Two weeks to 29 September 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
- UK Pillar Two amendments - revised draft legislation published
On 27 September, the government published revised draft legislation relating to Pillar Two for inclusion in Finance Bill 2024, as part of its updated policy paper. This follows on from draft amendments to the enacted rules which were published on 18 July. The focus of the draft legislation is:- measures to implement the undertaxed profits rule (UTPR) in the UK; and
- amendments to the UK’s multinational Top Up Tax (UK IIR) rules to address a number of drafting issues and unintentional deviations from the OECD model rules, commentary and guidance.
Autumn Statement 2023
The Chancellor of the Exchequer, Jeremy Hunt has announced that he will present the Autumn Statement 2023 to Parliament on 22 November.
Are you making the most of the Patent Box Scheme?
The recent increase in the UK corporation tax rate has heightened the potential for tax savings of up to 15% through the patent box regime, encouraging companies to reassess their eligibility. Companies that are currently not claiming patent box should reconsider their position if they own patents and/or other qualifying IP or engage in UK R&D activities, and companies that are already claiming patent box should review their claims from a fresh perspective (and, in particular, consider their profit allocation methods, value chains, royalty rates, and the global tax implications). Read more in this PwC article.
Finance and Treasury Advisory: managing the impact of market volatility
The last 18 months have seen unprecedented volatility in financial markets, leading to a significant inflationary environment, significant increases in interest rates (potentially followed quickly by a significant drop) and large foreign exchange movements, generating additional market stress. We are also facing a period of significant ongoing regulatory and tax reform – for example, the multinational top up tax (“Pillar Two”). These factors have given rise to much more complexity in treasury operations, and associated difficulties in forecasting and managing funding requirements, cash flows, hedging requirements, and the associated accounting and tax consequences. Read more.
Case law updates
Bluecrest - Upper Tribunal confirms that members of LLP treated as ‘employees’ due to lack of influence over affairs
The Upper Tribunal (UT) has released its decision in R & C Commrs v Bluecrest Management (UK) LLP [2023] UKUT 00232 (TCC), an appeal against the first (and so far only) decision considering the application of the Salaried Member Rules (SMR) which apply where a member of a limited liability partnership is to be treated as an employee of that partnership for the purposes of income tax and national insurance contributions (NICs). The UT dismissed appeals against the First-tier Tribunal (FTT) decision, finding that there was no error of law in it’s application of the legislation to the facts of the case. The decision reinforces the fact that the application of the SMR is at its heart a facts based test both in relation to influence and how remuneration / profit share is calculated.
HMRC Manual & guidance updates
The following changes have recently been made by HMRC following review:
- Corporate Intangibles Research and Development Manual
- CIRD272000 and CIRD274200: Patent Box - the guidance has been updated on 22 September to clarify that R&D expenditure does not need to have been included in a R&D Tax Credits or RDEC claim to be used in the PB Research Fraction.
- Double Taxation Relief Manual
- DT11350: South Korea: material covering taxes admissible for credit, source of income and dividends was updated 13 September.
- MDR cross-border arrangements guidance
- The guidance was updated on 25 September to reflect that the reporting service can now be used to report all mandatory disclosure rules arrangements. A link to the reporting service has been added. Updated 'Arrangements you must report' section to include a link to HMRC's internal manual which provides more information about types of cross-border arrangements.
- HMRC updated their guidance on 25 September on reporting a cross-border arrangement to include information on paying penalties.
EU
EU General Court considers the Belgian Excess Profits Ruling to be unlawful State Aid
Contrary to its first judgment in 2019, the General Court of the European Union recently confirmed the decision of the European Commission of 11 January 2016 that the Belgian Excess Profits Ruling (EPR) constituted an unlawful tax scheme and infringed the EU State aid rules. Read more in this PwC EUDTG alert.
EU General Court annuls the EC's decision on the Spanish tax scheme on indirect acquisitions of foreign shareholdings (Spanish goodwill)
On 27 September 2023, the General Court of the European Union (GCEU) delivered its judgments upholding several appeals brought by the Kingdom of Spain and several companies against the European Commission’s (EC) decision declaring the Spanish tax scheme on the deduction for indirect acquisitions of shareholdings in foreign companies to be unlawful State aid. As a result, the GCEU annulled the EC’s decision. It remains to be seen whether the European Commission appeals this judgment to the Court of Justice of the EU. In the meantime, however, the EU General Court provides some very insightful observations on both the ability of the European Commission to revoke earlier decisions and the principle of legitimate expectations. Read more in this PwC EUDTG alert.
