Two weeks to 16 February 2024
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Is Pillar Two a reason to rethink your decentralised finance and tax model?
For many organisations a regional/decentralised approach to finance and tax has suited their culture and organisational structure. Pillar Two, combined with the cloud transformation of legacy local technology systems and databases, is changing this paradigm. What is right for your organisation will depend on your circumstances, but what is important is that you revisit this now. In this new paradigm of a global tax system with complex international filings, the driver for, and the benefits from, centralising aspects of your compliance model may be much more powerful than it was before. We explore this topic here.
Update to the Transition from Existing Digital Services Taxes to Pillar One
HM Treasury has announced that the UK, together with Austria, France, Italy and Spain, has agreed to update the terms for transitioning from the Digital Services Taxes (DST) to Pillar One.
Spring Budget 2024: Reactions Webcast
UK Chancellor Jeremy Hunt will deliver his Spring Budget on Wednesday 6th March. Register here to join our webcast taking place at 9am on Thursday 7 March, where we will discuss what the announcements could mean for individuals, employers and businesses.
Finance Bill 2023–24 progress
The Finance Bill 2023–24 completed all stages in the House of Commons on 5 February 2024 and will now progress to the House of Lords.The Government’s new clause and amendments were agreed to and the Bill was read for a third time and passed by the House.
HMRC release important guidance on identifying and pricing contributions to risk control by decision-makers
HMRC has published important guidance which explains why they focus so heavily on risk and decision-making in audits, and which will be of great interest to any MNEs with dispersed decision-makers and TNMM-based transfer pricing methods. This article, by Yvonne Cypher and Ian Dykes, walks the sections of this new guidance, and provides our observations on what this could mean for impacted taxpayers.
Draft guidance: Research and Development (R&D) tax reliefs: new contracting out rules and overseas restrictions
At Autumn Statement 2023, the government confirmed the introduction of the merged R&D expenditure credit and changes to the way contracted out R&D activities will be treated from 1 April 2024. The government also confirmed that the overseas rules will apply from 1 April 2024 too. Ahead of the implementation of the reforms to the R&D tax reliefs, HMRC now published for consultation: 1) new draft guidance on contracted out R&D activities; and 2) updated draft guidance on the overseas rules. The consultation closes on 1 March.
HMRC Manual & guidance updates
The following changes have recently been made by HMRC following review:
- Corporate Finance Manual - updated 14 February
- CFM96050 - Interest restriction: group-interest: QNGIE: equity notes - 2nd paragraph updated
- CFM96310 - Interest restriction: related parties: debt restructuring 4th paragraph updated.
- CFM97335 - Interest restriction: public infrastructure: loans advanced through non-resident intermediaries - paragraph under Intermediate non-UK Companies updated
- CFM98640 - Interest restriction: administration: UK group company: disallowances for consenting companies. Paragraph deleted
Case law update
- BAT Industries Plc & Ors v CIR & HMRC
The Claimants in this case are members of the FII Group Litigation Order (the "FII GLO") which, as a consequence of litigation that has been pursued over the last 20 years, established that when they paid certain tax to HMRC, they did so on the mistaken understanding that the UK tax regime then applicable to overseas dividends was compatible with EU law. They are therefore entitled, in principle, to recover from HMRC tax that they paid under that mistake of law. The question under consideration by the High Court in this case was whether and to what extent they have brought certain of their claims within the applicable limitation period. See here. - The Boston Consulting Group UK LLP & Ors v HMRC
The Boston Consulting Group is a management consulting firm, which conducts its business in the UK through The Boston Consulting Group UK LLP ("the UK LLP"). In this case the principal point before the First Tier Tribunal was whether payments received by individual partners of the firm (MDPs) on the disposal of capital interests should be taxed on a capital gains tax basis, or taxed as income (under partnership profit sharing rules, or as miscellaneous income, or as proceeds from the sale of occupational income). The FTT ruled against the taxpayer on that issue, finding that they should be treated as chargeable to income tax under Chapter 4, Part 13 ITA if the charge in s687 ITTOIA does not apply. See here.
Financial sanctions, Russia
HM Treasury has issued a further financial sanctions notice against Russia and updated their webpage here.
