Two weeks to 22 July 2022
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Legislation Day
L-Day saw the government publish a number of draft clauses for inclusion in Finance Bill 2022-23 for technical consultation, along with various supporting material and responses to previous consultations. The consultation period will close on 14 September and the final contents of FB22-3 will be confirmed in Budget 2022.
- Update on Pillar 2 following 20 July legislation release
Draft Pillar 2 legislation was released on 20 July 2022 with commencement of the Income Inclusion Rule (IIR) confirmed as applying to accounting periods beginning on or after 31 December 2023. The legislation will be included in Finance Bill 2022/23. The government has invited feedback on both the draft legislation and their response to the previous UK consultation on the UK implementation of Pillar 2. They also welcome continued engagement with stakeholders. The consultation will last until 14 September 2022 to inform the final drafting of the legislation. Read more.
Find out more about Pillar 2, including the key actions for groups that fall within the scope of the new rules, on our Pillar 2 webpage.
- UK R&D tax relief changes - are you prepared?
HM Treasury has released the long-anticipated draft legislation in response to their wide ranging R&D Tax Reliefs Consultation published last year. In the Spring Statement, the UK Government pledged their support to create ‘a new culture of enterprise’, with one of the three priorities being - a pledge to increase public investment in R&D, and doing more through the tax system to encourage greater private sector investment in R&D. Read more.
Derivative Hedging Transactions
In recent months, we have seen significant volatility in FX and commodity markets, and are now seeing increases in interest rates in response to rapidly rising prices. The position is often complicated, and exposures are often managed on a group basis. Fair value movements on unhedged positions, or positions managed on an overall group basis, can lead to significant cash tax exposures, and can also lead to impacts on distributable reserves. We can help understand the exposures and identify ways to manage the accounting and tax positions, and potentially help reduce the cost associated with entering into external hedges. Read more. [
Treaty updates
- HMRC update UK–Kyrgyzstan double tax treaty information information
HMRC has added the 2022 UK-Kyrgyzstan Republic Double Taxation Agreement, which entered into force on 8 April 2022, to their online guidance and added the specific dates on which it becomes effective in both the UK and Kyrgyz Republic for different tax purposes. - HMRC updates UK–Chile double tax treaty information
HMRC has added information on the Synthesised text of the Multilateral Instrument and the 2003 Double Taxation Convention and Protocol to their online guidance covering tax treaties and related documents between the UK and Chile.
Why a robust treasury policy is a vital tool for managing treasury risk and reducing unexpected loss
Given the current economic uncertainty and volatility in financial markets it has never been more important for the treasurer to have a robust treasury policy. By recognising this, treasurers reduce the chances of unexpected loss and are able to focus on the more interesting and career enhancing aspects of their role such as funding, supporting acquisitions and managing banks and investors. Read more in this blog.
EU
EU Commission launches public consultation on measures restricting the role of tax 'enablers' (advisors)
The European Commission recently launched a public consultation on measures to address the role of “enablers that facilitate tax evasion and aggressive tax planning” in the European Union (Securing the Activity Framework of Enablers - SAFE). In short, the EC is asking for feedback on possible measures with regard to intermediaries that provide tax advisory services (the 'enablers') on complex structures that could lead to tax evasion or an aggressive tax structure. Read more in our Tax Policy Alert.
One year after the publication of the Fit For 55 Package – Where do we stand?
On 14 July 2021 the European Commission published its ambitious Fit For 55 Package. Tune in to this podcast if you want to know where we stand today regarding the tax measures included in the Fit For 55 Package and how the developments impact business.
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 18 July includes: 1) Czech EU Presidency Aims for October Adoption of Pillar 2 Directive; 2) EU Tax Policy Report: Semester I – January to June 2022; 3) OECD Releases Progress Report on Pillar 1; 4) ‘Living CFE’: CFE’s Published & Forthcoming Publications, Events & Statements; and 5) CFE Opinion Statement on Introducing a Common EU-wide System for Withholding Taxes.
Visit their latest news page here.
OECD
Pillar Two Model Rules - further insights
- US - Hungary Treaty
On 8 July the US Treasury took the rare step of giving notice to Hungary that it is terminating the US-Hungary tax treaty, presumably as a response to the position Hungary is taking with respect to Pillar 2. Read more in this PwC Tax Insights.
