International tax update for multinationals operating in the UK - period to 21 July 2023

Three weeks to 21 July 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

• Pillar Two - draft clauses published for FB2024
  A number of amendments to the UK’s Pillar Two rules were proposed on L-Day (18 July) for inclusion in Finance Bill 2024.  In particular, measures relating to:
  • implementation of the Under Taxed Profits Rule (UTPR) in the UK - the draft provisions do not include a commencement date, and will not take effect until they have been included in a Finance Bill, but HMRC have confirmed the commencement date will not be earlier than accounting periods beginning on or after 31 December 2024; and
  • certain amendments to the UK’s Multinational Top Up Tax (UK IIR) legislation - these appear to be intended to address a number of drafting issues and unintentional deviations from the OECD model rules, commentary and administrative guidance. 
• GAAR amended to include Pillar Two
  Finance (No 2) Act 2023 has made two additions to the list of taxes that are covered by the UK’s GAAR to bring Pillar Two within the rules. The multinational top-up tax and domestic top-up tax have been added (by s125 and sch 14, para 68(4) and by s275 and sch 18, para 7(4) respectively) with effect from Royal Assent.
• Webcast: A practical guide to surviving Pillar Two
  Our latest Pillar Two webcast was held on Thursday 22 June, in which Matt Ryan was joined by Rob Gooding (TRS Partner) and Jos Bhasker (Tax Technology SM) and provided an update on Pillar Two implementation globally, and proposed some practical steps organisations can take to overcome some of the key challenges they are facing. They also walked through the technology solutions being developed for compliance and reporting. View the recording here.
• Rethinking your transfer pricing approach under Pillar Two: A focus on operational transfer pricing
  In this article, we discuss the Pillar Two framework’s effects on transfer pricing (TP) for Multinational Enterprises and the need to enhance operational TP processes to meet compliance and avoid double-taxation.
• OECD publications
  The OECD published further Administrative Guidance on Pillar Two on 17 July, as well as further information on the GloBE Information Return. For further details, see the OECD section below

Finance (No 2) Act 2023 enacted 
Finance (No 2) Bill 2023 received Royal Assent on 11 July and became Finance (No 2) Act 2023, which was published on 21 July.

Legislation Day
In line with its tax policy-making framework, the Government published draft clauses for Finance Bill 2024 on 18 July. The measures largely included pre-announced policy changes, along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. In particular, this includes:

• Pillar Two - Draft clauses published for FB2024
  As noted above, L Day saw a number of amendments to the UK’s Pillar Two rules proposed for inclusion in Finance Bill 2024.  In particular, measures relating to:
  • the implementation of UTPR in the UK - the draft provisions do not include a commencement date, and will not take effect until they have been included in a Finance Bill, but HMRC have confirmed the commencement date will not be earlier than accounting periods beginning on or after 31 December 2024; and
  • certain amendments to the UK’s Multinational Top Up Tax (UK IIR) legislation - these appear to be intended to address a number of drafting issues and unintentional deviations from the OECD model rules, commentary and administrative guidance.
• L day - A new merged R&D regime and special regime for R&D intensive SMEs
  On Tuesday 18 July the Government released the draft legislation on the proposed changes to the UK Research & Development (R&D) regimes. Alongside this, HMRC have also released their new approach on R&D compliance taking into account their recent revised estimates on the cost of error and fraud within R&D claims and the focus to reduce this. Read more.

UK consultation on transfer pricing, permanent establishment and diverted profits tax
Our specialists have analysed the government’s consultation document on proposed reform of the UK’s TP, PE and DPT rules, published on 19 June.  Note, in particular, that one of the two PE options under consideration - to define it by reference to Article 5 of the current OECD Model, subject to the relevant double tax treaty - would result in the extension of the domestic PE definition due to the 2017 OECD Model approach to “dependent agent” PEs:

• PEs would include someone who “habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise”, even if they do not actually conclude the contracts; and
• the “independent agent” exemption from PE status would not apply where “a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related”.

The UK has not adopted the MLI measures in relation to dependent agent PEs, so such a change would only bite where there is no double tax treaty or where a new treaty is negotiated to include the expanded definition. However, if the UK were to change its MLI position, it would have a much wider impact.  Read more in this article.

