Tax Professional usually responds in minutes
Our tax advisers are all verified
Unlimited follow-up questions
On 12 September 2024, the European Commission unveiled a set of new tax proposals aimed at simplifying tax rules and closing loopholes that big corporations sometimes use.
The key part of this package is the Business in Europe: Framework for Income Taxation (BEFIT), which proposes a single set of tax rules across the EU.
Another important element is the directive focused on harmonising transfer pricing rules.
These proposals could reshape how companies across Europe pay taxes.
Let’s take a closer look at what these proposals include.
BEFIT stands for Business in Europe: Framework for Income Taxation. It’s a new proposal from the European Commission aimed at creating a common set of tax rules for businesses across the EU.
Right now, every country in the EU has its own tax laws. Under BEFIT, businesses would calculate their profits using the same formula, no matter where in the EU they operate.
On the one hand, this might potentially reduce the complexity and cost of doing business across borders, and it would also make it more difficult for companies to shift their profits to low-tax countries within the EU.
However, it will also effectively erode the control that a country has over tax as a method of shaping its economic policies – what good a carrot offered to businesses if the EU rules simply cancel it out?
Another big part of the new proposals is the plan to harmonise transfer pricing rules across the EU. Transfer pricing refers to the prices that one part of a company charges another part for goods or services.
Sometimes, companies use transfer pricing to shift profits to parts of their business located in countries with lower taxes.
This practice has been controversial, as it allows companies to avoid paying taxes in higher-tax countries.
The new directive would create a standard set of transfer pricing rules across the EU. This would make it harder for companies to use transfer pricing to reduce their tax bills.
The idea is to ensure that companies pay taxes in the countries where they actually make their profits, rather than shifting those profits around to save money.
The European Commission’s proposals are arguably part of a larger effort to create a neutral tax system across the EU where there is no tax competition amongst member states.
If these proposals are accepted, they could have a big impact on how businesses operate in the EU. Companies would need to adjust to the new rules and might have to pay more taxes in some countries.
However, this would also effectively water down each member state’s ability to control their own tax affairs which would be controversial.
By creating a single set of rules across the EU, the European Commission hopes to prevent tax avoidance, ensure that businesses pay their fair share of taxes and that tax competition is moved from the equation when it comes to where a company might choose to do business.
However, for many, this will represent evidence of over-reach by the EC.
If you have any queries about this article on New EU tax proposals, or tax matters in the European Union, then please get in touch.
Alternatively, if you are a tax adviser in the European Union and would be interested in sharing your knowledge and becoming a tax native, then please get in touch. There is more information on membership here.
Singapore has become a global hub for startups and entrepreneurs due to its business-friendly environment, strategic location, and supportive tax policies.
To further boost the growth of new businesses, Singapore offers several tax relief programs designed to help startups during their early years.
These tax reliefs make it easier for entrepreneurs to focus on growing their businesses without worrying about excessive tax burdens.
Singapore has introduced several tax relief programs specifically aimed at newly incorporated companies. The two main tax relief schemes are:
To qualify for the Startup Tax Exemption (SUTE) scheme, companies must meet certain conditions:
It’s also important to note that the SUTE scheme does not apply to companies engaging in certain industries, such as property development or investment holding.
The Partial Tax Exemption (PTE) scheme, however, is open to all companies, regardless of their size or shareholders, making it a flexible option for businesses that don’t qualify for the SUTE scheme.
Starting a business often involves significant financial challenges, especially during the first few years.
These tax relief schemes help reduce the tax burden on startups, allowing them to reinvest their profits back into the business.
This can be particularly beneficial for tech startups, which often require significant capital for research and development (R&D) before they start generating profits.
By offering tax relief, Singapore encourages innovation and entrepreneurship, helping businesses grow faster and contribute to the country’s economy.
Singapore’s tax relief programs for startups provide a strong incentive for entrepreneurs to set up their businesses in the country.
The Startup Tax Exemption and Partial Tax Exemption schemes reduce the financial burden on new companies, allowing them to focus on growth and innovation.
For entrepreneurs looking to launch a business in Asia, Singapore’s supportive tax environment, combined with its strategic location and infrastructure, makes it an ideal place to start and grow a business.
If you have any queries about this article on Singapore’s Tax Relief for Startups, or tax matters in Singapore at all, then please get in touch.
Germany is known for having one of the most robust economies in Europe, but it also has a reputation for relatively high corporate taxes.
To remain competitive and attract more international investment, Germany has proposed new corporate tax reforms.
These reforms are designed to lower the tax burden on businesses, promote innovation, and make the country more attractive to foreign investors.
Germany’s new corporate tax proposals are aimed at both large and small businesses. Here are the key changes:
Germany is already a top destination for foreign investment, but the country wants to remain competitive as other nations cut their corporate tax rates.
For example, the United States and the United Kingdom have both taken steps to lower corporate taxes to attract more business.
By lowering its tax rates and offering incentives for innovation, Germany hopes to encourage multinational companies to invest in the country.
This will create more jobs, improve the country’s technological capabilities, and boost the economy overall.
While the tax cuts are popular with many businesses, there has been some criticism of the proposals.
Critics argue that lowering corporate taxes could lead to a reduction in government revenue, which may impact public services like healthcare and education.
Additionally, there are concerns about whether the tax cuts will disproportionately benefit large corporations while smaller businesses may not see as much of a reduction in their tax bills.
Germany’s new corporate tax proposals are part of a broader strategy to make the country more competitive in a global market.
By lowering the corporate tax rate, offering more incentives for R&D, and simplifying tax compliance, the German government hopes to attract more foreign investment and boost the country’s economy.
For foreign investors and multinational companies, these changes represent an exciting opportunity to invest in a country known for its economic stability and innovation. However, businesses should stay informed as the specific details of the reforms are finalised.
If you have any queries regarding Germany’s Latest Corporate Tax Proposals, or German tax matters in general, then please get in touch.
On January 5, 2023, a new EU directive came into force that provides rules on corporate
sustainability reporting – the Corporate Sustainability Reporting Directive (CSRD).
This will significantly change the sustainability reporting requirements for companies. CRS reporting is therefore becoming increasingly important.
The aim of the new CSR Directive is to close previous gaps in the reporting regulations, expand the requirements overall and thus create binding standards for reporting at EU level for the first time.
The European Commission published the proposal for the new directive back in April 2021.
The Commission was then able to agree on a compromise with the Council and the European Parliament in June 2022, which was finally formally adopted by the EU Parliament and the Council.
The new directive was published in the Official Journal of the European Union on December 16, 2022.
The member states had to transpose the new directive into national law within 18 months of its
entry into force, i.e. by July 2024.
Previously, the Non-Financial Reporting Directive (NFRD) applied to certain companies within the EU and had been in force since 2014.
It contained regulations for companies of public interest and aimed to enable stakeholders to better assess the contribution of the respective company to sustainability.
In contrast to the regulations in the new CSRD Directive, however, the scope of application was
rather limited.
The new CSR-Directive extends the reporting obligation to a large number of additional companies.
From around 11,600 companies previously affected, around 49,000 companies now fall within the
scope of the directive.
Specifically, the directive applies to corporations and commercial partnerships with exclusively
limited liability shareholders, provided that
Micro-enterprises are not included.
The scope of application will be gradually expanded; for financial years starting from January 1, 2024, the regulations will initially only apply to public interest entities with more than 500 employees, from 2025 they will apply to all other large companies as defined by accounting law and from 2026 they will generally apply to capital market-oriented small and medium-sized enterprises. However, the latter have the option of deferral until 2028.
The new directive contains the following important changes:
The Corporate Sustainability Reporting Directive (CSRD) marks a critical step in the EU’s pursuit of enhanced transparency in corporate sustainability practices. By expanding the reporting scope to cover a larger number of companies, the directive ensures that sustainability reporting is as important as financial reporting.
With double materiality, companies are now accountable for both their impact on the environment and the effect of sustainability issues on their business. Additionally, the introduction of a standardised electronic format underlines the EU’s commitment to digital transparency and the comparability of sustainability data across the region.
In essence, the CSRD paves the way for businesses to adopt sustainable practices, providing crucial data that will help drive the EU’s broader sustainability goals forward.
If you have any queries about the EU Corporate Sustainability Reporting Directive (CSRD), or other international tax matters, then please get in touch.
Transfer pricing is a method used by multinational companies to set the prices for goods and services exchanged between their subsidiaries in different countries.
Recently, Coca-Cola has found itself in a major dispute with the US Tax Court over transfer pricing.
The court ruled that Coca-Cola must pay an additional $9 billion in taxes due to transfer pricing adjustments, and the company is now planning to appeal this decision.
Coca-Cola, like many multinational companies, sells products across different countries through its subsidiaries.
The US Tax Court found that Coca-Cola had set the prices for these transactions in a way that shifted profits to lower-tax countries, allowing it to pay less tax in the US.
The court ruled that these pricing arrangements violated the arm’s length principle, which requires transactions between related companies to be priced as if they were between independent companies.
As a result, the court ordered Coca-Cola to pay an additional $9 billion in taxes to the US government.
Coca-Cola argues that its transfer pricing arrangements comply with international tax rules and that the court’s ruling is unfair.
The company plans to appeal the decision, which could result in a lengthy legal battle.
If the appeal is successful, Coca-Cola could avoid paying the $9 billion in additional taxes.
However, if the court upholds the original ruling, it could set a precedent for other multinational companies, making it harder for them to shift profits to low-tax countries.
This case is being closely watched by other multinational companies, especially those that rely on complex transfer pricing arrangements.
If Coca-Cola loses the appeal, it could encourage tax authorities in other countries to take a closer look at how companies set their transfer prices.
For multinational companies, this means that they may need to review their transfer pricing policies and ensure they comply with international tax rules to avoid similar disputes.
Coca-Cola’s transfer pricing dispute highlights the challenges that multinational companies face in navigating complex international tax rules.
The outcome of the appeal will have significant implications for both Coca-Cola and other businesses, as it could reshape how transfer pricing is enforced around the world.
If you have any queries about this article on Coca-Cola to Appeal $9B Transfer Pricing Adjustment, or US tax matters in general, then please get in touch
Corporate tax is the money companies pay on their profits, and it varies from country to country.
Vietnam has recently decided to raise its corporate tax rate for large multinational companies, especially those in the technology and manufacturing sectors like Samsung and Intel.
Vietnam raised its corporate tax because it wants to collect more revenue from the large multinational corporations (MNCs) that operate there.
These companies have been benefiting from Vietnam’s relatively low tax rate for years while earning significant profits from their operations in the country.
By raising the corporate tax, Vietnam hopes to increase the amount of money it collects from these companies. This revenue can be used to improve public services like healthcare, education, and infrastructure.
The tax hike is aimed at the largest multinational companies, especially those in tech manufacturing.
Companies like Samsung and Intel, which have significant operations in Vietnam, are expected to see an increase in their tax bills.
However, smaller companies and local businesses are not affected by the tax increase, as the government wants to continue supporting them.
For large companies, this tax increase could mean they have to rethink their tax planning strategies.
While Vietnam is still an attractive place for manufacturing because of its low labour costs and skilled workforce, companies may now have to factor in the higher tax rate when deciding where to invest.
On the other hand, Vietnam remains competitive compared to other countries in the region, and the government is still committed to attracting foreign investment.
Vietnam’s corporate tax hike for multinationals is part of its broader efforts to collect more revenue from big businesses while still supporting local companies.
For multinational corporations, this means adjusting to a higher tax environment, but Vietnam’s strong manufacturing sector and favourable business conditions will likely keep it as a top choice for investment.
If you have any queries about this article, Vietnam Raises Corporate Tax for Multinationals, or tax matters in Vietnam more generally, then please get in touch.
The UK Patent Box regime, which offers a reduced corporate tax rate of 10% on profits derived from UK or European patents, remains significantly under-utilised by UK companies.
According to the latest available data, only around 1,510 UK companies took advantage of the Patent Box system in the financial year spanning April 2021 to March 2022.
This figure is starkly low when compared to the 4.7 million incorporated companies registered in the UK as of 31st March 2021—a number that includes those in the process of dissolution or liquidation.
To put this into perspective, out of approximately 4.4 million active companies at the time, a mere 0.03% are benefiting from this lucrative scheme.
The Patent Box regime is designed to complement existing incentives that provide corporate tax benefits for research and development (R&D) expenditures.
While R&D tax relief supports companies with the upfront costs of qualifying R&D activities, the Patent Box provides ongoing tax relief for businesses that choose to retain and commercialise their innovations within the UK.
Together, these regimes aim to support the entire innovation lifecycle for UK businesses.
One possible reason for the low uptake could be the confusion between the Patent Box and the more widely used R&D tax credit scheme.
While both offer significant financial benefits, they serve different purposes and can be utilised in tandem to maximise tax relief.
As the numbers show, there is a clear opportunity for more UK companies to explore the advantages of the Patent Box and reduce their tax liabilities.
The Patent Box regime is available to all companies, regardless of industry. To qualify, a company must meet the following criteria:
The first step in calculating the benefit under the Patent Box regime is to determine how a company’s QIPR maps to its qualifying income, which can include:
Finance income is excluded from the regime.
Once the qualifying income is identified, further adjustments are made to calculate the profit attributable to the QIPR, which is then eligible for the reduced 10% tax rate.
From 1 July 2016, significant changes were introduced to the Patent Box regime, impacting all new claimants from that date.
These changes require companies to demonstrate a clear link or “nexus” between their R&D activities and the tax benefits derived under the Patent Box.
This means that companies need to track and report relevant R&D expenditures alongside their Patent Box claims.
For companies operating under the previous regime, “grandfathering provisions” allowed them to continue under the old rules until 30 June 2021.
After this date, all claimants must comply with the new rules, necessitating the tracking and tracing of R&D expenditures from 1 July 2016 onward.
The UK Patent Box regime offers a valuable yet under-utilised opportunity for companies to significantly reduce their corporate tax rate on profits derived from patented innovations.
With only a fraction of eligible businesses currently benefiting from this regime, there is a clear need for greater awareness and understanding of how it can complement existing R&D tax reliefs.
By proactively assessing eligibility, optimising claims, and ensuring compliance with the latest rules, companies can unlock substantial tax savings and support their long-term innovation strategies.
The potential benefits are too significant to overlook, making it essential for more businesses to explore and take advantage of the Patent Box regime.
If you have any queries about the UK Patent Box, or UK tax matters in general, then please feel free to get in touch.
In a bid to enhance the UAE’s attractiveness as a business hub, the Federal Tax Authority (FTA) has introduced a new policy aimed at improving the nation’s competitive edge.
One of the key developments is the issuance of Resolution No. 5 of 2024, which establishes a refund policy for fees associated with private clarification requests on tax matters.
This new policy took effect on 1st August 2024.
Since 1st June 2023, the FTA has offered a private clarification service that allows businesses to request detailed information about specific tax regulations.
This service is provided for a fee, enabling companies to gain clarity on complex tax issues.
The newly introduced Resolution outlines the circumstances under which these fees can be refunded.
Under the new Resolution, several scenarios have been identified where the FTA will issue a refund for the fees paid:
If a request pertains to one specific tax and the FTA fails to provide a response, the full fee will be refunded.
For requests covering multiple taxes, if the FTA does not provide any clarification, a full refund will be issued. If the FTA only addresses one of the multiple taxes queried, the applicant will receive a refund for the difference between the fee for multiple taxes and the fee for a single tax.
Alongside these new refund guidelines, the FTA has reminded legal entities with licenses issued in any June to register for corporate tax by 31st August 2024.
Failure to comply with this deadline could result in administrative penalties.
Detailed information about these deadlines and other important decisions can be found on the FTA’s official website.
The introduction of this refund policy by the FTA underscores its commitment to transparency and business support.
By offering these refunds, the FTA aims to facilitate easier navigation of the tax landscape for businesses, thereby promoting a more business-friendly environment in the UAE.
This proactive approach reflects the FTA’s dedication to maintaining a competitive edge in the global market while ensuring that businesses operating in the UAE have the clarity they need to comply with tax regulations effectively.
If you have any queries about this article on UAE Refund Policy for Tax Service Fees, or UAE tax matters more generally, then please get in touch.
In an important decision, the Supreme Court recently addressed the extent to which professional advisory fees associated with the disposal of a loss-making investment can be deducted as management expenses under section 1219 of the Corporation Tax Act 2009 (CTA 2009).
The case in question was Centrica Overseas Holdings Ltd v HMRC.
The crux of the matter was whether the fees incurred were of a revenue or capital nature, as only the former are deductible under section 1219 CTA 2009.
While it was accepted that the fees were expenses of management, their classification as either revenue or capital expenditure remained contested.
The Supreme Court unanimously agreed with the Court of Appeal that the test for determining the nature of the expenditure is the same for both investment companies and trading companies, leading to the conclusion that the fees were non-deductible capital expenditure.
Centrica Overseas Holdings Ltd (COHL), an intermediate holding company within the Centrica group, owned a failing Dutch investment known as Oxxio.
Following a decision in mid-2009 to dispose of the Oxxio business, it was accounted for as a “discontinued operation” and “held for sale” starting June 30, 2009, with an anticipated sale by June 30, 2010.
However, complications delayed the sale process.
From July 2009 to early 2011, COHL incurred approximately £2.5 million in fees for banking, accountancy, and legal services related to the strategic considerations and sale documentation.
The sale was finally completed in March 2011 after Centrica plc’s board approved a third-party offer.
The Supreme Court affirmed the Court of Appeal’s stance that determining whether expenditure is capital or revenue in nature is a question of law, and the same test applies to both investment management businesses and ordinary trading businesses.
The primary indicator is the objective purpose of the expenditure.
Where a capital asset is involved, money spent on its disposal is generally considered capital expenditure unless specific transaction features indicate otherwise.
In this case, once the decision was made in 2009 to sell the Oxxio business, the fees for professional advice to facilitate the sale were deemed capital in nature and, therefore, non-deductible.
A crucial aspect of this case was the 2009 strategic decision to sell the Oxxio business and its subsequent accounting as a discontinued operation held for sale.
The Supreme Court found that the professional services were engaged to achieve the disposal, as reflected in the engagement letters.
Consequently, the taxpayer’s argument that the advice was to inform management decisions rather than directly facilitate the sale was rejected.
The Court emphasized that considering different options does not change the commercial reality that a decision to dispose of Oxxio had been made.
COHL did not differentiate between the various professional services fees, resulting in a broad-brush approach by both the Court of Appeal and the Supreme Court.
A more detailed breakdown might have highlighted services not directly aimed at achieving the disposal, potentially altering the outcome.
Uncertainty about whether an asset will be sold does not classify the expenditure as revenue.
The Supreme Court noted that uncertainty is common in transactions and does not change the fact that expenses aimed at enabling a decision on acquisition or disposal are capital in nature, even if the transaction does not occur.
The possibility of an aborted transaction does not alter the commercial reality of a decision to dispose of an asset.
The Supreme Court’s decision underscores the importance of the objective purpose behind expenditure when determining its capital or revenue nature.
In the context of COHL, the professional fees incurred to facilitate the disposal of the Oxxio business were capital in nature and thus non-deductible under section 1219 CTA 2009.
This ruling highlights the nuanced considerations involved in classifying expenditure and the rigorous application of legal principles to determine tax deductibility.
If you have any queries about this article on Centrica Overseas Holdings Ltd v HMRC, or other UK tax matters, then please get in touch.