Pillar One Model Rules
- Multilateral Convention to implement Pillar One on track for delivery by mid-2023
According to a new OECD report, implementation of the international tax reform agreement to ensure multinational enterprises pay a fair share of tax wherever they operate is progressing. Read more in this press release. - OECD releases a Progress Report on Amount A of Pillar One
As reported previously, the OECD released a Progress Report on Amount A of Pillar One on 11 July 2022. The OECD is seeking public comments by 19 August 2022. The OECD also published frequently asked questions (FAQs) and a fact sheet that includes a high-level overview of the rules on Amount A and a process map with steps for applying the rules. Our tax policy alert provides a short overview of the report and some initial observations.
MLI - China deposits its instrument of ratification with the OECD
China recently ratified the MLI and deposited its instrument of ratification with the OECD. The instrument sets out the respective MLI positions of Mainland China and Hong Kong Special Administration Region (SAR) for the covered tax agreements. For Mainland China, the Convention will enter into force on 1 September 2002. For Hong Kong SAR, it will become effective on 1 September 2022 upon the completion of the relevant local legislative process. Read more in this PwC news flash.
Eleven jurisdictions endorse the Bali Declaration and become founding members of the Asia Initiative
In the margins of the G20 Finance Ministers and Central Bank Governors' meeting last week, ministers from eleven Asian jurisdictions endorsed the landmark Declaration as a call to enhance the use of tax transparency for sustainable domestic resource mobilisation. Read more.
OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors
This report provides an overview of the latest developments in the OECD's international tax agenda. It outlines key developments in international tax reform in recent months, in particular the implementation of the global tax deal since the agreement reached in October 2021.
Other territories
International
International Tax News - June 2022
Among the topics featured in this month's edition are: 1) Cyprus Parliament votes to reduce tax on 'passive' interest income from listed corporate bonds; 2) UK sets implementation for Pillar Two; 3) New Mexican rules for international tax restructurings; and 4) China and Rwanda enter into tax treaty and accompanying protocol.
Digital tax byte
The latest addition to our series of brief insights into the workings of the UK and supranational bodies reviewing the taxation of digitalisation of business.
- The latest edition from 18 July includes an OECD consultation on consolidated Pillar 1 Amount A materials and an update on Maryland's US Sales Tax rules. It also covers Indian guidelines on crypto assets and an insight into the global indirect treatment of non-fungible tokens (NFTs). There are updates too on Kenyan amended VAT treatment of various digital services. We also include draft legislation on transposing the EU's DAC 7 on platform reporting for Italy and Germany.
- The Digital tax megabyte for June 2022 from 1 July. Topics include: 1) 30 June 2022 - Thailand provides more relevant VAT exemptions; 2) Tanzania's Finance Bill provides DST details.
Environmental, Social and Governance (ESG)
- Tax Transparency in an ESG era
The tax transparency landscape is experiencing seismic changes internationally, with historical legislative and voluntary reporting developments on the near horizon. The direction of travel is clear, tax is no longer just a private compliance issue between tax teams and tax authorities, it has become a core element of the wider ESG movement under the very public purview of stakeholders, investors and the board. Read more. - Tax Readiness webcast: How ESG is reshaping the Deals landscape
Register here to watch this webcast from 31 May where our specialists discuss the importance of ESG positioning in corporate strategy, buy-side due diligence, sell-side divestiture planning, and credits & incentives. - Streamlining reporting regulations to support a more sustainable future
Investors and other stakeholders are increasingly focused on the actions companies are taking on environmental, social and governance (ESG) commitments - particularly how they are tackling climate change. This blog discusses the implementation challenges companies are facing and a number of changes that could be made to help.
Australia
Treaty shopping arrangements to obtain reduced withholding tax rates
The Australian Taxation Office has released a new Taxpayer Alert outlining the agency's concerns about treaty shopping arrangements designed to obtain the benefit of a reduced withholding tax rate under a double tax agreement (DTA) in relation to royalty or dividend payments from Australia.
Election Commitments Report reveals potential Australian changes to royalty and interest deductibility
The independent Parliamentary Budget Office (PBO) has released its estimates of the budget impacts of the incoming Australian Labour Party (ALP) Government’s proposed tax policy measures. This 2022 Election Commitments Report is prepared based on the election commitments of the new government. The report is not formal government policy, much less legislation. However, the report is intended to ‘hold parties to account’ regarding their election commitments. Read more in this PwC Tax Insights.
ATO secures settlement of marketing hub tax dispute
The Australian Taxation Office (ATO) has confirmed a settlement has been reached with Rio Tinto Ltd. The settlement brings an end to all tax disputes including long standing disputes in relation to Rio’s Singapore marketing hub. The settlement brings Rio’s total payment in relation to the disputes to almost $1 billion.
Belgium
See here for latest updates.
Chile
HMRC updates UK–Chile double tax treaty information
HMRC have added information on the Synthesised text of the Multilateral Instrument and the 2003 Double Taxation Convention and Protocol to their online guidance covering tax treaties and related documents between the UK and Chile.
China (also see Hong Kong below)
China ratified BEPS Multilateral Convention, opening a new chapter of China’s tax treaties
China recently ratified the MLI and deposited its instrument of ratification with the OECD. The instrument sets out the respective MLI positions of Mainland China and Hong Kong Special Administration Region (SAR) for the covered tax agreements. For Mainland China, the Convention will enter into force on 1 September 2002. Read more in this PwC news flash.
Germany
Italian withholding taxes on dividends distributed to foreign investment funds incompatible with EU law
The Italian Supreme Court recently issued seven important judgments in which it ruled that Italian withholding taxes levied on dividends distributed to a German investment fund and six US investment funds are in violation of the EU principles on the free movement of capital (Article 63 (TFEU). Read more in this PwC blog.
Greece
Tax incentives for corporate restructurings and cooperation of small and medium-sized enterprises
Law 4935/2022 establishes tax incentives for the development of small and medium-sized enterprises and other provisions relating to corporate restructurings. The ultimate aim is to create a framework that promotes cooperation between enterprises, which will consequently become more extroverted, improve their productivity and broaden their financing prospects. Read more in this PwC tax flash.
Hong Kong
China ratified BEPS Multilateral Convention, opening a new chapter of China’s tax treaties
China recently ratified the MLI and deposited its instrument of ratification with the OECD. The instrument sets out the respective MLI positions of Mainland China and Hong Kong Special Administration Region (SAR) for the covered tax agreements. For Hong Kong SAR, it will become effective on 1 September 2022 upon the completion of the relevant local legislative process. Read more in this PwC news flash.
Proposed refinements to foreign source income exemption (FSIE) regime for passive income
As previously reported, the Hong Kong Government recently launched a consultation on a proposal to refine Hong Kong’s FSIE regime for passive income in response to the EU's concern over potential double non-taxation arising from the tax exemption for offshore passive income in Hong Kong. Read more in this PwC Tax Insights.
Hungary
US - Hungary Treaty
On 8 July the US Treasury took the rare step of giving notice to Hungary that it is terminating the US-Hungary tax treaty, presumably as a response to the position Hungary is taking with respect to Pillar 2. Read more in this PwC Tax Insights.
Ireland
Irish Government releases its Summer Economic Statement
The Summer Economic Statement outlines the Government’s strategy as regards budgeting decisions in the medium-term, and establishes the fiscal parameters of the forthcoming budget, which is taking place this year on 27 September, two weeks earlier than initially planned. Read more.
Italy
Italian withholding taxes on dividends distributed to foreign investment funds incompatible with EU law
As reported above, the Italian Supreme Court recently issued seven important judgments in which it ruled that Italian withholding taxes levied on dividends distributed to a German investment fund and six US investment funds are in violation of the EU principles on the free movement of capital (Article 63 (TFEU). Read more in this PwC blog.
Korea
Korean Tax Update - July 2022
This issue includes: 1) The New Government Announces Its Economic Policy Framework; 2) Proposed Amendment to Expand Support for Reshoring Companies; 3) The AEO Mutual Recognition Agreement between Korea and Indonesia Becomes Effective at the end of June 2022; 4) Korea’s Corporate Tax Revenue Grows 12.3% in 2021; 5) Notification of Discontinuance Proceedings in relation to the Investor State Dispute Case filed by Lone Star; and 6) Rulings update.
Kyrgyzstan
HMRC update UK–Kyrgyzstan double tax treaty information information
HMRC has added the 2022 UK-Kyrgyzstan Republic Double Taxation Agreement, which entered into force on 8 April 2022, to their online guidance and added the specific dates on which it becomes effective in both the UK and Kyrgyz Republic for different tax purposes.