Case law update 

• Upper Tribunal rules a payment is a distribution - HMRC v J Conran; JC Vision Ltd v HMRC
  The Upper Tribunal has ruled in this case concerning the payment for a transfer between connected parties. It upheld the FTT decision that the value of intangible assets transferred was £1 (dismissing the taxpayer appeal) but overturned the FTT decision that there was no distribution (allowing HMRC’s appeal) finding that in this particular case, it was in no doubt that the £8.25m was indeed taxable as a distribution.  It quoted with approval from a leading textbook: “if, therefore, a benefit is received by a shareholder from a company, the onus is on the shareholder to establish in what other capacity he received the benefit if it is not to be treated as a distribution”.  The UT was clear that in determining whether a payment is a distribution, it is necessary to take a holistic approach and consider ‘all the facts and circumstances surrounding the payment and the context in which the transaction took place’.  Read the full decision here.
• CJEU clarifies fixed establishment - toll manufacturer not proxy establishment of non-EU customer
  In Cabot Plastics Belgium SA (C-232/22, on p103), the Court of Justice of the European Union (CJEU) has clarified the concept of a fixed establishment (FE) for value-added tax purposes. On 29 June the CJEU held that a non-EU business receiving toll manufacturing services from a legally distinct EU group member, where the EU supplier contractually undertakes to use its equipment and its staff exclusively for the production of goods for the non-EU recipient, does not have a permanent establishment in the Member State in which the provider of the services is established, when the non-EU business does not have an appropriate structure in terms of human and technical resources capable of constituting that fixed establishment.

HMRC Manual & guidance updates
The following changes have recently been made by HMRC following review:

• How to apply for a certificate of residence to claim tax relief abroad
  On 20 July 2023, HMRC updated the address non-registered pension schemes and trusts should use when applying for a certificate of residence.
• Corporate Finance Manual
  • CFM33000: Loan relationships: core rules: contents Links to CFM33040 archived
  • CFM33040: Loan relationships: computational rules: amounts treated as interest - Page archived
  • CFM33125: Loan relationships: the matters and computational rules: transitional rules for changes made by F(2)A15 - Amended reference
  • CFM33160: Loan relationships: core rules: pre-2016 rules - Adding nesting pages for the old rules
  • CFM98654: Interest restriction: administration: UK group company: disallowances where no compliant interest restriction return - update changes following review.
• Corporate Intangibles Research and Development Manual
  CIRD275000: Patent Box : new regime : Calculation Flowchart. New Patent box calculation flowchart and the wording flow has been updated.
• Property Income Manual
  • PIM4800: Overseas landlords - Revision of menu to include pages in the rewritten PIM4800 series, bringing together guidance previously in PIM and INTM.
  • PIM4810: Overseas landlords - summary of the non-resident landlord scheme - Replacement of page as part of major rewrite of PIM4800 series bringing together previous guidance in PIM and INTM.
  • PIM4820: The Non-resident Landlords Scheme - letting agents - Replacing existing page as part of a major rewrite bringing together guidance previously in PIM and INTM.
  • PIM4830: The Non-resident Landlords Scheme - tenants - Published Process Changes
  • PIM4840: The Non-resident Landlords Scheme - non-resident landlords - Published process changes
  • PIM4850: The Non-resident Landlords Scheme - usual place of abode - Published process changes

Treaty updates

• UK ratifies two double tax treaty arrangements with Brazil
  HM Treasury has issued the Double Taxation Relief and International Tax Enforcement (Brazil) Order 2023 SI 2023/839, which gives effect to two arrangements for relief from double taxation between the UK and Brazil. It ratifies the Brazil-United Kingdom income and capital tax treaty signed on 29 November 2022 (Schedule 1) and a 2005 Agreement in relation to the elimination of double taxation with respect to taxes on income or profits derived from shipping and air transport (Schedule 2).
• UK ratifies double tax treaty with San Marino
  HM Treasury has issued the Double Taxation Relief and International Tax Enforcement (San Marino) Order 2023 (SI 2023/841), which ratifies the San Marino-United Kingdom income and capital tax treaty signed 17 May 2023.

New transparency over resilience and assurance for big business
The Department for Business and Trade has proposed new regulations that would require very large companies to report more effectively on business resilience and assurance to show they can afford dividends and other payouts.  A factual overview of new draft regulations, which it expects to come into force in 2025, was published on 19 July.  They will apply to companies with at least 750 employees and an annual turnover of £750 million or more. See these links to the guidance and draft legislation.  

Consultation responses - Tax Administration Framework Review

• The Chartered Institute of Taxation (CIOT) has responded to the HMRC consultation on The Tax Administration Framework Review: information and data. You can read their submission here.
• The Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT)  have responded to the HMRC consultation on The Tax Administration Framework Review: Creating innovative change through new legislative pilots. You can read the CIOT submission here and the ATT submission here.

UK signs Comprehensive and Progressive Agreement for Trans-Pacific Partnership
The UK Government has formally signed the treaty to accede to the CPTPP trade bloc. The signature is the formal confirmation of agreement for the UK to join the group, following substantial conclusion of negotiations earlier this year. The UK Government will now seek to ratify the agreement, which will include parliamentary scrutiny, whilst other CPTPP countries complete their own legislative processes. The CPTPP member countries are: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK is the first European member and first new member since CPTPP was created. Being part of CPTPP means that more than 99 per cent of current UK goods exports to CPTPP countries will be eligible for zero tariffs. Read more in this news story.

