Two weeks to 16 June 2023
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Pillar Two
- HMRC issues draft guidance for consultation
On 15 June, HMRC published partial draft guidance on the Pillar Two rules (ie the multinational top-up tax and domestic top-up tax) set out in the Spring Finance Bill 2023 which is currently progressing through Parliament. HMRC invites comments from stakeholders on this draft guidance until 12 September. - Webcast: A practical guide to surviving Pillar Two
Join PwC’s Matt Ryan, Rob Gooding and Jos Bhasker at 10am on Thursday 22 June for an update on Pillar Two implementation globally, and some practical steps organisations can take to overcome some of the key challenges they are facing. The team will also walk through the technology solutions being developed for compliance and reporting. You can register here. - Pillar Two Guide for US Multinational Enterprises
This guide, published by our US firm on their US Pillar Two webpage, provides a step by step plan US headed MNEs can use to prepare for Pillar Two. - Updated Pillar Two Country Tracker
We’ve updated our Pillar 2 Country Tracker to include information about safe harbours, the ability to expand all content, and added updated country profiles. We’re also working to develop export options, so we’ll keep you updated as the tool develops. - Spring Finance Bill 2023
On 13 June, the government tabled a number of amendments for consideration at the Report Committee stage of the Spring Finance Bill 2023 (also known as Finance (No 2) Bill 2023), which subsequently took place on 16 June (see here, along with them accompanying Explanatory Notes). These include a new Clause 4 relating to Pillar Two, which makes it explicit that (as we already thought was the case) the UK domestic top-up tax will apply from 31 December 2023.
Consultation launched - UK law reform in TP, PE and DPT
HMRC has today (19 June 2023) launched a consultation on changes to UK legislation across several areas of taxation that will impact MNEs - transfer pricing (TP), permanent establishment (PE) and diverted profits tax (DPT). The consultation will be open for 8 weeks, through to 14 August, and during that period there’s an opportunity for interested parties to join one of four "consultation events" being held by HMRC:
- 27 June (registration closes 23 June) - All topics
- 30 June (registration closes 26 June) - Financial Transactions/Financial TP
- 6 July (registration closes 29 June) - Financial Services/PE
- 10 July (registration closes 29 June) - All topics (Livestream only)
Register for these events on the consultation home page, which also has a link to the full consultation document itself.
Spring Finance Bill 2023
The Report Committee stage for this Bill (also known as Finance (No 2) Bill 2023) took place on 16 June and its Third Reading is scheduled for 20 June. At the completion of its Third Reading, the Bill will be substantively enacted for UK GAAP and IFRS purposes. Royal Assent is expected to take place in mid-July (after the completion of the Lords stages on 10 July and before summer recess on 21 July). Keep up with the timetable for this Bill here.
The government tabled a number of amendments for consideration at Report Committee stage, including a new Clause 4 relating to Pillar Two, as noted above.
Case law update
- Centrica - Supreme Court has granted taxpayer permission to appeal
On 31 March 2023, the Supreme Court granted Centrica permission to appeal the Court of Appeal's decision about the deductibility of advisor costs incurred after a strategic decision had been made to sell an investment (see here). Last November, the Court of Appeal held that although the costs did constitute expenses of management, a deduction was prohibited because they were “expenses of a capital nature”. The Court of Appeal's judgment in this case continues to set a precedent until the Supreme Court publishes its decision, which will most likely be during 2024. - Payment was not deductible under loan relationship or chargeable gain rules
In Swiss Centre Ltd. v. HM Revenue & Customs, [2023] UKFTT 499 (TC), the First-Tier Tribunal upheld a British property development company's corporate tax assessment related to payments made to an Irish government agency, determining that the company can't claim a deduction under the loan relationship rules in the Corporate Tax Act 2009.
HMRC Manual & guidance updates
The following changes have recently been made by HMRC following review:
- International Manual: fixed place of business - updated 16 June
HMRC added a new page INTM264435 - Non-residents trading in the UK: permanent establishment: domestic and treaty law: fixed place of business. It sets out five scenarios in which employees of overseas businesses take advantage of increased flexibility and mobility in their working conditions to spend blocks of time working in the UK and considers whether each arrangement gives rise to a 'fixed place of business'. - Company Taxation Manual: outward migration - updated 16 June
CTM34195 - Residence: outward company migration: guidance notes for migrating companies. A very minor change was made, removing the telephone number previously given for enquiries. - HMRC Guidance - Restriction on Corporation Tax relief for interest deductions - updated 14 Jun
HMRC has updated its guidance to include information about who to contact if a company does not have a Customer Compliance Manager.
