Corporate tax bytes
“Bytes” contains a summary of various tax developments affecting businesses.
- Argentina: The government presented a bill to congress on 6 June that would introduce a one-time 15% windfall profits tax on companies that generate extraordinary income from the increase in international prices. The tax would apply to companies with profits exceeding ARS 1 billion in 2022 and whose profit margin is either more than 10% in real terms or 20% higher than in 2021. It currently is unclear whether the bill will be approved.
- Australia: As part of the government’s election commitment, it intends to address tax avoidance practices of multinational enterprises (MNEs) and improve transparency through improved public reporting of tax information. To this end, Treasury released a consultation paper on 5 August on the following proposals relating to the taxation of MNEs and tax transparency:
- Revising the thin capitalisation rules to limit interest deductions for MNEs in line with the OECD’s recommended approach under action 4 of the BEPS project;
- Introducing a measure that would disallow deductions for certain payments relating to intangibles and royalties;
- Ensuring transparency through public reporting of certain country-by-country tax information, mandatory reporting of material tax risks to shareholders and requiring those making tenders for government business to disclose their country of tax domicile.
Comments must be submitted by 2 September.
- Austria: A bill implementing the EU DAC 7 rules into domestic law entered into force on 20 July 2022. DAC 7 expands the automatic exchange of information and reporting obligations to digital platform operators and includes changes to the rules on information requests, joint audits, etc. The DAC 7 measures apply as from 1 January 2023 (for prior coverage of DAC 7, see the article in the July 2021 issue of Corporate Tax News).
- European Union: The Czech Republic assumed the presidency of the council of the EU on 1 July 2022 and will occupy this position through 31 December 2022. According to the Programme of the Czech Presidency of the Council of the European Union, taxation priorities include addressing legislative proposals such as the global agreements resulting from the OECD/G20’s initiatives to tackle the challenges relating to the digitisation and globalisation of the economy, enhancing tax transparency and updating the EU list of noncooperative jurisdictions. From an indirect tax perspective, the Czech presidency aims to work on changes to the EU directive on the taxation of energy products and electricity and, in the customs area, there will be a legislative proposal for the reform of the Customs Union based on the interim evaluation of the implementation of the Union Customs Code.
The European Commission announced a consultation on 6 July 2022 on the role of intermediaries—referred to as “enablers” in the consultation document—that contribute to tax evasion and aggressive tax planning, the magnitude of the problem, the need for EU action and potential policy responses. The consultation will run through 12 October 2022.
The European Parliament and the Council of the EU reached a political agreement on 30 June on the final text of the Foreign Subsidies Regulation. The regulation aims to ensure that foreign subsidies granted by non-EU countries to companies do not distort the internal market and the regulation will enable the European Commission to investigate subsidies granted by non-EU public authorities to companies operating in the EU. If the Commission determines that subsidies are distortive, it will have authority to apply redressive measures and prevent subsidised firms from outbidding EU competitors in public procurement procedures or benefiting from low-cost financing.
- Fiji: The 2022/23 budget, approved by parliament on 29 July, increases the concessionary corporate tax rate applicable to companies that move their global or regional headquarters to Fiji from 17% to 20%. The 10% reduced rate available to companies listed on the South Pacific stock exchange will only be available for seven years, and companies that have enjoyed the concessionary rate for seven years or more will now be subject to the normal 20% corporate rate. Both measures will be effective from tax year 2023.
In another development, the tax authorities published a notice that increases the threshold for taxpayers to obtain a tax clearance certificate to remit payments overseas (except for payments for services rendered) from FJD 5,000 to FJD 10,000. The increase applies as from 21 July.
- Finland: The 2023 budget proposals released by the Ministry of Finance on 5 August include increases in the deductibility of R&D expenses and the abolition of restrictions on the deduction of interest expense for public infrastructure projects.
- France: On 20 July, the parliament rejected a proposed temporary “exceptional” tax on windfall profits as part of an amendment of the 2022 Finance Act to address the global surge in oil and gas prices. The tax would have been imposed on the “super profits” of companies operating in the energy and freight transport sectors at a rate of 25% and would have applied for 2022 and 2023.
- Germany: The Federal Ministry of Finance published a draft bill on 12 July that would implement DAC 7 (the most recent update to the EU directive on administrative cooperation in the field of taxation) into domestic law. The bill contains the due diligence procedures and reporting requirements for digital platform operators. EU member states are required to transpose DAC 7 into domestic law by 31 December 2022 with the measures applying as from 1 January 2023 (for prior coverage of DAC 7, see the article in the July 2021 issue of Corporate Tax News).
- India: A circular issued by the Central Board of Direct Taxes on 22 June provides guidance on the tax withholding requirements relating to the transfer of a virtual digital asset (VDA). India’s Finance Act 2022 includes a provision that introduces a 1% withholding tax on transfers of VDA via an exchange (for prior coverage, see the article in the February 2022 issue of Corporate Tax News).
- Ireland: On 10 August, the Department of Finance published the Tax Strategy Group Papers for Budget 2023, as well as papers on several aspects of the tax system, including income tax, corporation tax, climate action and VAT. The paper on corporation tax discusses Ireland’s position in the ongoing debate on international tax reform, the progress and potential implications of Pillars One and Two, and OECD and EU tax developments, as well as reviews of the film relief credit, the R&D tax credit, and the Knowledge Development Box.
