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April 10, 2024

Global Tax Policy and Controversy Watch | April 2024 edition

In the spotlight

Looking for certainty amid tax policy transformation?

Read the EY 2024 Tax Policy and Controversy Outlook, which explores what to act on now and what to keep an eye on next. "Major intertwined tax developments continue to evolve and it's the companies that see the whole picture in real time that will navigate successfully," says Marna Ricker, EY Global Vice Chair of Tax. Detailed reports on tax policy and controversy developments in 75 jurisdictions are included for those who want to dig deeper. Watch this replay of the 5 March 2024 EY global webcast where panelists discuss strategic priorities for tax departments in this time of global tax transformation.

Key highlights

EY Worldwide VAT, GST and Sales Tax Guide 2024 now available

Covering 150 jurisdictions, the 2024 edition of the annual EY reference book, Worldwide VAT, GST and Sales Tax Guide, is now available in an interactive map format (as well as to download as a pdf).

New Zealand enacts Pillar Two rules effective 1 January 2025

The package includes an Income Inclusion Rule and an Undertaxed Profits Rule. There is no Qualifying Domestic Minimum Top-up Tax, but there is a Domestic Income Inclusion Rule that applies solely to New Zealand-headquartered multinational groups. The rules generally apply to fiscal years beginning on or after 1 January 2025.

US Administration affirms commitment to Pillar One, protecting US R&D in Pillar Two

During a recent United States (US) congressional hearing, US Treasury Secretary Janet Yellen said the Administration continues to support Pillar One as being in the best interest of US companies. She confirmed that the Administration believes any final agreement regarding both Pillar One and Pillar Two would require congressional action. Regarding protecting US research and development (R&D) benefits under Pillar Two, a US Treasury official recently said the government hoped to address US concerns through OECD guidance, but that there could be a so-called "Plan B" legislative fix, if necessary. In response to a question during the hearing regarding the plans to address R&D, the Treasury Secretary said that "countries participating in the OECD process understand … the R&D credit is a critical issue for us," further suggesting that the US hopes to resolve the issue through administrative guidance.

Transfer pricing and customs valuation — a hot topic in Asia-Pacific

The potential for divergence between transfer pricing and customs valuation can happen anywhere in the world, but because the World Trade Organization customs valuation rules are not implemented harmoniously across Asia-Pacific, divergence is encountered frequently in the region. This can lead to uncertainty and disputes; and the financial impact of any changes in the customs-value for imported goods can be significant, both for businesses and customs authorities. Customs agencies may challenge companies' import prices as being too low — requiring additional duties. But applying higher import prices may, in turn, result in scrutiny from the tax authorities if the higher values result in a lower corporate income tax base.

News items

OECD releases sixth annual peer review report and revised peer review documents on BEPS Action 6 relating to prevention of treaty abuse

The report indicates that more than 1,270 bilateral agreements and two multilateral agreements between members of the Inclusive Framework complied with the minimum standard as of 31 May 2023. The Report also provides an update on progress since 2021, showing that many jurisdictions followed recommendations made in the prior peer reviews.

EU Council approves Corporate Sustainability Due Diligence Directive

On 15 March 2024, the European Union (EU) Council achieved consensus on the Corporate Sustainability Due Diligence Directive, which imposes obligations on companies to address negative impacts caused by commercial activities from both an environmental and human rights perspective. The legislative process will continue, with formal adoption expected in the first half of 2024, following a vote in European Parliament on 22-25 April.

Canadian provincial budgets

Numerous Canadian provinces have released budgets with tax measures affecting businesses and individuals, including: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan and Yukon.

Argentine Senate approves treaties with China, Turkiye and UAE

On 14 March 2024, the Argentine Senate approved three international tax agreements with China, Turkiye and the United Arab Emirates. Moving these treaties forward represents a significant development for Argentina in the field of international taxation.

Argentine Executive Branch sends fiscal measures bill to Congress

The new bill includes an exceptional regularization regime for tax, customs and social security obligations, an assets regularization regime and changes to the individual income tax.

Australian 15% global and domestic minimum tax draft law released

The Australian Treasury has released draft legislation for consultation to implement Pillar Two, including an Income Inclusion Rule, an Undertaxed Profits Rule and a Domestic Minimum Tax, with related safe harbor rules.

China advances toward tax certainty with trial implementation of advance tax rulings

Although the China State Taxation Administration has yet to issue comprehensive legislation on advance tax rulings at the national level, Anhui, Shenzhen, Nansha of Guangzhou, Nanjing and other regions are already exploring the implementation of advance tax rulings.

Ecuadorian tax reform includes increased rates and new temporary contributions

The tax reform increases certain tax rates, including VAT and the Remittance Tax, and creates temporary contributions on the profits of banks and credit offices. The rules are already in force and many of the reforms will be applied as of 1 April 2024. Additionally, companies classified as "big taxpayers" must now make a monthly self-withholding on the total of their taxable income, which will constitute a tax credit when their corporate income tax is due.

El Salvador's Legislative Assembly approves reform to Income Tax Law

The change in the law means that dividends, capital gains and interest, among other income, from securities and financial instruments abroad would not be subject to income tax in El Salvador. The legal reform is effective as of 22 March 2024.

German Federal Council approves amended Growth Opportunities Act bill on corporate tax reform

On 22 March 2024, the German Federal Council approved a revised version of the Growth Opportunities Act. The Act, which had started as the biggest corporate tax reform since 2008, has shrunk to a minor stimulus package. It includes new limitations on deductible interest expense on intercompany financing and amended rules for tax loss utilization. Major relief measures of the initial package were cut, as were mandatory disclosure rules for domestic tax arrangements.

Hong Kong announces 2024/25 annual Budget with new patent-box regime

A new patent-box regime will be introduced under which qualifying income will be taxed at 5%. A two-tier standard rates regime is proposed for salaries tax and tax under personal assessment starting from 1 April 2024.

Kenya Tax Appeals Tribunal confirms importance of board's location/role in determining company's place of effective management/control for tax residency

This decision affirmed the importance of assessing where a company's key management and commercial decisions are made in determining the place of effective management or control of the company. The Kenya Revenue Authority contended that the role of the appellant's board of director's was merely to rubber-stamp decisions made by company management, which was based in Kenya. The Tax Appeals Tribunal maintained that the role of a board of directors is vital and that an assertion that it merely rubber-stamps decisions must be supported by concrete evidence, which was lacking here.

New Zealand's GST and gaming duty measures taking effect for remote sellers

A new offshore gaming duty will apply at a rate of 12% to remote gambling supplied to New Zealand residents. New Zealand's GST platform economy rules take effect on 1 April 2024. A transitional rule will allow electronic marketplace operators to exclude contracts for short-stay or visitor accommodation entered into before 1 April 2024.

Nigeria enacts tax incentives to encourage development in oil and gas sector

Gas tax credits are now available for non-associated gas greenfield developments. Gas utilization investment allowances are available for new and ongoing projects in the midstream sector. Potential incentives also exist for deep water oil and gas projects.

Rwanda provides temporary voluntary tax-disclosure window through 22 June 2024

The Government of Rwanda has gazetted an order determining modalities and conditions for taxpayers to benefit from voluntary disclosure incentives. The voluntary disclosure applies to all tax types, except customs duties, for periods prior to the tax year of January to December 2023.

UK Spring Budget 2024 proposes business, personal, employment tax changes

The headlines for the Budget include the abolition of the "non-dom" tax regime (in the personal tax section), the extension of the end date of the Energy (Oil and Gas) Profits Levy to 31 March 2029, further tax relief for the creative sector and the possibility of extending full expensing to leased assets.

Consultation launched on proposed UK Carbon Border Adjustment Mechanism

On 21 March 2024, the UK government published a "Consultation on the introduction of a UK carbon border adjustment mechanism (UK CBAM)" asking for views on the design and administration of the new UK CBAM, which is expected to apply from 1 January 2027. The consultation closes on 13 June 2024.

US FY2025 Budget contains international tax proposals

The international tax proposals outlined in the Biden Administration's FY 2025 Budget largely echo those included in the FY 2024 budget.

US IRS official discusses benefits of mandatory arbitration on MAP

Nicole Welch, the IRS's Large Business and International (LB&I) Division Director of Treaty and Transfer Pricing Operations, said the United States encourages jurisdictions to pursue mandatory binding arbitration to strengthen their mutual agreement procedure (MAP) programs.

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