Malta
Publication of the prevention of financial markets abuse rules
On 2 June 2022, the Malta Financial Services Authority (MFSA) published the Prevention of Financial Markets Abuse Rules in terms of the Prevention of Financial Markets Abuse Act (Cap. 476 of the Laws of Malta). The Rules should be relevant to entities and persons falling within the scope of the Market Abuse Regulation (MAR), including issuers of financial instruments admitted to trading on a regulated market or a multilateral trading facility (in Malta’s case, capturing issuers having equity and/or bonds listed on the Official List of the Malta Stock Exchange as well as Prospects), market operators (such as the Malta Stock Exchange), persons professionally arranging or executing transactions (such as entities providing investment services under MiFID, buy side firms such as investment management firms, and firms professionally engaged in trading on own account), and persons discharging managerial responsibilities. Read more in this PwC tax alert.
Middle East
Kingdom of Saudi Arabia: Amendments to TP ByLaws
Zakat, Tax, and Customs Authority (ZATCA) released a public consultation paper with proposed amendments to the Transfer Pricing (TP) Bylaws in the Kingdom of Saudi Arabia (KSA). Comments on the consultation paper are due by 30 July 2022. These proposed changes would bring Zakat payers in scope of transfer pricing rules. The table provided in this document provides a summary of the specific proposed amendments along with the potential impact on taxpayers in KSA. Read more in this PwC tax alert.
Netherlands
Dutch Ministry of Finance publishes new transfer pricing decree
As reported previously, on 1 July the Dutch Ministry of Finance published a transfer pricing decree replacing the prior version from 2018 and retracted the prior guidance on the use of a spread for financial services companies. The new decree is a narrower interpretation of the arm’s-length principle and emphasises the importance of both control over risks and the financial capacity to bear such risks. It’s critical that companies revisit their policies for financial transactions in general, and more specifically for transfer pricing of financial intermediaries and any guarantees provided for third-party debt across the group.Read more in this PwC Tax Insights.
Cabinet advises against proposed dividend exit tax
In 2020, the Dutch leftwing political party ‘GroenLinks’ published a bill to counter the loss of the Dutch dividend withholding tax claim, which may occur when companies/head offices are relocated from the Netherlands to certain other jurisdictions. On 15 July 2022, the cabinet advised the House of Representatives not to adopt the bill following the negative recommendations of the Advisory Division of the Council of State in response to the bill, the First Amendment Memorandum and the Fourth Amendment Memorandum. The government’s objections to the bill consist of nine points. Read more in this PwC tax alert.
Ministry of Finance: further approach to dividend stripping
In a letter to the House of Representatives dated 15 July 2022, the Dutch government announced which additional measures it will investigate and develop to combat dividend stripping more effectively. Read more in this PwC tax alert.
Acquisition financing businesslike as if from outside group
The Dutch Supreme Court has ruled that acquisition financing in the form of loan capital is only non-business if the financing has been diverted within the group. Read more in this PwC tax alert.
New Zealand
Offshore Tax Transparency Compliance Focus
The New Zealand Inland Revenue has released its compliance focus on offshore tax transparency, together with guidance to assist tax agents in complying with the international rules.
Puerto Rico
Puerto Rico amends tax incentives laws and allows election out of the Act 154 excise tax of 4%
The Puerto Rican Governor recently enacted Act 52-2022, to amend Puerto Rico’s manufacturing tax incentives laws and provide a framework for electing out of the income and excise tax regimes. Read more in this PwC Tax Insights.
South Africa
2022 Africa Tax and Business Symposium (ATBS) | Virtual event
PwC Africa is hosting a one day virtual Africa Tax and Business Symposium (ATBS) on 26 July 2022. Find out more about the topics that will be covered and how to register.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
Turkey
Turkey amends notional interest deduction rule
With Law no.7417 published in the official gazette on 5 July 2022, the right to claim notional interest deductions has been limited to 5 fiscal years. Read more in this PwC tax bulletin.
A new wealth amnesty programme
Law no. 7417 published in the official gazette on 5 July 2022 brought into effect a new wealth amnesty programme, which will run until the end of March 2023. Wealth amnesty is available to both individuals and companies. It allows them to regularise their undisclosed assets in and outside Turkey. The tax authority will not demand any past taxes or penalties because of prior non-compliance. Read more in this PwC tax bulletin.