Tax system an “obstacle to economic dynamism” and Government efforts to simplify it need scrutiny, says Treasury Committee
The Treasury Committee has called for enhanced accountability of Government efforts to simplify the UK’s overcomplicated and burdensome tax system. In a new report, the cross-party Committee of MPs concludes that the UK’s overcomplicated tax system is an obstacle to economic dynamism, creating compliance burdens, confusion and disincentives to work or grow a business. Read more in this news article.
HMRC gives offshore customers chance to come clean
HMRC is writing to UK residents named in the leaked Pandora Papers to give them the chance to correct their tax affairs. Read more in this HMRC press release.
Treaty updates
- 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 at 19 June with 405 additions and 32 removals.
EU
ECJ AG proposes dismissing EC's Amazon appeal
In the ongoing dispute regarding a tax ruling granted by Luxembourg to Amazon, ECJ Advocate General Juliane Kokott has recommended that the European Court of Justice dismiss the Commission's appeal. Kokott has opined that the Commission erred in deciding that Luxembourg had granted unauthorised state aid to Amazon in the form of tax advantages. Read the opinion here.
Tax Readiness: Are you ready for the impending EU Foreign Subsidies Regulation?
The EU’s Foreign Subsidies Regulation (FSR) seeks to extend the EU State Aid rules outside the European Union, to address 'subsidies' granted by non-EU countries. Register here for this webcast on Wednesday 12 July at 4pm, where our panel will explore (among other topics) the range of subsidies and incentives within scope, data collection issues/requirements, and how the FSR might impact deals.
EU to explore wider scope for tax listing process
EU finance ministers want to further strengthen the list of noncooperative jurisdictions for tax purposes, possibly by expanding its geographic scope. Draft conclusions that the Economic and Financial Affairs Council is expected to adopt at a meeting on 16 June, say that finance ministers welcome the work of the Code of Conduct Group (Business Taxation) “on further strengthening the EU list, including the possible extension of the geographical scope of the EU list as soon as possible.”
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 12 June includes: 1) CFE Statement on EU Parliament Pandora Papers Report; 2) CFE Opinion Statement on Official Ruling 57:2023 of the Italian Central Tax Office on Intervening Fixed Establishments in a VAT Context; 3) Register Now: “A Gender Equal Tax System in Europe: Reflections for a New Agenda” – 4 July 2023, EU Parliament; 4) EU Parliament Position on EU AI Act; and 5) Global Forum Develops Model Administrative Compliance Strategy for Automatic Exchange of Information. Visit their latest news page here.
OECD
Pillar Two
See our UK section above for updates on the UK implementation of Pillar Two and our international section below for updates regarding the steps other territories are taking in relation to Pillar Two.
- Updated Pillar Two Country Tracker
We’ve updated our Pillar Two Country Tracker to include information about safe harbours, the ability to expand all content, and added updated country profiles. We’re also working to develop export options, so we’ll keep you updated as the tool develops.
Uzbekistan joins the Inclusive Framework on BEPS
Uzbekistan joins international efforts against tax evasion and avoidance by joining the OECD/G20 Inclusive Framework on BEPS. Through its membership, Uzbekistan has also committed to addressing the tax challenges arising from the digitalisation of the economy by joining the two-pillar plan to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate. Read more in this OECD item.
Enhanced International Standards for tax information exchange
During a recent OECD Ministerial Council Meeting, OECD countries agreed to swiftly implement the newly revised International Standards for Automatic Exchange of Information in Tax Matters which encompass several important updates and additions to address emerging challenges in the evolving tax environment. This publication includes the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS), along with associated Commentaries and exchange of information frameworks, as approved by the Committee on Fiscal Affairs, which now collectively represent the International Standards for Automatic Exchange of Information in Tax Matters.
Other territories
International
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. This edition, from 5 June, includes: 1) access to a new African indirect tax guide with useful information across 43 countries including tax measures directed at the digital economy; 2) We also note that Israel has dropped VAT plans for B2C digital services; 3) The IASB has also issued an Exposure Draft on deferred tax accounting for Pillar 2 by SMEs.
Environmental, Social and Governance (ESG)
The carbon impact of our technology
As technology becomes more embedded in everything we do, it is critical for us to understand the true impact of our technology usage. We have recently released a new report assessing the carbon impact of our technology. We are also exploring ways in which our business, people, suppliers and clients can use technology more effectively and responsibly. Read more.
Belgium
See here for latest updates.
Canada
Finance launches consultation on reforming and modernising Canada's transfer pricing rules
The Department of Finance Canada (Finance) has released a consultation paper, ”Consultation on Reforming and Modernising Canada's Transfer Pricing Rules,” to gather stakeholder input on various questions and proposals related to Canada’s transfer pricing legislation. The Consultation appears to be heavily influenced by perceived limitations in Canada’s transfer pricing rules as exposed by the Federal Court of Appeal’s decision in The Queen v. Cameco Corporation, 2020 FCA 112 and represents a potentially fundamental shift in the Canadian transfer pricing landscape. Read more in this PwC Tax Insights.
Costa Rica
Costa Rica Executive Branch introduces corporate tax bill
Costa Rica’s Executive Branch in mid-May presented a corporate income tax bill to the Costa Rica Congress for consideration. The Bill is part of a package of five proposed bills that also includes proposals to strengthen the tax audit function, amendments to VAT law, rules regarding vehicles tax, and proposed rules related to the management of public debt and other functions of the National Treasury. Read more in this PwC Tax Insights.
Hong Kong
Hong Kong proposes introducing a company re-domiciliation regime
Unlike the current common Hong Kong entry options for foreign companies, such as establishing a new company in Hong Kong and winding up the old company in its original place of incorporation upon business transfer, re-domiciliation would enable a foreign-incorporated company to change its domicile to Hong Kong whilst maintaining its legal identity. This gives companies maximum continuity over business operations and substantially reduces administrative complexity and compliance burden compared to other routes of relocating to Hong Kong. This PwC newsflash provides an overview of the proposed regime and our observations.
IRD’s views on certain Hong Kong corporate tax issues expressed in its 2022 annual meeting with the HKICPA
The minutes of the 2022 annual meeting between the Inland Revenue Department (IRD) and the Hong Kong Institute of Certified Public Accountants (HKICPA), held on 13 May 2022, were recently released. This PwC newsflash highlights the IRD’s view on the key profits tax issues and its approach to processing applications for Hong Kong certificate of residence lodged by non-Hong Kong incorporated companies.
IRD’s adjusted approach to the issuance of Certificate of Resident Status: Only residence matters
The Inland Revenue Department (IRD) has recently revisited its approach to the issuance of Hong Kong Certificate of Resident Status (HK CoR) and announced that, effective from 12 June 2023, it will base its decision of whether an HK CoR can be issued on the plain definition of ‘resident of Hong Kong’ in the relevant comprehensive avoidance of double tax treaty. The application forms have also been revised to reflect its latest approach. Read more in this PwC newsflash.
India
200% penalty leviable only in case of specific misreporting instances prescribed under section 270A(9) of the Act
The Mumbai bench of the Income-tax Appellate Tribunal held in a recent ruling, that a 200% penalty can only be levied in cases where misreporting of income is covered under the six specific instances prescribed under section 270A(9) of the Income-tax Act, 1961. The Tribunal observed that the Tax Officer (TO) is given discretionary, but not mandatory, power to levy a penalty under section 270A of the Act, as the Parliament has used ‘may’ instead of ‘shall’ under section 270A of the Act. Read more in this PwC Tax Insights.
Ireland
Payment of Preliminary Corporation Tax
The Irish Revenue has amended paragraph 3 of the Tax and Duty Manual Part 41A-07-02 - Payment of Preliminary Corporation Tax. This is to clarify that if close company surcharges apply, those amounts should be included in calculating the CT for the preceding accounting period when determining whether a company is a "small company" for the purposes of calculating preliminary tax.
Jersey
Jersey Assembly considers Bill to amend stamp duty rates
The Jersey States Assembly recently accepted for consideration Draft Bill No. P.39/2023, to amend the stamp duty rates. The draft bill includes measures to: 1) reduce the threshold of the current upper stamp duty band from a property value of £6 million to £5 million, with the rate applied to each £100, or part of £100, on properties above this threshold to be increased to £12.00; 2) establish two new stamp duty bands for properties from £10,000,001 to £15 million, and £15,000,001 and above, with the chargeable rate within these bands on each £100, or part of £100, to be £13.50 and £15 respectively.
Korea
Korean tax update, June 2023
This edition covers: 1) Electric vehicles added to the list of National Strategic Technology Sectors Eligible for Investment Tax Credits; 2) Korea and Portugal agree to revise the income tax treaty; 3) KCS is temporarily suspending customs audits for an increased number of companies; 4) NTS announces measures to overhaul tax investigation procedures to enhance taxpayer rights and protection; 5) Foreign financial account reporting requirement extended to overseas; 6) Virtual asset accounts this year; and 7) Rulings update.
