Asia Tax Bulletin Spring 2021 In This EditionEUROPE BRUSSELS We are pleased to present the SpringLONDON 2021 edition ofDÜ SSELDORF PARIS our firm’s Asia Tax Bulletin. FRANKFURT

ORK BEIJING Dear Reader, GTON DChow to compute eligible IP (royalty) income for the reduced income tax rate; and Thailand’s As the world struggles to recover from the TOKYO CHARLOTTE introduction of VAT on overseas digital services pandemic, business continues regardless and consumed in Thailand with effect from SHANGHAI the tax authorities appear to have little 1 September 2021. trouble keeping up, at least judging from DUBAI HONG KONG developments over the past three months. This edition also contains some interesting HANOI case law in various Asian countries. We This edition of the Asia Tax Bulletin covers the hope you enjoy reading it. highlights, inter alia including the tax proposals HO CHI MINH CITY in the 2021 budgets in Hong Kong, India and Stay safe and don’t give in to the Singapore; China’s draft stamp duty law and current challenges. simplified APA procedure; the long-awaited SINGAPORE carried interest concession proposed by the Hong Kong tax authority; India’s launch of the With kind regards, Faceless Penalty Scheme and an e-portal to Pieter de Ridder report tax evasion; the IndonesianBRASÍLI tax A* authorities’ clarification on the offshore tax VITÓRIA* exemption treatment of expats living in * Indonesia – as well as the dividend withholding RIO DE JANEIRO tax exemption criteria for Indonesian SÃO PAULO* companies; Korea’s tax law changes for 2021; Malaysia’s Covid relief package and its *TAUIL & CHEQUER OFFICE ratification of the Multilateral (BEPS) Treaty; Pieter de Ridder the first corporate tax rate reduction by the Partner, Mayer Brown LLP Philippines in 20 years; the IRAS (Inland +65 6327 0250 Revenue Authority of Singapore) circular on [email protected]

2 | Asia Tax Bulletin MAYER BROWN | 3 Contents

China Indonesia Philippines Taiwan

Transfer pricing for intangibles Tax changes in Taxation of foreign citizens and 24 Tax exemption for 33 6 working plan 2021 investment income under COVID-19 vaccines 15 Capital gains tax on building and omnibus law 34 land trading Imports of transport vehicles and 24 Deficiency tax assessments 7 yachts in Hainan Free Trade Haven 16 COVID-19 tax incentive extended 25 Tax evasion included as predicate 7 Draft stamp duty law Tax incentives for special offence for money laundering 17 economic zones Thailand Simplified procedure for unilateral 25 International 8 Advance Pricing Agreements 18 Bookkeeping requirements tax developments 35 VAT on e-services International tax developments 8 International tax developments 18 Singapore 36 Transfer pricing clarifications

Japan Tax framework for variable Hong Kong 26 capital companies Vietnam 19 International tax developments 9 Budget tax proposals 2021 27 Additional deductions for research Vietnam commits to sign the and development 37 Multilateral Instrument (MLI) 10 Tax incentive insurance business Korea Joint venture not considered as a 27 37 E-commerce activities 10 Carried interest related party 20 Tax law amendments 2021 Advance pricing agreement procedures Hong Kong to raise stamp duty 28 Income from business of making 38 10 on stock transfers International property investments 38 International tax developments 21 tax developments Tax requirements for liquidations 29 Advance ruling on unremitted foreign- India Malaysia 29 sourced dividend income offset against non-trade debt 11 Software not subject to Digital service tax for foreign withholding tax 22 service providers Tightening rules for claiming input 30 tax GST 11 Union Budget 2021 Relief package 23 FRS 109 Impairment of Covid-19 pandemic: residence status 30 14 International tax developments Trade Receivables of certain individuals 23 30 Equipment for Working from Home 14 Faceless Penalty Scheme 31 Budget Tax Changes 2021 E-portal for reporting tax 14 evasion-related issues Transfer pricing guidance for 31 centralised activities of MNEs

International 32 tax developments

MAYER BROWN | 5 Tax changes in Imports of transport vehicles Draft stamp duty law working plan 2021 and yachts in Hainan Free On 28 February 2021, the Standing Committee of Trade Haven the National People’s Congress published the draft In its Working Plan 2021, released on 5 March Stamp Duty Law for public consultation. The draft 2021, the government of PRC announced law will replace the current Interim Regulations of several tax changes, including extending the The government will exempt the import of vessels, Stamp Duty that were issued by the State Council preferential value-added tax (VAT) treatment aviation and motor vehicles from import duties, on 6 August 1988, and brings the stamp duty on for small taxpayers, enhancing various value-added tax and consumption tax at the import securities transactions under legal norms while JURISDICTION: incentives and simplifying the procedures for stage from 25 December 2020 until the closing of maintaining the existing tax framework and overall tax incentive applications. The main tax the bonded zone of the island. tax burden. The deadline for public consultation is changes announced are as follows: In order to be eligible for the exemptions, the 29 March 2021. • extending the preferential treatment of following conditions must be fulfilled: China (PRC) TAXPAYERS small VAT taxpayers; • the items are imported by enterprises that Entities and individuals that issue taxable • increasing the turnover threshold for VAT are incorporated as legal persons and documents or conduct securities transactions within exemption for small taxpayers from CNY registered in the Hainan Free Trade Haven China are subject to stamp duty. The stamp duty 100,000 to 150,000 per month; and engaged in transportation and tourism businesses (for an aviation enterprise, the on securities transactions is levied on the transferor. • reducing the current income tax charge for Hainan Free Trade Haven must be the main TAXABLE SCOPE small and low-profit enterprises and sole operational headquarters); traders by 50% in addition to the existing Stamp duty is levied on contracts, documents for tax incentives; • the imports must be used for their the transfer of property rights, business account transportation and tourism businesses; and books, and securities transactions listed in the • reducing premiums on unemployment “Table of Taxable Items and Tax Rates of insurance and work-related • the yachts may only operate within Hainan Stamp Duty”. injury insurance; province. However, motor vehicles such as mini buses may be used for transport of passengers TAXABLE ITEMS AND TAX RATES • simplifying the procedure for application or cargo between Hainan Free Trade Haven and obtaining tax incentives; and a place outside the Hainan Free Trade While generally maintaining the current stamp duty rates, the draft law simplifies taxable items and • continuing the super-deduction of 75% for Haven if the vehicles do not remain outside rates, as well as reduces tax burdens as follows: research and development activities and the Hainan Free Trade Haven more than 120 increasing the said super-deduction for days on an annual basis. The 120-day limit, • maintaining the rates for loan contracts, manufacturing enterprises to 100%; however, does not apply to vehicles that go contracts for purchase and sale, technical inland and pick up passengers or cargo and contracts and securities transactions; • refunding input VAT newly accrued by an return immediately. advanced manufacturing enterprise on a • reducing the tax rates for processing contracts, monthly basis; Different Hainan government departments will be contracts for construction engineering survey involved in drawing up a list of the enterprises and design, and goods transportation contracts • adjusting import taxes to encourage eligible for the exemption from import duties. from 0.05% to 0.03%; imports of high-quality goods and services; The exemption is laid down in Circular [2020] No. • reducing the tax rate for business account 54 jointly issued by the Ministry of Finance, General books from 0.05% to 0.025%; and • expanding the applicable scope of the Customs Service and the State Taxation enterprise income tax incentives for Administration on 25 December 2020. A list of • abolishing the fixed amount of stamp duty of environmental protection and energy- the exempt items containing 100 means of CNY 5 per document charged on the saving projects; and transportation was published at the same time certificates for rights and licences. • reducing taxes imposed on rental of and attached to the circular. TAX BASIS residential properties. The tax basis for taxable documents is the amount The Ministry of Finance and the State Taxation listed in the contracts, documents for the transfer Administration are expected to issue detailed of property rights and business account books, and regulations or circulars to implement these the tax basis for securities transactions is the tax changes. transaction amount of the securities transactions.

