Two weeks to 19 May 2023
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Unallowable purpose
HMRC has substantially expanded its unallowable purpose guidance. HMRC's objective appears to be to provide greater clarity about the unallowable purpose rule following recent case law developments, and to offer reassurance to taxpayers that the unallowable purpose rule need not be seen as a barrier to debt-funding "normal commercial" investment in and/or by the UK. Although this new guidance does not shift the dial significantly, there are many points of interest, particularly the various points where HMRC is helpfully realistic. Reach out to your usual PwC adviser to discuss how this change impacts your business, particularly if:
- you have planned or shelved debt-funded transactions or refinancings;
- you are considering investment into the UK;
- you have filing positions potentially impacted by the unallowable purpose rule; or
- you are subject to ongoing enquiries relating to the unallowable purpose rule.
Pillar Two
- Global implementation of Pillar Two: proposed amendments to IAS 12 – endorsement and enactment timing
Companies need to determine what their accounting policy is in relation to Pillar Two and document appropriately for June reporting requirements where the Pillar Two rules are enacted in any territories but the IAS 12 amendment is not in place or not endorsed at that point. For example in the UK the Pillar Two legislation is expected to be substantively enacted in June or July 2023 whereas the IAS 12 amendment, which provides a temporary exception to accounting for deferred tax in relation to Pillar Two, is expected to be issued by the end of May 2023 but cannot be applied until it has been endorsed. You could have a small period where the UK rules are substantively enacted without the IAS 12 amendment. Read more. - PwC’s Pillar Two Country Tracker is now available directly on our Pillar Two global website. The tracker is free to access and provides the status of Pillar Two implementation in different countries and regions.
- Pillar Two webcast: When Tax Policy Meets Implementation. Administrative guidance, readiness, and compliance issues
On this webcast held on Tuesday 25 April, our tax policy specialists reviewed unresolved technical issues, as well as the administrative guidance to date. They also discussed how countries are implementing the rules, and how businesses can deal with what we know and don’t know. In the latter category, one big question is what is being built into the regime for increasing tax certainty during the transition and beyond? Watch the replay here.
COST Forum on US State and Local Taxes for European Companies - London 20 June 2023
PwC is one of the sponsors of the COST Forum on US State and Local Taxes for European Companies, a one day conference on US State and Local Taxes for European companies that will be held in our Embankment Place office in London on 20 June 2023. Leading practitioners with dedicated knowledge in this area, including our very own Rob Ozmun and Dorothy Lo, will help attendees understand the tax requirements and risks of doing business or expanding into the vastly lucrative US market. Differences between the US and European tax systems will be covered and attendees will learn about threshold issues such as nexus and jurisdiction. You can find the agenda and registration link here.
Change in HMRC approach to withholding tax non compliance
As reported in our last edition, HMRC announced a change in its approach to WHT non-compliance on 4 May 2023. As it is no longer bound by the decision in TTL EOOD following Brexit, HMRC is reverting to its original position that it will impose late payment interest where taxpayers have not complied with their WHT obligations - most commonly, where they have paid interest gross (or at the reduced treaty rate) without having first obtained advance clearance to do so. HMRC has stated that this approach has immediate effect from 4 May 2023, and we are seeking clarification from HMRC as to exactly how that will apply. It has since announced a rise in the applicable rate of interest, following the rise in the Bank of England’s base rate.
Finance (No 2) Bill 2023
The Finance Bill has now completed the Public Bill Committee stage. Explanatory Notes for government amendments at this stage can be seen here. The Bill is now due to have its report stage and third reading, on a date yet to be announced. It will be substantively enacted for UK GAAP and IFRS purposes once those stages have been completed.
The build or buy dilemma - what’s a tax leader to do?
Leaders of in-house tax departments need to analyse their department and consider two paths for their future tax technology and people infrastructure. Should they “build up” in-house capabilities or “buy” an outsourced solution? This article outlines the factors for clients to consider.
How technology is opening up a world of new possibilities for Tax
Tax teams are seeing the benefit of the latest wave of technological advances, which have the potential to catapult tax to the front of the finance function investment agenda. In this Delivering Tax webcast, we discuss cloud, ERP and the latest tech we’re introducing to deliver outstanding results for tax departments.
