Asia-Pacific update. TEI International Tax Planning Houston. 21 February 2017

Transcription

1 Asia-Pacific update TEI International Tax Planning Houston 21 February 2017

2 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. This presentation is 2017 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP. This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer s facts and circumstances. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 2

3 Commonly used abbreviations BEPS Base erosion and profit shifting MLI Multilateral Instrument CbCR Country-by-country reporting NOL Net operating loss CGT Capital gain tax OECD Organisation for Economic Co-operation and Development COR Certificate of residency PE Permanent establishment EBITDA Earnings before interest, taxes, depreciation and amortization SPV Special-purpose vehicle GAAR General Anti-Avoidance Rules TP Transfer pricing Page 3

4 Your presenters Chris Finnerty Partner, Asia-Pacific Business Group Leader Ernst & Young LLP York, NY Nhung Tran Partner, Asia-Pacific Business Group Ernst & Young LLP Toronto, ON Trang Martin Executive Director, Asia-Pacific Business Group Ernst & Young LLP Houston, TX Page 4

5 Agenda Asia-Pacific BEPS developments and hot topics Exit strategies and considerations Key takeaways Page 5

6 Asia-Pacific BEPS developments and hot topics Page 6

7 Asia-Pacific BEPS developments and hot topics Involvement in global initiatives by Asia-Pacific jurisdictions Membership/initiative Australia China*** Hong Kong India Indonesia Japan Korea OECD G20 BEPS associate MCAA for CbCR* MLI** Membership/initiative Malaysia Zealand Philippines Singapore Taiwan Thailand Vietnam OECD G20 BEPS associate MCAA for CbCR MLI * Multilateral Competent Authority Agreement (MCAA) for automatic exchange of CbCR ** Multilateral Convention to Implement Tax Treaty Related Measures countries involved in negotiation and not necessarily committed to adopt the MLI provisions *** Refers only to the tax laws of Mainland China (also, China hereafter); tax laws in the Special Administrative Regions of Hong Kong, Macau and Taiwan are completely distinct from those in China Indicates participation/membership Page 7

8 Asia-Pacific BEPS developments and hot topics Recent trends (December 2015 to December 2016) Australia China India Indonesia Japan China Zealand Korea India Australia Malaysia Japan Zealand Taiwan Indonesia Australia Australia Zealand Japan Taiwan Vietnam Zealand China India Hong Kong Singapore China India Japan Singapore Australia Australia Australia Singapore Hong Kong Zealand Hong Kong Singapore Vietnam Zealand Action 1 Action 2 Action 3 Action 4 Action 5 Action 6 Action 7 Actions 8 10 Action 13 Rules adopted Rules proposed Official communication Treaty changes Page 8

9 Asia-Pacific BEPS developments and hot topics Heat map or focus areas BEPS Action Plan Australia China Hong Kong India Indonesia Japan Korea Action 1 digital economy Action 2 hybrid mismatches Action 4 interest deduction Action 5 harmful tax practices Action 6 tax treaty abuse BEPS Action Plan Action 1 digital economy Action 2 hybrid mismatches Action 4 interest deduction Action 5 harmful tax practice Action 6 tax treaty abuse Malaysia Zealand Philippines Singapore Taiwan Thailand Vietnam High-focus area Increased-focus area Low-focus area Not a focus area Changes in tax legislation Draft legislation, projects and discussions Tax authorities particular focus area International commitment Change in practice of tax authorities or tax courts Government statement or press/public consultation Discussion or projects on the change in tax legislation that may be expected Government s position hard to predict at this stage No legislation, projects and discussions Page 9

10 Asia-Pacific BEPS developments and hot topics Heat map or focus areas BEPS Action Plan Australia China Hong Kong India Indonesia Japan Korea Action 7 PE implication Actions 8 10 TP implications Action 13 TP documentation Action 13 CbCR BEPS Action Plan Action 7 PE implication Actions 8 10 TP implications Action 13 TP documentation Action 13 CbCR Malaysia Zealand Philippines Singapore Taiwan Thailand Vietnam High-focus area Increased-focus area Low-focus area Not a focus area Changes in tax legislation Draft legislation, projects and discussions Tax authorities particular focus area International commitment Change in practice of tax authorities or tax courts Government statement or press/public consultation Discussion or projects on the change in tax legislation that may be expected Government s position hard to predict at this stage No legislation, projects and discussions Page 10

