July 20, 2023
Global Tax Policy and Controversy Watch | July 2023 edition
OECD releases outcome statement on progress on BEPS 2.0 Pillars One and Two
The Organisation for Economic Co-operation and Development (OECD) has released a statement reflecting agreement among Inclusive Framework members on remaining elements of the Base Erosion and Profit Shifting (BEPS) 2.0 project and indicating additional work to be done. The document provides an update on Amount A and Amount B of Pillar One and the Subject to Tax Rule under Pillar Two. Additional technical documents on both Pillars were issued following the release of the outcome statement.
See Global Tax Alert, OECD releases outcome statement on progress on Pillars One and Two of BEPS 2.0 project, dated 12 July 2023.
Country activity on BEPS 2.0 Pillar Two developments
The enforcement order associated with the income inclusion rule to align with Pillar Two was promulgated as part of Japan's 2023 tax reform. Switzerland voted to amend the Constitution to allow Pillar Two implementation, with a majority of voting Swiss citizens and all 26 Cantons (based on the popular vote per Canton) approving the measure. The Board of Investment of Thailand announced a new measure to alleviate potential impacts from the implementation of Pillar Two on existing tax incentive programs and preserve Thailand's attractiveness as an investment destination. The US Joint Committee on Taxation (JCT) prepared an analysis of the potential revenue impact to the US Treasury of implementation of Pillar Two around the world that includes projections showing a wide range of revenue implications, from a revenue loss of as much as US$174.5 billion to a revenue gain of as much as US$224.2 billion over 10 years.
See Global Tax Alerts, Japan promulgates 2023 tax reform enforcement order to implement IIR to align with OECD BEPS 2.0 Pillar Two, dated 26 June 2023; Switzerland votes to amend Constitution to allow Pillar Two implementation, dated 20 June 2023; Thailand BOI announces new measure for companies impacted by global minimum tax under the BEPS 2.0 Pillar Two project, dated 9 June 2023; andJCT estimates of OECD-led tax deal Pillar Two released, dated 20 June 2023.
US IRS implements prescreening process for taxpayers seeking APAs
The US Internal Revenue Service has introduced rigorous prescreening into the early stages of the Advance Pricing Agreement (APA) process, which may lead taxpayers to shift to alternative workstreams.
Read the latest Global Tax Controversy monthly flash news article, EY Global Tax Controversy Flash Newsletter (Issue 59) | US IRS implements pre-screening process for taxpayers seeking APAs, dated 15 June 2023.
OECD releases 2023 update on peer review of preferential tax regimes
The OECD released an update on the results of the peer reviews of jurisdictions' domestic laws under Action 5 (harmful tax practices) of the OECD/G20 BEPS Project. The updated results cover new decisions on five preferential tax regimes. The total number of tax regimes that have been reviewed, or are under review, is 319.
See Global Tax Alert, OECD releases 2023 update on peer review of preferential tax regimes, dated 23 June 2023.
OECD releases 2023 report on tax transparency in Latin America
The report, "Tax Transparency in Latin America 2023," provides an update on the progress achieved to date and describes how jurisdictions in the region have developed and implemented a strategy to increase the use of exchange of information as a tool to support audits and investigations.
See Global Tax Alert, OECD releases 2023 report on tax transparency in Latin America, dated 30 June 2023.
European Commission proposes adjusted package for the next generation of "own resources"
The European Commission published a proposed package for the next generation of "own resources" to finance the European Union (EU) budget. The proposals may lead to tax increases in the EU and include a new temporary statistical-based own resource based on company profits to raise €16 billion a year. The proposal will now move to negotiations among Member States.
See Global Tax Alert, European Commission proposes adjusted package for the next generation of 'own resources,' dated 23 June 2023.
EC publishes draft directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER)
The European Commission (EC) published a legislative proposal for a directive setting forth rules aimed at making withholding tax procedures in the EU more efficient and secure. The rules are proposed to come into effect as of 1 January 2027.
See Global Tax Alert, European Commission publishes draft Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER), dated 20 June 2023.
Transfer pricing developments
Brazil's new transfer pricing law was published in the Official Gazette; it will become mandatory in 2024 and may be early adopted in 2023. Canada's Department of Finance released a consultation paper aimed at reforming and updating the country's transfer pricing rules. The German Ministry of Finance issued updated Administrative Principles intended to align with the current legislative transfer pricing framework in Germany.
See Global Tax Alerts, Brazil transfer pricing law enforceable beginning 1 January 2024, dated 16 June 2023; Canada's Department of Finance releases consultation paper on transfer pricing rules, dated 20 June 2023; and German Ministry of Finance issues updated Administrative Principles regarding Transfer Pricing, dated 9 June 2023.
Tax treaty developments
The Netherlands issued an explanatory decree providing guidance on the application of double tax treaties and provisions for preventing and avoiding double taxation. The Peruvian Supreme Court enacted a mandatory ruling establishing that noncompliance with domestic requirements for certificates of residence should not prevent the application of the benefits of double tax treaties entered into by Peru.
See Global Tax Alerts, Netherlands issues new explanatory Decree on international tax matters, dated 30 June 2023; and Peruvian Supreme Court enacts a mandatory ruling regarding Certificates of Residence for Double Tax Treaty purposes, dated 13 June 2023.
