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In an era of increasing global tax transparency, businesses must navigate evolving disclosure standards to maintain compliance and uphold their reputations.
Recent developments highlight significant changes, including the European Union’s public Country-by-Country (CbC) reporting directive, Romania’s early adoption of this directive, and the United States’ new tax disclosure standards.
The EU’s public CbC reporting directive mandates that multinational enterprises (MNEs) with consolidated revenues exceeding €750 million disclose specific tax-related information on a country-by-country basis.
This initiative aims to enhance transparency and allow public scrutiny of MNEs’ tax practices.
The directive requires the disclosure of data such as revenue, profit before tax, income tax paid and accrued, number of employees, and the nature of activities in each EU member state and certain non-cooperative jurisdictions.
Romania has proactively implemented the EU’s public CbC reporting directive ahead of other member states.
This early adoption reflects Romania’s commitment to tax transparency and positions it as a leader in implementing EU tax directives.
Romanian entities meeting the revenue threshold must comply with these reporting requirements, necessitating adjustments to their financial reporting processes to ensure accurate and timely disclosures.
In the United States, new tax disclosure standards have emerged, influenced by the global shift towards public CbC reporting.
While the US has not adopted public CbC reporting, it has introduced regulations requiring certain tax disclosures to enhance transparency.
These standards focus on providing stakeholders with a clearer understanding of a company’s tax position and strategies, aligning with the global trend of increased tax transparency.
The global movement towards greater tax transparency is driven by efforts to combat tax avoidance and ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.
This shift is evident in various international initiatives, including the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules.
To navigate these evolving tax disclosure requirements, companies should develop cohesive global tax transparency strategies. Key steps include:
By proactively addressing these requirements, companies can mitigate risks and align with the global trend towards transparency in tax matters.
The landscape of tax disclosure is rapidly evolving, with significant implications for multinational enterprises.
Understanding and adapting to new standards, such as the EU’s public CbC reporting directive and the US’s enhanced disclosure requirements, is crucial.
By developing comprehensive compliance strategies, businesses can navigate these changes effectively, ensuring transparency and maintaining stakeholder trust.
If you have any queries about this article on this article, or tax matters more generally, then please get in touch.
Alternatively, if you are a tax adviser and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.
The Top-Up Tax is a key part of the OECD’s global tax reform, specifically under Pillar Two.
It is designed to ensure that multinational companies pay a minimum tax rate of 15% on their profits, even if they are operating in countries with lower tax rates.
The Top-Up Tax applies to profits that are taxed below the 15% threshold.
If a company is paying less than 15% tax in a particular country, the Top-Up Tax allows other countries to collect additional taxes to bring the total tax rate up to the minimum level.
Let’s say a company has a subsidiary in a country where the corporate tax rate is only 10%.
Under the Top-Up Tax rules, the company’s home country can impose an extra 5% tax on the profits earned in that country, making sure the company’s total tax rate meets the global minimum of 15%.
This system prevents companies from taking advantage of tax havens or countries with very low taxes, as they will always end up paying at least 15% on their profits, regardless of where those profits are earned.
The Top-Up Tax mainly affects large multinational companies with global revenues of more than €750 million.
Smaller companies that operate within one country are not impacted by this rule.
The tax is part of a broader effort by the OECD to reduce tax avoidance by multinational companies, which often shift their profits to low-tax jurisdictions to reduce their overall tax bills.
The Top-Up Tax is important because it helps create a fairer global tax system.
By ensuring that all large companies pay at least 15% tax on their profits, it reduces the incentive for companies to move their profits to tax havens or low-tax countries.
This tax reform is also expected to generate more revenue for governments, allowing them to fund important public services like healthcare, education, and infrastructure.
The Top-Up Tax is a powerful tool in the fight against tax avoidance.
By ensuring that multinational companies pay a minimum tax rate of 15%, it helps create a fairer tax system and ensures that countries can collect the tax revenue they need to support their economies.
If you have any queries about this article on What is the Top-Up Tax? – or other tax matters – then please do get in touch.
A tax haven is a country or jurisdiction that offers very low or no taxes to individuals and businesses.
Tax havens also often have strict privacy laws, making it difficult for other countries’ tax authorities to find out who is holding money there or how much income they’re earning.
These features make tax havens attractive to people and companies who want to reduce their tax bills by moving profits or wealth offshore.
Many multinational companies use tax havens to reduce their overall tax bills by moving profits to these low-tax jurisdictions.
For example, a company might establish a subsidiary in a tax haven, shift its profits to that subsidiary, and avoid paying higher taxes in the countries where it actually does business.
Individuals also use tax havens to avoid paying taxes on their wealth.
By moving money to a tax haven, they can often keep their income hidden from their home country’s tax authorities.
Tax havens are often criticized for enabling tax avoidance and contributing to global inequality.
When companies and wealthy individuals use tax havens to reduce their tax bills, it deprives governments of the revenue they need to fund public services like healthcare, education, and infrastructure.
Efforts are being made by organisations like the OECD and European Union to crack down on tax havens and make it harder for individuals and companies to use them to avoid paying taxes.
Tax havens play a significant role in international tax avoidance, but they are increasingly under scrutiny.
As global efforts to combat tax avoidance ramp up, the role of tax havens is likely to decline, but they remain a key part of the discussion on how to ensure fair taxation across borders.
If you have any queries about this article on ‘what is a tax haven?’ – or any queries at all – then please do not hesitate to get in touch.
The 6th Directive on Administrative Cooperation (DAC6), or Directive 2018/822/, obliges intermediaries—including lawyers, accountants, consultants, financial institutions, and service providers—to report advice or implementations of cross-border arrangements that could be considered aggressive tax planning to local tax authorities.
In some cases, this responsibility may fall on the taxpayers themselves.
The directive aims to promote transparency in cross-border transactions and curb tax avoidance within the EU by assessing certain objective indicators, or “hallmarks,” that could signify tax planning schemes.
Hallmarks are the core indicators used to evaluate whether a cross-border arrangement must be reported.
Some hallmarks require the arrangement to meet the “main benefit test,” which evaluates whether the primary purpose of the arrangement is to gain a tax advantage.
Other hallmarks, which do not rely on the main benefit test, are triggered by specific circumstances that intermediaries are expected to recognise.
Several Belgian Bar Associations and the Institute for Accountants and Tax Advisors challenged the implementation of DAC6 in Belgium, leading the Belgian Constitutional Court to seek guidance from the European Court of Justice (ECJ).
The ECJ ruled on these challenges in two landmark cases: on December 8, 2022 (Case C-694/20), and on July 29, 2024 (Case C-623/22).
These rulings addressed issues of non-discrimination, equal treatment, legal certainty, and legal professional privilege. Below are the key takeaways from these decisions:
The ECJ determined that the DAC6 Directive violates the principle of legal professional privilege by requiring lawyers to notify other intermediaries of reportable arrangements.
Under the DAC6 Directive, if a lawyer is exempt from reporting to the tax authorities due to legal professional privilege, they were still expected to notify other intermediaries involved in the arrangement.
However, the ECJ ruled that this undermines the confidentiality of client-lawyer relationships, so lawyers are no longer required to notify other intermediaries.
While tax consultants, accountants, notaries, and auditors often operate under professional secrecy obligations, the ECJ clarified that the legal professional privilege exemption applies only to lawyers.
This is due to the specific role lawyers play in the judicial systems of Member States. The ruling limits this exemption to legal professionals with specific titles (such as advocaat, solicitor, avocat, barrister, etc.) under Directive 98/5.
Other professionals are still required to inform other intermediaries, though they are exempt from reporting directly to the tax authorities.
Although DAC6 was initially focused on direct taxes, it is designed to capture a broader scope of aggressive tax planning strategies.
The reporting obligations extend beyond corporate income tax to include other direct and indirect taxes, excluding VAT, customs duties, and excise duties (which are covered under separate EU cooperation laws).
The ECJ confirmed that despite the potential severity of sanctions for non-compliance, the definitions within DAC6 are sufficiently clear and precise.
These definitions were found to be abstract but well-defined for the intended purpose. For instance:
DAC6 imposes a 30-day reporting obligation on intermediaries.
