Global Tax Policy and Controversy Watch | August 2023 edition

In the spotlight

New edition of EY Green Tax Tracker includes more African and Asian jurisdictions

The expanded EY Green Tax Tracker (GTT) can now help your clients stay on top of the evolving sustainability tax policies in 61 jurisdictions across the world. The GTT provides an overview of the sustainability incentives, carbon pricing regimes and other environmental taxes in effect in an ever-growing number of jurisdictions. Access the latest GTT.

Key highlights

OECD releases several technical documents on BEPS 2.0 Pillar Two

On 17 July 2023, the Organisation for Economic Co-operation and Development (OECD) released two documents on the Global Anti-Base Erosion (GloBE) Rules under Pillar Two, including additional Administrative Guidance on the GloBE Rules, which includes two new safe harbors and a document on the GloBE Information Return (GIR), which contains an overview of the GIR and how it is intended to operate, the template for the GIR itself, and explanatory guidance on the GIR. On the same date, the OECD also released a report on the Subject to Tax Rule (STTR), containing model treaty provisions and accompanying commentary.

See EY Global Tax Alerts, OECD/G20 Inclusive Framework releases additional Administrative Guidance on Pillar Two GloBE Rules: Detailed review, dated 21 July 2023; OECD/G20 Inclusive Framework releases document on Pillar Two GloBE Information Return, dated 24 July 2023; and OECD/G20 Inclusive Framework releases Subject to Tax Rule model treaty provision and commentary, dated 25 July 2023.

G20 Finance Ministers welcome progress made on BEPS 2.0 project

On 17 and 18 July 2023, the G20 Finance Ministers and Central Bank Governors met in Gandhinagar, India. The G20 Outcome Document and Chair's Summary released at the conclusion of the meeting reaffirms the G20 Finance Ministers' commitment to the BEPS 2.0 project and welcomes the progress reflected in the 12 July 2023 outcome statement joined by 138 of the 143 jurisdictions participating in the Inclusive Framework.

See EY Global Tax Alert, G20 Finance Ministers welcome progress made on BEPS 2.0 project, dated 27 July 2023.

German Ministry of Finance surprises with draft bill for biggest corporate tax reform since 2008

On 14 July 2023, the German Ministry of Finance published a draft bill that would constitute the biggest corporate tax reform in Germany since 2008. The draft bill includes the already publicly discussed investment premium, an increased research and development (R&D) allowance, changes for partnerships, an expansion of the deduction for tax-loss carryforwards, changes to the interest deduction limitation and a reporting obligation for domestic tax arrangements.

See EY Global Tax Alert, German Ministry of Finance surprises with draft bill for biggest corporate tax reform since 2008, dated 18 July 2023.

UK passes Finance (No.2) Act 2023 introducing OECD Pillar Two measures

The United Kingdom (UK) Finance (No.2) Act 2023 was enacted on 11 July 2023. The Act contains provisions addressing the implementation of Pillar Two and several other measures, including a new full-expensing regime for "main" rate plant and machinery, changes to the R&D tax relief regimes and the implementation of changes to the transfer pricing documentation requirements applicable to large multinational businesses operating in the UK.

See EY Global Tax Alert, UK passes Finance (No.2) Act 2023 introducing OECD Pillar Two measures, dated 14 July 2023.

Business transfers — VAT-free or VAT due?

The tax treatment of corporate reorganizations such as mergers, demergers and carveouts is highly complex. One area of uncertainty involves the sale of business assets. Given the large sums often involved, it is crucial to identify whether value-added tax (VAT) applies to the sale or not.

Read the latest EY Global Tax Controversy monthly flash news article, EY Global Tax Controversy Flash Newsletter (Issue 60) | Business transfers — VAT-free or VAT due?, dated 11 July 2023.

News items

European Commission adopts rules for implementing the Foreign Subsidies Regulation

The Implementing Regulation details procedural aspects of the Foreign Subsidies Regulation, including the notification forms for concentrations and public procurement procedures.

See EY Global Tax Alert, European Commission adopts rules for implementing the Foreign Subsidies Regulation, dated 11 July 2023.

OECD releases public Consultation Document on Pillar One Amount B on baseline marketing and distribution

On 17 July 2023, the OECD released a Consultation Document on Pillar One Amount B, which provides for fixed returns for in-scope in-country baseline marketing and distribution activities. The document, which does not yet represent consensus of the Inclusive Framework as there are remaining open issues, requests stakeholder input by 1 September 2023. It reflects further developments since the first consultation document on this topic, which was released in December 2022.

See EY Global Tax Alert, OECD releases public Consultation Document on Pillar One Amount B on baseline distribution, dated 26 July 2023.

OECD releases 2023 report on tax transparency in Africa

The report provides an update on the progress achieved to date and the impact the Africa Initiative has had on countries' revenue collection. It also describes capacity-building activities carried out and proposes practical strategies for further progress.