US
US - Hungary Treaty
On 8 July the US Treasury took the rare step of giving notice to Hungary that it is terminating the US-Hungary tax treaty, presumably as a response to the position Hungary is taking with respect to Pillar 2. Read more in this PwC Tax Insights.
Cross-border tax talks - Living with Uncertainty: Fortune 50 SVP of Tax and Treasury
In this episode from 11 July, Doug McHoney (PwC's US International Tax Services Co-Leader) is joined by Tadd Fowler, Senior Vice President, Treasurer and Head of Global Tax Operations of Procter and Gamble and former PwC International Tax Services partner. Doug and Tadd discuss Tadd’s perspective as a Treasurer and Head of Tax, P&G’s approach to tax, working with the C-suite, connecting with Global and US policymakers, advancements in technology, the new FTC rules, Pillar Two, and much more.
Policy on Demand series
- Reconciliation: Tax provisions off the table for now
In this episode from 18 July, Todd Metcalf discusses how Senator Manchin’s recent comments impact the reconciliation process. He also shares his insights on the likelihood of reconciliation passage before the September 30th fiscal year end and Congressional priorities outside of reconciliation. - Reconciliation negotiations continue
In this episode from 11 July, Janice Mays shares her insights on what the House and Senate may accomplish before the August recess. She also discusses why businesses should be focusing on Section 174 strategy and approaching Senators Manchin and Sinema with any remaining issues sooner rather than later. - Week in Review
- In this episode from 22 July, Will Morris shares his takeaways related to the Pillar One Progress Report and discusses why it is important for companies to stay engaged on Pillars One and Two now. He also shares his thoughts on the question that he received most this week: What is going on with the global minimum tax?
- In this episode from 15 July, Rohit Kumar discusses Senator Manchin’s statement that he would not support tax increases or clean energy provisions in budget reconciliation legislation and looks ahead to the prospects for the bill. He also explains his evolving answer to the question that he received most this week: Will we see a tax title?
Tax Readiness: Emerging trends in the Metaverse
The Metaverse is profoundly changing how businesses and consumers interact with products, services and each other. Watch the replay from Thursday 21 July as we discussed how companies can begin to operate in this new three-dimensional digital world they need to understand and manage the tax consequences.
Tax Readiness: Breaking through reporting disruption with a more sustainable strategy
The rapidly changing tax and business landscape requires companies to build a more sustainable data and reporting strategy that addresses both global transparency and digitization trends. Watch the recording from 29 June where our panel of specialists discussed practical steps for adapting to change and preparing for the future.
Tax Readiness: Q2 financial reporting considerations
On Wednesday 22 June, our Tax Accounting Services (TAS) specialists took a deep dive into relevant tax accounting matters and recent tax developments. Register here to view a recording.
Tax Readiness: Unlock value through global indirect and US state tax reporting
Join our specialists on Wednesday 27 July at 7pm as they discuss how companies are dealing with more sources of data in real-time at a granular level and the operational and compliance challenges for both direct and indirect tax departments. We will focus on state and local income tax, sales and use tax, and global VAT compliance strategies and benefits. Register here.
Second quarter 2022 state and local tax developments
This publication presents a brief summary of significant SALT Insights published this quarter along with links to PwC Insights that provide analysis and observations.
Application window for California Competes Programme opens from 25 July
The California Governor's Office of Economic and Business Development recently announced the funding and application dates for the California Competes Tax Credit and Grant Programme. Applications for the first window will be accepted from 25 July to 15 August 2022. Read more in this PwC Tax Insights.
Missouri enacts research and development credit available in 2023
For tax years beginning on or after 1 January 2023, taxpayers may be authorised to receive a credit against the Missouri corporate income tax and financial institutions tax equal to 15% of a taxpayer’s “additional qualified research expenses.” Read more in this PwC Tax Insights.
Pennsylvania enacts corporate rate cuts, market-based sourcing, economic nexus and other changes
H.B. 1342 was recently enacted, which phases in a corporate net income tax (CNIT) rate reduction over nine years. Starting with tax years beginning after 31 December 2022, H.B. 1342 also implements market-based sourcing for sales of intangible property and enacts economic nexus for entities to be subject to the CNIT. Read more in this PwC Tax Insights.
You can sign up for Tax Alerts issued by the US to be emailed to you. Subscribe using the link on this page and a back catalogue of previous webcasts and other resources are available on our US tax reform hub here.