Australia’s Budget Holds Few Changes

The measures announced in Australia’s Federal Budget, largely took effect on 1 July 2010. Australia’s Treasurer, Wayne Swan, handed down the Federal Budget on 11 May 2009. The Budget included some measures that may impact individuals – including those on international assignments – and multinational employers.

For a complete summary of the Budget, see the Web page for the “2010 Federal Budget Brief” published by the Australian member firm of KPMG International. Also, click here for additional budget analysis on the Australian firm’s Web site.

(All dollar figures expressed are Australian dollars.)

Personal Income Tax Rates

As anticipated, the Budget confirmed the following, already enacted, personal tax rates and thresholds which will apply from 1 July 2010.

The Australian Taxation Office recently reminded employers that new personal income tax thresholds apply from 1 July 2010, and that they should use the new personal income tax rates from 1 July 2010, when withholding tax from their employees.

Personal Tax Offsets, Rebates, and Thresholds

The government had also announced in its Budget the following related adjustments to personal income tax offsets and rebates from 1 July 2010:

• Confirmation of the previously announced increase in the maximum amount of the low-income tax offset (LITO) from the current $1,350 to $1,500.

• An increase in the threshold for the 20-percent net medical expenses tax offset from $1,500 to $2,000.

• An increase in the Medicare Levy low-income threshold to $18,488, for individuals and $31,196, for individuals who are members of a family.

• The government will cap the child care rebate for out-of-pocket child-care costs at 50 percent of costs up to $7,500.

There will be no indexation of the cap for a further four years.

Standard Deductions

The government’s Budget contained a proposal to introduce a standard deduction for work-related expenses and for the cost of managing tax affairs. For 2012-13, the standard deduction would be $500, increasing to $1,000 from 2013-14 onwards. Taxpayers with deductible expenses greater than the standard deduction amount would be able to continue to claim their actual expenses instead. The government has indicated that it sees this measure as a further step towards pre-filling of personal tax returns, complementing the use of data obtained directly from employers and financial institutions.

Tax-Preferred Savings Accounts

It is proposed that from 1 July 2011, a 50-percent tax discount will be available on up to $1,000 interest earned by individuals, including interest earned on deposits held in authorized deposit taking institutions, bonds, debentures, and annuity products.

This discount will be available for interest income earned directly, as well as indirectly, such as via a trust or managed investments scheme.

Consultation on this measure will occur during 2010-2011.

First-Time Home Savers Accounts

Minor changes to the First Home Savers Account (FHSA) scheme have been announced to increase flexibility for first home buyers. It is proposed that savings in a FHSA can now be transferred to an approved mortgage after the end of a minimum qualifying period, rather than being paid into a superannuation account to remain in a concessionally taxed environment.

In the FutureA number of government-sponsored reviews, such as the Cooper Review on superannuation and the Productivity Commission report on executive remuneration may trigger other tax changes in the short-to-medium term.

Source: KPMG

Romania

The provisions of the Romanian Government’s Emergency Ordinance no. 58/2010 (hereinafter referred to as ”the Ordinance”) are applicable as from 1 July 2010. Here is highlighted some of the principal provisions below that may impact individuals – including those on international assignment – and their multinational employers.

VAT Standard Rate

Based upon the Ordinance, the VAT standard rate will increase from 19 percent to 24 percent.

Re-characterization of Activities as Dependent Activities

The Ordinance amends the definition of the term “dependent activity” (previously defined as the activity carried out by an individual under an employment relationship). Thus, any activity may be considered as a dependent activity provided that at least one of the conditions specifically included under the law is met. These conditions include the following:

• the recipient of the income is in a subordinate relationship with the payer of the income, and observes the working conditions imposed by the latter;

• for performing the activity, the recipient of the income uses the tools and materials made available by the payer of the income;

• the recipient of the income contributes only his/her physical or intellectual capacity, and not his/her own assets;

• the payer of the income bears the travel costs of the recipient of the income, or the medical leave allowance,

Personal Income Tax

Independent Activities and Notional Income – For income from independent activities subject to personal income tax on the basis of notional income, based upon the taxpayer’s specific election, the annual level of notional income cannot be lower than 12 times the minimum wage.

Intellectual Property Rights Deductions – As from 1 July 2010, the notional deductible expenses available in respect of income from intellectual property rights decrease from 40 percent to 20 percent, and from 50 percent to 25 percent for income derived from the creation of “monumental” art.

Fringe Benefits – For employment income related to July 2010, gift vouchers, holiday vouchers, nursery vouchers, and meal vouchers are treated as taxable employment income. The Ordinance specifically provides that in accordance with the provisions of Government Emergency Ordinance no. 8/2009 regarding holiday vouchers and of Law no. 142/1998 regarding meal vouchers, the exemptions from payment of social contributions, as provided under the above legislation, will still be in force.

Interest Income – As from 1 July 2010, interest income on sight deposits and current accounts, interest on deposits set up in accordance with specific legislation on home savings and lending, as well as interest on fixed-term deposits and other savings instruments are subject to 16-percent tax, irrespective of when the deposit was set up.

Taxation of Capital Gains – Annual capital gains derived by individuals from the sale of securities – other than shares in limited liability companies and securities in closed companies – are subject to the 16-percent personal income tax rate, irrespective of the period for which the securities are held (currently, a preferential 1-percent tax rate is available where securities are held for at least 365 days).

The Ordinance introduces a new procedure for declaring and paying the personal income tax due on such capital gains; thus, the intermediary (e.g., the broker) only has the obligation to inform the taxpayer on a quarterly basis and the tax authorities on an annual basis, with respect to gains/losses derived by each taxpayer.

The taxpayer has the obligation to declare the gain/loss on a quarterly basis, cumulated as from the beginning of the tax year, as well as to make quarterly payments on account, determined as 16 percent of the net capital gain calculated by reference to the end of each quarter, cumulated as from the beginning of the tax year.

Separately, the taxpayer has the obligation to declare the annual gains/losses, by way of an annual tax return.

Gambling –The Ordinance eliminates the preferential 20-percent tax rate currently available to gambling income of up to RON 10,000; meaning that as from 1 July 2010, gambling income is subject to a 25-percent tax rate.

Nonresidents with Dependent Activities –Nonresident individuals carrying out dependent activities in Romania are liable to Romanian personal income tax as from the first day of their presence in Romania, as the current conditions provided under the Fiscal Code have been eliminated. Specifically, these conditions are: the person is present in Romania for more than 183 days during any 12-month period, the remuneration is paid by or on behalf of a Romanian resident employer, or the remuneration is considered as a deductible expense at the level of the Romanian permanent establishment.

KPMG Note

Under the new rules, any nonresident person performing a dependent activity in Romania is liable to Romanian personal income tax as from the first day of the activity. This may impact those who currently do not pay tax in Romania.

In principle, where an individual is resident of a country with which Romania has concluded a tax treaty, the person should be eligible for protection under the relevant tax treaty. Most tax treaties include specific conditions under which individuals become liable to host country tax (i.e., 183-day limit of presence, remuneration paid by a resident of a source country, etc.), meaning that where the international assignees are considered as tax residents in their home countries, and the conditions set out under the tax treaty are met, no Romanian tax liability should occur.

It is not clear whether a specific procedure needs to be fulfilled by these individuals. Under current norms of the Fiscal Code, a procedure is stated for nonresident individuals who meet the conditions for being taxable in Romania, so that they should contact the tax authorities within 15 days from the commencement of their activity for the purposes of assessing their tax status in Romania, and they should file various documents with the tax authorities.

It is not clear whether the procedure described above will be amended in order to cover nonresident individuals spending less than 183 days in Romania, and therefore, it may be necessary to wait until further guidance is issued by the tax authorities in the form of Norms to the Fiscal Code.

Professional Income –Under article IV of the Ordinance, any professional income, other than employment income, is subject to personal income tax. Additionally, such income is subject to the individual’s contributions to social security (pension insurance), health insurance, and unemployment insurance. The taxable basis for such contributions is limited to five times the average gross salary, and the contributions are withheld by the payer of such income.

