November 17, 2022
Global Tax Policy and Controversy Watch | November 2022 edition
In the spotlight
BEPS 2.0 progress
On 12 and 13 October 2022, the G20 Finance Ministers and Central Bank Governors met in Washington, DC. The G20 Chair's summary issued at the conclusion of the meeting includes the G20 Finance Ministers' welcome of the progress made on the two-pillar project to address the tax challenges of the digitalization of the economy (the BEPS 2.0 project) and reaffirmation of their commitment to swift implementation of the new rules. Prior to the meeting, the Organisation for Economic Co-operation and Development (OECD) released the sixth annual progress report of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) describing developments in the BEPS 2.0 project as well as other activity of the Inclusive Framework during the period from September 2021 to September 2022. The OECD also released a public consultation document on administration and tax certainty aspects of Amount A of Pillar One requesting comments from stakeholders. In addition, the OECD released a report Tax Incentives and the Global Minimum Corporate Tax: Reconsidering Tax Incentives after the GloBE Rules, which identifies considerations for jurisdictions when preparing for the implementation of Pillar Two.
See Global Tax Alerts, G20 Finance Ministers welcome progress made on BEPS 2.0 and call for swift implementation and OECD releases public consultation document on administration and tax certainty aspects of Amount A of Pillar One, both dated 21 October 2022, OECD/G20 Inclusive Framework holds 14th plenary meeting and publishes 6th annual progress report, dated 24 October 2022 and OECD releases report on interaction of Tax Incentives and Pillar Two, dated 13 October 2022.
OECD releases multiple reports on key initiatives
The OECD recently published documents on several ongoing projects:
The value-added tax (VAT) rules are complex and constantly evolving, and effective VAT compliance requires clear management and controls. Discover how our VAT in Control Methodology can help your business improve the quality of tax data and gain control of VAT.
See the latest Global Tax Controversy monthly flash news article, EY Global Tax Controversy Flash Newsletter (Issue 51) | VAT compliance requires clear management and controls, dated 18 October 2022.
Global budget activity
The Australian Federal Treasurer released the second 2022-23 Federal Budget, outlining the new Labor Government's priorities following the May 2022 Federal election. France announced new tax and social security measures. Ghana enacted various amendments to tax laws introduced in 2022 Mid-year Budget Review Statement. Luxembourg released its Draft Budget Law 2023, which clarifies the Reverse Hybrid Entity Rule. The UK Chancellor reversed most of the Growth Plan tax measures.
See Global Tax Alerts, Australia issues 2022-23 October Federal Budget, dated 26 October 2022, France announces new tax and social security measures, dated 18 October 2022, Ghana enacts various amendments to tax laws introduced in 2022 Mid-year Budget Review Statement, dated 24 October 2022, Luxembourg Draft Budget Law 2023 clarifies Reverse Hybrid Entity Rule, dated 17 October 2022 and UK Chancellor reverses most of the Growth Plan tax measures, dated 18 October 2022.
The Mexican Senate approved the Multilateral Convention to implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI); before it can enter into force, the President must sign it and publish it in the Official Gazette and then it must be deposited with the OECD.South Africa deposited its instrument of ratification in respect of the MLI with the OECD, which will enter into force on 1 January 2023.
See Global Tax Alerts, Mexico ratifies MLI | Timeline for entry into force will be triggered once instrument of ratification is deposited in the OECD, dated 14 October 2022 and South Africa deposits its instrument of ratification in respect of the MLI, dated 18 October 2022.
Chile's Executive Power modifies tax reform bill
The Chilean Executive Power submitted modifications to the tax reform bill previously presented to Congress. The modifications include changing the earlier bill's proposed tax on retained earnings to reduce the taxable base and removing the earlier bill's proposal to eliminate the indirect foreign tax credit provisions.
See Global Tax Alert, Chile's Executive Power modifies tax reform bill, dated 24 October 2022.
Colombia's modified tax reform bill approved in first debate
The economic commissions of Colombia's Senate and House of Representatives approved a modified tax reform bill that would impose a 5% surtax on some financial institutions, limit certain tax deductions and incentives, change the definition of "significant economic presence" and establish a permanent equity tax on Colombian resident individuals' worldwide net worth. The plenary of both houses will discuss the bill in a second debate, and if approved, it will be sent to the President for his signature.
See Global Tax Alert, Chile's Executive Power modifies tax reform bill, dated 24 October 2022.
Ecuadorian Tax Authority modifies treatment of tax havens, minor tax jurisdictions and special tax regimes
The Ecuadorian Internal Revenue Service modified the list of regimes and jurisdictions considered tax havens and eliminated the concepts of minor tax jurisdiction and special tax regime.
See Global Tax Alert, Ecuadorian Tax Authority reforms definitions and tax treatment for Tax Havens, Minor Tax Jurisdictions and Special Tax Regimes, dated 6 October 2022.
Israel publishes new TP regulations following adoption of BEPS Action 13 principles in domestic legislation
The draft is intended to align the existing Order Decree Law with recent legal changes to the cross-border transfer of function rules, but also includes some aspects where the rules would be further tightened beyond the recent legal changes and the existing Order Decree Law.
See Global Tax Alert, Israel publishes new TP regulations following adoption of BEPS Action 13 principles in domestic legislation, dated 21 October 2022.
Japan's consumption tax reform will be effective from 1 October 2023
Japan is introducing a Qualified Invoicing System for consumption tax purposes from 1 October 2023. It is important to be aware of the new rules because non-compliance would negatively impact the taxpayer as well as its business partners.
See Global Tax Alert, Japan's consumption tax reform will be effective from 1 October 2023 | Implementation considerations, dated 31 October 2022.
The Netherlands launches consultation on BEPS 2.0 — Pillar Two implementation
The Dutch Government released a draft legislative proposal for the implementation of Pillar Two rules into its domestic law, which is based on the compromise text of the draft European Union (EU) Directive dated 16 June 2022 and includes the proposed introduction of a Qualified Domestic Minimum Top-up Tax.
See Tax Alert, Netherlands launches consultation on BEPS 2.0 — Pillar Two implementation, dated 24 October 2022.
Peru's Tax Authority publishes new list of high-risk schemes under GAAR
The Peruvian Tax Authority published an updated version of the list of high-risk schemes for tax planning that could be challenged under the Peruvian General Anti-Avoidance Rules (GAAR). The updated list includes eight new situations that are considered high risk.
See Global Tax Alert, Peru Tax Authority publishes new High Risk Schemes under GAAR, dated 19 October 2022.
Romania implements EU CbCR Directive with early application as of 1 January 2023
The Romanian Government published legislation to implement the EU Public CbCR Directive in the Official Gazette on 7 September 2022. While EU Member States are required to transpose the Directive into national legislation by June 2023, Romania has elected for an earlier adoption date as the rules will enter into force on 1 January 2023. The earlier entry into force effectively accelerates the public CbCR obligations by at least one year and in many cases by two years.
See Global Tax Alert, Romania implements EU Country-by-Country Reporting Directive with early application as of 1 January 2023, dated 3 November 2022.
Spain implements reverse hybrid mismatch rules under EU ATAD 2
The Spanish Council of Ministers approved implementation of the reverse hybrid mismatch rules under the EU Anti-Tax Avoidance Directive (ATAD 2). These rules are effective from 1 January 2022. Where the relevant requirements are met, a Spanish reverse hybrid entity will become a Spanish Corporate Income Tax taxpayer.
See Global Tax Alert, Spain implements reverse hybrid mismatches rule under EU ATAD 2, dated 3 November 2022.
Spanish tax authorities deny interest deductions on debt to fund a share premium distribution
In a binding report, the Spanish tax authorities challenged the tax deductibility of financial expenses derived from debt used to fund a share premium distribution based on the application of the GAAR. Situations that are substantially equivalent to the one in the report and are successfully challenged could potentially entail penalties.
See Global Tax Alert, Spanish tax authorities deny interest deductions on debt to fund a share premium distribution, overall transaction declared as abusive in binding report, dated 1 November 2022.
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