applying to regular income of corporations and to certain passive income pursuant to the tax reforms introduced under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

CORPORATE INCOME TAX RATES

Domestic corporations:

JURISDICTION:

Type of corporation

Domestic corporations

Rate

25%

Effective date

1 July 2020

Corporations with net taxable income not exceeding PHP 5 million and total assets not exceeding PHP 100 million, excluding the land on which the relevant business entity’s office, plant and equipment are situated

20% 1 July 2020

Proprietary educational institutions and hospitals

1% 1 July 2020 until 30 June 2023

Foreign corporations on taxable income derived from all sources within the Philippines:

Type of corporation

Resident foreign corporations

Rate

25%

Effective date

1 July 2020

Offshore Banking Units 25% Effective date of the CREATE Act

Regional operating headquarters

25% 1 January 2022

Non-resident foreign corporations

25% 1 January 2021

20 | Asia Tax Bulletin PHILIPPINES

MINIMUM CORPORATE INCOME TAX

The minimum corporate income tax rate is 1% for the period 1 July 2020 until 30 June 2023.

OFFSHORE BANKING UNITS (OBUs)

OBUs are subject to regular corporate income tax from the date the CREATE Act becomes effective.

INCOME TAX RATE ON CERTAIN PASSIVE INCOME

The income tax rate applicable to certain passive income of corporations are:

TAX-EXEMPT FOREIGN-SOURCE DIVIDENDS

Foreign-source dividends received by domestic corporations are tax exempt once the CREATE Act comes into effect, subject to the following conditions:

• the dividends are reinvested in the domestic corporations’ business operations in the taxable year following that in which the dividends were received or remitted;

• the dividends are used exclusively to fund working capital requirements, capital expenditures, dividend payments, investment in domestic subsidiaries and infrastructure projects; and

• a domestic corporation directly holds at least 20% in value of the outstanding shares of the foreign corporation and has held the shares uninterruptedly for a minimum of two years at the time of the dividend distribution.

Domestic corporations must also comply with the administrative requirements provided in Revenue

Regulation 5-2021.

No credit or deduction will be allowed for any foreign taxes paid in relation to the abovementioned dividends, and such foreign taxes will be disregarded in computing the limitation for tax credits.

IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)

The IAET will not be imposed on corporations for all full fiscal years commencing after the effective date of the CREATE Act.

VAT amendments

The Bureau of Internal Revenue (BIR) has issued the regulation to implement the tax reforms introduced in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act that include amendments to the value-added tax (VAT) and percentage tax provisions of the Tax Code. The Revenue Regulations concerned is No. 4-2021 (RR 4-2021). The following transactions are exempt from VAT:

• sale of residential lot valued at PHP 1.5 million and below, or house and lot and other residential dwellings valued at PHP 2.5 million and below. Beginning 1 January 2021, the VAT exemption will only apply to the sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, the sale of real property utilised for socialised housing, the sale of a house and lot, and other residential

Taxable person

Resident foreign corporations

Nature of income

15%

Rate

Non-resident foreign corporations

15% Effective date of the CREATE Act

25%

25% (15%, subject to conditions)

1 January 2021

Effective date

15%

Interest income from a depositary bank under the expanded foreign currency deposit system

Capital gains from sale of shares of stock not traded on the stock exchange

Gross income received from all sources within the Philippines, such as interest, dividends, rents, etc.

Dividends received from a domestic corporation

Capital gains from sale of shares of stock not traded on the stock exchange

Effective date of the CREATE Act

1 January 2021

Effective date of the CREATE Act

dwellings with a selling price of not more that PHP 2 million;

• sale, importation, printing or publication of books, any newspaper, magazine, journal, review bulletin or any such educational reading material covered by the UNESCO Agreement on the importation of educational, scientific and cultural materials, including the digital or electronic format;

• sale or importation of prescription drugs and medicines for:

>> diabetes, high cholesterol and hypertension from 1 January 2020; and

>> cancer, mental illness, tuberculosis and kidney diseases from 1 January 2021;