Case law update
Interpretation of ESC B18 - six year limitation not applicable to distributions by foreign trust distributions
The Court of Appeal has ruled in favour of the taxpayer in Murphy v HMRC [2023] EWCA Civ 497, which concerned the meaning of ESC B18 in the context of payments to UK tax resident beneficiaries by a Guernsey resident discretionary trust. The trust had been liable to (and paid) UK income tax on its UK source interest. The specific question was whether ESC B18 could be applied to allow the UK tax resident beneficiaries tax credit on distributions from the trust with no limitation, or whether (as HMRC contended) it could only be applied to payments not more than 6 years before the year of assessment in which the payment was made. Allowing the taxpayer’s appeal, the Court of Appeal ruled that the time limit does not apply in this scenario.
Treaty updates
- UK/San Marino
The UK-San Marino Double Taxation Convention was signed on 17 May 2023. It has not yet entered into force. The Convention will enter into force upon completion of the procedures required by the law of both countries.
HMRC Manual updates
The following changes have recently been made:
- Corporate Finance Manual
HMRC has published expanded updated guidance on the ‘unallowable purpose’ rule at CFM38100 to CFM38200. See analysis above.
SI 2023/534 – The Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023
The Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023 supplement the Economic Crime (Transparency and Enforcement) Act 2022, Pt. 1, which established a register of overseas entities to include information about an overseas entity’s ‘registrable beneficial owners’. The Regulations come into force on 1 June 2023.
EU
New tax transparency rules will help Member States shine a light on the crypto-asset sector
On 16 May 2023, the Commission welcomed the political agreement (‘general approach’) reached by EU Finance Ministers on new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU. Read more in this European Council press release and related European Commission news item.
Alphabet soup: A taste of EU tax
In this Cross-border Tax Talks episode from 10 May, Doug McHoney (PwC's International Tax Services Global Leader) is joined in Madrid by Edwin Visser, PwC’s European Tax Policy Leader to discuss the numerous EU tax proposals, including the Carbon Border Adjustment Mechanism (CBAM), the Foreign Subsidies Regulation (FSR), Green Energy Credits, ATAD3.
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 8 May includes: 1) EU Parliament Hearing on Empowering Tax Authorities; 2) OECD Publishes Taxing Wages Report 2023; 3) Save the Date: CFE, ICAEW & PwC Event: “A Gender Equal Tax System in Europe: Reflections for a New Agenda” – 4 July 2023; 4) European Ombudsman’s Annual Report 2022; and 5) EU Commission April Infringement Package. Visit their latest news page here. - Global Tax Top 10 - April 2023
This edition includes: 1) EU Commission Adopts Regulation on Tax Transparency; 2) EU Commission Refers Belgium to ECJ Over ATAD Implementation; 3) European Parliament Approves Carbon Border Adjustment Mechanism & Emissions Trading Scheme Reforms; 4) CFE Annual Forum & General Assembly Held in Brussels; 5) EU Parliament MEPs Adopt Position of EU AML Legislation; 6) CFE Issues Opinion Statement on European Commission ViDA Proposals; 7) European Parliament Approves Rules for Tracing Crypto-Assets; 8) International Fiscal Association Invites Views on Tax Avoidance in Advance of European Conference (5 – 7 July); 9) G-24 Supports UN International Tax Cooperation Framework; and 10) EESC Adopts Opinion Supporting DAC8 Proposal.
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.
- PwC’s Pillar Two Country Tracker is now available directly on our Pillar Two global website. The tracker is free to access and will help you understand the status of Pillar Two developments around the world.
Sierra Leone joins OECD Global Forum
Sierra Leone has joined the international fight against tax evasion as 168th member – and 37th African member – of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). Sierra Leone is the fourth consecutive African country to join the Global Forum, following the recent adhesions of the Republic of the Congo (June 2022), Angola (March 2023) and Zimbabwe (April 2023). See this OECD item.
Global Forum members’ Competent Authorities meet in Tbilisi for their annual experience-sharing conference
The 10th Global Forum Competent Authorities Conference was kindly hosted by the Georgia Revenue Service on 15 and 16 May 2023 in Tbilisi. The event brought together 160 participants from 77 jurisdictions. For two days, representatives engaged on a wide range of topics of relevance for Competent Authorities. Discussions covered practical matters related to the implementation of both the transparency and exchange of information on request (EOIR) and the automatic exchange of financial account information (AEOI) standards. Significant time was allowed for participants to share best practices on how to develop and maintain effective relationships at all stages of the exchange of information (EOI) process. Read more in this OECD item.
Tax Co-operation for the 21st Century: 2023 Progress Report
This OECD report reflects on the implications of the evolving international tax policy landscape for international tax co-operation, and provides potential areas of consideration and next steps to continue efforts to enhance international co-operation in the context of increasingly co-ordinated international rules.
