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March 14, 2024

Global Tax Policy and Controversy Watch | March 2024 edition

How to find certainty amid tax policy transformation

The EY 2024 Tax Policy and Controversy Outlook article explores what you should act on now and what you should keep an eye on next. Detailed reports on the policy and controversy developments in 75 jurisdictions will be available shortly, posted at the same link.

Key highlights

OECD releases final guidance on Pillar One Amount B on baseline distribution

On 19 February 2024, the Organisation for Economic Co-operation and Development (OECD) published the final report on Pillar One Amount B, which is intended to simplify and streamline the application of the arm's-length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. Amount B has been incorporated into the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022. Jurisdictions can choose to apply the Amount B approach for in-scope transactions of tested parties in their jurisdictions for fiscal years starting on or after 1 January 2025. Pillar One Amount B is not subject to a revenue threshold and can be applicable to many multinational businesses.

G20 Finance Ministers continue focus on finalizing the BEPS 2.0 project

At the conclusion of the 28-29 February 2024 meeting of the G20 Finance Ministers and Central Bank Governors, the Chair issued a meeting summary underscoring the importance of enhanced international economic cooperation and reiterating the G20's focus on finalizing the BEPS 2.0 project.

Before the G20 meeting, the OECD had released the Secretary-General Tax Report, providing an update on international tax matters including progress on the BEPS 2.0 project, implementation of the minimum standards of the original BEPS project, tax development and tax transparency.

EU Ministers revise list of noncooperative jurisdictions for tax purposes

The revised list was adopted on 20 February 2024. Bahamas, Belize, the Seychelles and Turks and Caicos Islands were removed from Annex I, while six other jurisdictions (Albania, Aruba, Botswana, Dominica, Hong Kong and Israel) were removed from Annex II.

Results of 2024 EY International Tax and Transfer Pricing Survey

The survey reveals that businesses require a comprehensive transfer pricing policy to manage emerging risks. Survey respondents expressed concerns about effective tax rate instability as the implications of the BEPS 2.0 Pillar Two global minimum taxes become reality. Tax departments identified transfer pricing certainty as a key focus to achieve tax certainty.

News items

Pillar Two developments

Malta transposed the European Union (EU) Global Minimum Tax Directive, opting to defer implementation of the Pillar Two rules as allowed under the directive for certain jurisdictions. Poland announced planned implementation of Pillar Two, with a draft bill expected in March 2024. South Africa announced that it will implement Pillar Two with an IIR and QDMTT effective for years starting on or after 1 January 2024.

OECD releases 2024 update on peer reviews under BEPS Action 5 on harmful tax practices

The updated results cover four preferential tax regimes. This latest review reflects that (i) specific regimes in Hong Kong and the United Arab Emirates have been amended to align with the standard and are now considered nonharmful and (ii) specific regimes in Albania and Armenia have been abolished.

First vote on EU customs reform

On 22 February 2024, the EU's Internal Market Committee adopted a proposal on the EU Customs Code reform to restructure the way customs authorities work in the EU. The next step is consideration by the European Parliament.

Australia revises draft legislation for public country-by-country reporting

The revised draft legislation would require large multinational entities to prepare certain information on a country-by-country basis for public release by the Australian Taxation Office. The revised draft reflects significant changes from the draft released last year, including deferral of applicability by 12 months to financial reporting periods starting on or after 1 July 2024.

Belgium introduces Public CbCR

Public country-by-country reporting (CbCR) in Belgium is applicable to financial years starting on or after 22 June 2024. The implementation is in line with the EU Directive, although some key elements are still to be addressed through a Royal Decree.

Belgium proposes mandatory e-invoicing to apply from 1 January 2026

Belgium is proposing mandatory electronic invoicing for domestic business-to-business transactions. The proposals require EU approval and may undergo modification before becoming effective.

Costa Rica requires national large taxpayers declaring losses or zero profits to automatically submit audited financial statements

Before the Costa Rica tax authority issued the resolution making this change, national large taxpayers who declared losses or zero profits were only required to submit audited financial statements after receiving a formal request from the tax authority.

Ghana imposes emissions levy

The levy is imposed on carbon dioxide equivalent emissions from specified sectors and combustion emissions from vehicles, effective from 1 February 2024.

Italy's plastic tax will enter into force on 1 July 2024

As of 1 July 2024, impacted taxpayers will have compliance obligations, including registering, filing quarterly tax returns and making payments.

Italy shortens deadlines for preparing transfer pricing documentation

A new legislative decree modifies rules for certain tax obligations in Italy, including shortening by two months the deadlines for submitting corporate income tax returns (i.e., now nine months after the fiscal year ends). With a subsequent decree, exclusively for tax returns relating to 2023, the new deadline has been postponed by 15 days (i.e., to 15 October).

New Zealand Government opts out of Pillar One, Amount B

New Zealand has decided not to adopt the OECD's recently published Amount B approach for in-country baseline marketing and distribution activities. Existing transfer pricing rules and practices will continue to apply to determine arm's-length outcomes for both foreign-owned distributors operating in New Zealand and New Zealand-owned distributors operating in foreign jurisdictions.

Saudi Arabia unveils new tax rules for the Regional Headquarters Program

Saudi Arabia has published new tax rules for multinational company regional headquarters activities in Saudi Arabia. Under the new tax rules, only specific activities qualify for the tax incentives. The new tax rules entered into force on 16 February 2024.

Singapore Budget 2024 introduces Refundable Investment Credit and additional concessionary tax rate tier on various incentives

New tax credits and incentives introduced in Singapore are aimed at encouraging investments in the country. With Singapore's impending implementation of the Income Inclusion Rule and Domestic Top-up Tax in 2025, companies will want to consider the availability of these new incentives.

South Africa announces sustainability and energy tax measures in 2024 Budget Review

Carbon tax rates have been increased as expected, and carbon offset allowances are set to increase. The tax incentives for energy efficiency under Section 12L remain unchanged.

Swiss Federal Tax Authorities release practical Q&A guidance on applying transfer pricing rules

The Q&A guidance provides helpful examples and welcome clarification on several long-unaddressed transfer pricing topics, including what types of costs are part of the cost basis for intercompany recharges.

UK releases new operational guidance on transfer pricing and role of risk in the accurate delineation of actual transactions

The new guidance sets out His Majesty's Revenue and Customs' view on the application of the OECD's six-step process for analyzing risk.

US IRS announces plans to begin audits on the use of business aircraft by high-income taxpayers

In IR-2024-46, the Internal Revenue Service (IRS) announced it will begin audits on the use of business aircraft by high-income taxpayers and the allocation between business and personal use of those aircraft. The IRS plans to use advanced analytics and funding from the Inflation Reduction Act to conduct the audits.

US IRS sending out more letters regarding transfer pricing compliance

The IRS is continuing to send letters to certain US-based subsidiaries of foreign-owned corporations asking about their intercompany transaction pricing. The letters have gone out mostly to corporations that distribute goods in the US and, in limited instances, to corporations that manufacture goods in the US.

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Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor