Two weeks to 15 March 2024
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Pillar Two
- Addition of an anti-abuse rule in the UK
In a Written Ministerial Statement (WMS) issued on 14 March, the government announced that it intends to introduce an anti-abuse rule into the UK’s Pillar Two rules. This will be legislated in a future Finance Bill, but the government intends the provisions to apply from 14th March 2024. The government will consult with interested stakeholders on how the provisions are legislated, with a view to ensuring the legislation operates as envisaged without any unintended outcomes.
Spring Budget 2024 & Finance (No2) Bill 2024
The Chancellor of the Exchequer delivered his Spring Budget on 6 March, accompanied by a full fiscal statement from the Office of Budget Responsibility (OBR). Our commentary and insights are available via pwc.co.uk/budget.
- Client webcast
Following the Spring Budget, Laura Hinton hosted our Spring Budget 2024: Reactions Webcast on Thursday 7 March where she was joined by a panel of experts, including Lord Gavin Barwell and Barret Kupelian, Chief Economist, to discuss the announcements made, and the impact on individuals and businesses. - Finance (No2) Bill 2024
Finance (No2) Bill 2024, along with the accompanying Explanatory Notes was published on 14 March. As noted above, a WMS was also published on 14 March which stated the government’s intention to introduce an anti-abuse rule into the UK Pillar Two rules which will apply from 14 March 2024. - Tax Administration and Maintenance Day
It was announced on Budget Day that the government will bring forward a further set of tax administration and maintenance announcements on 18 April 2024 at a Tax Administration and Maintenance Day.
HMRC releases important guidance on identifying and pricing contributions to risk control by decision-makers
As reported previously, HMRC recently published a new chapter within their International Manual ‘Transfer Pricing: Operational guidance’ called ‘Risk Allocation’. This manual then refers to another new chapter called ‘Transfer pricing operational guidance: Accurate delineation of the actual transaction: Risk’, which provides detailed guidance on HMRC’s interpretation and proposed application of the six-step risk framework, as outlined in the OECD Transfer Pricing Guidelines (“TPG”). This PwC Insight walks through the sections of these new chapters, and provides our observations on what this could mean for impacted taxpayers.
HMRC Manual & guidance updates
- Capital Gains Manual - updated 12 March
CG57360 - Non-resident companies: quantifying tax set-off available following capital dividends or distributions - Updated to reflect change in tax rate. - International Exchange of Information Manual - updated 8 March
IEIM401080 - NRFI: FATCA Only: Non-Reporting Members of Participating Foreign Financial Institution Groups - Reference to legislation corrected.
Case law update
- Upper Tribunal confirms failure of ‘round-the-world’ trust scheme
This case concerned a ‘round-the-world’ tax-planning arrangement which involved the use of offshore trusts to avoid a UK capital gains tax charge. The taxpayer’s intention was that the terms of the UK–Mauritius double tax treaty would give taxing rights on the gains to Mauritius, where no liability would in fact arise. However, the tie-breaker clause in the treaty gave taxing rights to the state in which the trust’s POEM was situated. The FTT had concluded that the trust’s POEM was the UK and therefore that the planning was ineffective. The Upper Tribunal upheld that decision. You can read the decision here. - High Court rejects strikeout of HMRC’s defence in FATCA dispute
In Webster v. HM Revenue & Customs, [2024] EWHC 530 (KB), the High Court has held that HM Revenue & Customs may proceed with its abuse of process defence related to the disclosure of an anonymous funder in a challenge against the US Foreign Account Tax Compliance Act (FATCA) because it has "sufficient substance, reality and prospect to make it unfair to dispose of it on an interlocutory basis on this application." You can read the decision here.
Double Taxation Treaty Passport Scheme register
HMRC has updated the register of overseas corporate lenders who are passport holders for Double Taxation Relief on UK loan interest. The register has been updated as of 18 March with 116 additions, 8 amendments and 3 removals.
EU
Commission launches targeted consultation to get feedback on the rules governing tax dispute resolution in the EU
On 12 March 2024, the European Commission launched a targeted consultation giving stakeholders the chance to give feedback on the functioning of the EU’s framework to help resolve cross-border tax disputes for businesses and citizens in relation to double taxation issues.The Directive on Tax Dispute Resolution Mechanisms or DRM (Directive (EU) 2017/1852) came into force on 1 July 2019, and introduced clearer rules and more stringent deadlines to resolve such cross-border tax disputes.The deadline for submission to this consultation is 10 May 2024.