11 Asia-Pacific BEPS developments and hot topics Key trends BEPS MLI In November 2016, the OECD released its final multilateral instrument to enable jurisdictions to amend tax treaties in order to implement BEPS action items (Action items 2, 6, 7 and 14) Subsequently, in December 2016, Australia released a consultation paper outlining its preliminary approach to adopting the MLI, and the initial signing of the MLI is planned in June 2017 The recently revised treaty between Australia and Germany (in force since 7 December 2016) shows how MLI approach has been applied in modifying a treaty Australia s MLI adoption may set a standard for other countries in the region Treaty developments BEPS inspired provisions introduced to tax treaties (selected examples) Residence: Japan-Belgium Limitation on benefits: Japan-Belgium, Australia-Germany Principal purpose test: Singapore-Russia Mandatory arbitration: Japan-Belgium, Australia-Germany Spill over effects on treaty re-negotiations, e.g., revision to source country capital gains in India- Mauritius/Singapore/Cyprus treaties Page 11

12 Asia-Pacific BEPS developments and hot topics Key trends Recent tax measures India Recent budget announcements in India focus on the key measures around anti-avoidance, tightening of TP norms, thin capitalization rules, and indirect transfer rules. These measures are aligned with some of the BEPS developments and recent global tax trends: GAAR will apply with effect from 1 April 2017, and no deferral has been announced In line with Action 4, thin capitalization norms were introduced. Interest expenses paid to related-party enterprises are capped at lower of (i) 30% of EBITDA or (ii) interest paid/payable To align with OECD TP guidelines and international best practices, the tax officer is permitted to make secondary TP adjustments Indirect transfer tax rules are rationalized (investments in Category I and II foreign portfolio investor excluded) and clarifications have been issued Focus on TP Countries throughout the region are introducing guidelines to implement the three-tiered approach to TP documentation, consisting of a CbCR report, master file and local file (recent examples include Hong Kong, Indonesia, Malaysia and Singapore) Page 12

13 Exit strategies and considerations Page 13

14 Exit strategies and considerations Share transfer mechanisms Direct sale/transfer of shares Indirect sale/transfer of shares Parent/ Hold Co Parent/ Hold Co Sale/transfer of shares of Intermediary HoldCo1 Asia Co Acq. Co Sale/transfer of shares of Asia Co EU/Tax Favored Hold Co 1 Intermediary Hold Co 2 Acq. Co Sale/transfer of shares of Intermediary HoldCo2 Parent/ Hold Co Acq. Co Asia Co Intermediary Hold Co Asia Co Sale/transfer of shares of Asia Co Page 14

15 Exit strategies and considerations Regional snapshot on direct transfers Country Taxation of direct transfers Transfer taxes Country Taxation of direct transfers Transfer taxes Exemption from capital gains under the tax treaty may be available, subject to conditions China India Australia Malaysia Relief from transfer taxes (such as stamp duties) may be available, if specified conditions are met Indonesia Korea Japan Taiwan Thailand Hong Kong Certain countries impose reporting requirements in order to apply the treaty (e.g. submission of COR, official treaty claims forms, or other filings) Philippines Vietnam Singapore Zealand Local country GAAR or substance-over-form rules will be evaluated, as applicable Subject to tax under domestic law Subject to tax (if certain thresholds for real property/real estate investments are met or other conditions) N/A Page 15

16 Exit strategies and considerations Regional snapshot on indirect transfers Country Taxation of indirect transfers Transfer taxes (stamp duty) Country Taxation of indirect transfers Transfer taxes (stamp duty) None of the listed countries levy indirect taxes on indirect transfers China India Taiwan Hong Kong Exemption from capital gains under the tax treaty may be available, subject to conditions Indonesia Vietnam Korea Zealand Relief from transfer taxes (such as stamp duties) may be available, if specified conditions are met Australia Japan Malaysia Philippines Singapore Thailand Certain countries impose reporting requirements in case of indirect transfers Impact on carry forward of NOLs/tax incentives will be evaluated Subject to tax (if certain conditions are satisfied) Subject to tax (if certain thresholds for real property/real estate investments are met) N/A Page 16