• sale or importation by manufacturers, distributors, wholesalers and retailers of drugs and medicine included in the list of approved drugs and medicines issued by the Department of Health of the following from 1 January 2021 until 31 December 2023, subject to conditions:

• capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment components for COVID-19 prevention;

>> all drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19; and

>> approved drugs for the treatment of COVID-19 for use in clinical trials, including raw materials directly necessary for the production of such drugs;

• sale or lease of goods or properties or the performance of services other than the abovementioned transactions, where the gross annual sales and/or receipts do not exceed PHP 3 million.

Effective 1 July 2020 until 30 June 2023, the percentage tax is reduced from 3% to 1%.

VAT on previously zero-rated transactions

Following the satisfaction of conditions set forth under the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the Bureau of Internal Revenue (BIR) has issued the implementing regulations that impose 12% value-added tax (VAT) on previously zero-rated export sales of goods and provision of services.

The following transactions are now subject to 12% VAT:

• transactions considered as export sales under section 106(A)(2) of the National Internal Revenue Code (NIRC):

>> sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

>> sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production; and

• those considered as export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special law;

• provision of services performed in the Philippines by VAT-registered persons under section 108(B) of the NIRC:

>> processing, manufacturing or repacking of goods for other persons doing business outside the Philippines which are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; and

MAYER BROWN | 21PHILIPPINES

22 | Asia Tax Bulletin PHILIPPINES

>> services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production.

The BIR has reportedly satisfied the following conditions set forth under the TRAIN Act:

• successful establishment and implementation of an enhanced VAT refund system i.e. 90-day refund system; and

payment of all pending VAT refund claims as of 31 December 2017 by 31 December 2019.

Full details are available in Revenue Regulations No. 9-2021 of 9 June 2021, which comes into effect 15 days after its publication on 12 June 2021.

Guidelines for claiming tax treaty benefits

On 31 March 2021, the Bureau of Internal Revenue (BIR) updated the guidelines to rationalise and simplify the procedures in claiming tax treaty benefits for all types of income derived by non-resident taxpayers from Philippine sources as part of Revenue Memorandum Order No. 14-2021 (RMO 14-2021), which took effect immediately.

The withholding agent or income payor may rely on the submitted Application Form for Treaty Purposes (BIR Form No. 0901), Tax Residency Certificate duly issued by the foreign tax authority, or the relevant provision of the applicable tax treaty on whether to apply a reduced rate of, or exemption from, withholding at source on income derived by a non-resident taxpayer from all sources within the Philippines. Therefore, it is imperative for non-resident taxpayers intending to avail of treaty benefits to always submit the said documents to each withholding agent or income payor prior to the payment of income for the first time.

Withholding agents must file with the International Tax Affairs Division (ITAD) of the BIR a request for confirmation on the propriety of the withholding tax (WHT) rate applied to the income of non-resident taxpayers at any time after the payment of the WHT but not later than the last day of the fourth month following the close of the taxable year.

If regular WHT rates have been imposed on a non-resident taxpayer’s income, the non-resident taxpayer may file a tax treaty relief application (TTRA) with the ITAD at any time after the receipt of such income supported by documentary requirements set out in RMO 14-2021.

The taxpayer may file a claim for refund of the difference between the actual WHT rate and the treaty WHT rate after obtaining a certificate confirming entitlement to treaty benefits. The claim for refund may be filed independently of, or simultaneously with, the TTRA. However, it must be filed within the two-year prescriptive period provided under Section 229 of the Tax Code.

Generally, one request for confirmation or TTRA must be filed for each transaction, except for long-term contracts or those which are effective for more than one year, where an annual update must be made until the end of the contract.

Beneficial owners of any income paid to foreign fiscally transparent entities may avail of treaty benefits, subject to conditions.

