#1 March 2014

In this issue Hong Kong: Budget for tax year 2014/15 brings only a few changes ................................................... 1 India: Advance rulings in India for non residents................................................................................... 1 Malaysia: Deemed interest income from loans or advances to directors .............................................. 2 Philippines: Automatic Application of Tax Treaty Rates....................................................................... 2 Singapore: New budget keeps focusing on innovation ......................................................................... 2 Thailand: New Policy on Investment Promotion (2015- 2019) .............................................................. 3 Vietnam: Providing Services to Vietnam ............................................................................................... 3

Hong Kong: Budget for tax year 2014/15 brings only a few changes On 26 February 2014 the Hong Kong government published the budget for fiscal year 2014/15 that will start on 1 April 2014.

Claus Schuermann Partner Unit 1004, Kinwick Centre 32 Hollywood Road Central, Hong Kong T: +852 2528 1229 F: +852 2541 1411 [email protected]. hk

Profits Tax rates will remain unchanged at 16.5%. However, Hong Kong taxpayers will benefit from a waiver of 75% of their payable Profits Tax up to a maximum of HKD 10,000. Moreover, the requirements for interest deduction for corporate treasury activities are being reviewed. So far they are only deductible conditionally. Detailed information will follow soon. Furthermore the ‘Innovation and Technology Fund’ was introduced with the aim to support R&D activities in private companies. The application period for special concessionary measures under ‘SME Financing Guarantee Scheme’ is extended for one year. The budget now has to be authorized by the Legislative Council.

India: Advance rulings in India for non residents A non-resident can approach the Authority for Advance Rulings (AAR) in India to seek a ruling on his tax liability, in relation to a transaction that is undertaken or proposed to be undertaken by him with a resident. The AAR is however prohibited, from allowing an application by an applicant where the question raised in the application is already pending before an income tax authority.

Srinivasan Venkatraman Head of Tax A 902, Marathon Futurex, NM Joshi Marg, Lower Parel (E) Mumbai, India T: +91 22 61471000 F: +91 11 2331 3908 [email protected]

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In the ‘Mitsubishi Corporation’ Case, the Hon’ble Supreme Court of India approved the application despite that a return of income had been filed by it before filing the application to the AAR based on the fact that no notice under section 143(2) of the Act was issued by the revenue authorities. This, therefore, opens up a window of opportunities for non-residents who can now approach the AAR for a ruling on the tax liability, in relation to a transaction that is undertaken or proposed to be undertaken with a resident, in spite of having filed a return of income under the Act to comply with Indian tax laws.

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#1 March 2014

Malaysia: Deemed interest income from loans or advances to directors

Yoke Cheng Partner 42A-07-03 Menara Penang Garden, Jalan Sultan Ahmad Shah, 10050 Penang Malaysia T: +60 342 292 239 [email protected]

Effective from YA 2014, where a company provides any loans or advances from its internal funds to its directors, the company shall be deemed to derive interest income from such loans or advances. The interest income for the basis period for a year of assessment shall be the aggregate sum of monthly interest in the basis period. A formula is applicable. Where interest is charged by the company and the amount so charged is higher than the applicable formula, then the provision of deemed interest income will not apply. Where interest is charged by the company and the amount so charged is less than the applicable formula, then the actual interest so charged will be disregarded and the company is deemed to derive income that is to be computed as provided by the formula.

Philippines: Automatic Application of Tax Treaty Rates The Supreme Court (SC) has declared as null and void the requirement that an application for tax treaty relief must first be filed with the tax bureau before a taxpayer may avail of a tax treaty relief such as final tax on dividends, royalty and interest income payments, among others.

Irwin Nidea Junior Partner 20/F Chatham House Valero cor. Rufino Sts, Salcedo Village 1227 Makati City, Philippines

Prior to the SC ruling, if a Philippine subsidiary of a non-resident foreign corporation residing in a country with which the Philippines has a tax treaty will make payments (e.g. dividends, interest, royalties) to its parent company, it s subject to the regular rate of tax and not to the tax treaty rate unless the Philippine subsidiary has filed for a tax treaty relief prior to the transaction. Now, with the SC ruling, the tax treaty rate can apply without first filing a tax treaty relief.

T: +63 2403 2001 F: +63 2403 2001 loc 130 [email protected]. ph

However, a tax treaty relief ruling may still be needed to confirm the applicability of the reduced treaty rates, but it need not be filed prior to the transaction.

Singapore: New budget keeps focusing on innovation The Deputy Prime Minister and Minister for Finance has announced in the Budget 2014 Statement to continue to go for innovation and deeper capabilities. The Budget 2014 will strengthen support for early adopters of new technologies, promoting wider adoption of high-impact productivity solutions. Some of the tax changes are: »

Steven Luk Partner 10 Anson Road No. 12-14 International Plaza Singapore 079903 T: +65 6220 9884 F: +65 6225 9890 [email protected]

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The ‘Productivity and Innovation Credit Scheme’ (PIC) is now extended for three years till year of assessment (YA) 2018 (financial year 2017). In addition, for Small and Medium Enterprises (SMEs) who are making more substantial investments to transform their businesses, the expenditure cap for qualifying SMEs will be increased from SGD 400,000 to SGD 600,000 per qualifying activity per YA. The IRAS will release further details by end March 2014. To continue encouraging private R&D and to give certainty to businesses, the additional 50% tax deduction will be extended for ten years till YA 2025. To build Singapore as an IP hub, the ‘Writing Down Allowance’ (WDA) will be extended for five years till YA 2020. www.wts-alliance.com

#1 March 2014

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To encourage businesses to protect their intellectual property, tax deduction scheme for registration costs of intellectual property will be extended for five years till YA 2020.

Thailand: New Policy on Investment Promotion (2015- 2019) Investment promotion in Thailand is done by the ‘Thai Board of Investment‘ (BOI), a governmental agency under the supervision of the Ministry of Industry. The BOI is well established and very active in its field. Nevertheless, there has not been a general revision of its policy and basic principles in the last 15 years. Therefore, to reflect recent changes in Thailand’s economy, the BOI proposed a new 5-years investment promotion strategy in 2013, presenting major changes in comparison to its previous concept: » » » » » » Till Morstadt Partner th

27 Floor, Bangkok City Tower, 179 South Sathorn Rd., Sathorn, Bangkok 10120, Thailand T: +66 2287 1882 F: +66 2287 1871 [email protected]

Shift from broad-based investment promotion to focus and prioritized investment promotion; From sector-based incentives to merit-based incentives; Instead of zone-based promotion - New Regional Industrial Clusters; From tax incentives-oriented promotion to facilitation-oriented promotion; In addition to solely inbound investment promotion: outbound investment promotion; From evaluation by values of project applications evaluation by project outcomes.

Details of the new promotion scheme, particularly details on the promoted industries, are still to be published. Overall, it can be assumed that the amount of promotions which are granted tax incentives will decrease. Therefore, investors which are currently planning a project may consider applying for BOI approval prior to the expiration of the old promotion scheme by end of this year in order to secure the existing benefits. In case the project does not materialise, there are no negative consequences for the applicant. The BOI recently reconfirmed that the new investment promotion strategy will be effective by 1 January 2015.

Vietnam: Providing Services to Vietnam Foreign companies providing services to customers in Vietnam directly or through third parties increasingly are considered having a ‘Permanent Establishment’ (PE) in Vietnam. Circular 123/2012/TT-BTC defines that PE means ‘a … business establishment via which a foreign enterprise conducts all or a part of its … business activities in Vietnam which earn income, mainly comprising: …. establishment providing services including consultancy services via its employees or another entity or individual.’ and a: ‘Representative in Vietnam … which regularly … provides services in Vietnam.’ This very broad definition of a PE by the Vietnamese Law will be restricted by the relevant Double Tax Agreements (DTA). However, after a recent amendment Art 5 of the DTA Vietnam – Singapore states that the definition of PE also includes:

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#1 March 2014 Wolfram Gruenkorn Partner 6-8 Doan Van Bo Street, District 4, Ho Chi Minh City, Vietnam T: +84 862 618 231 F: +84 862 618 218 [email protected]

‘The provision of services, including consultancy services performed by employees of the enterprise or the use of other parties, in case these … activities have prolonged nature (within one project or related projects) in a contracting state either within one period or within many periods which combined exceed 183 days in any 12 month period.’ Therefore it is strongly recommended to check the implications of any kind of regularly provided services to Vietnamese customers with reference to the specific DTA.

Editorial team wts consulting (Hong Kong) Limited www.wts.com.hk • [email protected]

The above information is intended for general information on the stated subjects and is not exhaustive treatment of any subject. Thus, the content of this Tax Letter is not intended to replace professional tax advice on the covered subjects. WTS Alliance cannot take responsibility for the topicality, completeness or quality of the information provided. None of the information contained in this Tax Letter is meant to replace a personal consultation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected. If you wish to receive the advice of WTS Alliance, please make contact with one of our advisors. All copyright is strictly reserved by WTS Alliance. Page 4 of 4

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