CHINA (PRC) MAYER BROWN | 7 TAX INCENTIVES • the enterprise had an APA in the past 10 tax Budget tax In general, the current stamp duty incentives years which must have been executed in line remain unchanged. At the same time, the State with the terms laid out in the agreement; and proposals 2021 Council has the authority to stipulate reductions or • the enterprise has been subject to a special exemptions of stamp duty according to the needs tax adjustment investigation which has The Hong Kong government has proposed a of national economic and social development. been closed. 100% one-off reduction (limited to HKD 10,000) in Profits Tax, Salaries Tax and tax The tax authority is authorised to deny payable under personal assessment for the Simplified procedure for the application if one of the following year of assessment 2020/21 and an increase in unilateral Advance circumstances occurs: JURISDICTION: the stamp duty rate to 0.13% (from 0.1%) for share transactions. Pricing Agreements • compared with previous years, substantial changes have taken place in the years to be Funds. A subsidy of up to HK$1 million per covered by the APA in terms of related party Hong Kong Open-ended fund company (OFC) will be The State Taxation Administration has issued a transactions, business environment and provided by the Hong Kong Government to draft Public Notice concerning the application of a functions/risks; cover 70% of expenses paid to local simplified procedure for unilateral advance pricing • the enterprise is under special tax adjustment professional service providers for the set-up of arrangements (APAs) on the basis of which the investigation or other tax investigations, and an OFC in or to re-domicile an offshore fund to conclusion of an APA can be completed within six the case is still open; Hong Kong within the next three years. months if the information and documents The SFC welcomed the government budget requested are submitted in time. Public comments • the enterprise fails to file the annual report measures in a subsequent press release and is must be submitted before 18 April 2021. form on related party dealings pursuant to the due to make further announcements on details relevant regulations or the filing is incorrect; Subject to the conditions prescribed in this Public of the proposal in due course. Notice issued on 19 March 2021, enterprises • the enterprise fails to prepare and keep The Hong Kong Government also reiterated its applying for a unilateral APA on the basis of Public contemporaneous documentation pursuant to intention to introduce an amendment bill to Notice [2016] No. 64 regarding the measures for the relevant regulations; and provide tax concessions for carried interest improving the administration of APAs may apply a • the information requested has not been issued by private equity funds operating in simplified procedure that consists of the following provided or does not conform to the Hong Kong, with an aim to secure passage at three stages: requirements of the tax authority and the the Legislative Council within the current • application for evaluation; failure is not rectified. session for such tax concessions to start to apply from 2020-21. • negotiation and signing; and In addition, the simplified procedure cannot be applied to a unilateral APA where two or more than The details were announced in the Budget for • monitoring and execution. two authorities of provinces or regions are involved. 2021/22 that was presented to the Legislative The simplified procedure will only be available to The tax authority is required to notify its decision Council by the Financial Secretary on 25 enterprises with annual related party transactions on the acceptance of the application within 90 days February 2021. The tax measures proposed with a total value of more than CNY 40 million in from the delivery date of the Notice of Tax Matters. require legislative amendments before the last three years prior to the year in which the A successfully concluded APA applies for between implementation. Once enacted, the Notice on Tax Matters is issued by the tax authority three to five years. amendments will apply from 1 April 2021. to notify the acceptance of the enterprise’s intent • a waiver of business registration fees for for an APA. In addition, one of the following 2021/22; and conditions must be satisfied: International • an increase in the rate of ad valorem • the enterprise provides the tax authority with tax developments stamp duty on Hong Kong stock contemporaneous documentation for the last transactions from 0.1% to 0.13% for three years in compliance with the State HONG KONG both buyers and sellers. Taxation Administration’s Public Notice [2016] On 11 March 2021, China and Qatar signed an No.42 not more than three months before the amending protocol to their existing tax treaty. application for the simplified procedure. A master file must be provided if applicable;

8 | Asia Tax Bulletin CHINA (PRC) Carried interest refers broadly to a return linked to Software not subject Tax incentive the performance of an investment of a private insurance business equity fund, typically upon the disposal of the to withholding tax investment after it has been held for a period of time. The Bill exempts eligible carried interest from The Government gazetted on January 15, 2021 the The Indian Supreme Court (SC), ruled on profits tax, while 100% of eligible carried interest subsidiary legislation to implement the new profits 2 March 2021, whether payments to foreign will be excluded from employment income for the tax concessions for insurance-related businesses vendors for the purchase of computer calculation of salaries tax. In addition, the Bill also on March 19, 2021. Enacted in July 2020, the Inland software ought to be characterised as proposes to expand the classes of assets that may Revenue (Amendment) (Profits Tax Concessions for ‘royalty’ or as purchase of goods. be held and administered by a special purpose JURISDICTION: Insurance-related Businesses) Ordinance 2020 entity on behalf of a fund for the purpose of a The SC, through an unanimous judgment reduces the profits tax rate by 50% (i.e. 8.25%) profits tax exemption regime for funds, with a view pronounced by a bench of three Judges, for all general reinsurance business of direct to facilitating the operation of funds in Hong Kong. allowed the appeals of the companies (filed insurers, selected general insurance business India against a Karnataka High Court ruling of direct insurers and selected insurance decided against the companies) and rejected brokerage business. the Revenue appeals (filed against a Delhi The profits tax concessions will promote the Hong Kong to raise stamp High Court decided against the Revenue). development of marine and specialty insurance In a fairly detailed judgment, the SC held businesses of Hong Kong. They will also enhance duty on stock transfers that payments made to foreign vendors for the competitiveness of the insurance industry in the purchase of software (either by Indian seizing new opportunities, including those arising distributors, for onward distribution to On 5 March 2021, the Hong Kong government from the Belt and Road Initiative. end-users or directly by Indian end-users) published the Revenue (Stamp Duty) Bill 2021 (the cannot be said to be a payment for the use The Inland Revenue (Amendment) (Profits Tax Bill) in the Gazette to give effect to the proposal to of the copyright therein. As such, the Concessions for Insurance-related Businesses) increase the rate of stamp duty on stock transfers payments are not taxable in India in the Ordinance 2020 (Commencement) Notice appoints to 0.13% (from 0.1%) as announced by the Financial hands of the foreign vendors as ‘royalty’, for March 19, 2021, as the date on which the Inland Secretary in the 2021-22 Budget. the years prior to the 2012 amendment to Revenue (Amendment) (Profits Tax Concessions for the definition of ‘royalty’ in the Indian Insurance-related Businesses) Ordinance 2020 has domestic tax law. No TDS (withholding tax) The Bill seeks to amend the Stamp Duty Ordinance become effective. The Inland Revenue (Profits Tax therefore applies. The SC held that the to increase the rate of stamp duty payable on Concessions for Insurance-related Businesses) 2012 retroactive amendment to the ‘royalty’ contract notes for the sale or purchase of Hong (Threshold Requirements) Notice prescribes definition has to be implemented only Kong stock and correspondingly on certain threshold requirements for determining whether prospectively and not retroactively. transfers of such stock with effect from 1 August the relevant activities of the specified The SC also held that given the Double Tax 2021. The Bill was introduced into the Legislative insurance-related business are, or are arranged Avoidance Agreements (DTAAs) override Council for first reading on 17 March 2021. to be, conducted in Hong Kong. principle in the Indian income-tax law, the payments would not be taxable as ‘royalty’ Carried interest under most of India’s DTAAs, even after the 2012 amendment in the Indian domestic tax law. The government has proposed tax concessions for carried interest distributed by eligible private equity funds managed out of Hong Kong, including Union Budget 2021 exemption from Profits Tax and Salaries Tax. The government published the Inland Revenue On 1 February 2021, the Finance Minister (Amendment) (Tax Concessions for Carried Interest) presented the Union Budget 2021/22 before Bill 2021 in the Gazette of 29 January 2021. The tax Parliament. The key highlights of the exemption has retroactive effect to 1 April 2020. amendments introduced in the Finance Bill 2021 are summarised below.