See EY Global Tax Alert, OECD releases 2023 report on tax transparency in Africa, dated 14 July 2023.

Pacific Alliance Double Taxation Convention on pensions funds will apply beginning 1 January 2024

On 2 July 2023, the Convention to Harmonize the Double Tax Treaties of the Pacific Alliance entered into force. The Convention addresses the taxation of pension funds on their cross-border investments within the Pacific Alliance, the members of which are Chile, Colombia, Mexico and Peru. The Convention will apply beginning 1 January 2024.

See EY Global Tax Alert, Pacific Alliance Double Taxation Convention on pensions funds will apply beginning 1 January 2024, dated 26 July 2023.

Argentine Tax Authority establishes a new corporate income tax prepayment

On 21 July 2023, the Argentine Tax Authority established a one-time corporate income tax prepayment for companies that have a specified level of taxable income for the covered fiscal year.

See EY Global Tax Alert, Argentine Tax Authority establishes a new corporate income tax prepayment, dated 31 July 2023.

Canada's new mandatory disclosure rules now in effect

The new rules include an expansion of the existing reportable transaction rules and new reporting requirements for notifiable transactions and reportable uncertain tax treatments. These rules are intended to provide the Canada Revenue Agency with earlier access to relevant information for certain transactions and tax planning arrangements.

See EY Global Tax Alert, Canada's new mandatory disclosure rules now in effect, dated 24 July 2023.

Draft decree provides guidance for nonresidents subject to Colombia's digital services tax

In a draft decree issued 29 June 2023, Colombia's government defined various terms used in the significant economic presence (SEP) rule under which tax is imposed on the digital services income of nonresidents with SEP in Colombia. The decree also specifies when clients or users will be considered located in Colombia and how to elect to file a tax return and pay the 3% tax on income from digital services rather than 10% withholding tax.

See EY Global Tax Alert, Draft decree provides guidance for nonresidents subject to Colombia's version of digital services tax (Significant Economic Presence), dated 11 July 2023.

Costa Rica Tax Authority intends to scrutinize taxpayers claiming loss or zero profit on FY22 Corporate Income Tax returns

Taxpayers who have reported losses or zero profits on their Corporate Income Tax returns for Fiscal Year 2022 in Costa Rica should be prepared for interactions with the Tax Authority, including being required to submit audited financial statements and meeting with Tax Authority officials at first stages.

See EY Global Tax Alert, Costa Rica Tax Authority intends to scrutinize taxpayers claiming loss or zero profit on FY22 Corporate Income Tax returns, dated 26 July 2023.

Egypt introduces amendments to the Income Tax Law

The law introduced changes to existing tax provisions, primarily on offshore loans and thin capitalization, and added new concepts and definitions including with respect to permanent establishments, capital gains tax and dividend withholding tax.

See EY Global Tax Alert, Egypt introduces amendments to the Income Tax Law, dated 21 July 2023.

Estonia adopts significant tax changes in 2024 and 2025

The amendments include an increase in tax rates for VAT, excise duties and gambling, as well as modifications to the corporate and individual income tax.

See EY Global Tax Alert, Estonia | Significant tax changes in 2024 and 2025, dated 17 July 2023.

Germany publishes draft Pillar Two implementation bill

Major changes from the initial discussion draft include a top-up tax compensation mechanism within the minimum tax group, the addition of various provisions from the Administrative Guidance agreed by the Inclusive Framework and published in February 2023, and details on penalties.

See EY Global Tax Alert, German Federal Ministry of Finance publishes draft BEPS 2.0 Pillar Two implementation bill and accompanying measures, dated 12 July 2023.

Hong Kong introduces new tax treatments for insurers upon adoption of a risk-based capital regime

A new law requires Hong Kong-authorized insurers to adopt a risk-based capital regime in relation to the capital adequacy requirement, which requires new tax treatments.

See EY Global Tax Alert, Hong Kong introduces new tax treatments for insurers upon adoption of a risk-based capital regime, dated 18 July 2023.

Korea's 2023 tax reform proposals include proposed 12-month delay on Undertaxed Profit Rule

On 27 July 2023, Korea's Ministry of Economy and Finance announced the 2023 tax reform proposals, including on Pillar Two a delay of the Undertaxed Profit Rule (UTPR) from 2024 to 2025 as well as other guidance.

See EY Global Tax Alert, Korea's 2023 tax reform proposals include proposed 12-month delay on Undertaxed Profit Rule, dated 2 August 2023.

Luxembourg publishes draft law on modernization and expansion of the investment tax credit

The amendments effectively create a new investment tax credit (ITC) covering investments and expenses incurred by Luxembourg businesses in view of digital transformation or ecological and energy transition and also increase the rate for the existing "global" ITC.

See EY Global Tax Alert, Luxembourg publishes draft law on modernization and expansion of the investment tax credit, dated 19 July 2023.

Nigeria issues guidelines on Mutual Agreement Procedure

The 2023 MAP guidelines introduce some key changes and provide guidance to relevant stakeholders on the procedures for accessing MAP as a dispute resolution mechanism in line with the provisions of the double tax agreements between Nigeria and other countries.

See EY Global Tax Alert, Nigeria | Highlights of the 2023 Guidelines on Mutual Agreement Procedure, dated 31 July 2023.

Peruvian Tax Authority establishes guidelines on scope of non-discrimination clause of the Double Tax Treaties signed by Peru

A Tax Authority ruling has determined that the non-discrimination clause included in the Double Tax Treaties (DTTs) that Peru has signed with Brazil, Chile and Canada applies exclusively to nationals of a Contracting State that are residents of said State, whereas the non-discrimination clause in the DTTs signed with Switzerland, Mexico, Korea and Portugal applies to nationals of a Contracting State even if they are not residents of that State.

See EY Global Tax Alert, Peruvian Tax Authority establishes guidelines on scope of applying nondiscrimination clause of the Double Tax Treaties signed by Peru, dated 28 July 2023.

Saudi Arabia further extends tax amnesty initiative until 31 December 2023

The current tax amnesty initiative has been extended for another seven months, starting from 1 June 2023, until 31 December 2023.

See EY Global Tax Alert, Saudi Arabia further extends tax amnesty initiative until 31 December 2023, dated 31 July 2023.

South Africa issues draft tax proposals

On 31 July 2023, the South African government issued two pieces of draft tax legislation that are open for public comment until 31 August 2023. The legislation includes amendments to the foreign business establishment exemption for controlled foreign companies, tax incentives and anti-avoidance rules.

See EY Global Tax Alert, South Africa's 2023 draft Tax proposals, dated 2 August 2023.

New South African 'beneficial ownership' reporting requirements for companies

The Companies and Intellectual Property Commission (CIPC) in South Africa announced the promulgation of amendments to the Companies Act 71 of 2008, in relation to beneficial ownership. The amendments, in part, authorize the CIPC to require companies to file and update beneficial ownership information as and when applicable.

See EY Global Tax Alert, South Africa's 2023 draft Tax proposals, dated 2 August 2023.

Turkiye increases corporation tax rates

The new law increases the standard corporate income tax rate to 25%, from 20%, on income in 2023 and following years. The rate is 30%, up from 25%, on corporate income of financial institutions in 2023 and following years.

See EY Global Tax Alert, Turkiye's new law increasing the corporation tax rates enters into force, dated 18 July 2023.

UK publishes requirements for Transfer Pricing records

The regulations to specify the form and manner in which relevant transfer pricing records are to be kept and preserved with reference to the OECD's Transfer Pricing Guidelines and have effect for corporation tax purposes with respect to returns for accounting periods beginning on or after 1 April 2023 and for income tax purposes from the tax year 2024-25.

See EY Global Tax Alert, UK publishes requirements for Transfer Pricing records, dated 27 July 2023.

US Treasury provides welcome temporary relief from controversial foreign tax credit regulations

In a notice released on 21 July 2023, the US Treasury Department announced temporary relief for taxpayers seeking a foreign tax credit (FTC) by deferring key components of regulations issued on 28 December 2021. The notice allows taxpayers to claim a foreign tax credit for many foreign taxes that may not have been creditable under the FTC creditability regulations.

See EY Global Tax Alert, US Treasury provides welcome temporary relief from controversial foreign tax credit regulations, dated 26 July 2023.

Uruguay's Executive Power submits accountability bill with tax provisions to Parliament

The bill's tax provisions would affect mergers and spin-offs, the transfer of capital participations, certain yields of capital and capital gains, excise taxes on disposable goods and packages and the taxation of certain retirement and pension income.

See EY Global Tax Alert, Uruguay's Executive Power submits accountability bill with tax provisions to Parliament, dated 14 July 2023.

 

For additional information with respect to this Alert, please contact the following:

• Matt Andrew, Asia-Pacific Tax Policy Leader, Auckland
• Barbara M. Angus, Global Tax Policy Leader, Washington
• Julie Byrne, Global Tax Policy, Washington
• Jorge Libreros Calderon, Latin America North Tax Controversy Leader, Panama City
• Martin Caplice, Asia-Pacific Tax Controversy Leader, Sydney
• Luis Coronado, Global Tax Controversy Leader, Singapore
• Cathy Koch, Americas Tax Policy Leader, Washington
• Jean-Pierre Lieb, EMEIA Tax Policy and Controversy Leader, Paris
• Paul Mulvihill, Canada Tax Controversy Leader, Ottawa
• Rodrigo Munhoz, Latin America South Tax Controversy Leader, São Paulo
• Gilad Shoval, Israel Tax Controversy Leader, Tel Aviv
• Jeffrey Van Hove, United States Tax Controversy Leader, Washington

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

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.