ARGENTINA'S
NEW BUDGET ENTERS THE STATUTE BOOKS
by John Benoit, KPMG, Buenos Aires
Argentina's budget for 2000 introduces several changes to the Argentine tax code. After some minor modifications and approval by the legislature, the budget was published as law on December 31, 1999. The budget contains provisions affecting income tax, the value added tax, and other taxes. These changes may substantially affect individuals working in Argentina, as well as multinational companies with operations in Argentina.
Income
Tax
Presented below are highlights of some of the important changes to the income tax law,
published as Law 25,239. These changes will be in effect for fiscal periods beginning on
or after January 1, 2000. Several personal exemptions and deductions were lowered, as were
related income thresholds. Under article 90 of the law, the individual tax rates for each
step of the scaled rate table were increased, with the 35 percent rate applicable for net
income exceeding $120,000.
Emergency
High-Income Surtax
An additional high-income emergency surtax has been created. This tax is applicable to
individuals and estates with net incomes exceeding $120,000, and if net income exceeded
this figure for either the 1998 or 1999 fiscal periods. The tax is 20 percent of the tax
liability determined for 1999 and is not creditable or deductible for income tax purposes.
FINLAND
COURT RULES ON STOCK OPTIONS
by Antti Eerola, KPMG, Helsinki
Exercising
Stock Options While Working Abroad
Finland's Supreme Administrative Court has confirmed (KHO 1999 T 2836) an advance ruling
regarding the exercise of stock options by expatriates working in Finland. As reported in Flash
International Executive Alert 99-56 (October 6, 1999), Finland's Central Tax Board
issued an advance ruling (KVL 19/1999) concerning stock options and work abroad which
states that the taxable part of the stock option is determined based upon the time a
person resides in Finland and is generally taxable in Finland for the period between
granting and exercising of the stock option. The taxable part of the stock option is
calculated as the pro rata share of the appreciation of the stock option over the
above-mentioned time period. Although the ruling has now been validated, there is still
not any established formula for determining the calculation.
INDIA
CLARIFIES STOCK OPTION TAXATION, SALARY PAID DURING LEAVE
by Krishna Ramachandaran, KPMG, New Delhi
Stock
Options
According to an amendment to Income Tax Act, 1961, vide the Finance Act 1999,
securities granted under a stock option scheme are taxed at two points: first, as a
perquisite (i.e., as salary), and second, as capital gains.
Taxed as Perquisites (Salary)
The difference between the market value on the date of exercise of the option and the cost
of acquiring the securities is taxable as a perquisite in the tax year in which the option
is exercised.
Taxed as Capital Gains
The difference between the market value on the sale date and the market value on the date
of exercise of the option is taxable as capital gain at the time of sale.
Taxation
of Salaries Paid During Leave or Rest
Salary earned for services rendered in India is taxable in India. It has now been
clarified by an amendment to Income Tax Act, 1961, vide Finance Act 1999, that pay
received for a rest period or leave period which is preceded and succeeded by services
rendered in India and forms part of the service contract of employment shall also be
regarded as income earned in India.
INDONESIA
TAXES NONRESIDENT SHAREHOLDERS
by Sony Harsono, KPMG, Jakarta
The Indonesian government has published a decree that has significant implications for changes of foreign shareholdings. Ministry of Finance Decree Number 434/KMK.04/1999 has effect from August 24, 1999, and applies income tax at the rate of five percent on the proceeds of sale of unlisted shares in Indonesia companies by nonresidents.
IRISH
GOVERNMENT UNVEILS BUDGET FOR 2000
by Thalia O’Toole, KPMG, Dublin, and Scott Shaughnessy, KPMG, Washington
National Tax
Charlie McCreevey, Ireland's Finance Minister, unveiled the budget for 2000 on December 1, 1999. On March 8, the budget bill was approved by the Dail, Ireland's parliament. The most surprising changes affected personal taxation and inheritance and gift taxation.
Rates
The standard rate of income tax has been reduced by two percent, from 24 percent to 22
percent. This reduced rate will also apply to the professional services retention tax. The
top rate of income tax has been reduced by two percent, from 46 percent to 44 percent.
Tax
Bands
Among the several tax band changes, the most important change is to the standard rate tax
band, which is to be individualised over this and the next two budgets, thereby affecting
single individuals, single-income married couples, and dual-income married couples. This
means each individual will have a separate band, which can be set against his or her own
income, with restrictions on transferability between spouses.
Capital
Acquisitions Tax
Major changes were announced to the system of taxing gifts and inheritances received on or
after December 1, 1999. These changes will not apply for the time being to benefits taken
under a trust or settlement already in existence at this date. The changes essentially
affect dispositions of non-Irish property. In such cases, the charge to tax moves from a
system based on domicile of the disposers to a system based on tax residence of either the
disposer or the beneficiary. According to the budget, a liability to tax can now arise
where either the disposer or beneficiary is resident or ordinarily resident for tax
purposes regardless of the domicile of the disposer.
ITALIAN
GOVERNMENT DECREES CHANGES TO SHARES AND STOCK OPTIONS TAX REGIME
by Luca Caretta and Antonella Cavallaro, KPMG, Milan
A recent decree issued by the Italian government contains new provisions regarding the taxation of employee shares and stock options plans.
New
Rules Related to the Tax Treatment of Shares and Stock Options Plans
Italian tax rules for individual income tax purposes, have been changed with effect from
January 1, 2000, and are applicable only to plans issued from January 1, 2000. The changes
include:
As was the case under the old rules, the new treatment applies to shares and options issued by the employer, by the parent company, or by subsidiaries or other companies of the group.
PUERTO
RICO INTRODUCES LOWER INDIVIDUAL TAX RATES
by Edgardo Sanabria and Alma Perez, KPMG, San Juan
Act 168 of July 28, 1999, amends the Puerto Rico Internal Revenue Code by reducing the tax rates applicable to individuals in two stages, starting with the taxable year beginning January 1, 2000. Please note that the income threshold amounts are the same for each of the stages. In the first stage, the minimum tax rate will be reduced from 8 percent to 7.5 percent, the second rate from 12 percent to 11 percent, the third from 18 percent to 16.5 percent, the fourth from 31 percent to 29.5 percent, and the maximum will remain at 33 percent. In the second stage, the minimum tax rate also will be reduced from 7.5 percent to 7 percent, the second from 11 percent to 10 percent, the third from 16.5 percent to 15 percent, the fourth from 29.5 percent to 28 percent, and the maximum will also remain at 33 percent. The first stage begins after December 31, 1999, and the second stage after December 31, 2000.
RUSSIAN
TAX FILING OBLIGATIONS AND AMENDMENTS TO INDIVIDUAL INCOME TAX LAW
by Aileen Downes, KPMG, Moscow
Income
Tax Rates for the Year 2000
New tax rates for the year 2000 were signed into law effective January 1, 2000. The top
rate was reduced from 35 percent to 30 percent and the number of tax brackets fell to
three from five.
Tax
Exemptions
A tax exemption equal to two times the monthly minimum wage (MMW) for individual taxpayers
and each dependent, until the income reaches RUB 15,000, will be available starting
January 1, 2000. On income between RUB 15,000 and RUB 50,000, the exemption will be equal
to <MMW x 1> for the individual and each dependent. There will be no exemption on
earnings over RUB 50,000. The MMW remains at RUB 83.49.
Deadline
for Individual Filing Requirements for 1999
For 1999, individual tax returns must be filed on or before April 30, 2000, for all
individuals who were tax residents in Russia in 1999.
SWISS AUTHORITIES AMEND SOURCE TAX WITHHOLDING PRACTICE
by ArminVogt, KPMG, Zurich
In November 1999, the Zurich tax authorities announced a change in interpretation of the Swiss source tax withholding practice effective January 1, 2000. This change will potentially affect foreign nationals who have their remuneration paid by a foreign employer during their assignment in Switzerland.
As of January 1, 2000, when filing a request for a Swiss source tax exemption, every employer is now required to confirm that:
Given recent discussions with the authorities, certain foreign employees may not be caught by the new practice. Situations where source tax may not be payable include:
U.K.
