Int'l Tax News

Ireland initiates another consultation on adopting EU-approved GLOBE rules and implementing a qualified domestic top-up tax, while Japan publishes its tax reform legislation containing an income inclusion rule.

The Chartered Institute of Taxation warns that the UK's digital services tax, intended as a temporary measure, could become a permanent "blunt instrument" due to its controversial nature and lack of progress in international tax negotiations. The UK government has committed to withdrawing its digital services tax (DST) once an international solution is implemented while emphasizing its effectiveness and achievements in taxing online businesses and combating multinational tax avoidance.

The U.K. Financial Reporting Council (FRC) is consulting on draft amendments to financial reporting standards, proposing a temporary accounting exception for deferred taxes under the OECD's global minimum tax rules, with the consultation closing on May 24th.

The Australian Taxation Office is consulting on antiavoidance rules targeting large multinational enterprises to prevent tax deductions on payments for intangibles held in low- or no-tax jurisdictions, ensuring these corporations pay their fair share of tax in Australia. William Hoke discusses concerns law firms and consultancies raised about the exposure draft's broad scope and lack of purpose-based requirements, potentially impacting many jurisdictions in the proposed antiavoidance rules for multinational companies.

The International Accounting Standards Board is considering amendments to disclosure requirements for entities subject to potential global minimum tax legislation, aiming to standardize accounting practices and improve information for investors as countries adopt pillar 2 rules from the OECD's international corporate tax overhaul plan. The IASB considers amending IAS 12 to provide guidance on pillar 2 legislation disclosures, receiving mixed feedback from stakeholders and aiming for finalized amendments in the second quarter of 2023.

The tax relief from the foreign-derived intangible income deduction has tripled in four years for 48 large corporations, due to a combination of increased profits, revised regulations, the tax break working as intended, and changes in research expenditure write-offs.

Malaysia's deputy finance minister emphasizes the importance of adopting OECD-brokered global minimum tax rules, expecting it to initially raise $227 million in tax revenues for the country.

The U.S. Tax Court said that the IRS cannot assess penalties on a taxpayer with unreported business interests under tax code Section 6038 because no provision in the code authorizes it.

Irish corporation tax receipts soared more than 70% in the first quarter compared to the same period last year as the country’s business tax boom continues. Ireland collected EUR 3.2 billion in corporation tax from firms in the three months to the end of March, an increase of EUR 1.3 billion on the equivalent 2022 figure.

The United Kingdom is changing how it structures certain corporate tax credits to help cushion the blow of the global 15% minimum tax on companies taking advantage of those tax breaks. The proposal illustrates how some countries could implement the 15% rate while still offering companies certain tax perks to lower their effective tax rate.

A coalition of investors and activists is seeking shareholder support for increased tax transparency at the annual meetings of several of the largest US companies in the coming weeks, making it the latest frontier in the battles over environmental, social, and governance reporting.

The European Commission is exploring options for an EU-wide solution to address tax issues faced by remote workers and their employers, including possible legislative initiatives such as a directive or recommendation.

The EU unshell directive aims to address the misuse of shell companies, but its potential future effects remain uncertain as it may create surprises when implemented, and is expected to be applicable in 2025 only for manifest cases of tax avoidance practices.

U.S. officials and delegates from various countries stress the importance of not duplicating tax reform efforts and ensuring inclusive international tax cooperation at a U.N. Economic and Social Council meeting.

The European Commission is developing new rules and proposing a Securing the Activity Framework of Enablers (SAFE) to prevent aggressive tax planning arrangements for EU taxpayers and penalize non-compliant intermediaries.

The OECD's pillar 2 global minimum tax proposal is advancing. It raises concerns for U.S. taxpayers and lawmakers about its potential impact on U.S. corporate tax revenues and the country's position in the global tax landscape. Mindy Herzfeld discusses the complexities and potential issues surrounding investment tax credits and their interaction with the pillar 2 global minimum tax rules, highlighting the potential elimination of benefits from specific tax incentives designed by Congress.

The U.K. government is consulting on a potential carbon border adjustment mechanism (CBAM) to mitigate carbon leakage, with aims to introduce embodied emissions reporting in 2025, initial CBAM implementation in 2026, and new product standards in the late 2020s.

Japan's National Diet has passed tax reform legislation incorporating an income inclusion rule in accordance with the OECD's global anti-base-erosion framework, with more than 40 countries, including Canada and Liechtenstein, making moves to implement similar rules.

The Kenyan government plans to review and potentially align its 1.5% digital services tax with the OECD's two-pillar global tax reform plan, following initial resistance to joining the agreement.

The approved U.N. model subject-to-tax rule (STTR) offers a framework for jurisdictions to establish base taxation levels and country-specific exemptions based on individual needs and policy objectives, while leaving the minimum tax rate to be negotiated between parties, unlike the OECD's proposed 9% rate.

Canada's latest budget proposes new clean technology tax incentives, digital services tax legislation, and spending cuts while aiming to increase the alternative minimum tax rate and implement a corporate-level share buyback tax.

China's government introduces new economic measures, including a 100% superdeduction for R&D expenses, and reduced tax rates for small businesses and self-employed individuals, aiming to reduce corporate tax burdens by over CNY 480 billion annually.

On March 31, the Biden administration released new rules that will significantly shorten the list of electric vehicles that qualify for federal tax credits. Officials hope the change will push carmakers to move their supply chains out of China and to the United States or its allies. For purchases of their electric cars to qualify for up to $7,500 in tax credits, automakers must meet strict requirements for where they assemble the cars and batteries and where they get the materials that go into batteries.

The United States and Japan reached a trade agreement for minerals used in clean-energy technologies, a deal aimed at allowing Japan to meet sourcing requirements for new electric-vehicle subsidies in the United States and shifting energy supply chains away from China. The two countries agreed not to levy export duties on critical minerals they trade and coordinate labor standards in producing minerals.

On March 31, Anna Manitara, policy officer at the European Commission, said that the Commission wants states to transpose rules to implement a 15% minimum corporate tax rate by the summer to give businesses tax certainty as soon as possible.

On March 31, Sandra Knaepen, acting head of Tax Treaty, Transfer Pricing and Financial Transactions Division at the OECD, said that the OECD will start holding meetings next month to address questions countries have about the transition to a 2021 agreement to overhaul global tax rules.

Officials at a United Nations meeting on March 31 were divided on whether the United Nations should become a center of international tax discussions, potentially shifting focus away from the OECD. Proponents of boosting the UN’s tax remit pointed to what they see as problems with the OECD-led global tax deal.

On March 31, Benjamin Angel, director of direct taxation at the European Commission, said that the Commission aims to update its consolidated tax base proposal alongside some key tax avoidance measures this year. The proposals would create a common tax base with limited national adjustments and include formulary apportionment.

President Joe Biden wants to bring the world’s most sophisticated chipmakers to the United States. Taiwanese officials are pushing hard for an agreement to eliminate the burden of double taxation like the United States has with dozens of countries.

Finance Minister Bruno Le Maire said that implementing a 15% global minimum tax on corporate profits would boost the country’s revenues by at least €1 billion ($1.1 billion) a year. France aims to ratify the new mechanism negotiated at the OECD in the first half of 2023 after the European Union agreed on a directive on the matter.

On March 28, the Canadian federal budget was released. According to the federal budget, Canada expects to raise new revenue of C$5.1 billion (US $3.8 billion) in the first two years after it imposes a global minimum tax on multinationals.

Peter R. Merril, Karl Russo, Aaron Junge, Damien Boudreau, and Florian Holle discuss the implications of the OECD's pillar 2 model rules on tax credits, specifically focusing on how different types of credits are treated, their impact on multinational entities, and the potential revenue cost of converting various tax incentives to qualified refundable tax credits.

Switzerland's highest court reversed its earlier decision, ruling that two Uber companies are liable for social contributions on payments to their Zurich drivers in 2014, deeming them employees rather than independent contractors.

Business groups and large multinational corporations seek relief from the IRS on upcoming corporate alternative minimum tax guidance to prevent double counting of controlled foreign corporation distributions.