UK and Turkey to negotiate new trade deal
The UK and Turkey have agreed to start talks on a new, modernised free trade deal. The deal would replace the existing UK-Turkey free trade agreement, which was rolled over from when the UK left the European Union and doesn’t cover key areas of the UK economy like services, digital and data. Read more in this press release.

Approved offshore reporting funds 
HMRC has updated the list of approved offshore reporting funds to include the latest funds that have entered the Reporting Fund Regime. The list has been updated to include the funds that have entered as at 18 July 2023. View the updated list

Talking Tax, June 2023 
Welcome to this month's Talking Tax, bringing you a range of views and insights from specialists across our business. The latest edition includes: 1) Refining and rationalising your tax processes; 2) Connected tax compliance: Making the right tech investments; 3) The build or buy dilemma: What’s a tax leader to do?; and 4) A surprising ROI-booster: Your tax team.

EU

EU Foreign Subsidies Regulation effective from 12 July 2023
An EU regulation (‘The Implementing Regulation’) setting out notification procedures regarding non-EU subsidies that might distort the internal market was adopted by the European Commission on 10 July. In particular, it establishes the form of notification, the degree of aggregation of information and some exclusions in applying the rules of the Foreign Subsidies Regulation (FSR) which was adopted by the European Parliament and Council in November 2022. The FSR will apply from 12 July 2023. As of 12 October 2023, companies will have to notify either mergers and acquisitions (‘concentrations’) or participation in public procurement bids, where they involve foreign financial contributions, meet the relevant notification thresholds and do not fall within the new exceptions. Read more in our Tax Policy Alert.

• Tax Readiness webcast: 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. Watch the replay from this webcast on 12 July, where our panel explored, among other topics, the range of subsidies and incentives within scope, data collection issues/requirements, and how the FSR might impact deals.
• ECOFIN discusses latest EU tax reform plans
  The European Commission presented its proposal for a new statistical own resource based on company profits to the Economic and Financial Affairs Council meeting on 14 July 2023. The main results of the meeting can be read here.

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 17 July includes: 1) OECD & IF Members Extend Freeze on National DSTs Until End-2024; 2) OECD Invites Input on Amount B, Pillar 1 (Transfer-Pricing); 3) Spanish EU Presidency Focus on EU Strategic Autonomy & Industrial Policy; 4) EU Commission Refers Luxembourg to Court over ATAD; and 5) CFE Opinion Statement in Case C-83/21 Airbnb Ireland and Airbnb Payments UK. Visit their latest news page here.
• Global Tax Top 10 - June 2023
  This edition covers: 1) European Commission Publishes ‘FASTER’ Proposal – New Rules for Withholding Taxes in the EU; 2) EC: Future of State Aid Rules Depend on Apple Case; 3) Global Forum Develops Model Administrative Compliance Strategy for Automatic Exchange of Information; 4) ECOFIN Progresses Debate on ViDA Proposals; 5) Register Now: A Gender Equal Tax System in Europe: Reflections for a New Agenda – 4 July 2023, EU Parliament; 6) EU Parliament Adopts Report on Lessons Learned from the Pandora Papers; 7) EU Customs Reform Proposals Published; 8) EU Parliament Position on EU AI Act; 9) CFE Opinion Statement on Official Ruling 57:2023 of the Italian Central Tax Office on Intervening Fixed Establishments in a VAT Context; and 10) European Parliament Subcommittee on Tax Matters – Hearing on the Role of Tax Incentives on EU Policy Goals – 27 June.
• Opinion Statement on the taxation of capital gains in intra-group transfers
  The CFE ECJ Task Force has issued an Opinion Statement on the ECJ decision of 16 February 2023 in Case C-707/20, Gallaher Limited, the last UK direct tax case before the CJEU. Gallaher concerns the compatibility of the United Kingdom’s group transfer rules with EU law. Under those rules, sales of assets between resident group members are treated as tax neutral, whereas sales to non-resident group members are taxed immediately.
• Opinion Statement on Airbnb case
  The CFE ECJ Task Force has issued an Opinion Statement on the ECJ decision of 22 December 2022 in case C-83/21, Airbnb Ireland and Airbnb Payments UK decided following the Opinion of AG Szpunar delivered on 7 July 2022. Inter alia, at issue was the compatibility with the freedom to provide services of the tax obligations imposed by the Italian government on service providers offering their intermediation services regarding real estate located in Italy. The Court found admissible to impose the obligation to collect and report data and to withhold tax on the intermediated payments. However, it held disproportionate to request them the appointment of a tax representative resident in Italy.

