Two weeks to 27 January 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
- The OECD and the UN at a cross road on tax
What implications might the establishment of a UN tax convention and a new global tax body have for the OECD, its Pillar 2 framework, and the global tax system more generally? Read more. - Pillar 2 safe harbours: how your country-by-country report will be central to compliance
As reported in our previous edition, the OECD released the details of the Pillar 2 safe harbour provisions on 20 December 2022. This includes a transitional safe harbour, predominantly based on Country-by-Country Report (CbCR) data. Broadly, the safe harbour applies if the CbCR report is ‘qualifying’ and one of three conditions is met, but what are they, what adjustments might organisations have to make, and are there any exceptions? Read more.
Treasury Tax Benchmarking
In the last few years, factors including the COVID pandemic, the Ukraine conflict, general economic volatility and significant changes in the local and international tax environment, have meant that there is increased focus on risk management, with increasingly complex financing and hedging strategies being adopted. These transactions are often difficult to understand, but the numbers are often large and the complexity of the international tax landscape, which means there are real risks of significant taxable gains arising. Undertaking an exercise to review and benchmark treasury tax outcomes can help give comfort that financing and hedging strategies are effective from a tax perspective and that recent and forthcoming tax changes don't have any unexpected consequences. Read more on how we can help understand and manage these key considerations and help achieve the desired commercial outcomes and benefits.
Case law update
- Kwik Fit applies for leave to appeal in unallowable purpose case
We understand from the Upper Tribunal office that they received an application from Kwik Fit on 22 December for permission to appeal against the UT unallowable purpose decision handed down in November. The UT has not as yet decided on whether to give permission. If the appeal progresses then the next stop will be the Court of Appeal.
HMT: The International Tax Enforcement (Disclosable Arrangements) Regulations 2023
Following a consultation on this matter in 2022, the International Tax Enforcement (Disclosable Arrangements) Regulations 2023 were laid before the House of Commons on 17 January 2023. These regulations implement the Mandatory Disclosure Rules. The regulations come into force on 28 March 2023. HMRC have published this tax information and impact note about Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures.
Super-deduction - getting ready for the end of the window
The 130% capital allowances super-deduction comes to an end in March 2023 - what do organisations looking to make the most out of this remaining period of availability need to consider? Read more.
HMRC IFRS guidance updated
IFRS 16 Application Guidance has been updated to reflect changes in the implementation date, updates to other associated guidance, and add clarifications on the remeasurement basis with regards to cash flows.
Ready to move: Gearing up for the deal rebound in 2023
Businesses have been exercising understandable caution around some deals and investments. But they are balancing this with the need to secure longer-term growth. Our research shows that the momentum for dealmaking should remain strong in the year ahead, particularly in areas where businesses can’t afford to hold back, like acquiring new talent and technology. Read more.
Resolute CEOs double down on talent, technology and transformation - 26th Annual CEO Survey
PwC’s 26th Annual CEO Survey shows UK CEOs are under no illusions that after a tough few years things are about to get tougher still. As they deal with challenges such as high inflation, the cost of living crisis and continued geopolitical disruption they are exercising caution and exploring short-term measures to mitigate the impact on their business. But at the same time they are resolutely focussed on strategic investments, specifically in the talent and technology needed to transform their businesses and ensure long-term growth and viability.
EU
DAC7
- PwC DAC7 webcast
With the introduction of the DAC7 legislation, digital platform operators will be required to report on sellers for the year 2023 for the first time in 2024. Join our panel of specialists on Tuesday 14 February at 3pm to get guidance and background information. There will be time for discussion and questions, and we’ll provide some practical examples. Register here. - Tackling tax evasion: new rules for administrative cooperation between tax authorities in the context of use of digital platforms by taxpayer
This EC press item reports that the following Member States have not notified, or only partially notified, the national measures transposing DAC7 and are receiving a letter of formal notice: Belgium, Estonia, Greece, Spain, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania, Slovenia.
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 23 January includes: 1) ECOFIN: Swedish Presidency priorities; 2) EU consultation on administrative cooperation in VAT; 3) EU Parliament’s FISC: Public hearing on BEFIT; 4) Updated OECD Pillar 1 & 2 analysis; and; 5) EU Semester Reports 2023. Visit their latest news page here.
OECD
The OECD and the UN at a cross road on tax
What implications might the establishment of a UN tax convention and a new global tax body have for the OECD, its Pillar Two framework, and the global tax system more generally? Read more in this article, by Giorgia Maffini, on our website.
Webinar: Economic impact assessment of the Two-Pillar Solution
In this live webinar from 18 January, the OECD provided an update on its ongoing work to assess the economic impact of the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, including new estimates of the revenue impacts of implementing Pillar One and Pillar Two. These estimates are based on updated data and incorporate many recently agreed design features of Pillar One and Pillar Two, many of which have not been accounted for in other studies. You can watch the replay here.
Pillar Two
- Pillar 2 safe harbours: how your CbCR will be central to compliance
The OECD released details of the Pillar 2 safe harbour provisions on 20 December 2022. This includes a transitional safe harbour, predominantly based on Country-by-Country Report (CbCR) data. Broadly, the safe harbour applies if the CbCR report is ‘qualifying’ and one of three conditions is met, but what are they, what adjustments might organisations have to make, and are there any exceptions? Find out what this means for your business, in this article on our website. - Liechtenstein: global minimum taxation to be introduced
Liechtenstein is on track to introduce the Global Minimum Tax. The Liechtenstein government communicated this in a media release dated 16 December 2022. Liechtenstein companies of any legal form (AG, GmbH, Stiftung, Anstalt, etc.) that reach the turnover threshold are recommended to analyse the OECD GloBE rules in detail. It is clear that a detailed and data-intensive GloBE tax return will have to be prepared. Read more in this PwC news item.
Pillar One
- Responses to Pillar One Amount A draft MLC provisions on DSTs and other relevant similar measures
The OECD consultation on the Draft Multilateral Convention (MLC) Provisions on Digital Services Taxes (DSTs) and other Relevant Similar Measures of Amount A of Pillar One closed on 20 January and the OECD has now published the public comments received. - Public comments received on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules
On 8 December 2022, as part of the ongoing work of the OECD/G20 Inclusive Framework on BEPS to implement the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, the OECD invited public comments on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules. The OECD has now published the public comments received.
OECD releases revised methodology for the BEPS Action 14 peer reviews, additional data points in the MAP Statistics and a new framework for APA Statistics
Following the successful completion of peer reviews under the existing BEPS Action 14 Assessment Methodology, the OECD/G20 Inclusive Framework on BEPS has agreed a new Assessment Methodology for continuing the robust peer review process that seeks to increase efficiencies and improve the timeliness of the resolution of double taxation disputes. Read more in this OECD item.
Other territories
International
Digital tax byte
The latest edition in our series of brief insights into the workings of the UK and supranational bodies reviewing the taxation of digitalisation of business. This edition, from 26 January, includes: 1) measures taken just prior to the end of December 2022 by France, Germany, Spain, Belgium, Finland, Croatia (with subsequent consultation on some details) and Slovenia on DAC7 in relation to reporting by digital platform operators; 2) the OECD has meanwhile published a set of FAQs on its Model Rules for such operators; 3) the European Commission has published for consultation a draft Implementing Regulation for determining the DAC7 equivalence of similar regimes in non-EU countries; 4) Tanzania has also published a notice on registration by non-resident electronic service providers.
Environmental, Social and Governance (ESG)
- Tax Transparency: Is your company ready for Public CbCR?
Is your organisation ready for public CbCR and can you use your public CbCR to substantiate your ESG ambitions? Read more.
Visit our dedicated ESG webpage.
Belgium
See here for latest updates.
Brazil
Brazil issues new transfer pricing rules seeking alignment with arm’s length principle
The Brazilian Government issued Provisional Measure (MP) 1.152/22 on 29 December, seeking alignment with the arm’s length principle (ALP) in accordance with the OECD Transfer Pricing Guidelines. This PwC Tax Insight presents a summary of the main changes introduced by the MP, highlighting improvements not only vis-à-vis historical Brazilian rules, but also other countries’ applications of the ALP. Also highlighted are some issues that still may raise questions and demand caution and diligence in the analysis of the new Brazilian system for both TP and US Foreign Tax Credit purposes.
Canada
2023 Annual tax filing and remittance deadlines for corporations
Canadian corporations are required to file annual income and capital tax returns (due six months following each taxation year‑end), and to meet several other Canadian annual filing and remittance deadlines. This PwC Tax Insights outlines some of the more common compliance requirements to be considered at this time of year. Others also may apply (e.g. T4A information return to report certain benefits to shareholders).