10 | Asia Tax Bulletin HONG KONG HONG KONG MAYER BROWN | 11 CORPORATE TAX PERSONAL TAX INCENTIVES FOR FINANCIAL SERVICES Only in serious tax evasion cases, where there • There will be no change in the corporate tax There will be no change in the slab rates for Dividend payments to real estate investment trusts is evidence of concealment of income of INR 5 rate. individuals. (REITs) and infrastructure investment trusts (InvITs) million or more in a year, can reassessment be shall be exempt from tax deducted at source (TDS). opened for up to 10 years. • Late deposit of employees’ contribution to the Additional annual deduction of INR 150,000 for provident fund by employers shall not be interest on a loan taken for first time purchase of Advance tax liability on dividend income shall arise • A National Faceless Income Tax Assessment allowed as a deductible expenditure in the affordable housing property will be available up to only after declaration or payment of dividend. Tribunal (ITAT) Centre will be set up. All hands of the Company. 31 March 2022. communication between the ITAT and the For foreign portfolio investors, treaty rates can be appellant shall be electronic. Where personal • Goodwill (other than acquisition of goodwill by New rules were proposed for the removal of double availed for withholding tax on dividend income. hearing is needed, it shall be done through purchase) of a business or profession shall not taxation for non-resident Indians (NRIs). To further incentivise operations of units in the videoconferencing. be considered as an asset and therefore not be Maturity proceeds from unit-linked insurance International Financial Services Centre (IFSC) in eligible for depreciation. • A dispute resolution committee will be created policies issued on or after 1 February 2021 will be GIFT City, the Finance Minister proposed to allow for small taxpayers with taxable income up to EQUALISATION LEVY taxable, if the aggregate annual premium exceeds an exemption on capital gains for aircraft leasing INR 5 million and disputed income up to INR INR 250,000 in any of the financial years during the companies, a tax exemption for aircraft lease The tax on royalties or fees for technical services 1 million. term of these policies. rentals paid to foreign lessors, a tax incentive for (FTS) and the EL will be mutually exclusive effective relocating foreign funds in the IFSC and to allow a The definition of the term “slump sale” will be from 1 April 2020. Accordingly, the EL shall not be The income of a resident in India who has opened tax exemption for the investment division of foreign amended so that all types of “transfers” as defined charged on the consideration which is taxable as a specified account in a notified country while banks located in the IFSC. in section 2(47) of the Income Tax Act are included royalties or FTS. being a non-resident in India and a resident in within its scope. the other country from a specified account for To incentivise investment in eligible start-ups, the For purposes of defining e-commerce supply or retirement benefits (see Note) shall be taxed in eligibility for claiming a tax holiday for start-ups is NRIs will be allowed to operate one person service, online sale of goods and online provision of the manner and in the year as prescribed by the extended by one more year – until 31 March 2022. companies in India. services shall include one or more of the following Central Government. Further, in order to incentivise funding of start-ups, activities taking place online: the capital gains exemption for investment in The tax deducted at source under section 196D of COVID-19 pandemic: • accepting offers for sale; start-ups is also extended by one more year until the ITA in respect of income from securities held by 31 March 2022. residence status of • placing purchase orders; Foreign Portfolio Investors can be deducted at the rate provided under tax treaties if such rate is lower TAX ADMINISTRATION AND OTHER MEASURES • acceptance of purchase orders; certain individuals than the existing rate of 20% and if a tax residence Relief measures will be granted to senior citizens by • payment of consideration; or certificate has been obtained. removing the need to file income tax returns for The Central Board of Direct Taxes (CBDT) has • supply of goods or provision of services, partly Taxability of interest on various funds where income those aged 75 years and above, having only clarified that an individual forced to stay in India or wholly. is exempt: pension and interest income. Paying banks will be due to travel restrictions and who is facing double required to deduct the necessary tax on their taxation on income for previous year (PY) 2020-21 Consequently, provisions referring to income • Employees contributing substantial amounts income. may furnish relevant information of his arising from the afore-mentioned activities that to provident funds benefit from the tax circumstances to the CBDT for the purpose of would have been exempt under section 10(50) of exemption on the entire interest accrued and/ Details of capital gains, dividend income, income claiming double tax relief. Based on the submitted the Income Tax Act (ITA) and chargeable to the or received from such contribution under from listed securities and interest income from bank information, the CBDT will examine: EL will be amended to give effect to the section 10 of the ITA. deposits will also be pre-filled in the income tax aforementioned amendments. return form. • whether any relaxation is required to be • The Finance Bill proposes to remove the provided; and Consideration received or receivable from exemption for interest accrued during the The following amendments on tax audit, e-commerce supply or services will include: previous year on the recognised provident fund assessment and appellate proceedings were • if required, whether general relaxation is to the extent it relates to the amount or proposed: required for a class of individuals or specific • consideration for sale of goods irrespective of aggregate of amounts of employee relaxation is required for individual cases. whether the e-commerce operator owns the • The tax audit limit will be increased from INR 50 contribution in excess of INR 250,000 in a goods; and million to INR 100 million for persons carrying The required information must be submitted previous year, on or after 1 April 2021. out 95% of their transactions digitally. electronically via Form-NR by 31 March 2021. • consideration for provision of services irrespective of whether the service is provided • The time limit for re-opening income tax or facilitated by the e-commerce operator. assessment cases will be reduced from six years to three years.

12 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 13 The CBDT has initially clarified that the possibility of E-portal for reporting tax Taxation of double taxation of an individual’s PY 2020-21 income does not exist when taking into evasion-related issues foreign citizens and consideration the provisions of the Income Tax Act investment income under read in conjunction with tax treaties. However, in To promote e-governance and encourage the the interest of understanding possible situations of public to participate in curbing tax evasion, the omnibus law double taxation, the CBDT will allow affected Central Board of Direct Taxes has launched a individuals to submit their relevant information. dedicated e-portal to receive complaints for tax The Ministry of Finance (MoF) has provided The CBDT previously clarified that the period of evasion, undisclosed foreign assets and income and further guidance for the tax changes JURISDICTION: stay in India of certain individuals will not be benami transactions (i.e. transactions where introduced under Law No. 11 Year 2020 on taken into account in determining the individual’s property is transferred to one person for a Job Creation (Law 11/2020) that include, residence status for the PY 2019-20, subject consideration paid or provided by another person). among others, clarifications regarding the taxation of income of foreign individuals that to conditions. Informers can file complaints regarding violations of Indonesia qualify as domestic tax subjects and taxation the Income Tax Act 1961, Black Money (Undisclosed of dividends and offshore income received by Foreign Assets and Income) Imposition of Tax Act Faceless Penalty Scheme resident taxpayers. In this regard, the MoF has 1961 and Prevention of Benami Transactions Act. issued MoF Regulation No.18/PMK.03/2021 Informers may or may not have an existing The central government has launched the Faceless (PMK-18) to implement Law 11/2020 and the Permanent Account Number (PAN) or Aadhar, and Penalty Scheme, 2021, which lays down the salient features are set out below. they may opt to claim a reward. procedures for the imposition of penalties under the Income Tax Act through electronic channels. TAXATION ON INCOME OF FOREIGN The scheme complements the faceless assessment INDIVIDUALS and appeal schemes announced in August 2020 to promote transparency in the assessment and • A foreign citizen who becomes a tax appeal process and minimise personal interaction resident in Indonesia is subject to tax only between taxpayers and the tax authorities. on the income received or sourced from Indonesia for the first four years from the Under the scheme, the imposition of a penalty date that the individual qualifies as a tax arising from an income tax assessment, including resident, provided that the individual the automatic allocation of cases among penalty fulfils the expertise requirement set out in centres or units yet to be established by the Central Appendix II of PMK-18. Board of Direct Taxes (CBDT), issuance and delivery of penalty notices or orders, appeals against such • If the said individual leaves the country penalty notices or orders and communications and returns within the four-year period, between penalty centres or units and assessees, the four-year period will start from the among other things, will be made electronically. date that the individual first becomes a The CBDT may set up faceless penalty centres and resident tax subject. specify their relevant jurisdiction, among which the National Faceless Penalty Centre will be tasked to • Foreign citizens will require prior approval facilitate the conduct of penalty proceedings in a from the tax authorities before they can centralised manner. Until such time that penalty apply the territorial tax treatment. centres are set up, the CBDT will direct the National • Individuals that qualify as tax residents Faceless Assessment Centre and its assessment and fulfil the expertise requirement prior units to carry out the duties and responsibilities of to the issuance of PMK-18 may apply for the penalty centres. Full details of the scheme are territorial tax treatment as long as the available in Notification No. 2/2021 of 12 January four-year period has not passed. Once the 2021. The scheme comes into effect on the date of application is approved, the individual its publication in the Official Gazette. may apply the tax treatment from 2 November 2020 until the four-year period for the individual expires.