17 Exit strategies and considerations Indirect transfers China update Announcement 7/Circular 68 Safe harbor provisions provide that qualifying group restructurings should not be re-characterized under the look-through approach as taxable but would be regarded as having reasonable commercial purpose Safe harbor provisions, along with voluntary reporting, can provide greater flexibility and planning opportunities Circular 68 provides further implementation guidelines for Announcement 7 However, there is a trend that the tax authorities are taking a more stringent approach to assess cases as well as impose interest and penalties There were numerous taxable cases in Beijing, Jiangsu and Hainan Provinces in 2016 Page 17

18 Exit strategies and considerations Indirect transfers India update An entity will be deemed to derive its value substantially from assets located in India if the value of Indian assets: (a) exceeds INR100 million (USD7,500); and (b) the value represents at least 50% of the value of all assets owned by the foreign entity India s Central Board of Direct Taxes issued draft rules providing: Valuation standards in determining the 50% substantial test Determination of proportionate income attributable to Indian assets Details of information reporting and retention of documents in case of a taxable indirect transfer Indirect transfer provisions rules are rationalized (not applicable to transfer of investments in a Category I and II Foreign Portfolio Investor) and clarifications were issued as part of the recent budget announcements Page 18

19 Exit strategies and considerations Indirect transfers Indonesia update Indirect transfer of Indonesian private shares Transfer of shares in an SPV could be deemed as transfer of shares in the Indonesian company Indirect transfer subject to 5% tax on the gross transfer value May be exempt under an applicable treaty Form DGT-1 and the COR should be retained if treaty benefits are claimed Sale of shares of holding company several layers above production-sharing contract (PSC) contractor taxed as a transfer of PSC participating interest (PI) Proposed changes to GR79: transfer of PSC PI subject to final tax inclusive of branch profits tax Page 19

20 Exit strategies and considerations Indirect transfers Vietnam update Issuance of Circular 36/2016/TT-BTC dated 26 February 2016, guiding the taxation of upstream oil and gas activities Applicable from 2016 Confirms that an indirect transfer of an interest in petroleum contracts (PC) is subject to CGT in Vietnam except for an internal restructuring Method for tax calculation not clearly provided Prior to the enactment of Circular 36, Vietnam s tax authorities imposed CGT on indirect sale of foreign party s interest in a PC by virtue of broad interpretation of the tax rules Page 20

21 Exit strategies and considerations Asset/business sale mechanisms Asset/business transfer Demerger of assets/business Liquidation of entity/assets Parent/ Hold Co Parent/ Hold Co Parent/ Hold Co Acq. Co Acq. Co Asia Co Sale/transfer of assets/transfer of business Asia Co Asia Spin Co Asia Co Demerger of assets/ business Asia Co Parent/ Hold Co Acq. Co Parent Hold Co Acq. Co Intermediary Hold Co Sale/transfer of shares of Intermediary HoldCo Intermediary Hold Co Sale/transfer of shares of Intermediary HoldCo Asia Asia Co Cos AsiaCo Asia Cos Asia Asia Spin Co Cos Asia AsiaCo Cos Sale of assets/ transfer of business Demerger of assets/ business Page 21

22 Exit strategies and considerations Key considerations Exit strategies are driven by various commercial objectives such as achieving greater shareholder value, increasing returns on core businesses, divesting of non-profitable businesses, and strategic decisions to exit certain market segments A function of these commercial objectives, tax considerations, and other factors such as exit timelines, negotiations with the buyer, and regulatory restrictions may determine or drive the choice of exit mechanism (e.g., spin-offs, demerger, transfer of shares, transfer of assets, etc.) Tax can play a key role in structuring the exit, and thus, up-front planning is important. To frame a tax-efficient planning strategy, both buyer and seller considerations have to be factored in: Key buyer considerations Withholding tax obligations and treaty relief Transaction costs: stamp duties, capital duties Recognition of goodwill/intangibles Step up in the basis of shares/assets acquired Ability to set off the losses Impact on tax incentives Impact on tax attributes Funding mechanisms and tax-efficient financing Exchange control norms Tax indemnities/warranties Key seller considerations Withholding tax obligations and treaty relief Transaction costs: stamp duties, capital duties Structuring tax-free exits or minimization strategies Capital gains and treaty relief protection Indirect taxes Valuations Tax indemnities/warranties Reporting obligations Repatriation Page 22

23 Key takeaways Page 23

24 Thank you

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