Withholding Tax

As from 1 July 2010, income derived by nonresident persons from the transfer of derivative instruments is subject to Romanian withholding tax. Separately, the following types of income will be considered taxable income in Romania, subject to Romanian withholding tax:

• income from interest on sight deposits and current accounts, fixed-term deposits and other saving instruments derived by nonresident individuals;

• interest on other securities issued by Romanian entities, irrespective of whether such securities are traded on a regulated market; and

• income derived by nonresidents from Romania, who render consultancy, technical assistance, and other similar services under arrangements financed through loans or other specific financial arrangements concluded between international financial institutions and the Romanian authorities or Romanian entities, including public bodies, which are guaranteed by the Romanian state, as well as under other arrangements financed via loan arrangements concluded between the Romanian state and other financial organizations, where the interest charged on such loans is lower than 3-percent per annum.

Foreign Tax Credit

A foreign tax credit for foreign tax due and effectively paid is granted solely in respect of corporate income tax or personal income tax paid in a country with which Romania has concluded a tax treaty, on condition of presentation of relevant and appropriate documentation.

Source: KPMG

Croatia

The Croatian Parliament has adopted Amendments to the Personal Income Tax (PIT) Law which came into force as of 1 July 2010 (National Gazette (Narodne novine), 80/10). Some of the more significant amendments are summarized below.
PIT Rates

The PIT rates and monthly band rates applicable as of 1 July 2010, are as follows:

The monthly basic personal allowance remains HRK 1,800.

Abolition of Tax Reliefs

As of 1 July 2010, the following tax reliefs are abolished:

• health services;

• voluntary and additional health insurance;

• insurance premiums paid in respect of life insurance with a retirement savings component;

•certain costs for the purchase or construction or maintenance of a first main (principal) residence, as well as interest expenses paid for these purposes; and

• rental costs for a main (principal) residence.

Non-Taxable Income

Employer Payments to Pension Funds – Payments by employers made to Croatian voluntary pension funds (pillar III pension insurance) on behalf of employees up to a maximum of HRK 500 monthly per employee will be treated as non-taxable income for PIT purposes (and as a corporate profits tax deductible expense for the employer).

Other PIT Rate Changes

Annual PIT Return
Furthermore, the rules to determine an individual’s obligation to submit an annual PIT return and employer’s obligation to prepare annual calculations for their employees have changed.

Partial Abolition of Special Tax as of July 2010

The Croatian Parliament has adopted Amendments to the Law on Special Tax on Salary, Pensions, and Other Receipts and the Law on Special Tax on Self-employment Income and Other Receipts (National Gazette (Narodne novine) 56/10).

The Special Tax was introduced as a temporary anti-crisis measure. The amendments relate to the earlier partial abolition of the Special Tax; these are summarized on the following page.

Special Tax on Net Salaries, Pensions and Other Receipts

• Special tax at the rate of 2 percent which applies on net income in the range from HRK 3,000 to HRK 6,000, is applicable only to 30 June 2010;

• Special tax at the rate of 4 percent which applies on net income above HRK 6,000, is applicable only to 31 October 2010;Special Tax on Self-employment Income and Other Receipts

• Special tax at the rate of 2 percent which applies on net income from HRK 3,000 to HRK 6,000, will be abolished as of 1 September 2010; and

• Special tax at the rate of 4 percent which applies on net income above HRK 6,000, will be abolished as of 1 January 2011.

Source: KPMG

Russia Kazakhstan Belarus

Further to recent speculation regarding changes to Russian customs procedures, Interdean’s local Russian office provides clarification on the matter and an overview of the broader changes also affecting Belarus and Kazakhstan.

The recently forged Customs Union between Russia, Belarus and Kazakhstan has now confirmed that its new Customs Code is now fully operational and that it came into force yesterday, Tuesday 13th July 2010.
The Customs Code between the three member states means that import charges relating to household goods shipped to Russia, Belarus and Kazakhstan by all forms of transport will change. Russia has already made these changes, with Belarus and Kazakhstan set to follow suit shortly.

Russia

With immediate effect, all shipments (except diplomatic) are now subject to import customs duties charged at 4 Euros per 1 kg gross. Interdean’s Russian office confirms that this new legislation is now active.
Interdean Russia

Kazakhstan & Belarus

Although similar changes were expected to be implemented in Belarus and Kazakhstan, at roughly the same time as the Russian changes, Interdean has not yet received any formal instruction from the respective customs authorities.

It is highly likely that changes to import duties will come into place in Belarus and Kazakhstan, but whether import duties will be to the same extent as the Russian changes is not clear at present.