14 | Asia Tax Bulletin INDIA INDIA MAYER BROWN | 15 DIVIDENDS AND OFFSHORE INCOME EXEMPT PMK-18 also includes the implementing rules Taxpayers are required to comply with all the • After the expiration of the above-mentioned FROM TAX regarding VAT and General Provision and Procedure administrative requirements set out in PMK-239 in incentive period, eligible taxpayers will be on Taxes amendments made under Law 11/2020. granted a 50% reduction in CIT payable for Dividends and other income exempt from tax are order to avail of the tax incentives. PMK-18 came into effect on 17 February 2021. two subsequent years. summarised below: • Withholding tax (WHT) will not apply to the • domestic dividends received by corporate Tax incentives for special COVID-19 tax above-mentioned exempt income. taxpayers; and economic zones • Eligible taxpayers that invest at least IDR 100 • other income, subject to the condition that the incentive extended billion in certain business fields and/or income is reinvested in Indonesia for a certain The Ministry of Finance (MoF) has provided further regions may be entitled to: period as follows: The Ministry of Finance (MoF) has further extended details on the tax incentives available for companies the tax incentives (i.e. value-added tax not collected >> a 30% reduction in net income on the total >> domestic dividends received by operating in special economic zones (SEZs) such as or borne by the government and withholding tax investment on fixed assets (including the individual taxpayers; exemption from income tax, value-added tax (VAT), exemptions) period until 31 December 2021 sales tax on luxury goods, import duties, tax on cost of land used for business purposes), >> offshore dividends received from a listed (previously, until 31 December 2020) for the importation and excise duties. The MoF has issued reduced over six years at 5% each year; company by domestic taxpayers; provision of the following goods and services that MoF Regulation No. 237/PMK.010/2020 (PMK-237) >> accelerated depreciation allowances of up are needed in handling the COVID-19 pandemic: >> offshore dividends received from a to implement the incentives announced under to 100% for the use of tangible and non-listed company by domestic taxpayers • the import or acquisition of goods and Government Regulation Number 12 of 2020. intangible assets, subject to conditions; and subject to an investment amount of at least services by government agencies, hospitals A business entity (i.e. state-owned enterprises, >> a reduced WHT rate of 10% (from 20%) or 30% of profit after tax; and other authorised parties and region-owned enterprises, cooperatives, private the treaty rate, whichever is lower, on pharmaceutical companies; >> offshore income from a permanent companies and joint ventures) operating in SEZs dividend payments made to non-resident establishment subject to an investment • the sale of the vaccine, medicines or goods may avail of the above-mentioned tax incentives recipients (except payments made to amount of at least 30% of profit after by pharmaceutical companies to certain provided that the entity: permanent establishments in Indonesia); tax; and parties; and • is a resident corporate taxpayer conducting and compensation for losses for up to 10 years. >> offshore income from active • income received from certain parties by business activities in SEZs; businesses abroad. esident taxpayers for the performance of • is an entity approved by the authority to VAT AND SALES TAX ON LUXURY GOODS required services. The qualifying reinvestments must be placed in conduct business in SEZs; Exemptions will apply on the importation, utilization the financial markets or instruments outside the In addition, the tax incentives available to local • has clear boundaries in accordance with the or delivery of certain taxable goods, intangible financial markets as specified under PMK-18. healthcare equipment manufacturers and stages of SEZ development; and goods and/or services by eligible taxpayers in SEZs community members for their donations and or between taxpayers in and outside SEZs, subject The abovementioned investments must be: provision of services and assets to assist the • has a business licence. to conditions. • made at the end of the third month (individual government for COVID-19 purposes under INCOME TAX IMPORT DUTIES, TAX ON IMPORTATION AND taxpayers) or the end of the fourth month Government Regulation No. 29/2020 of 10 June EXCISE DUTIES (corporate taxpayers) after the end of the fiscal 2020 are also extended from 31 December 2020 to • A 100% reduction in corporate income tax (CIT) year the dividends or other income are received 30 June 2021. payable, provided that the investment is at least Exemptions will apply on the importation of the or obtained; IDR 100 billion, may be granted to: following dutiable/taxable goods by qualified Details of the above measures are provided in MoF taxpayers, subject to conditions: • held for at least three fiscal years starting from Regulation No.239/PMK.03/2020 (PMK-239). PMK- >> business entities, on income received from the fiscal year when the dividends or other 239 came into effect on 1 January 2021 and the transfer or lease of land and/or buildings • on capital goods for the construction or income are received or earned; and replaces MoF Regulation No.143/PMK.03/2020 in SEZ or income from other main business development of SEZs for a maximum period of (PMK-143). PMK-239 remains largely the same as activities in SEZs, for a period of 10 years; or five years; and • retained (i.e. not transferred), except to some PMK-143 except for certain variations. other type of qualifying investment. >> businesspersons, on income from • for taxpayers that process goods, on taxable Under PMK-239, the tax incentives are applicable to investments in main business activities goods (e.g. raw materials, auxiliary materials, Foreign taxes paid on the exempted offshore the sale, import or acquisition of the vaccine and its carried out in SEZs for the following machinery and equipment, etc.). dividends or offshore income are not creditable, raw materials, including vaccination support time period: deductible or refundable. In the event that the Taxpayers must comply with all the administrative equipment, in addition to the goods and services as Tax incentive offshore dividends or offshore income are not fully Amount of requirements set out in PMK-237 in order to avail provided under PMK-143. PMK-239 also requires period (years) investment (IDR) reinvested in Indonesia, the foreign tax credit will of the tax incentives. PMK-237 was gazetted on pharmaceutical companies that produce the vaccine be calculated on a proportional basis. 10 between 100 billion to 500 billion 30 December 2020 and will come into effect or medicine for COVID-19 purposes to obtain a 30 days thereafter. recommendation letter from the Ministry of Health 15 between 500 billion to 1 trillion in order to benefit from the tax incentives. 20 above 1 trillion

16 | Asia Tax Bulletin INDONESIA INDONESIA MAYER BROWN | 17 Bookkeeping requirements >> before the start of the fiscal year where International bookkeeping is made in English and USD (if the company will maintain bookkeeping or tax developments The Directorate General of Taxation (DGT) requires records in English and USD) for eligible taxpayers to maintain their bookkeeping or records corporate taxpayers. USA in Indonesia in the Indonesian language and denominated in Indonesian Rupiah (IDR). • Taxpayers with foreign investments and According to an update of 25 February However, certain taxpayers may maintain the permanent establishments may also maintain 2021, published by the US Internal Revenue aforementioned bookkeeping or records in English their bookkeeping or records in English and in Service, Japan and the United States have and in IDR or in US dollars (USD) by notifying the USD by submitting an application electronically JURISDICTION: signed a mutual agreement to implement Ministry of Finance (MoF) or submitting an to the DGT not later than three months from the the arbitration process under article 25(5), application for written consent to the MoF through date of establishment of the company or before (6) and (7) of the Japan–United States the DGT. The DGT has issued Regulation No. the beginning of the fiscal year where Income Tax Treaty (2003), as amended by PER-24/PJ/2020 (PER-24) dated 28 December 2020. bookkeeping is made in English. Japan the 2013 protocol. PER-24 came into effect on 28 December 2020 and • Taxpayers who have obtained the MoF’s GEORGIA replaced PER-23/PJ/ 2015. approval to maintain their bookkeeping or On 29 January 2021, the Georgia–Japan • Taxpayers may maintain their bookkeeping or records in English and in IDR or USD and Income Tax Treaty (2021) was signed, in records in English and in IDR while certain subsequently apply to reverse their decision will Tbilisi. Once in force and effective, the new corporate taxpayers may maintain their not be allowed to revert to English for five years treaty will replace the former USSR–Japan bookkeeping or records in English and in USD, from the time the application for the use of the Income Tax Treaty, in relations between by submitting an application electronically, Indonesian language and IDR is granted. Georgia and Japan. including the required attachments, through • Taxpayers are required to comply with the SPAIN channels allowed by the DGT in accordance with administrative requirements set out in PER-24. the format provided in Appendix A of PER-24. On 1 May 2021, Japan’s new tax treaty with Eligible corporate taxpayers include: International Spain will enter into force. The treaty >> companies operating under work contracts generally applies from 1 January 2022. The with the government in the mineral and coal tax developments provisions of article 25 (Exchange of mining sector; information) and article 26 (Assistance in SINGAPORE the collection of taxes) will have effect from >> contractors with cooperation contracts in 1 May 2021, without regard to the date on the oil and gas mining sector; and According to a press release of 9 March 2021, which the taxes are levied or the taxable >> companies that carry on joint operations published by the Singaporean Ministry of Trade and year to which the taxes relate. From these under cooperation agreements that have Industry, the investment protection agreement with dates, the new treaty generally replaces the obtained permission to maintain Indonesia, signed in Bali on 11 October 2018, previous tax treaty. entered into force. bookkeeping in English and USD. PERU

• The notification or application must be made On 29 January 2021, the Japan–Peru not later than three months: Income Tax Treaty entered into force. >> from the beginning of the financial year The treaty generally applies from where bookkeeping or records are 1 January 2022. maintained in English by the taxpayers;

>> from the date of establishment of the company (if the company has been maintaining bookkeeping or records in English and in USD since its establishment) for eligible corporate taxpayers; or

19 | Asia Tax Bulletin 18 | Asia Tax Bulletin INDONESIA INDONESIA Tax law • Increased individual income tax rate; International amendments 2021 • Tax on non-resident or foreign corporation’s tax developments income derived from virtual assets; In December 2020, the National Assembly UK approved the tax law amendments proposed • Requiring virtual asset company to submit by the Ministry of Economy and Finance, tax data; On 1 January 2021, the trade continuity agreement followed by an official announcement of the between Korea and the United Kingdom, signed on relevant Presidential Decrees released and • Clarifying place of supply for electronic services; 22 August 2019, entered into force. are currently in force as of February 17, 2021. JURISDICTION: • Clarifying determination of related party to VIETNAM The local tax law amendments proposed by whom advance issued is not allowed as bad the Ministry of the Interior and Safety were On 20 January 2021, the amending protocol, signed debt deduction; also approved by the National Assembly and on 27 November 2019, to the Korea-Vietnam Income Tax Treaty entered into force. The protocol Korea are currently in force. • Subjecting a foreign corporation to generally applies from 1 January 2022. non-compliance penalty for not submitting Below you will find a summary of the payment statement; CAMBODIA significant amendments. Please note that most of the below amendments are effective • Expanded definition of foreign related party; On 29 January 2021, Korea’s tax treaty with as of January 1, 2021 (however, amendments Cambodia entered into force. The treaty generally regarding taxes on financial investments are • Expanded scope of passive income for applies from 1 January 2022. expected to be applied as of January 1, controlled foreign corporation (CFC) regime; 2023). The tax amendments include: • Extended due date for submission of • A new integrated investment tax credit international transaction related data; scheme—rebuild investment tax credit scheme; • Adding companies for exceptional 100% utilization of NOL; • Relief from investment tax credit requirements for new growth-engine • Expanded reasons for bad debt write-offs of technology commercialization facilities; foreign receivable;

• SME outsourcing costs for patent study • Establishing basis for allocation of assets and analysis as qualified expenditures for and liabilities by industry under R&D tax credits; thin-capitalization rule; and

• Extended tax credit carry-forward period; • Shortening the reporting period for tax data.

• Extended foreign tax credit carryforward period and deduction for unused foreign tax credits allowed;

• Extended net operating loss (NOL) carryforward period;

• Extended applicable period of tax credits for increasing wages;

• Increased threshold for advertisement expense not treated as entertainment expense;

• Increased threshold for entertainment expense not requiring supporting evidence;

20 | Asia Tax Bulletin KOREA MAYER BROWN | 21 Digital service Relief package • The service tax and tourism tax exemptions for accommodation service providers will be tax for foreign extended until 31 December 2021 (from On 17 March 2021, the Prime Minister announced a 30 June 2021). service providers number of tax measures, including an additional tax deduction of up to MYR 50,000 for companies on • An entertainment duty exemption will be The Royal Malaysian Customs Department the rental of premises and hostels for employees, granted to selected industries, such as theme (RMCD) has issued updated guidelines on additional personal tax relief of up to MYR 1,000 for park operators, cinema operators and others, the 6% service tax for digital services the purchase of travelling packages, and deferment subject to conditions. of monthly tax instalment payments for selected JURISDICTION: provided by foreign service providers • The Human Resources Development Fund levy industries and other parties under the PEMERKASA (FSPs), including clarification on intra-group exemption will be granted to companies in the relief package to facilitate the economic recovery of relief, issuance of credit and debit notes, tourism and retail industries until June 2021. and remission of penalties. the country in response to the COVID-19 pandemic. Malaysia The main updates of the guidelines, which DIRECT TAXATION International took effect from 1 January 2021 (except • An additional tax deduction of up to stated otherwise), are set out below. MYR 50,000 will be available for expenses tax developments • Effective 14 May 2020, FSPs or foreign incurred on the rental of premises and hostels registered persons (FRPs) that provide for employees upon application made by CAMBODIA manufacturing companies and services digital services to a company in According to a recent update published by the companies where the services are related to Malaysia within the same group of Cambodian Tax Department, the Cambodia– manufacturing activities. The companies must companies are exempt from charging Malaysia Income Tax Treaty has entered into force. be registered with the Ministry of service tax, subject to conditions. Thus, The treaty generally applies from 1 January 2021. an FRP that provides digital services International Trade and Industry (MITI) and only to a company in Malaysia in the passed the compliance audit under the BEPS/MULTILATERAL TREATY Safe@Work initiative. same group of companies may apply for On 18 February 2021, Malaysia became the 63rd cancellation of registration. Meanwhile, • An additional tax deduction will be granted to country to deposit its instrument of ratification for an FSP that provides digital services employers for COVID-19 screening expenses the Multilateral Convention to Implement Tax Treaty only to a company in Malaysia in the incurred by their employees until Related Measures to Prevent BEPS (MLI). The same group of companies is not liable 31 December 2021. convention will enter into force in respect of to be registered as an FRP. Malaysia on 1 June 2021. Malaysia submitted its MLI • Personal relief amounting to MYR 1,000 will be position on 24 January 2018 listing its reservations • The Director General (DG) may approve granted to individuals who purchase travelling and notifications and including 73 tax treaties that it an application made by an FRP to packages with registered travelling agents, wished to be covered by the MLI. account for the service tax at the time subject to conditions. when an invoice is issued. • Deferment of monthly tax instalment payments • Where the service tax has been from April 2021 to 31 December 2021 will be accounted for and there is a reduction granted to selected industries such as the or increase in the amount of service tax, tourism industry, subject to conditions. an FRP is required to issue credit notes or debit notes, as applicable, for • A tax incentive will be provided to companies in adjustment purposes. The credit notes the tourism industry will be extended until year and debit notes issued must comply of assessment 2022. with the prescribed format. INDIRECT TAXATION

• The DG may remit the whole or any part • A 100% excise duty exemption will be granted of the amount of penalties levied for on any sale of motorcycles of 150cc and below. non-compliance with the provisions of This will be effective from 1 April 2021 to the Services Tax Act 2018. 31 December 2021.

MALAYSIA MAYER BROWN | 23 Tax exemption for The provisions proposed under the CREATE Bill Tax evasion included as vetoed by the President are summarised below. COVID-19 vaccines predicate offence for TAX INCENTIVES FOR REGISTERED PROJECTS AND ACTIVITIES money laundering The government has exempted the procurement, importation, donation, • Provisions for domestic market enterprises are To strengthen the country’s anti-money laundering storage, transport, deployment and as follows: (AML) law, the government has designated tax evasion involving tax deficiencies of more than administration of COVID-19 vaccines >> the 5% special corporate income tax (SCIT) PHP 25 million as a predicate offence to through the government’s vaccination on gross income for domestic market JURISDICTION: money laundering. program from customs duty, value-added enterprises with a minimum investment tax, excise tax, donor’s tax and other fees capital of PHP 500 million for five years and The AML Act of 2001 has expanded its definitions effective 1 January 2021. domestic market enterprises under the for unlawful activity to include tax evasion under Philippines To be eligible for the above-mentioned Strategic Investment Priority Plan engaged section 254 of the National Internal Revenue Code exemption, the vaccines must not be in activities as critical; and where the deficiency basic tax due in the final assessment is more than PHP 25 million per year intended for resale or commercial use and >> the option to avail of enhanced deductions or each tax type covered. In addition, the AML Act must be distributed to the persons to be in lieu of the SCIT. vaccinated without consideration. of 2001 provides that the AML Council will not • In summary, qualified domestic market intervene in the Bureau of Internal Revenue (BIR) Congress has earlier approved the tax enterprises, whether engaged in activities that operations but may coordinate with the BIR to exemption for the sale or importation of are classified as critical or not, may avail of the investigate such violations. However, the AML COVID-19 vaccines in the Corporate income tax holiday for four to seven years Council may not institute proceedings to Recovery and Tax Incentives for Enterprises followed by enhanced deductions for five years, recover monetary instruments, property or Bill. The Bill is yet to be enacted into law. but not the SCIT; proceeds representing, involving or relating to a tax crime if the BIR has recovered the same in a • the option for existing export and domestic Deficiency separate proceeding. market enterprises to reapply for a new set of tax assessments incentives for the same activities; and International On 26 March 2021, the President approved • automatic grant of tax incentives to applicants if the measures proposed by Congress, that the application for such incentives has not been tax developments include, among others, lower corporate acted upon within 20 days from the submission CEPA income tax (CIT) rates, revised fiscal of application and supporting documents. incentives for registered projects and On 1 May 2021, the amending protocol, signed in INDIRECT TAXATION activities and indirect tax exemption for Tokyo on 27 February 2019 and in Siem Reap on COVID-19 drugs, vaccines and raw • Higher threshold for VAT-exempt sale of low- 2 March 2019, to the 2008 Comprehensive materials, under the Corporate Recovery cost and socialised housing. Economic Partnership Agreement (CEPA) with the and Tax Incentives for Enterprises (CREATE) Association of Southeast Asian Nations (ASEAN), TAX ADMINISTRATION Act. The Bureau of Internal Revenue is will enter into force in respect of the Philippines. expected to issue the regulations to 90-day processing period for the issuance of The protocol has already entered into force in implement the CREATE Act in due time. general tax refunds or tax credits. respect of Japan, Brunei, Cambodia, Laos, Myanmar, Singapore, Thailand and Vietnam. The CREATE Act reduces the CIT rate from 30% to following rates:

• 20% for domestic small and medium enterprises, effective 1 July 2020;

• 25% for other domestic companies and resident foreign companies, effective 1 July 2020; and

• 25% for non-resident foreign companies, effective 1 January 2021.

PHILIPPINES MAYER BROWN | 25 Tax framework • expenditure incurred for connected R&D Additional deductions for carried out on behalf of the approved company for variable by a non-resident related party or where the research and development capital companies R&D is not carried out in Singapore; • payments made under an excluded cost-sharing On 29 January 2021, the Inland Revenue Authority agreement to carry out connected R&D; and of Singapore (IRAS) issued an updated e-Tax Guide INTELLECTUAL PROPERTY INCOME to clarify that the additional deduction for • payments made in order to become a party The Ministry of Finance has issued the qualifying research and development (R&D) to a cost-sharing agreement (to the extent that regulations that set out the determination expenditure under section 14DA(1) of the Income the payments were made to obtain a JURISDICTION: of intellectual property (IP) income subject Tax Act (ITA) for the years of assessment (YAs) specified right). to the concessionary tax rate under section 2019-2025 is 150% of the qualifying expenditure. 43ZI(5) of the Income Tax Act (ITA), deemed The above-mentioned expenditure, in relation to Under the previous e-Tax Guide of 1 December income subject to the regular corporate tax the computation of the percentage, may be 2017, the additional deduction for qualifying R&D Singapore under section 14DA(1) of the ITA for YAs 2009-2025 rate and record-keeping requirements for modified in the absence of records before or on or an approved company. after the approval date of the company. was set at 50% of the qualifying expenditure. The rate was subsequently amended in Act 45 of 2018. The percentage of qualifying intellectual Where an approved company is subject to the property income earned by an approved concessionary tax rate for qualifying IP income In addition, the IRAS lowered the threshold of the company during a taxable period that falls derived from a patent application and the pre-claim scheme from SGD 20 million to SGD 15 within the tax relief period from each Comptroller discovers that the approved company million. The scheme is available to large and elected qualifying IP right subject to the has ceased to have the patent application in any complex projects and was implemented to provide concessionary tax rate under section year of assessment, the approved company will be upfront certainty for R&D claims. 43ZI(5) of the ITA is determined using the deemed to have derived an income subject to the following formula: regular tax rate under section 43(1)(a) of the ITA in Joint Venture not considered the basis year. C * 130% An approved company: as a related party C + D • beginning on the approval date must keep The IRAS ruled in an advance ruling that an where: records of all pertinent expenditures, incorporated joint venture (JV) indirectly owned by information and details of qualifying IP C = sum of the following expenditure three unrelated foreign companies (the income; and incurred or made in the periods with shareholders) that do not have control over the JV records by the approved company, less • must provide information on any qualifying IP nor are controlled by a common person is not a excluded expenditure: right that ceases or becomes part of the related party to any of the shareholders for income elected family of qualifying IP rights in the tax tax purposes. • expenditure incurred, except under a return for the year of assessment in which it The JV is wholly owned by a foreign company (the cost-sharing agreement, for connected elects or is treated as having elected a family of research and development (R&D) parent company) established by three unrelated qualifying IP rights for the purposes of availing foreign companies (the shareholders). The carried out directly by or carried out on the concessionary tax rate. behalf of the approved company; and shareholders are independent from each other and The regulations came into effect on 22 January without any common directors or significant • payments made under a cost-sharing 2021. The concessionary rate of tax for an approved shareholders. They are not under the common agreement (not being an excluded company under section 43ZI(5) of ITA is a rate control of another person, and neither of them cost-sharing agreement) to carry out determined in accordance with the formula of controls the other. None of the shareholders can connected R&D; and A + B, where: exercise control over the JV or its parent company D = sum of the following expenditure through board or shareholder resolutions. • A is a base rate of 5% or 10% as the Minister or incurred or made in the periods with the appointed person may determine; and records by the approved company, less excluded expenditure: • B is the sum of every rate increase specified by the Minister or the appointed person, subject • expenditure incurred in obtaining a to conditions. specified right from another person, except under a cost-sharing agreement;

SINGAPORE MAYER BROWN | 27 Each shareholder owns more than 30% but less than • The administrative concession provided to Tax requirements The taxpayer: 40% of the ordinary shares of the parent company. non-owners of immovable properties that carry • provides long-term loans to its direct subsidiaries None of the shareholders directly or indirectly holds on the business of letting immovable properties for liquidations for their operational needs and derives more than 50% of the total issued ordinary shares in from YA 2005 is no longer available from 7 passive dividend and interest income from the JV or in the parent company. Moreover, no December 2020. However, the guidance clarifies The IRAS will no longer issue tax clearance letters for these subsidiaries; person directly or indirectly holds more than 50% of that section 10E of the ITA applies only if the all companies in liquidation or require liquidators to the total issued ordinary shares of both a section 10E entity is the legal owner of the split receipts and payments on a calendar-year basis • does not carry on trade or business in Singapore shareholder and the JV or its parent company. In immovable property, or otherwise has a effective 1 May 2021. To determine whether a and is not engaged in the active buying and selling addition, neither the JV nor the parent company is proprietary interest in the immovable property company under liquidation has no outstanding tax of shares or borrowing and lending of money; and consolidated in any of the shareholder’s financial and would receive a consideration from its matters or liabilities before the liquidation procedures • has no employees involved in the extension statements under the relevant accounting standard. disposal or transfer. can be completed, liquidators can login to myTax of loans or monitoring of repayment by Lastly, no person consolidates in its financial • Section 14U of the ITA that allows the deduction Portal and rely on the following documents issued by its subsidiaries. statements any of the shareholders and the JV or its of pre-commencement expenses or expenses the IRAS: parent company. The taxpayer is wholly owned by a non-resident incurred to put in place the income-earning • tax matters – latest notice(s) of assessment; and company (the parent company), which also owns 100% The issue was whether the JV is considered a structure of the business is not applicable to a of the shares of another non-resident company related party to any of the shareholders under the section 10E entity. • tax liabilities – latest statement of account. (company B/the acquiree). Following an internal Income Tax Act (ITA). • An immovable property that is not available for At the same time, companies in liquidation with reorganisation, the taxpayer acquired 100% of the It was ruled that the JV is not a related party to letting and not producing income would be receipts will no longer be required to split the receipts ordinary shares of the acquiree from the parent any of the shareholders for the purposes of regarded as non-income producing in a basis and payments based on the calendar year when filing company, and the acquiree’s subsidiary (and its sections 34D, 34F and 13(16) of the ITA for the year, regardless of whether the investment the declaration of receipts and payments. This is in subsidiaries) from the acquiree. The purchase following reasons: property produced income in previous years alignment with the Insolvency, Restructuring and consideration due to the parent company and the or period. Dissolution Act 2018 which took effect from 30 July acquiree was taken up as non-trade intercompany • none of the shareholders has control over the 2020. A liquidator can adopt the same 12-month debt. The intercompany debt owed by the taxpayer to JV; and • The business of letting immovable properties period after the date of the liquidator’s appointment the parent company was fully converted to the may also include other income, such as car park • the JV and any of the shareholders are not and every subsequent 12-month period when filing the taxpayer’s share capital while the intercompany debt rental, and income from the provision of services. under the control of a common person. declaration with the IRAS. owed to the acquiree would be settled through the Where the services provided to the tenants are offsetting of dividends declared by the acquiree to the The ruling is binding only in respect of the applicant ancillary to the letting of the immovable taxpayer, among other ways. and the specified transaction as represented above. property, the services would form part of the Advance ruling on unremitted The ruling was published via Advance Ruling business of making investments. The acquiree proposed to declare a dividend to the Summary No. 1/2021 on 4 January 2021. foreign-sourced dividend taxpayer, which the taxpayer would offset against the • A renovation subsidy provided by a section 10E intercompany debt. The dividend arose from capital entity to its tenants is deductible if the ownership income offset against gains derived by the acquiree from the sale of its of the renovation is passed on to the tenants. Income from business of non-trade debt subsidiary (and its subsidiaries). There will be no actual However, if the landlord has ownership of the physical receipt or transmission of the foreign-sourced making property investments fixtures left behind by the tenant, the renovation The Inland Revenue Authority of Singapore (IRAS) dividend to the taxpayer or into Singapore. subsidy is not deductible. ruled in an advance ruling that the unremitted foreign- The IRAS has updated the guidance on the The issue was whether the unremitted foreign-sourced • Taxpayers carrying on a composite business that sourced dividend income of a passive investment determination of income derived from the business dividend to be offset against the non-trade includes a business of making investments are holding company offset against non-trade of making investments under section 10E of the intercompany debt is taxable remittance under section required to separately identify the income, intercompany debt is not income received Income Tax Act (ITA) to clarify the tax treatment 10(25) of the ITA. expenses and capital allowances relating to such in Singapore under section 10(25) of the Income applicable to an entity in the business of letting business and maintain pertinent supporting Tax Act (ITA) and the remittance rule will not The IRAS ruled in the negative. Section 10(25)b of the immovable properties. documents in the event that the Comptroller asks be triggered. ITA, which pertains to foreign-sourced income offset • The balance of outgoings or expenses and for them. against any debt incurred in respect of a trade or Company A (the taxpayer) is a resident company capital allowances in excess of the income in a business in Singapore, does not apply to the taxpayer, incorporated in Singapore to act as an investment year of assessment (YA) is disregarded except for a passive investment holding company, and to non- holding company that would eventually directly and/or land intensification allowance (LIA) (in addition to trade debt. indirectly hold all active entities under the group of industrial building allowance (IBA) as provided in companies it belongs to. The ruling is binding only in respect of the applicant the previous guidance). and the specified transaction as represented above. The ruling was published via Advance Ruling Summary No. 2/2021 on 1 February 2021.