Luxembourg
Circular of the Luxembourg tax authorities on the reverse hybrid rules of article 168quater LITL
The Luxembourg tax authorities (the LTA) recently issued an administrative circular providing some guidance on their interpretation of the reverse hybrid rules provided for by article 168quater of the Luxembourg Income Tax Lax (LITL). This PwC news item provides a summary of the main clarifications/confirmations brought by the LTA.
Middle East
Oman and Russia sign double tax treaty
Oman and Russia signed a double tax treaty on 8 June 2023. Signing of the treaty is anticipated to encourage capital investment, trade in goods and services and other economic activities between the two nations by preventing international double taxation. Read more in this PwC news alert.
UAE Federal Corporate Tax and UAE Economic Substance Regulations
According to Cabinet Decision No. 55 of 2023 issued on 30 May 2023 (in effect on 1 June 2023), businesses registered and operating in one (or more) UAE free zones will be required to maintain adequate substance (amongst other conditions) to meet the “Qualifying Free Zone Person” definition. Read more in this PwC news alert.
UAE Corporate Tax: Ministerial Decisions No. 125, 126 & 127 releases
On 22nd, 23rd and 24th of May 2023, the Ministry of finance issued a number of decisions respectively: 1) Decision No 125 of 2023 on Tax Group; 2) Decision No.126 of 2023 on the General Interest Deduction Limitation Rule; and 3) Decision No. 127 on Unincorporated Partnership, Foreign Partnership and Family Foundation. Read more in this PwC news alert.
UAE and Russia hold second round of double tax treaty negotiations
The UAE, represented by the Ministry of Finance, held the second round of negotiations on the double tax treaty between the UAE and the Russian Federation at the ministry’s headquarters in Dubai. The negotiations follow the ministry’s efforts to further strengthen cooperation frameworks for tax matters, provide full protection to taxpayers from double taxation and avoid the obstruction of the free flow of trade and investment. Read the full press release here.
Netherlands
Pillar Two bill submitted to Dutch Parliament
The Netherlands’ legislative proposal to transpose Pillar Two into the Dutch company tax system, titled ‘Minimum Tax Act 2024 (Pillar Two),’ was submitted to the Dutch Parliament on 31 May. The Netherlands is the first country within the European Union to release its domestic Pillar Two legislation. Parliament and the Upper House will discuss the legislative proposal in the coming months. The legislative bill is expected to enter into force on 31 December 2023. Read more in this PwC Tax Insights.
Russia
Oman and Russia sign double tax treaty
Oman and Russia signed a double tax treaty on 8 June 2023. Signing of the treaty is anticipated to encourage capital investment, trade in goods and services and other economic activities between the two nations by preventing international double taxation. Read more in this PwC news alert.
UAE and Russia hold second round of double tax treaty negotiations
The UAE, represented by the Ministry of Finance, held the second round of negotiations on the double tax treaty between the UAE and the Russian Federation at the ministry’s headquarters in Dubai. The negotiations follow the ministry’s efforts to further strengthen cooperation frameworks for tax matters, provide full protection to taxpayers from double taxation and avoid the obstruction of the free flow of trade and investment. Read the full press release here.
South Africa
Tax Synopsis - May 2023
This month’s edition covers: 1) Return of CTC – caveat investor! 2) Curiosity saves the cat: I-CAT International Consulting (Pty) Ltd (“I-CAT”) vs CSARS; and 3) SARS watch.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
Taiwan
US House Ways and Means Committee approves Taiwan trade agreement
The United States’ House Ways and Means Committee has voted unanimously to advance a bill (H.R. 4004) that approves the first trade agreement signed under the US-Taiwan Initiative on 21st-Century Trade. Read more in this PwC Tax Insights
Taiwan tax update May 2023
This edition covers: Ministry of Economic Affairs announced draft implementation rules under Article 10-2 of Statute for Industrial Innovation covering “Investment Tax Credit of Corporations for Expenditure Incurred in Forward-looking Innovative R&D and Equipment used in Advanced Manufacturing Process”.
Pillar Two Guide for US Multinational Enterprises
This guide, recently published on the US Pillar Two webpage, provides US MNEs with a step by step plan to prepare for Pillar Two.
IRS provides relief of estimated tax penalties for the corporate alternative minimum tax
The IRS and Treasury recently released Notice 2023-42 (Notice), waiving the addition to tax under Section 6655(a) relating to the CAMT for a tax year that begins after 31 December 2022, and before 1 January 2024 (Covered CAMT Year). According to the IRS, in the interest of sound tax administration, the Notice provides relief in light of uncertainty regarding a corporation’s status as an applicable corporation subject to the CAMT and the computation of a corporation’s CAMT liability under Section 55. Read more in this PwC Tax Insights.
Sweet child o'mine: inbounding intangibles to the US
In this episode from 7 June, Doug McHoney is joined by Aaron Junge, PwC National Tax Services International Tax Partner, to discuss the historical perspective of Section 367(d) and its effects on the repatriation of IP.
House Ways and Means Committee approves business and individual tax relief bills, Taiwan trade agreement
The House Ways and Means Committee, late on 13 June, voted along party lines to approve an economic growth package consisting of three separate tax bills: 1) the Tax Cuts for Working Families Act (H.R. 3936); 2) the Small Business Jobs Act (H.R. 3937); and 3) the Build It in America Act (H.R. 3938). The committee also voted unanimously to advance a bill (H.R. 4004) that approves the first trade agreement signed under the US-Taiwan Initiative on 21st-Century Trade. Read more in this PwC Tax Insights.
Additional guidance on Section 48C energy credit allocations
Section 48C, enacted in 2009, provides a credit for investment in qualifying advanced energy projects to produce energy from alternative sources or capture and sequester carbon emissions. Treasury, in connection with the Department of Energy (DOE), certifies and allocates a limited total credit amount to eligible projects. The Inflation Reduction Act added Section 48C(e), extending the credit and authorising a new total credit of $10 billion, of which $4 billion must be allocated to projects in the “coal closure” category of energy communities (census tracts where a coal mine has closed or a coal-fired electric generating unit has been retired). Notice 2023-44 provides guidance on eligibility for the Section 48C credit and the Section 48C(e) allocation process for 2023. Read more in this PwC Tax Insights.
IRS preliminary guidance on energy community bonus credit
The Inflation Reduction Act of 2022 extended and expanded a number of tax credits to encourage production of clean energy. Notice 2023-29 provides interim guidance in advance of proposed regulations on the energy community bonus for credits under Sections 45, 45Y, 48, and 48E. Read more in this PwC Tax Insights.
Policy on Demand series
- Rohit Kumar on what’s next for tax legislation
In this episode from 14 June, Rohit Kumar talks about the economic growth package, which now heads to the House floor. He also discusses additional tax provisions like the child tax credit that may show up in a compromise year-end tax bill. - What's in - and next - for the economic growth bill
What’s in the draft economic growth legislation being marked up this week and its possible impact on other tax legislation? In this episode from 12 June, Chairman Dave Camp and Janice Mays provide their take and insight on an economic growth legislative package on deck Tuesday for a markup in the Ways and Means Committee. - Ways & Means responds to unilateral tax measures
In this episode from 5 June, Pat Brown discusses international tax legislation introduced by House Ways and Means Committee Republicans to address unilateral measures taken by other countries in response to the OECD’s two-pillar project. - Week in Review
- 16 June - In this episode, Scott McCandless discusses his takeaways from this week: the approval of the economic growth package. And for companies wondering what they should be done, he urges not letting up the gas – stay focused on Congress.
- 9 June - The debt ceiling agreement may have averted an economic crisis, but expressions of frustration over the agreement from some House Republicans have raised questions about the possible impact on both Speaker McCarthy and future legislation. In this episode, Chairman Dave Camp talks about that and encourages companies to focus on the economic growth package expected in the coming days from House Ways and Means Republicans.
Tax Readiness webcast series
- Tax Readiness: Q2 Financial reporting considerations
Join our panel of PwC specialists on Thursday 22 June at 7pm, as they take a deep dive into key tax accounting and reporting reminders, along with recent tax developments. Register here.
State and local tax
- Indiana enacts corporate income tax changes
Indiana has enacted several changes to its corporate income tax, including significant modifications to the operation and calculation of an Indiana net operating loss (NOL). Read more in this PwC Tax Insights.
Further information
You can sign up for Tax Alerts issued by the US to be emailed to you. Subscribe using the link on this page. A back catalogue of previous webcasts and other resources are available on our US tax reform hub here.
Uzbekistan
Uzbekistan joins the Inclusive Framework on BEPS
Uzbekistan joins international efforts against tax evasion and avoidance by joining the OECD/G20 Inclusive Framework on BEPS. Through its membership, Uzbekistan has also committed to addressing the tax challenges arising from the digitalisation of the economy by joining the two-pillar plan to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate. Read more in this OECD item.