Tax Bites Podcast – The new BEFIT proposal and International Tax Webinar Trilogue
On 12 September the European Commission published its long anticipated BEFIT proposal together with a proposal for a transfer pricing directive. In this podcast we discuss the content of these proposals and reflect on the impact for business.
The EU Code of Conduct Group on business taxation commemorates its 25th anniversary
On the occasion of the informal meeting of the High-Level Working Party on Tax Questions held in Madrid on 21 and 22 September, the Spanish presidency of the Council of the European Union organised a session to commemorate the work the Code of Conduct Group (business taxation). Read more in this press release.
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 September includes: 1) EU Publishes BEFIT & Transfer-Pricing Directive Proposals; 2) CFE Professional Affairs Conference: ‘Tax Adviser 2030: Evolution or Revolution for Tax Practice, Policy and Administration?’; 3) CFE Opinion Statement on the EU Commission FASTER Withholding Tax Proposal; 4) OECD Secretary-General Tax Report to G20 Leaders; and 5) Platform for Collaboration on Tax Publishes Report on Carbon Pricing Metrics. Visit their latest news page here. - Opinion Statement FC 7/2023 on the EU Commission FASTER Withholding Tax Proposal
CFE Tax Advisers Europe has published an Opinion Statement concerning the EU Commission’s withholding tax proposal to introduce legislation on a new EU system for the avoidance of double taxation and prevention of tax abuse: Faster and Safer Relief of Excess Withholding Taxes.
OECD
Pillars One and Two
- Public comments received on the design elements of Amount B under Pillar One
The OECD has now published the public comments it received in response to its consultation on the design elements of Amount B under Pillar One relating to the simplification of transfer pricing rules, which you can view here. - Updated Pillar Two Country Tracker
PwC's Pillar Two Country Tracker, our online tool, provides the status of Pillar Two implementation in different countries and regions. You can also find updates on recent Pillar Two developments in the territory updates below.
Progress continues in strengthening tax transparency through Country-by-Country reporting
Under the OECD/G20 Inclusive Framework on BEPS, over 140 jurisdictions have committed to implement minimum standards to improve the taxation of multinational enterprises (MNEs) worldwide. The OECD has released the latest outcomes of the implementation of BEPS Action 13 on the transparency of global operations of large MNEs, demonstrating strong progress in international efforts. Read more in this OECD item.
Tax Administration 2023 Report
This OECD report provides internationally comparative data on aspects of tax systems and their administration in 58 advanced and emerging economies. The report is intended to inform and inspire tax administrations as they consider their future operations, as well as to provide information on global tax administration trends and performance for stakeholders and policy makers.
MLI
- On 25 September 2023, Armenia and Côte d'Ivoire deposited their instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI will enter into force on 1 January 2024 for Armenia and Côte d'Ivoire. Read more in this OECD item.
- Eswatini signed the MLI at a signing ceremony held in Paris on 27 September 2023. Eswatini has become the 101st jurisdiction to join the BEPS Convention. Read more in this OECD item.
- Serbia deposited a notification to extend the application of the MLI to its existing treaties, see here.
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
International
International Tax News, September 2023
International Tax News is designed to help multinational organisations keep up with the constant flow of tax developments. Among the topics featured in this month's edition are: 1) New Zealand releases draft digital services tax legislation; 2) Hong Kong launched consultation on patent box tax incentive; 3) Cyprus consents to Pillar Two Transitional CbCR Safe Harbour; and 4) Canada digital services tax ─ one step closer to becoming a reality.
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 20 September, we note the passage of legislation in Uganda for a digital services tax (DST) and the approval by the European Parliament of DAC8 on sharing crypto asset information and in adjustments to other reporting regimes. We also comment on US Republicans challenging Germany's tax on various royalty payments and on Mexico's publication of registered non-residents obliged to collect VAT on their digital services. There are two US state sales and use tax updates too, on California's adoption of a marketplace sales regulation and a Tennessee ruling involving a digital platform used for non-taxable services.
Environmental, Social and Governance (ESG)
- Tackling nature-related reporting and the TNFD
With the Taskforce on Nature-related Financial Disclosures (TNFD) framework now finalised, and mandatory sustainability reporting standards on biodiversity and ecosystems in the pipeline, we have identified five key questions that can help companies develop their nature-related reporting. Read more. - Net Zero Economy Index 2023
The world needs to go further and faster to make global net zero ambitions a reality, but there's positive news too. PwC UK’s Net Zero Economy Index tracks energy-related CO2 emissions, and the 2023 results are live. Explore the 2023 results here. - A global centre for nature finance
Can the UK be a world leading centre for nature finance? Our new report, published with the City of London Corporation, with support from Green Finance Institute, showcases the unique position of the UK to drive nature-related investment and secure its place as a world leader in nature finance. Read more here.