EU
Dutch requirements for transfer of pension entitlements in breach of EU law - Potential impact on withholding tax and corporate tax exemptions of foreign pension funds
In two recent rulings (C-360/22 and C-459/22), the Court of Justice of the European Union (CJEU) has decided that the Dutch requirements for a tax neutral transfer of pension entitlements are in breach of EU law. The CJEU decided that the conditions under which non-Dutch pension schemes are comparable with Dutch pension schemes are too strict. Based on this decision, the conditions applied by the Dutch tax authorities to compare foreign pensions funds with Dutch pension funds for the purpose of exemptions of Dutch withholding tax and corporate income tax may also be in breach with EU law. Foreign pension funds investing in Dutch assets need to reconsider their position. Read more in this PwC alert.
Europe Platform: Forging a synergy for the European industry of the future
During the recent trilogue negotiations, the EU Commission, the EU Parliament, and the EU Council reached a provisional agreement on the Net Zero Industrial Act (NZIA). This Regulation will form the backbone of the EU’s strategy to boost domestic green tech production, known as the Green Deal Industrial Plan. This initiative responds to the global green subsidy war that escalated following the adoption of the Inflation Reduction Act in the US and a surge of public funding into Chinese green tech manufacturing. Read more in this PwC news item.
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 13 February includes: 1) Taking Stock of Tax Policy in Von Der Leyen’s EU Mandate; 2) CFE Statements on the EU’s BEFIT & Transfer-Pricing Proposals; 3) Harmful Tax Practices Update (OECD & EU Blacklist); 4) OECD Release Statistics on MNE Groups’ Key International Tax Risks; and 5) Save the Date: CFE Forum 2024 | Sharing the Tax Pie | 18 April 2024 | Brussels. Visit their latest news page here. - Global Tax Top 10 – January 2024
This edition includes: 1) CFE Publishes Statement on European Corporate Tax Reform; 2) OECD Release Updated Assessment of Impact of Global Minimum Tax; 3) UN Framework Convention: Website Launch & Structure Update; 4) Tax Priorities of the Belgian Presidency of the Council of EU; 5) EU Agreement on AML Reform; 6) CFE Opinion Statement on the EU Commission HOT Proposal; 7) EU Infringement Action Against Member States on Pillar 2 Implementation; 8) Meeting of the FISC European Parliament Subcommittee; 9) European Commission Adopts 2024 Work Programme; and 10) European Commission Publishes FAQs on EU Minimum Tax Directive.
OECD
Inclusive Framework Members continue countering harmful tax practices
Jurisdictions continue to make progress in addressing harmful tax practices through the implementation of the international standard under BEPS Action 5. This progress is evident in the release of new results on preferential tax regimes and substantial activities in no tax or only nominal tax jurisdictions. The regimes in Hong Kong (China) and the United Arab Emirates were found to be not harmful and two regimes in Albania and Armenia have now been abolished. Read more in this OECD item.
MLI
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
Cross-border Tax Talks - Sustainability and Transparency for Tax Professionals
In this podcast episode, Doug McHoney, PwC’s International Tax Services Global Leader, interviews Heather Horn, PwC's Assurance National Thought Leader and host of the twice-weekly PwC Accounting Podcast. Doug and Heather discuss sustainability reporting and its increasing importance in the business world. They cover various regulations and standards, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), and the potential intersection between sustainability reporting and tax transparency. Doug and Heather note the similarities between CSRD and other recent reporting requirements, like Pillar Two and the EU’s Foreign Subsidies Regulation (FSR). They also highlight the challenges and considerations for companies as they deal with new stakeholders and navigate the new reporting requirements.
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 8 February, we cover:
- the European Commission's regulation determining Canada's digital platform reporting regime as equivalent in reducing required reporting under the EU's DAC7 regime.
- Hot off the press, we also refer to progress on the Philippines adoption of new VAT rules on digital services (which include the supply of digital goods).
Digital tax megabyte for January 2024
A collection of the brief insights throughout January 2024 of the type provided on an ad hoc basis in our Latest digital tax byte update (see above).
Environmental, Social and Governance (ESG)
- Sustainability reporting in 2024
Navigating fast-moving and overlapping sustainability reporting requirements can be daunting. Read our article exploring what's on the horizon for 2024 and the transformative actions business should be taking to not only navigate compliance, but also secure long term value.
Australia
Identifying relevant depreciating asset for tax purposes
The Australian Tax Office (ATO) has finalised its ruling on the treatment of composite items for tax depreciation purposes, TR 2024/1. This ruling provides guiding principles and examples to help taxpayers apply a ‘functionality test’ to determine whether a composite item is itself a depreciating asset or whether its components are separate depreciating assets.