28 | Asia Tax Bulletin SINGAPORE SINGAPORE MAYER BROWN | 29 Tightening rules for The aforementioned input tax disallowance was Budget tax changes 2021 • The performance of centralised services of an introduced in the Goods and Services Tax entity alone does not mean that the entity should claiming input tax GST (Amendment) Act 2020. Under an MTF arrangement, be considered a headquarters (HQ) within the MNE On 16 February 2021, the Ministry of Finance proposed a group of businesses would form a supply chain and group. Conversely, the label HQ does not dictate The Inland Revenue Authority of Singapore (IRAS) to extend the incentives on donations to institutions of the same goods would be supplied through the chain the transfer pricing analysis of the entity. The facts has clarified that taxpayers will not be entitled to a public character (IPCs) and certain qualifying where the goods would ultimately be exported and circumstances of each HQ must be considered claim input tax for goods and services tax (GST) expenses, extend the imposition of goods and services overseas. An upstream seller in the supply chain in determining the role of the HQ. purposes on purchases that they knew or should tax (GST) to imported low-value goods and defer the would charge GST on the sale of goods to businesses have known to be part of a missing trader fraud proposed GST hike, among other measures, in the • In line with the IRAS Transfer Pricing Guidelines, downstream. However, the upstream seller would fail (MTF) arrangement, notwithstanding that all Budget for 2021. The Budget also proposes to extend centralised activities between related parties must to account in its GST return the GST it has collected conditions for claiming the input tax have been relief measures introduced in previous years’ budgets be at arm’s length. and the said GST is not remitted to the IRAS. satisfied, effective 1 January 2021. The IRAS and provide targeted assistance to businesses and • IRAS emphasises the importance of delineating the introduces the Knowledge Principle, based on which workers affected by the COVID-19 pandemic. actual transfer pricing activities (comparability a taxpayer should have known that a supply is part of FRS 109 impairment of DIRECT TAXATION analysis) of the MNE group and understanding an MTF arrangement if: them in the context of the business of the MNE trade receivables The 250% deduction for donations made to IPCs will • the circumstances connected to the supply group and the nature of the transaction itself. be extended until the end of 2023 (previously, until the made to or by the taxpayer carried reasonable Courtesy Singapore Chartered Tax Professionals, it end of 2021). The 250% corporate deduction for • In determining the arm’s length transfer price for a risk that the supply may be part of an MTF has been clarified that if a financial asset is reflected/ qualifying expenses under the Business and IPC related party transaction, due consideration must arrangement; and disclosed as a “credit-impaired financial asset” in the Partnership Scheme (BIPS) will also be extended until be given to the HQ’s contribution to value creation, • the taxpayer did not take reasonable steps to audited accounts, IRAS is prepared to accept the the end of 2023. taking into account the assets used and the risks ensure that the supply was part of such an accounting classification and regard the financial assumed by the HQ (functional analysis). GOODS AND SERVICES TAX (GST) arrangement; or asset as a credit-impaired financial asset. Taxpayers • The general approach to analyse intra-group HQ need not produce a separate set of evidence to • The GST rate hike will be deferred until sometime • the taxpayer took reasonable steps but: activities does not differ from the approach used in substantiate to IRAS. between 2022 and 2025, as previously announced other intra-group transactions. >> concluded that the supply was not part of in 2020 Budget. Separately, IRAS is also prepared to consider the such an arrangement and the conclusion is • Transfer pricing documentation must be prepared taxpayer’s claim, notwithstanding that the financial • To ensure a level playing field for local businesses not one that a reasonable person would in line with the IRAS Transfer Pricing Guidelines. assets are not classified as credit-impaired in the to compete effectively, the GST will be extended to have made; accounts, if the taxpayer can produce other evidence imported low-value goods (which includes goods • The guidance provides scenarios where certain >> was unable to conclude that the supply was to prove that the financial assets are indeed credit- sold via ecommerce) effective from 1 January 2023. transfer pricing methods may be appropriate for not part of such an arrangement; or impaired and explain why the assets are not certain functions of a HQ. CARBON TAX disclosed as such for accounting purposes. >> did not make any conclusion as to whether The current carbon tax level of SGD 5 per tonne of the supply was or was not part of such greenhouse gas emissions will remain unchanged an arrangement. Equipment for working until 2023. The carbon tax level will be reviewed The IRAS has updated the following guides to from home post-2023 accordingly. include the Knowledge Principle in the conditions for claiming input tax: The IRAS has clarified that where an employer Transfer pricing guidance for • for businesses in general; reimburses an employee for the purchase of work- related equipment essential to the employee centralised activities of MNEs • for motor vehicle traders; performing his duties at home, the reimbursement is • for the biomedical industry; not taxable in the hands of the employee. However, if The IRAS has issued transfer pricing guidance for the employee retains the equipment when it has centralised activities of multinational enterprise (MNE) • prior to GST registration; and ceased to be used for work purposes or upon the groups in Singapore to assist taxpayers in analysing • with respect to fringe benefits. cessation of employment, there will be a taxable such activities between related parties and identifying benefit in the hands of the employee if the factors that may affect transfer prices for these The Knowledge Principle aims to counter such MTF equipment has a residual market value at that point in activities and the transfer pricing methods that may arrangements by ensuring that all businesses time, and the employee is not required to pay an be appropriate. across the supply chain take equal responsibility to amount equivalent to such value. undertake the necessary precautions and be accountable for the GST arising from transactions therein.

30 | Asia Tax Bulletin SINGAPORE SINGAPORE MAYER BROWN | 31 International Transfer pricing tax developments for intangibles

BRAZIL On 28 December 2020, the Minister of Finance revised the transfer pricing On 24 February 2021, the Brazilian Senate approved provisions on intangibles in accordance with the Brazil–Singapore Income Tax Treaty concluded OECD BEPS Actions 8 to 10 published in in 2018. The treaty now awaits ratification. 2015 and Chapter IV of the OECD Transfer INDONESIA Pricing Guidelines as updated in 2017. JURISDICTION: Based on the changes enacted under the According to a press release of 9 March 2021, Amendments on Transfer Pricing published by the Singaporean Ministry of Trade Regulations, the provisions on local transfer andIndustry, the investment protection agreement Taiwan pricing filing and auditing will comply with with Indonesia, signed in Bali on 11 October 2018, international standards. The new regulations has entered into force on 10 March 2021. will apply to all transfer pricing GERMANY documentation prepared for year 2020 and subsequent years. On 29 March 2021, the amending protocol, signed on 9 December 2019, to the Germany–Singapore • Enhancement of the analysis framework Income and Capital Tax Treaty entered into force. for intangibles, including the following:

UK >> revised definition of intangibles (article 4); and On 11 February 2021, the trade continuity agreement between Singapore and the United >> when assessing intangible Kingdom, signed on 10 December 2020, entered transactions and analysing the into force. degree of comparability, the functions executed, assets employed, risks pursued for the following five activities will be considered: development, enhancement, maintenance, protection and exploration (article 9-2).

