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Corporate tax is the tax paid by businesses on their profits. Some countries, like Gibraltar, have relatively low corporate tax rates to attract companies to set up operations there.
However, due to international tax changes, Gibraltar is considering increasing its corporate tax rate to remain compliant with global standards.
Gibraltar’s current corporate tax rate is 12.5%, one of the lowest in the world. Many businesses choose Gibraltar because of this attractive tax environment.
However, the introduction of the OECD’s Pillar 2 global minimum tax—set at 15%—means Gibraltar might have to raise its tax rate to align with this international rule.
The global minimum tax is designed to prevent companies from shifting profits to low-tax countries to avoid paying taxes.
Countries with tax rates lower than 15% may have to increase them, or other countries where companies operate can “top up” the tax to meet the 15% threshold.
If Gibraltar increases its tax rate, it could still remain competitive compared to other countries, but businesses might have to adjust their tax planning strategies.
Some companies that rely on Gibraltar’s low tax rate might look for other tax-friendly jurisdictions.
On the other hand, by complying with the global minimum tax, Gibraltar will improve its reputation as a transparent and cooperative tax jurisdiction, which could attract more responsible businesses.
Companies currently benefiting from Gibraltar’s low corporate tax rate will need to evaluate how the increase will affect their profits.
They may have to pay higher taxes if the rate rises to 15%.
However, many businesses may find that Gibraltar remains an attractive place to operate, especially because of its other benefits, like a favourable regulatory environment and access to European markets.
Gibraltar’s potential corporate tax rate increase is part of a global shift towards greater tax transparency and cooperation.
While businesses may need to adjust to the new rate, Gibraltar’s continued compliance with international standards will likely strengthen its position in the global economy.
If you have any queries about this article on Gibraltar Considers Corporate Tax Rate Increase, or tax matters in Gibraltar more generally, then please get in touch.
Transfer pricing refers to the rules that govern how multinational companies set the prices for transactions between their subsidiaries in different countries.
These rules exist to prevent companies from artificially lowering their taxable income by shifting profits to low-tax countries.
Brazil is undergoing a major reform in its transfer pricing laws to align itself with international standards, specifically those set by the Organisation for Economic Co-operation and Development (OECD).
The reform aims to reduce tax avoidance by ensuring that companies operating in Brazil pay their fair share of taxes.
In 2024, Brazil passed Law No. 14596, which introduced new transfer pricing rules. These rules are designed to bring Brazil in line with OECD standards and the Base Erosion and Profit Shifting (BEPS) project.
This reform is essential because, historically, Brazil had unique transfer pricing rules that were inconsistent with global norms, which created confusion and made it easier for companies to shift profits.
One of the key changes in the new law is the arm’s length principle. This principle ensures that transactions between related parties (such as a parent company and its subsidiary) are priced as if they were between independent parties.
By applying the arm’s length principle, Brazil hopes to ensure that companies aren’t manipulating prices to reduce their tax liabilities.
The reform has significant implications for companies operating in Brazil.
Under the new rules, companies must provide more detailed documentation to prove that their transfer pricing arrangements comply with the arm’s length principle. Failure to do so could result in hefty fines and back taxes.
For multinational companies, this means they need to review their transfer pricing policies and ensure they comply with Brazil’s new rules.
The reform also creates more work for tax professionals, as they will need to help companies navigate the new requirements.
Brazil’s transfer pricing reform is part of a broader trend towards greater tax transparency and cooperation among countries.
By aligning its rules with OECD standards, Brazil is sending a message that it is serious about cracking down on tax avoidance.
This reform is expected to improve Brazil’s relationships with other countries and make it easier for foreign companies to invest in Brazil.
Brazil’s transfer pricing reform is a significant step forward in the fight against tax avoidance.
By adopting the arm’s length principle and aligning its rules with international standards, Brazil is making it harder for companies to shift profits and avoid taxes.
For businesses, this means more compliance work, but it also creates a fairer tax system.
Final thoughts
If you have any queries about this article on Brazil’s Transfer Pricing Reform, or tax matters in Brazil more generally, then please get in touch.
Non-cooperative tax jurisdictions, sometimes called “tax havens,” are countries or territories that don’t follow international tax rules.
These places can be used by people and companies looking to hide their money and avoid or evade paying taxes.
Argentina has a list of these places, and they keep an eye on which countries are cooperating and which ones are not.
If a country is on Argentina’s list, it means that companies and individuals doing business there might face higher taxes.
In September 2024, Argentina updated its list of non-cooperative tax jurisdictions.
This is something Argentina does regularly to make sure its list is up-to-date. In this latest update, Argentina removed five countries from the list.
By removing these countries, Argentina is saying that these places have started cooperating with international tax rules.
This is a good thing because it means fewer people and companies will be able to hide their money from tax authorities.
When countries cooperate on tax rules, it becomes harder for people and companies to avoid paying taxes. This means that governments can collect more money and use it to fund things like schools, hospitals, and roads.
By updating its list, Argentina is helping to create a fairer tax system, where everyone pays their fair share.
Argentina will continue to monitor other countries and update its list as needed.
For now, companies and individuals doing business with the countries that were removed from the list will have an easier time.
But for those still on the list, the higher taxes will remain in place.
If you have any queries about this article on Argentina Updates List of Non-Cooperative Tax Jurisdictions, or tax matters in Argentina more generally, then please get in touch.
The introduction of General Anti-Avoidance Rules (GAAR) into the Income Tax Act, 1961, marked a significant shift in India’s tax enforcement landscape.
Effective from the financial year 2017-18, these provisions grant the Indian Revenue Authorities (IRA) extensive powers to recharacterize transactions, disregard certain transactions, and disallow expenses if they are primarily designed to obtain tax benefits.
Despite initial concerns about their broad application, the IRA has invoked GAAR provisions sparingly.
However, the recently delivered a landmark judgment on one such GAAR-related case.
The case involved a taxpayer accused of engaging in a “bonus stripping” scheme through transactions with Crown C Supply, a building supply company owned by brothers Michael and Thomas Connelly.
This scheme typically involves issuing bonus shares and subsequently selling them to claim tax losses.
The taxpayer and a sister concern, XYZ, acquired shares of ABC at INR 115 per share.
Shortly after, the taxpayer purchased additional shares from XYZ. ABC then issued bonus shares, reducing the share value to INR 19.20 from INR 115.
The taxpayer sold these shares to another entity, PQR, claiming a short-term capital loss of INR 4,620 million.
The IRA argued that the bonus stripping arrangement was a tax avoidance scheme.
The taxpayer contended that GAAR should not apply as Section 94(8) of the Income Tax Act specifically addresses bonus stripping for mutual funds but not shares, thus falling under Specific Anti-Avoidance Rules (SAAR).
However, the Court dismissed this argument, noting that GAAR provisions, introduced through a non-obstante clause, take precedence over other sections.
The Court emphasized that the scheme was designed primarily to evade taxes and lacked commercial substance.
It cited the Supreme Court’s ruling in the Vodafone International Holdings B.V. case, reinforcing the “substance over form” doctrine, which aims to identify and disregard transactions lacking genuine business intent.
The Telengana High Court ruled that the taxpayer’s transactions constituted impermissible tax avoidance under GAAR.
It highlighted that while Section 94(8) applies to mutual funds, it does not preclude GAAR’s application to share transactions.
The Court referenced the Finance Minister’s speech during GAAR’s introduction, clarifying that GAAR or SAAR applicability would be determined case-by-case.
The judgment affirmed that the IRA can invoke GAAR in cases where the primary objective is tax avoidance, regardless of other provisions.
The taxpayer’s attempt to sidestep tax liabilities through contrived transactions was deemed invalid.
This ruling underscores the importance of ensuring transactions have genuine commercial substance.
Taxpayers must meticulously document the business rationale behind transactions, especially those yielding tax benefits, to avoid falling afoul of GAAR provisions.
The judgment serves as a reminder that while specific anti-avoidance rules exist, GAAR can be applied to a broader range of tax avoidance schemes.
Businesses should anticipate more stringent scrutiny from tax authorities and prepare accordingly.
If you have any queries about this article on the First Indian GAAR Judgment ruling, or any other Indian tax matters, then please get in touch.
The Upper Tribunal in Haworth v HMRC [2024] UKUT 00058 (TCC) upheld the interpretation of the “place of effective management” test for determining tax treaty residence, confirming that it is distinct from the “central management and control” test used to ascertain corporate residence.
The case revolved around a complex tax avoidance scheme involving corporate trustees and double tax treaties.
The case involved Jersey-based trustees of a family trust that held shares in a UK-incorporated company.
The trustees participated in a “round the world” tax avoidance scheme designed to avoid UK capital gains tax on a share disposal.
The scheme involved resigning UK trustees in favor of Mauritian trustees to dispose of shares, taking advantage of the UK-Mauritius Double Tax Treaty.
Article 4(3) of the Treaty provided a tie-breaker test for determining the residence of a person liable to tax in both contracting states, with the deciding factor being the “place of effective management.”
The trustees in Mauritius, who would not incur UK capital gains tax on the disposal, replaced the existing Jersey trustees.
The newly appointed trustees then disposed of shares, following which UK-resident trustees were reappointed. HMRC contended that the scheme was fraudulent, as the commercial reality pointed to the effective management being in the UK, negating the tax benefits claimed.
The First-tier Tribunal (FTT) applied the test for the “place of effective management,” which required considering the centre of top-level management.
It found that the trustees in the UK, along with their advisors, orchestrated and supervised the tax avoidance scheme, suggesting that the management of the trust effectively rested in the UK.
On appeal, the Upper Tribunal confirmed that the test used to determine the place of effective management differed from the central management and control test used to ascertain corporate residence.
The “top-level management” approach requires assessing where key management and commercial decisions are made, not just the location of individual trustees.
The appellants argued that the test for the place of effective management should be aligned with the central management and control test, emphasizing that the Mauritian trustees made the final decisions regarding the disposal of shares.
However, the Upper Tribunal upheld the FTT’s interpretation that the test should consider the broader circumstances, including the planning and implementation of the scheme.
The fact that certain decisions were taken in the UK and that the trustees acted under external influence was sufficient to challenge the notion of effective management in Mauritius.
The Upper Tribunal’s decision reinforces that the place of effective management test is distinct from the central management and control test.
This interpretation carries significant implications for international tax planning, as it suggests that assessing the “effective management” must consider the overall context and not just isolated decisions by trustees or corporate entities.
The ruling provides clarity on the application of the “place of effective management” test in double tax treaties, indicating that it should be interpreted with a broader perspective.
This decision could impact cross-border tax planning and the structure of trusts where treaty residence plays a critical role in tax liability.
This decision may also lead to greater scrutiny in tax avoidance schemes that rely on offshore entities to avoid UK tax liabilities.
Future cases involving the interpretation of double tax treaties will likely refer to this decision, emphasizing the importance of considering the context in which tax decisions are made.
It remains to be seen whether the case will be appealed to the Court of Appeal, which could lead to further clarification or modification of the established interpretation of the “place of effective management.”
If the Court of Appeal chooses to address the case, it could potentially depart from the decision in Smallwood, leading to a broader interpretation of tax treaty residence.
If you have any queries about this article on Haworth v HMRC, or any other UK tax matters, then please get in touch
In a landmark decision on 8 March, the Full Federal Court (FFC) sided with the taxpayer, Minerva Financial Group Pty Ltd, against the Commissioner of Taxation, clarifying the application of general anti-avoidance rules within Part IVA of the Income Tax Assessment Act 1936.
This ruling underscores the nuanced interpretation of Part IVA, particularly concerning discretionary distributions by trustees, and marks a significant victory for taxpayers navigating the complexities of tax law.
The court’s decision offers several crucial insights into Part IVA’s operation:
Taxpayers are reminded of the importance of documenting the reasons behind their arrangements. While Part IVA’s test is objective, understanding the context can help determine the dominant purpose.
It’s essential to consider all eight factors outlined in section 177D(2) collectively, rather than in isolation, to ascertain a scheme’s dominant purpose.
Part IVA does not merely assess if a different course of action would have been taken without the tax benefit, emphasizing that a dominant purpose of obtaining a tax benefit must involve more substantive evidence.
Transactions within a commonly owned group, even if they involve intra-group loan account entries instead of cash transfers, are not inherently indicative of a scheme’s dominant purpose to secure a tax benefit.
The FFC’s ruling further clarified the legality of certain structures and practices:
The case centered around the Liberty group’s restructuring into corporate and trust silos, aimed at optimizing for an IPO.
This restructure led to significant profits being distributed in a way that incurred a lower withholding tax rate, prompting the Commissioner to apply Part IVA, suggesting these distributions were primarily for tax avoidance.
The FFC meticulously dissected the application of Part IVA, focusing on the intent behind the distributions and the structure of the Liberty group.
The court’s analysis, particularly on how the scheme was executed and the financial implications for the involved entities, led to a conclusion that favored the taxpayer.
The decision stresses that the presence of a tax benefit alone is insufficient to prove a dominant purpose of tax avoidance.
This ruling is a pivotal moment for taxpayers and legal practitioners, offering clarity on Part IVA’s interpretation and its application to complex financial structures and distributions.
It serves as a reminder of the critical balance between tax planning and avoidance, reinforcing the need for a comprehensive evaluation of arrangements under the lens of tax law.
The victory of Minerva Financial Group in this case not only provides a roadmap for similar cases but also reassures taxpayers that legitimate business arrangements, even those resulting in tax benefits, can withstand scrutiny under Australia’s general anti-avoidance rules.
If you have any queries about the Minerva case, or any other Australian tax matter, then please get in touch.
In a significant move to clamp down on tax evasion, the Internal Revenue Service (IRS) unveiled a new initiative on February 29, aimed at individuals who have neglected to file their income tax returns for 2017 and subsequent years.
This program, powered by the financial backing of the Inflation Reduction Act, represents a continuation of the IRS’s intensified efforts to scrutinize the tax compliance of large corporations, partnerships, and high-net-worth individuals, a strategy highlighted in a GT Alert from September 2023.
This initiative also aligns with the IRS’s ongoing operations to recover taxes from millionaires who owe substantial amounts in back taxes.
Thanks to these concerted efforts, the agency has successfully recuperated nearly $500 million to date.
The current non-filer campaign specifically targets taxpayers who earned between $400,000 and $1 million from 2017 to 2021.
The IRS plans to dispatch over 100,000 compliance letters to this demographic, sending out between 20,000 and 40,000 letters (CP-59) each week.
Additionally, for those with incomes exceeding $1 million, over 25,000 individuals will receive compliance notifications.
The IRS identifies potential non-filers in these income brackets using third-party data, including information from W-2s and 1099 forms, among other sources.
The IRS has issued a stern warning to these high earners, urging them to promptly rectify their filing status to avoid further notices, escalating penalties, and the possibility of criminal prosecution.
Taxpayers who disregard the initial compliance letters will face additional notifications and could be subjected to audit and collection enforcement measures.
In extreme cases, the IRS has the authority to prepare a Substitute for Return (SFR) for non-filers, using only reported income information.
This action could lead to a higher tax liability for the taxpayer, as it doesn’t account for any deductions or exemptions they may be entitled to.
Such individuals might then find themselves compelled to either settle the increased tax debt or challenge the IRS’s assessments in court.
The message from the IRS is clear: with enhanced resources and a firm commitment, the agency is actively pursuing high-income individuals who have failed to file their tax returns.
This initiative underscores the importance of staying compliant with tax filing obligations and consulting a trusted tax professional if you’ve missed filing returns for 2017 or later years.
If you have any queries around this article, or US tax matters more generally, then please get in touch with us.
The Netherlands’ recent update to its list of low-taxed and non-cooperative jurisdictions for 2024 has notably excluded the United Arab Emirates (UAE), marking a shift in tax policy.
This change follows the UAE’s introduction of a federal Corporate Income Tax (CIT) regime, setting a standard tax rate of 9% for financial years beginning on or after 1 June 2023.
Of course, this blacklist has nothing to do with Raymond Reddington.
Instead, the Dutch tax blacklist is a list of jurisdictions that facilitate abusive tax structures through minimal or non-existent taxation rates, defined as less than 9%.
The presence on this list subjected entities in blacklisted jurisdictions to stringent domestic anti-abuse measures in the Netherlands.
These included conditional withholding taxes on cross-border payments and limitations on obtaining tax rulings for transactions involving blacklisted jurisdictions, alongside the application of Controlled Foreign Corporation (CFC) rules that impacted the taxable income of Dutch entities.
The removal of the UAE from this blacklist alleviates several challenges for UAE-based businesses operating in the Netherlands.
Previously, the anti-abuse measures introduced a layer of complexity and uncertainty for transactions between the two nations.
Now, the reclassification signals a positive development, potentially enhancing economic connections and fostering a more favorable environment for cross-border investments and collaborations.
The UAE’s proactive adjustment of its tax regime to introduce a CIT rate aligns with global tax standards and demonstrates a commitment to fostering a transparent and cooperative financial landscape.
This adjustment has directly influenced its standing with the Netherlands, removing barriers that once complicated financial and corporate engagements.
For businesses within the UAE with Dutch interests, this development opens doors to new opportunities and simplifies operations, heralding a phase of strengthened economic ties between the UAE and the Netherlands.
This move is anticipated to encourage a smoother flow of trade, investment, and financial services between the two countries, reinforcing their positions in the global market.
If you have any queries about this article on the UAE being off the Dutch Blacklist, or UAE matters more generally, then please get in touch.
In a significant development for the British Virgin Islands (BVI), the European Union (EU) has officially removed the BVI from its list of non-cooperative jurisdictions for tax purposes.
This is important news for the BVI, a prominent offshore financial centre, and reflects its commitment to adhere to international standards, particularly those set by the OECD Global Forum regarding the exchange of information on request.
The EU press release regarding this development stated that the British Virgin Islands had been removed from the list due to amendments made in its framework concerning the exchange of information on request, specifically criterion 1.2.
The EU further noted that the BVI would be reassessed in line with the OECD standard. While this reassessment is pending, the jurisdiction has been placed in Annex II.
The EU’s list of non-cooperative jurisdictions for tax purposes was established in December 2017 as part of the EU’s external taxation strategy. Its primary goal is to support worldwide efforts in promoting good tax governance. The EU Council has established a set of criteria by which jurisdictions are evaluated.
These criteria encompass areas like tax transparency, fair taxation, and the implementation of international standards aimed at preventing tax base erosion and profit shifting. The code of conduct group’s chair engages in political and procedural dialogues with relevant international organizations and jurisdictions as needed.
The BVI’s journey towards removal from the EU’s list of non-cooperative jurisdictions began when, on 9 November 2022, the OECD Global Forum published its second-round Peer Review Report on the BVI. This report revealed that the BVI’s rating had been downgraded from ‘largely compliant’ to ‘partially compliant.’ Importantly, a rating below ‘largely compliant’ automatically led to a jurisdiction being placed on the European Union’s list of non-cooperative jurisdictions for tax purposes.
The ‘partially compliant’ rating assigned to the BVI encompassed the period from 1 March 2016, to 30 June 2020, considering exchange of information requests received during this timeframe. It also factored in a ‘block period’ from 17 September 2017, to 31 December 2018, which was due to the disruptive impact of Hurricane Irma.
Furthermore, the report assessed the legal and regulatory framework in place as of 9 September 2022. Crucially, this rating did not account for the legislative changes introduced in 2022, which included the BVI Business Companies Amendment Act 2022 and the BVI Business Amendment Regulations 2022, both of which came into effect on 1 January 2023.
The removal of the British Virgin Islands from the EU’s list of non-cooperative jurisdictions for tax purposes is a significant milestone for the BVI and its reputation as a financial center. It reflects the dedication of the BVI government and stakeholders in aligning with international standards and demonstrating a commitment to transparency and cooperation.
This development not only bolsters the BVI’s status but also highlights the importance of maintaining adherence to global tax governance standards in an increasingly interconnected world.
If you have any queries about BVI removed from blacklist, BVI matters in general, or any tax matters, then please get in touch.
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.