Newsletter – May 2020
(The impact of COVID 19 stimulus packages are not covered in this newsletter and are covered in a series of news separately)
Global updates – a quick glance
Australia:Payroll tax threshold increased from AUD 900,000 to AUD 1 million for New South Wales with effect from July 01, 2020.
China: China has issued new Personal Information (PI) Security Specification to protect personal data which will apply with effect from October 01, 2020.
India: India offers a one-time amnesty for non-compliances under the Companies Act.
Italy: Paid Paternity leave increased from 5 days to 7 days with effect from January 01, 2020.
| Country | GDPR Fines |
| Netherlands | The Dutch Data Protection Authority has penalized a company with a fine of EUR 725,000 for violations of Article 9 (1) of the EU General Data Protection Regulation (“GDPR”) for processing biometric data of its employees without their explicit consent. |
| Spain | The Spanish Data Protection Authority fined Activos Balagares, a fine ofEUR 15,000 for violation of Article 5(1)(f) of the General Data Protection Regulation. |
| Sweden | The Swedish data protection authority (“Datainspektionen”) has fined Google LLC for EUR 7 million for violation of GDPR regulations with respect to “right to request delisting” |
| The Swedish data protection authority (“Datainspektionen”) has fined the National Government Service Centre for SEK 200,000 (Approx. EUR 18,700) for failure to notify about personal data breach to the Data Protection Authority as well as affected parties in due time. |
Table of Contents
Introduction of Tax control device (Tax Ukey) in Beijing with effect from March 16, 2020
Clarification on Foreign Investment Authorization Regulations
Mandatory E-invoicing for larger businesses is postponed from April 01, 2020 till October 01, 2020
Equalization levy (Digital Tax) on specified services is effective from April 01, 2020
MCA introduces Settlement Schemes for Companies and LLPs to make good any filing related defaults
The paid Paternity leave increased from 5 days to 7 days with effect from January 01, 2020
Changes to Written statement of particulars of employment effective from April 06, 2020
Australia
Payroll tax threshold increased from AUD 900,000 to AUD 1 million for New South Wales for the year 2020-21 with effect from July 01, 2020
The New South Wales (“NSW”) Government has increased the payroll tax threshold by bringing forward the payroll tax threshold of AUD 1 million for 2021-22 to the year 2020-21. The payroll tax threshold has increased from AUD 900,000 to AUD 1 million from July 01, 2020.
Implications
The applicability of payroll taxes may change for some employers, resulting in tax savings.
Brazil
The implementation of General Data Protection Law (“LGPD”) is postponed from August 15, 2020 till January 2021
To deal with the COVID-19 pandemic, various emergency measures has been taken. One of the measure is the postponement of effective date of Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No. 13,709/2018) (“LGPD“) from August 15, 2020 to January 2021. In addition, the rules regarding administrative sanctions and penalties are scheduled to be enforceable only after August 2021.
Canada
Quebec: Reduced Corporate Tax rate of 2% will now apply for eligible innovative businesses effective from January 01, 2021
An incentive deduction is announced by Quebec government for the commercialization of innovations in Quebec. This will be applicable from January 01, 2021.
To be qualified for this, the establishment in Quebec is a must for an eligible innovative business. Such entity must do business in Quebec and derive income from the marketing of an eligible intellectual property asset for which it owns the rights.
An eligible intellectual property assets include patents, certificates of additional protection (“CPS”), plant variety protection (“POV”) or related applications etc. For this, the application for the patents, CSPs must be filed after March 17, 2016 under Canadian Patent Act or any equivalent law of foreign jurisdiction and application for POV’s must be filed after March 10, 2020. Software protected by copyright, which is created after March 10, 2020 as a result of research and development carried out at least partially in Quebec is also an eligible intellectual property asset.
The effective corporate tax rate for such innovative businesses will be “2%” on part of the taxable income attributable to the marketing of an eligible intellectual property asset developed in Quebec as compared to basic Quebec corporate tax rate of “11.5%”.
China
New Personal Information (PI) Security Specification to protect personal data with effect from October 01, 2020.
The new PI Specification published on March 06, 2020 by the State Administration for Market Regulation (“SAMR”) and Standardization Administration of China (“SAC”) will be effective from October 01, 2020. This PI Specification will replace earlier version of the existing PI regulations.