For affirmative rulings, the BIR will issue a duly signed certification in lieu of the usual BIR Ruling and Compliance Check Report. In cases of denial or rulings of first impression, the BIR will issue a BIR Ruling containing the factual and legal reasons for such denial. Taxpayers may appeal adverse rulings to the Department of Finance within 30 days from the receipt of the ruling.

Taxpayers with pending TTRAs for income earned in 2020 and prior years are given three months from the date of receipt of a Final Notice to Submit Additional Documents or from the effectivity of the guidelines, whichever comes later, to complete their submission of documents.

The submission of a Certificate of Residence for Treaty Relief (CORTT) Form for dividends, interests and royalties is discontinued. Nevertheless, CORTT Forms submitted before the effectivity of the guidelines will be forwarded to the relevant tax office for compliance check.

SingaporeJURISDICTION:

Characterisation of certain hybrid instruments

On 3 May 2021, the Inland Revenue Authority of Singapore (IRAS) published the summaries of two advance rulings relating to the characterisation and income tax treatment of certain hybrid instruments. In both cases, the IRAS ruled that: (i) the instruments are considered debt securities for purposes of the Qualifying Debt Securities (QDS) scheme; (ii) the distributions payable on the instruments constitute interest payable on indebtedness that is deductible under section 14(1)(a) of the Income Tax Act (ITA) if incurred on capital employed in acquiring the income of the issuer; and (iii) the distributions are eligible for tax concessions and exemptions under the QDS scheme, provided that the relevant qualifying conditions are satisfied.

In the first case, the issuer issued a tranche of subordinated perpetual securities on the Bond Market of the Singapore Exchange Securities Trading Limited. The proceeds from the issuance are intended to finance the issuer’s general corporate funding requirements or its corporate group’s investments.

In the second case, the issuer issued a tranche of senior perpetual capital securities that were guaranteed by a foreign company. The issuer plans to use the proceeds from the issuance to refinance the issuer’s existing borrowings and also for general corporate purposes. The main features of the instruments are as follows:

Table on next page

SINGAPORE24 | Asia Tax Bulletin MAYER BROWN | 25SINGAPORE

Nature of interest acquired

Subordinated perpetual securities

Payout

Senior perpetual capital securities

Holders of the instruments are not entitled to any shareholding or residual interest in the issuer

Distributions are not dependent on the issuer’s profitability

The issuer may, in its sole and absolute discretion, defer the payment of the distributions. The deferred distributions (arrears) will bear interest at the prevailing distribution rate (additional amount).

The issuer or the foreign guarantor may, in its sole and absolute discretion, defer the payment of the distributions. The distributions will accrue on arrears as long as they remain outstanding.

Distributions are not dependent on the issuer’s or the foreign guarantor’s profitability

Obligation to repay principal amount

Prohibitions

Ranking for repayment

The issuer must satisfy all arrears on the earlier of the date of redemption and the occurrence of certain events (such as the winding up of the issuer).

The issuer is generally prohibited from declaring dividends or making payments to its junior obligations.

The issuer must satisfy all arrears on the earlier of the date of redemption and the occurrence of certain events (such as the winding up of the foreign guarantor).

The issuer and the foreign guarantor are generally prohibited from declaring dividends or making payments to the issuer’s or the foreign guarantor’s junior obligations.

Semi-annual, fixed-rate distributions (distribution rate), with a step-up feature

Both instruments have no fixed redemption date. However, the issuer may redeem the instruments under certain circumstances.

(1) Junior to the issuer’s senior creditors;

(2) Pari passu with the issuer’s other subordinated obligations; and

(3) In priority to the issuer’s ordinary shareholders

Pari passu with the issuer’s other unsecured and unsubordinated obligations

The issues were as follows:

• whether the instruments are regarded as debt securities under section 43N(4) of the ITA and regulation 2 of the Income Tax (Qualifying Debt Securities) Regulations (QDS Regulations);

• whether the distributions (including any arrears and additional amounts) payable on the instruments are regarded as interest payable on indebtedness for the purposes of making a deduction under section 14(1)(a) of the ITA; and

• whether the holders of the instruments are eligible for tax concessions and exemptions under the QDS scheme provided that the relevant qualifying conditions are satisfied.

