Four weeks to 7 January 2022
Welcome to our first edition for 2022 on recent developments in international and treasury tax of interest to multinationals operating in the UK.
UK
Disregard regs consultation - derivatives used to hedge FX risks in share transactions
HMRC launched a consultation on 16 December on draft legislation to amend the disregard regulations to address the situation where groups look to hedge the currency risk associated with acquisitions and disposals of shares ahead of its proposed introduction in 2022, see here. We’re generally supportive of the draft legislation and believe it will help to make the UK a more attractive location for share acquisitions, as it has historically been difficult to access the disregard regulations in these situations so as to align the tax treatment of such hedges with the disposal of the associated shares.
Scottish Budget 2022-23
Ending Scotland’s contribution to climate change, tackling inequalities and investing in the economy and public services are at the forefront of the 2022-2023 Scottish Budget. Outlining a bold, ambitious and progressive funding package, Finance Secretary Kate Forbes said the Budget will accelerate Scotland’s COVID recovery and help transition the country towards becoming fairer, greener and more prosperous.
Post-Prudential Group Litigation - FTT decision
The First-tier Tribunal has released an important decision regarding tax treatment of UK-resident companies' pre-1/7/2009 foreign dividends and associated DTR credits for foreign tax. On almost all points the taxpayer companies have won. Read more.
Fintech: The importance of optimising R&D credits & the Future of R&D credits
Fintech is one of the fastest growing sectors in the UK; according to figures published by the government, investment into UK fintech stood at $4.1 billion in 2020 – more than the next 4 European countries combined. In the last few years there have been a number of government led initiatives to provide different types of funding to FinTech’s, however in addition to these initiatives, it is important that businesses remember the value and cash available from R&D tax credits - particularly given the recent announcement by the Chancellor that the government intends to expand the scope of R&D tax credits to include cloud computing and data acquisition costs. Read more.
Double tax treaty updates
- Protocol to Sweden-UK double tax treaty enters into force
The protocol to the double taxation convention was signed on 23 February 2021. It entered into force on 30 December 2021. The protocol takes effect in the UK from: 1 January 2022 for taxes withheld at source; 6 April 2022 for Income Tax and Capital Gains Tax; and 1 April 2022 for Corporation Tax. The protocol takes effect in Sweden from: 1 January 2022 for taxes withheld at source and 1 January 2022 for other taxes on income. - 2021 protocol to the 2002 Taiwan-UK double taxation agreement enters into force
The 2021 protocol to the 2002 double taxation agreement - in force has been added to the HMRC website here. The protocol was signed in London on 11 August 2021 and in Taipei on 19 August 2021. It entered into force on 23 December 2021. - HMRC updates UK–Isle of Man double tax treaty information
Information has been added about the provisions of Article 27, concerning assistance in the collection of taxes, which take effect from 1 January 2022 following an Exchange of Letters between the UK and the Isle of Man under Article 28(2)(b) of the Agreement. - UK-Guernsey double tax treaty information
Information has been added about the provisions of Article 27, concerning assistance in the collection of taxes, which take effect from 1 January 2022 following an Exchange of Letters between the UK and Guernsey under Article 28(2)(b) of the Agreement. - Protocol to Germany-UK tax treaty enters into force
HMRC has updated its website here to include the 2021 Protocol to the 2010 Double Taxation Convention which was signed in London on 12 January 2021 and entered into force on 17 December 2021.
Talking Tax: Building trust with transparency
In the current climate, building public trust is crucial for business and open, fair and insightful reporting is key. And the tax transparency landscape continues to evolve at an accelerated pace with further change on the horizon.
This edition of Talking Tax explores the Total Tax Contribution of the FTSE100, guidance on the new Uncertain Tax Treatment legislation as well as how transparency can help you to minimise your risk.
UK and Australia sign world-class trade deal
The UK and Australia signed a new trade agreement on 16 December 2021 (which was agreed in principle back in June) and negotiators have now finalised all chapters of the agreement. The UK said the deal is the first the UK has negotiated from scratch since leaving the European Union. Read more in this press release.
EU
European Commission's proposal to implement Pillar Two 15% minimum effective tax rate in the EU
On 22 December 2021, the European Commission published its proposal for a Council Directive “on ensuring a global minimum level of taxation for multinational groups in the Union” aimed at implementing the OECD Pillar Two Model Rules on a 15% minimum effective tax rate in EU Member States. Read more in this PwC Tax Policy Alert.
EU consultation on shell companies (ATAD3)
The European Commission has published the text of a draft Directive laying down rules to prevent the misuse of shell entities for tax purposes and to amend Directive 2011/16/EU on Administrative Cooperation (DAC). Read more in this PwC tax policy alert.
CFE Tax Advisers Europe – EU Tax Policy News Top 5
The latest edition (23 December 2021) looks at: 1) EU Commission Adopts Directive on Minimum Tax & OECD Model Rules Published; 2) EU Adopts Shell Entities Directive; 3) EU Targets Portion of Carbon Tax Revenues & OECD Pillar 1 To Finance Post-Pandemic Recovery; 4) ECJ Advocate-General Opinions in Fiat/ Ireland v Commission (State Aid); and 5) Annual Report 2021 – CFE Tax Advisers Europe. View previous editions here.
OECD
OECD releases Pillar Two Model Rules
The OECD published detailed rules on 20 December to assist in the implementation of a landmark reform to the international tax system, which will ensure Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.
- Our Pillar Two explainer and Tax Policy Alert provides an overview of the Pillar Two rules and some of the potential consequences that might not be immediately apparent.
- BIAC flags 'potentially fatal' issues in OECD minimum tax plan
Complexity and policy inconsistencies contained in the OECD’s model global minimum tax rules could undermine the OECD’s stated policy objectives, which include avoiding double taxation, the Business at OECD (BIAC) advisory group said. BIAC's letter can be viewed here.
MLI developments
- Seychelles deposits instrument of ratification
The Seychelles has deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Convention or MLI). For the Seychelles, the MLI will enter into force on 1 April 2022. Read more in this OECD item. - Iceland deposits new notifications
Iceland has deposited new notifications under the MLI, subsequent to its ratification, to notify an additional bilateral treaty to which the MLI can apply and to make additional notifications with respect to provisions of the MLI. Consequently, the BEPS MLI will apply to its treaty with Austria. Read more in this OECD item.
Tunisia commits to start automatic exchange by 2024
Tunisia has committed to implement the international Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) by 2024. This commitment makes Tunisia the 121st Global Forum member to commit to start AEOI by a specific date, and the tenth African country to do so. See this OECD item.
Over 130 jurisdictions comprehensively reviewed in the latest BEPS Action 5 peer review on tax rulings
The OECD/G20 Inclusive Framework on BEPS has released the 2020 peer review assessments of 131 jurisdictions in relation to the spontaneous exchanges of information on tax rulings. See this OECD item.
OECD Forum on Tax Administration discusses key tax issues
The OECD's Forum on Tax Administration (FTA) held its 14th Plenary meeting on 16-17 December 2021, bringing together tax commissioners from across the globe as well as representatives from international organisations and regional tax administration bodies. Participants discussed top-of-mind tax administration issues including the implementation of the landmark Two-Pillar Solution, lessons learned from the ongoing responses to the global COVID-19 pandemic, digital transformation and capacity building. See this OECD item.
Other territories
International
International Tax News - November 2021
Among the topics featured in this month's edition are: 1) European Parliament votes to pass public country-by-country reporting; 2) US and India agree on transitional approach to India digital tax; and 3) Poland enacts significant corporate tax changes effective in 2022.
PwC Annual Global Crypto Tax Report 2021
This year’s edition of the Crypto Tax Report includes insights from more countries and covers the tax implications of several key, newly emerging areas such as NFTs and DeFi. The Report looks at the views of survey participants on the developments and existing tax guidance internationally. Input has been received from tax specialists working at over 40 international PwC member firms on the development of crypto tax regulations in their respective jurisdictions.
Taxation of the digital economy
Keep track of the number of international initiatives that are underway to address the tax problems caused by digitalisation of our economy:
- OECD’s Pillars 1 & 2
See our OECD section above. - Digital tax byte
The latest edition from 7 January includes the publication of Nigeria's Finance Act 2021 with its effective 6% Digital Service Tax (DST). - Digital tax megabyte for December 2021
This edition includes: (1) publication of the Model Rules for the 15% minimum ETR under Pillar Two of the G20/OECD Inclusive Framework digitalisation project and by the European Commission on proposals to implement them across the EU; (2) a warning from the Australian tax authorities for businesses to be prepared for Pillar One and Pillar Two changes; (3) an update on the US Senate Finance Committee progress on the Build Back Better reconciliation bill; (4) Canada consulting on its deferred DST; (5) Nigerian statement on the reasons they wouldn't sign the global deal; (6) plans for Cyprus to increase its tax rate as a result of Pillar Two; and (7) UK concluded its G7 presidency with an acknowledgement of the digital tax achievement.
Environmental, Social and Governance ESG
- ESG Legal event - Environmental and sustainability
This event on Tuesday 18 January 2022 at 11:00am will focus on the ‘S’ or ‘Social’ of the ESG agenda. Employees are key stakeholders in an organisation whose stakeholder influence is increasing in the context of significant and fast paced social change. We will be joined by a panel of experts to share their views and perspectives. This will be an interactive session and there will be the opportunity for Q&A.
You can watch the recording from the previous event in our series which focused on the 'E' component of ESG.
Australia
ATO finalises Practical Compliance Guidelines on imported hybrid mismatches
The Australian Taxation Office recently finalised Practical Compliance Guideline PCG 2021/5 (PCG) which sets out the expectations regarding the Commissioner's assessment of risk in connection with the imported hybrid mismatch rules, including the Commissioner's approach to reviewing whether a taxpayer has undertaken reasonable enquiries in relation to the rules for non-structured arrangements. This PCG is relevant to any Australian taxpayer that makes any cross-border related party payments (including interest, royalties, management fees and purchases of raw materials and trading stock). Read more in this PwC tax alert.
Belgium
See here for latest updates.
COVID-19 and cross-border employment: agreement with Germany extended until 31 March 2022
As anticipated, the Belgium-German COVID-19 agreement has been further extended until 31 March 2022, in line with Belgium's corresponding mutual agreements with France, Luxembourg and the Netherlands. See this PwC news item.
Canada
2021 federal fall economic statement – tax highlights
The Deputy Prime Minister and federal Minister of Finance, Chrystia Freeland, presented the 2021 federal Economic and Fiscal Update (economic statement) on 14 December 2021. It does not change corporate or personal income tax rates, but does: 1) introduce a 25% refundable tax credit for small businesses that incur expenses for air quality improvements in qualifying locations between 1 September 2021 and 31 December 2022; 2) provide a refundable tax credit for eligible farming businesses in federal carbon pricing backstop jurisdictions; 3) extend the simplified rules for deducting home office expenses to the 2021 and 2022 taxation years, and increase the maximum annual deductible amount; 4) confirm the government’s intention to enact a digital services tax; and 5) provide further details on the proposed underused housing tax, which is to be effective for the 2022 calendar year. This Tax Insights discusses these and other tax initiatives proposed in the economic statement.
China
China’s State Taxation Administration publishes its 2020 APA Annual Report
The State Taxation Administration (STA) recently published the “China Advance Pricing Arrangement Annual Report (2020)” (2020 Annual Report). The 2020 Annual Report contains statistical data and analysis of the advance pricing arrangement (APA) cases from 2005 to 2020. The STA has recently undertaken a number of measures to promote APAs to help enterprises achieve tax certainty in transfer pricing in China. Read more in this PwC Tax Insights.
Cyprus
Cyprus Minister of Finance presents 2022 budget to Parliament
The Cyprus Minister of Finance (MoF) recently presented to parliament the proposed 2022 budget and envisaged fiscal policy plan for the next three-year period. The MoF included an outline of the government’s vision for a possible ‘mini-reform’ of the Cyprus tax system. Taxpayers should consider how the proposed changes might impact their operations and whether they should participate in the government-held discussions in order to share their views on the potential consequences of any proposed changes. Read more in this PwC Tax Insights.
Cyprus - Germany double tax treaty Amending Protocol enters into effect
As per the Cyprus Ministry of Finance website, the Cyprus-Germany double tax treaty Amending Protocol (signed on 19 February 2021) entered into force on 8 December 2021 and will be in effect on 1 January 2022. More details on the Amending Protocol can be found in this previous PwC Newsletter.
Finland
Supreme Administrative Court PE ruling - meaning of ‘preparatory or auxiliary’
The SAC has issued a precedent (KHO 2021:171) regarding the meaning of ‘preparatory or auxiliary’ and, specifically, whether activities can be considered ‘preparatory or auxiliary’ if they are part of the core business of the company. Read more in this PwC tax news item.
Tax and Legal News, December 2021
The latest tax and legal news from Finland. Read the latest edition.
Germany
Protocol to Germany-UK double tax treaty enters into force
As reported above, HMRC has updated its website here to include the 2021 Protocol to the 2010 double tax treaty which was signed in London on 12 January 2021 and entered into force on 17 December 2021.
Cyprus-Germany double tax treaty Amending Protocol enters into effect
As reported above, per the Cyprus Ministry of Finance website, the Cyprus-Germany double tax treaty Amending Protocol (signed on 19 February 2021) entered into force on 8 December 2021 and will be in effect on 1 January 2022. More details on the Amending Protocol can be found in this previous PwC Newsletter.
