Effective 1/1/2019, dividends, interest, and royalty payments from Poland will meet higher tax rates, and timing/permanent differences based on a “pay and refund” system.
Statutory tax rates of 19%/20% will be applicable, unless certain pre-conditions are applied for, which may not be certain or provided timely.
These provisions will impact current cash flows with potential adverse consequences on the annual ETR, resulting in additional proactive actions (i.e. providing statements for lower withholding no later than early January, etc.) to mitigate such actions to the extent possible.
EY’s Global Tax Alert provides additional insight on this significant development for multinationals. Hopefully, other countries will not “follow the leader” by enacting similar actions.
Ernst & Young (EY) has published a very informative study, based on a survey of 830 executives in 25 markets. The second section of the publication includes analyses of tax outlooks for 38 countries, including BEPS actions. The 38 countries highlighted in the publication include:
Australia / Austria / Belgium / Canada / Chile / China / Czech Republic / Denmark / Finland / France / Germany / Greece / Hong Kong / Hungary / India / Ireland / Italy / Jordan / Korea / Lithuania / Luxembourg / Malaysia / Mexico / Netherlands / New Zealand / Norway / Panama / Poland / Russia / Singapore / Slovakia / South Africa / Spain / Sweden / Switzerland / United Kingdom / United States / Venezuela
A link to the publication is included for reference:
The publication includes an introductory section highlighting tax rates and a 2014 tax policy outlook. The outlook includes the following sections:
- How countries are adjusting their corporate tax base in 2014
- Withholding taxes
- Transfer pricing changes
- Interest / Business expense deductibility
- Changes to tax treatment of losses
- Changes to CFC rules / thin capitalization
The second section analyzes 38 separate countries, addressing the following topics:
- Tax rates
- 2014 tax policy outlook:
- Key drivers of tax policy changes
- Fiscal consolidation / stimulus
- Tax policy outlook for 2014, including political landscape, current tax policy and administrative leaders, key tax policy changes in 2013, country position on OECD BEPS Action Plan, pending tax proposals and consultations opened / closed.
This publication is especially valuable in country outlooks, including the OECD BEPS Action Plan proposals, and should be consulted to develop continued awareness of current and future trends in international taxation.
Loyens & Loeff provides their annual concise and practical holding company update of holding company regimes for 2013.
Several topics are covered for each of the following countries
- Hong Kong
- United Kingdom
- Tax on capital contributions
- Corporate income taxes
- Withholding taxes
- Capital gains taxes
- Anti-abuse provisions / CFC rules
- Income tax treaties as of 1/1/2013
This publication is a timely and valuable update, especially with respect to non-European countries and the topics of anti-abuse provisions and CFC rules.
Best Practices should include an annual review of the global legal entity structure, especially with upcoming OECD guidelines, re: general anti-avoidance rules (GAAR), anti-abuse provisions and CFC rules.
Some interesting proposals to Slovakia’s tax code are highlighted for review, as detailed in the PwC summary in the attached link:
Interesting provisions include:
- Transactions will not be recognized if they have no business substance and their purpose is to avoid tax or attain a tax advantage that would not be otherwise attributable to the taxpayer
- Binding rulings will be available at the end of 2014
- The corporate income tax rate will decrease by 1% to 22% in 2014
- Net loss carryover period is shortened from seven to four years
- A tax license, from EUR 480 to EUR 2,880 will be introduced
- A service permanent establishment (PE) concept is created, provided it is recognized in the double tax treaty
- A new 35% withholding tax rate is introduced for payments to taxpayers from non-contracting states
- Transfer pricing documentation is to be provided within 15 days upon request
Slovakia’s proposals are further evidence of increased general anti-avoidance rules (GAAR) and emphasis on transfer pricing.
Withholding tax rates are increasing in many developing countries, creating additional timing and/or permanent cash inefficiencies. To the extent withholding tax payments, receipts and documentation are viewed from a Best Practice process perspective, immediate cash savings may be realized. The following points may be considered in this process:
- How are payments attracting withholding taxes identified?
- Identify internal/external responsibility for tracking changes in withholding tax rates and communication to the business payor.
- Are higher payments being made due to contemporaneous documentation (i.e., certificates of residence) not received timely?
- What integration is in place for Tax and/or Treasury to manage the withholding tax process?
- For shared service centers, how are changes in withholding rates communicated for timely implementation?
- Has an internal and/or external review of withholding taxes been performed in the last year?
- How are withholding taxes considered for new intercompany loans?
- Who reviews withholding tax considerations for legal entities in new jurisdictions?
- For taxes that are not ultimately creditable, is there a process to identify and quantify such payments?
- Is there a review process for proper characterization of “withholding” taxes that may or may not be creditable?
- Is there specific responsibility within the business to ensure withholding taxes are properly characterized and paid timely?
- Should a withholding tax flow chart be used for internal governance and global consistency in methodology?
- Is there a governance process for collection of receipts when withholding taxes are paid?
- Identify a process for physical/electronic receipt retention to ensure timely and accurate documentation is maintained for audits.
- Are different payment flows in place for similar services where withholding taxes apply?
- Is there a variance analysis performed on a recurring basis to identify significant changes?
- Are internal governance principles established for withholding taxes?
- Is the business aware of the importance for efficient mechanisms re: withholding taxes?
Withholding, and similar, taxes are being legislated by many countries, especially in developing markets. Accordingly, Best Practice processes should be in place to maximize cash efficiencies.