Cyprus
Cyprus strengthens diplomatic ties with India
On 29th December 2022, the Indian Minister of Foreign Affairs was on a two-day mission to Cyprus and met the Minister of Foreign Affairs of Cyprus and President of the House of Representatives. The Indian Minister also had the opportunity to address the business and investment community of Cyprus in an event in Limassol where he met the Cypriot Deputy Minister of Shipping. Read more in this PwC alert.
Germany
Extended unlimited gift tax liability constitutional and in accordance with EU law
According to a decision of the Supreme Tax Court, the so called “extended unlimited gift tax liability” does not violate the constitutional principle of equality and the freedom of movement of capital under EU law. The German gift tax arises if the donor is a resident at the time the gift is made, or the acquirer is a resident at the time the tax arises. If this is the case, the tax is levied for the total amount of assets received, irrespective of whether these are of domestic or foreign origin. Read more in this PwC tax blog.
Provision for transition from imputation system to half-income method in part incompatible with Basic Law
The German Federal Constitutional Court has ruled that the transitional provision from the imputation system to the so-called half-income method in the course of the Annual Tax Act 2010 is partially incompatible with the German Basic Law and obliges the legislator to retroactively eliminate the identified constitutional violation by 31 December 2023. Read more in this PwC tax blog.
Guernsey
Protocol to Guernsey-Ireland double tax treaty enters into force
The amending protocol to the Guernsey-Ireland individual income tax treaty has entered into force, according to an update published on 18 January by the Irish Revenue.
India
Delhi High Court rules on beneficial ownership under India-US double tax treaty
The Delhi High Court has upheld the order of the Delhi bench of the Income-tax Appellate Tribunal. The court has confirmed that fees received by a taxpayer incorporated in the United States upon rendering branding and management services to its Indian counterpart are taxable at the rate of 15% on a gross basis as fees for included services (FIS) under Article 12 of the India-US double tax treaty (DTT). In the absence of any substantial question of law, the Tribunal’s ruling has been upheld. The High Court has observed that once it is held that there is no back-to-back arrangement and the taxpayer has dominion and control over the fees it has received, the taxpayer is entitled to the status of beneficial ownership; consequently, the provisions of Article 12 of the India-US DTT are triggered. Read more in this PwC Tax Insights.
Time charter hire charges taxable as profits of shipping business and not ‘royalty’
In a recent decision , the Mumbai bench of the Income-tax Appellate Tribunal held that time charter hire charges (TCHC) for the vessel (equipment) are taxable in India as shipping profits under the presumptive scheme of taxation of section 44B and not as ‘royalty’ under the provisions of the Income-tax Act 1961. In holding so, the Tribunal relied on the contractual arrangement between parties which, inter alia, indicated that the ownership, control and possession over the vessel continued to remain with the owner. Read more in this PwC Tax Insights.
Cyprus strengthens diplomatic ties with India
On 29th December 2022, the Indian Minister of Foreign Affairs was on a two-day mission to Cyprus and met the Minister of Foreign Affairs of Cyprus and President of the House of Representatives. The Indian Minister also had the opportunity to address the business and investment community of Cyprus in an event in Limassol where he met the Cypriot Deputy Minister of Shipping. Read more in this PwC alert.
Ireland
Investing in Ireland
Welcome to the January 2023 issue of PwC’s newsletter on foreign direct investment (FDI) in Ireland. This issue explores the IDA 2022 results for FDI, the Fintech and Digital sectors in Ireland and the key changes to FDI introduced by Finance Act 2022.
Protocol to Guernsey-Ireland double tax treaty enters into force
The amending protocol to the Guernsey-Ireland individual income tax treaty has entered into force, according to an update published on 18 January by the Irish Revenue.
Ireland flags upcoming deadline to renew 2017 tax rulings
The Irish Revenue has updated guidance to taxpayers who wish to continue to rely on an opinion or confirmation issued by Revenue. The update is for the period between 1 January and 31 December 2017, in respect of a transaction, period or part of a period, on or after 1 January 2023. A taxpayer who wishes to continue to rely on such an opinion or confirmation is required to make an application for its renewal or extension on or before 31 March 2023.