Belgium
See here for latest updates.
EU General Court considers the Belgian Excess Profits Ruling to be unlawful State Aid
Contrary to its first judgment in 2019, the General Court of the European Union recently confirmed the decision of the European Commission of 11 January 2016 that the Belgian Excess Profits Ruling (EPR) constituted an unlawful tax scheme and infringed the EU State aid rules. Read more in this PwC EUDTG alert.
Tax Bites Podcast – The new BEFIT proposal and International Tax Webinar Trilogue
On 12 September the European Commission published its long anticipated BEFIT proposal together with a proposal for a transfer pricing directive. In this podcast we discuss the content of these proposals and reflect on the impact for business.
Canada
Proposed changes to the alternative minimum tax ─ How will it affect individuals and trusts?
The 2023 federal budget announced significant changes to the alternative minimum tax (AMT) regime to better target the AMT to high‑income individuals. The Department of Finance released draft legislative proposals recently to modify the AMT regime, effective for taxation years beginning after 2023. The proposed changes would be the most extensive reforms to the AMT regime since it was introduced in 1986. This PwC Tax Insights provides an overview of the proposed changes to the AMT and some examples of how the proposals will affect individuals and certain trusts.
Germany
Portfolio dividends: Determining the shareholding threshold of 10%
While calculating the participation threshold in Sec. 8b (4) Sentence 1 Corporate Tax Act for portfolio dividends (shareholdings of less than 10%), the general principles of the attribution of assets for tax purposes laid down in Sec. 39 Fiscal Code must be observed. According to a most recent judgment of the Supreme Tax Court, the decisive factor is the economic ownership of the shares. Read more in this PwC blog.
New "Administrative Principles Transfer Pricing - Principles for the Adjustment of Income Pursuant to Section 1 of the External Tax Relations Act
The Federal Ministry of Finance published its new principles for the correction of income pursuant to Section 1 External Tax Relations Act on its website in June 2023. These are to be applied to all open cases with immediate effect. Only the chapter on relocation of functions is applicable to cases that are realised after 31 December 2021. Read more in this PwC blog.
Adjustment of branch profit only if terms do not meet arm’s length test
The Nuremberg Tax Court decided that the provision of Sec. 1(5) in conjunction with Sec. 1(1) of the Foreign Tax Act regarding the arm's length principle for cross-border determination of the income of a permanent establishment (PE) is not relevant and, to this extent, the ordinance on the allocation of profits of PEs is also not applicable if there is no transfer pricing issue between a domestic PE and its foreign parent. Read more in this PwC blog.
India
Indian AE providing marketing support services with no authority to conclude contracts does not constitute agency PE of foreign entity
In a recent hearing, the Bangalore bench of the Income-tax Appellate Tribunal was of the view that the Indian group company (an Indian associated enterprise (AE)) cannot be considered as an agency permanent establishment (agency PE) of the foreign company if the Indian AE does not engage in securing, negotiating or concluding contracts on behalf of the foreign company. Read more in this PwC Tax Insights.
Addition under section 56(viib) of the Act rejecting DCF method adopted by taxpayer for valuation of preference shares, stating it to be hypothetical method of estimation lacking cogent basis
The Bangalore bench of the Income-tax Appellate Tribunal has rejected the discounted cash flow (DCF) method adopted by the taxpayer company to determine the fair market value (FMV) of preference shares, stating that it is a hypothetical method of estimation and lacks cogent basis where the taxpayer could not substantiate the basis of projections in cash flow. The Tribunal confirmed the addition of the share premium amount under section 56(2)(viib) of the Income-tax Act, 1961. Read more in this PwC Tax Insights.
Ireland
Budget 2024
Budget 2024 will be announced on Tuesday, 10 October 2023.
- PwC Pre-Budget Webcast
Our pre-Budget 2024 webcast provides in-depth analysis of the upcoming Budget, focusing on key areas such as economic growth constraints, fiscal sustainability, infrastructure investment and sustainability initiatives. Watch here. - What will Budget 2024 mean for corporate tax?
From a corporate tax perspective, this is going to be an autumn like no other. Companies operating in Ireland need to be ready for new rules, increased compliance and a likely higher tax bill! The combined package of Budget 2024 and Finance Bill 2023 will reshape the Irish corporate tax landscape more than any other budgetary package has done for decades. We expect this package to cover: the introduction of Pillar Two rules; changes to the taxation of outbound payments; managing runaway tax receipts; and maintaining Ireland’s competitiveness. Read more.
Italy
New tax credit for research and development in the semiconductor sector
The so-called Omnibus decree (DL no. 104 of 10 August 2023) introduced a new bonus, in the form of a tax credit, for companies investing in research and development activities in the microelectronics and semiconductors, an increasingly strategic sector for Italy to be able to compete with other advanced economies. Read more in this PwC blog.
Korea
Korean Tax Update - September 2023
This edition includes: 1) Government Finalizes Its Tax Reform Proposals for 2023; 2) MOEF Announces the Budget Bill for 2024 and Submits the National Tax Expenditure Plan for 2024; 3) Large Corporations Experienced a Higher Effective Tax Rate than Middle Standing Enterprises and SMEs in 202; and 4) Rulings update.
Middle East
UAE-Indonesia Comprehensive Economic Partnership Agreement (CEPA) enters into force
The UAE Ministry of Economy has recently published the full text of the CEPA signed between the Government of the United Arab Emirates and the Government of Indonesia. The landmark agreement was signed on 1 July 2022 and officially entered into force on 1 September 2023. The agreement is expected to increase annual bilateral trade to $10 billion within five years by removing trade barriers on a wide range of goods and services, creating new opportunities for UAE exporters. The deal has the potential to increase the total value of trade in services between the UAE and Indonesia to $630 million by 2030. Read more in this PwC alert.
Netherlands
2024 Tax Plan
The cabinet announced the Tax Plan 2024 package on Budget Day, 19 September. Despite the cabinet's caretaker status, none of these bills have been declared controversial. Visit the dedicated PwC Netherlands Budget webpage for our in-depth articles on specific topics from the Tax Plan. Of most relevance:
- Minimum profit tax 2024 in next phase
The 15% minimum profit tax for large multinationals will take effect next year. The State Secretary is answering questions about the Dutch implementation. Read more. - Dividend stripping addressed with new rules
Additional rules will be introduced to combat dividend stripping more effectively than is possible with the existing measures. Read more. - Changes in qualification open LP’s and foreign legal forms
It is proposed that Dutch CVs, and foreign legal forms that are comparable to a Dutch CV, will always be treated as fiscally transparent and will therefore no longer be subject to Dutch corporate tax or Dutch withholding taxes. Instead, starting from 1 January 2025, the partners of a CV will be directly liable for taxation on their participation in the CV (either corporate or personal income tax, depending on whether the participant is a legal entity or a natural person). Read more. - Major changes in the Dutch tax treatment of real estate
Certain measures have been announced that may have a significant impact on the real estate industry. The most relevant amendments are summarised here.
Spain
EU General Court annuls the EC's decision on the Spanish tax scheme on indirect acquisitions of foreign shareholdings (Spanish goodwill)
On 27 September 2023, the General Court of the European Union (GCEU) delivered its judgments upholding several appeals brought by the Kingdom of Spain and several companies against the European Commission’s (EC) decision declaring the Spanish tax scheme on the deduction for indirect acquisitions of shareholdings in foreign companies to be unlawful State aid. As a result, the GCEU annulled the EC’s decision. It remains to be seen whether the European Commission appeals this judgment to the Court of Justice of the EU. In the meantime, however, the EU General Court provides some very insightful observations on both the ability of the European Commission to revoke earlier decisions and the principle of legitimate expectations. Read more in this PwC EUDTG alert.
Switzerland
For the latest updates on current topics, see this PwC Switzerland Insights page.
US
IRS Notice provides additional interim CAMT guidance
The Inflation Reduction Act, enacted in 2022, imposes a corporate alternative minimum tax (CAMT) based on adjusted financial statement income (AFSI) of an ‘applicable corporation’ for tax years beginning after 31 December 2022. Treasury and the IRS recently released Notice 2023-64 in another round of substantive guidance on the CAMT. Read more in this PwC Tax Insights. The topic is also the theme of this Policy in Demand episode and will be discussed in the 9 October episode of our Tax Readiness series which can be accessed here.
IRS Notice provides guidance on Section 174 capitalization; questions remain
The 2017 tax reform act amended Section 174 to require capitalization of specified research or experimental expenditures paid or incurred in tax years beginning after 31 December 2021. Notice 2023-63 (Notice) provides guidance with respect to the future publication of proposed regulations under Section 174, expected to apply to tax years ending after 8 September 2023. Read more in this PwC Tax Insights.