The IRAS ruled in the affirmative on all issues. On the first issue, the IRAS ruled that both instruments are debt securities for the purposes of section 43N(4) of the ITA and regulation 2 of the QDS Regulations since the main features of the instruments support the debt characterisation.

On the second issue, the distributions payable on the instruments constitute interest payable on indebtedness. Accordingly, the distributions are deductible under section 14(1)(a) of the ITA if the distributions (including any arrears and additional amounts) are incurred on capital raised through the issuance of the instruments and employed in acquiring the issuer's income. Additionally, the distributions (including any arrears and additional amounts) are deductible when they become legally due and payable, which may not necessarily

coincide with the scheduled distribution payment dates in the instruments.

On the third issue, the holders of the instruments are eligible for tax concessions and exemptions provided that the relevant qualifying conditions are also satisfied. In this regard, the distributions payable on the instruments are either:

• subject to tax at a concessionary rate of 10%; or

• exempt from tax in the event that the instruments are issued by a non-resident person:

>> without a permanent establishment (PE) in Singapore; or

>> carrying on Singapore operations through a PE in Singapore where the funds used to acquire the instruments were not obtained from the Singapore operations.

Both rulings are consistent with the administrative position set out by IRAS in the e-Tax Guide entitled Income Tax Treatment of Hybrid Instruments (Second Edition). The fact that there are no fixed redemption dates for both instruments did not in and of itself suffice for the classification of the instruments as equity, particularly since there is a step-up feature embedded in the instruments. The rulings are binding only in respect of the applicants and the instruments as set out above. The rulings were published via Advance Ruling Summary No. 4/2021 and No. 5/2021.

Advance ruling on characterisation of disposal of certain investments

On 1 June 2021, the Inland Revenue Authority of Singapore (IRAS) published a summary of an advance ruling relating to the revenue or capital characterisation of a sale of interest in a certain investment by a listed business trust (ABC Trust), and accordingly the deductibility of any cost or loss associated with or taxability of gains derived from such sale for Singapore income tax purposes. The IRAS ruled that the sale is a capital transaction taking into consideration the various badges of trade. Consequently, associated costs or losses are not deductible, and gains are not taxable, under the Income Tax Act.

ABC Trust was established with the principal investment strategy of directly or indirectly investing in the business of owning a portfolio of stabilised, income-generating assets. ABC Trust held the investment in its initial offering portfolio of assets in certain jurisdiction through a business arrangement, where it entered into an agreement to invest in XY, the operator that managed and operated the income-generating assets under the arrangement. Proceeds from the listing were used to purchase the interest in XY. ABC Trust derived profit distribution and return of capital from the XY interest. After holding the XY interest for more than five years, ABC Trust disposed of the XY interest. The trustee-manager of ABC Trust, who did not actively solicit the divestment of the XY interest, had received a non-binding unsolicited proposal to divest the said interest.

The issue was whether the sale of XY interest by ABC Trust was a capital or revenue transaction, and accordingly, whether the costs or losses associated with or gains arising from the sale should be deductible or taxable, respectively.

The IRAS considered the sale of XY interest by ABC Trust to be a capital transaction, having specifically taken into account the following factors:

• Motive: XY was the business operator that managed and operated the income-generating assets under the business arrangement through which ABC Trust, which was established with a principal investment strategy of holding stabilised, income-generating assets, held the investment in its initial offering portfolio of assets in certain jurisdiction. This suggests a lack of intention by ABC Trust to trade at the time of such acquisition.

• Length of ownership: The five-year holding period suggests that the XY interest was less likely to be held for trading purposes.

• Mode of financing: The absence of short-term financing (i.e. the purchase of the XY interest was financed by proceeds from ABC Trust's listing) suggests that the XY interest was less likely to be held for trading purposes.