OECD

OECD releases report to G-20 Finance Ministers and four key documents under Pillar One and Pillar Two
The OECD/G20 Inclusive Framework on BEPS (IF) released a number of documents relating to the Two-Pillar solution on 17 July 2023, including a second set of Administrative Guidance on the Pillar Two GloBE Model Rules and an updated version of the GloBE Information Return. The guidance (which follows the publication of the first set of Administrative Guidance in February 2023) covers a range of issues on which stakeholders have sought additional clarity, including the Qualified Domestic Minimum Top-up Tax (QDMTT) and Transitional UTPR Safe Harbours, the treatment of  transferable tax credits, application of the Substance Based Income Exclusion (SBIE) and others. The guidance, including more detailed examples, will be incorporated into a revised version of the Commentary that will be released later this year. Read more in our Tax Policy Alert of 19 Jul. See also:

• Webcast: The current state of the OECD's two-pillar solution
  While there is uncertainty around Pillar One (both on the timeline and on whether a critical mass is achievable), many countries have begun implementing Pillar Two. Join our CPE-eligible webcast on Thursday 27 July from 4-5pm for the latest updates on the OECD's two-pillar solution. Register here
• This PwC Tax Policy Alert provides links and a short summary of these documents. 
• Policy on Demand episode: Will Morris provides a deeper take on the OECD guidance released this week, providing insight on areas of relief in the Pillar Two Administrative Guidance and GloBE information return documents and encourages companies to comment on Pillar One Amount B guidance. 
• Policy on Demand episode: Will Morris shares his initial insights on today’s OECD Pillars One and Two guidance.
• OECD releases Pillar Two STTR
  The OECD Inclusive Framework (IF) released a report with model treaty text to give effect to the Subject-to-Tax-Rule (STTR), together with an accompanying commentary explaining the purpose and operation of the STTR. The OECD Secretariat also published a summary of the STTR, titled “The Subject to Tax Rule in a Nutshell,” to assist in understanding the STTR model provisions.Read more in our Tax Policy Alert.
• OECD releases Outcome Statement on the two-pillar solution
  On 12 July 2023, the OECD published an Outcome Statement that provides an update on the status and timeline for implementing the two Pillars of the project addressing the tax challenges arising from the digitalisation of the economy. The Outcome Statement has been signed by 138 of the 143 members of the Inclusive Framework (IF) - those who haven’t signed it are Belarus, Canada, Pakistan, the Russian Federation and Sri Lanka. While the Outcome Statement notes progress made on both pillars, it also acknowledges that differences remain between countries. Importantly, the timeline for releasing a multilateral convention (MLC) for Amount A of Pillar One has been delayed to the second half of 2023 (with a goal of it entering into force during 2025). Read more in our Tax Policy Alert.
• OECD Releases Pillar One Amount B
  On 17 July 2023, the OECD released an updated public consultation document on Amount B of Pillar One, which attempts to simplify the transfer pricing of certain baseline wholesale marketing and distribution activities. Comments on the consultation document are due 1 September 2023. The OECD also published a short overview, titled “Amount B in a Nutshell,” to assist stakeholders in understanding Amount B. Comments are due 1 September 2023.  Read more in our Tax Policy Alert.
• 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.

OECD Tax Talks webcast
With several recent developments in the OECD’s international tax agenda, experts from the OECD Centre for Tax Policy and Administration presented an update on their work on 19 July. Topics covered included: 1) Overview of recent developments; 2) Outcome Statement on the Two-Pillar Solution; 3) Other Two-Pillar Solution updates; 4) A look ahead. See here for the recording and presentation slides.

MLI

• BEPS MLI now effective for Mexico
  The BEPS Multilateral Instrument became effective for treaties signed by Mexico on 1 July 2023.

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

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 12 July, includes: 1) information about Kenya's Finance Act 2023 making changes to digital tax provisions; 2) a Nigerian VAT case in which it was held Non-Resident digital platform providers could be asked to fulfil VAT obligations on behalf of their customers.

Digital Tax Megabyte - June 2023 
This edition, to the end of 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) a special report by the New Zealand revenue authorities on the VAT/GST full liability model for platforms; 3) we note that Israel has dropped VAT plans for B2C digital services; 4) Jersey has published overseas retailers' GST guidance notes; 5) France has published a revised doctrine/guidance on its Digital Services Tax; 6) Hungary has proposed changes to its Payment Services Tax; 7) Kenya's President has approved the Finance Bill containing the new Digital Asset Tax; 8) Canada has passed its law on digital platform reporting; 9) state tax updates for Maryland and Georgia; and 10) The IASB has also issued an Exposure Draft on deferred tax accounting for Pillar 2 by SMEs.

Environmental, Social and Governance (ESG) 

• Don’t get scared, get started: Five things you should know about the TNFD
  The market-led, science-based Taskforce on Nature-related Financial Disclosures (TNFD) framework will enable companies and financial institutions to integrate nature dependencies into their decision making. With the pilots now complete and the TNFD framework due to be released in the Autumn, PwC's Global Climate Leader, Emma Cox, and the WBCSD’s Tom Williams share the five things organisations should know about the TNFD to get ahead of the regulation and integrate nature into their decision making. Read more.
• From ambition to action
  Data and tech combined with human ingenuity is a powerful tool for both net zero transformation and sustainability reporting. Together they help you make the right decisions for your business and our planet. Read more.