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 18 May, includes: 1) access to the recording of our latest webcast of 25 April on Pillar Two together with a court challenge to the EU's Directive on Pillar Two; 2) an update on the Digital Asset Tax in the Kenyan Budget; and 3) we also note the publication of proposals for EU customs reform which would probably affect the obligations of online platforms.
Environmental, Social and Governance (ESG)
- Still early days: A review of year two of TCFD reporting
The Task Force on Climate Related Financial Disclosures (TCFD) framework has been a significant addition to UK annual reports. Two years in, PwC explores how the disclosures can showcase a company's strategy for managing climate risks and opportunities. The report suggests how businesses can more transparently explain the impacts of climate change, as well as demonstrate progress on their climate journey. Read more. - Closing the critical nature investment gap
Recent research by PwC UK and PwC’s Centre for Nature Positive Business, based on analysis of some 80 nature finance vehicles and interviews with 40 stakeholders, produced several recommendations for how to expand the volume of private capital going into projects that protect and restore nature. Read more.
Australia
Federal Budget 2023-24
Treasurer Dr Jim Chalmers handed down his second budget on 9 May 2023. The 2023-24 Federal Budget contained a wide range of tax and superannuation related measures, with a focus on support for small businesses, encouraging investment in housing and clean buildings, changes to the Petroleum Resource Rent Tax and implementation of Pillar Two of the Organisation of Economic Cooperation and Development / G20 Two-Pillar Solution to address digitalisation of the economy. This PwC Budget page provides links to our in-depth analysis.
Belgium
See here for latest updates.
China
The People's Republic of China tax facts and figures 2023
This PwC booklet provides an overview of the wide range of taxes levied in the People's Republic of China, including income taxes, turnover taxes, real estate taxes and other taxes such as stamp duty, custom duties etc.
France
French tax integration scheme violates EU Law, CJEU finds
The EU’s highest court has held that France’s tax integration rules, that deny a full deduction for distributions made by a foreign subsidiary to its French parent company, are incompatible with the freedom of establishment. Read the judgment here.
Germany
Transparency register as “comprehensive register” and extended reporting obligations of foreign companies
With effect from 1 August 2021, the transparency register was changed from a fall-back register to a comprehensive register. With the conversion to the comprehensive register, almost all domestic companies are now obliged to report their (fictitious) beneficial owners to the transparency register. The transitional periods for the notification of the (fictitious) beneficial owners granted in the course of the conversion have all expired by the end of 2022. Read more on the transparency register as a full register and the currently extended reporting obligations of foreign associations.
General Court annuls EU-Commission’s approval of aid measure for recapitalization of Lufthansa
A recent judgment the European General Court annuls the decision of the European Commission to approve the recapitalization of Lufthansa by Germany, amounting to €6 billion euros, in the context of the COVID-19 pandemic. Read more in this PwC blog.
Double tax treaty with Switzerland: New consultation agreement to clarify the application of Article 15 paragraph 4
The German and Swiss tax authorities have concluded a new consultation agreement regarding the group of persons to whom Article 15 paragraph 4 applies to ensure the uniform application and interpretation of Article 15 paragraph 4 of the double taxtreaty agreement between the two nations (Federal Ministry of Finance, letter dated 25 April 2023). Read more in this PwC blog.
Greece
Amendments to the transfer of real property are introduced
Amendments to the tax legislation regarding the transfer of real estate, the modernization of the relevant procedure and reporting formalities were introduced by the recent L. 5036/2023. Read more in this PwC Tax Flash.
Guernsey
Pillar Two implementation - Crown Dependencies issue joint statement on intended approach
The treasury ministers of Jersey, Guernsey and the Isle of Man jointly announced their intended approach to Pillar Two implementation on 19 May. Each intends to implement an Income Inclusion Rule (IIR) and domestic minimum tax (note, not necessarily a QDMTT) from 2025, while continuing to monitor global implementation, giving in-scope businesses certainty in relation to the 2024 tax year
India
Sales of sports broadcasting business by a Mauritius tax resident cannot be taxed in India since taxpayer does not have a PE in India
The Mumbai bench of the Income-tax Appellate Tribunal (Tribunal) allowed the appeal in favour of the Mauritius taxpayer, holding that the taxpayer does not have a dependent agent permanent establishment (PE) and fixed place PE in India and therefore that the taxpayer’s capital gain on the slump sale of sports broadcasting business to another Mauritius company was not taxable in India. Read more in this PwC Tax Insights.
Split verdict on withdrawal of tax exemption based on the principle of legitimate expectation
The Supreme Court has recently delivered a split verdict on the issue of whether an amendment of a tax exemption can be challenged based on the doctrine of legitimate expectation, while there was consensus on the question of whether there could be a vested right to claim tax exemption. Read more in this PwC Tax Insights.
