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Singapore’s physical landscape has changed significantly over the last decades as it has become a global hotspot for finance and wealth.
However, it appears that their tax vistas are similarly developing too!
In a significant development in Singapore’s tax landscape, the upcoming implementation of section 10L within the Income Tax Act 1947 (“new section”) is poised to introduce a crucial alteration to the taxation of gains arising from the sale or disposal of foreign assets.
This legislation, set to take effect from 1 January 2024, has spurred substantial discussion within the Singapore tax community. This is due to its potential implications for the taxation of capital gains, historically untouched by Singapore’s tax regime.
The introduction of the new section has prompted a vital need for multinational corporations (MNCs) and businesses to comprehend its far-reaching tax implications.
This remainder of this article aims to provide an in-depth understanding by delving into the rationale behind its implementation, outlining its key features, and offering insights into its potential impact.
According to the official reports from Parliamentary Debates, the primary objective behind the introduction of the new section is to address international tax avoidance risks related to gains from disposals, particularly when such gains arise without substantial economic activities.
This legislative move aligns with Singapore’s commitment to international standards and frameworks against harmful tax practices, such as the rules formulated by the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and the EU Code of Conduct Group Guidance, of which Singapore is an active participant.
Notably, Singapore clarified in official reports that the fundamental aim of this amendment is not to tax capital gains specifically.
The new section will tax gains received in Singapore from the sale or disposal of foreign assets, treating them as income subject to tax.
However, certain exceptions exist, such as exemptions for entities demonstrating “adequate economic substance” in Singapore and those with operations managed and performed within the country.
Entities that are part of a group solely operating or incorporated in one jurisdiction, or certain entities engaging in specific activities, may also be exempt.
Moreover, the taxable amount will be the net gain received in Singapore, and the section applies to disposals occurring on or after 1 January 2024.
Its introduction represents a positive step in addressing international tax avoidance and aligning with global norms.
However, despite official clarifications asserting that the amendment is not intended to tax capital gains, the precise interpretation of the legislation remains uncertain.
The absence of explicit exclusion for capital gains in the section’s wording raises questions about its practical application.
Furthermore, uncertainties surround the interpretation of terms such as “adequate economic substance,” necessitating more detailed guidance from the tax authorities. Seeking Advance Rulings might be advisable for transactions of significant economic value to gain clarity.
While increased record-keeping requirements are anticipated, efforts are underway to minimize the compliance burden through collaboration between the tax authority and industry players.
The impending implementation of section 10L brings forth a period of ambiguity for MNCs and businesses regarding its interpretation and application.
Seeking legal counsel and guidance will be prudent to navigate potential challenges arising from this new legislation.
As Singapore continues to evolve its tax framework in line with global standards, the successful implementation of the new section hinges on the clarity and guidance provided by the authorities to ensure a smooth transition and compliance for businesses operating within its jurisdiction.
If you have any queries relating to Singapore’s New Policy on Foreign Asset Gains, or Singaporean tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The Finance Bill for 2023, published on 19 October, brings forth significant changes and updates in the Irish financial landscape.
This bill primarily focuses on implementing the Pillar 2 regime, setting a minimum effective tax rate of 15% into Irish law, among other noteworthy provisions.
Here’s a summary of some of the key changes and their implications.
As expected, the Finance Bill transposes the EU Directive on ensuring a global minimum level of taxation, often referred to as the “Pillar 2 Directive.”
This directive sets a minimum effective tax rate of 15% into Irish law.
This change will have a significant impact on large multinationals with a global turnover exceeding €750 million and wholly domestic groups within the EU.
It involves the introduction of “GloBE” rules, consisting of an income inclusion rule (IIR) and an Under Taxed Payment Rule (UTPR).
The IIR takes effect for fiscal years starting after 31 December 2023, and the UTPR will broadly apply for fiscal years starting after 31 December 2024.
The Finance Bill introduces transitional and indefinite safe harbors to alleviate the compliance burden.
The qualified domestic minimum top-up tax (QDMTT) is one such provision, which aims to allow Ireland to apply a domestic top-up tax for Irish constituent entities.
This will potentially reduce the tax calculation and payment obligations for in-scope groups.
Ireland has also adopted other safe harbors following the OECD’s guidance.
To prevent double non-taxation of income, the bill introduces measures denying withholding tax exemptions in certain situations.
These measures primarily apply to payments of interest, royalties, and distributions to associated entities in jurisdictions that are not EU Member States and appear on the EU list of non-cooperative or zero-tax jurisdictions.
New rules are introduced for interest deductibility for “qualifying financing companies” with specific criteria.
These rules generally apply when such companies own 75% or more of the ordinary share capital of a “qualifying subsidiary” and borrow money to on-lend to the subsidiary.
The R&D tax credit is enhanced by increasing the rate from 25% to 30% of qualifying expenditure for accounting periods beginning on or after 1 January 2024.
This change aims to maintain the credit’s net value for companies under the new Pillar 2 regime while providing a real increase in the credit for SMEs.
A pre-notification requirement and other information requirements for R&D claims are introduced as well.
Adjustments are made to the operation of the digital gaming credit to align with the new Pillar 2 definition of a non-refundable tax credit.
These changes affect the manner and timeline for credit payments.
From 1 January 2024, the mechanism for taxing gains from share options shifts from self-assessment by employees to being the responsibility of employers through the Pay As You Earn (PAYE) system.
The bill introduces capital gains tax relief for angel investors in innovative SME start-ups.
Detailed wording for this relief is expected to be included later.
The EIIS is amended to standardize the minimum holding period for relief at four years.
The limit on the amount that an investor can claim for such investments is increased from €250,000 to €500,000 per year of assessment within four years.
An exemption from Irish Stamp Duty for American depository receipts (ADRs) is extended to include transactions in DTC of US-listed shares.
This exemption streamlines the process and eliminates the need for Revenue clearance, making it more efficient.
The Finance Bill transposes EU Directive DAC 7, allowing for cross-border audits with other EU Member States.
It also clarifies Revenue’s authority to make inquiries under the Mandatory Disclosure Regime.
The Finance Bill 2023 introduces numerous significant changes in Irish tax and financial regulations.
Businesses should carefully assess and adapt to these changes to ensure compliance and minimize tax implications effectively.
As always, consulting with financial experts is crucial to navigating these complex tax reforms.
If you have any queries about Ireland Finance Bill 2023, or Irish tax matters in general, then please do get in touch.
The Central Board of Direct Taxes (CBDT) announced changes to the so-called Angel Tax provisions.
It did this through a notification dated 25 September 2023.
The notice has made amendments to Rule 11UA of the Income-tax Rules, 1962, which outline the methodology for calculating the fair market value (FMV) of unlisted equity shares and compulsorily convertible preference shares (CCPS) under Section 56(2)(viib) of the Income-tax Act, 1961.
Section 56(2)(viib) is commonly known as the “Angel Tax” provision.
The Angel Tax provisions apply when a company not substantially owned by the public (private or unlisted public company) issues shares at a premium that exceeding the FMV of the shares.
The excess amount received is treated as income from other sources.
Prior to April 1, 2023, Angel Tax applied only to shares issued to Indian tax residents but now extends to shares issued to non-residents.
The amendments introduce flexibility in valuation methods and incentivize venture capital investments, with the following notable provisions:
Types of Valuation Methods: The issuer company can choose from various valuation methods, including new methods for non-resident investors and venture capital investments
Methods for Non-Resident Investors: Five new valuation methods (e.g., Comparable Company Multiple Method) have been introduced for shares issued to non-resident investors. These methods must be computed by a Category I merchant banker registered with the Securities and Exchange Board of India (SEBI).
Methods for Venture Capital Undertakings: The FMV of equity shares issued to venture capital investors can be used as a benchmark for shares issued to other investors within a specific period.
Methods for Notified Investors: The valuation method for unquoted equity shares issued to Notified Investors is used as a benchmark for shares issued to other investors within a set period. Notified Investors are specified in Notification No. 29/2023 dated May 24, 2023.
Valuation of CCPS: The FMV of CCPS can be determined using the DCF method or new valuation methods based on the type of investor or FMV of unlisted equity shares.
The valuation date allows the use of a valuation report issued up to 90 days before the date of share issuance.
A safe harbour provision permits a tolerance limit of 10% between the issue price and FMV.
If the difference does not exceed 10%, the issue price is considered the FMV.
The Angel Tax provisions also apply to startups receiving investments from non-residents, with exceptions based on specified conditions.
While these measures are welcomed, Indian companies continue to face scrutiny regarding share premiums and valuation methods.
An observation is that Indian tax authorities often challenge valuation methodologies and assumptions, focusing on increasing the tax base by treating undervalued share issuances as income from other sources.
If you have any queries about the Changes to the Angel Tax Valuation Rules, Indian tax, or tax matters in general, then please get in touch.
In a bid to take substantial strides towards its climate goals, the Dutch government unveiled a series of legislative proposals and amendments concerning energy and environmental taxes on Budget Day.
These measures are geared towards reducing the Netherlands’ greenhouse gas emissions by a commendable 55% by 2030, in alignment with the government’s climate ambitions.
However, it’s essential to bear in mind that these proposals are subject to discussions, amendments, and adoption by the Dutch parliament.
This article provides an in-depth look at some of those proposals covering:
From 1 January 2024, the energy investment deduction (EIA) rate will undergo a reduction, declining from 45.5% to 40%.
Additionally, the sunset clause for energy and environmental deductions has been extended until 2028, implying that they will remain in effect, at least until that time.
As of 1 January 2025, the energy tax exemption for electricity and gas used in metallurgical and mineralogical processes will be eliminated.
The Dutch government views these exemptions as fossil subsidies, which no longer align with the nation’s climate objectives.
In addition, a new energy tax exemption will be introduced on 1 January 2025, for the supply of electricity used in hydrogen production via electrolysis.
This exemption is confined to electricity utilized directly in the water-to-hydrogen conversion process, encompassing activities like demineralization, electrolysis, and the purification and compression of resulting hydrogen.
Starting January 1, 2025, several changes are proposed regarding exemptions for electricity production, including cogeneration.
Key changes include:
The reduced energy tax rate presently applicable to the greenhouse horticulture sector will be gradually phased out, commencing on 1 January 2025, and concluding in 2030.
Effective from 1 January 2024, a new, lower bracket in the energy tax will be introduced for both electricity and gas.
This bracket will cover the first 2,900 kWh of electricity and 1,000 m3 of gas.
This adjustment is intended to provide the government with the flexibility to reduce energy tax for households when necessary, aligning with the current price cap for households.
Various changes will be made to tax regulations for block heating, designed to accommodate the modifications in tax brackets mentioned above.
Starting January 1, 2024, the Dutch minimum carbon tax prices for the industrial and electricity generation sectors will rise. Despite these increases, the government anticipates no budgetary implications, given the existing EU ETS price. The new minimum prices are as follows:
Commencing January 1, 2025, a carbon tax will be introduced for CO2 emissions in the greenhouse horticulture sector, mirroring the current system in place for the industrial sector.
This development coincides with the introduction of specific EU ETS obligations for the built environment.
With effect from 1 January 2028, the coal tax exemptions for dual coal use and coal utilization for energy production will be discontinued.
The current coal tax rate stands at EUR 16.47 per metric ton.
New information obligations will be incorporated into specific energy tax regulations to align with the European Commission’s guidelines on State Aid for climate, environmental protection, and energy.
Commencing on 1 January 2024, these rules will encompass principles for providing data and information, upon request, to comply with EU obligations.
The Dutch government’s commitment to climate goals is evident in these proposed tax changes, which seek to incentivize eco-friendly practices while gradually phasing out less sustainable measures.
These proposals will be closely monitored as they make their way through the legislative process, potentially reshaping the landscape of energy and environmental taxation in the Netherlands.
If you have any queries about the Netherlands’ Green Budget, or Dutch tax in general, then please get in touch.
Last month, the Canadian federal government introduced a draft legislation package known as the August Proposals.
These proposals encompass a range of revisions to amend the Income Tax Act, with a key focus on the introduction of a novel equity repurchase tax.
Set to take effect on 1 January 2024, this tax is poised to impact numerous publicly traded entities, subjecting them to a 2% levy on the “net value” of specific equity repurchases.
The equity repurchase tax applies to a broad array of publicly traded entities. This includes Canadian-resident corporations (excluding mutual fund corporations), as well as certain trusts and partnerships, collectively referred to as Covered Entities.
Key points to understand about the equity repurchase tax:
The origins of this equity repurchase tax can be traced back to the 2022 Fall Economic Statement. It was here that the Canadian government initially revealed its intention to introduce a 2% corporate-level tax on the net value of share buybacks by Canadian public corporations.
This tax bears similarity to the 1% share buyback tax enacted in the United States under the Inflation Reduction Act of 2022.
Budget 2023 provided more comprehensive legislative proposals, extending the tax’s scope to encompass specific publicly traded trusts and partnerships, thus expanding its reach.
It also clarified that normal course issuer bids and substantial issuer bids would be considered equity repurchases for tax purposes.
The equity repurchase tax relies on a netting rule formula: 0.02 x (A – B), where:
This netting rule applies annually, corresponding to the Covered Entity’s fiscal year, for repurchases and issuances occurring after 1 January 2024.
Importantly, there are no grandfathering rules, meaning that equity outstanding prior to this date, but repurchased afterward, remains subject to the tax.
Moreover, any excess in Variable B over Variable A cannot offset repurchases included in Variable A in subsequent years.
To determine the equity repurchase tax, the calculation considers repurchases and issuances of equity by a Covered Entity.
However, not all equity is included; the tax excludes equity that exhibits “substantive debt” characteristics. Substantive debt equity is defined as:
Many preferred shares may not meet the criteria for substantive debt, such as convertible preferred shares and voting preferred shares.
Since there are no grandfathering rules, Covered Entities with issued and outstanding preferred shares must evaluate whether their shares qualify as substantive debt for tax purposes.
Variable A includes the fair market value of equity (excluding substantive debt) repurchased by the Covered Entity in a taxation year.
Certain equity acquisitions by specified affiliates of a Covered Entity are also included.
However, the deeming rule does not apply to specified affiliates that are registered securities dealers acting as agents for customers or certain employee benefit trusts.
Exceptions to Variable A include specific reorganization transactions, such as share-for-share exchanges and tax-deferred amalgamations, winding-up of the Covered Entity, and other tax-deferred transactions.
Variable B includes the fair market value of equity (excluding substantive debt) issued by a Covered Entity. Equity issuances are included only if:
An anti-avoidance rule applies to prevent transactions aimed at decreasing the total value of equity repurchased or increasing the total value of equity issued, primarily for tax avoidance purposes.
The August Proposals introduce a de minimis threshold of $1 million. The tax is not applicable if Variable A is less than $1 million in a taxation year. This threshold is calculated on a gross basis without considering the netting rule and the value of equity issuances in Variable B.
Covered Entities repurchasing equity in a taxation year must file a return and, if applicable, pay the equity repurchase tax.
Filing and payment deadlines vary for corporations, trusts, and partnerships, with specific timelines outlined for each entity.
In summary, the introduction of Canada’s new equity repurchase tax marks a significant development in the country’s tax landscape.
