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In the wake of the remote and hybrid work revolution, San Francisco is taking proactive steps to adapt its tax structure to the changing economic landscape.
The Offices of Treasury and Controller have drafted a proposal aimed at mitigating risks posed by the current tax system.
This initiative, potentially shaping a ballot measure for November 2024, seeks to address the fallout of the shifting work environment on the city’s tax revenue.
The proposed reforms are the culmination of extensive dialogue with community members and stakeholders, reflecting around 30 meetings.
The primary objectives are to tackle the risk of lost tax revenue, streamline the tax compliance process, and alleviate the tax burdens faced by small businesses.
Key features of the proposal include transitioning away from the payroll factor and Commercial Rents Tax, broadening the Gross Receipts Tax structure, reducing taxes and fees for small enterprises, and enhancing the Small Business Exemption.
A critical aspect of these reforms is their focus on enhancing predictability for both the city and taxpayers.
For the city, the reforms aim to simplify the tax system to foster increased voluntary compliance, thereby making revenue projections more reliable.
Taxpayers, on the other hand, would benefit from clearer guidelines for future tax liabilities, supported by the proposal’s insistence on specific criteria for any forthcoming tax reforms.
The reform package also suggests several procedural adjustments to improve the tax system’s administration and taxpayer compliance.
These include consolidating tax schedules, codifying a voluntary disclosure program, and allocating more resources for administrative guidance.
Furthermore, the proposal advocates for a modification in the process of qualifying tax measures for ballot inclusion, proposing to remove the direct placement of tax measures by a minority of the Board of Supervisors or the mayor.
This change would bring San Francisco’s procedure in line with practices observed in other Californian cities.
Should the proposal be adopted, it promises to significantly streamline San Francisco’s business tax framework by consolidating various taxes into a singular tax system and moving away from a combined payroll and sales factor apportionment model.
Although the proposal is designed to be revenue neutral and does not directly reduce the overall tax burden for businesses in San Francisco, it represents a significant step towards simplifying tax compliance and administration.
The initiative has sparked discussions among taxpayers and business groups, who may advocate for further reductions in the overall tax burden in addition to the simplification measures.
As the proposal moves toward potentially becoming a ballot measure, its development and impact will be closely watched by businesses, policymakers, and the wider San Francisco community.
This tax reform effort underscores San Francisco’s commitment to adapting its economic policies to reflect the evolving nature of work and maintain its status as a vibrant hub for businesses and professionals.
If you have any queries on this article, or US tax matters in general, then please get in touch.
The Dutch tax landscape is undergoing significant changes, particularly concerning the ‘30%-facility’ for expatriate employees and the partial non-resident Dutch tax regime.
These revisions, effective from 1 January 2024, are reshaping the financial outlook for expatriates in the Netherlands.
The ‘30%-facility’ is a notable tax incentive for employees seconded or hired from abroad to work in the Netherlands.
Previously, eligible employees enjoyed a tax exemption on up to 30% of their income for a maximum of five years.
From 1 January 2024, the facility is undergoing a phased transformation.
Initially, for 20 months, the tax-free allowance remains at 30%.
Subsequently, it reduces to 20% for the next 20 months and finally drops to 10% for the last 20 months.
Transitional arrangements benefit employees already under this regime as of December 2023, including those who began working in the Netherlands before the year-end.
This provides some continuity amid these sweeping changes.
The partial non-resident Dutch tax status, an option under the 30% ruling, allowed expatriates to avoid Dutch tax on non-Dutch source income.
However, from 1 January 2025, this benefit will cease to exist.
Those granted the 30% ruling by 31 December 2023 can still enjoy this status until the end of 2026, thanks to transitional provisions.
Another significant change is the introduction of a cap on the 30%-facility, effective from 1 January 2024.
The tax-free allowance is now limited to 30% of the ‘WNT-standard’—a standard linked to top salaries, which is €233,000 for 2024.
For employees granted the 30% ruling in December 2023, this cap will be delayed until 1 January 2026.
Post the revision, as the tax-free allowance shrinks, considering reimbursement of extraterritorial expenses beyond the capped amount might be more beneficial than relying solely on the 30%-facility.
These changes necessitate a thorough review of compensation packages for expatriate employees.
It’s essential for employers and expatriates alike to understand these evolving rules to optimize tax benefits and ensure compliance with Dutch tax laws.
While the Netherlands continues to attract global talent, the revised tax regime calls for proactive planning and adaptation to the new fiscal environment.
If you have any queries about this article on Netherlands expatriate employees, or Dutch tax matters in general, then please get in touch.
You have probably never been sad enough to contemplate whether your pizza delivery man or woman was an employee or not as you waited for your stuffed crust.
But this is exactly the question posed to the Irish Supreme Court recently in the Revenue Commissioners v Karshan Midlands t/a Domino’s Pizza on 20 October 2023.
This landmark ruling has important implications for employers in Ireland.
The dispute initiated when Karshan (Midlands) Limited, operating as ‘Domino’s Pizza’ (“Karshan”), contended that their delivery drivers operated as self-employed contractors, managing their tax affairs.
The drivers signed an “umbrella contract,” recognizing themselves as independent contractors. However, the Irish Revenue Commissioners (“Revenue”) argued that these individuals should be classified as employees, subject to PAYE and relevant employment taxes.
The matter was initially taken to the Tax Appeals Commission (TAC), which supported Revenue’s stance.
Karshan appealed this decision to the High Court, which continued to endorse the TAC’s decision. Yet, the Court of Appeal reversed this in June 2022, classifying the drivers as independent contractors.
The Revenue appealed this to the Supreme Court.
Throughout the case’s progression, the concept of “mutuality of obligation” emerged prominently in defining an employee versus an independent contractor.
However, the Supreme Court rejected the notion that this concept is a prerequisite for establishing an employment contract, emphasising the need to assess the specific circumstances of each case.
The Supreme Court outlined five crucial steps to determine employment status:
Here, Justice Murray found that the Tax Appeal Commissioner was entitled to conclude that the drivers were employees for the purposes of income tax.
The Supreme Court’s comprehensive five-step approach provides clarity for organizations engaging workers as independent contractors.
This ruling underscores the risk of employers being liable for employment taxes despite contractual wording.
This verdict will likely influence determinations of employment status under various legislations, potentially affecting statutory leave, dismissal, and redundancy entitlements.
What should organisations look at doing in the light of this decision?
This decision reverberates beyond taxation, serving as a benchmark in employment status determinations, urging employers to reassess worker engagements and employment classifications.
If you have any queries about the Irish Domino’s Case, or Irish tax matters in general, then please get in touch.
In a ruling handed down by the High Court of Australia, the decision in Vanderstock & Ors v the State of Victoria [2023] HCA 30 has raised more than a few eyebrows.
It could be said that Vanderstock has been a Vander-shock (I’ll get my coat.)
This judgment calls into question the constitutional validity of State-imposed payroll taxes.
The implications of the decision are far-reaching and impact anyone currently paying payroll tax in Australia.
It is crucial for individuals or entities currently paying payroll tax or engaged in ongoing related disputes to understand the decision.
Further, Vanderstock opens the door to challenging the constitutionality of payroll tax.
In the case, the majority of the High Court determined that the Victorian Low Emission Vehicle Distance-based Charge (ZLEV Charge) was, in essence, an excise imposed by the State of Victoria.
Under the Australian Constitution (section 90), states are prohibited from imposing excises.
The consequence of the ZLEV Charge being classified as an excise is that it is now deemed constitutionally invalid.
Justice Edelman, in his minority decision, raises a pertinent point that should send alarm bells ringing for those connected to payroll tax. He highlights that the majority’s rationale in Vanderstock may potentially categorize payroll tax as a State-based excise, rendering it constitutionally invalid.
If this legal reasoning is applied, it could mean that any payroll tax assessments may be considered invalid, potentially entitling taxpayers to a refund of payroll tax paid to date, or at the very least, for the past five years.
Vanderstock represented a constitutional challenge to the validity of the Victorian ZLEV Charge, with the argument being that it constituted an excise. Section 90 of the Australian Constitution prohibits states from imposing excises.
Previously, the High Court had laid down certain criteria for identifying an excise, including its direct effect in the market and its connection to the production or manufacture of goods. This had come to be known as the supply-side and directness constraints.
The majority decision in Vanderstock marked a significant shift in this approach. It simplified the criteria for identifying an excise to anything considered a tax on goods or one that could have an indirect effect on the price of goods.