• Frequency of transactions: The lack of prior sale of any part of the XY interest by ABC Trust suggests that the XY interest was more likely to be held for capital purposes.

SINGAPORE26 | Asia Tax Bulletin

• Circumstances of realisation: The fact that ABC Trust had no intention to divest the XY interest until it received the unsolicited offer, and that the divestment was partially driven by difficulties in improving distribution per unit and trade price since ABC Trust's listing, are less likely to indicate trading.

• Other factors: ABC Trust's intention to wind up upon completion of the sale of the XY interest suggests that the XY interest was more likely to form ABC Trust's capital apparatus rather than trading stock.

From the above factors which were explicitly acknowledged as having been taken into consideration in informing the IRAS's decision, the IRAS stated that ABC Trust passively held the XY interest and did not actively participate in or directly control the XY business, and that ABC Trust did not perform any supplementary work on or in connection with the enhancement of the value of the underlying asset. The IRAS generally considers a lack of supplementary work done as indicative of the absence of a trade, even though it was not listed as one of the factors taken into consideration in the present case.

The ruling, which was delivered via Advance Ruling Summary No. 6/2021, is binding only in respect of the applicant and the transaction as set out above.


ASEAN – PRC, JAPAN, KOREA, NEW ZEALAND, AUSTRALIA

Singapore’s Ministry of Trade and Industry announced that on 9 April 2021, Singapore deposited its instrument of ratification with the Secretary-General of ASEAN and became the first country to complete the official process for ratification of the Regional Comprehensive Economic Partnership (RCEP) Agreement. It is understood that China, Japan and Thailand completed their domestic procedures to approve RCEP, but apparently have not deposited their instruments of ratification with ASEAN. RCEP is the world’s largest free trade agreement and was signed by all 10 ASEAN members (Singapore, Thailand,

Vietnam, Cambodia, Indonesia, Malaysia, Brunei, Laos, Myanmar and the Philippines) and key partners China, South Korea, Japan, Australia and New Zealand at the 4th RCEP leaders’ summit in November 2020. These 15 countries account for almost 29% of global GDP. The RCEP Agreement will come into force 60 days after six ASEAN member states and three of the non-ASEAN signatories deposit their ratification instrument, acceptance or approval with the Secretary-General of ASEAN. The target date to bring the agreement into force is January 1, 2022.

INDONESIA

On 11 May 2021, Indonesia ratified the new Indonesia-Singapore Income Tax Treaty, by way of Presidential Decree No. 35 of 2021, as published in Official Gazette No. 114 of 2021. Once in force and effective, the new treaty will replace the current tax treaty between the two countries. The new tax treaty will be favourable for investments into Indonesia from Singapore, especially for private equity investors and investment funds. The new treaty still awaits the ratification by Singapore.

Taiwan

More flexibility for BAPA and MAPA

To improve the flexibility and efficiency in concluding bilateral/multilateral advance pricing agreements (BAPAs/MAPAs) with tax treaty partners under the mutual agreement procedure (MAP) article of the relevant tax agreement, the Ministry of Finance issued Decree No. 11024508100 on 24 June 2021 that allows the competent authority to determine the transfer pricing method of examining whether controlled transactions fall within the arm’s length range.

According to the Decree, the results of the controlled transactions can be adopted on a year-by-year basis or the average results of the controlled transactions of the covered years as a whole. If the results of the controlled transactions are not within the arm’s length range, either an upward or a downward adjustment should be made to the incomes of the related parties at an agreed point within the arm’s length range. The adjustment can be either calculated and made separately to the incomes of related parties on a year-by-year basis or be aggregated as a sum and made once in the last year covered in the BAPA/MAPA.

In the past, the competent authority could only accept the median of the arm’s length range as the result of the controlled transactions, and the adjustments had to be made on a year-by-year basis which made it difficult and time-consuming to conclude BAPAs/MAPAs with the competent authorities of treaty partners. Under the new rules introduced in the Decree, it will be easier to harmonise the transfer pricing regulations with other countries by considering global operating risks borne by multinational enterprises and reflecting economic realities, as well as to improve tax certainty, prevent disputes, and avoid double taxation for taxpayers.

