In Brief from International Taxation [December 2020]

The corporate income tax rates for SMEs and withholding tax rates on dividends shall be reduced to 10 percent in Croatia. Germany published the decree explaining the regime of extraterritorial taxation. Indian non-tax residents are obliged for transfer pricing records. Slovakia postponed the deadline for the implementation of ATAD 2 into national legislation to 1 January 2022. As of 1 January 2021 the concept of economic employer will be effective in Sweden. The Slovenian Tax Authorities indicated the rules for taxation of pension income. The proposal of DAC 7 Directive was approved by ECOFIN.

Croatia proposes reduction of tax rates

On 6 November 2020, the Croatian government proposed reducing the corporate income tax rate applicable to small and medium-sized enterprises (SMEs), and the withholding tax rate on dividends and profit shares. For SMEs with annual revenues of less than HRK 7.5 million, the corporate income tax rate of 10% will apply (currently 12%). The same reduction shall be applicable also for the withholding tax rate on dividends and profit shares (i.e. rate of 10 % instead of 12 % shall be applied). Provided the changes will be accepted by parliament, the amendment will apply from 1 January 2021.

German decree on extraterritorial taxation

On 19 November 2020 the Germany’s Ministry of Finance (MOF) proposed a draft legislation to mitigate issues related to the application of German extraterritorial taxation in German nexus IP transfer situation and in situation of royalty payments with regard to German Nexus IP. A limited German tax liability may apply in cases where German nexus intellectual property (German nexus IP) is being transferred or where royalty payments between two non-German entities are being made with regard to German nexus IP. German nexus IP is defined as either (i) rights that are registered in a German public register, or (ii) IP that is being exploited in a German permanent establishment or other German facility. The draft law proposal would remove the first part of this definition, i.e., IP that is being exploited in a German permanent establishment or other German facility would still give rise to German extraterritorial taxation but rights registered in a German public register no longer would. Based on the wording of the current draft proposal, the rule change would apply to all open cases and regardless of where the parties to the transaction or license agreement are resident. At this time, it is uncertain whether the legislation will be enacted and, given that it is part of a broader package, which of election will take place in 2021 at the earliest.

Indian ruling obligating non-residents to keep transfer-pricing records

On 13 October 2020 the Delhi Bench of the Indian Income-tax Appellate Tribunal (ITAT) issued its decision that provisions requiring taxpayers involved in an international transaction or specified domestic transaction to maintain certain required transfer pricing documentation are mandatory for all taxpayers. Non-resident taxpayers are not exempt from the requirement to maintain their own transfer pricing documentation and the absence of international transactions is not sufficient reason for not maintaining transfer pricing documentation.

Implementation of ATAD 2 into Slovakia tax legislation

The Slovak Republic parliament is analysing a draft bill regarding the implementation into the Income Tax Act of Council Directive (EU) 2017/952 (ATAD 2) concerning reverse hybrid entities. The income attributable to foreign shareholders fulfilling the criteria of holding at least 50% of the transparent company will be taxed at the level of the transparent company at the corporate income tax rate of 21%, if the income of the foreign shareholders cannot be taxed through a permanent establishment in the Slovak Republic and the income will not be taxed in the country of residence of the shareholder, nor abroad. The changes were expected to be effective from 1 January 2021, but they have been  postponed until 1 January 2022.

Swedish parliament adopts economic employer concept

On 4 November 2020, parliament adopted a proposal which introduces the economic employer into Swedish tax law as from 1 January 2021. A new method is introduced for determining which company is the real employer of an individual, assuming that the company benefiting from the work should be considered the employer regardless of which company pays the salary. Foreign companies are required to register as employers with the Swedish Tax Authority as well as withhold and remit taxes monthly with respect to employees who are taxable in Sweden; and Swedish companies are required to withhold tax from payments made to foreign companies if the payments are attributable to work performed in Sweden and if the foreign company does not hold an F-tax certificate (tax registration certificate).

Taxation of pension income in Slovenia

The Slovenian tax authorities have issued guidelines for the taxation of pensions received in accordance with the Personal Income Tax (PIT) Law and article 18 of the OECD Model Tax Convention (2017). The regulations governing pension and disability insurance in Slovenia apply in determining whether the income received from abroad is a pension received by Slovenian residents. When assessing the tax base, it is necessary to establish whether the payer of the income is the main employer (from whom the Slovenian resident receives the majority of income): if yes, the tax obligation is calculated using a progressive tax rate; if not the tax obligation is calculated on the basis of a 25 percent tax rate and without taking into consideration any tax reliefs. The procedure for calculating the tax obligation in the case of pension received from Slovenia by a Slovenian non-resident is the same as the procedure for Slovenian residents. Nevertheless, no tax relief can be taken into account.

ECOFIN Agrees on DAC7 and Exchanges Views on International Tax Issues

The Economic and Financial Affairs Council of the European Union (ECOFIN), in its meeting held on 1 December 2020, agreed at the technical level on the European Commission’s proposal for amending the Mutual Assistance Directive on administrative cooperation in the field of taxation (2011/16) to address the challenges arising from the digital platform economy (DAC7). The Directive aims to extend the scope of automatic exchange information among Member States to income earned by sellers on digital platforms from 2023; and amend existing provisions of the Mutual Assistance Directive in order to ensure the effectiveness of the exchange of information and the cooperation between Member States.

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