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.

A UK minimum tax is expected to draw more than £500 million ($618 million) in revenue during 2023-24, His Majesty’s Revenue and Customs said in a new policy report. The latest budget estimates published on March 15 show that the largest tax revenue gain is in 2027-2028 at £2.18 billion.

Legislation proposed by the Australian government on March 16 would result in an interest deduction limitation for multinational companies operating in Australia. Companies would be able to deduct interest payments up to 30% of their EBITDA, or earnings before interest, taxes, depreciation, and amortization, replacing the existing asset-based test.

On March 16, business representatives at an OECD consultation asked for a narrower scope of information reporting under the global minimum tax and looking for more clarity on the domestic minimum top-up tax.

Sens. Maggie Hassan (D-N.H.) and Todd Young (R-Ind.) revived an effort from last Congress to reverse a change to the research and development tax credit and expand it to apply to more startups and small businesses. The reintroduced bill would roll back a provision of the 2017 tax law that, starting in 2022, requires companies to amortize their R&D costs over five years rather than the year they are incurred.

The Canadian Chamber of Commerce warns that Canada's proposed digital services tax could harm trade relations with the U.S. and violate OECD tax reform commitments, urging Finance Minister Chrystia Freeland to reconsider the draft legislation.

Vietnam's government is proposing tax and fiscal measures to control inflation and promote economic growth, including exemptions and reductions in taxes, fees, and land use fees, an extended deadline for VAT and income tax payments, and exploration of the OECD's global minimum tax.

European Commission President Ursula von der Leyen faces criticism from some EU member states for overstepping her mandate by giving assurances to President Biden on China without consulting them, potentially committing the EU on matters not yet finalized, in exchange for concessions on the Inflation Reduction Act.

Stakeholders emphasize the importance of finalizing safe harbors and information return procedures for qualified domestic minimum top-up taxes (QDMTTs) as they are expected to become central to the OECD’s pillar 2 framework in the global corporate tax system overhaul.

Mindy Herzfeld considers potential changes at the OECD as leadership of the tax function changes.

Italy's cabinet has approved a comprehensive tax reform plan that includes lowering corporate tax rates for job-creating companies, eliminating an individual income tax bracket, and introducing changes for VAT and IRAP taxes to boost economic growth and comply with EU laws.

Thomas Barthold, chief of staff at the Joint Committee on Taxation, said on March 6 that companies’ response to the global deal’s domestic minimum tax will determine the impact on US corporate tax revenues. The impact is currently uncertain. On one hand, US revenues from multinationals could decline because it is expected that the qualified domestic minimum top-up taxes would be creditable taxes under the GILTI regime. However, on the other hand, companies could move economic activity to the US, which would increase the US tax base.

On March 9, President Biden released a budget proposal for fiscal year 2024. The Biden administration proposed doubling the tax rate on US multinationals’ foreign earnings and making other changes that would align the US with the global minimum tax known as Pillar II. The Biden administration has made similar proposals in past years, and those proposals were not enacted when Democrats controlled both houses of Congress. Now that Republicans control the House, it is unlikely that there will be any tax legislation soon.

The Thai government has approved the first steps in drafting and implementing the global minimum tax. The Finance Ministry was assigned to draft laws to collect a top-up tax based on the OECD’s Pillar II Framework.

Spain is seeking comments on legislation to implement a 15% minimum tax on corporations as part of the global OECD-backed tax deal. The Finance Ministry that it would implement the European Union directive on the minimum tax adopted late last year.

The House of Commons Treasury Committee, BDO and ICAEW have all been urging Chancellor Jeremy Hunt to provide more clarity on tax relief schemes and to reduce corporation tax rates in order to boost the U.K. economy in his upcoming budget on March 15.

The International Accounting Standards Board must quickly approve a proposed temporary accounting exception for deferred taxes arising from the OECD global minimum tax framework, in order to meet the Japanese Diet's passage of pillar 2 rules, prior to the global enactment of these rules by many countries by July 20.

Harbour Energy plc's CEO has indicated that due to the U.K. energy profits levy and business headwinds, the company is set to realize around $40 million in annual savings from the reduction in U.K. activity, with further adjustments expected in the second half of 2023.

The European Commission is allowing member states to match support measures from third countries, such as those in the US Inflation Reduction Act, in order to prevent company relocation and support the production of key components.