Austria
Introduction of Flexible Company and reduction of minimum share capital Limited Liability Companies 
After a long lead time, it finally seems that the FlexCo (previously referred to as “Austrian Limited”) will become a reality.  Draft legislation has been introduced which aims to create considerable incentives and relief for start-ups and the incorporation of companies in general, although it remains to be seen whether it will be passed in its current form.  It will not only facilitate the formation of a company and bring more flexibility but will also significantly reduce the funds required to set up a company and result in a reduction of the minimum corporate income tax to EUR 500 per year. The law is expected to enter into force on 1 November 2023.  As soon as the new statute becomes effective, existing GmbHs and AGs can be converted into a FlexCos. Read more in this PwC news item.

Belgium

See here for latest updates.

Carried interest structured via stock option plan – no taxation as professional income at exercise of the option as per Belgian Court 
A Belgian Court annulled the tax assessment levied by the Belgian tax authorities regarding carried interest income structured via the means of an option plan. The Belgian tax authorities claimed the setup was fraudulent and simulated and therefore the income gained at exercise of the options should be taxable as employment income. Read more in this PwC news item.

Tax Bites Podcast: Future-proofing your statutory reporting function (Part 1)
This episode is the first in a series where we will explore the topic of future-proofing the statutory reporting function and the close link to tax. We start with setting the scene, why it’s such a hot topic today. We touch upon what that future-proof model could look like as well as the framework to identify your ideal operating model for STAT reporting purposes.

Brazil
UK ratifies two double tax treaty arrangements with Brazil
HM Treasury has issued the Double Taxation Relief and International Tax Enforcement (Brazil) Order 2023 SI 2023/839, which gives effect to two arrangements for relief from double taxation between the UK and Brazil. It ratifies the Brazil-United Kingdom income and capital tax treaty signed on 29 November 2022 (Schedule 1) and a 2005 Agreement in relation to the elimination of double taxation with respect to taxes on income or profits derived from shipping and air transport (Schedule 2). 

Brazil enacts new transfer pricing law & presents draft Normative Instruction for public consultation 
The Brazilian Government issued Provisional Measure (PM) 1152/22 in December 2022, seeking alignment with the arm’s-length principle (ALP) in accordance with the OECD Transfer Pricing Guidelines. The PM was amended and ratified by the Congress, converted into Law 14,596 and published on 15 June. The PM (currently Law 14,596) is generally principles-based and delegates substantial authority to regulations to be issued by the Brazilian Federal Revenue Office, through Normative Instructions (NI). The NI must then be converted into law. The draft of the first NI was made available for public consultation on 3 July with interested parties to submit comments or suggestions by 25 July.  This PwC Tax Insight presents a summary of the main changes introduced by Law 14,596, highlighting the amendments made by the Congress to PM 1152/22, as well as the main aspects related to the draft of the NI.

Canada
Digital Services Tax (DST) update
On 12 July 2023, the OECD announced that 138 countries and jurisdictions have agreed to extend for another year the standstill from imposing newly enacted digital services taxes (DSTs), or relevant similar measures, while work on a multilateral convention (MLC) to implement Pillar One continues. On the same day, Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland, issued a press release stating that although Canada fully supports the MLC, it does not support the one year extension. Accordingly, it appears that Canada remains committed to moving forward with a DST as of 1 January 2024 if the MLC has not come into force. Canada’s 28 March 2023 budget announced that revised draft legislative proposals to implement a Canadian DST would be released for public comment, but these legislative proposals have not yet been released. Read more.

Cyprus
Minimum TP documentation requirements and simplification measures for persons that are exempt from the obligation to maintain a Cyprus Local File 
The Cyprus Tax Department (“CTD”) issued a new Circular providing guidance to persons that are exempt from the obligation to prepare a Cyprus Local File, for maintaining minimum Transfer Pricing documentation to support the arm’s length nature of their related party transactions. In addition, the Circular introduces optional Simplification Measures applicable to such persons, for certain types of Controlled Transactions (financing and low value adding services). The guidance and simplification measures apply as from 1 January 2022. Read more in this PwC alert.

Germany
Germany publishes draft Pillar Two implementation bill 
The German Federal Ministry of Finance recently published a draft bill dated 7 July on implementation of the EU Council Directive to implement the global minimum tax into German national law. The legislation consists of 95 sections (instead of 89 sections in the discussion draft). Significant adjustments are also proposed in the Income Tax Act and the Foreign Tax Act, including abolition of the so-called royalty barrier rule, lowering of the low tax threshold for Controlled Foreign Corporations (CFCs) from 25% to 15%, and abolition of CFC income being subject to German trade tax. Read more in this PwC Tax Insights.

Germany publishes anti-hybrid rules draft guidance 
The German Federal Ministry of Finance has published a comprehensive draft decree on its interpretation of the German anti-hybrid rules, which apply generally to all expenses incurred after 31 December 2019. While the draft decree clarifies certain items, several questions remain unresolved. Comments can be made by 10 August 2023. Read more in this PwC Tax Insights.

EU-Commission approves German scheme to support private investments in strategic goods with respect to net-zero economy 
The European Commission has approved a €3 billion German scheme to support private investments in specific strategic goods needed to foster the transition towards a net-zero economy, in line with the Green Deal Industrial Plan. The scheme was approved under the State aid Temporary Crisis and Transition Framework, adopted earlier by the Commission to support measures in sectors which are key to accelerate the green transition and reduce fuel dependencies. Read more in this PwC blog.

German Growth Opportunities Act 
A draft law for a "Growth Opportunities Act" was sent to the German Industry Associations for consultation on 14 July 2023. In addition to a new law introducing an investment grant for certain investments aiming to achieve energy savings, various adjustments to national and international tax law provisions are proposed.
This tax insight focuses on some of the main aspects which are relevant from an international tax perspective.

Discussion draft on German RETT changes submitted 
The Federal Ministry of Finance has submitted a discussion draft of a law amending the Real Estate Transfer Tax Act (RETTA) to the federal states for initial comments. At this date, it is uncertain whether the circulated draft will lead to a change in the German real estate transfer tax (RETT) regime. If this draft is enacted, the German RETT regime would be substantially amended. For multinational companies with German real estate assets, RETT neutral reorganisations within a group would be possible. To prevent RETT neutral share deal transactions between third parties, the concept of a ‘group of acquirers’ acting together and the concept of ’serving interest’ are being introduced. The proposal is intended to become effective 1 January 2024. Read more in this PwC Tax Insights.

Release of 2023 Administrative Principles on Transfer Pricing Matters 
The German Federal Ministry of Finance recently published its position on transfer pricing matters in its latest administrative principles (“2023 Administrative Principles”). Read more in this PwC alert.

India
Support services rendered on continuous basis not satisfying make-available test, hence not taxable in India 
The taxpayer, a UK company, earned service revenue from its Indian associated enterprise (AE) for rendering management support services. The Delhi bench of the Income-tax Appellate Tribunal was of the view that the said services are not taxable as fees for technical services (FTS) under the beneficial provisions of the India-UK Double Taxation Avoidance Agreement (DTAA) as the make-available test is not satisfied. The Tribunal concluded this by observing the nature of services and the fact that such services are rendered on a continuous basis. These aspects establish that the recipient was not made available any technical knowledge enabling it to perform such services on its own in the future. Read more in this PwC Tax Insights.

High Court dismisses Revenue’s appeal affirming Tribunal’s ruling on double tax treaty entitlement based on valid TRC and non-existence of business connection based on facts of case 
The taxpayer, a non-resident company, earned subscription revenue from Indian subscribers for facilitating advertisement of their products and services on the group’s web portal. The Bombay High Court rejected the Revenue’s appeal and affirmed the Income-tax Appellate Tribunal’s ruling which was based on categorical fact findings that: 1) Revenue does not have blanket powers to deny the access to the double tax treaty when a valid tax residency certificate (TRC) is available; 2) Activities performed by an agent in its ordinary course of business cannot constitute a dependent agency or business connection in India, and thereby, the business receipts are not taxable in India; and 3) Fees received for provision of a standard facility without any customisation or human intervention would not be taxable as fees for technical services (FTS). Read more in this PwC Tax Insights.

Examining the nature of business is prerequisite to determine set up of business, and consequential disallowance of expenditure 
The Delhi bench of the Income-tax Appellate Tribunal was of the view that to determine whether the business has been set up, the prerequisite is to examine the nature of business, and a mere conclusion cannot be drawn based on the nature of expenditure. In the given set of facts, the taxpayer was incorporated to procure, manufacture, and assemble automobiles accessories and auto parts. The Tribunal observed that it did not require immediate installation of any plant and machinery to meet the set up of business threshold. Accordingly, the Tribunal deleted the disallowance of expenditure and denial of carry forward of losses made by the lower tax authorities. Read more in this PwC Tax Insights.

Ireland
Guidelines on the European Union (Tax Dispute Resolution Mechanisms) Regulations 2019 
The Irish Revenue has released new guidance on the regulations enacted by Ireland to implement an EU Directive on tax dispute resolution. Tax and Duty Manual Part 35-02-10 - Guidelines on the European Union (Tax Dispute Resolution Mechanisms) Regulations 2019 - has been created. Read more in this Revenue eBrief

Research and development (R&D) corporation tax credit 
The Irish Revenue has updated Tax and Duty Manual Part 29-02-03 - Research and Development (R&D) Corporation Tax Credit to incorporate the changes to the R&D credit introduced by Finance Act 2022. Read more in this Revenue eBrief.

