Two weeks to 26 April 2024
Welcome to the latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Pillar Two
Client webcast: Pillar Two - From readiness to reality, 18 April
On Thursday 18 April Matt Ryan, UK Pillar Two Lead was joined by Andy Wiggins, our Global Tax Accounting Leader, Pippa Booth, UK Tax Transformation Leader and Vicky Bradford, UK TRS Partner to discuss three key areas, as well as exploring how UK-parented businesses are implementing the necessary steps for Pillar Two financial reporting through to compliance. You can register here to view the recording and slides used during the webcast.
Case law update
- Blackrock - Court of Appeal decision
As reported previously, the Court of Appeal (CoA) handed down its decision in Blackrock Holdco 5 LLC v HMRC. This case concerned the deductibility of interest by companies under both the “Unallowable Purpose Rule” (CTA 2009, ss441-442) and the transfer pricing rules. This is a significant decision given that both of these areas continue to be actively challenged by HMRC in practice. In relation to the unallowable purpose rule, although a win for HMRC on the facts of the case, taxpayers may find that several aspects of the court's decision provide helpful clarity about an area that continues to be actively raised by HMRC in practice. In relation to transfer pricing, this represented a win for the taxpayer; however, it remains important for groups to carefully assess the risk profile of intragroup transactions when undertaking a transfer pricing analysis, particularly in cases where there may be questions over a borrowing entity's ability to control an income stream on which it is dependent. Read more in our article. - Hargreaves Property Holdings Ltd v HMRC
The Court of Appeal (CoA) decision in Hargreaves was released on 15 April. (This is the same team of judges as Blackrock and it was released similarly quickly). The case involved tax planning carried out by a UK property group to mitigate against WHT on interest paid to an associated offshore company. The CoA found against the taxpayer on both grounds.
Finance (No2) Bill 2024
- Finance (No2) Bill 2024
The Finance Bill had its second reading on 17th April and debates in the Whole House and Committee commence on Wednesday 8th May. - Tax Administration and Maintenance Day
The government announced a package of technical tax policy proposals on 18 April 2024 that supports its ambition to make the tax system fairer and tackle non-compliance. In addition, HMRC also published Corporate report: Named tax avoidance schemes, promoters, enablers and suppliers.
HMRC Manual & guidance updates
- International Tax Compliance (Amendment) Regulations 2024
HMRC has published a notice made under International Tax Compliance Regulations 2015, reg. 1(3)(b) (which has force of law). SI 2024/544 amends SI 2015/878 to enable HMRC to publish exchange of financial account information arrangements with other jurisdictions by notice and comes into effect from 14 May 2024. - Corporate Intangibles Research and Development Manual - updated 24 April
- CIRD48320 - Intangible assets: avoidance: intangible assets exchanged for other assets recognised at net book value (step-up schemes) - Removed ‘accounting argument’ section on advice of CAA.
- International Exchange of Information Manual - updated 26 April
- IEIM402340 - Reportable Information: Reportable Jurisdictions. As noted above, HM Treasury has made the International Tax Compliance (Amendment) Regulations 2024, which will come into force on 14 May 2024. These Regulations insert a new regulation 1(3)(b) into the International Tax Regulations 2015 (“the principal regulations”). This amendment enables HMRC to publish a notice specifying the arrangements for the exchange of financial account information with other jurisdictions to which the principal regulations apply.
- International Manual - updated 18 April
- INTM504020 and INTM504050 - Double taxation treaties: Beneficial ownership: Practical consideration of claims - amendment to referral info in paragraph 2 of each page.
Treaty updates
- UK-Isle of Man - Memorandum of Understanding now in force and effective
The UK and Isle of Man signed a Memorandum of Understanding on 7 February 2024 concerning arbitration under Article 25 of their double tax treaty, which entered into force and became effective on the same day. HMRC's treaty page was updated to reflect this on 15 April 2014. - Double Taxation Treaty Passport Scheme - updated 17 April
DTTP30620 DTTP2A process — syndicated loans has been removed from the terms and conditions and guidance for the Double Taxation Treaty Passport Scheme.
EU
New EU rules to combat money-laundering adopted
The European Parliament has adopted a package of laws strengthening the EU’s toolkit to fight money-laundering and terrorist financing. Highlights include: 1) Authorities, journalists, civil society organisations, to gain access to new registers and information sources; 2) EU limit on large cash payments up to EUR10 000; and 3) a new authority - the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) - will be established in Frankfurt. Read more in this press release.
OECD
Pillar Two
Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2023)
On 25 April, the OECD published this Consolidated Commentary to the GloBE Model Rules that purports to incorporate all agreed Administrative Guidance that’s been released by the Inclusive Framework since March 2022 up until December 2023. The OECD also released updated Illustrative Examples (originally published in March 2022) that also purports to include the examples that were developed as part of the various pieces of Administrative Guidance approved by the IF before the end of December 2023. The Consolidated Commentary now stands at 334 pages, which is notably shorter than the sum of the pages in the original commentary and all the piecemeal published guidance to date. Consolidation should hopefully help in terms of referencing a single source of guidance. However, as the IF plans to issue more guidance on specific areas, it is expected that the commentary will be further updated and consolidated in the future. Annex A includes guidance on the safe harbours. It should be noted that this new Consolidated Commentary does not include the next tranche of Pillar 2 guidance (or any new technical guidance) which OECD Senior Adviser Heydon Wardell-Burrus reportedly said would be released by the end of June. The forthcoming guidance is still expected to cover a variety of issues, including the cross-border allocation of taxes.
MLI
Latest updates, the text of the BEPS Convention, the explanatory statement, background information, database, and positions of each signatory and parties are available at https://oe.cd/mli
United Nations
Jurisdictions criticise UN Tax Committee proposal to widen source taxation on services
Workstream B of the Subcommittee of the UN Committee of Experts on Tax, dealing with The Digitalized and Globalized Economy, has proposed the addition of a new Article XX to the UN Model Tax Convention. The proposed Article expands Article 12A (currently covering fees for technical services) to cross-border services in general and would effectively combine it with Articles 5(3)(b) (on permanent establishment services, including consultancy services, through employees) and 14 (on independent personal services) into a single provision. It was recently discussed but not approved at the 28th Session of the Committee of Experts on International Cooperation in Tax Matters. Final approval of the text of Article XX will be sought at the next session of the UN Tax Committee at their 29th Session in Geneva in October. Jurisdictions that oppose the proposal have been making their views more widely noted since the discussion. For example, the US Chamber of Commerce has strongly opposed the new article and urged for withdrawal of what it describes as a ‘destabilising proposal.’ See the latest edition of our Digital Tax Byte.
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. In this edition, from 22 April, we cover:
- an India case on sale of advertising space;
- an update on DST from the Canadian Budget;
- further development of PwC's Pillar Two tracker tool; and
- a new VAT in Africa: Digital Services guide.
Digital tax megabyte for March 2024
A collection of the brief insights throughout March 2024 of the type provided on an ad hoc basis in our Latest digital tax byte update (see above).
Environmental, Social and Governance (ESG)
Three industries where consumer behaviour is powering the circular economy
Customers are critical to the circular economy. From fashion to food, @PwC UK’s new article explores the industries where consumer behaviour is driving a shift towards circular business models and sets out how organisations can take steps to deliver better commercial, climate and consumer outcomes. Read more in our article.
Australia
Thin capitalisation - attribution of risk weighted assets to Australian branches of foreign banks
A foreign bank that conducts its banking business in Australia through a branch is subject to Australia’s thin capitalisation rules which require it to allocate a minimum amount of equity capital to its branch(es). This can impact on the amount of debt deductions allowable to the branch. Typically, foreign banks use the safe harbour rule to work out their minimum capital amount, which is based on ensuring there is sufficient equity capital funding that part of the risk-weighted assets (RWAs) of the bank that is attributable to its branch. The Australian Taxation Office recently released a discussion paper for comment until 31 May, about the safe harbour formula used to work out the minimum capital amount of inward investing entities (ADIs).
Australia’s draft taxation ruling on software royalties causing friction with US
On 23 April, US Treasury published a letter to Australia’s ATO dated 5 April, expressing concerns relating to the ATO’s updated draft taxation ruling TR 2024/D1. The draft ruling replaces the previous draft taxation ruling TR 2024/D4, and sets out when amounts paid from Australia under a “software arrangement” are subject to royalty withholding tax. The new ruling is likely to have implications for payments made for software licensing, cloud-based technology (SaaS) use, and software distribution agreements. The ATO also considers that arrangements for payments of tangible goods “embedded with software” may constitute a royalty. The draft ruling was open for public comment until 1 March. Read more in the latest edition of our Digital Tax Byte.