CFE Tax Advisers Europe
- EU Tax Policy News Top 5
The latest round-up of EU Tax Policy news from the Confédération Fiscale Européenne (CFE). The latest edition from 11 March includes: 1) EESC Opinion on Taxation of Cross-Border Workers; 2) CFE ECJ TaskForce Opinion Statement on Joined Cases C-451/21P & C-454/21P Engie State Aid in Deduction/Non-Inclusion Structure in Luxembourg; 3) EU Commission Updates Carbon Border Adjustment Mechanism Q&A Document; 4) Register Now: CFE Forum – 18 April 2024 Brussels; 5) OECD Tax & Development Days – 12 & 13 March 2024. Visit their latest news page here. - Opinion Statement ECJ-TF 1/2024 on Joined Cases C-451/21P and C-454/21P, Engie, on alleged State aid in relation to a deduction/non-inclusion structure in Luxembourg
The CFE ECJ Task Force has issued an Opinion Statement on the decision of the CJEU of 5 December 2023 in Joined Cases C-451/21P and C-454/21P, Engie, on alleged State aid in relation to a deduction/non-inclusion structure in Luxembourg. This Opinion Statement focuses on questions of law and the relevance for the development of the European Union State Aid law doctrine applicable to tax measures. The factual and corporate law aspects are analysed to the extent relevant for the State aid analysis.
OECD
Pillar One
A closer look at the simplified and streamlined approach (Amount B)
As reported previously, the OECD/G20 Inclusive Framework on BEPS (IF) released a report on Amount B of Pillar One on 19 February 2024, now referred to as the ‘simplified and streamlined approach.’ The Report introduced two elective options for the transfer pricing of certain baseline wholesale marketing and distribution activities. The Report follows the OECD’s previous public consultations in July 2023 and December 2022. This PwC Tax Policy alert focuses in particular on the changes from the July 2023 Consultation Document.
OECD Tax & Development Days – 12 & 13 March 2024
This event provided an update on some of the OECD's initiatives to strengthen tax capacity and improve tax policy and compliance in developing countries and explore future challenges. All sessions were open to the public and took place virtually. Watch the replay here.
MLI
On 29 February, the OECD updated the profiles of jurisdictions adopting Arbitration under the multilateral BEPS Convention.
Latest updates, the text of the BEPS Convention, the explanatory statement, background information, database, and positions of each signatory and parties are available at https://oe.cd/mli
Other territories
International
Pressing global tax policy areas beyond the Pillars
A tsunami of transparency regulations has arrived and companies’ obligations are expanding beyond tax. There’s also an ever increasing desire of governments to collect more tax revenues from remote digital transactions. In this Policy on Demand episode from 7 March, Sherry Grabow (US International Tax Services Leader), Stewart Brant (Global Tax Policy Director), and Monica Cohen-Dumani (EMEA International Tax Services Leader) discuss how companies can keep pace with rising demands.
Digital tax byte
The latest edition in our series of brief insights into the workings of the UK and supranational bodies reviewing the taxation of digitalisation of business. In this edition, from 13 March, we cover:
- progress in the WTO in extending the moratorium on duties on e-commerce;
- two Australian developments for those dealing with software or intangibles more generally.;
- the extension of the DST agreement between the US and Turkey.
Environmental, Social and Governance (ESG)
- Ten pitfalls companies should avoid when conducting a CSRD-aligned double materiality assessment
The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a highly impactful regulation that will transform how companies report sustainability information. By design, one of the CSRD’s aims is to raise sustainability reporting standards to the same level as corporate financial reporting. This article covers thoughts on the current state of play for companies conducting double materiality assessments in preparation for the CSRD, as well as 10 pitfalls to avoid.
Australia
ATO welcomes SGSP (Australia) Assets Pty Ltd (Jemena) settlement
The Australian Taxation Office (ATO) has welcomed the settlement announcement SGSP (Australia) Assets Pty Ltd (SGSPAA) (trading as Jemena) has made to the Singapore Exchange. The settlement resolves the dispute in relation to SGSPAA’s $800million convertible instruments entered in 2015, which it was agreed will be converted into fully paid ordinary shares, eliminating future interest payments and deductions. This is in addition to the payment of $50.8million for past years. Read more in this ATO press release.
