December 13, 2023
Global Tax Policy and Controversy Watch | December 2023 edition
In the spotlight
Country Pillar Two implementation activity
The Bermuda government released draft legislation for adoption of a 15% corporate income tax designed to align with Pillar Two. Draft legislation was introduced to Parliament in Hungary that will keep the 9% statutory corporate income tax rate in place while establishing a Qualified Domestic Minimum Top-up Tax (2024), Income Inclusion Rule (2024) and Undertaxed Profits Rule (2025). The legislation also includes a new research and development incentive regime. The Luxembourg government tabled several amendments to the legislation implementing Pillar Two that is currently going through the legislative process. Malta's Finance Minister announced that it will not be introducing any component of Pillar Two in 2024, opting for the delay in implementation permitted under the EU Pillar Two Directive. See Global Tax Alerts, Bermuda government releases draft legislation for adoption of a 15% corporate income tax, dated 22 November 2023, Hungary's draft legislation on BEPS 2.0 Pillar Two introduced to Parliament, dated 7 November 2023, Luxembourg updates draft legislation on implementation of the EU Minimum Tax Directive, dated 20 November 2023, and Malta will not be introducing any component of Pillar Two in 2024, date 1 November 2023.
Track the latest updates with the EY BEPS 2.0 — Pillar Two Developments Tracker.
Country budget activity
Canada released the Fall Economic Statement 2023, containing several tax measures affecting individuals and corporations. Draft legislative proposals were also released with respect to the proposed new goods and services tax/harmonized sales tax joint venture election rules. Ghana issued the Budget Statement and Economic Policy for the 2024 Financial Year; the documents include changes to the value added tax and import duty provisions. Italy is considering significant tax measures, including Pillar Two provisions, as part of the announced tax reform and 2024 Budget Law process. The UK announced tax measures for growth in Autumn Statement 2023, including through cutting business taxes. See Global Tax Alerts, Canada releases Federal Fall Economic Statement 2023, dated 28 November 2023, Ghana issues Budget Statement and Economic Policy for the 2024 Financial Year, Italy | Overview of recent tax developments including BEPS Pillar Two provisions, both dated 27 November 2023, and UK announces tax measures for growth in Autumn Statement 2023, dated 22 November 2023.
OECD holds Tax Certainty Day and releases annual MAP statistics
On 14 November 2023, the OECD held its fifth annual OECD Tax Certainty Day. During the event, the OECD released the 2022 statistics on Mutual Agreement Procedures (MAP) and presented the 2022 MAP awards. The statistics show that globally the inventory of open cases increased almost 3% in 2022, with more cases opening and fewer cases closing than in 2021. See Global Tax Alert, OECD holds Tax Certainty Day addressing MAP developments and updates on tax certainty efforts, dated 21 November 2023.
OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work
Senior members of the OECD Secretariat and government officials from several Inclusive Framework jurisdictions participated in a conference in Washington, DC on 30-31 October 2023. The conference featured extensive discussion of the ongoing work on Pillars One and Two, with government officials providing their countries' perspectives on both pillars. There was also discussion of focus areas for future tax work, including addressing global mobility of workers and reconsidering existing international tax rules in a Pillar Two environment. See Global Tax Alert, OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work, dated 6 November 2023.
OECD releases tax report to G20 Finance Ministers and seventh annual progress report of the Inclusive Framework
The report provides an update on activities with respect to the G20's international tax agenda, including ongoing work on the BEPS 2.0 project, tax transparency, tax and crime, tax and inequality, and global mobility. The seventh annual progress report describes developments in the BEPS 2.0 project and other tax work. See Global Tax Alert, OECD releases tax report to G20 Finance Ministers and seventh annual progress report of the Inclusive Framework, dated 7 November 2023.
European Commission and Council release statements on BEPS 2.0 progress
On Pillar One, the statement acknowledged the progress made on the Multilateral Convention on Amount A and reiterated the importance of Amount B. On Pillar Two, the statement addressed the compatibility of Administrative Guidance issued by the OECD/G20 Inclusive Framework to date with the EU Minimum Tax Directive. See Global Tax Alert, European Commission and Council release statements on BEPS 2.0 progress, dated 20 November 2023.
EU Council adopts new renewable energy rules and rules for promotion of sustainable aviation fuels
The rules are key elements of the European Commission's Fit for 55 climate legislative package. See Global Tax Alert, EU Council adopts new renewable energy rules and rules for promotion of sustainable aviation fuels under Fit for 55, dated 1 November 2023.
