BDO Corporate Tax News

• Belgium: The 2024 budget presented by the prime minister on 10 October and agreed by the federal government includes measures to combat tax avoidance and evasion. For example, the “Cayman tax” (the transparent tax system when one owns assets in low-taxed capital structures, such as trust-type structures or companies in tax havens) will be tightened to allow for stricter and better inspections; loopholes relating to real estate investment funds will be closed; the controlled foreign company rules will be tightened to prevent the artificial diversion of profits to low-tax jurisdictions; and the deductibility of the bank tax, the tax on credit institutions and the tax on investment funds will be abolished.
• Cambodia: A new Law on Taxation 2023 introduced on 16 May 2023 supersedes the previous law dating from 1997. Among the changes are an expanded definition of permanent establishment to include a person who possesses or habitually exercises the authority to sign contracts on behalf of a nonresident or performs the main role in facilitating the contract signing process; a revision of the definition of related parties to (i) include both direct and indirect control; (ii) reduce the value/voting rights threshold from 51% to 20% or more; and (iii) include the tax administration’s right to determine control on a case-by-case basis. The law also includes recent developments such as the 2021 Investment Law (for prior coverage, see the article in the May 2022 issue of Corporate Tax News).
• Canada: A bill that would create a publicly-available beneficial ownership registry of federally incorporated companies received royal assent on 2 November. The bill, which would amend the Canada Business Corporations Act and other acts, would add to the information companies are required to keep in their register of individuals with significant control, require a director to make certain beneficial ownership information available to the public and authorise the director to provide beneficial ownership information to a provincial corporate registry or to a provincial government department or agency responsible for corporate law within the province.
• Croatia: Amendments to the Corporate Income Tax Act published on 4 October and that apply as from 12 October make changes to the withholding tax rules on cross-border payments to entities. Specifically, payments made to recipients resident (or that have their place of effective management) in a noncooperative jurisdiction for EU purposes and that has not concluded a tax treaty with Croatia will be subject to a 25% withholding tax; the withholding tax exemption for dividends, interest and royalties under the EU parent-subsidiary and interest and royalties directives is extended to apply to qualifying residents of the European Economic Area; and the benefits of the interest and royalties directive can apply even if the 24-month holding period in a related company is not met during the payment time.
• European Union: A discussion of the “Unshell” directive by EU finance ministers seems to be postponed as the directive was not included on a draft agenda for a November meeting. The directive contains rules to prevent the misuse of shell entities for tax purposes and expand the scope of the EU administrative cooperation directive. Specifically, the Unshell directive is designed to impede the use of intermediary companies in the EU that purportedly engage in an economic activity but, in reality, do not conduct any economic activities and do not have minimal substance; the directive contains measures that would disregard entities that are considered “shell entities” for cross-border purposes (for prior coverage, see the tax alert dated 19 January 2023).
  The Council of the EU announced on 17 October that three jurisdictions (Antigua and Barbuda, Belize and Seychelles) have been added to the EU list of noncooperative jurisdictions for tax purposes and three jurisdictions (British Virgin Islands, Costa Rica and Marshall Islands) have been removed, leaving the list standing at 16 jurisdictions. In addition, four jurisdictions (Jordan, Montserrat, Qatar and Thailand) have been removed from the state of play document. The next update will be due in February 2024. Also on 17 October, the Council adopted the amended EU administrative cooperation directive—otherwise known as “DAC 8”—that contains new rules for the reporting and exchange on information on revenue from crypto asset and crypto currency transactions. The directive was published in the official journal on 24 October.
• France: As from 2 October, foreign investors in France are required to request approval of certain investments from the French Treasury. Investment sectors that must be approved in advance include those that are considered strategically significant, i.e., affecting national defence, public security, etc. A designated portal has been set up for this purpose.
• Hong Kong: A bill that expands the scope of Hong Kong’s foreign-source income exemption (FSIE) on passive income to include gains from the disposal of all types of assets (both movable and immovable property) was gazetted on 13 October 2023 (for prior coverage, see the article in the November 2022 issue of Corporate Tax News). The rules currently apply to foreign dividends, interest, royalties and gains on the disposal of shares, but the government decided to revise the FSIE regime in response to the EU’s inclusion of Hong Kong on its grey list of noncooperative jurisdictions for tax purposes due to concerns that the regime may give rise to double nontaxation. Once enacted, the amended regime will be effective from 1 January 2024. Read an update of the planned changes to the FSIE prepared by BDO in Hong Kong.
• India: The Supreme Court issued a decision on 16 October 2023, concluding that variable licence fees paid by telecom companies are capital expenditure rather than revenue expenditure. As a result, the entire amount of the fees would not be eligible for deduction in the same year and would have to be amortised over the remainder of the licence period. The decision could have wider ramifications since its rationale could be applied to other types of licence fees (click here for an analysis of the Supreme Court decision by BDO in India).
• Italy: The Council of Ministers approved a draft decree in October that would transpose the EU minimum taxation directive into domestic law (see the Pillar Two column), amend the definition of tax residence of corporate entities and the controlled foreign company rules, and introduce a tax incentive to encourage businesses to “reshore” economic activities to Italy from outside the EU. Once final approval is obtained, the decree would apply as from 1 January 2024.
• Kuwait: The Ministry of Commerce & Industry issued instructions to Kuwaiti shareholding companies (KSCs) in August 2023, which require that articles of association be amended to include a provision for the mandatory deduction of 1% of the KSC’s net profits to be contributed to the Kuwait Foundation for the Advancement of Sciences (KFAS). Additionally, KSCs must submit an annual clearance certificate issued by KFAS, confirming the payment of the annual KFAS amount due. Penalties apply for noncompliance.
• Myanmar: The tax authorities have clarified that an income tax exemption is available to newly established micro, small and medium-sized enterprises, cottage industries and small-scale industries for three consecutive years from the year the business commences operations. The exemption is available for annual net profits of up to MMK 15 million, with tax applying to any net profit exceeding that amount.
• Netherlands: The Budget Day proposals for 2024 released on 19 September contain the government’s budget for 2024, as well as tax proposals for calendar years 2024 and thereafter. Proposed measures include implementation of the Pillar Two rules, changes to the entity classification rules (see the article in this issue), measures to combat dividend stripping and changes to the fiscal investment institution regime.
• OECD: Forty-eight jurisdictions issued a joint announcement on 10 November 2023 that they intend to implement the OECD’s Crypto-Asset Reporting Framework or CARF by 2027. The OECD approved the CARF in August 2022, which is a vital component of the automatic exchange of information in tax matters by providing for the automatic exchange of tax information on crypto assets.
• Oman: The tax authorities has held a consultation on a proposal to revise the thin capitalisation rules applied to companies under the Omani Income Tax Law so they are in line with recommendations under Action 4 of the OECD BEPS project. The report on Action 4 recommends that an interest cap be applied to restrict a taxpayer’s deductible borrowing costs to a range from 10% to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA) over a period ranging from three to five years.
• Peru: A law published on 11 October introduces a three-year income tax exemption for copyright royalties received by resident and nonresident authors starting from 1 January 2024.
• Poland: The Ministry of Finance is holding tax consultations on the draft explanations regarding the withholding tax rules, specifically the beneficial owner clause, the criterion of being subject to effective taxation in relation to the provisions of EU directives and the look-through approach (click here for a tax alert prepared by BDO in Poland).
• Portugal: The 2024 state budget law proposal submitted to parliament on 10 October 2023 includes a reduced corporation tax rate for startups, i.e., 12.5% on the first EUR 50,000 of taxable income, subject to certain requirements.
• Saudi Arabia: The Zakat, Tax and Customs Authority (ZATCA) launched a public consultation on drafts of a new Income Tax Law and Zakat and Tax Procedures Law on 25 October 2023. The consultation will run through 25 December 2023.
• Slovak Republic: The Ministry of Finance released proposed tax measures on 6 October that include an increase in the withholding tax on dividends from 7% to 15%, an increase in the standard VAT rate from 20% to 22% and abolition of the reduced rate for certain supplies.
• Uganda: The tax authorities issued a public notice on 20 October that contains guidelines on the recently introduced 5% digital services tax (for prior coverage, see the article in the August 2023 issue of Corporate Tax News). Based on the notice, nonresidents must apply for registration for income tax purposes unless they are already registered with the tax authorities. Quarterly tax returns in which the relevant income is declared and that includes payment of tax due must be submitted within 15 days of the month after the end of each quarter. Resident taxpayers must withhold the 5% tax on payments made to unregistered nonresident suppliers of digital services (a list of registered nonresidents is published on the tax authorities’ website).
• United Arab Emirates: On 3 November, the Ministry of Finance announced two new decisions on free zone relief (one on determining qualifying income and the other on qualifying activities and excluded activities) that apply retroactively as from 1 June 2023, replacing previous decisions dating from 2023 (i.e., Cabinet Decision No. 55 of 2023 on Qualifying Income, and Ministerial Decision No. 139 of 2023 Regarding Qualifying Activities and Excluded Activities).
• United States: In a document published on 8 November, the Financial Crimes Enforcement Network (FinCEN) announced that it is issuing a final rule to specify when and how entities that are required to report beneficial ownership information to FinCEN may use a FinCEN identifier to report the beneficial ownership information of certain related entities.
• U.S. Virgin Islands: Corporate and individual taxpayers have a limited opportunity to bring their tax compliance up to date by participating in a penalty waiver program announced by the tax authorities on 31 October. To qualify for the penalty waiver, taxpayers must demonstrate full compliance by filing all outstanding gross receipts returns up to September 2023 and income tax returns up to the 2022 tax year, and any outstanding tax and interest balances must be settled. The penalty waiver program runs from 2 November through 29 December 2023.