• Introduction of a new arm’s length method for intangible transactions as follows:

>> revised factors to be considered for selection of the most appropriate arm’s length method (article 9);

>> introduction of an income-based “discounted cash flow” method for transfer and use of intangibles (updated article 11); and

>> conditions and assumptions to be considered when adopting an income-based method to assess the value of controlled transactions for the transfer and use of intangibles (article 19-1).

32 | Asia Tax Bulletin SINGAPORE • Completion of the analysis framework for transfer • Revised capital gains tax rates on non-resident pricing risks as follows: individuals and non-resident enterprises: VAT on e-services

>> consideration of economic substance when Capital gains The Board of Investments (BOI) has Holding period evaluating comparable situations and tax rates approved incentives, including an additional 50% corporate income tax (CIT) deduction transactions (article 8); and less than two years 45% ranging from three to five years for approved >> risk assessment procedure by risk pursued more than two years but 35% projects and existing businesses that invest less than five years and functions of risk management, with the in digital technology adoption, to accelerate remuneration to be decided and adjusted in investments and promote digitalization. accordance with the level of risk controlled • Revised capital gains tax rates on JURISDICTION: (article 8-1). resident enterprises: The following incentives were announced in Capital gains a press release on 21 December 2020: Considering the difficulty of obtaining comparable Holding period uncontrolled transactions from public databases, a tax rates Thailand • projects with investments of at least THB single comparable uncontrolled transaction can be less than two years 45% 1 billion realised within 12 months from accepted if there is no significant variance from public more than two years but 35% the issuance of the promotion market prices, or the variance can be removed by a less than five years certification will be eligible for an reasonable adjustment (article 7). more than five years or less than 20% additional 50% CIT deduction for five The penalty regimes are clarified and adjusted for five years for the first transfer of years, applicable after the standard transfer pricing audited cases to avoid tax base erosion building and base land five-eight years CIT exemption. and strengthen mandatory disclosure of all controlled construction completed by Applications for the incentive must be transactions in tax returns and transfer pricing the enterprises submitted from 4 January 2021 to the documentation (article 34). last working day of 2021; Land value-added tax paid can be claimed as a deduction against the taxable base for calculating • approved applications from existing Capital gains tax on building capital gains tax. businesses of all sizes for investments under the digital technology adoption and land trading Individuals and enterprises can claim deductible program in systems and activities, such expenses based on sufficient evidence and as software integration, artificial documents. If no evidence or documents can be The Ministry of Finance has announced amendments to intelligence, machine learning or big proved, the deemed deductible expenses are 3% of capital gains tax on building and land transactions, data analytics by the end of 2022 will be the total transfer value subject to a maximum of including amending the capital gains tax rates based granted a three-year 50% CIT deduction TWD 300,000. on different holding periods of the buildings or land. on their existing business; and The amendments must still be reviewed and passed by The scope of capital gains tax is extended to parliament. the following: • the application period to avail of the incentives scheme for investments in • Revised capital gains tax rates on resident • trading of the rights for pre-sale buildings and special economic zones and certain individuals: the base land (non-completed construction districts in the five southernmost projects); and Capital gains provinces is extended by two years until Holding period tax rates • trading of more than 50% of shares or capital of the end of 2022. less than two years 45% non-listed companies whose value of building and land holdings is more than 50% of the total shares more than two years but 35% or capital. less than five years

more than five years or less than 20% The Ministry of Finance further clarified that the five years due to job transfer, capital gains taxation system effective from 1 January involuntary resignation or other 2016 has resolved the conflict between income tax involuntary factors and land value-added tax, improved the development of the real estate market, eliminated tax avoidance, and maintained fair taxation. In order to further curb short-term speculation and stabilise real estate market prices, the above amendments have been introduced to improve the capital gains taxation system.

34 | Asia Tax Bulletin TAIWAN Transfer pricing clarifications Vietnam commits to sign

The Revenue Department (RD) clarified the manner of the Multilateral submission of transfer pricing (TP) documentation, Instrument (MLI) powers of assessment officers, accepted TP methods and considerations for certain related party According to the stage 1 peer review report transactions, among other things, in two notifications for BEPS Action 14 on dispute resolution published on 25 and 28 January 2021. The measures mechanisms, released on 16 February 2021 are generally in line with the OECD Transfer Pricing JURISDICTION: by the OECD, Vietnam has expressed its Guidelines for Multinational Enterprises and intention to join the Multilateral Convention Tax Administrations. to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). A signing of the MLI For fiscal years commencing on 1 January 2020, the would mark significant changes in the use TP documentation on disclosures of related party Vietnam and application of Vietnam’s tax treaties. information and controlled transactions must be submitted electronically through the RD’s or Ministry of Finance’s website. Manual filing may be allowed, E-commerce activities subject to conditions. Based on Decree No. 126/2020/ND-CP Notification No. 400 provides that: (“Decree 126”) some guidelines have been issued in respect of the taxation of foreign >> the RD, after making TP adjustments to a >> compensation for intra-group services for the e-commerce vendors, in particular the party’s income and expenses, can adjust the benefit of shareholders will not be responsibilities of banks and intermediary income and expenses of the other party considered to have been made at arm’s payment service providers (hereinafter under certain circumstances and may allow length; and referred to as “Payment service providers”). the other party to make corresponding TP Payment service providers are responsible >> for related party transactions involving adjustments to its income and expenses, for withholding and paying tax monthly on intangible assets, functions in the subject to conditions; behalf of the foreign companies which development, enhancement, maintenance, operate e-commerce activities and incur protection and exploitation of the intangible >> taxpayers transacting with related parties in income from Vietnam, but do not register to asset must be considered in determining the treaty partner states may request for advance pay tax in Vietnam (hereinafter referred to as transfer price in addition to the assets used pricing agreements (APAs) to avoid future “foreign e-commerce contractors”). Payment and risks assumed. disputes with the RD; service providers also have responsibility for monitoring and providing data monthly on >> a taxpayer may apply a TP method other than payments transferred to foreign e-commerce the five accepted TP methods (i.e. contractors to the General Department of comparable uncontrolled price method, Taxation if foreign e-commerce contractors resale price method, cost plus method, and individuals in Vietnam use payment transactional net margin method and methods which complicate the withholding transactional profit split method) to the of the tax. tested transaction, subject to conditions; The decree also announces that a 10-digit tax code will be issued to foreign companies which incur tax liabilities in Vietnam (e.g. foreign ecommerce contractors).

36 | Asia Tax Bulletin THAILAND Advance Pricing International Agreement procedures tax developments

The Ministry of Finance (MOF) has proposed to KOREA amend the guideline implementing the advance pricing agreement (APA) mechanism, including a On 20 January 2021, the amending protocol, signed reduction of the validity period of APAs from five to on 27 November 2019, to the Korea–Vietnam Income three years and the inclusion of commercial Tax Treaty entered into force. The protocol generally databases for comparative analyses, among others, applies from 1 January 2022. in a draft circular.

The draft circular is largely similar to the existing APA guideline (Circular No. 201 of 2013), except for the following provisions that will align the existing APA guideline with recently issued regulations, including the Law on Tax Administration 38/2019 (LTA), Decree No. 126/2020/ND-CP (Decree 126) and Decree No. 132/2020/ND-CP (Decree 132):

• consistent with the LTA and/or Decree 126:

>> the definition of APA and forms of APA (unilateral, bilateral or multilateral) will follow the definitions in the LTA;

>> the MOF is the authority competent to approve APAs;

>> APAs must be signed by the MOF before taxpayers file their income tax returns; and

>> the validity period of APAs will be reduced from five years to three years from the date of entry into force.

• consistent with Decree 132:

>> commercial databases will be accepted for comparative analyses, similar with transfer pricing analyses; and

>> there will still be no prescribed period for the completion of an APA.

The draft circular will also consolidate the provisions for the participation of independent experts, rights and obligations of taxpayers and the tax authorities, and confidentiality of information, which will be similar with the provisions in Circular No. 201 of 2013.

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