Consultation on changes to location and producer tax offsets
The Australian Treasury launched a short consultation from 5-16 February 2024 on provisions in The Treasury Laws Amendment (2024 Measures No. 2) Bill 2024, which will enhance the country's tax breaks for Australian audiovisual productions. The draft law would amend the Income Tax Assessment Act 1997 to make changes to the location tax offset. These include increasing the rate of the tax offset to 30 percent, increasing the minimum qualifying Australian production expenditure to AUD20m, and the per hour threshold to AUD1.5m.
Belgium
See here for latest updates.
New ways to carving-out and integrating your business in Belgium not always tax neutral
In 2023, new ways of performing carve-out and integrating your business became possible from a legal perspective. Meanwhile the tax law has also been adapted to enable you to perform these new ways of reorganising your group structure tax-free. Nevertheless, some problems still remain and sufficient attention should be paid to the tax consequences of the intended transactions. Read more in this PwC news item.
Canada
Consultation on Scientific Research and Experimental Development
The Canadian Department of Finance is seeking views on cost-neutral ways to modernise and improve the Scientific Research and Experimental Development (SR&ED) tax incentives. They have released a consultation paper for comments until 15 April to gather input on the SR&ED programme.
Chile
Chilean Executive Branch introduces tax bill
The Chilean Executive Branch recently submitted to the Chilean Congress a new ‘Fulfilment of Tax Obligations’ tax reform bill, which aims at increasing tax collection. The Bill adopts measures to address tax evasion and avoidance, and modernise the Chilean tax administration, and also proposes changes to the Chilean Income Tax Law, Value Added Tax Law, and Tax Code, among others. Read more in this PwC alert.
Cyprus
Updated thresholds for the exemption from obligation to prepare Cyprus Local File
The Cyprus Tax Department (“CTD”) issued a letter on 1 February 2024 informing the Institute of Certified Public Accountants of Cyprus (among others) of the Ministry of Finance’s intention to revise the thresholds for the exemption from the obligation to prepare a Cyprus Local File, from EUR 750,000 to EUR 5,000,000 for controlled transactions falling under the category of financial transactions and to EUR 1,000,000 for all other types of controlled transactions. The revised thresholds are to be applied from the tax year 2022. Read more in this PwC alert.
Finland
The Finnish Parliament has amended the Transfer Tax Act reducing the transfer tax rates and amending the tax base
Several important changes impacting real estate investors have been introduced in Finland, including: 1) Reduction of the transfer tax rates on both real estates and securities retroactively as from 12 October 2023; 2) Extension of the transfer tax base by including shareholder loan receivables acquired in connection with a share acquisition to transfer tax base as from 1 January 2024; and 3) Separation of the real estate tax rates applied for land and buildings, and simultaneously, increasing the lower limit of real estate tax of land areas to 1.3% (previously 0.93%) as from 2024 onwards. Read more in this PwC alert.
Germany
Death of business owner does not prevent tax audit for prior years
The Tax Court of the State of Hesse has dismissed an action brought by two sons who, as heirs, did not continue the business of their deceased father. A tax audit was announced for several prior years. The heirs objected in an appeal before the tax court. To no avail. In fact, they must tolerate and comply with the tax audit, the tax court says in a 2023 decision published in January 2024. Read more in this PwC blog.
Local branch of Romanian company as fixed establishment of German group company?
The European Court of Justice must decide whether a German resident company (limited partnership) has a fixed establishment for VAT purposes in Romania under a service contract with a Romanian group company. Advocate General Juliane Kokott gives her opinion on the matter, discussed in this PwC blog.
India
Compensation received on termination of agency, distribution and manufacturing rights agreement is business income
In a recent ruling, the Mumbai bench of the Income-tax Appellate Tribunal concluded that the compensation received upon termination of an agency, distribution and manufacturing rights agreement is business income rather than capital gains. The Tribunal stated that the taxpayer was working as an agent and was able to maintain their livelihood even after the termination of the said agreement. Hence, the compensation is subject to tax under section 28(ii)(c) read with section 28(va)(a) of the Income-tax Act, 1961 (the Act), as business income. Read more in this PwC alert.
Ireland
Ireland publishes responses to consultation on the introduction of a participation exemption
The Irish Department of Finance has published the responses (including from PwC) to its consultation on the introduction of a participation exemption(s) to the Irish corporation tax system. The consultation ran from 14 September to 13 December 2023.
