On March 16, 2018, the OECD published an interim report addressing the tax challenges of the digital economy. This report, which, for the moment, highlights the absence of true international agreement on the matter, lays the groundwork for moving towards a consensus-based solution by 2020. In the meantime, the report cites the drawbacks of taking more immediate action (taxes on certain digital activities) and argues that any such measures should only be applied to a limited number of businesses.
The culture of compliance is being mainstreamed throughout all areas of companies. Companies’ growing concern for fulfilling the many legal requirements affecting their day-to-day activity increasingly calls for multidisciplinary legal advisory services encompassing different areas, such as criminal law, tax law and labor and employment. The objective is to mitigate, to the greatest extent possible, the potential risks of improper conduct within a company.
Following the approval, by Ordinance no. 385-H/2017, of 29 December, of the new model forms of the Model 3 Declaration and respective filling instructions, to be used from 2018 and to declare the income received as from 2015, the Tax Authority presented some additional clarifications through Circular-Letter no. 20.199/2018, of 7 March.
This issue of Tax China Newsletter mainly includes: (1) Certain types of distributed profits re-invested in resident enterprise by overseas investors will enjoy beneficial tax deferral policy (Announcement of the State Administration of Taxation (“SAT”)  No. 3 and Cai Shui  No. 88); (2) The definition of the beneficial owner in tax treaties has been further clarified under Announcement of the SAT  No. 9; (3) Announcement of the SAT  No. 11 has further clarified a number of issues in the implementation of double taxation treaties; (4) The SAT issued the Announcement of the SAT  No.46 regarding the country by country report; and (5) Implementation Regulations of Environmental Protection Tax Law is in effect since January 1, 2018.
An information note was published by the Tax and Customs Authority, which clarifies the conditions applicable to the reduction of the “PEC” related to the taxation period of 2018, provided for in Law no. 10-A/2017, of March 29.
In its judgment of February 27, 2018, the Supreme Court analyzed whether the tax authorities could deny the application of a reduced rate or exemption in tax on oil and gas products where what is being challenged is not the use of the products but the breach of the formal requirements established by the Law and Regulations to be able to take those incentives.
Ordinance no. 64/2018, of 5 March was published today, which approves the new declaration form and respective filling instructions called “Modelo 40 - Value of Payment Flows”, through which credit institutions, financial companies and other companies providing payment services must comply with the obligation to report information relating to credit and debit card payment flows or other electronic payment methods made through them to taxable persons who earn income from category B of the IRS and IRC, without in any way identifying the principal of the payment orders.
Last Saturday the new Extra-judicial Regime for Corporate Recovery ("RERE"), created by Law no. 8/2018, of 2 March, came into force. This initiative is inserted in a government’s program to promote investment and strengthen the capitalization of companies ("Programa Capitalizar") which provides the possibility for debtors facing a difficult economic situation, or in imminent insolvency, to develop negotiations with one or more of its creditors, with the intent of achieving an restructuration agreement for recovery. The agreement should be voluntary, of free content and, as a general rule, confidential.
Ruling no. 20198/2018, of 21 January, was disclosed, which contains information regarding the municipal surtax rates applicable in 2018, regarding the tax period of 2017.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.