January 18, 2024
Global Tax Policy and Controversy Watch | January 2024 edition
In the spotlight
The survey results reflect responses from 1,000 senior tax and transfer pricing professionals across 47 jurisdictions and 19 industries that highlight the quest for certainty in transfer pricing and the need to be prepared for the next waves of disruption.
The third tranche of Administrative Guidance on the Pillar Two Global Anti-Base Erosion (GloBE) Rules addresses various technical issues under the GloBE rules and provides new rules regarding the application of the Transitional Country-by-Country Reporting Safe Harbor.
The updated timeline for Pillar One reflects the Inclusive Framework's commitment to finalizing the Multilateral Convention for Amount A by the end of March 2024 with the aim of having a signing ceremony by the end of June 2024.
Pillar Two implementation activity
Belgium, Denmark, France, Germany, Hungary, Italy, Luxembourg and the Netherlands have enacted legislation transposing the EU Pillar Two Directive Law into domestic law, implementing the Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR) effective for years beginning on or after 31 December 2023 and the Undertaxed Profits Rule (UTPR) for years beginning on or after 31 December 2024. Vietnam implemented the QDMTT and IIR effective 1 January 2024 for fiscal year 2024 and thereafter. Switzerland implemented the QDMTT effective from 1 January 2024. Bermuda passed legislation to enact a 15% corporate income tax to become effective for tax years beginning on or after 1 January 2025.
Following the general election in New Zealand, the government reinstated a draft bill to introduce Pillar Two rules. Hong Kong launched a consultation on Pillar Two measures. Gibraltar announced the introduction of the QDMTT to be effective for taxable years beginning on or after 31 December 2023. The United States Treasury provided guidance on the creditability of Pillar Two taxes and granted relief for pre-GloBE dual consolidated losses. (See the linked Global Tax Alerts for more information.)
Track all the latest updates with the EY BEPS 2.0 — Pillar Two Developments Tracker.
The Organisation for Economic Co-operation and Development (OECD) released its annual Corporate Tax Statistics publication together with an updated database. The OECD also released an accompanying working paper titled "Effective tax rates of MNEs: New evidence on global low-taxed profit," providing estimates of the distribution of effective tax rates of large multinational enterprises (MNEs) across and within jurisdictions.
Canada is one step closer to enacting the Digital Services Tax Act, which was tabled in the House of Commons on 30 November 2023. Denmark enacted a cultural levy on providers, established in the EU, of on-demand media services. The levy will be applicable from 1 January 2024, with a basic rate of 2% on Danish revenues and a surcharge of 3% in specified situations. Following the general election, the New Zealand Government reinstated the lapsed Digital Services Tax Bill, which proposes to implement a flat 3% digital services tax, if insufficient progress is made toward implementation of Pillar One of the BEPS 2.0 project. The proposed application date (1 January 2025) could be deferred by up to five years. Colombia issued regulations on Significant Economic Presence, effective 1 January 2024 for nonresidents selling goods or services into Colombia.
Saudi Arabia has extended its existing tax amnesty initiative program for six months, effective from 1 January 2024 to 30 June 2024. The extension allows taxpayers and businesses another chance to settle their tax obligations and benefit from the relevant exemptions or relief.
The United Kingdom (UK) government confirmed that it will implement a Carbon Border Adjustment Mechanism (CBAM) by 2027. Consultation will take place on the design and mechanics in 2024. However, some key details are available now.
At its annual Tax Certainty Day, the OECD expressed its continued support for and investment in the International Compliance Assurance Program (ICAP). Companies participating in the program have said that the opportunity to engage with multiple tax authorities is valuable.
A voluntary tax-risk assessment program could become an important tool for managing cross-border tax controversy under Pillar Two.
The recently inaugurated Argentine Government has announced a series of emergency measures. The package includes measures affecting tax and a significant devaluation of the Argentine Peso.
The Australian Government has proposed amendments to the thin capitalization and debt deduction creation rules, which have been referred to a Senate committee to report by 5 February 2024, thereby delaying the enactment of the measures. The thin capitalization measures and requirements to disclose subsidiary information are still expected to apply to income years starting on or after 1 July 2023.
The bill contains a number of goods and services tax /harmonized sales tax and other indirect tax proposals, which were included in a notice of ways and means motion tabled on 28 November 2023.
The tax reform bill aims to promote foreign investment by granting tax stability, income tax exemptions, and abatements for Free Trade Zones, among other changes.
The Finance Bill transposed Pillar Two into domestic law, postponed the repeal of the Business Contribution on the Added Value, created a tax credit for investments in green industry, enlarged the 99% French dividend participation exemption regime, criminalized the provision of instruments supporting tax fraud and strengthened transfer pricing audits for multinational enterprises.
In addition to implementing the Pillar Two rules into German tax law, the bills reduce the low-tax threshold from 25% to 15% for both German controlled foreign company tax purposes and the German royalty deduction limitation rule and include other tax measures.
The first financial year of reporting will be the year starting after 22 June 2024. Penalties for noncompliance can range from €10,000 to €100,000.
The bills further revise Hong Kong's refined foreign-sourced income exemption regime covering asset disposal gains and introduce safe harbor rules for onshore equity disposal gains.
The one-time amnesty is for capital gains on shares in subsidiaries that had not previously opted into the Hungarian capital gains exemption regime. The "price of amnesty" would be a one-time cash tax payment amounting to 1.8% of the gains (if any) accumulated between the original acquisition date and 31 December 2023.
The measures were approved as a first phase of the upcoming comprehensive tax reform. In addition to the announced Pillar Two rules and other provisions, a penalty protection regime has been introduced with respect to the Anti-Tax Avoidance Directive on hybrid mismatches (ATAD 2).
The 2024 tax plan amends the Dutch corporate income tax act and Dutch personal income tax act, in part by including a withholding tax on share buybacks, changes to the entity classification rules and (further) restrictions on the 30% facility (expat regime). The Senate also approved the Minimum Tax Act 2024 (Pillar Two).
Saudi Arabia has announced a 30-year tax relief package for multinational companies' regional headquarters activities in Saudi Arabia. Companies will benefit from the tax relief from the day they obtain their regional headquarters license. The regional headquarters program will be effective from 1 January 2024.
The changes pertain to corporation tax, income tax, tax procedure, value added tax, special consumption tax, excise tax and more.
The Ministry of Human Resources and Emiratization of the UAE, in coordination with the Securities and Commodities Authority, has implemented a voluntary, alternative end-of-service benefits scheme that allows employers to invest monthly end-of-service contributions in an investment fund, instead of having to make a lump-sum payment at the end of the employees' service.