ATO successful in SingTel transfer pricing case
The Australian Taxation Office (ATO) has been successful in a transfer pricing case heard by the Full Federal Court. In Singapore Telecom Australian Investments PTY Limited (SingTel) vs Commissioner of Taxation, the Court dismissed an appeal by the taxpayer regarding an ATO assessment regarding intra-group financing arrangements established to fund the group’s acquisition of Optus in 2002. Australia had challenged interest expense deduction claims on amounts borrowed from subsidiaries based offshore, arguing that the arrangements would not have been entered into on the same terms between unrelated entities. Read more in this ATO press release.
Belgium
See here for latest updates.
Belgian advance tax payments: Mind the significant increase of the surcharge
A surcharge is due on the final amount of Belgian corporate income tax, payable upon assessment, in case a company doesn’t settle its Belgian corporate income taxes due by means of timely advance tax payments during the financial year concerned. Please be advised that the global surcharge will be increased to 9% for assessment year 2025 (ie accounting periods starting as of 1 January 2024), up from 6.75% for previous years. It is therefore advisable, more than ever, to accelerate the timing of the advance tax payments with a view to managing the surcharge. Read more in this PwC news item.
Germany
Trade tax banking privilege also for group financing company
According to a ruling of the Supreme Tax Court, the sole criterion for claiming the banking privilege for trade tax purposes is that the assets from banking transactions and the purchase of monetary receivables outweigh the assets from other business activities. With its decision, the court thus keeps to the strict wording of the relevant statute. Read more in this PwC blog.
Hong Kong
IRD’s latest approach to large business tax administration
The Inland Revenue Department (IRD) established a Large Business Office (LBO) under Unit 1 (Profits Tax) a couple of years ago. Under the IRD’s latest approach to tax administration for large businesses, the profits tax files of Hong Kong entities belonging to multinational enterprise groups that are subject to the Country by Country Reporting (CbCR) requirements are being transferred to the LBO team. This PwC alert sets out our understanding and observations of the transfer exercise.
India
Payments for business support services that are not technical in nature and do not satisfy ‘make available’ condition are not fees for technical services under the India-UK double tax treaty
The Bombay High Court observed that the term ‘consultancy’ in Article 13 of the India-UK double taxation treaty (treaty) relates to consultancy services that are technical in nature and make available technical, or any other, knowledge, experience, skill, know-how or processes. Accordingly, it held that business support services (BSS) availed of by the taxpayer from a fellow group company are not taxable as fees for technical services (FTS) under Article 13. The High Court did not analyse the taxability of such services under Article 7 of the treaty, and left it open for the department to decide and take the necessary steps to open proceedings in this regard. Read more in this PwC alert.
India and the European Free Trade Association sign a Trade and Economic Partnership Agreement
India and the European Free Trade Association (EFTA) (which consists of four countries – Switzerland, Norway, Iceland and Liechtenstein) have signed a historical Trade and Economic Partnership Agreement (TEPA) that aims to boost bilateral trade and investments, create jobs and enhance cooperation between the countries. The agreement, signed on 10 March 2024, is a strategic move to strengthen India’s global ties and position in global value chains. Read more in this PwC alert.
Ireland
Investing in Ireland
Welcome to the latest edition of PwC’s newsletter on foreign direct investment (“FDI”) in Ireland, which explores how Ireland is well-positioned to become a leader in Cyber security, as well as some of Ireland’s regional achievements and opportunities, all from an FDI perspective.
Irish company wins appeal to deduct tax withheld on foreign royalties
The Irish Tax Appeals Commission has published a determination on an appeal filed by an Irish company regarding whether it may claim a deduction for royalty withholding tax incurred in various foreign jurisdictions for accounting periods 2010–2016 under section 81 of the Taxes Consolidation Act 1997.
Korea
Korean Tax Update
The latest edition includes: 1) amended presidential decrees of tax laws are proclaimed with a few modifications; 2) MOEF announces proposed amendments to enforcement rules for tax laws; 3) government announces corporate value-up program including preferential access to existing tax benefits; 4) changes in tax law; and 5) rulings update.
Luxembourg
New Pillar Two rules - Impact on the financial statements as from 2023
To clarify the impact on the annual and consolidated accounts established under LUX GAAP for financial years beginning no later than 30 December 2023, the Luxembourg Accounting Board (CNC) recently issued 2 recommendations: 1) the Q&A 24/31 on the impact of the Pillar Two Law on the notes to the annual and consolidated accounts under LuxGAAP or LuxGAAP-FV; and 2) the Q&A 24/32 on the Pillar Two Law and the option to disclose deferred tax assets and liabilities in the notes to the 2023 annual accounts. Read more in this PwC item.
