Actueel

On 22^nd November, a public consultation was held in Paris by the OCED (the Organization for Economic Cooperation and Development), in which a plan on reforming the global tax system was proposed. More dispute resolution mechanisms are desired for increasing the certainty of outcomes in international tax disputes.

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Tax is a dynamic matter worldwide. For the global tax system to move forward, the OECD is seeking a new dispute resolution mechanism that would include more options for multinationals to solve disagreements between them and governments. The currently available mandatory binding arbitration is in place to ensure the dispute resolution between taxpayers and tax authorities to resolve issues in a given period of time. Having a mandatory arbitration mechanism is to prevent any undue delay. Any new options to be in place should have an equivalent effect as of the mandatory arbitration, said by the deputy director at the OECD’s Centre for Tax Policy and Administration.

The proposed reforms on dispute resolution are a follow up work under Action 14 of the BEPS Action Plan (Action Plan on Base Erosion and Profit Shifting) in 14 countries: Aruba, Bahrain, Barbados, Gibraltar, Greenland, Kazakhstan, Oman, Qatar, Saint Kitts and Nevis, Thailand, Trinidad and Tobago, the United Arab Emirates, and Vietnam. The attitudes from companies and some countries differ widely. Most companies consider reforms on enlarging possibilities in dispute resolution a desirable way to go in global tax system. Oppositions are mostly from development countries due to a concern of infringed sovereignty.

At this moment, the Mutual Agreement Procedure (MAP) peer review is in process. Taxpayers’ perspectives and opinions are being gathered for the above 14 countries. This process will be finished by 16^th December 2019.

Are you interested in knowing what will come afterwards? Then stay tuned for updates in our further articles. If you have any questions concerning the OECD tax regulation or if your organization is to be affected, please contact us for assistance.

Global Connect Admin B.V. | Xuan Hao

This month, a new tax ruling on small businesses flushed into the many medias, which is the Small Business Scheme (kleineondernemingsregeling, KOR). This ruling is a new amendment of the existing rules on VAT taxes, which will bring down the VAT taxes to be paid by small undertakings as of 1^st January 2020. In some cases, there could be no VAT tax to be paid.

Four main conditions must be met to enjoy this new ruling.

1. Being registered in the Dutch Chamber of Commerce as a small business or at least a permanent establishment in The Netherlands.
2. The business must be either a one-man business (eenmanszaak) or an entity formed by natural persons, such as partnerships (maatschap or vennotschap onder firma).
3. Annual VAT threshold under €1,883 after deducting the input tax (voorbelasting).
4. All tax obligations under the Tax Authority and the Custom Administration are up to date, including any exemption.

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This KOR ruling does not apply to private limited companies (BV), foundations (stichting), associations and professional partnerships in which one partner is a legal entity.

The calculation of the VAT tax to be deducted is done under two thresholds, respectively €1,883 and €1,345. With VAT due in between €1,883 and €1,345, the tax deductible should be 2.5*(1.883 – (VAT tax declaration 5a – input tax declaration 5b)). With VAT amount falling under €1,345, declaration is needed but the whole amount is not expected to be paid any more. (further information here)

A kind reminder would be to register yourself to the new small business scheme before 20^th November 2019, if you haven’t yet. The next step is to apply for the definite VAT deduction, where you can apply the deduction to the last return of this year or the first return of next year. There is also a provisional option that you could apply the deduction monthly or quarterly.

Global Connect Admin B.V. | Xuan Hao

Last month, the consumption tax in Japan had seen an increase from 8% to 10%. Although the effect was said to be milder than the increase from 5% to 8% in 2014, about 70% companies stocked up their products or materials before the new rate came effective and private consumption was expectedly hit by a blow. This increase has been brought up in 2014 but was postponed twice due to unwillingness of the public.

The authority explained that this increase on tax will help with the national debt. But on the other side of the balance are the drop of consumption and decline in real income, albeit the anticipated milder impact. Indeed, there has been an increase in wages in September, so was the private consumption in that month. However, this offers only a temporary relief as most of the companies surveyed plan to keep the same wage level as before. Some companies plan to reduce the workforce or even lower the payroll wages.

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Most services and goods are now subjected to the 10% tax, including some public services such as water, gas and electricity supplies. It is estimated that this tax hike should bring in 5.7 trillion yen (approx. 47 billion euro) to the government. According to the government planning, this income from tax will be used to cover social security expenses. Basic preschool education and care have been made free of charge since 1^st October. Subsidies to the retired elderly group are said to be increased.

Considering the negative impact on the low-income population, some items are kept under the 8% cap, including fresh produce, vegetables, rice, meat, fish, food delivery and paper-based news subscriptions. In addition, the government did issue provisional policies offering a total of 2.3 trillion yen (approx. 19 billion euro) to small businesses and individuals. Non-cash payments are particularly encouraged in this relief measure, because extra 2% in value will be rewarded to consumers to ease out the increase in tax. The businesses will be subsidised by the government on this 2% value. To boost the economy, buying properties, getting housing mortgages and car purchases are also included in subsidized category.

One could compare this tax increase with the VAT increase in the Netherlands at the beginning of 2019, when most of the goods and services would be levied with 9% of VAT instead of 6%, except some basic consumptions remained in 6% category. In the case of the Japanese economy, the issue of aging and shrinking population is a difficult one to overcome than balancing the increase of tax burdens. More taxes generally lead to less hiring and low consumptions, which will create a dead loop to hinder the recovery of the economy. Japan is the world third-longest economy, keeping it stably growing is both important and challenging.

Global Connect Admin B.V. | Xuan Hao

As of today, 1^st November 2019, 5G network service is rolled out in 50 major cities in China by the three giants of telecommunication carriers, namely China Mobile, China Unicom and China Telecom.

The infrastructure has been well prepared for the 5G network to be widely implemented. Around 12,000 5G base stations have been activated to support the coverage in Shanghai alone. It is estimated that 600,000 base stations will be in place worldwide for 5G networks next year in which half would be in China. The Chinese government also subsidises this new technology. Consumers can get a 5G plan that offers ultra-fast internet services for as low as 128 RMB (approx. 16 EUR) for 30GB of data.

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What is 5G and why is it better? 5G is the 5^th generation cellular network technology. Huawei is on top of other developers on the 5G technology in competing to develop and implement 5G. To many internet users, 5G internet means faster speed in both download and upload activities, wider coverage of signals and more stable connections. Consumers can enjoy high quality videos in less time and more reliable live map and so forth. Other than mobile and smartphone users, 5G technology can also be applied in driverless autos, internet of things, traffic monitoring systems, or even drones. Qualcomm considers 5G to have the speed 10 to 20 times faster than 4G connection. The world will become more simultaneous than before.

While the US is attacking Huawei products and services, the European approach on 5G internet, Huawei products and cybersecurity concerns has interested many. Huawei said that they have signed over 50 commercial contracts on 5G internet so far and the 6G technology is on the way. The US said that European countries should totally ban Huawei products. The approach taken by the EU officials is being discreet­. A total ban has never been issued in the EU, but safety and security evaluations must be performed before contracting any products or services from Huawei. Such evaluations shall be construed in a way that suits the European policies and standards instead of any other command.

Attention should also go for other companies trying to develop 5G technologies at the same time. The competition has not stopped. Therefore, the EU might have some potential room to choose in its own preference on 5G in the future.

Global Connect Admin B.V. | Xuan Hao

Putting your assets into bond markets could be a relatively safe investment, but possibilities that a government is not managing their economy well still exist. Thorough investigations on bond markets of your interest remain important and crucial to avoid losses as much as possible.

Previously, the Panda Bond of China has been talked about, and we promised to bring other bond and securities related information this week. In this article, you will see some basics of the bond markets respectively in the EU, China and Japan.

There is no unified EU bond market, because each European country is responsible for issuing their bonds and managing their bond market. Notably stable bonds are those from Germany. German bond market can be traced back to 1870s, with some considerations that it should be dated back to the Prussian government bonds in the beginning of 18 centuries. After the reunification, the yields of German bonds have been gradually going downwards with relative stability.

German bonds normally come with 10-30 years of maturation, but the return rate is very low, especially when the interest rate has been fixed. Investment on German bonds is a trade of returns for stability. Two months ago, 30-year German bonds were sold with negative yields. Safe and stable investments tend to overweigh high but risky returns in long-term investments.

by Brett Zeck on Unsplash

The French bond market is quite known for its flexibility in conversion between securities and cash. Therefore, investments in French bonds are quite safe because investors can easily get cash out of their bonds purchased. The potential downside is the excess of debt if majority would get cash out.

The British bond is named “Gilts”, which is also a relatively safe investment to make due to low risk level. Nevertheless, inflation predictions and political stability should be minded when taking government bonds in UK. Italy has a rather larger bond market. It used to be offering many good choices for investors but not as stable as it was before the political turmoil.

China established its bond market in 1870 but the contemporary bond market has its origin in the late 80s. The Shanghai Stock Exchange has come into existence in 1990 and the Shenzhen Stock Exchange in 1991. Two years ago, the Bond Connect has been established to sooth bond transactions between the mainland and Hong Kong markets. Mainland and foreign investors are able to buy and sell as ease in both markets through two mechanisms, namely the North Connect and the South Connect, which are part of the general Bond Connect.

The North Connect has been in operation since July 2017 where Hong Kong investors and foreign investors are able to arrange bond transactions, custody and settlements to further their investments in the mainland bond markets. This new channel witnessed 200 billion RMB of transactions in two years’ time. By mid-2019, the number of foreign investors joined the Bond Connect had doubled to 1038 entities over the number at the end of 2018. 62 of the top 100 asset management companies have been attracted to this transaction channel and 58 have finished listing procedures. Given the success, the South Connect is expected to be opened in the near future.

