Global Tax Insights Q1 2020 Editorial Sachin Vasudeva In an age where technology drives businesses, tax authorities across the globe are struggling to tax companies that earn significant revenue from a country/jurisdiction without having a physical presence there. To address this issue, in 2018 the Indian government introduced the concept of ‘significant economic presence’ (SEP) in its domestic law to tax non-residents in line with BEPS recommendations. SEP, which would constitute a business connection, involves: • Transactions in respect of any goods, services or property carried out by a non-resident in India – including provision of data download or software in India – if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or • Systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India, through digital means. The transactions/activities shall constitute SEP in India, regardless of whether the agreement for such transactions/activities is entered in India; or the non-resident has a residence or place of business in India; or the non-resident renders services in India. Budget 2020 proposes to enlarge the scope of this provision by clarifying that income attributable to operations carried out in India shall include income from: • Advertising that targets a customer who resides in India, or a customer who accesses the advertisement through an internet protocol (IP) address located in India • Sale of data collected from a person who resides in India, or from a person who uses an IP address located in India • Sale of goods or services using data collected from a person who resides in India, or from a person who uses an IP address located in India. The UK government has also announced levy of a new digital services tax on technology companies. The levy, due to take effect from April 2020, seeks to collect £500 million. According to analysts, online transactions in the UK account for more than 20% of all retail sales – second only to China among the large internet markets. As part of the BEPS project, members of the OECD/G20 Inclusive Framework are seeking a comprehensive, consensus-based solution to the two challenges arising from digitalisation, and have committed to deliver this solution before the end of 2020. Once the final report is out, then steps such as those already taken in India and the UK would be taken by other countries to tax such companies. I express my gratitude to all the member firms that have contributed to this edition of the newsletter. I sincerely hope that the contents are useful to members and their clients. Feedback and suggestions are always welcome by e-mail to [email protected] For current and country specific tax information on COVID-19, please refer to the Morison KSi resources page on their website. The GEO are welcoming information from all member firms, so please submit your articles by e-mail to [email protected] At the time of going to press, the whole world is struggling to cope with the spread of COVID-19. I pray to the Almighty to give strength, courage, wisdom and above all to shower His blessings upon us all, to tide us over this period of uncertainty and difficulty. Sachin Vasudeva Global Tax Insights Q1 April 2020 1 Country Focus AUSTRALIA Contributed by Australian expats to • Assessee’s spouse or child (aged Chris Wookey, <18 years at the time) dies lose tax exemption • Assessee disposes of the property Melbourne, Australia on the family home: to their ex-spouse because their relationship has broken down, E: Chris.Wookey@ Action required by leebridgegroup.com.au e.g. because of a court order. 30 June 2020 Australian expats will need to consider Australians have enjoyed an exemption carefully whether they should take any from capital gains tax (CGT) on their home action to sell their former main residence (technically on their main residence), before 30 June 2020 in order to maximise including where they might have relocated the after-tax value of their real estate assets overseas for up to 6 years and rented out in Australia. their former home. However, under amendments that received Royal Assent on 12 December 2019, once someone stops being either an Australian tax resident or temporary resident they will no longer be eligible for this CGT main residence exemption if they sell their home after 30 June 2020. This is a full denial of the exemption without even a time-based apportionment and has been introduced under the misleading guise of reducing pressure on housing affordability. Consider the case of Simon, an Australian citizen who lived in Australia for 40 years. He bought his home in 2000 for $500,000 and lived in it until 2018, when he was offered a promotion and posting overseas. Simon relocated with his family to Singapore for an indefinite period of time, ceasing his Australian tax residency. If Simon were to sell his former home after 30 June 2020 for $1,200,000, he would be liable to CGT on the entire $700,000 capital gain. However, if Simon were to sell his main residence before 30 June 2020, he could pay no CGT at all on the gain because of the availability of the CGT main residence exemption. Special transitional rules apply to protect availability of the CGT main residence exemption, but only if within the first 6 years of ceasing Australian tax residency one of these things happens: • Assessee or his/her spouse had a terminal medical condition while non-resident • Assessee’s child (aged <18 years at the time of diagnosis) had a terminal medical condition while the assessee was non- resident Global Tax Insights Q1 April 2020 2 Country Focus BELGIUM Contributed Increased focus of To prevent this type of situation, a taxable by Christine PE will now already be present from Belgian tax authorities the moment a dependent agent has a Scheepmans and on foreign companies ‘significant influence’ on the conclusion Ashley Bergmans, of the contract. The authority to conclude with local activity in contracts is therefore no longer an absolute Van Havermaet Belgium requirement. Project permanent establishment – E: Christine.Scheepmans@ As a result of amended Belgian and vanhavermaet.be construction activities international tax rules, the Belgian tax Building/construction works performed E: Ashley.Bergmans@ authorities have recently initiated a large in Belgium can only give rise to a PE if the vanhavermaet.be series of tax questionnaires aimed at foreign project exceeds a duration of 12 months companies doing business in Belgium. In (some double taxation treaties concluded by doing so, the tax authorities are seeking Belgium state a shorter period). to identify which of these companies might have a taxable presence (so-called In practice, agreements relating to ‘permanent establishment’ [PE]). construction projects were sometimes deliberately or unconsciously divided into Numerous foreign companies are currently several contracts. Because the contracts confronted with an extensive questionnaire were split up, the separate projects did not asking where contract negotiations took reach the required duration period and place, who conducted these negotiations, therefore there was no PE present. how long a certain construction/installation project was in place on Belgian soil, and To address this kind of potential abuse, so on. it has now been determined that ‘related activities’ performed by affiliated companies The tax authorities are also requesting on the same construction site or for the information from third parties, such as same development should be considered Belgian clients of the foreign company. as a single project for the purposes of Broadening of the concept determining its duration. ‘permanent establishment’ Because of this new rule, a group of enterprises can no longer avoid the presence With various developments at an of a PE by splitting up contracts for a international level (the OECD BEPS Action construction project. If related activities are Plan), the concept of a PE has been largely carried out for the same construction project broadened. As a result, the fiscal playing by different group companies, this must be field will change and more companies that justified by business (non-tax) motives. operate cross-border may now trigger a PE in Belgium. Consequences for the main contractor It is important to note that even if they In most cases, these new rules will apply subcontract all parts of a project, the main as from 2020. However, the Belgian tax contractor can still be considered to have authorities have already aligned themselves a PE present in Belgium. This could be the with the new rules. The most relevant case because time spent by a subcontractor changes from a Belgian tax perspective are on a Belgian construction site will be summarised below. attributed to the main contractor if the main Personal permanent establishment – contractor has the site at its disposal during dependent agent the time the subcontractor executes its Until now, the presence of a dependent work. agent in Belgium only resulted in a taxable Consequences for the subcontractor PE if that agent had the authority to Although time spent by a subcontractor is conclude contracts. In practice, contracts attributed to the main contractor, this does were often negotiated in a substantial not exclude the potential presence of a PE manner by the dependent agent, but finally of the subcontractor. If the subcontractor approved by the foreign company (‘rubber has the site at its disposal, then this could stamping’). also trigger the existence of a Belgian PE. Global Tax Insights Q1 April 2020 3 Besides the Material permanent establishment – a fixed the existence of a taxable PE had not been increased place of business at the disposal of the proved.