Revenue confirms implementation of 0% interest rate for liabilities within the Debt Warehouse Scheme
The Minister for Finance, Michael McGrath T.D., has announced that the interest rate applicable to warehoused debt will be reduced to 0% and that the necessary legislation to implement the reduction will be introduced at the next available opportunity.
Korea
Korean Tax Update - February 2024
The latest update includes: 1) Government seeking to partially amend tax laws to expand incremental R&D tax credit and extend the temporary investment tax credit; 2) Korea-Taiwan Double Tax Treaty applies to income taxes from January 2024; 3) Ministry of SMEs and Startups unveils a plan for an extended grace period for SME graduation in its Economic Policy Briefing for 2024; 4) NTS reports a significant improvement in expediting the settlements of tax appeal cases; 5) Changes in tax laws; and 6) Rulings updates.
Malta
Malta Enterprise relaunches several schemes
In January 2024, the Malta Enterprise Corporation launched a number of schemes to assist start-ups, SMEs and large enterprises covering several eligible costs, including capital investments and certain training costs. Read more in this PwC alert.
Middle East
Saudi Arabia (KSA) - RHQ Programme now in force
The Regional Head Quarter Programme (RHQ Programme) is a ‘Vision 2030’ initiative jointly developed by the Ministry of Investment Saudi Arabia “MISA” and the Royal Commission for Riyadh City “RCRC” with the objective of encouraging global companies to establish or relocate their regional headquarters to the KSA. The RHQ Programme is now in force, having passed the due date for implementation of 1 January 2024. This PwC alert provides a high level summary of considerations for businesses to be aware of in order to bid for government contracts.
Netherlands
Dutch requirements for transfer of pension entitlements in breach of EU law - Potential impact on withholding tax and corporate tax exemptions of foreign pension funds
In two recent rulings (C-360/22 and C-459/22), the Court of Justice of the European Union (CJEU) has decided that the Dutch requirements for a tax neutral transfer of pension entitlements are in breach of EU law. The CJEU decided that the conditions under which non-Dutch pension schemes are comparable with Dutch pension schemes are too strict. Based on this decision, the conditions applied by the Dutch tax authorities to compare foreign pensions funds with Dutch pension funds for the purpose of exemptions of Dutch withholding tax and corporate income tax may also be in breach with EU law. Foreign pension funds investing in Dutch assets need to reconsider their position. Read more in this PwC alert.
New Zealand
Charities - business income exemption
New Zealand's Inland Revenue Department has launched a public consultation until 15 March 2024 for an interpretation statement that considers the extent to which business income a charitable entity earns is exempt from tax under section CW 42.
Russia
Financial sanctions
HM Treasury has issued a further financial sanctions notice against Russia and updated their webpage here.
Singapore
Singapore Budget 2024
On 16 February 2024, Singapore's Deputy Prime Minister and Minister for Finance (Mr Lawrence Wong) delivered the FY2024 Budget Statement. The Budget aims to support Singaporeans and businesses in addressing immediate challenges while preparing for long-term sustained growth. It focuses on investments in cost-of-living relief, workforce development and skills training, and promoting artificial intelligence and sustainability for the future. See these key budget changes for businesses and visit our dedicated webpage for further insights.
Global minimum tax - what’s beyond the horizon?
The dawn of global minimum tax (also known as Pillar Two top-up tax) in 2024 may mean placing a floor on tax competition, but it does not change the fact that competition for foreign direct investments (FDIs) remains as intense as ever. Singapore must consider other avenues to continue positioning itself as the preferred FDI location. One way is to introduce a Qualified Refundable Tax Credit (QRTC) scheme that is designed to give Singapore an edge in a Pillar Two world. Such a scheme will complement existing grants, thereby adding scale and variety to Singapore’s fiscal toolkit. Read more in this PwC article (contributed to and first published in The Business Times on 13 February 2024).
South Africa
Tax Synopsis - January 2024
A monthly journal, published by PwC South Africa, that gives informed commentary on current developments in the tax arena, both locally and internationally. Read the latest edition here.
Tax Alert - foreign employers
There has been a significant change (effective from 22 December 2023) to the employment withholding tax (PAYE) responsibilities of a foreign employer who conducts business through a South African permanent establishment. Such foreign employers are now required to register for and withhold PAYE. Read more in this PwC alert.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
Taiwan
Taiwan Tax Update January 2024
The latest issue includes: Double tax treaty between Taiwan and South Korea entered into force on 27 December 2023 and took effect starting 1 January 2024.