Value-Added Tax (VAT) developments
China introduced a new 15% "super-input" VAT credit for integrated circuit enterprises. Switzerland passed a partial revision of VAT Act, currently expected to enter into force on 1 January 2025, that include both broadly applicable changes and other more industry specific changes.
See Global Tax Alerts, China introduces 'super-input VAT credit' policy for integrated circuit enterprises, dated 6 June 2023; and Switzerland agrees to partial revision of VAT Act, dated 22 June 2023.
Updated tax proposals released in Australia
Updated legislation introduced into Parliament would amend Australia's thin capitalization rules, introduce new debt creation rules, and require public companies to disclose specific information about their foreign subsidiaries. The update reflects some significant changes from the prior proposal but is still proposed to apply for years commencing on or after 1 July 2023. Another updated proposal would amend Australia's tax rules to limit deductions for certain payments related to intangible assets made by significant global entities directly or indirectly to associates in a low corporate tax jurisdiction. The update includes some changes from the previous version but is still proposed to apply to payments or credits made or liabilities incurred from 1 July 2023.
See Global Tax Alerts, Australian thin capitalization and subsidiary disclosure measures introduced into Parliament, dated 22 June 2023; and Australian Treasury releases updated Exposure Bill and Explanatory Materials for Intangibles Integrity Measure, dated 26 June 2023.
Denmark proposes cultural levy on providers of on-demand streaming services
A broad political agreement has been reached to impose a levy on streaming service providers in Denmark. A bill including the new levy is expected to be presented later in 2023.
See Global Tax Alert, Denmark proposes cultural levy on providers of on-demand streaming services, dated 14 June 2023.
Hong Kong simplifies application process for seeking tax residence certificates
Hong Kong's Inland Revenue Department has revised its application process for taxpayers seeking a Certificate of Residence in Hong Kong. The certificate will generally be issued without examining whether the taxpayer meets economic nexus requirements with Hong Kong.
See Global Tax Alert, Hong Kong simplifies application process for seeking tax residence certificates, dated 22 June 2023.
Ireland brings public country-by-country reporting requirements into effect
The requirement for public country-by-country reporting will apply to the first financial year commencing on or after 22 June 2024 and a report will be required to be published within 12 months of the date of the balance sheet for the relevant financial year.
See Global Tax Alert, Ireland brings public country-by-country reporting requirements into effect, dated 28 June 2023.
Kenya High Court clarifies "use of an asset" for purposes of claiming of investment allowance
The High Court of Kenya upheld a Tax Appeals Tribunal ruling that the Kenyan Income Tax Act did not provide the definition of the word "use" and therefore relied on the literal meaning provided in the Cambridge Dictionary, which defined the word as "to put something to a particular purpose."
See Global Tax Alert, Kenya High Court clarifies 'use of an asset' definition for purposes of claiming of investment allowance, dated 28 June 2023.
Luxembourg Tax Authority publishes guidance on the computation of taxable income of Reverse Hybrid Entities
The Luxembourg Tax Authority issued a Circular on how a transparent entity or an arrangement that qualifies as a Reverse Hybrid Entity must compute its net income subject to Luxembourg corporate income tax.
See Global Tax Alert, Luxembourg Tax Authority publishes guidance on the computation of taxable income of Reverse Hybrid Entities, dated 21 June 2023.
Nigeria introduces significant changes in Finance Act 2023
The Finance Act 2023 makes significant changes to the existing tax laws and regulatory framework, aiming to foster economic growth, enhance fiscal stability and promote sustainable development.
See Global Tax Alert, Nigeria | Highlights of Finance Act 2023, dated 14 June 2023.
Saudi Arabia announces sixth wave of Phase 2 e-invoicing integration
Taxpayers resident in Saudi Arabia, with a taxable turnover above SAR70m during the calendar year 2021 or 2022, are subject to the Phase 2 e-invoicing requirements and should begin compliance with the new requirements during the period from 1 January 2024 to 30 April 2024.
See Global Tax Alert, Saudi Arabia announces sixth wave of Phase 2 e-invoicing integration, dated 20 June 2023.
Taiwan amends the Assessment Rules for withholding tax mitigation regime
Taiwan's Ministry of Finance recently promulgated amendments to rules in Taiwan's Income Tax Act for calculating the taxable income of foreign profit-seeking enterprises. The amendments include adding qualified filing agents, extending the application deadline from the current 5 years to 10 years and stipulating the maximum approval period of the Article 25 relief.
See Global Tax Alert, Taiwan amends the Assessment Rules for withholding tax mitigation regime, dated 21 June 2023.
UK Government announces new "Developing Countries Trading Scheme"
The new scheme will replace the current Generalised Scheme of Preferences from 19 June 2023 and allows goods that originate in Less-Developed Countries to be imported into the United Kingdom at reduced or nil customs duty rates.
See Global Tax Alert, UK Government announces new 'Developing Countries Trading Scheme,' dated 22 June 2023.
US IRS waives addition to tax for a corporation's failure to make estimated tax payments of its CAMT
In Notice 2023-42, the IRS has waived the addition to tax under IRC Section 6655 for a corporation's failure to make estimated tax payments of its corporate alternative minimum tax under IRC Section 55 for a tax year beginning after 31 December 2022, and before 1 January 2024.
See Global Tax Alert, US IRS waives addition to tax for a corporation's failure to make estimated tax payments of its CAMT, dated 9 June 2023.
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Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor