Midweek Tax News

On 13 January, the Inclusive Framework on BEPS (IF) issued a statement providing updates on the two components included in the Pillar One package: the text of the Multilateral Convention (MLC) to implement Amount A and the framework for Amount B.

Amount A

Amount A introduces a system for a coordinated allocation of taxing rights to market jurisdictions with respect to a defined portion of the residual profits of large and highly profitable MNEs. The IF statement confirms that, following the release of the Amount A MLC in October 2023, further negotiations in the first half of 2024 led to the successful resolution of the issues standing in the way of adoption of the text. In June 2024, the revised text was submitted for adoption (i.e. the formal act through which the form and content of a treaty is established). The statement confirms that only one state objected to the adoption of the text, and the text of the MLC has remained stable since that time with negotiations having been focused on resolving the outstanding issues with the Amount B Framework (see below).

The IF statement notes that, in line with international law, agreement to adopt the final text does not create an obligation to sign it, with the decision to sign the text being a separate decision for jurisdictions and one that might follow specific domestic procedures.

Amount B

Amount B is intended to provide a “simplified and streamlined approach” to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.

In February 2024 an optional Amount B was incorporated into the OECD Transfer Pricing Guidelines (TPG), allowing jurisdictions, including non-IF members, to elect to implement the simplified and streamlined approach to baseline marketing and distribution activities in their jurisdiction for fiscal years commencing on or after 1 January 2025. Members of the IF also made a commitment to respect outcomes determined under that approach where the approach is applied by “covered jurisdictions”.

The IF statement notes that, since February 2024, discussions have continued on an “Amount B Framework” under which jurisdictions that become parties to the MLC would, from the point the MLC enters into effect, be required to apply Amount B to local taxpayers performing in-country baseline marketing and distribution activities where the transaction is covered by a tax treaty in force with another IF member jurisdiction that is also party to the MLC. Jurisdictions would also be required to respect outcomes determined under Amount B when applied by other parties to the MLC with which a tax treaty is in force. The IF notes that some members have taken the position that the Amount B Framework is an essential, i.e. not optional, part of the overall Pillar One package.

The IF states that significant work has been undertaken on the detailed parameters of the Amount B Framework, with only a few outstanding issues remaining amongst certain jurisdictions. The statement concludes that “We remain committed to do our utmost to help bridge the last few remaining issues relating to the Amount B Framework in order to secure IF agreement on the Pillar One package and remain committed to ensuring that the IF is prepared to support swift implementation once that agreement is reached.”

HMRC publishes guidance on Amount B

On 8 January, HMRC published new guidance on Amount B in its International Tax Manual. The guidance summarises the background and purpose of the ‘Simplified and Streamlined Approach’ to baseline marketing and distribution activities, and provides links to the relevant OECD publications. HMRC notes that the approach is optional: jurisdictions can choose to apply the Simplified and Streamlined Approach for fiscal years commencing on or after 1 January 2025. HMRC states that “further guidance will be added to this manual if the UK adopts the Simplified and Streamlined Approach.”

As highlighted in last week’s Midweek Tax News, the National Insurance Contributions (Secondary Class 1 Contributions) Bill had its second reading in the House of Lords on Monday, 6 January 2025. Committee stage in the House of Lords has now been scheduled to commence 21 January 2025.

In the case of The Mersey Docks and Harbour Company Limited (MDHC), the First-tier Tribunal has considered whether expenditure incurred on construction of a quay wall was plant and machinery qualifying for capital allowances purposes.

MDHC operates the Port of Liverpool. Between 2013 and 2017, MDHC developed a new deep-water container terminal at the Port, designed to accommodate the world’s largest container vessels. The development included construction of a Container Transition Area (CTA) and a Quay Wall supporting eight Ship to Shore cranes (STS Cranes) required to transfer containers to and from these vessels.

The case concerned whether the expenditure incurred on the Quay Wall qualified for capital allowances, under section 11 CAA 2001, as expenditure on plant and machinery. The Tribunal first considered whether the Quay Wall was a distinct asset for the purposes of the relevant provisions of the CAA 2001, or whether it, together with the CTA, formed part of a larger whole. Guided by the principles set out in the Upper Tribunal decision in Gunfleet Sands Limited, the Tribunal found that the Quay Wall performs a highly specified and different function from the CTA and should be regarded as a distinct asset for the purposes of the CAA 2001.

With regard to whether the expenditure was “on the provision of plant or machinery”, MDHC argued that the Quay Wall functions as plant, while HMRC contended it was merely premises or a specialised structure. The Tribunal found that the Quay Wall played an essential role in supporting the STS Cranes and facilitating the loading and unloading of large vessels, similar to the dry dock in Barclay Curle. Consequently, the Tribunal concluded that the Quay Wall expenditure was incurred on the provision of plant or machinery and qualifies for capital allowances under section 11(4)(a) CAA 2001.

It was common ground that the Quay Wall expenditure fell within the general exclusion from plant and machinery allowances under section 22, List B (Item 5). However, section 23 CAA 2001 provides exceptions for certain items in List C. The Tribunal considered whether the Quay Wall expenditure was “saved” due to falling within one of the exceptions contained in Section 23, List C - specifically Item 1 (machinery), Item 22 (alteration of land for installing plant or machinery), and Item 24 (jetty or similar structure mainly for carrying plant or machinery). The Tribunal concluded that the Quay Wall expenditure was necessarily incurred on the installation of plant, being the STS Cranes, and thus fell under Item 1 of List C. Consequently, the Tribunal allowed the taxpayer's appeal. If you would like to discuss this case in further detail please contact one of the EY team who acted for MDHC: Elyse Waller or Graham Wright.

As e-invoicing mandates proliferate, this webcast at 15:00 on 30 January will focus on the actions that businesses should take to comply with their global e-invoicing obligations in 2025 and beyond. Our panel will discuss e-invoicing trends, share practical tips and take a look at key considerations for global compliance including:

• The global e-invoicing landscape
• Insights from Singapore, France, Germany and the United Arab Emirates (UAE)
• How to create a cohesive global e-invoicing strategy

To join this webcast, please register here.

On 10 January, the EU Directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER) was published in the Official Journal of the EU. This follows the formal adoption of the Direct by the Council of the EU in December 2024.

The Directive will introduce a common tax residence certificate that tax-paying investors will 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.

Member States need to transpose the Directive into national legislation by 31 December 2028, and the national rules will become applicable from 1 January 2030.

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

Korea: Korea has enacted the 2025 Tax Reform Bill, which introduces additional clarifications to the global minimum tax rules to reflect OECD administrative guidelines and commentary. It also postpones the introduction of new withholding tax rules for virtual assets from 1 January 2025 to 1 January 2027.

Vietnam: Vietnam has issued a decree which establishes a legal framework for investment support for enterprises operating in the high-tech sector, as well as those with investment projects in research and development centres.

Estonia: Changes were made to almost all Estonian tax laws in 2024, including personal income tax, corporate tax, bank levy and VAT. These changes will become applicable from 2025–2026. This global alert provides a high-level overview of the major amendments in the Estonian tax laws.

Italy: Italy has published the implementing decree for a new penalty protection regime for tax-hybrid mismatches. The regime requires taxpayers to prepare qualifying documentation for each covered transaction or the adoption of a single internal control framework. The regime is also available for past fiscal years, within the prescribed deadlines.

Italy: On 31 December 2024, the Italian Budget Law for 2025 was published. Among other tax measures, the Law introduces a corporate income tax (CIT) rate levied, under certain conditions, at 20% as an alternative to the standard 24% CIT, only for fiscal year (FY) 2025.

Spain: Spain has passed new legislation to reintroduce and extend limitations on the use of carried-forward tax losses and foreign tax credits for large taxpayers, after the prior implementation was ruled unconstitutional.

Türkiye: Türkiye has determined that a 1% withholding tax rate will apply to payments that certain intermediary service providers make to other service providers for their electronic commerce activities. The decree entered into force on 1 January 2025.

Türkiye: Türkiye has increased the withholding tax on dividends distributed by Turkish corporations from 10% to 15%. The WHT applies whether the dividends are distributed to Turkish residents or non-residents. The branch remittance tax has also increased.

Argentina: Argentina has abolished “Impuesto PAIS", a tax imposed on certain purchases of foreign currency to pay for certain goods and services abroad, after being in force for five years.

Oman: Oman has implemented legislation to introduce a Domestic Minimum Top-Up Tax and an Income Inclusion Rule applying to large MNEs operating in Oman for fiscal years starting on or after 1 January 2025.

Peru: Peru has enacted a set of laws related to certain tax benefits, such as accelerated depreciation for electricity and energy companies, exemption for capital gains and interest on securities issued by the Peruvian Government, a special VAT rate for hotels and restaurants, and the special instalment payment regime.

The January issue of PE Watch – our monthly summary of the latest international developments regarding permanent establishments – is available. This edition highlights an Indian High Court ruling which addresses the determination of a Permanent Establishment (PE) under the India-United States tax treaty.

At Autumn Budget last year, the Government confirmed plans to take forward changes to the treatment of non-UK domiciled taxpayers, with details of the proposed new residence-based regimes for foreign income and gains (FIG) and inheritance tax being included in the Finance Bill which was published shortly afterwards. Now that the dust has settled on the Budget, Issue 9 of our Non-dom newsletter considers the actions that individuals affected by the changes may want to consider between now and the end of the current UK tax year on 5 April 2025.

The December issue of IFRS Quarterly Tax Developments is now available. This edition, which covers developments to 11 December 2024 (unless otherwise stated), includes a summary of tax legislation enacted or substantively enacted this quarter, other developments to consider for the quarter and year-end provisions and an IASB update.