JURISDICTION:

ThailandJURISDICTION:

Write-off bad debt2

The Revenue Department recently announced new rules to write-off bad debt for corporate income tax purposes. The new rules intend to resolve issues that had long barred taxpayers from writing-off bad debts.

Ministerial Regulation 372 (2021) issued under the Revenue Code regarding writing-off bad debt (MR374) was published in the Royal Government Gazette on 29 April 2021. MR374 amends the old rules under Ministerial Regulation 186 (MR186). The new rules will apply to accounting periods starting on or after 1 January 2020. Corporate Income Tax Return Form PND 50 for companies with their accounting period ending 31 December 2020 will be due on 30 June 2021, the extended date.

Distinct changes include an increase in debt thresholds, which are subject to different write-off requirements suitable for present-day commerce, and admission of foreign court rulings where debtors reside overseas to write-off the debts without having to bring the case to the Thai Court again.

MR186, as amended by MR374, emphasises that bad debts permissible for write-off must be related to the particular business operation and already included as revenue in the computation of net profits. In addition, the prescription periods for the debts must not yet have expired and be sufficiently evidenced for the purpose of suing debtors. Debts owed by a current or former director or managing partner, however, are not permitted for write-off. The new thresholds, now more realistic in the current business environment, allow corporate taxpayers to write off smaller bad debts without lengthy and costly processes.

MAYER BROWN | 29THAILAND2 Courtesy of Dherakupt International Law Office in Bangkok.

Write-off conditions vary based on debt amounts. MR186 now provides the following revised thresholds:

The amended MR186 now provides corporate taxpayers clearer timeframes to write-off bad debt under Tiers 1 and 2, in particular. Additions or changes are underlined below for ease of reference:

Tier 1: Creditor can write off debt in an accounting period if it has brought a:

(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has enforced its verdict, and the enforcement officer has issued a report of enforcement having been made and found that the debtor did not have assets to resolve the debts; or

(2) Bankruptcy case against the debtor or has petitioned to share the assets in the bankruptcy case, or the liquidator petitions the court to adjudge the debtor bankrupt and the court agrees with the debt settlement or orders bankruptcy, and the case has undergone the first round of asset distribution or the court has ordered closure of the case.

Tier 2: Creditor can write-off debt in an accounting period if it has brought a:

(1) Civil case against the debtor or has petitioned to share the assets in a civil case and the court has accepted the request or petition; or

(2) Bankruptcy case against the debtor or the liquidator petitions the court to adjudge the debtor bankrupt and the court has accepted the complaint, or the creditor has petitioned to share the assets and the official receiver has accepted the petition, accordingly.

Nonetheless, creditor directors must approve the write-offs within 60 days from the end of the accounting period or within 27 June 2021, whichever is later for accounting periods starting on or after 1 January 2020, but no later than 31 December 2020, or within 30 days from the end of the accounting period starting on or after 1 January 2021.

The Revenue Department now recognises litigation or similar processes filed in overseas jurisdictions where a debtor may be domiciled. Under the old rule, a creditor in Thailand may have to file two civil suits; one in the debtor’s country of domicile for actual enforcement, and another in Thailand to fulfil Revenue Department requirements. Creditors have borne significant costs in meeting these criteria.

To exercise this option, creditors must have documentary evidence of the litigation or similar processes taken place, issued by the competent authorities of the country where the claim is filed. The creditor must then translate the documents into Thai language, and certify them as true and correct according to the rules of the Ministry of Foreign Affairs.

The amended MR186 is a significant improvement for all taxpayers. It raises the threshold of the debt amount, allowing taxpayers to more efficiently write-off debts. Taxpayers can also be spared prolonged, costly legal actions costs that sometimes exceed the debt amounts sought. Under the new rules, creditors are also no longer required to file civil claims in more than one jurisdiction. Taxpayers are encouraged to analyse all details of MR374 before writing-off bad debts. The costs of non-compliance could easily exceed the benefits of a write-off deemed questionable by the authorities.