Canada's new reporting rules for digital platform operators take effect 1 January 2024
Digital platform operators will need to comply with extensive new reporting requirements in the new year. See Global Tax Alert, Canada's new reporting rules for digital platform operators take effect 1 January 2024, dated 1 December 2023.
Hong Kong introduces bills on asset disposal gain regimes
Two bills were gazetted to further revise Hong Kong's refined foreign-source income exemption regime covering asset disposal gains and to introduce safe harbor rules for onshore equity disposal gains. See Global Tax Alert, Hong Kong introduces bills on asset disposal gain regimes, dated 1 November 2023.
Italy proposes several taxpayer-friendly changes to its cooperative compliance program
A series of new measures recently proposed by the Italian government would have a range of positive impacts on Italy's existing cooperative compliance program if enacted in their current form. See EY Global Tax Controversy Flash Newsletter (Issue 64) | Italy proposes several taxpayer-friendly changes to its cooperative compliance program, dated 14 November 2023.
Kuwait joins OECD/G20 Inclusive Framework
Kuwait is committed to implementing the minimum standards of the BEPS project and to participate in the BEPS 2.0 project. According to media reports, Kuwait is considering the introduction of business profits tax at the rate of 15%, similar to the global minimum tax rules of BEPS 2.0 Pillar Two. See Global Tax Alert, Kuwait joins OECD/G20 Inclusive Framework on BEPS and considers introduction of Business Profits Tax, dated 28 November 2023.
Saudi Arabia issues drafts of new Income Tax Law and Zakat and Tax Procedures Law
The objectives of the new laws are to align the Saudi tax regulations with international best practices, improve transparency and unify the procedural protocols for tax and zakat regulations. See Global Tax Alert, Saudi Arabia issues drafts of new Income Tax Law and Zakat and Tax Procedures Law for public consultation, dated 10 November 2023.
Saudi Arabia announces ninth wave of Phase 2 e-invoicing integration
Saudi Arabia's Zakat, Tax and Customs Authority has announced the criteria for taxpayers to be included in the ninth wave of Phase 2 e-invoicing integration. Taxpayers resident in Saudi Arabia, with a taxable turnover above SAR30m during the calendar year 2021 or 2022, should comply with the Phase 2 e-invoicing requirements that are effective from 1 June 2024. See Global Tax Alert, Saudi Arabia announces ninth wave of Phase 2 e-invoicing integration, dated 21 November 2023.
US IRS launches new initiative to strengthen transfer pricing enforcement
The IRS announced that it plans to send compliance alerts to approximately 150 US-based subsidiaries of foreign-owned corporations that distribute goods in the US. The IRS also said that it plans to expand the Large Corporate Compliance program in 2024 to audit 60 additional large corporate taxpayers, which will be selected with the help of artificial intelligence. See Global Tax Alert, US IRS launches new initiative to strengthen transfer pricing enforcement, dated 16 November 2023.
US IRS announces hiring for Advance Pricing and Mutual Agreement Program
The IRS has stated that it is hiring more individuals to work in the Advance Pricing and Mutual Agreement program. The announcement, which is the latest of several about the program, demonstrates continued support for the program and efforts to better manage its advance pricing agreement caseload. See Global Tax Alert, US IRS announces hiring for Advance Pricing and Mutual Agreement Program, dated 16 November 2023.
US court denies claim for dividends-received deduction on economic substance doctrine grounds
In reaching its conclusion, the court took a broad view of the codified economic substance doctrine, rejecting the company's argument that the doctrine was limited to transactions to which it is "relevant." The decision represents a timely reminder to taxpayers about the role and importance of the economic substance doctrine, including its application to multi-step transactions. See Global Tax Alert, US court denies Liberty Global's claim for the IRC Section 245A dividends-received deduction on economic substance doctrine grounds, dated 8 November 2023.
US Tax Court holds non-US partnership securities dealer liable for partnership withholding tax
A US-based asset manager's activities were attributed to a foreign partnership and were not within any safe harbors because the activities were not limited to managing investments or trading in stocks or securities. The foreign partnership was found to be a dealer in securities and required to recognize gain under the mark-to-market rule of IRC Section 475(a)(2). Gain or loss recognized by the foreign partnership with respect to securities was treated as effectively connected income. See Global Tax Alert, US Tax Court holds that non-US partnership was securities dealer engaged in US trade or business, liable for partnership withholding tax, dated 22 November 2023.
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Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor