Global Tax Policy and Controversy Watch | February 2024 edition

In the spotlight

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OECD publishes ICAP statistics

On 29 January, the Organisation for Economic Co-operation and Development (OECD) published the first statistics on the International Compliance Assurance Programme (ICAP). The statistics show that 20 ICAP cases were completed between January 2018 and October 2023, involving an average time frame of 61 weeks per case with five participating tax administrations on average and, in 80% of the cases, resulting in either low-risk outcomes in all core risk areas covered or "not low-risk" outcomes in just one or two of the core risk areas covered.

Australian Federal Court finds embedded royalty in arm's-length contract

The Court found that a royalty was paid, notwithstanding that the contract had not expressly provided for it, and that royalty withholding tax applied. The Court also found that diverted profits tax (DPT) elements were satisfied, but DPT was not applied, due to the Court's conclusions on royalty withholding tax. The decision is expected to be influential in the actions of the Commissioner of Taxation going forward.

Key Highlights

OECD releases updated estimates of the economic impact of Pillar Two

The working paper estimates that the global minimum tax would increase global corporate income tax revenues by US$155b-192b per year.

News items

Transfer pricing developments

Australia finalized compliance guidelines on intangibles arrangements, including a point-based risk assessment system requiring a significant amount of analysis and supporting evidence for "in-scope" intangibles arrangements. Cyprus revised thresholds for transfer pricing documentation, effective for tax year 2022. Legislation in France contained measures affecting the transfer pricing documentation rules, including broadening the scope of documentation and increasing related penalties. Greenland enacted a requirement for companies to submit transfer pricing documentation, effective for income year 2023.

VAT developments

France revised the schedule for adopting e-invoicing reform for value-added tax (VAT), now expected to take effect from 1 September 2026. The Kenyan High Court again held that interchange fees are exempt from VAT. The Netherlands revised the VAT treatment of the sale and rent of immovable property. Poland postponed implementation of a mandatory National e-Invoicing System, with no new launch date announced. South Africa introduced an estimated assessment for VAT in situations where vendors fail to respond to multiple requests for relevant material. Uruguay introduced a zero VAT rate on hotel-related services to resident tourists for the summer season.

Australia updates guidance on software royalties

Draft Taxation Ruling 2024/D1 provides the Australian Tax Office's updated view on when payments under a software arrangement constitute royalties for the purpose of nonresident royalty withholding tax.

Belgium adopts entity-approach CFC rules

The new rules on the taxation of the undistributed profits of a controlled foreign company (CFC) represent a shift from Model B (transactional approach) to Model A (entity approach) of the EU Anti-Tax Avoidance Directive (ATAD). The new rules are applicable as from assessment year 2024, applying to financial years ending on or after 31 December 2023.

Brazil's new tax law affects individuals domiciled in Brazil

The new tax law broadens the taxation of financial investments abroad, taxes trusts and ends tax deferral for controlled entities abroad by mandating annual taxation based on accounting profits regardless of distribution. The law also offers an option to update the value of assets and rights abroad with any appreciation taxed at 8% and it discontinues two important tax exemptions that have been available to resident individuals.

Ghana's 2024 Budget Statement tax proposals pass into law

Ghana's VAT, excise duty and income tax duty are amended with exemptions and incentives aimed at stimulating productivity in the local textile, manufacturing and automobile industries and promoting the green economy.

Luxembourg modernizes and expands investment tax credit

Luxembourg substantially reformed the investment tax credit that qualifying taxpayers may claim against their income tax.

Malta announces accelerated tax deductions for intellectual property

Malta now allows accelerated tax deductions for capital expenditures on intellectual property. This is applicable to both existing and new intellectual property.

Philippines clarifies tax treatment of cross-border services

The new regulations clarify that outbound service payments are considered Philippine-sourced income of the foreign service provider and are subject to 25% final withholding tax and 12% final withholding VAT.

Spain publishes draft legislation on implementation of Pillar Two

The draft legislation includes an Income Inclusion Rule and a Qualified Domestic Minimum Top-up Tax applicable for fiscal years starting on or after 31 December 2023, as well as an Undertaxed Profits Rule generally applicable for fiscal years starting on or after 31 December 2024.

Contact Information

For additional information concerning this Alert, please contact:

• Matt Andrew, Asia-Pacific Tax Policy Leader, Auckland
• Barbara M. Angus, Global Tax Policy Leader, Washington
• Julie Byrne, Global Tax Policy, Washington
• Martin Caplice, Asia-Pacific Tax Controversy Leader, Sydney
• Luis Coronado, Global Tax Controversy Leader, Singapore
• Jean-Pierre Lieb, EMEIA Tax Policy and Controversy Leader, Paris
• Kiara Rankin, Americas Tax Controversy Leader, Houston

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.