The ninth Asia Tax Forum took place at the Goodwood Park Hotel, Singapore on May 7 & 8, 2014.
The conference has become the best opportunity for tax leaders to meet, share experience and ideas on dealing with tax issues in Asia since it was held for the first time in 2006.
The 2014 event took place during a period of unprecedented discussion about the future of international tax rules. The G20-commissioned BEPS project, led by the OECD, promises to bring in a whole series of changes that could mean, for example, a ban on hybrid structures, new transfer pricing documentation methods and modifications to tax treaty models.
The two-day event offered tax executives a series of high-quality debates and discussions about the important developments and trends in tax in Asia. Highlights included sessions on China VAT reform; tax planning risks and opportunities; what a new government in India might mean for tax policy and updates on new tax laws and rules in Asia.
The subjects that always demand attention such as transfer pricing, dispute resolution and anti-avoidance also featured at the conference.
Hot topics in Asia Pacific Taxation in 2014
- Clear that the Indian general anti-avoidance rule (GAAR) is meant to apply to transactions where treaty benefits are sought with very favourable jurisdictions
- BEPS action points 8 to 10 are aimed at ensuring that transfer pricing outcomes are in line with value creation
- Tax directors should prepare for rough seas for years to come
- "On BEPS, some countries will agree on some things, some will do their own thing and some will do very little"
Transfer Pricing: Related Party Transactions
- More litigation is likely in Asia Pacific as taxpayers test the calibre of tax authorities
- c.80% of adjustments are being rejected in India but should they have been assessed in the first place?
- c.200 mutual agreement procedure (MAP) cases pending between India and US
- Conflict between China's State Administration of Taxation and the local bureaux. They all want to take revenue
- When you have Chinese companies moving abroad and coming up against challenges, then you might get policy shifts
- Competent authority discussions not necessarily related to the interests of the taxpayer
- Countries are interested in advance pricing agreements (APA) because they give them a very good idea of your business, but they are running out of resources. They tend to ask for a lot of information
China VAT reforms
- Fundamental change in who bears tax.
- Multiple rates will apply.
- Reasons for introduction: to relieve the burden on business-to-business transactions; permit the implementation of the 12th Five-Year Plan; align China with the c.160 countries that have a VAT
- Reforms will have fundamental effect on Chinese real-estate sector in how it is marketed, priced and sold
- Only life insurance and, possibly, trading in shares and derivatives will be VAT exempt in financial services
- Huge amount of work can be done upfront, even if your industry isn't subject to the new VAT yet
China and Hong Kong
- Some key Chinese circulars: 19 (secondment and safe harbour from assessment of permanent establishment); 601 (beneficial ownership) and 698 (offshore indirect transfer)
- Implementation of circular 19 quite patchy locally
- BEPS shouldn't stop taxpayers from tax planning within the boundaries of rules as they currently stand
- HK: expanded treaty network; offshore fund tax exemption
- Malaysia's goods and services tax takes effect in 2015, but there are still uncertainties about implementation, such as the types of supplies that will be non-taxable, exempt or zero-rated; GST will be similar to Australia and Singapore's; 6% rate; threshold of RM0.5 million; scope includes any importation of goods and services; GST registration will be voluntary for foreign companies; special regimes will include Transfer of Going Concern, Approved Toll Manufacturing and Approved Trader Scheme; transitional provisions relate to repeal of sales tax and non-reviewable contracts
- Australia: Certain proposals to limit "connected with Australia" requirement
- India: Still lots to sort out regarding GST at a cross-border. inter-state and intra-state level; No registration for foreign companies; no VAT groups
- Other changes in Indonesia, Japan, Singapore, South Korea and Vietnam
International tax developments
- BEPS actions split over 2014 and 2015
- Only four OECD members in Asia Pacific, three others - China, India and Indonesia - are in G20
- Some jurisdictions have introduced BEPS-related anti-avoidance measures already
- Tax authorities in Asia Pacific are taking a keen interest
- Source v residence basis of taxation is a key debate in this part of the world
- Frequent and aggressive tax audits because of budget shortfall
- Beneficial ownership is a key battleground, but decisions on this issue becoming more unpredictable
- Appetite on the part of tax officials for non-tax information
- Taxpayers urged to cooperate but be tactical at the same time
- Well developed system of litigation
Dispute resolution and anti-avoidance
- Remember the facts behind a transaction. You may have to defend it in years to come, so you should have good documentation at the time you are doing it
- Specific and general anti-avoidance provisions are very common. BEPS is another tool for tax officials
- AQQ case in Singapore - Court of Appeal, 26.2.2014 - section 33 (GAAR) of the Income Tax Act triggered
- Legal advice privilege and litigation privilege - one may only apply to lawyers, the other applies to lawyers and non-lawyers
- BEPS: country-by-country reporting; TP documentation; treaty abuse
- Election results on May 16 2014; BJP are the likely winners; Speculation on new finance minister; budget in July 2014
- Tax Administration Reforms Commission (TARC) is due to issue first report before end May 2014. Looking at issues such as HR and use of IT in tax governance
- New BJP government is unlikely to persist with TARC
- New government committed to Goods and Services Tax but likely to rethink approach to Direct Taxes Code (new version in March 2014) Long way to go on GST, including need for constitutional amendment
- April 1 2016 is next possible date for GST introduction
- APAs preferred to safe harbours - could they be modified? - because of high margins
Tips for effective tax department management
- Everyone has a view about tax now, including your business colleagues
- Companies have always been concerned about their corporate reputation. Only recently has tax become recognised as something that could affect it
- Tax risk management a key role for tax managers today. Compliance less so, but they still have to ensure it is right
- Education of non-tax colleagues is a key skill too
- Demands on time and resources increasing all the time