Guernsey
Guernsey provides double tax treaty talks update
The Guernsey Government has updated its policy guide on double tax treaties (DTTs) and tax information exchange agreements (TIEAs). Updates include: 1) the signing of a protocol to the 2009 DTT with Ireland on 8 December; 2) a list of DTTs and TIEAs currently in force; 3) a list of comprehensive and partial DTTs; and 4) in-progress treaty negotiations.
Iceland
Iceland deposits new notifications under the MLI
Iceland has deposited new notifications under the Multilateral Convention (MLI). Read more in this OECD item.
Ireland
Ireland considers move to limited territorial tax system
The Irish government has launched a public consultation until 7 March 2022 seeking stakeholder views on a possible move to a territorial system of taxation. The consultation builds on the work of the 2017 Review of Ireland’s Corporation Tax Code by Seamus Coffey, ‘the Coffey Report’ and the subsequent public consultation on the recommendations of the report held in 2018.
Ireland updates guidance on R&D tax credit for small and micro businesses
The Irish Revenue has announced an update to its guidance on the Research and Development (R&D) Tax Credit, contained in Tax and Duty Manual Part 29-02-03. The changes underscore that legislation for the proposed enhancement of the relief for small and micro businesses, most notably increasing the tax credit rate to 30 percent from 25 percent, is not yet effective.
Public consultation launched on EU measures for the disclosure of income tax information
The Irish Government has launched a public consultation to seek the views of interested parties on the implementation of the EU's new country by country reporting Directive on the disclosure of income tax information by certain undertakings and branches. The consultation closes on 18 February 2022.
Japan
2022 Japan Tax Reform Proposals
On 10 December 2021, the ruling parties in Japan published their 2022 Tax Reform Proposals. The proposals were drafted as the first tax reform proposals under the Kishida administration, which has prioritised a new approach to capitalism. See this PwC news flash for a summary of the major items contained in the 2002 Tax Reform Proposals.
Korea
Korean Tax Update - December 2021
The latest edition of our Korean tax update includes: 1) The National Assembly Approves the Government’s Tax Reform Bill; 2) MOEF Expects the National Tax Revenue to be KRW19 trillion greater than the Revised National Budget in 2021; and 3) Rulings Update.
Middle East
Oman Budget 2022: Key Highlights
A Royal Decree was published in the Official Gazette on 2 January 2021, promulgating the 2022 State Budget (RD 1/2022). In this PwC news alert, we set out the key features of the 2022 State Budget.
UAE: New rules on administrative penalties waivers and installments
Following the issuance of Federal Decree Law No. 28 of 2021 to amend the provisions of Federal Decree Law No. 7 of 2017 on Tax Procedures relating to tax disputes and resolution in the UAE, a new Cabinet Decree No.105 of 2021 was issued on 28 December 2021 covering the controls and procedures related to the waiver and installment of administrative penalties. The new Cabinet Decree comes into effect on 1 March 2022. Read more in this PwC news alert.
Netherlands
Dutch Tax Plan 2022 substantively enacted on 21 December 2021
The Dutch Senate adopted the Dutch Tax Plan 2022 on 21 December 2021, meaning that the proposed legislation it contains is considered to be substantively enacted under IFRS and Dutch GAAP. As such, the tax accounting impact of these measures should be considered and taken into account for (interim) reporting periods ending on or after 21 December 2021. See this PwC tax news item which sets out the key provisions.
Dutch Finance Ministry consults on preventing dividend stripping
The Dutch Ministry of Finance has launched a consultation on six alternative measures to combat dividend stripping more effectively. Read more in this PwC tax news item.
Russia
Changes in the insurance market: consider taxes
Certain amendments were introduced into the insurance legislation in 2021 which allow foreign insurers to conduct business in Russia without incorporating a Russian subsidiary, i.e. via branches. This requires the careful consideration of certain tax matters, especially the allocation of profits to such branches. Read more in this PwC tax flash.
Seychelles
Seychelles ratifies BEPS MLI
The Seychelles has deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Convention or MLI). Read more in this OECD item.
Switzerland
COVID-19 webinar series
See here for upcoming and recorded webinars. For the latest updates on current topics, see this PwC Switzerland Insights page.
Swiss withholding tax law reform: WHT on bond interest abolished as from 2023?
The Swiss Parliament recently approved an amendment of the Swiss Withholding Tax Act. Within the context of strengthening the Swiss debt capital market and to increase Switzerland‘s attractiveness for group financing activities, the Parliament has abolished Swiss withholding tax on domestic interest on bonds. Only interest paid or credited to Swiss resident individuals on bank or insurance accounts shall remain subject to Swiss withholding tax. Read more in this PwC news item.
