Midweek Tax News

On 10 December, the Council of the EU formally adopted the Directive on “safer and faster procedures to obtain double taxation relief”, the FASTER initiative. Initially proposed in June 2023, this initiative is intended to make withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries and EU Member State tax administrations.

The Directive will introduce a common tax residence certificate that tax-paying investors would be able to use in order to benefit from the fast-track procedures to obtain relief from withholding taxes. Member States will provide an automated process to issue digital tax residence certificates (eTRCs) to a natural person or entity deemed resident in their jurisdiction for tax purposes.

Member States will introduce “fast-track” procedures to enable investors to obtain relief from withholding taxes: either a “relief-at-source” procedure where the relevant tax rate is applied at the time of payment of dividends or interest, and/or a “quick refund” system where the reimbursement of overpaid withholding tax is granted within a set deadline. There will be standardised reporting obligations for financial intermediaries, including national registers.

The proposals are summarised by the Council in its press release. The text of the Directive will now be published in the EU’s Official Journal and enter into force. The Directive will need to be transposed into Member State national legislation by 31 December 2028, and the national rules will become applicable from 1 January 2030.

Schedule 7ZA TIOPA 2010 made provision to recover State Aid found to be unlawful by the European Commission’s 2019 decision in relation to the CFC group financing exemption. On 10 December, the UK Government laid regulations (The Controlled Foreign Companies (Reversal of State Aid Recovery) Regulations 2024) which are intended to reverse the effect of charging notices made by HMRC under Schedule 7ZA. This follows the annulment of the Commission’s decision by the Court of Justice of the EU in September 2024.

The regulations require HMRC to issue a reversal notice to any company affected by Schedule 7ZA and to cancel any interest charging notice given under that Schedule. A reversal notice must cancel any charging notice and consequential amendment notice given to the company and must make appropriate relevant adjustments to secure “so far as reasonably practicable” that the company is put into the position it would have been in if the Commission’s decision had not been made. The regulations permit, subject to specified limitations, a company affected by a reversal notice to make relevant adjustments which are consequential to a reversal notice. They also require adjustments to be made to take account of the effect of the relevant adjustments on any other person’s liability to tax. Any appeal that has been made by a company against a charging notice or consequential amendment notice under Schedule 7ZA is treated as withdrawn when a reversal notice is given.

The regulations come into force on 31 December 2024. It is not clear yet when the necessary reversal notices will be issued as the regulations simply state it must be done “as soon as reasonably practicable” after the regulations come into force. For groups affected by Schedule 7ZA, it is likely that the process of applying these regulations will be complex and challenging, both from a practical and administrative perspective.

The National Insurance Contributions (Secondary Class 1 Contributions) Bill, which implements the employer National Insurance changes announced in the Autumn Budget, had its Second Reading in the House of Commons on 3 December. The Bill has now been referred to a Committee of the whole House on 17 December, with report stage and third reading scheduled to follow on the same day.

The Scottish Budget 2025-26 was presented to the Scottish Parliament on 4 December. While the media coverage has largely focused on future changes to benefits there were announcements on tax, including the publication of a Tax Strategy document alongside the Budget.

The income tax policy proposals for 2025-26 will see the Higher, Advanced and Top rate thresholds maintained at £43,662, £75,000 and £125,140 respectively, while the thresholds at which taxpayers pay the Basic rate and Intermediate rate will increase by 3.5%. In its tax strategy document, the Scottish Government states that it does not intend to introduce any new bands or increase the rates of Scottish income tax for the remainder of the current Parliament.

Residential and non-residential rates and bands for land and buildings transaction tax will be maintained at their current level. However, the Additional Dwelling Supplement increases from 6% to 8% with effect from 5 December 2024.

HMRC has published its annual report on the operation of the code of practice on taxation for banks. The report, which covers the period to March 2024, states that none of the 311 banks that had adopted the code by the end of the year to March 2024 has been determined to have been in breach of the code in that period, and none made any disclosures under the DOTAS regime.

The legislation implementing Australia’s new public country-by-country reporting (PCbCR) regime passed all stages of Parliament without amendment on 28 November and now awaits Royal Assent.

Australia's PCbCR regime will require certain large multinational enterprises and purely domestic Australian groups that have annual global consolidated income of AU$1bn or more in the previous year to publish selected tax information on a country-by-country (CbC) basis for Australia and specified jurisdictions and, on either a CbC basis or an aggregated basis, for the rest of the world. A de-minimis exception provides that the rules do not apply where Australia-source income is less than $10mn. The rules apply for financial reporting periods commencing on or after 1 July 2024, with the first report due by 30 June 2026. The threshold for the application of this regime (AU$1bn, approximately US$650mn or €620mn) is significantly lower than the CbCR thresholds in the EU, US and many other countries.

Affected groups will need to ensure systems are in place to comply with these new reporting obligations. Multinational groups will need to develop a worldwide approach to comply with other reporting regimes, notably including the EU PCbCR directive that is now being enacted by member states. Further details are available in our global tax alert.

The European Commission has adopted the final implementing regulation providing the common template and electronic reporting formats for presenting income tax information in the context of PCbCR. Reportable groups whose Ultimate Parent Entity (UPE) is incorporated in an EU Member State should prepare their report in XHTML and Inline XBRL. The format is not mandatory for non-EU/EEA headquartered groups. Further details are available in our global tax alert.

The UAE Ministry of Finance has announced that the UAE will introduce a 15% domestic minimum top-up tax on large multinational enterprises (MNEs), applicable for financial years beginning on or after 1 January 2025. The domestic minimum top-up tax (DMTT) will apply to multinational enterprises with consolidated global revenues of at least EUR 750mn in at least two out of the four financial years immediately preceding the financial year in which the DMTT applies.

The Ministry of Finance also stated that it is considering the introduction of R&D tax incentives, for periods beginning on or after 1 January 2026. The R&D tax incentive would be expenditure-based, offering a potential 30-50% tax credit and would be refundable depending on the revenue and number of employees of the business in the UAE. Another incentive being considered is a refundable tax credit for high-value employment activities from 1 January 2025, which would be granted as a percentage of eligible salary costs for employees engaged in high-value employment activities.

The Ministry will provide further details and guidance for taxpayers regarding these incentives in due course.

We have included links to a selection of our tax alerts below. Additional articles are available in our global tax alert library.

United States: On 2 December, the US Treasury and IRS published the long-awaited proposed regulations to address previously taxed earnings and profits (PTEP) and related basis adjustments. The proposed regulations address issues from the Tax Cuts and Jobs Act but may also raise administrative concerns for taxpayers

EU: The Court of Justice of the European Union (CJEU) delivered its ruling in the case Harley-Davidson Europe and Neovia Logistics Services International v Commission. The CJEU held that the European Commission may refuse recognition of a relocation of production, where the decisive factor in the decision to relocate production was the circumvention of additional customs duties imposed in connection with a trade dispute between two States. This decision is final and may not be further appealed.

Australia: The Australian Parliament has passed legislation to implement Pillar Two rules in Australian domestic law. The legislation implements an Income Inclusion Rule and a domestic minimum tax (DMT) that apply to fiscal years starting on or after 1 January 2024, and an Undertaxed Profits Rule that applies to fiscal years commencing on or after 1 January 2025. In-scope groups should now prepare for the financial reporting and compliance obligations in Australia.

Canada: Canada's Department of Finance has proposed updates to the clean technology manufacturing investment tax credit (ITC). These include amendments to support polymetallic extraction and processing that were previously announced in the 2024 federal budget.

A new article on ey.com looks at the challenges faced by tax departments in processing the volume of data required to manage BEPS 2.0 Pillar Two compliance and controversy. It discusses how the challenges can be addressed by making use of advanced data aggregation tools, standardised data processes and AI and automation.

In a new article on LinkedIn, EY’s Steve Foster looks at the impact of the ever-increasing volume and frequency of compliance requirements, coupled with changes to reporting formats as more and more governments make tax digital. He considers alternative systems of dealing with tax compliance and the pressure do more with less.

This EY global alert provides a summary of key European tax developments relevant to private equity in Q3/Q4 2024. Topics discussed include finance bill updates in France and the Netherlands, UK carried interest changes, German transfer pricing clarifications, and incentives in Ireland, Poland, Portugal and Denmark.