Shanghai Hugang Jinmao CPAs
June 10, 2021
June 10, 2021
June 8, 2021
Brighture, one of our key firms in China, has published its latest newsletter for June 2021.
It discusses the latest updates regarding financial and tax policy changes in China.
June 7, 2021
Pass through cost – whether mark up to be added? Perspective of tax authorities in India
By Amit Ajmera, Kreston SGCO, India
In the recent round of a Transfer Pricing Assessment (“TPA”) of an Indian entity, a Wholly-Owned Subsidiary (“WOS”) of a foreign entity, the transfer pricing authorities in India have taken a view that the pass-through cost billed by the WOS to its parent entity and reimbursed by the parent entity to the WOS, should be done with a mark-up and not on the cost to cost basis. The said cost needs to be included in the marked-up cost base for determining the arms-length arrangement between the WOS and its group entity.
Background
The taxpayer is part of a multinational group that is in the business of undertaking clinical trial activities globally. To undertake the said business activities, typically one of the entities in the group (i.e., the service provider) would enter into a service agreement (i.e., a Master Service Agreement or “MSA”) with a pharmaceutical company (i.e., the service recipient or client) to undertake clinical trials in identified geographies. The agreement, among other things, categorically states that the pass-through cost incurred by the service provider while providing the services will be reimbursed by the service recipient on a cost-to-cost basis. Which expense would qualify as the pass-through cost is also defined in the said agreements. Further, the agreements clarify that the pass-through cost that would be incurred in any part of the identified geographies will have to be recovered only by the entity entering into the MSA with the service recipient and not by another group entity, which may be undertaking clinical trials in its respective geography. Pass through cost are cost which are required to be incurred during undertaking clinical trials that are required to be paid by the pharmaceutical company to the sites (hospitals), investigators (doctors) and patients. But because it is administratively not possible, the pass-through cost is normally paid by the service provider and recovered from the service recipient.
Facts of our client
In the case of the Indian WOS, on the basis the MSA entered into by its group entity with its client, the group entity had entered into a service agreement with the WOS in India. In addition, there was also a tripartite agreement that was entered into among the WOS, the site, and the investigators in India for undertaking clinical trial activities in India. The service recipient, in this case, had also signed the agreement as a confirming party to the agreement entered among the Indian Parties. The medicines / drugs that were required for undertaking the clinical trials in India were supplied directly by the service recipient to the site. To undertake the clinical trials, the Indian entity had to make payments to the sites and the investigators which were like pass-through cost. The same was invoiced by the WOS to the group entity on the cost to cost basis. This was in addition to the invoice raised by the WOS on the group entity for the services of clinical trials rendered by it. The invoice for intercompany services was raised on a cost-plus basis.
View of the transfer pricing authorities at a lower level
The transfer pricing officer has taken a position that the pass-through cost should be added to the marked-up cost base for determining whether the transaction between the WOS and the group entity is on an arm’s length basis.
Way forward
We have filed an appeal with the higher authority challenging the view of the lower level.
May 26, 2021
Stanley & Williamson rebrands to adopt Kreston name
One of our Australian member firms, Stanley & Williamson, has completed its rebrand and adoption of the Kreston name.
We are delighted that they shall now be known as Kreston Stanley Williamson.
May 13, 2021
Our Chinese firm, Brighture, has recently published its latest newsletter discussing recent tax changes for businesses and private individuals.
The newsletter covers new financial and tax policies, service cases, Brighture salon, Kreston updates, and their business structure.
May 12, 2021
By Guillermo Narvaez – Technical Director of the Kreston International Global Tax Group
Digital Services Taxes (DSTs) are a new global initiative designed to charge larger technology companies that provide digital platforms such as social media, advertising, online marketplaces and other search engine tools for commercial transactions or selling user data online advertising. It is beginning to apply across the world at the behest of the G20 – the Organisation for Economic Co-operation and Development (OECD) who are calling for changes to the international tax system to address the challenges of the digitisation of the economy by mid-2021.
A simple enough idea – impose additional tax costs on those who earn more – but is it really this simple? Who actually pays this tax, as on the face of it, it is the customers themselves who face liability rather than the platforms on which they are advertising.
Online platforms essential for SMEs to grow
Big tech companies like Amazon, Google and Apple shift the tax burden instigated by DSTs downstream to their customers, many of whom are SMEs. The European Centre for International Political Economy (ECIPE) has stated that “the EU’s commercial landscape is characterised by an overall share of highly diverse SMEs who account for 99.8% of all EU enterprises and 66.6% of overall EU employment.”
Copenhagen Economics also point out that 82% of SMEs in Europe use search engines to promote products and services online, while 42% of SMEs use online marketplaces to sell their products and services.