CHANCELLOR PRESENTS NOVEMBER PRE-BUDGET REPORT AND MARCH BUDGET
by Mary Bryson, KPMG, London
On November 9, 1999, Gordon Brown, the U.K. Chancellor of the Exchequer, presented his Pre-Budget Report, or "Green Budget," which gave details of plans to introduce a new all-employee share ownership scheme. This was followed on March 21, 2000, with the Chancellor's Budget speech.
All-Employee
Share Ownership Scheme
A new all-employee share ownership scheme is to be introduced, following proposals in the
March 21 Budget, but incorporating the following changes:
No income tax or national insurance liability arises if shares remain within the plan for five years. Any increase in the value of the shares is exempt after three years. Capital gains tax will be due only on any increase in the value of the shares after they come out of the plan. Dividends will be tax free, within limits, if used to acquire additional shares. Employers will obtain a tax deduction for the market value of shares used in the plan.
U.S.
FY2001 BUDGET UNVEILED
by KPMG Washington National Tax
The Clinton Administration sent its FY2001 budget to Congress on February 7, marking the commencement of the budget process for this legislative year. The proposed budget contains $351 billion in gross tax cuts over 10 years, of which $256 billion are paid for out of the projected surplus and $96 billion are paid for with an assortment of revenue-raising measures. The Administration's budget includes a number of international tax measures, as well as measures that affect individuals.
Prevent
Avoidance of Tax on U.S.-Accrued Gains (Expatriation)
The President's proposal would repeal the current regime under section 877 and replace it
with an "exit tax" on accrued gains at the time of expatriation. Gifts and
bequests made to a U.S. person by an individual who has expatriated would be considered
gross income to the recipient, taxable at the highest marginal rate applicable to gifts
and bequests.
Imported
Pensions
The President's proposal would treat an individual as having basis in a foreign pension
plan distribution only to the extent that such individual had been previously subject to
tax (either in the U.S. or the foreign jurisdiction) on the amount distributed.
Expand
ECI Rules to Include Certain Foreign Source Income
Similar to the FY 2000 proposal entitled, "Expand Section 864(c)(4)(B) to Interest
and Dividend Equivalents," this proposal would increase the types of foreign source
income that are effectively connected income to include interest and dividend equivalents.
It would also treat as U.S. source income any amounts attributable to a U.S. office or
fixed place of business.
Limitations
on Certain Tax Attributes and Income Flowing Through Identified Tax Havens
This proposal would reduce foreign tax credits (FTCs), impose separate FTC limitations,
and end deferral with respect to a portion of income attributable to identified tax
havens, under rules similar to those in section 901(j) and under section 999 related to
international boycotts.
Other
The president's budget also proposed changes to charitable deductions, the standard
deduction for two-earner married couples, the child and dependent care tax credit,
retirement savings accounts, and retirement plans.
VENEZUELA
GETS SERIOUS ABOUT TAXATION ON WORLDWIDE BASIS
by Jorge Rodriguez, KPMG, Caracas
Legislation laying the foundation for a worldwide basis of taxation has been approved by the Venezuelan government. The measures will take effect January 1, 2001.
Removal
of Territorial Regime
Under the legislation, resident companies, permanent establishments (PEs), branches, and
individuals previously taxed only on Venezuelan-source income will be taxed on income from
all sources. Nonresidents (and those with no PE or branch) will be taxed on
Venezuelan-source income only.
With respect to individuals, the reform includes worldwide taxation beginning in year 2001. In the case of resident individuals, they will pay taxes on worldwide income, allowing foreign tax credits paid outside Venezuela. In terms of personal deductions, the amount to be allowed for housing rental expenses cannot exceed 800 fiscal units (versus 5,000 fiscal units in the old law). The mortgage interest deduction limitation will be 1,000 fiscal units. The standard deduction (instead of using actual deductions) will be increased to 774 fiscal units (750 in the old law). Representation and per-diem expenses will not be taxable if supported by the corresponding receipts or invoices. In addition, dividends will be taxed at 34 percent beginning in year 2001. Currently they are not taxable.