CbC Reporting Guidance - exemptions
The Australian Taxation Office has updated its Country-by-Country reporting guidance (see the Applying for an exemption section), advising taxpayers self-assessing eligibility to an exemption that they must do so based on facts. It recommends taxpayers document how they meet the exemption criteria, and reference the relevant source materials to support their analysis and conclusions.
Belgium
See here for latest updates.
Belgian draft law amending the investment deduction and innovation income deduction regime
Recent adjustments of tax provisions regarding ‘judicial reorganisations’ offer new opportunities and challenges for distressed companies and their creditors. Most of these adjustments, aligning tax law with the updated insolvency law, entered into force with retroactive effect to 1 September 2023. Read more in this PwC news item.
Canada
2024 Federal Budget analysis
On 16 April 2024, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented the government’s budget. The announcements include the following international measures: 1) moving forward with plans to implement Pillar Two; 2) the introduction of a Digital Services Tax (DST); 3) WHT on payments to non-residents for services rendered in Canada - enabling the Canadian Revenue Authority to grant single waivers that cover multiple transactions in a specific time frame; and 4) the adoption of the OECD’s Crypto-Asset Reporting Framework (CARF). This PwC Tax Insights discusses these and other tax initiatives proposed in the budget.
Cyprus
Environment-friendly assets: New deduction and increased Wear and Tear (‘W&T’) rates for capital expenses
On 12 April 2024 amendments to the Cyprus income tax Law with respect to the introduction of a new deduction and increased W&T rates for capital expenses on certain environment-friendly assets were published in the attached Cyprus Government Gazette, with retrospective effect from 1 January 2023. Read more in this PwC alert.
Germany
External tax audit to include review of tax withholding for limited taxpayers
The competence of the Federal Central Tax Office is for both full assessment of German income tax of limited taxpayers as well as monitoring and carrying out the withholding tax procedure in accordance with Section 50a (1) Income Tax Act. However, in a recently published case, the Supreme Tax Court held that it is not permissible for the Central Tax Office to conduct general external tax audits. This is solely the responsibility of the local tax offices. Read more in this PwC blog.
Estimate of taxable income if deficient cash register is used to calculate revenues
In a recent ruling, the Supreme Tax Court continued to develop its case law on the application of the principles of proportionality and protection of legitimate expectations in the case of estimates by the tax authorities. A full estimate that completely ignores the taxpayer's own profit and loss calculation is only permissible if the deficiencies identified are serious. Read more in this PwC blog.
Greece
Adoption of Pillar Two rules in the Greek tax legislation
On 5 April, Law 5100/2024 was published in the Official Government Gazette of Greece, implementing the EU minimum tax Directive. The law introduces an Income Inclusion Rule (IIR) and Qualifying Domestic Minimum Top-up Tax (QDMTT) applying from 31 December 2023, and an Undertaxed Profits Rule (UTPR) applying from 31 December 2024. The legislation includes the transitional CbCR safe harbour, QDMTT safe harbour, and transitional UTPR safe harbour (Articles 34-36). Article 12(10) of the legislation provides that instead of using the Ultimate Parent Entity’s accounting standard for the QDMTT, MNEs can calculate GloBE income using Greek Accounting Standards or IFRS subject to certain conditions. Read more in this PwC alert.
India
Deemed dividend is taxable only in hands of registered and beneficial owner holding prescribed threshold of shares on date loans were advanced
The Chennai bench of the Income-tax Appellate Tribunal has dismissed the Revenue’s appeal in a batch of appeals filed in the case of five related group companies on a similar fact pattern dealing with the taxability of deemed dividends under section 2(22)(e) of the Income-tax Act, 1961. Read more in this PwC alert.