So we can see that SMEs are disproportionately affected by DSTs and are the ones left with the bill.
But in reality, to what extent are DSTs targeting the big fish? The DSTs’ purpose is well-meaning – challenge some of the world’s largest multinational enterprises (MNEs) to pay their dues.
However, when these enterprises can just pass this on to others – particularly digitally dependent SMEs who cannot otherwise achieve their goals – the DST is surely not having its desired effect?
Not looking at the profitability of the platforms means that the DST may end up being a disproportionate levy and, as a result, drive a possible deceleration of economic growth.
SMEs are inadvertent “victims” of the new tax levy
So what is the thinking behind this new levy? Many SMEs exist either in the middle of the digital services supply chain or to ensure the delivery of a product or service to its final customer. Where tech companies at one end of the chain and final customers at the other, SMEs sit between the two, paying for services (such as advertising) provided by the tech companies.
The logic of the DST is, in part, that tax on profitability (such as income tax) do not have the reach to impose tax burdens on tech companies for digital services. However, tech companies can circumvent the economic burden of the DST by transferring the levy to their customers, as they currently do with SMEs.
Conversely, whilst tech companies can pass on the levy to SMEs by increasing the cost of their services and so cover their tax liability, SMEs cannot similarly shift the burden downstream to their customers, as doing so may well take away their competitive advantage.
A well-meaning but flawed tax concept
Finally, even though consumers successfully use one or more digital service, they do not usually have to pay anything at all. Most of these can access any information, products and services through the use of free online services.
While SMEs serve a vital purpose in domestic economies, they are often the primary victims of this tax burden, whereas tech companies escape cost-free. Hence this system of taxation is a flawed one and deeply unfair.
SMEs are part of the digital services supply chain and a vital element of any country seeking to pursue economic growth while achieving a healthy economy. Since over 99% of EU businesses are SMEs, surely it would be fairer to support their development, rather than leave them to have to shoulder most of the actual tax burden?
(a version of this article also appeared in Accountancy Daily, May 12th 2021)
April 30, 2021
Two member firms of Kreston – Kreston FLS, based in Mexico, and Daehyun Accounting Corporation, based in Seoul – have joined the Expatland Global Network, a leading provider of global mobility services.
The addition of the two firms as Expatland Global Network partners represents the latest expansion of the network’s collaboration with Kreston, which now includes a total of 13 member firms around the globe.
The Expatland Global Network brings together international teams of professionals to provide global mobility services across taxation, logistics, real estate, education advice and more. These ‘E-Teams’ are made up of like-minded service providers in over 30 cities globally. Their expertise ranges from banking and insurance to medical and education, each passionate about helping expats coordinate their moves abroad and settle into their new home.
The partnership with Expatland Global Network will provide expats with access to trusted advice on tax planning and financial reporting across Mexico and South Korea, benefitting from the expert advice and local insight offered by Expatland Global Network’s international ‘E-Teams’.
Kreston FLS is a full-service accounting, legal and financial services firm based in Mexico City. Its clients span a wide spectrum of sectors, most notably in manufacturing and services. With its five offices and 95 staff members, Kreston FLS is one of six firms that make up Kreston International’s Mexican presence.
Based in Seoul, Daehyun Accounting Corporation provides a broad spectrum of services, including audit, tax, consulting and M&A for its SME clients both local and international. Daehyun Accounting Corporation is one of two Seoul-based Kreston International members.
Kreston FLS and Daehyun Accounting Corporation become the 68th and 69th partners, respectively, to join the Expatland Global Network– 13 of which are Kreston International member firms – across the UK, Europe, Asia-Pacific and North America.
Liza Robbins, Chief Executive of Kreston: “Expatland Global Network has for some time been a trusted partner of Kreston Global and is at the forefront of providing global mobility services and insight. The addition of these two firms to the Expatland network is a testament to its success and we look forward to seeing this international partnership continue to bear fruit.”
John Marcarian, Founder of Expatland Global Network: “Despite the setbacks to international movement caused by the pandemic, the demand for expatriation among the internationally mobile community looks set to recover quickly. We’re pleased to expand our relationship with Kreston International by adding these two firms as new partners and, in doing so, significantly enhance our offering in Mexico and South Korea.”
April 8, 2021
Our Chinese firm, Brighture, has provided a comprehensive newsletter on recent tax changes for businesses and private individuals.
The newsletter covers new financial and tax policies, service cases, Brighture salon, Kreston updates, and their business structure.
April 6, 2021
Tax experts from Kreston predict digitalisation of tax and transfer pricing will be dominant issues for the next two years, in addition to base erosion and profit shifting (BEPS).
In a survey of attendees of Kreston’s International Tax Conference, a significant number of respondents indicated that BEPS and Transfer Pricing (both 19.35%), along with tax digitalisation (17.26%), were the top three issues likely to be at the forefront of industry debate.
Tax avoidance and evasion (15.48%), harmonisation of tax (11.31%) and tax investigations (10.7%) were also highly ranked, highlighting the public and political scrutiny these issues continue to receive around the globe.
Notably, one of the most contentious tax issues globally – the debate over the potential levying of wealth taxes – was viewed as least likely to dominate the agenda, with only 6.55% of respondents putting it in their top three choices.
Mark Taylor, Chair of the Global Tax Group at Kreston Global, said:
“These figures bear out our conversations within the Kreston International network: that the BEPS project and transfer pricing continue to dominate the international tax landscape for multi-nationals.
“The fact that tax digitalisation came second in our poll reflects the belief that governments across the globe have this high on their agenda. As ever the tax landscape globally continues to evolve and this is only likely to accelerate in the post-Covid era as individual countries look to rebalance their economies.”
The findings of the survey were initially presented at the 2021 International Tax Conference, held virtually on 24 March. The event brought together nearly 130 global tax professionals from 41 different countries across the Kreston network.
March 10, 2021
Our Chinese firm Brighture has provided a comprehensive article on recent tax changes for businesses and private individuals.
Please download their latest Newsletter here.
January 28, 2021
CA SAURABH PANWAR
Tax Partner Manager – Direct Taxes
SNR & Company Chartered Accountants, India
In India and globally, the supply and procurement of goods and services digitally have undergone exponential growth with the expansion of information and communication technology. Indeed, e-commerce is now growing significantly faster than the global economy. The Indian tax authorities are constantly taking stock of new developments and introducing necessary changes to the Indian taxation laws to ensure that digital transactions are taxed appropriately. One such change is the levy of tax on non-resident e-commerce operators, effective from 1 April 2020.
The Finance Act, 2016 initially provided that a resident carrying on a business/profession, or a non-resident having a permanent establishment (PE), in India shall deduct an equalisation levy of 6% (the ‘2016 Levy’) on the amount paid/payable for certain specified services (e.g. advertisement) to a non-resident service provider, if the aggregate amount of consideration for the specified service exceeded INR 100,000 in a financial year.
Effective from 1 April 2020, the Finance Act, 2020 has introduced a new levy of 2% on the e-commerce operator on receipt of consideration for online sale of goods or services, made or provided or facilitated by it (on an amount of at least INR 20 million in aggregate) from:
Provisions in brief
Definitions
Compliances for non-resident e-commerce operators
Every e-commerce operator will be required to make equalisation levy payments quarterly, as follows:
| Quarter ending | Due date |
| 30 June | 7 July |
| 30 September | 7 October |
| 31 December | 7 January |
| 31 March | 31 March |
Availability of tax credits
In general, non-residents paying taxes in India could obtain tax credits for these in their country of residence under the relevant DTAA. The equalisation levy has been introduced under a separate legislation rather than under the Income Tax Act. Thus, determining the availability of credit for the equalisation levy in the residence country is going to be challenging.
Conclusion
The new equalisation levy on e-commerce operators could impose on them a significant compliance burden and additional costs. The peculiarity of these businesses in earning millions of revenues without any physical presence has certainly been a matter of concern for countries with a large customer/IP user base. Modern ways of doing business do need such taxes, and all these measures are simply India’s response to the changing times.
SUSAN LI
Director International Business CEO
Brighture, China
The Ministry of Finance, the General Administration of Customs and the State Administration of Taxation jointly issued the Notice on Preferential Tax Policies for Imported Exhibits Sold during the China International Import Expo (CIIE) (CAIGUANSHUI [2020] No. 38). With effect from 12 October 2020:
In accordance with the reform and deployment of the collection system for social insurance premium by the State Council and the People’s Government of Shandong Province, Qingdao Taxation Bureau, Qingdao Finance Bureau, Qingdao Human Resources and Social Security Bureau and Qingdao Medical Security Bureau jointly issued the Circular on the Collection by Tax Authorities of Corporate Social Insurance Premium ([2020] No. 4), which stipulates that, effective from 1 November 2020, all social insurance premiums of enterprise employees will be collected exclusively by tax authorities.
To deepen the reform of ‘power delegation, management and service’ and enhance the business environment, 13 governmental departments (including the State Administration of Taxation) jointly issued the Notice on Measures to Promote Tax Payment Facilitation and Improve Taxation and Business Environment (SAT [2020] No. 48), which provides that electronic invoice reform shall be implemented step by step:
There will be efforts to build a national electronic invoice service platform and tax network trusted identity system by the end of 2021, and to establish a management/service mode matching the electronic invoice, so as to facilitate the use of invoices by market entities and promote the construction of smart taxation.
