Int'l Tax News

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.

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