Debt Amount of Each Debtor

Tier

>500,0001

Old New

2

3

>100,000 - ≤ 500,000

≤100,000

>2,000,000

>200,000 - ≤ 2,000,000

≤200,000

THAILAND30 | Asia Tax Bulletin

Enhanced tax incentives for R&D and human resource development

The Board of Investment (BOI) has approved a series of enhanced incentives for research and development (R&D) and human resource development to engage the private sector in strengthening the country’s competitiveness. Enhanced incentives will also be offered to the growing semi-conductor, digital and packaging industries.

The BOI announced the following enhancements to existing incentives in a press release on 30 June 2021:

• longer tax breaks (maximum of 13 years) without a tax exemption ceiling for projects that invest or spend at least THB 200 million or 1% of total sales for the first three years. The amount of R&D investment or spending will determine the additional years;

• greater tax incentives for companies engaged in apprenticeship programmes or those that spend on advanced technology;

• a tax holiday of 10 years for front-end capital and technology-intensive manufacturing, such as wafer fabrication;

• a tax holiday of eight years for advanced integrated circuits, IC substrate and printed circuit board projects with machinery investment of at least THB 1.5 billion;

• a tax holiday of eight years for companies applying for BOI privileges under the single reorganised category named “development of software, digital services platform or digital content”;

• enhanced incentives for the production of “smart” packaging and environmentally friendly packaging; and

• a revised scope for the International Business Centre (IBC) and Trade and Investment Support Office (TISO) categories to grant more flexibility to foreign multinationals operating regional and international offices in Thailand.

VietnamJURISDICTION:

E-commerce activities

The Ministry of Finance (MOF) has released Circular No. 40/2021/TT-BTC that clarifies, among others, the definition of e-commerce activities and digital-based business and the income tax and value-added tax (VAT) collection mechanism for taxpayers conducting e-commerce activities with overseas suppliers.

The circular supplements the provisions concerning e-commerce activities under the Law on Tax Administration of 2019 (LTA) and its implementing regulation, Decree No. 126/2020/ND-CP (Decree 126), which came into operation on 5 December 2020. The circular, which takes effect on 1 August 2021, includes:

• “E-commerce activities” is defined as the conduct of a part or the whole process of commercial activities through electronic means via the Internet, mobile telecommunication networks or other open networks;

• “Digital-based business” is the online provision of services that is essentially automated with minimal or no human intervention and cannot be done without using information technology.

• The following entities are responsible for tax registration, declaration and payment for taxable e-commerce activities in Vietnam via the web portal of the General Department of Taxation (GDT):

>> overseas suppliers with no fixed place of business in Vietnam but who conduct e-commerce activities or digital-based business in Vietnam;

>> Vietnamese buyers from such overseas suppliers;

>> tax organisations and agents operating in Vietnam that are authorised by overseas suppliers to perform the abovementioned tasks; and

VIETNAM32 | Asia Tax Bulletin

>> commercial banks, intermediary payment service providers (IPSPs) and other entities with rights and obligations related to the e-commerce activities or digital-based business.

• The taxable revenue will be the amount received by the overseas supplier from its operations in Vietnam and will be determined based on various information, such as payment transaction information provided by commercial banks and IPSPs, tax residence status, billing, delivery and internet protocol (IP) addresses used, etc.

• The names of overseas suppliers that have registered with the tax authority will be published on GDT’s website. The GDT will also coordinate with concerned agencies to identify overseas suppliers that have not registered, declared and paid the tax due on its income from e-commerce activities in Vietnam and direct the concerned bank or IPSP to deduct and remit the tax on behalf of the overseas supplier.

The circular pertains to the implementation of the LTA and other tax matters for businesses in general, individuals and business households. Under the LTA and Decree 126, commercial banks and IPSPs are required to coordinate with the MOF and relevant agencies to manage and supervise cross-border payments for e-commerce activities and digital-based business.

Advance pricing agreement guidelines

The Ministry of Finance (MOF) has amended the guidelines that implement the advance pricing agreement (APA) mechanism. The amended guidelines align existing rules with recent issuances, including the Law on Tax Administration 38/2019, Decree No. 126/2020/ND-CP and Decree No. 132/2020/ND-CP (see Vietnam-1, News 16 March 2021).

A signed APA under the new guidelines is valid up to three years (previously, five years). Full details are available in MOF Circular 45/2021/TT-BTC (Circular 45) of 18 June 2021. Circular 45 replaces MOF Circular 201/2013 and will come into effect on 3 August 2021. Pending APA applications submitted before this date will be processed according to Circular 45.


Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes.

With extensive reach across four continents, we are the only integrated law firm in the world with approximately 200 lawyers in each of the world’s three largest financial centers—New York, London and Hong Kong—the backbone of the global economy. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry.

Our diverse teams of lawyers are recognised by our clients as strategic partners with deep commercial instincts and a commitment to creatively anticipating their needs and delivering excellence in everything we do. Our “one-firm” culture—seamless and integrated across all practices and regions—ensures that our clients receive the best of our knowledge and experience.

MAYER BROWN | 35


Pieter de Ridder is a Partner of Mayer Brown LLP and is a member of the Global Tax Transactions and Consulting Group. Pieter has over two decades of experience in Asia advising multinational companies and institutions with interests in one or more Asian jurisdictions on theirinbound and outbound work.

Prior to arriving in Singapore in 1996, he was based in Jakarta and Hong Kong. His practice focuses on advising tax matters such as direct investment, restructurings, financing arrangements, private equity and holding company structures into or from locations such as Mainland China, Hong Kong, Singapore, India, Indonesia and the other ASEAN countries.


Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes.

With extensive reach across four continents, we are the only integrated law firm in the world with approximately 200 lawyers in each of the world’s three largest financial centers—New York, London and Hong Kong—the backbone of the global economy. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry.

Our diverse teams of lawyers are recognised by our clients as strategic partners with deep commercial instincts and a commitment to creatively anticipating their needs and delivering excellence in everything we do. Our “one-firm” culture—seamless and integrated across all practices and regions—ensures that our clients receive the best of our knowledge and experience.

MAYER BROWN | 41


Pieter de Ridder is a Partner of Mayer Brown LLP and is a member of the Global Tax Transactions and Consulting Group. Pieter has over two decades of experience in Asia advising multinational companies and institutions with interests in one or more Asian jurisdictions on theirinbound and outbound work.

Prior to arriving in Singapore in 1996, he was based in Jakarta and Hong Kong. His practice focuses on advising tax matters such as direct investment, restructurings, financing arrangements, private equity and holding company structures into or from locations such as mainland China, Hong Kong, Singapore, India, Indonesia and the other ASEAN countries.

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Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes. With extensive reach across four continents, we are the only integrated law firm in the world with approximately 200 lawyers in each of the world’s three largest financial centers—New York, London and Hong Kong—the backbone of the global economy. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry. Our diverse teams of lawyers are recognized by our clients as strategic partners with deep commercial instincts and a commitment to creatively anticipating their needs and delivering excellence in everything we do. Our “one-firm” culture—seamless and integrated across all practices and regions—ensures that our clients receive the best of our knowledge and experience.

Please visit mayerbrown.com for comprehensive contact information for all Mayer Brown offices.This Mayer Brown publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek legal advice before taking any action with respect to the matters discussed herein.

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Asia Tax Bulletin · 2021. 7. 23. · 8 | Asia Tax Bulletin CHINA (PRC) TAX TREATMENT OF...

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Transcript of Asia Tax Bulletin · 2021. 7. 23. · 8 | Asia Tax Bulletin CHINA (PRC) TAX TREATMENT OF...