Reimbursement amount received by taxpayer from its Indian AE towards cross charge of third-party software licence procured centrally for group cannot be characterised as a ‘royalty’
In a recent ruling, the Delhi bench of the Income-tax Appellate Tribunal concluded that the reimbursement amount received by a non-resident taxpayer towards cross charge of cost of third-party software procured centrally under a global agreement for all the entities within the group cannot be characterised as a royalty under the India-Denmark double tax treaty in the absence of any transfer of copyright in the software. The ruling reaffirms the view laid down by the Supreme Court regarding taxability of software licence fees. Read more in this PwC alert.
Ireland
Minister McGrath welcomes publication of Corporation Tax Payments and Returns Report by the Revenue Commissioners
Minister for Finance, Michael McGrath TD, has welcomed the publication of the 2023 CT receipts and 2022 returns paper by the Revenue Commissioners. Corporation tax is now the second largest tax-head representing 27% of net tax receipts in 2023. However, having consistently reported ‘windfall’ corporation tax receipts during the last decade, he cautioned that the era of corporation tax over-performance is coming to an end. In preparation for those receipts falling off, the Government is preparing to establish two new long-term investment vehicles to invest windfall receipts to help prepare for future known fiscal challenges. Read more in this press release.
Italy
Certain Italian withholding tax on dividends paid to non-EU corporations may be eligible for a refund
Dividends paid by Italian companies to non-EU tax resident corporations are subject to a withholding tax (WHT) of 26%. If a double tax treaty is applicable, the WHT may be lowered. Read more in this PwC alert.
Malta
Simplified pricing method for low-value-adding intra-group services
The Maltese Transfer Pricing Guidelines issued in January of this year, set out that the arm’s length charge for low value-adding intra-group services may be determined following the OECD Transfer Pricing Guidelines and EU Joint Transfer Pricing Forum guidelines. Read more in this PwC news item.
Middle East
Qatar: Issuance of presumptive tax assessments by the General Tax Authority
The General Tax Authority (GTA) has started issuing a large number of presumptive tax assessments to taxpayers resulting in significant tax exposures. The GTA has the right to issue tax assessments on a presumptive basis in cases where taxpayers fail to file tax returns or submit supporting documents within the time limits prescribed under the Income Tax Law. Read more in this PwC alert.
UAE Ministry of Finance launches digital public consultation on potential implementation of R&D tax incentive
The UAE Ministry of Finance has announced the launch of a digital public consultation to gather the views of relevant stakeholders on the potential implementation of a Research & Development (R&D) tax incentive under the UAE Corporate Tax law. The consultation is open until 14 May 2024.
Netherlands
Dutch public country-by-country reporting effective 22 June 2024
As of 22 June 2024 and in line with the EU directive, the Netherlands will introduce mandatory, public country-by-country reporting for large, multinational companies. Reporting commences for financial years starting on or after 22 June 2024. The effective date is approaching rapidly and therefore it is important to understand what this means for companies. Read more in this PwC news item.
New Zealand
Tax Policy Bulletin - April 2024
In this edition we cover: 1) Tax bill has received royal assent; 2) Government’s first 100 days - tax policy; 3) Summary of recent IR tax publications; and 4) Open consultations.
Poland
Pillar 2: Publication of draft Act implementing the global minimum tax in Poland
On April 25, Poland’s Ministry of Finance published its draft Pillar Two legislation to transpose the EU minimum tax Directive into Polish domestic law, which is open for public comment until 17 May. As expected, the draft bill introduces an Income Inclusion Rule (IIR), Qualifying Domestic Minimum Top-up Tax (QDMTT), and Undertaxed Payments Rule (UTPR) effective from 1 January 2025. However, optional transitional provisions would allow for retroactive application of the IIR and QDMTT from 1 January 2024. According to a notice previously released by the Polish government, the draft bill is set to be adopted by the Council of Ministers in the third quarter of 2024. Taxpayers therefore need to take preparatory actions as soon as possible. Read more in this PwC alert
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
US
Final regulations released addressing domestically controlled qualified investment entities
On 24 April 2024, the Treasury and IRS released final regulations (TD 9992) regarding the definition of domestically controlled qualified investment entities (DC QIE) under Section 897. The final regulations provide much needed transition rules and primarily affect foreign persons that own stock in a QIE that would be a United States real property interest (USRPI) if the QIE were not domestically controlled. Read more in this PwC Tax Insights.