Italy 
Tax redemption of profit and profit reserves in non-resident entities: the Italian implementing Decree
A Decree dated 26 June 2023, which implements the new temporary and optional regime for the tax redemption of profits and profit reserves in non-resident entities held by Italian residents, has been published in the Office Journal. The Decree was introduced by the 2023 Italian Budget Law (Article 1, paragraphs 87-95, Law no 197/2022). Read more in this PwC blog.

Japan
Impact of the newly enacted UAE corporate tax law on the Japan-UAE double tax treaty 
Under the Corporate Tax Law, the United Arab Emirates (‘UAE’) enacted a federal corporate income tax effective for fiscal years starting on or after 1 June 2023. The scope of taxpayers able to access benefits under the Japan/UAE double tax treaty has been significantly widened. Read more in this PwC alert.

Korea
Pillar Two in South Korea: Effective dates and much more
In this Cross-border Tax Talks episode from 12 July, Doug McHoney (PwC's International Tax Services Global Leader) is at PwC’s AsiaPac Tax Symposium in Singapore. He is joined by Michael Kim, a PwC International Tax Partner and South Korea’s Outbound Tax Leader. Doug and Michael discuss South Korea’s enactment of Pillar Two, paying particular attention to effective dates, likely legislative actions, the incorporation of future guidance, how taxpayers are preparing for Pillar Two, Safe Harbours, data collection, and covered taxes.

Korean tax update, July 2023 
This edition covers: 1) Saemangeum International Investment Promotion Zone designated for corporate and individual income tax breaks for five years; 2) National Tax Service (NTS) implements a new system of purchaser-issued tax invoice this july; 3) NTS announces substantial progress in offshore tax evasion investigations; 4) Export award winning SMEs to be exempt from being selected for periodic NTS audit; and 5) Rulings update.

Luxembourg
Luxembourg modernises its investment funds toolbox by implementing important legal and tax changes
The Luxembourg Parliament recently voted to approve a law modernising the Luxembourg investment funds toolbox. Law n°8183 had been submitted to Parliament on 24 March 2023. The Law introduces several legal and tax measures with the purpose of improving the attractiveness of the Luxembourg financial centre and maintaining its leading position as a hub for alternative investment funds. Read more in this PwC news item.

Middle East
UAE clarifies corporate income tax rules for free zone companies 
Further to the issuance of the Corporate Tax Law and implementing decisions relating to the application of corporate tax in the Free Zones, the Ministry of Finance has issued a consultation paper seeking views until 2 August on the corporate tax rules for free zone companies. Specifically, the consultation sets out proposals regarding which entities will be eligible for corporate tax exemption as a "Qualifying Free Zone Person", and what categories of income will be liable to the headline nine percent rate. 

Impact of the newly enacted UAE corporate tax law on the Japan-UAE Tax Treaty 
Under the Corporate Tax Law, the United Arab Emirates (‘UAE’) enacted a federal corporate income tax effective for fiscal years starting on or after 1 June 2023. The scope of taxpayers able to access benefits under the Japan/UAE double tax convention has been significantly widened. Read more in this PwC alert.

San Marino
UK ratifies double tax treaty with San Marino 
HM Treasury has issued the Double Taxation Relief and International Tax Enforcement (San Marino) Order 2023 (SI 2023/841), which ratifies the San Marino-United Kingdom income and capital tax treaty signed 17 May 2023.

South Africa
Tax Synopsis - June 2023
This edition includes: 1) The OECD’s MLI (Multilateral Instrument): What it means for multinational groups; 2) Memberships in foreign partnerships: Further reflections in light of the Coronation case; and 3) SARS watch.

Submission of third party returns 
The South African Revenue Service (‘SARS’) has published a notice to notify certain specified persons that they are required to submit third party returns. Importantly, the notice places reporting obligations on trusts and public benefit organisations for the first time. This PwC Alert summarises the content of the notice.

Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.

Taiwan
Tax committee leaders release US-Taiwan tax agreement discussion draft 
The chairmen and ranking members of the House Ways and Means and Senate Finance Committees recently released a discussion draft of legislation (‘the legislation’) to provide treaty-like benefits aimed at relieving double taxation for businesses engaged in cross-border activities between the United States and Taiwan. The provisions would be effective as of the date of the enactment of the legislation but only would apply once the US Treasury Secretary determines that Taiwan has granted reciprocal benefits to US persons. Read more in this PwC Tax Insights.