Interdean Kazakhstan

Interdean Belarus

Actions

Interdean has offices in Russia, Belarus and Kazakhstan, and is monitoring the situation in each of the three states. As you may be aware, it is common for regulations to be amended after implementation. It is therefore important that you maintain awareness of the most current situation in each country.

Interdean Russia has amended administration procedures accordingly with updates available as changes occur.

Interdean is contacting all affected clients individually to advise on appropriate options available.

If you have a current or future shipment destined for Russia, Belarus or Kazakhstan, please immediately speak to your local Interdean office for details of the latest and best options for your household goods shipment.

Interdean Local Office Finder

Source: Interdean

Australia

The Australian Taxation Office (ATO) has released the compliance program for the tax year ended 30 June 2011. Importantly, the Commissioner of Taxation has said “the global mobility of Australian executives and other highly-paid individuals employed overseas is of significant interest.”

The ATO’s concern relates to executives working overseas who may continue to receive employment-related income or dispose of shares received as part of their remuneration but are not declaring this as taxable income in Australia.

The ATO will specifically be monitoring payments received from overseas entities or paid from Australia to overseas accounts, as well as scrutinizing the transactions and tax “minimization” strategies of individuals with incomes over A$1million.

KPMG Note

With the removal of the foreign income earnings exemption from 1 July 2009, Australian residents are required to declare all foreign income earned as taxable in Australia, subject to the claiming of foreign income tax offsets.

Due to these changes, the ATO will be reviewing and scrutinizing the tax positions of those individuals who are globally mobile to determine that all benefits received are correctly reported as income.

Source: KPMG

Belgium

Following a reference for a preliminary ruling, the European Court of Justice (ECJ) has recently condemned the supplementary municipal tax which applies to interest and dividends directly received by residents of Belgium from sources established in other member states of the European Economic Area (EEA) (without intervention of a Belgian intermediary).

Restriction of the Free Movement of Capital

Individuals residing in Belgium and receiving interest and dividend income are subject to a different tax regime depending on the source of the income. Interest and dividends arising from investments in another state must be declared in the annual tax return and are therefore subject to the municipal tax in addition to personal income tax (“supplementary municipal tax”); whereas the same income arising from investments in Belgium, which is subject to a final tax withheld at source, need not be declared and therefore escapes the supplementary municipal tax.

Taxpayers receiving foreign source interest and/or dividend income may not be required to pay the supplementary municipal tax if they choose to have that income paid by an intermediary established in Belgium, so that it can be subject to a final withholding tax and therefore escape the supplementary municipal tax.

The ECJ considered that this difference in treatment constitutes a restriction of the free movement of capital, without accepting any of the justifications raised by Belgium.

Interest and Dividends Received in Other EEA Member States

After this judgment, Belgium can no longer apply the supplementary municipal tax to interest and dividends arising in other member states of the EEA.

KPMG Note

Taxpayers who have paid the supplementary municipal tax in previous years can rely on the Dijkman judgment – discussed above – to claim reimbursement by filing:

• a claim against assessment, within a period of six months starting from the third working day following the date of sending of the assessment note of the disputed tax, or

• a request for automatic relief based on the Dijkman judgment which constitutes a new fact for the purpose of the automatic relief procedure (the request must be filed within a period of five years from 1 January of the calendar year in which the tax has been assessed).3

What About Income from Third Countries?

As regards the territorial scope of the judgment, it must be noted that if, as a rule, the free movement of capital also applies to third countries, the Treaty on the functioning of the European Union4 also provides that any restrictions which existed on 31 December 1993, on the movement of capital to or from third countries involving direct investments can be maintained.

Given that the withholding tax, whose final features lie at the heart of the difference in treatment of income from Belgian sources and income from foreign sources, was introduced in 1983, the Dijkman judgment should not have any consequences for the supplementary municipal tax on interest and dividends received in third countries.

Source: KPMG

Ireland: Parking Levy imposed

The Government has announced that the long delayed €200 annual car parking levy will finally be phased into operation in the current tax year ending 31 December 2010, almost two years after it was first announced in the Budget of October 2008. Initially it will be introduced on a pilot basis in Dublin 1, 2, 4 and parts of Dublin 7 and 8 only, with effect from 1 October 2010.