Isle of Man
Pillar Two implementation - Crown Dependencies issue joint statement on intended approach
The treasury ministers of Jersey, Guernsey and the Isle of Man jointly announced their intended approach to Pillar Two implementation on 19 May. Each intends to implement an Income Inclusion Rule (IIR) and domestic minimum tax (note, not necessarily a QDMTT) from 2025, while continuing to monitor global implementation, giving in-scope businesses certainty in relation to the 2024 tax year.
Jersey
Pillar Two implementation - Crown Dependencies issue joint statement on intended approach
The treasury ministers of Jersey, Guernsey and the Isle of Man jointly announced their intended approach to Pillar Two implementation on 19 May. Each intends to implement an Income Inclusion Rule (IIR) and domestic minimum tax (note, not necessarily a QDMTT) from 2025, while continuing to monitor global implementation, giving in-scope businesses certainty in relation to the 2024 tax year.
Korea
Korean Tax Update - May 2023
The latest edition includes: 1) Government considers tax incentives to stimulate corporate investment in private venture capital funds; 2) Tax tribunal announces measures to strengthen taxpayer rights protection; 3) NTS seeks public comments on a draft amendment to the administrative rules on taxpayer rights protection; 4) NTS seeks public comments on a draft amendment to the audit manual; and 5) Rulings update.
Luxembourg
Automatic Exchange of Information for digital platform operators (DAC 7) - Luxembourg law voted
On 3 May 2023, the Luxembourg Parliament voted in favour of the bill of law N°8029, to implement DAC 7 into the Luxembourg legal system (the Law or the DAC 7 Law), with more than 5 months of delay. The Law, taking effect as of 1 January 2023, introduces obligations on reporting platform operators (as defined by the Law) to collect information on their users being sellers and provide it to the Luxembourg tax authorities (LTA) on an annual basis. Read more in this PwC news item.
Main challenges faced by Financial Institutions for their FATCA/CRS reporting process
With less than two months to go before the FATCA/CRS reporting deadline in Luxembourg (30 June), Financial Institutions should already be in their preparatory phase to ensure that reports are filed on time. Let’s talk about the issues faced by the Financial Institutions and how to solve them by adopting the right process and control mechanisms. Read more in this PwC news item.
Malta
DAC 7: The new digital platform reporting rules
Legal Notice 8 of 2023, published in January 2023, introduced rules which transposed the provisions of the seventh update to Council Directive 2011/16/EU on administrative cooperation in the field of taxation into Maltese law (“DAC 7”). Read more in this PwC Alert about the reporting deadlines and the penalties that may be levied by the Maltese tax authorities.
Middle East
UAE CT - Ministerial Decision No.97 of 2023
On 11 May 2023, the Ministry of Finance (“MoF”) published Ministerial Decision No. 97 of 2023 Requirements for Maintaining Transfer Pricing Documentation (“the Ministerial Decision”) for the Purposes of the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the ‘CT Law’). This Decision shall come into effect the day following the day of its publication. Read more in this PwC alert.
New Zealand
Pillar Two implementation
On May 18, New Zealand published its 2023 Budget and Taxation Bill, which included revenue estimates and measures to implement Pillar Two. The Bill introduces a ‘Multinational Top-up Tax’ that consists of an Income Inclusion Rule (IIR) and an Undertaxed Payments Rule (UTPR). It also introduces a ‘Domestic Income Inclusion Rule’ (DIIR), which the commentary states that it is unlike a QDMTT because of the way it treats minority interests. The effective date of these rules would be set by Order in Council once the Government determines that a critical mass of countries has adopted equivalent measures. The Bill states that this would not be earlier than 1 January for the IIR and 1 January 2025 for the UTPR.
The Budget Document also comments on Pillar One. It states that New Zealand is working with the OECD to find a multilateral solution to the challenges that the digital economy poses for international taxation, but if a multilateral solution is not possible will need to be prepared to put in place its own rules to ensure multinationals pay a fair share of tax.
Poland
Poland: Suspension of “domestic” MDR reporting to be lifted from 1 July
From 1 July, the partial suspension of MDR reporting deadlines will be lifted. Read more in this PwC item.
San Marino
UK/San Marino double taxation agreement
The UK-San Marino Double Taxation Convention was signed on 17 May 2023. It has not yet entered into force. The Convention will enter into force upon completion of the procedures required by the law of both countries.
