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..
On July 19, the Portuguese Parliament took a significant step towards easing the country’s housing crisis by approving the ‘Mais Habitação’ (More Housing) legislative package.
This comprehensive set of measures aims to tackle the challenges of the housing market, and one notable change is the exclusion of real estate from the investment options available under the Golden Visa scheme.
Under the new legislation, the Portugal Golden Visa scheme will continue to be open for investment in other sectors as the government tests its viability without the property component.
However, the option to make a capital transfer of at least €1.5 million to Portugal has been withdrawn.
It’s important to note that these changes will not be applied retroactively, and existing rights of renewal for family reunification and permanent residency applications remain protected.
Non-EU nationals will still have several investment options available to them under the revised Golden Visa programme, including:
Eurico Brilhante Dias, the parliamentary leader for the ruling Socialist Party, explained that the government’s aim was to preserve a core of job creation and investment in Portuguese companies that already existed under the previous law.
The goal is to assess whether the Golden Visa scheme can thrive through investments in the productive sector, attracting foreign direct investment, and whether it can operate successfully without relying heavily on real estate investments.
The Golden Visa programme has been successful in attracting over €7 billion in investments from non-EU nationals since its inception in 2012. However, real estate investments have dominated, accounting for more than 90% of the total.
The new ‘Mais Habitação’ package seeks to diversify the investment landscape and reduce the dependency on real estate.
With the approval of the ‘Mais Habitação’ legislative package and the changes to the Golden Visa scheme, the Portuguese government aims to address the housing crisis and attract more diverse investments to the country.
As the focus shifts away from real estate, investors will have an array of options to explore when obtaining a Golden Visa and benefiting from Portuguese residence opportunities.
If you have any queries about this article on Portugal’s golden visa changes, or Portuguese 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 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.
If you have any queries about this article, or Swiss 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.
Yesterday, Guernsey, Jersey, and the Isle of Man announced their intention to implement the OECD’s Pillar Two global minimum tax initiative.
The three Crown Dependencies have said that they will implement an “income inclusion rule” and a domestic minimum tax to ensure that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% from 2025.
Pillar Two is a new set of international tax rules that seek to address the problem of base erosion and profit shifting (BEPS).
BEPS is a practice by which MNEs use complex structures to shift profits to low-tax jurisdictions, thereby avoiding paying taxes in high-tax jurisdictions where the profits are generated.
The income inclusion rule is one of the two main components of Pillar Two. The income inclusion rule requires MNEs to pay a top-up tax in high-tax jurisdictions where their effective tax rate is below the 15% minimum.
The domestic minimum tax is the other main component of Pillar Two. The domestic minimum tax requires MNEs to pay a minimum tax in each jurisdiction where they operate, regardless of their effective tax rate.
The implementation of Pillar Two is a significant development in the global fight against BEPS. The rules are expected to raise billions of dollars in additional tax revenue for governments around the world. The rules are also expected to make it more difficult for MNEs to avoid paying taxes.
The announcement by Guernsey, Jersey, and the Isle of Man to implement Pillar Two is a positive development.
The three Crown Dependencies have a reputation for being tax-efficient jurisdictions. However, they have also been criticized for being used as tax havens by MNEs.
The implementation of Pillar Two will help to ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.
The implementation of Pillar Two will have a number of implications for MNEs. MNEs will need to review their global tax structures to ensure that they are compliant with the new rules.
MNEs may also need to increase their tax payments in high-tax jurisdictions.
The implementation of Pillar Two is a significant development for the global tax landscape. It will be interesting to see how MNEs respond to the new rules.
The rules will help to ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.
However, it is important to note that the rules are complex and will require careful implementation.
If you have any queries relating to the three Crown Dependencies’ implementation of Pillar Two, 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 global wave of the two-pillar solution to address base erosion and profit shifting (which all the cool kids are calling BEPS 2.0) has reached Singapore.
Singapore will implement Pillar 2 of BEPS 2.0 in 2025, which will require multinational enterprises (MNEs) with local operations to top up their effective tax rate (ETR) in Singapore to 15%.
Many MNEs with Singapore operations currently benefit from tax incentives and enjoy an ETR lower than the upcoming 15%.
It is unclear whether existing incentives and exemptions will continue to apply, and whether Singapore’s territorial basis of taxation will change.
As the full effects of BEPS 2.0 are expected to be felt in 2025 or later, Singapore has chosen a cautious approach to delay implementation until then, giving itself time and a chance to learn from the experiences of other countries before determining the best way forward.
The implementation of Pillar 2 is crucial for Singapore, as it is an opportunity to increase revenue and fortify its fiscal position.
Under Pillar 1, Singapore is expected to lose revenue when profits are reallocated to the countries where markets are located. With a small domestic market, Singapore has to give up taxing rights to bigger markets and receives very little in return.
However, Pillar 2 presents a chance for Singapore to generate more corporate tax revenue, assuming that existing economic activities are retained.
The key to Singapore’s continued success is staying competitive in attracting and retaining investments.
The use of tax incentives may become obsolete or significantly compromised once the effects of BEPS 2.0 are felt.
Singapore has signaled that it will seek to reinvest and strengthen non-tax factors to remain competitive.
Whatever additional corporate tax revenue can be generated from BEPS 2.0 will be reinvested to maintain and enhance its competitiveness. Together with the intended implementation of Pillar 2, Singapore will also review and update its broader suite of industry development schemes.
The lack of details and the delayed implementation of Pillar 2 suggest that policymakers are looking for more information to guide their decisions. If there are additional delays internationally, it is likely that Singapore will adjust its implementation timeline.
Singapore has assured companies that it will continue to engage them and give them sufficient notice ahead of any changes to its tax rules or schemes.
MNEs that may be affected should actively participate in public consultation exercises before the implementation of Pillar 2 in 2025.
Those who currently benefit from an existing tax incentive should consider reaching out early to the relevant authorities if they are concerned about the implications of the new rules.
If you have any queries relating to the Singapore two pillar solution, 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 UK’s Digital Services Tax (DST), which imposes a 2% tax on the revenues of search engines, social media platforms and online marketplaces, is set to be withdrawn as part of the Organisation for Economic Co-operation and Development’s (OECD) two-pillar plan to reform international corporate taxation.
The plan, announced on 1 July 2021, will see the UK commit to a 15% minimum level of global tax on large businesses under Pillar Two, in exchange for being able to tax a portion of the profits of the world’s largest businesses that are attributable to consumption in the UK under Pillar One.
The DST was introduced in 2020 as a temporary measure to address the challenges posed by the digital economy to international corporate taxation. The tax has been effective in raising £358m from large digital businesses in the 2020/21 tax year, 30% more than originally forecast.
However, the DST has faced significant international opposition, with the US arguing that digital services taxes unfairly target American firms and are discriminatory.
The compromise agreed with the US covers the interim period between January 2022 and either 31 December 2023 or the date Pillar One is implemented, whichever is earlier.
Under this compromise, the UK is able to keep its existing DSTs in place until the implementation of Pillar One, but US corporations subject to DSTs may receive tax credits against future tax liabilities.
As a compromise, the US has agreed to terminate proposed trade action and refrain from imposing any future trade actions against the UK.
The OECD’s two-pillar plan aims to reform international corporate taxation and make it fit for the digital age.
Pillar One will enable countries to tax a portion of the profits of the world’s largest businesses that are attributable to consumption in their jurisdictions, including the profits of the world’s largest digital businesses.
Pillar Two will introduce a global minimum tax rate of 15% on large businesses to prevent them from shifting profits to low-tax jurisdictions.
The UK has committed to ending its DST by the deadline of 31 December 2023 in order to adopt the OECD’s Pillar One model rules from 2024.
The UK government anticipates that it will introduce a domestic minimum tax in the UK to complement Pillar Two, likely to come into effect from 1 April 2024 at the earliest.
The withdrawal of the DST will have implications for digital companies operating in the UK. Businesses that have not yet been found liable for DST but consider that they may be in scope should revisit their DST exposure analysis.
The UK government’s commitment to introducing a domestic minimum tax may also have an impact on the tax liabilities of digital companies operating in the UK.
If you have any queries relating to UK Withdraws Digital Services Tax or tax matters in the UK more generally, then please do not hesitate to get in touch with a UK specalist Native!
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.
This article discusses a rather unexpected move by the Australian Treasury to tighten tax rules on multinational corporations operating in the country.
Specifically, the Treasury has proposed changes to the way that companies can deduct interest expenses incurred in capitalizing or buying foreign subsidiaries.
Under current rules, Australian companies can deduct interest on money borrowed onshore to invest in foreign subsidiaries or acquire shares in other companies.
However, the proposed changes would remove the ability to deduct interest expenses for investments that generate non-assessable, non-exempt (NANE) income.
This would effectively repeal a provision that has been in place for the past 20 years.
The proposed changes are part of a wider effort to combat profit-shifting by multinational corporations, and are designed to prevent excessive levels of debt being carried by Australian operations.
The changes were unexpected, as they were not part of previous policy proposals or announcements. They are likely to have significant implications for multinational corporations operating in Australia.
Overall, the article provides a comprehensive overview of the proposed changes and their potential impact on multinational corporations operating in Australia.
If you have any queries about this article, or Australian tax issues or tax matters in general, 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 South Korean government passed a proposed bill in December 2022 that includes some changes to tax laws and enforcement decrees.
Here are the key changes that may affect foreign businesses and investors in South Korea.
Starting on January 1, 2023, the tax rate for each of the four corporate income tax brackets is cut by 1% to promote investment and job creation by businesses.
Starting on January 1, 2024, a parent company may consolidate its subsidiaries in Korea in its tax return if the parent directly and indirectly holds 90% of the issued and outstanding shares (excluding treasury shares). Before the amendment, the shareholding requirement was 100%.
Starting on January 1, 2023, a foreign worker may elect to apply the flat 19% rate (20.9% including local income tax) on his/her personal income tax for 20 years from the date he/she first started working in Korea.
Previously, it was limited to 5 years.
Starting on January 1, 2023, loss carry forward is increased to 80% of the net loss in a given fiscal year.
For small and medium-sized enterprises, it remains the same at 100%.
Starting on January 1, 2023, any dividends received by a company from another domestic company may be excluded from its taxable income according to the rates provided in a table.
In addition, any dividends received by a company from another foreign company may be excluded from its taxable income instead of getting a foreign tax credit if it meets certain criteria.
Starting on January 1, 2023, the five existing employment tax credits will consolidate into two employment tax credits.
For a new regular hire, a higher tax credit is given for hiring the young, the old, the disabled and career-interrupted women.
Foreign workers are excluded.
The timeline of the securities transaction tax reduction has been adjusted.
The imposition of 20% tax on income from transferring or lending digital assets has been postponed by two years and is scheduled to begin on January 1, 2025.
If you have any queries relating to the South Korea Budget, or Korean 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.
On February 14, 2023, the Council of the European Union made changes to the list of countries that do not cooperate with the EU on tax matters.
This is called the “EU blacklist”.
Four new countries were added to the list:
With these additions, the EU blacklist list now has 16 countries on it. The other countries are as follows:
The Council gave reasons for adding these countries.
For example, the Marshall Islands was added because they have a tax system that encourages businesses to move profits offshore without any real economic activity.
Costa Rica was added because they do not provide enough information about tax matters, and they have tax policies that are considered harmful. Russia was added for the same reason.
The Bahamas was previously removed from the EU blacklist in 2018 but was added back in 2022 and remains on the list.
The new list will be officially published in the Official Journal of the EU, and the next revision will take place in October 2023.
If you have any queries relating to the EU Blacklist or 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.
Software trained to spot undeclared swimming pools has resulted in an additional €10 million of tax revenue for the French authorities.
Okay, let’s dive in!
A machine-learning tool deployed across nine French regions during a trial in October 2021 helped authorities uncover 20,356 undeclared private pools and levy additional taxes on applicable households.
Under French law, pools must be declared part of a property’s taxable value.
As such, pools can increase the value of a property – and hike the individual tax homeowners pay.
According to Le Parisien newspaper, which first reported the news, a 30-square-metre pool is taxed at €200 (£170) a year.
Google and French consulting firm Capgemini have developed an application that uses machine learning to scan publicly available aerial images of properties for indications that a swimming pool is present.
The most obvious indication is a blue rectangle in the back garden!
After identifying the pool’s location, its address is confirmed and cross-checked against national tax and property registries.
In April 2022, The Guardian reported that the software had a 30% error rate. It would often mistake solar panels for pools or miss existing pools if they were heavily shadowed or partially covered by trees.
The French Treasury said it would expand a tool across the country that it expects will bring in around €40m (£34m) in new taxes on private pools in 2023, exceeding the £24m cost of developing and deploying the software.
The tool could eventually detect undeclared home extensions and patios that are also considered when calculating French property taxes.
“We are particularly targeting house extensions like verandas, but we have to be sure that the software can find buildings with a large footprint and not the dog kennel or the children’s playhouse,” said the deputy director general of public finances, Antoine Magnant to Le Parisien.
He added, “This is our second research stage and will also allow us to verify if a property is empty and should no longer be taxed.”
According to the Federation of Professional Builders (FPP), France has the largest market in Europe for private swimming pools, with an estimated three million in existence.
This is partly due to a boom in construction during the Covid-19 lockdowns and recent heat waves.
However, the issue has been contentious this year because of the drought in France, which has led to rivers drying up and restrictions on water usage. One MP for the French Green party has called for a ban on new private pools.
If you have any general queries about this article, 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.