This simplification eliminated the previous supply-side and directness constraints. Justice Edelman pointed out that the consequence of this change could potentially classify payroll tax as an excise, stating:
“An example is a payroll tax with a direct economic effect in the market for the sale of labor that is used to produce goods. A payroll tax with a reasonably anticipated direct effect in the market for the sale of labor, rather than goods, has never been an excise. But if a reasonably anticipated indirect economic effect is sufficient, then the payroll tax could be an excise, at least in some of its applications, merely because of its anticipated indirect effect in the separate market for the sale of the goods produced with that labor.”
In essence, this change in approach now means that State-based taxes that indirectly impact the value of goods have the potential to be classified as excises. And if State-based payroll taxes are deemed excises, then the States would be constitutionally barred from imposing them.
The application of the High Court’s reasoning from Vanderstock to payroll taxes could potentially trigger claims for refunds by anyone who has paid payroll tax for the past five years or more.
The Vanderstock decision has introduced a significant level of uncertainty concerning the constitutional validity of payroll tax in Australia.
This ruling offers every payroll taxpayer the opportunity to question the legitimacy of their payroll tax assessments, potentially opening the door for refunds.
Furthermore, ongoing disputes and enforcement actions related to State payroll tax may be derailed as taxpayers explore the constitutional validity of these assessments as a threshold issue.
The full implications of this decision are yet to unfold, but it has undeniably set in motion a significant legal debate with far-reaching consequences.
If you have any queries about the Vanderstock decision, or any other Australian tax matters, 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.
Malta, a strategic hub within the European Union, continues to attract highly skilled professionals from around the world.
On June 19th, the Commissioner for Revenue unveiled new guidelines under Article 6 of the Income Tax Act, aimed at providing compelling tax benefits to “investment services and insurance expatriates.”
The goal is to bolster these sectors, which have experienced substantial growth since Malta’s EU accession in 2004, by enticing top-tier talent to contribute their expertise.
Who Qualifies?
For those looking to make a significant impact in Malta’s investment services or insurance sectors, the criteria are well-defined.
An ‘Investment Services Expatriate’ is someone employed by or providing services to a company holding an investment services license or recognized by the relevant competent authority.
This includes activities like management, administration, safekeeping, and investment advice to collective investment schemes.
Similarly, an ‘Insurance Expatriate’ works for an entity authorized under the Insurance Business Act, an insurance manager under the Insurance Distribution Act, or engaged in the business of insurance broking.
To be eligible, these expatriates must not be ordinarily resident or domiciled in Malta, nor have resided there for a minimum of three years preceding their employment or service provision in Malta.
The Generous Benefits
Qualifying Investment Services or Insurance Expatriates will enjoy a range of exemptions, which makes this opportunity even more attractive.
The tax benefits cover personal expenses paid by the employing company, such as removal costs, accommodation expenses in Malta, travel costs for the expatriate and immediate family, provision of a car in Malta, medical expenses, medical insurance, and school fees for children.
These benefits, which are typically taxed as fringe benefits, are exempt from taxation for a remarkable period of ten years, starting from the first taxable year in Malta.
Additionally, these expatriates will be treated as not resident in Malta for specific income tax purposes, leading to exemptions on various types of income, including interest, royalties, profits from transfers of units in collective investment schemes, shares, securities, and more. These benefits remain in effect throughout the duration of the individual’s employment as an Investment Services or Insurance Expatriate.
It’s essential to note that individuals who qualify for these tax benefits cannot simultaneously benefit from Malta’s Highly Qualified Persons Rules. The two registration options are mutually exclusive.
Malta’s progressive tax benefits for Investment Services and Insurance Expatriates paint an attractive landscape for skilled professionals seeking a dynamic and rewarding career within these thriving sectors.
The generous exemptions, combined with Malta’s strategic position in the EU, make this opportunity a compelling proposition for those looking to make a significant impact while enjoying a supportive environment
If you have any queries regarding this article on Malta’s new tax benefits for expatriates or Malta tax 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.
As remote work becomes the new norm in many industries, employers face a maze of tax obligations when their employees operate from Canada.
Whether intentional or a result of Covid-19 travel restrictions, these arrangements can spark a range of tax issues for non-Canadian employers.
In this blog, we shed light on some key considerations and obligations that employers must navigate when their employees work remotely in Canada.
Having an employee in Canada triggers payroll tax obligations for the employer.
These include deductions for income tax, Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and any applicable provincial payroll taxes.
While resident and non-resident employers share similar obligations, non-resident employers without a presence in Canada may not be required to withhold CPP contributions.
Similarly, they may not withhold EI premiums if they are payable under the employment insurance laws of the employee’s home country.
However, when CPP contributions and/or EI premiums are due, the employer becomes liable for these on its own account.
Under a non-resident employer certificate regime, certified employers resident in a treaty country may be exempt from deducting and remitting Canadian income tax on remuneration paid to qualified non-resident employees.
To qualify, employees must be residents of a country with which Canada has a tax treaty, and they must be exempt from Canadian income tax on the remuneration due to the treaty.
Additionally, the employees must not be present in Canada for 90 or more days in any 12-month period, or not in Canada for 45 or more days in the calendar year that includes the payment time.
While this certification offers relief, employers should ensure ongoing reporting and compliance to maintain eligibility.
For employers without non-resident certification or non-qualifying employees, a Regulation 102 waiver may be sought if the remuneration is exempt from Canadian income tax due to a tax treaty.
Having an employee in Canada may expose the employer to the risk of being considered to be “carrying on business” in Canada.
A non-resident carrying on business in Canada is generally liable for tax on profits from such activities, subject to any treaty exemptions.
Certain activities of the employee, such as soliciting orders or offering sales in Canada, may cause the employer to be deemed to be carrying on business in the country.
Employers entitled to treaty benefits are exempt from Canadian income tax on business profits if they do not have a permanent establishment (PE) in Canada.
However, certain scenarios, like employees having the authority to conclude contracts, may trigger PE status and tax obligations.
When employees provide services in Canada, the employer’s customer may need to deduct and remit 15% of the payment for those services to the CRA unless a waiver is obtained.
Employers can apply for waivers to reduce or eliminate withholding taxes, depending on treaty provisions and income projections.
Value-added taxes (GST/HST) apply on the supply of goods and services in Canada, requiring non-resident employers to register and comply with the GST/HST regime if they make taxable supplies in the country.
In sum, remote work arrangements in Canada can create complex tax implications for non-Canadian employers.
Understanding and fulfilling these obligations is essential to avoid potential pitfalls and ensure compliance with Canadian tax laws.
Seeking professional advice can illuminate the path forward and help employers navigate the tax terrain with confidence.
If you have any queries about this or other Canadian tax matters 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.
Earlier in the month, in the Pre-Budget Report (“PBR”), the Bermudan Government announced a proposal that will represent significant changes to the current employment tax regime.
It is a fair observation to say that some of the proposals were quite eye-catching.
Firstly, an increase is proposed to the employer portion of payroll tax for exempted companies. Here, the rate will increase from the current 10.25% to 10.75%.
The result of this is that it means that Bermuda’s exempted companies are now required to pay payroll tax at a higher rate than local companies.
In addition, the PBR proposes a change to the employee portion of payroll tax. The result here is that it means a greater proportion of the overall tax burden will fall on the shoulders of higher earners.
The Government had made election pledges in 2020 in this area. Firstly, it seeks to make good its promise to eliminate the employee portion of payroll tax for those earning below $48,000 a year. At present, this is 1.5%.
This is accompanied by an increase in the rates for all other income brackets. These are set out below.
| Income bracket | Current rates | Proposed Rates |
| $0 – $48,000 | 1.50% | 0% |
| $48,001 – $96,000 | 9% | 10% |
| $96,001 – $235,000 | 9% | 11.50% |
| > $235,001 | 9.50% | 13% |
The PBR also includes a proposal to increase the cap on annual taxable remuneration.
At the moment, the cap is set at $900,000. However, the proposal suggests raising this to $1,000,000.
The measures set out above would result in high-earners shouldering a greater proportion of the tax burden.
In addition, there is likely to be a sizeable increase in the payroll tax bill for exempt companies.
In terms of next steps, the PBR will be open for consultation until 13 January 2023. A Budget will follow this – perhaps as early as February.
So, watch this space!
If you have any queries about this article on the Bermuda PBR, Bermuda employment taxes or Bermudan tax matters in general then please do not hesitate to contact us.
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.