Sierra Leone
Sierra Leone joins OECD Global Forum
Sierra Leone has joined the international fight against tax evasion as 168th member – and 37th African member – of the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum). Sierra Leone is the fourth consecutive African country to join the Global Forum, following the recent adhesions of the Republic of the Congo (June 2022), Angola (March 2023) and Zimbabwe (April 2023). See this OECD item.
Singapore
Payments for share sale or services rendered?
In GFG and another v Comptroller of Income Tax [2023] SGITBR 1, the Income Tax Board of Review (the Board) considered the taxability of certain payments received by the sellers as part of a share sale and based on a proper construction of the sales and purchase agreement, held that they were payments for services provided and thus taxable. Read more in this PwC Alert.
South Africa
Tax Synopsis - April 2023
This edition includes: 1) VAT treatment of services acquired by holding companies in respect of business acquisitions; 2) New Draft Renewable Energy incentives; and 3) SARS watch.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
Global minimum tax in Switzerland - the Swiss voters have to act now
The Base erosion and profit shifting 2.0 project led by the OECD, better known as BEPS 2.0, will lead to significant changes in Switzerland’s tax policies and its policy for promoting Switzerland as an attractive business location. The next milestone in this regard will be the upcoming public vote on 18 June 2023 where Swiss voters will decide on the required constitutional change that would then allow the Federal Council to enact the rules in Switzerland by way of an ordinance. Read more in this PwC news item.
US
Treasury releases proposed Section 367(d) regulations on subsequent inbound transfers of intangible property
Treasury and the IRS on 2 May released proposed regulations under Section 367(d) that address the application of Section 367(d), which applies when a US person transfers intangible property described in Section 267(d)(4) to a foreign corporation in a Section 351 or 361 exchange. Read more in this PwC Tax Insights.
APMA releases ‘Interim Guidance on Review and Acceptance of Advance Pricing Agreement Submissions’
The Acting Director of IRS Treaty and Transfer Pricing Operations (TTPO) on April 25 released a memorandum titled “Interim Guidance on Review and Acceptance of Advance Pricing Agreement (APA) Submissions,” which includes an attachment setting forth provisions that will be incorporated into the IRS Internal Revenue Manual by 2025 (collectively, the Guidance). The Guidance outlines procedures and criteria for TTPO personnel - including Advance Pricing and Mutual Agreement (APMA) personnel - to follow in evaluating whether a proposed APA should be accepted into the APA process or in another TTPO workstream. Read more in this PwC Tax Insights.
Policy on Demand series
- Congressional focus on OECD’s two-pillar project
Last week, the Senate Finance Committee held a hearing about US international taxation. In this episode from 15 May, Pat Brown discusses the hearing and how Congress may provide oversight around international tax policy. - Debt limit discussions: What will come out of White House meeting?
Treasury Secretary Janet Yellen stated in a 1 May letter that the government may run out of extraordinary measures to meet its debt obligations as early as June 1. In this episode from 8 May, Karl Russo discusses the continuing debt limit discussions and other economic developments, including the strong labor market and slow economic growth. - Week in Review
In this episode from 19 May, Pam Olson discusses how a debt limit deal is beginning to take shape and notes that repeal of the IRA green energy provisions are reported to not be on the table. She encourages companies to prepare for implementation of Pillar Two in 2024 without any anticipated modifications to US international tax laws.
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
- COST Forum on US State and Local Taxes for European Companies - London 20 June 2023
PwC is one of the sponsors of the COST Forum on US State and Local Taxes for European Companies, a one day conference on US State and Local Taxes for European companies that will be held in our Embankment Place office in London on 20 June 2023. Leading practitioners with dedicated knowledge in this area, including our very own Rob Ozmun and Dorothy Lo, will help attendees understand the tax requirements and risks of doing business or expanding into the vastly lucrative US market. Differences between the US and European tax systems will be covered and attendees will learn about threshold issues such as nexus and jurisdiction. You can find the agenda and registration link here. - Challenges and opportunities remain five years after Wayfair and the 2017 tax reform legislation
Much has changed in tax reform legislation with the Wayfair ruling and the Tax Cuts and Jobs Act (TCJA updates). State tax professionals need to address the challenges. Read more in this PwC Tax Insights.
- Tax Readiness: 5 years later - The impact of Wayfair and tax reform on state taxation
Watch the replay of this webcast from Tuesday 25 April where our panel discussed the evolving compliance challenges produced by these two events and how companies are implementing leading practices to reduce costs, minimise risk, and produce cash tax savings. - New Maryland law provides beneficial rules for certain ‘captive’ REITS
SB 968, signed into law on 9 May by Maryland Governor Wes Moore, amends the definition of ‘captive REIT’ for purposes of the Maryland corporate income tax. 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.