US
Pillar Two
- US Guidance Update: Pillar Two and more
In this Cross-border Tax Talks episode from 13 February, Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Wade Sutton (PwC’s Washington National Tax Service’s ITS Leader). They discuss the recent foreign tax credit (FTC), corporate alternative minimum tax (CAMT) and Previously Taxed E&P (PTEP) notices. They also discuss the interaction of Pillar Two with the FTC rules, dual consolidated loss (DCL) rules, and CAMT. Doug and Wade wrap up by looking ahead to guidance we might see in 2024. - Transfer Pricing and the Pillar Two Transitional CbCR Safe Harbor: What do you need to know to transform?
For the Pillar Two CbCR safe harbour rule, using a Transfer Pricing lens can help companies comply with the necessary data requirements. How do you prepare for CbCR? Read more in this PwC article.
Regulations proposed on Section 45V verifications, ITC elections
The IRS and Treasury published proposed regulations on the Section 45V tax credit for production of qualified clean hydrogen in December. Section 45V was enacted by the Inflation Reduction Act of 2022. These proposed regulations provide the first IRS and Treasury guidance interpreting these new provisions. This PwC Insight discusses the placed-in-service date for a modified or retrofitted facility, procedures for third-party verification of credit requirements, and the election to claim the Section 48 energy property investment credit instead of the Section 45V production credit.
Policy on Demand series
- Election Watch 2024
As primary season heats up, in this episode from 14 February, Janice Mays and Rohit Kumar unpack the results so far, talk about implications, and what’s on the minds of executives in an uncertain election environment. - Laying groundwork to address expiring TCJA provisions & other issues
The Congressional tax writing committees are turning their attention to the 2025 scheduled expiration of some TCJA provisions and other tax reform issues. In this episode from 12 February, Chairman Dave Camp and Mark Prater provide an inside look at what issues Congressional tax writers may consider in the coming 2025 tax reform discussions. - Can tax bill overcome Republican reluctance in Senate?
In this episode from 5 February, Todd Metcalf and Karl Russo discuss possible Senate action on the House-passed tax package, how companies might prepare for the 2025 negotiations on the expiring TCJA tax provisions, and the outlook for a House vote on legislation to provide relief from the "SALT" cap on individual deductions. - Week in Review
- 16 February – In this episode, Pat Brown talks about the fate of the tax package, questions he’s hearing about OECD guidance that may simplify the computation of deferred taxes, and where companies should focus their attention in the coming week.
- 9 February – Uncertainty over, and delay in, resolving government funding issues could affect the timing and likelihood of Senate action on the House-passed tax bill. Focus on how Congressional leadership manages the current impasse on government funding, as the fate of the tax package will likely rest on the passage of an appropriations bill. Watch here.
Tax Readiness webcast series
- 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. Join our specialists on Tuesday 27 February at 7pm, as they discuss actions to build trusted, accessible data for complex compliance challenges and strategic C-suite initiatives, yielding high-value results for years to come. Register here. - New year, new updates on US international and global tax
In this webcast from 23 January, our panel of PwC international tax specialists shared their insights on recent and upcoming guidance on international tax issues facing multinational corporations. The panel discussed guidance around the OECD’s Pillar Two initiative, the foreign tax credit (FTC), the corporate alternative minimum tax (CAMT), and previously taxed earnings and profits (PTEP). Watch the replay here.
State and Local tax
- Los Angeles City Business Tax annual filing due February 29
The annual Los Angeles City Business Tax (LACBT) is due this year on 29 February 2024, and for some taxpayers conducting business in Los Angeles, such a short deadline may be their first tax filing of the year. Read more in this PwC Tax Insights. - San Francisco’s complex tax filings due February 29
Companies engaging in business in San Francisco (the city) must register in the city and pay a licence fee. The deadline for paying licence fees for the 2024-2025 period is 31 March 2024. Additionally, businesses may be subject to up to four main city taxes: the San Francisco Gross Receipts, Homelessness Gross Receipts, Commercial Rents, and Overpaid Executive taxes. The 2023 filing and final payment deadline for these taxes is 29 February 2024 (extension to file but not pay available until 30 April 2024). Read more in this PwC Tax Insights. - Proposed Tennessee bills provide potential franchise tax refund opportunity
Legislation was recently introduced that would remove the alternative tangible/realty property base from the Tennessee franchise tax. Additionally, the bills would require the payment of refunds for open years for taxpayers who paid on the tangible property base. Read more in this PwC Tax Insights.
Further information
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