One of the most active bonds in China is the 10-year bond, which has seen a slow decrease on return to as low as 3% a couple months ago. It is the lowest point since 2016, but this figure remains high compared to general data. The prediction is that the room for further decrease will be limited because China has not planned to lower rates for medium-term lending facilities. In comparison to the world’s majority of negative-yielding bonds, Chinese bonds are quite attractive.

The Japanese government bond (the JGB) market was predominantly filled with around 90% local Japanese entities in about 6 years ago. By the end of the first quarter in 2019, around 40% were foreign funds. More foreign entities grew interested in the Japanese bonds not because of the high yields from easing on interest rate, but because of the benefits to be earned by dollar investors via yen assets in cross-currency basis swaps.

May this information be helpful to you in one way or another. Are you curious about the next topic? Please stay tuned for our next article.

Global Connect Admin B.V. | Xuan Hao

The Panda Bond is a Renminbi (RMB)-oriented bond issued by international institutions in the domestic market of China. A number of foreign government quasi-issuers and corporations have registered such Panda Bonds in inter-bank bond market between the interval from September 2005 to the beginning of 2019. The total value exceeded 120 billion RMB and the issuance volume was more than 70 billion RMB.

When a foreign institution would issue bonds in the currency of a country in domestic market of that country, these bonds are often named by symbols representing that country. RMB bonds issued outside of China are Panda Bonds, which are to be valuated by the currency of Chinese Yuan. Japan also has this type of yen-denominated bonds as the Samurai Bond, the same case can be seen in the US Yankee Bond and the Bulldog Bond in the UK. These bonds are valued according to their national currencies respectively.

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Subsequent to Panda Bonds issuance by Poland, Hungary, Philippines, UAE and so forth, Portugal, as a euro-zone country, also issued 3-year bonds worth of 2 billion RMB in China, which are indeed the Panda Bond. The value is approximately 260 million Euro with an annual coupon rate at 4.09% and a subscription of 3.156 times.

What about the future trend of the Panda Bond? The Panda Bond has seen a stable growth in recent couple years. The total issuance amounted to 95.6 billion RMB in 2018. By the end of 2018, 41 foreign issuers have registered the Panda Bond in the registrar. Speaking of bond transactions, the Bond Connect that has come into life for more than two years should not be ignored. The Panda Bond is quite popular on the Bond Connect platform. The Bond Connect also helps the Panda Bond to optimize investor structure.

The One Belt One Road (OBOR) progression has also benefited from the Panda Bond, especially during the current years when China opens its financial market. A number of OBOR countries and regions are gradually drawn to the Panda Bond with growing interests, which could substantiate the group of issuers and enlarge its financing capacity.

The Panda Bond can be one of the good options to utilize for a better allocation of assets for investors. Would you be interested to look at other good options? Then please stay tuned for our next update on other securities and bonds.

Global Connect Admin B.V. | Xuan Hao

On 11^th September, the Stock Exchange of Hong Kong (HKEX) proposed to London Stock Exchange (LSE) a merger of nearly 37 billion US dollars. If this merger becomes successful, the newly formed Eurasian giant is perceived to possibly bring about challenges to some highly competitive stock exchange houses in the US.

However, the offer presented by HKEX appeared to be a less attractive one to LSE due a previously announced bid on Refinitiv a few months ago. Once Refinitiv joins LSE, the deal volume will be much more than that of HKEX, which does not give any comfort for the merger proposal from HKEX.

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On 13^th September, LSE publicly announced its reply to HKEX on the proposal to merge, stating that HKEX is not a strategic target in their consideration. The risks and uncertainty behind joining HKEX are rather unpredictable.

Many tend to think that the unprecedented Brexit without a clear way out will impact London being one of the financial centers, theoretically, buying LSE sounds possible and feasible now. However, none of the matters relating to Brexit affected the evaluation and assessment of risks behind the proposal from HKEX.

LSE does have the intention to engage in the Asian market, but a partnership is coming into shape with the Shanghai Stock Exchange (SSE) by means of establishing mutual mechanism ‘Shanghai-London Connect’ on auditors conducting auditing works reciprocally. Due to this ongoing process of connecting with SSE, it is not of much urgency for LSE to seek another partner in Asia in the short time being, a refusal sounds not unpredictable.

On 14^th September, HKEX responded with some disappointment but insisted that they will not give up at the same time.

7 years ago, HKEX bought the London Metal Exchange, which is still running independently from Chinese management. Therefore, it is not surprising to see opinions in support of the independent management of LSE without much political risks if this merger would take place. In 2017, the German Stock Exchange (DBG) attempted to bid for LSE but the effort had also gone into vain. This could invite reasons that instability in political environment is not the only consideration in managing the business post-merger.

LSE has taken the Italian Stock Exchange in Milan into its group as early as in 2007. It would surely create a truly East-to-West giant if LSE merges with HKEX. As the refusal from LSE has been sent out, some have eyed on SSE. China is still a country with plenty of market opportunities, it is not strange to see more Western capitals flowing in and out this huge market via other more stable partners.

Global Connect Admin B.V. | Xuan Hao