The levy is a charge on employees who use a car parking facility, in certain designated areas, which is provided either directly or indirectly by their employer. There have been long delays in designating the specific areas in which the levy will apply. The Minister for Finance has indicated that the designated areas subject to this levy will be extended to most of the Dublin City Council area as well as urban areas of Cork, Galway, Limerick and Waterford in 2011.

Affected employees will only be subject to the levy on a pro rata basis in the year of introduction. For example, in 2010 under the pilot scheme, all affected employees would be subject to the car parking levy in the amount of €50 (i.e. €200 x 3/12 – October to December 2010).

Administration

The employer is responsible for deducting the levy from the employees’ net salary (after income tax, PRSI, health levy and income levy) via the payroll system and remitting it to the Revenue. Deductions will be spread throughout the year on a pro rata basis in line with the frequency of salary payments for each relevant employee. Employers will be obliged to keep records of the locations at which parking facilities are provided, and employees who have, and cease to have, any entitlement to a parking space. The levy is not a tax deductible allowance. A penalty of €3,000 applies where an employer fails to deduct the levy from employees or remit the levy to the Revenue.

Exemptions from the Levy

Disabled drivers, employees of the emergency services, retired individuals and individuals with occasional permission to use a parking space are exempt from the parking levy. Motor bikes are excluded from the levy. Vans are also excluded from the levy where the employee is required to use the van in the performance of their duties. However, an employee who uses a company car or their own car in the performance of their duties will be liable to the levy.

Reliefs from the Levy

1. Shared parking arrangements A reduced levy of €100 per annum applies for each employee where car parking spaces are shared between employees. This is on the basis that the ratio of employees to each car parking space is 2:1 or more.

2. Job Sharing and Part-time work Where an employee’s normal pattern of work is on the basis of part-time or job-sharing arrangements, then the levy amount payableis reduced pro-rata but not below a minimum of 50% of the amount payable.

3. Entitlement to use for only part of a year The amount of the levy payable by the employee is reduced on a pro-rata basis.

4. Maternity leave The 26 week period of maternity leave to which the individual is entitled is disregarded for the purposes of the levy. Additionally, the 10 week period immediately prior to the commencement of maternity leave is also disregarded.

5. Shift Work The levy will be disregarded in respect of the period an employee works shifts where work starts after 9pm or before 7am.

Time to Plan

In light of the forthcoming introduction of the parking levy, it is crucial that all affected employers consider the practical implications of operating the parking levy, as failing to operate it correctly can result in substantial penalties.

It is crucial that affected employers ensure that all the necessary systems are put in place to collect the levy and employees impacted by the change are identified and accounted for. It is also suggested that employers advise their employees about the levy in advance of its introduction.

Given that employees can disclaim their entitlement to the use of a parking space, consideration might be given to the recently introduced “Cycle to Work” scheme. Under this scheme employees can be provided with a tax free benefit in the form of a bicycle and cycling equipment with a value up to a maximum of €1,000 every 5 years, provided certain conditions are met, attracting possible cost savings for both the employer and the employee.

Source: Ernst and Young

France and Changes to Tax System

The French government recently announced a major policy initiative to help plug a gaping hole in France’s pay-as-you-go pension system. Under the proposed reform, 40 percent of the savings will come from raising the retirement age and associated rule changes. The rest  will come from higher taxes.

The measures impacting individuals are detailed below.

Increase of Top Rate of Tax

There will be an increase of one point on the highest band of income tax (41 percent instead of 40 percent today). This increase will apply to annual income above EUR 69,783, according to the scale in force in 2010.  As the government had promised, this additional tax will not be taken into account in calculating the limit on a taxpayer’s overall tax burden, the so-called “tax shield”.

Stock Options to Be Subject to Higher Taxation

In 2007, the government established specific contributions on stock options: a 10-percent contribution due by the employer at the time of grant of the fair value of the option and an employee contribution of 2.5 percent paid by the beneficiary of stock options on the exercise gain.

The contribution paid by the beneficiary on the gain from the exercise of options will be more than tripled and increased to 8 percent. This means that the level of taxes paid on stock options by the beneficiaries will be at a level equivalent to those on wages, since the increased contributions will be added to the already existing levies on stock options equal to 12.1 percent (CSG, CRDS, and other levies).

In addition, the contribution paid by employers on the fair value of the option grants will be increased from 10 percent to 14 percent.