Understanding its intricacies and ensuring compliance is crucial for publicly traded entities, as non-compliance can result in financial penalties.
If you have any queries about this article on Canada’s new Equity Repurchase Tax, or Canadian tax matters in general, then please get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
The wheels of international tax reform continue to turn as Canada takes significant strides to implement the OECD’s Pillar Two global minimum tax (GMT) recommendations.
On August 4, 2023, the Department of Finance unveiled draft legislation outlining the implementation of two pivotal elements of Pillar Two: the income inclusion rule (IIR) and a qualified domestic minimum top-up tax (QDMTT).
The aim is to align Canada’s tax landscape with the evolving international consensus on curbing tax base erosion and profit shifting.
Let’s have a look at the key aspects of this draft legislation, along with insights into the broader implications it holds.
The draft legislation holds particular importance for multinational enterprises (MNEs) as it focuses on two crucial aspects of the GMT framework:
These provisions are designed to ensure that MNEs pay a minimum level of tax on their global income, irrespective of their jurisdiction of operation
The IIR, closely aligned with the OECD’s model rules and the accompanying commentary, obliges a qualifying MNE group to include a top-up amount in its income.
This amount is determined by evaluating the group’s effective tax rate against the stipulated minimum rate of 15%.
Notably, the draft legislation incorporates mechanisms for calculating this top-up amount, encompassing factors such as excess profits, substance-based income exclusions, and adjusted covered taxes.
The goal is to prevent instances where MNEs might be subject to lower tax rates in certain jurisdictions.
The QDMTT, on the other hand, allows jurisdictions to implement a domestic top-up tax to align with the principles of Pillar Two.
This is aimed at domestic entities within the scope of Pillar Two, counterbalancing the global minimum tax liability.
The intricacies of the QDMTT provision, including computations and adjustments, are outlined in the draft legislation to ensure an encompassing and fair application.
To effectively implement the Global Minimum Tax Act (GMTA), the draft legislation covers a spectrum of administrative facets.
These include provisions for assessments, appeals, enforcement, audit, collection, penalties, and other vital components to ensure the smooth functioning of the new tax regime.
As part of compliance measures, the legislation introduces the requirement of filing a GloBE information return (GIR) within 15 months of the fiscal year’s end, with potential penalties for non-compliance.
It’s important to note that the legislation doesn’t shy away from significant penalties for non-compliance.
Failure to file the required GIR within the stipulated timeframe could result in penalties of up to $1 million. Moreover, penalties may also be imposed as a percentage of taxes owed under the GMTA for not filing Part II or Part IV returns, adding a layer of urgency to adhere to these provisions.
One of the central themes that emerge from the draft legislation is the intricate interplay between the GMTA and Canada’s existing tax framework.
While the legislation attempts to bridge these two domains, certain aspects remain to be ironed out.
Notably, the interaction between the GMTA and provisions within the Income Tax Act (ITA) raises questions about the allocation of losses or tax attributions under the ITA to offset taxes owing under the GMTA.
Additionally, the draft legislation is deliberately silent on the specifics of this interaction, particularly concerning issues like Canadian foreign affiliate and foreign accrual property regimes.
As businesses and professionals delve into the consultation process, these areas of ambiguity are likely to be focal points of discussion, aiming to ensure a harmonious alignment between the new regime and the existing tax landscape.
The consultation process for the draft legislation is underway, with the Department of Finance welcoming feedback until September 29, 2023.
During this period, stakeholders, including businesses, tax professionals, and policymakers, have the opportunity to contribute insights and perspectives to shape the final legislation.
The complex and evolving nature of international taxation underscores the importance of robust consultation, as the new rules have far-reaching implications for cross-border businesses.
Canada’s proactive approach to aligning its tax laws with the global consensus on minimum taxation is a significant stride.
As the draft legislation undergoes scrutiny and refinement, it’s essential to recognize its implications not only for multinational enterprises but also for the broader tax landscape.
The interplay between the GMTA and the existing tax regime will be closely watched, highlighting the intricate path of international tax reform and the commitment of nations to creating a fair and balanced tax environment.
If you have any queries about this article on Canada and Global Minimum Tax, or Canadian tax matters in general, then please get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article..
A recent decision by the lower administrative court in Luxembourg (case n° 45759) has brought to light the importance of providing valid economic justifications and proper documentation when using “alphabet shares” in corporate transactions.
The case involved the tax treatment of a Luxembourg company’s redemption of alphabet shares, leading to a crucial ruling that may impact similar situations in the future.
The case revolved around a company that migrated its registered office from Cyprus to Luxembourg.
Following the migration, the Luxembourg company (LuxCo) held an investment in a Dutch company (DutchCo).
In a series of transactions, LuxCo converted its ordinary shares into twenty classes of shares, all having the same economic rights as the initial ordinary shares.
Later, LuxCo redeemed and canceled two classes of shares using distributable reserves, considering the transaction as a partial liquidation eligible for a 15% withholding tax exemption.
However, the Luxembourg tax authorities recharacterized the transaction as a dividend distribution and applied the 15% withholding tax, citing abuse of law.
The lower administrative court highlighted that the legal form of a transaction is not decisive for tax purposes. Instead, the economic substance and true intention behind the transaction are crucial factors in determining its tax treatment.
The court confirmed that the redemption of shares could be considered as a partial liquidation under tax treatment.
However, in this case, the court focused on the economic analysis of the transaction to ascertain whether LuxCo used an inappropriate path.
The short timeframe between the share conversion, receipt of dividends, and redemption raised suspicions, leading the court to conclude that the shareholders did not intend to exit from LuxCo. As a result, the transaction was deemed a dividend distribution subject to the 15% withholding tax.
Regarding the absence of non-tax reasons justifying the chosen path, LuxCo’s arguments were considered insufficient by the court.
Merely stating economic reasons without concrete proof was inadequate to shift the burden of proof.
Consequently, the court found that the condition of abuse of law due to the lack of valid economic reasons was met.
This case highlights important considerations for businesses using alphabet shares in their transactions.
While redemption and cancellation of alphabet shares may qualify as a partial liquidation under tax rules, it can be recharacterized as a dividend distribution if economic reasons are not adequately documented.
To avoid potential tax challenges, taxpayers must ensure they have concrete evidence justifying the use of alphabet shares and adequately record such reasons in board minutes or related documentation.
As such, companies in Luxembourg must take care when employing alphabet shares in their transactions and must be prepared to provide well-documented economic justifications to avoid potential tax implications.
If you have any queries about this article on alphabet shares, or Luxembourg tax in general, then please do get in touch
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
In a landmark ruling on 19th July, the Italian Supreme Court shook up the taxation landscape by declaring that non-resident companies without an Italian permanent establishment (PE) can now benefit from the Italian 95% participation exemption (PEX) regime.
This ruling opens up new possibilities for foreign investors looking to divest their stakes in Italian resident companies. The Court’s decision was based on the grounds of safeguarding fundamental freedoms enshrined in the Treaty on the Functioning of the European Union (EU).
Let’s delve deeper into the implications of this judgment and its potential impact on cross-border investments.
The PEX regime in Italy provides a significant tax advantage to qualifying investors. Under this regime, a company can be exempted from paying taxes on 95% of the capital gains realized upon selling its participation in an Italian resident company.
This effectively results in an effective tax rate of only 1.2% on the capital gain (calculated using the 24% corporate income tax rate applied to 5% of the capital gain).
Before this judgment, only Italian companies and non-resident companies with an Italian permanent establishment were eligible to benefit from the PEX regime.
However, the Supreme Court’s ruling has expanded the scope of eligibility, allowing non-resident companies without an Italian PE to also take advantage of the PEX regime if they fulfill the necessary requirements.
The Supreme Court justified its decision by invoking the fundamental freedoms enshrined in the EU treaty. The ruling ensures that non-resident companies are not subject to discrimination, which is essential for the free movement of capital across EU member states.
The case in question involved a French parent company holding a substantial participation (25% or more) in an Italian subsidiary. Although Art. 8, let. b) of the Italy-France Double Tax Convention permits Italy to tax such capital gains, the Court upheld the application of the PEX regime for the French parent company as it fulfilled all the requirements set by Italian tax law.
The Court reasoned that the limited tax credit provided under the Double Tax Convention was insufficient to eliminate the discriminatory effect.
Foreign investors, particularly French parent companies, can now leverage this ruling to apply the PEX regime on capital gains arising from substantial participations in Italian companies.
While the possibility of an audit by the Italian Tax Authorities remains, the robust legal foundation for the application of the PEX regime and the support from CJEU case law on discrimination and restrictions strengthen the position of foreign investors.
In response to this judgment, the Italian legislature is expected to take action soon by adopting provisions that explicitly extend the PEX regime’s applicability to capital gains realized by non-resident companies without an Italian PE.
This move is in line with past experiences concerning dividends distributed by Italian subsidiaries to EU resident parent companies.
Furthermore, there’s a possibility that the PEX regime could be extended to EU resident parent companies and parent companies resident in States of the European Economic Area (EEA) that have adequate tax information exchange agreements with Italy.
While the Supreme Court’s judgment refers to EU fundamental freedoms, recent CJEU jurisprudence suggests that rules like the PEX regime should be tested against the provisions on the free movement of capital.
Leveraging on this interpretation, it could be argued that the PEX regime should also be extended to non-EU parent companies holding participations in Italian companies.
For example, countries like China, South Korea, Israel, and the United States might benefit from such an extension, depending on the specifics of their tax treaties with Italy.
The Italian Supreme Court’s judgment on the application of the PEX regime to non-resident companies marks a significant development in cross-border taxation.
Foreign investors now have an opportunity to optimize their tax position when divesting their interests in Italian companies.
As the legislative response unfolds and potential extensions of the PEX regime come into play, businesses must stay informed to capitalize on these new tax opportunities.
The ruling is undoubtedly a step towards fostering a more favorable investment environment and encouraging economic growth in Italy.
If you have any queries relating to this article or Italian tax matters more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
In December 2022, Hungary’s government introduced a windfall tax on drug producers.
It was based on net revenues generated in 2022 and 2023 in attempt to ‘cure’ its ailing state budget.
The rate increased progressively from 8% on net revenues exceeding 150 billion forints ($398 million).
Companies have to pay the new tax for both 2022 and 2023 next year.
However, the government has somewhat rowed back to provide support to some of the businesses within its scope.
Published in the Hungarian Gazette on 17 July 2023, the detailed legislation provides for taxpayers to reduce windfall tax and increased clawback payment obligations.
These measures come as welcome news for the Pharma industry, offering potential relief based on investments in tangible assets and research and development costs.
The tax relief provides a potential lifeline for eligible taxpayers in the pharmaceutical sector. It offers the opportunity to reduce their clawback payment obligation in the 2023 and 2024 tax years.
Deductible items include the cost of investments in Hungary for tangible assets, direct costs of fundamental research, applied research, and experimental development in the healthcare sector.
Furthermore, marketing authorization holders or distributors, in case of an approved agreement, can apply the tax relief starting from 20 July 2023, and continue to benefit from it for both 2023 and 2024.
For corporate groups preparing consolidated financial statements, an affected company may also apply deductible items indicated in its financial statement for the tax year preceding the ongoing tax year.
This provision ensures that consolidation does not overshadow the tax relief, allowing for smoother application and fair distribution of benefits among the group entities.
The tax relief extends further, encompassing the costs of phase I to III clinical trials and clinical research commissioned in Hungary as deductible items.
Moreover, the location of direct R&D costs is no longer a barrier, as long as the clinical research is conducted in Hungary.
However, some restrictions may apply in specific cases.
The clawback payment obligation rules took effect from 18 July 2023.
Taxpayers can apply the relief for the first time for the clawback payment obligation due by 20 July 2023.
Any remaining unused tax relief may be applied to subsequent clawback payment obligations, while the relief is available until the clawback payment obligation due by March 20, 2025.
The same favorable rules apply to Hungarian pharmaceutical manufacturers regarding deductible items and tax relief caps.
Clinical research commissioned in Hungary involving the manufacturers may also be considered to reduce windfall tax.
However, unlike the clawback payment obligation, the windfall tax relief will only take effect on 1 January 2024.
Hungarian pharmaceutical manufacturers can apply the relief for the first time when determining their tax liability for the tax year 2024.
With the introduction of these measures, Hungary’s pharmaceutical industry should he shielded to some extent from the windfall taxes previously introduced.
These incentives should serve to encourage investments in tangible assets and research and development, while alleviating the financial burden on taxpayers.
If you have any queries relating to the Hungary windfall tax relief or tax matters in Hungary more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
In a significant move, the Swiss electorate and cantons have voted in favor of implementing the Organisation for Economic Co-operation and Development (OECD) global minimum tax of 15% for large multinational enterprises operating in Switzerland.
This constitutional amendment was supported by an overwhelming majority, with 78.45% of voters and all cantons endorsing the proposal.
The implementation of the OECD minimum tax aims to safeguard Switzerland’s tax receipts and maintain its position as a stable business location.
The global minimum tax initiative has been developed by the OECD and the Group of 20 countries to establish a uniform minimum tax rate worldwide.
Under this framework, multinational companies with a global annual turnover exceeding €750 million will be subject to a minimum tax rate of 15% in each country they operate in.
Numerous countries, particularly in the European Union, plan to introduce the OECD minimum tax on 1 January 2024.
In Switzerland, 21 out of the 26 cantons currently have tax rates below the required 15%. Failure to meet the minimum tax rate would result in the imposition of a supplementary tax to make up the shortfall.
By implementing the minimum tax, Switzerland ensures that its tax receipts remain within the country rather than being shifted to other jurisdictions.
It’s important to note that the OECD minimum tax will only affect large multinational groups with an annual turnover of at least €750 million.
Small and medium-sized enterprises will not be affected by this amendment.
In Switzerland, approximately 200 internationally active groups headquartered in the country and 2,000 Swiss subsidiaries of foreign groups will be subject to the minimum tax.
As a result, around 99% of companies in Switzerland will continue to be taxed under the existing regulations.
The constitutional amendment to introduce the OECD minimum tax is in Switzerland’s best interest.
Without such a provision, jurisdictions in which Swiss multinational groups operate would be entitled to impose a subsequent tax to compensate for the difference in tax burdens, thereby impacting Switzerland’s tax revenues. Implementing the minimum tax rate ensures tax stability for Switzerland and provides legal certainty for companies affected by the new international tax rules.
However, it is worth considering the potential impact on tax competition within Switzerland.
High-tax cantons may become more attractive compared to those with lower taxes, as the introduction of the minimum tax limits the extent to which lower tax rates can be used to offset geographical disadvantages.
Switzerland’s embrace of the OECD global minimum tax represents a proactive step to secure tax revenues and maintain its status as an internationally stable business location.
By implementing the minimum tax, Switzerland ensures that tax receipts remain within the country and avoids the risk of revenue shifting to other jurisdictions.
While this decision may have implications for tax competition within Switzerland, the overall objective is to create a robust and equitable international tax framework.
The introduction of the OECD minimum tax paves the way for a more uniform global tax system, providing a level playing field for multinational enterprises across different countries.
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