This period starts from the earliest of three possible events:
However, the ECJ clarified that intermediaries who are simply advising on the arrangement—such as lawyers or tax consultants—should report from the time the arrangement moves from the conceptual stage to the operational stage.
For “promotor” intermediaries, this period begins once the arrangement is ready for execution, but for “service provider” intermediaries, their reporting period begins after they complete their advisory role.
DAC6 is a key piece of legislation designed to enhance transparency around cross-border tax planning arrangements.
The rulings by the ECJ reinforce the principle of legal professional privilege for lawyers but limit this exemption to them alone, leaving other professionals subject to reporting obligations.
These decisions have clarified several aspects of DAC6, ensuring that intermediaries are fully aware of their responsibilities and that aggressive tax planning arrangements are reported promptly to the relevant tax authorities.
If you have any queries about DAC6, or international tax matters in general, then please get in touch.
A non-cooperative tax jurisdiction is a country or territory that does not follow international tax transparency and information-sharing standards.
These jurisdictions often have low or no taxes and strict privacy laws, making them attractive to individuals and businesses looking to avoid or evade taxes in their home countries.
However, because these jurisdictions do not cooperate with international efforts to combat tax avoidance, they are often labelled as “non-cooperative” by organisations like the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD).
Non-cooperative tax jurisdictions make it easier for individuals and businesses to hide their income and assets, reducing the amount of tax revenue that countries can collect.
This can lead to significant losses for governments, which depend on taxes to fund public services like healthcare, education, and infrastructure.
In addition, non-cooperative jurisdictions often allow companies to shift their profits to low-tax or no-tax countries, a practice known as profit shifting.
This deprives the countries where the profits were actually made of tax revenue, contributing to **base erosion**.
The **EU** and the **OECD** maintain lists of non-cooperative tax jurisdictions. These lists are based on criteria like:
Countries that do not meet these criteria may be placed on a black list or grey list of non-cooperative jurisdictions.
Countries and territories on these lists may face penalties or sanctions.
For example, businesses operating in or through non-cooperative jurisdictions may be subject to higher taxes or stricter reporting requirements in other countries.
In some cases, non-cooperative jurisdictions may also face restrictions on accessing international financial markets.
Non-cooperative tax jurisdictions contribute to global tax avoidance and profit shifting, depriving countries of much-needed revenue.
By identifying and penalising these jurisdictions, the EU and OECD aim to create a fairer global tax system where companies and individuals pay their fair share of taxes.
If you have any queries about this article or on international tax matters more generally, then please get in touch.
The India–Mauritius Double Tax Avoidance Agreement (DTAA), signed in 1983, has long been a pivotal treaty for investors due to its favourable tax terms.
For years, investors, particularly in the private equity and venture capital space, have utilised this treaty to minimise tax liabilities in India.
However, the treaty has also sparked numerous litigations and controversies, primarily concerning capital gains tax exemptions for investments made through Mauritius.
In a recent ruling, the Delhi High Court (HC) addressed a dispute concerning the application of the DTAA benefits to a Mauritius-based company, Tiger Global International.
This case clarified critical issues, including the significance of the Tax Residency Certificate (TRC), the Limitation of Benefits (LoB) clause, and the applicability of the grandfathering provision in the treaty.
The court’s decision has brought much-needed relief and certainty to taxpayers navigating the complexities of international taxation.
The case centres on Tiger Global International (the Assessee), a company incorporated in Mauritius for the purpose of making investments on behalf of Tiger Global Management LLC (TGM LLC), a Delaware-based investment manager.
The Assessee held a Category 1 Global Business License and a Tax Residency Certificate (TRC) from the Mauritius tax authorities.
Between October 2011 and April 2015, Tiger Global acquired shares in Flipkart Singapore and later transferred its holdings to Fit Holdings SARL, a Luxembourg-based entity.
The company sought clarity from India’s Income Tax Department (ITD) regarding the applicability of capital gains tax on these transactions under the DTAA.
However, the Advance Authority Ruling (AAR) ruled against the Assessee, stating that Tiger Global’s Mauritius-based structure lacked commercial substance and was merely a vehicle for *tax avoidance.
The Assessee argued that its investments were eligible for the **capital gains tax exemption** under Article 13(3A) of the DTAA.
This provision exempts Mauritian residents from Indian capital gains tax for shares acquired before April 1, 2017, and transferred thereafter.
The Assessee also relied on a Tax Residency Certificate (TRC) from the Mauritius authorities as proof of its eligibility for DTAA benefits, citing CBDT Circular No. 789, which upholds the TRC as sufficient evidence of residency.
The Assessee further contended that the Limitation of Benefits (LoB) clause, which restricts treaty benefits for entities with little economic substance, did not apply to the transactions in question because the shares were acquired prior to 2017.
They also argued that the AAR erred in questioning the motives behind the company’s establishment in Mauritius, as the purpose of incorporation should not disqualify it from treaty benefits.
The ITD took a starkly different position, arguing that the Mauritius-based entities were created solely to avoid capital gains tax in India.
The ITD asserted that TGM LLC, the US-based investment manager, exercised ultimate control and decision-making over the Mauritius entities, rendering the Mauritian companies mere intermediaries in a tax avoidance scheme.
The ITD relied on the Vodafone case, which allows the piercing of the corporate veil when an entity’s structure lacks commercial substance.
The ITD supported the AAR’s conclusion that Tiger Global International did not possess independent management and was ineligible for the DTAA benefits due to its tax avoidance motives.
The Delhi HC ruled in favour of the Assessee, providing a well-reasoned judgment that clarified the application of the India-Mauritius DTAA.
The court categorically held that TGM LLC was merely an investment manager and not the parent company of the Assessee.
The court observed that Tiger Global International was a significant entity with considerable economic activity, managing investments for more than 500 investors across 30 jurisdictions.
Regarding beneficial ownership, the court found no evidence to suggest that the Assessee was obligated to transfer revenues to TGM LLC or that it was merely acting on behalf of the US-based company.
Furthermore, the court upheld the Assessee’s Tax Residency Certificate (TRC) as conclusive proof of its eligibility for DTAA benefits, in line with earlier rulings.
Crucially, the court reaffirmed that grandfathering provisions under Article 13(3) of the DTAA would protect investments made before April 1, 2017, from the LoB clause.
This provision, the court held, was clear and unambiguous, ensuring that the General Anti-Avoidance Rules (GAAR) could not override treaty benefits.
The ruling of the Delhi High Court is a major victory for international investors who rely on the India-Mauritius DTAA for tax certainty.
The judgment clarifies that corporate structures established in tax-friendly jurisdictions should not automatically be viewed as vehicles for tax avoidance, and that the Tax Residency Certificate (TRC) holds substantial weight in determining eligibility for treaty benefits.
The decision imposes a high burden of proof on tax authorities to establish tax evasion or fraud, ensuring that only in cases of sham transactions will treaty benefits be denied.
This landmark ruling provides investors with the much-needed confidence to structure their investments in line with international treaties, reinforcing India’s position as a tax- and investment-friendly jurisdiction.
If you have any queries about this article, or Indian tax matters in general, then please get in touch.
The Alternative Minimum Tax (AMT) is a special tax system designed to ensure that high-income earners pay at least a minimum amount of tax, even if they qualify for a lot of tax breaks under the regular tax system.
The AMT was created to prevent people with very high incomes from using deductions and loopholes to avoid paying taxes altogether.
For 2024, the IRS has raised the AMT exemption, which is the amount of income that’s not subject to the AMT.
For 2024, the AMT exemption has been raised to £85,700 for single filers and £119,300 for married couples filing jointly.
This means that if your income is below these amounts, you won’t have to worry about paying the AMT.
The AMT exemption phases out for higher earners, starting at £578,150 for single filers and £1,156,300 for married couples.
If your income exceeds these thresholds, you may still have to pay the AMT.
The AMT typically affects high-income earners who claim a lot of deductions or have complex tax situations.
For example, if you claim a large number of deductions for state and local taxes, home mortgage interest, or investment losses, you might be subject to the AMT.
The AMT ensures that everyone pays at least a minimum level of tax, even if they qualify for a lot of deductions under the regular tax system.