Proposed regulations clarify application of the excise tax on stock repurchases
As reported in our previous edition, the Treasury and IRS issued two sets of proposed regulations addressing the application of the Section 4501 excise tax on certain repurchases of corporate stock (the excise tax) on 9 April, which were subsequently published on 12 April in the Federal Register (the proposed regulations). Additional resources are now available:
- Join our panel of specialists at 9pm on Wednesday 8 May, as they discuss the recently issued stock buyback proposed regulations including reporting considerations and equity compensation determinations. Register here.
- Also see this Policy in Demand episode "Stock buyback regulations: Welcome guidance, some surprises" from 16 April.
IRA tax credits: Compliance and timing considerations for tax-exempt organisations
The Inflation Reduction Act of 2022 (IRA) introduced significant tax incentives and notable changes that impact tax-exempt organisations. The IRA (1) created new and expanded tax credits and other incentives to promote clean energy and (2) provides new ways to monetise applicable tax credits through a direct pay option. The IRS recently opened an online pre-filing registration tool where tax-exempt organisations are required to timely register their intention to make a direct pay election. On 11 March, the IRS and Treasury published proposed regulations addressing how tax-exempt entities participating in energy projects under a co-ownership structure may qualify to elect direct payment of certain credits. Read more in this PwC Tax Insights.
Policy on Demand series
- Nikole Flax on status of IRS appeals and enforcement
In this episode from 22 April, Nikole Flax shares her takeaways from the Congressional hearing on President Biden's FY25 IRS budget and the 2024 filing season and what companies need to know about current IRS operations. - Stock buyback regulations: Welcome guidance, some surprises
Treasury issued long-awaited proposed regulations on the excise tax on stock repurchases with some welcome news and a few surprises. In this episode from 16 April, Matt Lamorena and Veena Murthy give an initial take on the voluminous -- and significant – proposal. - With tax bill in limbo, Congress looks forward to 2025
It is too soon to give up on Senate passage of the bipartisan tax bill, but the Ways and Means Committee has kicked off the debate for the 2025 consideration of expiring TCJA individual and corporate tax provisions. Watch this episode from 15 April. - Week in Review
- 26 April - After the successful execution of the National Security supplemental bill, can we expect a significant effort to pass the TJCA extenders package in the Senate? Watch here.
- 19 April - With the tax bill adrift in the Senate, the House Ways and Means Committee has started looking forward to 2025 with hearings on expiring TCJA provisions. Watch here.
Tax Readiness webcast series
- Tax Readiness: What taxpayers need to know about the recent stock buyback proposed regulations
Join our panel of specialists at 9pm on Wednesday 8 May, as they discuss the recently issued stock buyback proposed regulations including reporting considerations and equity compensation determinations. Register here. - Tax Readiness: Operationalising your AI strategy
Watch the replay from this webcast held on 25 April where our panel of specialists share how to build an effective AI strategy for your tax operations. Explore real-world examples of successful AI implementation and discover practical steps to unlock the full potential of AI, drive value, and develop a strategic approach. - Tax Readiness: Understanding the Office of Appeals as IRS expands enforcement
Our panel of PwC specialists, with decades of Appeals experience, discuss what you should know about resolving tax disputes involving large corporations and high-income individuals with the Office of Appeals, with a particular focus on changes over recent years. View the webcast replay from 3 April. - Tax Readiness: Pillar Two is here! How businesses are responding to the new GloBE rules (New DF 01b)
Beginning in 2024, Pillar Two became effective in many jurisdictions just after more OECD administrative guidance was published in December 2023. This new guidance is intended to clarify the operation of the GloBE rules. In this webcast replay from 27 March, our panellists will explore some common traps for the unwary, the new anti-arbitrage rules for the Transitional CbCR Safe Harbour; how businesses are developing a holistic data and technology strategy, and what steps businesses should be taking to ensure compliance.
State and local tax
- Tennessee legislature approves franchise tax refunds
Legislation passed by the Tennessee House and Senate on the last day of session would repeal the alternative property measure of the franchise tax effective for tax years ending on or after 1 January 2024. The legislation would authorise refund claims for taxpayers to the extent that the tax they paid under the property measure exceeded the net worth measure of the tax. Read more in this PwC Tax Insights.
Further information
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