This document lays down the best practices for protecting the Personal Information. The PI Specification will enhance privacy protection, place greater emphasis on the independence of individuals’ consent in deciding whether to share his / her PI as a condition of access to products and services that offers business functions such as mobile apps.
The PI Specification are not mandatory but encouraged by Chinese Regulators and is expected to be complied by all companies irrespective of size. Complying with the PI specification helps the company in establishing compliance with rules and regulations in government investigations and legal proceedings.
Implication
Companies should review and update their China privacy compliance policies in view of new PI Specification. Chinese government is likely to get strict about compliances with these standards.
Introduction of Tax control device (Tax Ukey) in Beijing with effect from March 16, 2020
In Beijing, with effect from March 16, 2020, newly registered taxpayers who need to issue VAT invoices (“FAPIAOS”) shall obtain Tax Ukey (a digital certificate containing tax control device used to issue VAT invoices). Application for Tax Ukey shall be done via Electronic Tax Bureau after tax registration.
Existing taxpayers / Taxpayers who have not obtained any other tax control devices (i.e. tax control disc) can also obtain Tax Ukey from their respective tax authority.
France
Clarification on Foreign Investment Authorization Regulations
Earlier the French companies that conduct business activities which are considered sensitive or strategic to national interests of the country may require prior approval from the French Minister of the Economy. However as per new decree, the rules and procedures governing such foreign investment authorizations is modified and set to be effective from April 01, 2020.
The new decree provides additional sectors that fall under the foreign investment regulations such as Agricultural and Food products, the press (Print and Digital Media), Critical technologies like Cyber Security, AI, Robots, Additive manufacturing, semi-conductors, quantic technologies and energy storage.
The definition of foreign investor has also been modified by lowering the threshold for investments by non-EU investors to 25% from existing 33.33% and applicable only to the acquisitions of shares voting rights. On exceed of 25% threshold French law will trigger control of investments.
Other key highlights of new decree include:
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- Change in the timeline for obtaining a prior approval from the Ministry of Economy
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- Additional information and documentation to be filed with an application for prior approval from Ministry of Economy.
Implication
As definition of strategic sector or sensitive sector has been widened, companies planning to invest in such sectors will have to undergo the foreign investment authorization process and get the necessary approval from the Ministry of Economy.
India
Mandatory E-invoicing for larger businesses is postponed from April 01, 2020 till October 01, 2020
The mandatory implementation of electronic invoicing is delayed by Indian government for larger businesses (turnover more than INR 1 billion) by 6 months i.e. the effective date is postponed from April 01, 2020 to October 01, 2020. For smaller business (turnover less than INR 1 billion), the effective date for voluntary and trial basis of electronic invoicing will remain the October 01, 2020.
In addition, the implementation of QR codes on invoices is delayed until October 01, 2020 and e-wallet scheme is delayed until March 31, 2021.
Equalization levy (Digital Tax) on specified services is effective from April 01, 2020
Since 2016, equalization levy at the rate of 6% is levied on purchases of advertising services by Indian businesses from non-residents.
Effective from April 01, 2020, 2% equalization levy is chargeable on consideration receivable by a non-resident “e-commerce operator” for “e-commerce supply or services” provided or facilitated by it. An “e-commerce operator” is defined as a non-resident that owns, operates or manages a digital or electronic facility or platform for online sale of goods or the online provision of services. Business covered under 2% of equalization levy includes online marketplaces; subscription-based platforms, including social media; cloud services; search engines; streaming services etc.
Indian businesses are required to deduct the amount of the equalization levy on payments made for such specified services and remit it to the government on quarterly basis.
The 2% equalization levy is not applicable, where –
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- E-commerce operator has a permanent establishment (“PE”) in India and the e-commerce supply or service is effectively connected with this PE;
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- The transaction is of online advertisement and related activities where equalisation levy is applicable at a rate of 6%;
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- If the turnover of the e-commerce operator (on which the 2% equalisation levy is otherwise applicable) is less than INR 20 million during the financial year.
Implications
Besides the cost implications of the new levy, the businesses buying from such operators will have additional compliances to report and pay this levy.
CBDT Clarification – Employer may apply simplified tax regime for withholding taxes from salaries if the same is notified by an employee
Finance Act 2020 introduced simplified tax regime for individuals, that offers lower tax rates with a condition to forego certain deduction, exemptions etc. with respect to the same, the Central Board of Direct Taxes (“CBDT”) has issued a clarification confirming that the employer may apply the tax rates as per simplified tax regime for the purpose of withholding taxes from the salary payments, provided that the employee has opted for the same.
The employee must notify the employer during the previous year about his intention to opt for simplified tax regime for withholding tax purposes for the current year. On receipt of such notification from employee, the employer may withhold the tax at the lower rates. Where no such notification is provided by an employee, the employer must continue to withhold tax at the normal rates, and allow all exemptions and deductions permitted by the law.
An employee may notify the employer of the election only once in each financial year. However, the employee can change the option at the time of filing the income tax return.
Implications
All employers must obtain a confirmation from their employees about election of reduced tax and modify the payroll (tax deductions) accordingly.
MCA introduces Settlement Schemes for Companies and LLPs to make good any filing related defaults
In pursuance of Govt. of India’s efforts to provide relief to the companies and Limited Liability Partnerships (“LLPs”) in light of COVID 19, the Ministry of Corporate Affairs (“MCA”), has introduced the “Companies Fresh Start Scheme, 2020” and “Modified LLP Settlement scheme” on March 30, 2020.
Name of the Scheme
Companies Fresh Start Scheme, 2020 (“CFSS-2020”)
Duration of Scheme
April 1, 2020 to September 30, 2020
Highlights of the scheme
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- Any Defaulting Company is permitted to file belated documents which were due for filing on any given date (even before start of this scheme) i.e. any company in default for delayed filing in previous periods, say in 2015, also can use this scheme to avail immunity.
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- Immunity will be granted to companies from prosecution and penalty for delay in filing of belated documents.
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- Form CFSS-2020 to be filled for immunity in respect of documents filled with delay.
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- The Authority shall provide Immunity certificate to the Company and the Registrar of Company will withdraw all prosecutions and proceedings of adjudication pending regarding requisite forms and returns.
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- Under the scheme the immunity shall be granted only to the extent of prosecution or proceedings for delay associated with belated filing of documents, any other consequential proceedings, including those involving interest of shareholders, directors or key managerial person would not be covered. For example, immunity will be granted for return on allotment not filled within prescribed time but not for utilization of money raised through private placement prior to the filing of return with the registry.
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- The scheme also gives an opportunity for “inactive companies” to get declared as “dormant company” * by filing a simple application at a normal fee.
*Dormant company is a company generally incorporated for a future project, or to hold an asset or Intellectual Property Rights, but is not carrying out any “significant accounting transaction.” A dormant company has less compliance requirements.
Exceptions
The Scheme is not applicable to the following:
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- Companies under the process of Striking off (Where the company has filled STK-2 for striking off or those who have received final notice from Registrar of Companies for striking off).
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- Amalgamate Companies.
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- Dormant Companies.
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- Vanishing Companies.
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- For filling form SH-7 (Notice to Registrar of Companies for the increase of share capital).
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- For filing Charge Related Forms (CHG-1, CHG-4, CHG-8 or CHG-9).
Modified LLP settlement scheme
Ministry of Corporate Affairs (“MCA”) had launched an “LLP Settlement Scheme, 2020” for limited liability partnerships (“LLPs”) which allows a one-time condo nation of delay in filing of statutory documents with Registrar (“ROC”). This earlier scheme was to remain in force till June 13, 2020 but it will end on March 31, 2020, and the modified LLP settlement scheme will remain in force from April 1, 2020, until September 30, 2020, thereby permitting LLPs to file belated documents that were due up to August 31, 2020. Under the modified scheme the additional fees would be waived off (which earlier under the original settlement scheme was INR 10/- per day for the period of delay, in addition to any fee payable, maximum of INR 5000/- per document).
Implications
Companies having any outstanding defaults under the Companies Act (like delays in filings) can use this scheme to wipe the slate clean. This is a rare opportunity to obtain immunity from defaults under this law.
Italy
Electronic invoicing to be prepared as per new technical specifications issued by Italian Revenue Agency
The Italian Revenue Agency has approved new technical specification rules regarding XML files for e-invoices. The new specifications refer to the new codes to be set up in XML files which will help indicate the “Type of document” and “Nature of transaction”. The new technical specifications are effective from May 04, 2020. The current version of e-invoices can be used by the taxpayers till September 30, 2020. From October 01, 2020 all the invoices prepared under the current rules (version 1.5) will be rejected and considered as not issued by the tax authorities and the taxpayers will have to issue e-invoices in accordance with the updated version (version 1.6) of technical specifications.