The new contributions will apply on a going forward basis to all new grants.

Increased Contributions on “Top Hat” Pension Plans

Since 1 January 2010, the government had doubled the payroll taxes on top hat (“chapeau”) pension plans by establishing a social contribution equal to 12 percent of premiums paid if the plan is managed by a mutual insurer, or 24 percent of the amounts provisioned in the companies’ accounts if the plan is managed internally. If the company chooses to pay payroll taxes on exit, i.e., on the payment of the annuity, the contribution rate is 16 percent, but applies only to the amount of the annuity that exceeds EUR 1,000 per month.

The government proposes to further tax top hat pension plans. An employee contribution will be created at a rate of 14 percent. This will be added to the existing social contributions of 8.1 percent (CSG, CRDS, and health care contribution) and income tax.

Employers will now pay contributions from the first euro it pays to beneficiaries: the abatement of EUR 1,000 per month will be scrapped.

Measures on Passive Income

New measures are planned to increase revenues as noted below.

Capital Gains on Disposal of Securities

The tax rate on capital gains from the sale of securities will be increased from 18 percent to 19 percent.

Currently, capital gains realized on the sale of shares or bonds are not taxed if total proceeds for the household do not exceed a threshold of EUR 25,830 per year. The government proposes to remove the threshold and to subject the capital gains on disposals of shares and bonds to taxes on income, regardless of the amount of sales made.

This is consistent with the measure implemented in 2010 for social contributions, which are now due regardless of the amount of securities sold.

Increase in Rate of Flat Rate Taxation: Dividend and Interest

Taxpayers can opt for flat rate taxation on dividends and interest (“prélèvement libératoire”) instead of normal progressive rates. The rate of tax will be increased from 18 percent to 19 percent.

Increase in Rate of Tax on Sale of Real Estate

The flat rate tax which applies to the gain on the disposal of real estate will be increased from 16 percent to 17 percent. The current exemptions, including that on the sale of principal residence, will be maintained.

The extra tax will not be taken into account in the calculation of restitution under the tax shield.

Scrapping of Tax Credit on Dividends

When they are taxed at progressive rates of tax on income, dividends are subject to two deductions, that were designed to mitigate the double taxation of profits, which are also taxed at the corporate level: one equal to 40 percent of the gross amount of the dividend paid, and the other, a standard deduction of EUR 1,525 for a single person or EUR 3,050 for a couple.

In addition, there is a small tax credit in addition to these two allowances which is equal to 50 percent of the amount of revenue collected, capped at EUR 115 for single taxpayers (including those divorced or widowed) or EUR 230 for married couples. The government proposes to scrap the tax credit on dividends.

Source: KPMG

Brazil

The Brazilian Central Bank (BACEN) enacted Resolution # 3,854 on 27 May 2010. The Resolution adds a new reporting requirement for individuals and companies resident in Brazil. The new report is for assets and rights held outside Brazil in excess of USD100,000,000.

Background

Individuals and companies resident in Brazil are required to le an annual return which reports offshore assets and rights of USD100,000 or more. For such assets held at 31 December 2009, the report is due by 30 July 2010.

The new rules

Starting in 2011, the new Resolution requires reporting on a quarterly basis (31 March, 30 June, and 30 September) for resident taxpayers owning assets and rights abroad in excess of USD100,000,000.

The quarterly reports are in addition to the annual ling obligation discussed above. The due date of the annual ling is generally the last business day in May following the reporting year. Failure to le these required reports may result in signi cant penalties.

Next steps

This Regulation is already in force, but the above-mentioned new rules will be applied from 2011 onwards.

Internal Revenue Service

The U.S. Internal Revenue Service (IRS) has begun issuing notices disallowing protective refund claims filed by taxpayers related to FICA payments made on involuntary severance payments.

A federal district court held that FICA taxes are not required to be withheld from involuntary severance payments made to employees, as the payments are not considered wages for FICA wage reporting purposes.

In response to this ruling, many taxpayers began filing protective refund claims for both employer and employee FICA refunds. Taxpayers may now want to consider responding to the IRS’s decision by filing a protest letter to appeal the disallowance. The protest letter will serve to preserve taxpayers’ rights to a potential settlement with the IRS Appeals.

Source: KPMG