Italy
Benefit Corporations: first signals of attention from the Tax Authority
Italy is the first, and the only, European country which has recognised a legal status to the Benefit Corporations (art. 1, paragraphs 376-383 and annexes 4 – 5 of Law No. 208/2015, the so-called “Legge di Stabilità 2016”). Read more in this PwC tax blog.
Main updates in the field of incentives for businesses
This PwC tax blog summaries the main changes relating to incentives for businesses introduced by the Budget Law 2023 (law n. 197/2022).
Liechtenstein
Liechtenstein: global minimum taxation to be introduced
Liechtenstein is on track to introduce the Global Minimum Tax. The Liechtenstein government communicated this in a media release dated 16 December 2022. Liechtenstein companies of any legal form (AG, GmbH, Stiftung, Anstalt, etc.) that reach the turnover threshold are recommended to analyse the OECD GloBE rules in detail. It is clear that a detailed and data-intensive GloBE tax return will have to be prepared. Read more in this PwC news item.
Middle East
The New UAE Commercial Agencies Law
The President of the United Arab Emirates has promulgated Federal Law No. 23 of 2022 on commercial agencies (the New Law), which introduces landmark changes to the UAE’s commercial agencies regime by entirely replacing Federal Law No. 18 of 1981 (as amended) on commercial agencies (the Old Law). The New Law is a welcome development which seeks to liberalise some of the oft-cited criticisms of the Old Law which some considered too protective of UAE national commercial agents and which has been in place for more than forty years. In this PwC alert, we focus on certain key items under the New Law which are notable for both principals and commercial agents.
South Korea
Government’s Bill to amend Presidential Decrees of tax laws
This PwC alert provides a brief summary of the selected significant changes contained in the government’s bill to amend the Presidential Decrees of the tax laws (the ‘Bill’).
Spain
European Directive that requires the publication of country-by-country information transposed into Spanish law
The European Directive that will oblige those multinational groups and entities whose revenues exceed 750 million euros to make public relevant tax and financial information aggregated on a country-by-country basis on their website has been transposed into Spanish law. Read more in this PwC alert.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
US
2023 Tax Policy Outlook: Challenges and opportunities
The stakes have rarely been higher for tax executives. Tax policy professionals need to be proactive in this environment at a time when the future direction of tax policy is being debated and the United States and other countries are facing significant macroeconomic risks — possible recession, elevated inflation, rising interest rates, and geopolitical uncertainty. Prepare now for geopolitical challenges and seize opportunities to leverage recently enacted tax incentives that may help to advance a company’s business strategy. Read more. This document was discussed in the 19 January episode of our Tax Policy Outlook series, see below.
Pillar Two
- Pillar Two webcasts
Our experts discuss the latest developments and their implications for tax payers in a number of webcasts, full details of which are set out below: - Week in Review - in this episode from 20 January, Will Morris discusses how Pillar Two is an absolute certainty and how there’s not much time to prepare.
- Tax Readiness: New Year's Resolution - Prepare for Pillar Two! - webcast replay.
- 2022 Year in Review - in this episode from 24 January, Doug McHoney discusses a range of topics, including the progress made on Pillar One & Two.
Section 897 guidance addresses REITs, RICs, foreign government tax exemption
Treasury and the IRS recently published proposed regulations defining a domestically controlled qualified investment entity and revising definition of a “controlled commercial entity” for qualified foreign pension funds. Read more in this PwC Tax Insights.
USMCA panel rules against US position in automotive origin dispute
In perhaps the most important decision since the United States-Canada-Mexico Agreement (USMCA) entered into force in 2020 as a replacement for the North American Free Trade Agreement (NAFTA), a USMCA panel ruled on 14 December 2022 that the United States position on certain automotive rules of origin was inconsistent with the terms of the USMCA. The panel agreed with Mexico and Canada that the United States had sought to impose a requirement beyond the scope of the agreement and that the United States’s strict application of roll-up provisions and methodology in the treatment of originating core parts in vehicle regional value content (RVC) calculations were inconsistent with the agreement. Read more in this PwC Tax Insights.
