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June 20, 2022
2022-5588

Global Tax Policy and Controversy Watch | June 2022 edition

EY’s Global Tax Policy and Controversy Watch highlights recent policy and administrative developments, featuring reports and Tax Alerts from our global network of tax professionals around the world. 

Key Highlights

OECD releases public consultation documents on tax certainty under BEPS 2.0 Pillar One

The Organisation for Economic Co-operation and Development (OECD) Secretariat released the next two public consultation documents in its series of discussion drafts on Pillar One of the BEPS 2.0 project, covering the Tax Certainty Framework for Amount A and Tax Certainty for Issues Related to Amount A. The first document proposes three mechanisms that aim to guarantee certainty to multinational enterprise groups in relation to all aspects of the Amount A rules. EY’s global comment submission on the tax certainty framework is attached here. The second document contains draft provisions setting out a mandatory binding mechanism to resolve transfer pricing and permanent establishment profit attribution disputes that are unable to be resolved through the mutual agreement procedure within two years. EY’s global comment submission on certainty with respect to Amount A related issues is attached here.

See EY Global Tax Alert, OECD releases public consultation documents on tax certainty under Amount A for Pillar One, dated 7 June 2022.

Ireland and New Zealand consider adoption of BEPS 2.0 Pillar Two

Ireland announced a public consultation on how the Pillar Two framework under BEPS 2.0 will be implemented into Irish law. New Zealand Inland Revenue Officials released an Officials’ issues paper discussing New Zealand’s potential adoption of the Pillar Two rules, including how and when the rules should apply if adopted.

See EY Global Tax Alerts, Ireland launches consultation on Pillar Two implementation, dated 31 May 2022 and New Zealand Inland Revenue Officials consult on domestic adoption of OECD Pillar Two, dated 7 June 2022.

Australian Labor Party wins 2022 Federal Election

The Australian Labor Party (ALP) won a mandate to form the Government with Anthony Albanese as the new Prime Minister. The ALP's multinational tax plan, which provides for consultation prior to implementation from 2023, contains four international tax measures: (i) limitation on debt-related deductions by multinationals at 30% of profits; (ii) a clear commitment to implement BEPS 2.0 Pillars One and Two; (iii) denial of tax deductions to large global entities for certain royalty payments; and (iv) the introduction of new tax transparency measures.

See EY Global Tax Alert, Australian Labor Party wins 2022 Federal Election | Overview of key policies, dated 23 May 2022.

Other developments

European Commission proposes DEBRA Directive

The European Commission published a legislative proposal on the debt-equity bias reduction allowance (DEBRA) initiative. The proposal sets forth rules to address the tax-related asymmetry in treatment of debt and equity, with the aim of encouraging companies to finance investments through equity contributions rather than debt financing.

See EY Global Tax Alert, The Latest on BEPS and Beyond | May 2022 edition, dated 17 May 2022.

Brazil increases social contribution on net profits rate for financial institutions and insurance companies

Brazil published Provisional Measure No. 1,115, which increases the social contribution on net profits rate from 20% to 21% for banks and from 15% to 16% for insurance companies and other financial institutions. The increased rate applies until 31 December 2022.

See EY Global Tax Alert, Brazil increases social contribution on net profits rate for financial institutions and insurance companies, dated 2 May 2022.

Denmark introduces new filing requirements for transfer pricing documentation

Denmark recently introduced a requirement to proactively submit transfer pricing documentation annually to the Danish tax authorities. Failure to submit within the applicable deadline will likely result in automatic financial penalties. Most companies within scope will need to submit their documentation for financial year 2021 by 29 August 2022.

See EY Global Tax Alert, Denmark introduces new filing requirements for transfer pricing documentation, dated 2 May 2022.

Hong Kong offers additional clarity on profits tax

Hong Kong’s Court of First Instance recently handed down a favorable decision that clarified that profits tax liabilities are imposed on the basis of what an entity has done to earn the profits in question, as opposed to what its role or purpose in Hong Kong is, notwithstanding that its role in Hong Kong is to mitigate the overseas tax liabilities of its group. Separately, the Hong Kong Tax Authority clarified several issues related to the profits tax in an annual meeting with practitioners.

See EY Global Tax Alerts, Hong Kong rules booked trading profits are not necessarily subject to profits tax, dated 20 May 2022 and Hong Kong Tax Authority clarifies multiple issues around profits tax, dated 25 May 2022.

Norway proposes changes to VAT rules on e-commerce

The Norwegian Ministry of Finance has proposed to extend the scope of services supplied by foreign service providers subject to Norwegian VAT to cover the supply of intangible and remotely delivered services to Norwegian consumers.

See EY Global Tax Alert, Norway proposes changes to VAT rules on e-commerce, dated 26 May 2022.

Switzerland eliminates import customs duties on industrial goods as of 1 January 2024

The Swiss Federal Parliament has adopted a bill to unilaterally abolish import duties on almost all industrial goods and simplify the Swiss customs tariff to reduce costs for consumers and companies. This change will enter into force on 1 January 2024.

See EY Global Tax Alert, Switzerland eliminates import customs duties on industrial goods as of 1 January 2024, dated 18 May 2022.

Turkey publishes communiqué on reduction in corporation tax rate

On 14 May 2022, Turkey published in the Official Gazette a Communiqué providing clarifications and further details on the one-point reduction in the corporation tax rate on income generated from manufacturing and exportation activities that was introduced earlier this year.

See EY Global Tax Alert, Turkey publishes Communiqué regarding one-point corporation tax rate reduction on certain income generated from manufacturing and exportation, dated 17 May 2022.

UK announces new 25% energy profits levy

The UK Chancellor announced a new 25% energy profits levy that will apply from 26 May 2022 and will be charged on the extraordinary profits that oil and gas companies are currently making. The tax will be temporary, and, once oil and gas prices return to historically normal levels, the tax will be phased out. The legislation will also include a sunset clause, which will remove the levy after 31 December 2025. The levy is expected to raise £5 billion this year.

See EY Global Tax Alert, UK announces new 25% energy profits levy, dated 26 May 2022.

UK delays reporting rules for digital platforms

Following a recent consultation on the implementation of the OECD model reporting rules for digital platforms, the UK Tax Authority issued an update providing that the UK’s reporting rules for digital platforms will apply from 1 January 2024, with submission of the first reports due by the end of January 2025. This new date is intended to give platforms and their advisors time to prepare for the implementation of the new rules.

See EY Global Tax Alert, UK delays reporting rules for digital platforms, dated 24 May 2022.

Further reading and information

Global Tax Controversy monthly flash news – latest article

Is your organization ready to meet growing global demands for tax governance? Tax administrations are redefining the relationship they want with large business taxpayers. They are adopting new “compliance assurance” programs that test the presence and effectiveness of tax policies, procedures and practices, and they are using the results to segment taxpayers into different risk categories. As these programs become more commonplace, companies should prepare for more scrutiny of their governance approach, or risk more inquiries, compliance interventions, and controversy. Read the article here.

Thought leadership webcast: What multinational companies need to know about growing global demands for tax governance

Global Tax Controversy is hosting a webcast on 20 June (or 23 June for Asia-Pacific) to discuss the growing global demands for companies to demonstrate higher levels of tax governance. This 75-minute webcast will explore the insights needed to build a robust global tax governance framework.

Register here (or here for Asia-Pacific)

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