The Revenue Commissioners published guidance on 5 August, which confirms that certain digital services taxes (DSTs) incurred wholly and exclusively for a trade may be deducted in computing income of that trade for Irish corporation tax purposes. DSTs in the following countries are covered by the guidance: France, India, Italy, Turkey and the UK. Taxpayers can inquire about the deductibility of DSTs in other jurisdictions by contacting Irish tax authorities.
In another development, the tax authorities published an ebrief on 29 June that broadens the definition of an "entity" under the anti-hybrid rules to include entities that do not have a "legal personality" under Irish law, such as partnerships.
- Italy: A public consultation is being held on the tax ruling procedure available to qualifying enterprises that plan to make new investments in Italy that would have a positive impact on employment rates in the relevant sector. Comments must be submitted by 15 September 2022.
- Kazakhstan: New rules on the tax treatment of dividends will apply as from 1 January 2023. Dividends received by resident companies, which currently are exempt from tax, will have to be included in taxable income and dividends received by nonresidents (also exempt) will be taxed at a rate of 10% if specific conditions are fulfilled; the rate will be 15% in other cases. Dividends listed on the Kazakhstan stock exchange will continue to be tax exempt.
Also effective as from 2023 are new rules that will restrict the deduction of certain expenses incurred on the acquisition of intangible services (e.g., management, consulting, accounting, royalties, rights to use intellectual property, etc.) from affiliated nonresident companies to 3% of the taxpayer’s taxable base.
- Korea (ROK): The new government released economic policy initiatives on 16 June that include tax proposals, such as a reduction in the corporate tax rate from 25% to 22% and a tax exemption for dividends received from overseas subsidiaries that would apply as from 1 January 2023. On 21 July, the government released draft legislation that would implement the global minimum tax under the OECD Pillar Two rules. The draft includes an income inclusion rule, as well as “supplementary rules for income inclusion,” the latter of which is called the under-taxed payments rule or UTPR in the OECD Model Rules. If enacted, these measures would apply to tax years beginning on or after 1 January 2024.
- Malaysia: The government is holding a public consultation on the implementation of the GloBE rules under Pillar Two.
- Nepal: The Revenue Department posted a notice on 7 July announcing the new digital service tax (DST) introduced by Finance Act 2022/23 and that applies as from 17 July. The DST is imposed on digital services provided by nonresidents to Nepalese consumers at a rate of 2% where the taxpayer’s annual digital services transactions exceed NPR 2 million. Digital services are those provided through the internet with minimal human intervention and include the provision of advertising, films, TV and music, data collection, cloud services, software, consulting and training, etc. A consumer for purposes of the DST is a person whose normal place of abode is in Nepal and who is making the purchase for personal rather than business purposes. The DST is administered by the Revenue Department, which has established compliance procedures that require the service provider to register for VAT purposes, submit details of its transactions to the authorities and pay the DST. Penalties apply for noncompliance.
- OECD: The OECD announced it is holding a public consultation on Amount A of Pillar One on 12 September 2022. The announcement states that the OECD is seeking public comments on the draft model rules to implement a new taxing right that will allow market jurisdictions to tax profits from some of the largest multinational enterprises; the public consultation will focus on the key questions identified in the consultation document and issues raised in the written submissions received as part of the consultation process.
- Poland: As part of the tax changes in the Polish Deal, corporate taxpayers are required to keep their tax books in electronic form and transmit them to the tax offices (for prior coverage of the Polish Deal, see the article in the November 2021 issue of Corporate Tax News). This requirement was to become effective on 1 January 2023, but the effective date is now postponed so taxpayers have more time to prepare for the digitalisation of accounting records. The revised dates are as follows:
- Taxpayers with annual revenue exceeding EUR 50 million: 1 January 2024;
- Taxpayers required to transmit SAF_VAT records: 1 January 2025; and
- All other taxpayers: 1 January 2026.
- Slovenia: A draft bill presented by the Ministry of Finance on 1 August would implement the EU DAC 7 rules into domestic law (the most recent update to the EU directive on administrative cooperation in the field of taxation). DAC 7 includes a mandatory reporting obligation for operators of digital platforms. EU member states are required to transpose DAC 7 into domestic law by 31 December 2022 with the measures applying as from 1 January 2023 (for prior coverage of DAC 7, see the article in the July 2021 issue of Corporate Tax News).
- United Kingdom: A factsheet published by the tax authorities on 28 July provides guidance on the penalties that may be imposed on UK-based intermediaries for facilitating avoidance schemes involving nonresident promoters. The factsheet includes information on nonresident promoters, when a penalty may be imposed for facilitating a tax avoidance scheme, rights of the intermediary under the European Convention on Human Rights and possible appeals of a penalty.
- United States: The Department of the Treasury on 26 July released a set of technical corrections to the recently released final foreign tax credit regulations. While the technical corrections (2022-15867 and 2022-15868) make several benign updates, Treasury’s primary focus was to alleviate taxpayer concerns regarding the potentially restrictive application of the cost recovery test for purposes of determining the creditability of foreign taxes (for prior coverage of the final foreign tax credit regulations, see BDO’s January 2022 alert). The technical corrections also address certain aspects of the final regulations relating to disregarded payments made by entities that are not recognised as separate from their owner for tax purposes and make minor modifications to those rules.