The EU urges the U.N. to support global tax reform negotiations within the OECD's inclusive framework instead of pursuing a potentially duplicative and inconsistent new international tax cooperation framework.

The United Kingdom introduces a multinational top-up tax and domestic minimum top-up tax to ensure large multinational groups pay effective tax rates of 15 percent, in line with OECD pillar 2 model rules, as part of the 478-page Finance (No. 2) Bill published by HM Treasury.

Major U.S. trade associations and advocacy groups have warned that Canada's proposed digital services tax is discriminatory, violates international commitments, and primarily targets U.S. companies, potentially harming the Canada-U.S. trade relationship and the competitiveness of American businesses in Canadian markets.

The Mexican government revealed that mining and textile companies evaded around $1.2 billion in corporate income tax and MXN 3.1 billion in customs duties, import taxes, and VAT, respectively, between 2015 to 2021 through the undervaluation of exports and merchandise imports.

The EU member states are discussing a compromise proposal on shell entities, focusing on criteria including premises, employee tax residency, and management location, to tackle misuse and establish substance within the entity's member state.

Australia's Productivity Commission recommends a transition in the tax system to promote skilled labor supply, improve tax neutrality for savings and investments, and support productivity growth through efficient asset transfers and capital allocation.

The German Ministry of Finance has released a detailed discussion draft for implementing the EU's global minimum corporate tax directive into domestic law. A final bill is expected by the end of 2023.

According to a U.S. official, challenges in global anti-base-erosion (GLOBE) rules negotiations under the OECD's pillar 2 taxation framework have made a permanent safe harbor provision seem unlikely.

The Biden administration moved to implement the new 25% investment tax credit for U.S.-based manufacturing and proposed restrictions that would make it difficult for companies to expand China operations if they receive certain federal funds. On March 21, the Treasury Department proposed regulations to help manufacturers determine whether they can claim the investment tax credit and the rules offer definitions for several key terms in the law.

Margrethe Vestager, European Commission executive vice president, confirmed the commission will design its own measures if the OECD’s plan for an overhaul of global corporate tax rules is blocked in 2023. The OECD is still hosting talks on an international convention for Pillar One.

On March 20, Claudia Pimentel, undersecretary for taxation and litigation at Brazil’s Federal Revenue Service, said that the Brazilian government will publish implementing regulations for the new transfer pricing rules this summer if Congress passes a provincial measure needed to turn it into law. Brazil has been working to update its transfer pricing system to align with OECD standards.

On March 21, the OECD stated that efforts to prevent tax “treaty shopping” are gaining ground, with more countries implementing an OECD standard aimed at preventing it. More than 1,050 treaties reached by members of the Inclusive Framework, the group of 140 countries that have agreed to the 2021 global tax pact, complied with the OECD’s minimum standard against treaty shopping as of May 2022. Most countries are following the minimum standard by adopting a multilateral convention, or MLI, reached by the OECD’s Base Erosion and Profit Shifting Project.

Republicans are plotting ways to push back on the landmark global tax deal agreed to by nearly 140 countries, including by calling to pull U.S. funding for the OECD. GOP lawmakers oppose the additional tax that could be levied on U.S. companies under the global tax plan that was agreed upon in 2021.

On March 10, the IRS issued an advice memorandum stating that a distribution of previously taxed income from a foreign company to its U.S. parent will not result in a gain that could lead to double taxation simply because the distribution is made in the middle of a taxable year rather than at the end. Some taxpayers had been concerned that such a distribution would lead to a mismatch in the timing of basis adjustments that would trigger gain.

On March 14, the Confederation of British Industry (CBI) said that companies would spend an extra £52 billion ($63 billion) a year by 2030-31 if they could fully expense capital spending. The CBI is one of the United Kingdom’s leading business groups.

On March 15, Benjamin Angel, the European Commission’s director for direct taxation, tax coordination, economic analysis and evaluation, advised member countries to begin implementing the new global minimum tax rules this summer so that companies have time to adjust to their complexity.