Taiwan
Tax Update - December 2021
This issue includes: 1) Legislative Yuan passed the third reading of amendment to Tax Collection Act on 30 November 2021; 2) Tax treaty signed by Taiwan and Saudi Arabia applicable for usage starting 1 January 2022; and 3) Tax treaty signed by Taiwan and South Korea.
Turkey
Withholding tax rate on dividends lowered
The withholding tax applicable on dividend payments has been reduced to 10% with effect from 22 December 2021. Previously, the tax rate was 15%. Read more in this PwC bulletin.
US
US Treasury and IRS release final foreign tax credit regulations
On 28 December 2021, the US Treasury and the IRS released final regulations addressing various aspects of the foreign tax credit (FTC) regime. The regulations also contain clarifying rules relating to foreign-derived intangible income (FDII). Taxpayers should consider how they might be impacted by the 2021 Final Regulations and consider commenting on issues that they would like Treasury to address. Read more in this PwC Tax Insights.
Passthrough payments may allow taxpayers to forgo income and deductions
Several legal principles may allow a taxpayer to exclude from income an amount the taxpayer is reimbursed or paid and must remit to another party. Chief Counsel Advice (CCA) 202132009 considers whether a taxpayer that pays the branded prescription drug fee and is reimbursed by members of the taxpayer’s controlled group may exclude the reimbursement from gross income simply because the liability for the fee is joint and several. Read more in this PwC Tax Insights.
PwC releases report on nonfungible tokens
PwC recently released its report on Non-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to know, which covers the sparse guidance to date on various legal, regulatory, accounting, and tax issues related to NFTs (i.e., unique and non-interchangeable digital assets stored on a blockchain).
US - Accounting Methods Spotlight Q4 2021
This quarter's Accounting Methods Spotlight discusses important IRS guidance and other developments.
Fourth quarter 2021 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.
Massachusetts ATB rejects ‘cookie nexus’ for pre-Wayfair periods
‘Cookie nexus’ does not constitute physical presence for Commerce Clause purposes in pre-Wayfair periods, the Massachusetts Appellate Tax Board (ATB) stated in its finding of facts and report released recently. The ATB also rejected the Department of Revenue’s alternative argument that the Wayfair decision should be applied retroactively. See this PwC Tax Insights.
Subscribe for US tax alerts
You can sign up for Tax Alerts issued by the US to be emailed to you. Subscribe using the link on this page.
Webcasts, blogs & podcasts:
- Tax Readiness: The OECD's Pillar Two Model Rules on a global minimum tax
Join our panel of PwC specialists on Monday 10 January 2022 at 7pm, as they discuss Model Rules, including definitions, scope, timeline, tax accounting issues, administration of the rules, and touch briefly on the December 22 EU draft Directive on minimum taxes, as well as the interactions with current US legislative proposals. Register here. - Tax Readiness: Impacts of the 2021 final foreign tax credit regulations
Treasury and the IRS recently released final regulations addressing various aspects of the foreign tax credit (FTC) regime. Join our panel of PwC specialists on Wednesday 19 January at 8pm as they discuss these final regulations and the impact they may have on taxpayers. Register here. - Cross-border tax talks
- Below the line: Getting tax a seat at the business table
In this episode from 5 January, Doug McHoney (PwC's US International Tax Services Co-Leader) is joined by Mohamed Kande, PwC Vice-Chair and US and Global Advisory Leader to discuss the need for proactive and intentional mentorship; relationship building in the virtual environment; the three different types of transformation trending in the market; and how (and why) tax should get a seat at the business table. - Tax reform: Digging in, before building back
In this episode from 14 December, Doug McHoney (PwC's US International Tax Services Co-Leader) is joined by Jeff Endress, US Outbound Tax Practice leader. They discuss the House-passed Build Back Better (BBB) bill, delayed effective dates, Section 163(n), foreign tax credits, country-by-country, the complexity of global tax, Pillar Two, uncertainties in the deals market, and the future of tax reform.
Replays:
A number of previous webcasts are available for replay in our US tax reform hub here, including:
- Tax Readiness: Q4 financial reporting considerations
In this webcast from 9 December, we discussed financial reporting impacts of enacted and proposed tax law changes in the US and around the world. We also covered key tax accounting reminders related to the year-end reporting cycle. Register here to watch the replay.
Other updates
For regular updates on this topic, check out our US tax reform hub on The Suite here.