State and local tax developments
- Massachusetts Supreme Court rejects retroactive Wayfair application
The Massachusetts Supreme Judicial Court has rejected the Department of Revenue’s attempt to apply its ‘cookie nexus’ regulation to pre-Wayfair periods and upheld the Appellate Tax Board’s (ATB) ruling that activities outlined in the regulation do not constitute physical presence under the Quill nexus rule. Read more in this PwC Tax Insights. - Minnesota’s updated federal conformity has significant corporate income tax implications
Enacted recently, H.F. 31 updates Minnesota’s definition of the Internal Revenue Code to mean the Code as amended through 15 December 2022. The update applies retroactively as of the same time Code changes were effective for federal purposes. Prior law conformed to the Code as amended through 31 December 2018. Read more in this PwC Tax Insights.
Policy on Demand series
- New Congress must address debt ceiling
In this episode from 23 January, Karl Russo discusses the current economic environment facing the new Congress, how lawmakers must address the debt limit reached on 19 January and what this might mean for business. - PwC’s Tax Policy Outlook discusses challenges and opportunities for 2023
PwC’s annual Tax Policy Outlook is out this week and addresses challenges and opportunities facing policymakers, business leaders, and tax executives in 2023. In this episode from 19 January, Rohit Kumar, Todd Metcalf, and Janice Mays share their insights on current tax policy issues covered in this must-read document. - Week in Review
- In this episode from 27 January, Pat Brown discusses how companies must focus on regulatory and international tax guidance as well as actions by the new Congress. Taxpayers are asking how they can implement Pillar Two with so many unanswered questions. He encourages companies to stay engaged as leaders of the tax-writing committee set their agendas.
- In this episode from 20 January, Will Morris discusses how Pillar Two is an absolute certainty and how there’s not much time to prepare. He encourages tax executives to continue modelling as details emerge so that they keep the C-Suite abreast of Pillar Two’s potential impact on their company.
Cross Border Tax Talks
- 2022 Year in Review
In this episode from 24 January, Doug McHoney, PwC’s International Tax Services Global Leader is joined by Pat Brown, International Tax Partner and co-Leader of the Washington National Tax Practice to look back at the very eventful and tortured 2022 year in international taxation. They cover topics including US Congressional activities, Treasury’s 2022 regulations and guidance, recent international tax and transfer pricing rulings, and the progress made on Pillar One & Two.
Tax Readiness webcast series
- Tax Readiness: Tax Policy Outlook
The stakes have rarely been higher for tax executives seeking to manage and plan for business operations in the face of policy divisions among elected officials over the direction of US and global tax policy, and respond to worldwide technological disruption, the lasting impacts of the COVID-19 pandemic on how people work, and an increased focus on environmental, social, and governance (ESG) concerns. Join our panel of specialists on Tuesday 31 January at 4pm, as they discuss the details of our annual Tax Policy Outlook. Register here. - Tax Readiness: New Year's Resolution - Prepare for Pillar Two!
As 2022 came to an end, the European Union finally adopted the EU Minimum Tax Directive and the OECD released several significant guidance documents related to Pillar One and Pillar Two. EU Member States must now transpose the Directive into their local law by 31 December 2023. Our panel reviewed these recent developments on Thursday 26 January, and covered some of the practical steps that multinationals should be taking now to prepare for the coming changes. Register here to view the webcast replay. - Tax Readiness: Initial guidance on the new corporate alternative minimum tax
The Inflation Reduction Act imposed a corporate alternative minimum tax based on financial statement income. The corporate alternative minimum tax is effective for tax years beginning after 31 December 2022. Watch this webcast replay from 11 January, where we took a deeper dive into the recently released guidance. - Tax Readiness: Impact of the 2022 Proposed Foreign Tax Credit Regulations
Treasury and the IRS released proposed foreign tax credit regulations on 18 November, which potentially may be the last major change to the creditability regulations for some time. In this webcast from 19 December, our panel of specialists discussed how taxpayers may rely on the proposed provisions and how these regulations insert some much-needed flexibility into the FTC regime. Watch the replay here. - Tax Readiness: Q4 financial reporting considerations
Watch the replay from this webcast held on 14 December, where our panel discussed key tax accounting reminders related to the year-end reporting cycle and recent tax developments. - Tax Readiness: Implications of the US midterm elections
On 22 November our panel of specialists examined the potential effect of the 2022 midterm elections for a year-end tax bill, the legislative path ahead for the 118th Congress, and the expected administrative guidance from the Treasury. Tax is a central piece to implementing your business' strategy in 2023 and can be a catalyst for delivering trust and driving strategic outcomes. Watch the replay here.
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.