The insurance industry has called for a delay in the United Kingdom's planned implementation of the OECD-brokered global corporate tax reform plan in order to ensure that the reforms are workable on a global level.

European Commission President Ursula von der Leyen travels to Washington to discuss the U.S. Inflation Reduction Act with President Biden. At the same time, the EU puts together a multilayered response to the act as it threatens EU competitiveness and ensures it has sufficient net-zero technology manufacturing capacity to reach its climate objectives.

Italy's decision to pursue Facebook for VAT on grounds that the website's users are providing information in exchange for its services is challenging the accepted notion that "if you're not paying for a product, then you are the product" and potentially raising new questions about taxation and digital services

Belgium expects over €2 billion in tax revenue from pillar 2 of the global tax plan, which would partially finance their tax reform to shift taxes away from labor, with estimates for €634 million in 2024, €714 million in 2025, and €748 million in 2026. According to estimates linked to the government's latest tax reform proposal, which is expected to raise €14 million in 2024, cost €14 million in 2025, and bring in €114 million in 2026 thanks to the benefits expected from the reform, including increased consumption and labor participation.

The European Parliament’s Committee on Economic and Monetary Affairs has adopted an opinion on using passerelle clauses. These EU treaty articles would allow moving from the special legislative procedure to the ordinary one, allowing changes to the procedure without a lengthy and politically difficult treaty change.

Internet tolls proposed by telco companies and supported by the European Telecommunications Network Operators' Association and Axon Partners Group could see online services like Netflix, Spotify, and Amazon forced to pay towards network costs, which critics say are unnecessary and could violate net neutrality. This comes after a report from consulting firm Oxera, commissioned by the Dutch government, exploring the effects a "fair share" or "bandwidth use" levy would have, with the government stating it would not be effective in promoting network investment and users could be forced to pay more for online services.

EU Internal Market Commissioner Thierry Breton has announced the start of an exploratory consultation on the future of the electronic communications sector and its infrastructure, stating that a contributions mechanism could be one way to ensure that digital players like content and application providers help pay for the necessary infrastructure investments.

US Treasury and the IRS have issued final regulations to treat a consolidated group that includes controlled foreign corporations as a single entity when calculating the group’s required foreign income inclusions by addressing how they must treat distributions of previously taxed earnings and profits under section 959(b) to upper-tier CFCs within the group when calculating the amount that must be included in gross income under subpart F and the global intangible low-taxed income regime.

South Korea became the first country to implement domestic legislation adopting the Pillar Two global anti-base-erosion rules, also known as GLOBE, in its amended Law for the Coordination of International Tax Affairs. Japan's ruling coalition submitted draft legislation for a new IIR to the Diet, which would take effect for fiscal years starting on or after April 1, 2024; the legislation package focuses on the IIR and GLOBE information return but doesn't provide a timeline for adopting a UTPR or QDMTT.

Belgian Finance Minister Vincent Van Peteghem proposed broad tax reform on March 2 that included a global minimum tax on multinational companies. Some of the measures are aimed to start on January 1 but could be subject to changes after the government comes to an agreement on the reform package.

Ireland recently launched a tax incentive program aimed at boosting investment and cultural awareness. The program took effect in January and offered a refundable corporation tax of as much as €8 million for expenditures on qualifying projects. As a result, some video game developers are showing an interest in Ireland.

Portuguese utility EDP-Energies de Portugal SA, one of Europe’s largest renewable energy companies, is planning to build more wind turbines in the United State because of the tax credits from the Inflation Reduction Act. Chief Executive Officer Miguel Stilwell de Andrade, on March 2, said, “The Inflation Reduction Act is so powerful and promotes investment,” and that “Europe needs to do things that are similar to this, but Europe seems to be more interested in tariffs and taxings things.”

Countries’ domestic implementation of new global minimum tax rules will be evaluated starting this year, an OECD official said on February 27. A peer review process will look at how countries are applying the 15% minimum tax rules known as Pillar Two as they are in the process of being drafted. As for Pillar One, country delegates are negotiating the final details of Amount A with a view to having a multilateral convention ready for countries to sign by mid-2023.