The paid Paternity leave increased from 5 days to 7 days with effect from January 01, 2020
According to budget law 2020 (Law No 160/2019) mandatory paid paternity leave is now extended from the previous 5 days to 7 days with effect from January 01, 2020. This leave can be taken during the first 5 months following the child’s birth.
Implications
There will be additional paternity leave and the company policies may need modifications.
Netherlands
The Dutch Data Protection Authority (AP) fined an organization for EUR 725,000 for processing biometric data of its employees.
The Dutch Data Protection Authority imposed a fine of EUR 725,000 on a company for unlawfully processing fingerprints (i.e. the biometric data) of its employees.
Under the GDPR regulations, the biometric data of a person is considered as a ‘Personal Data’ and cannot be processed without valid consent of the person under article 9 of the GDPR. The employer in this case could not prove that the ‘explicit consent’ of the employees was duly taken. Even if there is no consent, in ‘case of necessity’ for “authentication or security purposes” the data can be processed [which is an exception provided in the Dutch Implementation Act (Uitvoeringswet Algemene Verordening Gegevensbescherming, “UAVG”)], but exception of “necessity” can be considered only when the buildings and information systems are required to be secured and it cannot be done in any way other than the use of biometrics.
Implication
Companies should make a note to take explicit consent from employees before processing their biometric data or other personal data.
United Kingdom
UK Budget 2020 highlights
The Chancellor of the Exchequer presented the United Kingdom (UK) Budget 2020 to Parliament on March 11, 2020. As mentioned in the budget statement, employment growth remains strong; and earnings growth continues in the UK above the inflation rate while the employment rate has reached a record high since December 2019. The Budget also has allocated a whopping GBP 12 billion plan in support of public services, individuals and businesses, whose finances are affected negatively due to COVID-19.
As per Budget 2020, key rates are unchanged- The Corporation Tax Rate is maintained at 19 percent from April 2020, and employer and employee NIC rates unchanged. Income Tax, Capital Gains Tax, Dividend Tax rates also remain unchanged. The VAT rates and thresholds remain the same as well. The highlights of the 2020 budget are as follows:
For Individuals
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- With effect from April 2020, Increase in the threshold of National Insurance Contributions (“NICs”) (i.e. the amount at which employees start paying for the Contributions- ‘NICs’) from GBP 8,632 to GBP 9,500.
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- With effect from April 2020, the maximum flat-rate deduction available to employees working from home under homeworking arrangements to cover additional household expenses increased from GBP 4 per week to GBP 6 per week.
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- Three social security benefits introduced by the Scottish government are exempt from income tax. These benefits are viz., Job Start, Disability Assistance for Children and Young People, and, the Scottish Child Payment
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- The threshold for pension’s tax relief is raised by GBP 90,000. This means that from 2020-21 the “threshold income” will be GBP 200,000, so this should now only impact individuals earning in excess of GBP 200,000 per annum and the annual allowance (GBP 40,000) will only begin to taper down for individuals who also have an “adjusted income” above GBP 240,000.
For Employers
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- The budget has highlighted the off-payroll working rules (commonly known as IR35) that will be implemented on April 06, 2020 (as previously announced). The government has recently concluded a review of the reform and is making a number of changes to support its smooth and successful implementation and the reform will, therefore, be legislated in Finance Bill 2020. Under these rules, companies employing contractors will now need to decide if they are employees and not contractors and apply National insurance (“NIC”) and withhold taxes (“PAYE”) accordingly. In case of small companies this burden to determine if the he / she is an employee or contractor shifts on the contractor. The need for documentation to prove if a contractor is indeed a contractor not needing NIC / PAYE or is an employee will be critically important.
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- The budget highlighted the announcement made by the Prime Minister in light of COVID-19 bill, allow Statutory Sick Pay (“SSP”) payable by employers is allowed to be paid from the first day of sickness absence, rather than the fourth day, for people who have COVID-19 or have to self-isolate, in accordance with government guidelines, temporarily.
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- From April 2020, the National Living Wage (minimum wages) will increase from GBP 8.21 to GBP 8.72.
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- From April 2020, the Employment Allowance for Employer National Insurance Contributions is increasing from GBP 3,000 to GBP 4,000.
For Companies
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- Corporation Tax Rate is continued will be maintained at 19% from April 2020.
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- The budget has highlighted that, as announced at Budget 2018, the government will introduce a new 2% the Digital services tax (“DST”) on the revenues of certain digital businesses (search engines, social media services, and online marketplaces, etc.) effective from April 01, 2020. DST will apply when the group’s worldwide revenue from the digital activities is above GBP 500 million and the amount above GBP 25 million is derived from UK users. If the group’s revenues exceed the above thresholds, the revenues derived from UK users will be taxed at 2%. The group’s first GBP 25 million revenue from the UK users will not be subject to digital services tax (“DST”).
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- The budget has highlighted that, as set out in July 2019, the government will reduce most Company car tax (“CCT”) rates by 2% in 2020-21 for cars first registered from April 06, 2020, with a new zero percentage rate for pure electric vehicles (“EVs”). Rates will be increase in the next 2 years, i.e. increase by 1% in 2021-22 and another 1% in 2022-23.
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- The budget has highlighted that, as announced on October 31, 2019, the government will legislate to confirm that HMRC may use automated processes to issue taxpayers with notices to file tax returns and penalty notices.
VAT
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- UK to introduce legislation for a zero rate VAT on e-publications w.e.f. December 1, 2020, to make it clear that e-books, e-newspapers, e-magazines, and academic e-journals are entitled to the same VAT treatment as their physical counterparts.
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- From January 01, 2021, postponed accounting for VAT purposes will be applicable on all imports of goods (including the imports from the EU).
Changes to Written statement of particulars of employment effective from April 06, 2020
With effect from April 06, 2020, the changes with respect to the Written statement of particulars of employment are as follows:
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- All employees as well as workers (such as casual workers etc.) are entitled to the written statements. Earlier only employees were entitled to receive written statements.
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- Employers are required to provide the written statement (principal statement) to the employee or worker before or on the day that the employment commences. Earlier an employee who is engaged for more than a month was entitled to a written statement and employer was required to provide such statements within 2 months after the beginning of employment.
In addition to the principal statement, the employers are required to provide the wider written statement within 2 months of the commencement of the employee or worker’s start date. It includes:
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- Details of pensions and pension schemes;
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- Collective agreements
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- Any other right to non-compulsory training provided by the employer
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- Disciplinary and grievance procedures
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- Additional information to be included in written statements such as probation period conditions and duration, benefits provided by employer etc.
In case of failure to provide a compliant written statement by an employer, the employee may be awarded with additional compensation of 2-4 weeks of pay, currently capped at GBP 525 per week.
Implication
Employers must ensure that their onboarding process is compliant with the new changes. Having a well drafted contract of employment, issued on time, can relieve the employers of these requirements.
Global News
Argentina – Introduction of Digital VAT filing system in by Argentine tax authority (“AFIP”) from June 2020
Argentina implemented a new system enabling taxpayers to electronically register sales, purchases, exports, imports in Digital VAT Book. The taxpayers will have to enroll/register based upon their sales in a year and in accordance with the enrollment deadlines set by AFIP. The electronic registration is mandatory from the month in which the status of person registered or exempt in VAT is acquired. The deadlines for enrolling start from June 2020. The enrollment deadlines are based upon the total net taxes and fees.
Finland – New e-invoicing mandate w.e.f. from April 01, 2020; All businesses can demand e-invoices from suppliers in Finland.
In Finland from April 01, 2020, public administrations and private companies can demand suppliers under the law to provide for e-invoices. The invoice recipient has the right to ask for e-invoice. However, during the Coronavirus epidemic, old e-invoice standards will still be acceptable.
The national prescribed e-invoice formats are F-invoice and Teapps (version 3.0). These comply with the European standard and the Finnish tax administration’s VAT tax invoicing requirements.
Other countries mandating e-invoice include:
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- Portugal – By the end of 2020, all businesses will be required to process invoices electronically.
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- Bolivia, Columbia, and Guatemala – In 2020, these countries will be extending e-invoicing mandates to all business.
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- Vietnam – From November 2020, electronic invoicing will be mandatory in Vietnam.
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