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This week in tax: New Zealand DST likely as Labour Party wins election

Jacinda Ardern, New Zealand Prime Minister

In the week that New Zealand's Labour Party won a strong majority in the election, a global tax evasion probe by the Joint Chiefs of Global Tax Enforcement (J5) shook the Australian financial services sector.

Preliminary results of New Zealand’s October 17 election show that the Labour Party has received a 49.1% of the votes, winning it a second term in government.

Ardern’s manifesto states there will be no significant tax changes, apart from introducing a higher tax rate on the highest earners, but it does promise to continue closing legal loopholes to ensure that multinationals pay their ‘fair share’ of tax. This is likely to include a 3% digital services tax (DST) if an international consensus on digital taxation is not reached.

Meanwhile, in Australia, the financial services sector was sent into a spin at the beginning of the week when news reports broke of Westpac Banking Corporation, the Perth Mint and individual taxpayers being caught up in a global tax evasion probe.

An investigation by the J5 into a Puerto Rican bank called Euro Pacific showed it has connections to some of Australia’s biggest financial institutions, according to news reports. Euro Pacific, owned by US financier Peter Schiff, is suspected of being used by Australian and international organised crime syndicates to launder money and evade tax.

Schiff and Euro Pacific have denied any wrongdoing, but it would not be the first time Westpac Banking would have been caught on the wrong side of the law after being fined for breaching money laundering laws in a Federal Court case that ended on October 21 2020.

In ITR this week

At ITR, taxpayers have been telling us that COVID-19 has introduced additional M&A tax risks and benefits.

M&A deals are vulnerable to tax risks that have emerged because of COVID-19, including those caused by employees working from home. Yet government aid may offer benefits to savvy buyers, they said.

In Brazil, the frustrations with the country’s judicial system continue. A lack of clear definitions in favourable indirect tax judgments are making it difficult for taxpayers to gain the level of tax certainty they seek. Despite a 2017 Supreme Court case ruling on the issue of which ICMS must be excluded from the PIS/COFIN basis, tax directors are uncertain over the ICMS amount that should be excluded from the PIS/COFIN taxable basis.

The tax uncertainty also extends to transfer pricing (TP) matters in the European Union (EU). Tax executives are preparing for more scrutiny over the TP arrangements because not all EU member states agree with the views of the European Commission on how to apply the arm’s-length principle, which has been further complicated by recent state aid cases.

The woes or TP directors are also worsening because the OECD’s guidance on financial transactions and transfer pricing (FTTP) may offer tax authorities extra tools in their pursuit of offshore financing structures in high stakes audits.

With examples of what is happening in Switzerland, one group head of tax at a bank explains the extra burden of dealing with tax authorities that ask more probing questions about substance and the organisation structure.

Other global developments

Elsewhere, telecommunications company Orange is preparing itself for a judgment in a $2.2 billion tax dispute over writedowns in France, expected to conclude in mid-November. Reuters reported that the Conseil d'État, France’s highest court, favoured Orange in an advisory opinion released on October 19. If the final judgment goes in Orange’s favour, the French tax authority will be liable to pay the company least €1.9 billion ($2.24 billion) in back taxes.

Meanwhile, Japan and Georgia agreed a new double tax treaty in principle to replace their 1986 agreement and Oman published its VAT law in the Official Gazette. Egypt also gazetted Law No. 206 of 2020 on October 19 that introduces unified tax procedures for income tax, VAT and much more that entered into effect on October 20.

Mexico’s Chamber of Deputies approved rules to introduce a DST that includes blocks for companies that fail to comply with the regulations on, inter alia, registration, having a legal representative, withholding tax, tax payments and returns.

In Argentina, the federal tax authorities (AFIP) issued General Resolution No. 4838/2020, which was published in the Official Gazette on October 20, to implement a mandatory reporting regime for domestic and international arrangements.

Taxpayers that participate in any domestic or international tax planning arrangements must comply, including tax advisors involved in tax planning arrangements. International arrangements include any planning or agreement that enables a taxpayer to gain a tax advantage or benefit in Argentina, including treaty benefits.

In ITR next week

Next week, ITR will be sharing details on how tax directors are reducing reduced the time invested in VAT compliance by using internal macros, external software and robotic process automation (RPA), which is a six-fold reduction in VAT compliance time.

In India, there is growing frustration over the broader equalisation levy, which entered into force on April 1 2020. Tax executives discuss the issues they are grappling with and what guidance they are seeking from the government before disputes mount up over the controversial tax.

Experts will also be sharing their suggestions on smart contract tax standards for a crypto-asset tax framework and how tax authorities are applying the FTTP guidance.

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