Middle East
UAE
- Global Minimum Tax public consultation
The UAE Ministry of Finance has launched a public consultation until 10 April, to gather the views of stakeholders with respect to the potential policy design options to respond to the implementation of the GloBE Rules worldwide. Alongside the consultation questionnaire a separate Guidance Paper has been prepared which provides details of specific aspects of the GloBE Model Rules. - Dubai Emirate Law No. 1 of 2024 - Taxation of foreign banks
Law No. (1) of 2024 on taxation of foreign banks operating in Dubai was issued by the Ruler of Dubai. This decision is effective from the date of its publication in the official gazette (8 March) and shall apply to tax periods beginning after 8 March 2024. This new law annuls Regulation No.(2) of 1996 or any other legislation that may contradict it. It specifies the principles governing the calculation of taxable income, tax filing and payments, procedures for the audit of tax filing, voluntary disclosure, and responsibilities and procedures related to tax auditing. Read more in this PwC alert. - Taxation of partnerships guide
The Federal Tax Authority (FTA) has released a Corporate Tax (CT) Guide on Taxation of Partnerships.This guide serves as a significant resource, providing clarifications and additional insights on various important topics in relation to the taxation of partnerships, as well as the associated compliance requirements. Read more in this PwC alert.
Namibia
National Budget 2024/25
The National Budget 2024/25 was presented by the Finance Minister on 28 February 2024. Tax announcements included: 1) Non-mining tax rate reduction over the MTEF by 4%; 2) Corporate tax rate of 20% for SMEs with an annual turnover below a predefined threshold, still to be determined; 3) Special Economic Zone (SEZ) regime from the 2024/25 financial year, which will offer a concessionary corporate tax rate of 20% on small- and medium-sized enterprises; 4) The 3:1 thin capitalization ratio will be replaced with a new limit on deductible interest expenses of 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA) for companies. In addition, companies will be allowed to carry forward losses for up to five years, or 10 years for natural resources companies. Visit our dedicated Budget webpage for our insights.
New Zealand
Income tax – New guidance on the income treatment of partnerships
New Zealand's Inland Revenue Department has released a new interpretation statement which provides general guidance on the income tax treatment of partnerships. Most of the statement is relevant to both general and limited partnerships. The rules are largely the same for both types of partnership, but the guidance explains where they differ and, in particular, contains a discussion of the deduction limitation rule, which applies only to limited partnerships. The statement also references existing guidance issued on specific partnership issues. A consultation on the draft guidance has been launched, with feedback sought by 24 April 2024.
Philippines
DOF engages finance sector to further refine proposed bill on simplifying passive income tax and other financial instruments
On 1 March, the Department of Finance (DOF) engaged finance sector stakeholders in a briefing on the proposed Package 4 of the Comprehensive Tax Reform Program (CTRP) that will simplify the tax structure on passive income and certain instruments and other financial products. Read more in this press release.
Government seeks changes to mining tax reform plans
In a recent stakeholder briefing, the Department of Finance (DOF) called for changes to the mining tax reforms approved by the House of Representatives in September 2023. The DOF’s version improves on House Bill 8937 and proposes to impose a 4-tier margin-based royalty ranging from 1.5% to 5% on income from mining operations outside of mineral reservations to address constitutional issues. Read more in this press release.
South Africa
DOF engages finance sector to further refine proposed bill on simplifying passive income tax and other financial instruments
On 1 March, the Department of Finance (DOF) engaged finance sector stakeholders in a briefing on the proposed Package 4 of the Comprehensive Tax Reform Program (CTRP) that will simplify the tax structure on passive income and certain instruments and other financial products. Read more in this press release.
Government seeks changes to mining tax reform plans
In a recent stakeholder briefing, the Department of Finance (DOF) called for changes to the mining tax reforms approved by the House of Representatives in September 2023. The DOF’s version improves on House Bill 8937 and proposes to impose a 4-tier margin-based royalty ranging from 1.5% to 5% on income from mining operations outside of mineral reservations to address constitutional issues. Read more in this press release.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
Taiwan
Taiwan Tax Update
The February edition includes: 1) Profit-seeking enterprises may apply for asset revaluation with the local tax authorities within the second month after fiscal year end.
US
President Biden’s FY 2025 budget again calls for corporate and individual tax increases
President Biden has sent Congress a fiscal year (FY) 2025 budget that proposes to increase taxes by nearly $5 trillion for corporations and for individuals with incomes above $400,000. Many of the president’s tax proposals - including a proposal to increase the corporate tax rate to 28% and impose a 25% minimum tax on certain high-income individuals – were included in President Biden’s previous budgets. New tax proposals in the FY 2025 budget include measures to increase the recently enacted corporate alternative minimum tax rate from 15% to 21% and to deny business deductions for employee compensation above $1 million. Read more in this PwC Tax Insights.
US Tax Policy: Chairman Dave Camp
In this episode of Cross-border Tax Talks from 14 March, Doug McHoney (PwC’s International Tax Services Global Leader) is joined by former House Ways & Means Chairman Dave Camp (now senior policy advisor in PwC’s Washington National Tax Services) to discuss his political career, drivers behind US tax policy, how Congress negotiates tax legislation, and more.
State and local tax
- South Carolina enacts standards for forced combination
Recently enacted legislation in South Carolina provides that the Department of Revenue may only force a corporate taxpayer to file a unitary combined return when it finds that the taxpayer’s intercompany transactions lack economic substance or are not at fair market value. Judicial review of the Department’s determination is de novo, and the Administrative Law Court is directed to decide whether adjustments other than requiring combined filing are adequate to redetermine state net income attributable to the taxpayer’s business activity in the state. Read more in this PwC Tax Insights. - California OTA allows dividend inclusion in the sales factor
The California Office of Tax Appeals (OTA) on 27 July 2023 ruled that Microsoft Corp. could include its entire gross foreign dividend amount as gross receipts in its California sales factor (Opinion). The OTA rejected the Franchise Tax Board’s (FTB’s) argument that the portion of dividends deducted from California income pursuant to the state’s water’s-edge dividends received deduction (DRD) at California Revenue and Taxation Code (CRTC) section 24411 should be removed from the sales factor. The FTB challenged the OTA determination by a Petition for Rehearing filed on 28 August 2023. The OTA denied the FTB Petition by order issued on 14 February 2024, and the OTA decision will go final on or about 13 March 2024. The OTA has not announced whether the decision will be precedential. Read more in this PwC Tax Insights. - US State Income Tax Digest
This PwC publication highlights significant current state legislative, regulatory, judicial, and administrative developments impacting state taxation of inbound companies and what those developments mean for your business. Read the latest edition.
Policy on Demand series
- New climate disclosure rules: Big lift for companies
Last week the SEC issued long-awaited rules for public companies to disclose how the climate is likely to affect their operations. In this episode from 11 March, Valerie Wieman (a partner in PwC’s National Office) discusses how big of a lift these new disclosure rules are going to be for companies. - Election Watch 2024: After Super Tuesday
In this episode from 7 March, Chairman Dave Camp and Todd Metcalf join Ken Kuykendall to debrief on Super Tuesday returns, considering key takeaways, issues important to companies, and what to watch out for in this particular election. - Biden's State of the Union emphasises tax fairness
In this episode from 8 March, Chairman Dave Camp and Janice Mays share their insights on President Biden’s State of the Union address and his preview of tax priorities in a potential second term. - Week in Review
- 15 March –.What’s ahead for the House-passed tax bill? In today’s Week in Review, Rohit Kumar lays out two possible paths forward for Senate consideration of the House-passed tax bill.
Tax Readiness webcast series
- Tax Readiness: Pillar Two is here! How businesses are responding to the new GloBE rules (New DF 01b)
Beginning in 2024, Pillar Two became effective in many jurisdictions just after more OECD administrative guidance was published in December 2023. This new guidance is intended to clarify the operation of the GloBE rules. On this webcast taking place on Wednesday 27 March at 6pm, our panellists will explore some common traps for the unwary, the new anti-arbitrage rules for the Transitional CbCR Safe Harbour; how businesses are developing a holistic data and technology strategy, and what steps businesses should be taking to ensure compliance. Register here. - Tax Readiness: Understanding the Office of Appeals as IRS expands enforcement
Join our panel of PwC specialists with decades of Appeals experience on Wednesday 3 April at 7pm, as they discuss what you should know about resolving tax disputes involving large corporations and high-income individuals with the Office of Appeals, with a particular focus on changes over recent years. Register here. - Tax Readiness: How trusted tax data powers reporting and strategic business planning
How much time does your tax team spend wrangling with data? Many companies are looking to “standardise” processes, but this may be difficult if the data is so disparate and not well understood. Watch the replay from 27 February, where our specialists discuss actions to build trusted, accessible data for complex compliance challenges and strategic C-suite initiatives, yielding high-value results for years to come.
Further information
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