IRS expands compliance efforts, seeks to improve taxpayer certainty and issue resolution
As reported previously, the IRS is leveraging its Inflation Reduction Act (IRA) funding to target its compliance efforts on high-income and high-wealth individuals, complex partnerships, and large corporations. As part of these initiatives, the IRS recently announced that it is establishing a special group to focus on large or complex passthrough entities. The IRS also recently announced that it is requesting comments from taxpayers and advisors regarding improving and expanding tax certainty and issue resolution options for business taxpayers. Read more in this PwC Tax Insights.
Moore v. US: Constitutionality of international tax
In this Cross-border Tax Talks episode from 20 September, Doug McHoney (PwC's International Tax Services Global Leader) and Wade Sutton (former Deputy International Tax Counsel for the US Treasury and newly appointed ITS leader of PwC’s Washington National Tax Practice) discuss the recent Supreme Court grant of certiorari for the Moore v. US case. Doug and Wade go back to their law school days to break down the Moore case, starting with the facts, procedural history, and the potential implications if Section 965 is ruled unconstitutional, including direct taxation, indirect taxation, subpart F, Section 245A, GILTI, and, as always, Pillar Two.
Seventh Circuit considers deduction of deferred compensation
A recent decision by the US Court of Appeals for the Seventh Circuit in Hoops v. Commissioner, 77 F.4th 557 (7th Cir. 2023), affirmed the Tax Court’s 2022 decision that Section 404(a)(5) precludes the seller of a trade or business from claiming a deduction for nonqualified deferred compensation liabilities assumed by the purchaser until the compensation has been paid to the employees. Read more in this PwC Tax Insights.
Policy on Demand series
- Key tax guidance out, more to come
The IRS recently issued important tax regulatory guidance, but additional guidance is in the works. In this episode, Wade Sutton discusses factors affecting the tax regulatory writing process and what guidance is next on the horizon. - CAMT notice provides limited, noteworthy guidance
The recent corporate alternative minimum tax (CAMT) notice clarifies key issues while requesting comments on a number of topics to be addressed in future guidance. In this episode, PwC’s Nita Asher and Jason Blackshare their insights around the notice and actions companies could consider taking. - Week in Review
- 29 September - A government shutdown could affect the likelihood of a year-end tax package, including time-sensitive proposals like amortisation of R&D expenses. Focus on how Congressional leadership manages the present impasse on government funding as action on a year-end package likely depends on that outcome. Watch here.
- 22 September - While the IRS is increasing enforcement efforts and issuing needed guidance, Congress is in disarray when it comes to government funding, making a shutdown more likely. Expect a rocky road ahead, but continue to beat the drum on R&D capitalization, interest deductibility, and bonus depreciation to build support for action. Watch here.
Tax Readiness webcast series
- Tax Readiness: What taxpayers need to know about the recent Section 174 and CAMT guidance
In recent weeks, Treasury and the IRS have released critical guidance in two notices that propose rules potentially affecting a vast array of taxpayers - Section 174 guidance and new corporate alternative minimum tax (CAMT) guidance. In this webcast taking place on Monday 9 October at 7pm, from these notices and how businesses should consider responding. Register here. - Tax Readiness: Insights from the new digital asset reporting regulations
Treasury and the IRS released much anticipated proposed regulations regarding information reporting for Digital Assets. Register here to join our specialists on Thursday 5 October at 4pm where they will discuss the scope of these regulations, required obligations, and what steps impacted taxpayers should be taking now in order to prepare. The panel will share policy insights, industry perspective, as well as practical solutions for companies currently involved or looking to be involved in this fast emerging industry. - Tax Readiness: Recent controversy trends and their impact on your business
Tax Controversy is top of mind for companies and is a hot topic for many executives, given the recent high-profile cases in the news. On this webcast, which took place on Tuesday 26 September, we explore proactive steps companies should be taking to better prepare their tax department for the risk of controversy. We also dive into what companies can expect from the IRS and how they will use the funding from the Inflation Reduction Act. Watch the recording here.
Zambia
2024 National Budget
The Honourable Dr Situmbeko Musokotwane, MP, Minister of Finance and National Planning, delivered his 2024 National Budget Address to the National Assembly on 29 September 2023. The United Party for National Development (UPND) Government’s third budget builds on and refines the party’s ambitious plans to transform Zambia’s economy. Read more in this PwC Budget bulletin.