Turkey
Tax provisions of law number 7456 
Law number 7456, increasing the corporate tax rate to 25% for companies other than those in the financial sector (to 30% for companies in the financial sector), was published in the Official Gazette on 15 July 2023. Other tax measures under this law include the repeal of the tax exemptions on sale of immovable property by corporate taxpayers, exclusion of immovables from the scope of tax-free spin offs, repeal of the tax exemption available for corporate taxpayers on their income from other investment funds. Read more in this PwC alert.

Withholding tax on share buybacks increased to 15% for unlisted companies
Presidential Decree no.7343, published on 7 July 2023, narrows the scope of application of 0% withholding tax on deemed distributions on share buybacks, so that it no longer applies to share buybacks by unlisted companies. Read more in this PwC alert.

UK and Turkey to negotiate new trade deal
The UK and Turkey have agreed to start talks on a new, modernised free trade deal. The deal would replace the existing UK-Turkey free trade agreement, which was rolled over from when the UK left the European Union and doesn’t cover key areas of the UK economy like services, digital and data. Read more in this press release.

US
Pillar Two Guide for US Multinational Enterprises
The time to start preparing and adopting an action plan for Pillar Two, the new global minimum tax framework, is now. Based upon existing organizational structures and supply chains, in-scope multinational enterprises (MNEs) could face increases in their global effective tax rate (ETR), cash tax outlays, and compliance burden. This guide provides US taxpayers with an illustrative step-by-step approach to prepare for Pillar Two.

Senate approves ratification of US-Chile double tax treaty with reservations that need to be approved by Chile 
The US Senate has approved, by a 95-2 vote, a resolution of ratification of the pending US-Chile Income Tax Treaty (the Treaty) with two reservations and two declarations. The Treaty was signed in February 2010 and has been pending ratification in the United States since then. The reservations now must be approved by the Chilean Congress before the Treaty can move forward toward ratification and entry into force. Read more in this PwC Tax Insights.

Tax committee leaders release US-Taiwan tax agreement discussion draft 
The chairmen and ranking members of the House Ways and Means and Senate Finance Committees recently released a discussion draft of legislation (‘the legislation’) to provide treaty-like benefits aimed at relieving double taxation for businesses engaged in cross-border activities between the United States and Taiwan. The provisions would be effective as of the date of the enactment of the legislation but only would apply once the US Treasury Secretary determines that Taiwan has granted reciprocal benefits to US persons. Read more in this PwC Tax Insights.

In depth: Accounting for Inflation Reduction Act energy incentives 
This In depth focuses on the accounting and disclosure implications of the climate and clean energy incentives included in the IRA primarily from the perspective of the entity earning the credit.

Policy on Demand series 

• How far will Moore v US reach?
  Is realisation a constitutional requirement to have income? This is the question at the centre of Moore v US, a case challenging the constitutionality of a Section 965 international reform transition tax. In this episode from 17 July, Wade Sutton walks through the why and next steps of this case, which likely will be heard in fall 2023 and decided in spring 2024. Regardless of the wait-and-watch days ahead, companies are considering protective measures as well as add-on litigation.
• Week in Review
• 21 July - In this episode, Andrew Prior discusses how the Pillar Two guidance released by the OECD this week appears to be an attempt to address US concerns regarding implementation and the treatment of clean energy tax credits but did not prevent Ways and Means Republicans from introducing legislation to counter Pillar Two. Andrew encourages companies to stay engaged around expired TCJA business tax provisions and the OECD global tax agreement.
• 14 July - This was a week of positioning by Congressional tax writers for use in tax policy negotiations later this year. In this episode, Janice Mays encourages companies to stay engaged with Congress on R&D amortisation and focus on expected Pillar Two guidance and an upcoming hearing on international tax issues.

Tax Readiness webcast series

• Tax Readiness: Changing the game for tax with Generative AI
  The transformative power of generative AI has the potential to revolutionise the way we work in tax. Watch the replay here from this webcast held on 19 July, where our panel of specialists discuss how tax functions can harness the power of GenAI to enhance operations, drive value and why prioritising a responsible, trusted approach is critical to achieve sustained outcomes.
• Tax Readiness: Q2 Financial reporting considerations
  On Thursday 22 June, our panel of PwC specialists, took a deep dive into key tax accounting and reporting reminders, along with recent tax developments. Watch the replay here.

State and local tax

• Louisiana repeals income tax throwout, governor vetoes franchise tax repeal
  H.B. 631, enacted on 27 June removes corporate income tax throwout related to intangibles and throwout related to sales that cannot be assigned to a state. Additionally, H.B. 631 removes references to allocable income items found in the apportionment statute that were inadvertently included in prior legislation. These changes are applicable to tax years beginning on or after 1 January 2024. Read more in this PwC Tax Insights.
• New Jersey enacts significant tax changes
  A.B. 5323, enacted on 3 July makes several major changes to New Jersey’s CBT and other taxes. Many of these changes are applicable for periods ending and after 31 July 2023. 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.