The IRS adjusts the AMT exemption every year to account for inflation.
Without these adjustments, more and more people would be subject to the AMT over time, even if their real incomes haven’t increased.
By raising the exemption, the IRS ensures that the AMT continues to target only the highest-income taxpayers.
The increase in the AMT exemption for 2024 is good news for high-income taxpayers who might otherwise be subject to the AMT.
By raising the exemption, the IRS is helping to ensure that only those with very high incomes and large deductions will have to pay the AMT, while still ensuring that everyone pays their fair share of taxes.
If you have any queries about the Alternative Minimum Tax (AMT) 2024, or any other US tax matters, then please get in touch.
The United Nations (UN) is stepping up its role in international tax policy, aiming to create a new framework for global tax cooperation.
Historically, organisations like the Organisation for Economic Co-operation and Development (OECD) have led the way in setting international tax standards.
However, the UN’s involvement signals a shift towards giving developing countries a stronger voice in shaping tax rules, particularly as digitalisation and globalisation have created new challenges for traditional tax systems.
The UN’s new framework is expected to focus on improving tax cooperation between countries, addressing issues like tax evasion, and ensuring fair taxation of multinational corporations.
The global tax system is under increasing strain. Large multinational companies, especially in the tech sector, often pay very little tax in the countries where they generate profits.
This is largely due to tax avoidance strategies that involve shifting profits to low-tax jurisdictions.
While developed countries have been trying to address this issue through initiatives like the OECD’s Base Erosion and Profit Shifting (BEPS) project, developing countries argue that they have been left out of the conversation.
The UN believes that a new framework could help level the playing field for developing nations, allowing them to claim their fair share of tax revenues.
This is particularly important as many developing countries rely on corporate tax revenues to fund public services.
The UN’s proposed global tax framework is expected to focus on several key areas:
While the UN’s push for a new global tax framework is ambitious, it faces several challenges.
For one, many developed countries, particularly those in the OECD, are already working on their own tax reforms, including the global minimum tax under Pillar Two.
Some may be reluctant to give the UN a bigger role in tax matters, fearing that it could complicate or slow down existing efforts.
Moreover, multinational companies may push back against any rules that significantly increase their tax burden.
Countries with low tax rates, like Ireland or certain Caribbean nations, may also resist changes that could hurt their status as attractive locations for businesses.
The UN’s involvement in creating a new global tax framework is a sign that the world is recognising the need for more inclusive tax policies.
As the global economy becomes increasingly digital and interconnected, it’s important that all countries—especially developing ones—have a say in how taxes are collected.
If successful, the UN’s efforts could lead to a fairer and more transparent international tax system, where corporations contribute their fair share and countries can cooperate more effectively to combat tax evasion.
If you have any queries about this article on the United Nations New Global Tax Framework, or other international tax matters, then please get in touch.
Singapore is a major hub for international business, with many multinational companies setting up regional headquarters there.
To ensure that these companies pay their fair share of taxes, Singapore has strict transfer pricing rules. These rules govern how companies set the prices for transactions between their subsidiaries in different countries.
In 2024, the Inland Revenue Authority of Singapore (IRAS) updated its transfer pricing guidelines to reflect the latest international standards.
The updated guidelines include several key changes:
For multinational companies operating in Singapore, the updated transfer pricing guidelines mean they need to be more diligent in how they document their transactions.
The guidelines are designed to prevent companies from using transfer pricing to shift profits out of Singapore and avoid paying taxes.
The changes also align Singapore’s rules with international standards set by the OECD. This is important because it helps Singapore maintain its reputation as a transparent and compliant tax jurisdiction.
As Singapore continues to update its tax policies, companies operating in the country will need to stay up-to-date with the latest changes.
The updated transfer pricing guidelines are part of Singapore’s broader efforts to ensure that multinational companies contribute their fair share of taxes.
Singapore’s updated transfer pricing guidelines represent a significant step forward in ensuring that companies pay their fair share of taxes.
For businesses, this means more work to ensure compliance, but it also creates a fairer tax system that benefits everyone.
If you have any queries about this article on Singapore Updates Transfer Pricing Guidelines, or any other tax matters in Singapore, then please get in touch.