The IRS issued final rules on February 22 that treat companies that are part of a consolidated group as a single entity for purposes of computing their share of certain foreign income. The rules (RIN 1545-BQ51) under I.R.C. Section 951(a)(2)(B) are meant to ensure that companies do not gain an advantage by shifting around the location of ownership of a foreign corporation’s stock from one entity to another within the group.

Hong Kong Financial Secretary Paul Chan said on February 22 that Hong Kong will implement the 15% minimum corporate tax rate in 2025 in accordance with the OECD-led agreement. The change is expected to raise HK$15 billion ($1.9 billion) in tax revenue annually.

After the European Union agreed in late 2022 on a directive requiring all its member countries to adopt the Pillar Two rules by the end of 2023, a wave of other countries have begun to follow. Switzerland, the United Kingdom, and other jurisdictions are moving forward with legislation. Danish Mehboob and Isabel Gottlieb summarize steps taken in the European Union, the United States, South Korea, Switzerland, the United Kingdom, Japan, Singapore, the United Arab Emirates, and South Africa.

The OECD is calling for support from the G-20 finance ministers to conclude negotiations on part of the global tax deal by mid-2023. Several aspects of Pillar One's implementation are still being negotiated, such as Pillar One's Amount A and Amount B. Countries are trying to reach a compromise in time to sign an STTR multilateral treaty instrument by mid-2023.

Tayo Ogungbenro and Israel Ajayi explain Nigeria's position on the OECD's Pillar One and Pillar Two solution. Nigeria withheld its agreement to the global agreement after the chairman of the Nigeria Revenue Authority stated in May 2022 that the solution would negatively impact the country's fiscal revenue. Nigeria has instead designed a home-grown alternative to protect its tax base that has been shown to improve the country's tax-to-GDP ratio.

U.S. state and local governments have agreed to give out at least $1 billion in subsidies in 2022. The subsidies went to companies in return for opening factories within those jurisdictions. A primary reason for the incentives is that there are more projects under way as manufacturers are looking to move factories to the United States and producers of electric vehicles, batteries, computer chips, and solar panels are racing to find U.S. sites to meet demand and receive federal subsidies.

The Inflation Reduction Act provided $50 billion in tax credits to entice Americans to buy electric vehicles assembled in North America. To qualify for the subsidies, a portion of the materials used to make the batteries must come from nations that have free trade agreements with the United States. European and Asian countries have complained that the subsidies are protectionist actions that will lead to a global subsidy war. To ease these concerns with U.S. allies, Treasury Secretary Janet L. Yellen said on February 24 that a possible solution could be new agreements that would allow these countries to qualify as a free trade partner.

Against the background of existing US international tax rules on the operation of Controlled Foreign Corporations, Prof Repetti considers two tax regulations which in his view have created significant tax incentives for MNEs to move manufacturing outside the U.S. Prof. Repetti argues that the CTB regulations and the Subpart F manufacturing exception have contributed to the loss of 5 million manufacturing jobs, the closure of more than 91,000 plants since 1997 and posits that the job losses increased racial and economic inequality and stressed our political system. He makes a case for the amendment of the regulations to reduce or eliminate the tax incentives for offshoring by preventing the use of foreign contract manufacturers and disallowing MNEs from disregarding their wholly owned foreign entities.

Avi-Yonah in this piece reviews the international tax regime in the aftermath of the 1923 Report on Double Taxation after a century. Avi-Yonah notes that while on the surface the changes brought about by the BEPS project seem radical enough to consider them an “international tax revolution”, the principles developed in the Report are still influential a hundred years later.

Ajmera and Nemane explore the potential role of the tax in moulding climate change in line with the commitments assumed by countries under the 2015 Paris Agreement. The writers interrogate the issue of whether the imposition of carbon tax or restructuring tax rates can have a significant impact in regulating carbon emissions by rationally pushing consumers, investors, and producers, towards an environmentally sound direction. In response, Ajmera and Nemane in their paper, review three carbon-tax implementation case studies, to wit: British Columbia, South Africa, and the revision of European Union Energy Taxation Directive in the context of aviation, in order to explore the scope of contributing factors – from adequate tax rate determination to optimum tax revenue use – in successfully curbing carbon-based emissions. Ajmera and Nemane propose a suggestive policy model of carbon-tax in the wake of COVID-19 pandemic, as the way forward in ensuring global carbon-neutrality.