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In an unexpected turn of events, the Canada Revenue Agency (CRA) has announced the retraction of the newly implemented rule requiring trustees of Canadian bare trusts to submit a trust return for the tax year 2023.
This decision, unveiled just a day before the deadline for filing, comes as a response to the unintended consequences the reporting requirements have imposed on Canadians.
The broad context of the enhanced trust reporting requirements can be seen here.
This latest move follows a March 2024 concession that promised no penalties for trustees who filed late, barring instances of serious misconduct.
Initially introduced in 2023, these regulations mandated extensive annual T3 return filings, starting with tax years ending on or after December 31, 2023.
The mandate aimed to include a broader spectrum of trusts, such as bare trusts and foreign trusts with ties to Canadian property or residents, necessitating many to file a T3 return and the Schedule 15 (Beneficial Ownership Information of a Trust) form for the first time.
However, the latest update specifies that the withdrawal of the filing requirement applies exclusively to bare trust arrangements under the new subsection 150(1.3) of the federal Income Tax Act. Other trusts, particularly express or other trusts based or deemed to be resident in Canada, remain subject to the original filing and tax payment obligations by April 2, 2024.
Over the next few months, the CRA plans to collaborate with the Department of Finance to refine and elaborate on the guidelines concerning the bare trust filing requirements.
Despite the recent announcement, bare trusts must prepare to meet the filing expectations, including Schedule 15 submissions, for the 2024 tax year and beyond.
As the CRA promises further clarity on this matter, stakeholders in bare trusts and the broader tax community await detailed guidance, hoping for smoother compliance paths in the future.
If you have any queries on this article on Canada Withdraws Bare Trusts Reporting Requirement, or Canadian tax matters in general, then please let us know.
In a significant regulatory update, the Canadian federal government has introduced new trust reporting requirements effective for taxation years ending after 30 December 2023.
The first reporting deadline for trusts with a 31 December 2023, year-end is 2 April 2024.
This development introduces an expanded scope of reporting, bringing a wider array of trusts under the purview of mandatory filing, including certain bare trusts.
Here’s what you need to know about these new requirements and their potential impact.
The amendments mandate more extensive filing for trusts, including those that were previously exempt under certain conditions. Key changes include:
More trusts are now required to file T3 trust income tax and information returns, extending to certain bare trusts previously exempt.
Most trusts must provide additional information, including details about trustees, beneficiaries, settlors, and anyone with influence over the trust’s decisions.
The new rules specifically target express trusts resident in Canada or foreign trusts deemed resident, eliminating previous exemptions for certain types of trusts.
However, a list of “listed trusts,” such as registered charities and mutual fund trusts, continues to enjoy exemptions.
Trusts mandated to file under the new rules must complete the new Schedule 15, disclosing comprehensive information about the involved parties.
This includes their names, addresses, taxpayer identification numbers, and their roles within the trust.
Failure to comply with these updated reporting requirements could lead to substantial penalties, especially in cases of gross negligence.
Penalties are pegged at 5% of the trust’s property value or $2,500, whichever is higher.
In a move to facilitate a smoother transition, the Canada Revenue Agency (CRA) has announced a waiver for the normal failure-to-file penalty for the 2023 taxation year, specifically for trusts qualifying under the bare trust exclusion.
Given the significant changes and the potential for hefty penalties, it’s crucial for trustees and beneficiaries to familiarize themselves with the new requirements.
This includes understanding which trusts now need to file, the expanded information requirements, and ensuring compliance to avoid penalties.
For those involved in trust administration or planning, staying informed about these developments and their implications is essential.
This article merely serves as a starting point, but further guidance and clarification from the CRA may be necessary as taxpayers work to comply with the new framework.
If you have any queries on this article around Canada’s Enhanced Trust Reporting Regulations, or Canadian tax matters more generally, then please get in touch.
FedEx Corporation, having previously succeeded in a significant legal battle concerning foreign tax credits, is now urging the US District Court for the Western District of Tennessee to confirm the refund amount due.
This development follows after the government halted discussions on a joint judgment proposal, prompting FedEx to take legal action.
On 8 March 2024, FedEx filed a motion for judgment to finalise the refund amount. This action was taken in response to the government’s withdrawal from negotiations and its indication that it would oppose FedEx’s motion with a novel argument based on the “Haircut Rule”.
The government’s new stance involves Treasury Regulation Section 1.965-5(c)(1)(i), which potentially limits foreign tax credits related to withholding taxes paid to foreign jurisdictions.
FedEx contests this argument on several grounds, including the applicability of the rule when withholding taxes are not claimed, procedural deficiencies under the Administrative Procedure Act, and the belated introduction of this argument in the litigation process.
The government’s late introduction of the “Haircut Rule” argument may face judicial resistance, especially considering the advanced stage of the litigation.
The transparency of the government’s strategy during the litigation and its decision to withhold this argument until a critical juncture could impact the court’s receptivity to the new claim.
The FedEx case underscores the importance of timely presenting arguments in legal disputes.
Waiting until late in the litigation process to introduce new claims can lead to challenges in persuading the court to consider those arguments, with potential consequences including rejection due to delay.
As FedEx moves forward with its motion for judgment, the legal community watches closely.
The outcome may provide further guidance on the strategic considerations and challenges of introducing new arguments in ongoing litigation, particularly in complex tax law disputes.
If you have any queries about this article on FedEx v US Government, or US tax matters in general, then please get in touch.
The Swiss Federal Council has recently outlined new regulatory measures for the taxation of teleworking, specifically addressing the evolving work patterns of cross-border commuters.
Published on 1 March 2024, these regulations aim to integrate the new international treaty agreements with France and Italy into Swiss law, marking a significant step in adapting to the changing landscape of remote work.
The shift towards teleworking, accelerated by the COVID-19 pandemic and ongoing digitalization, has blurred traditional geographic boundaries of employment.
This evolution poses a challenge for taxation, particularly for cross-border commuters who, while working for employers in Switzerland, reside in neighboring countries.
The proposed law by the Swiss Federal Council seeks to address these changes, ensuring that Switzerland remains competitive without forfeiting tax revenue.
Switzerland has proactively negotiated with France and Italy to establish clear rules for teleworking.
A notable agreement with France, effective from 1 January 2023, allows up to 40% of working hours per year to be conducted remotely without affecting the cross-border commuter status or altering taxation rights.
Similarly, an agreement with Italy permits teleworking for up to 25% of working hours from 1 January 2024, maintaining the status and taxation rights of cross-border commuters.
These agreements exemplify Switzerland’s commitment to modernizing its tax legislation in line with international standards.
The Swiss Federal Council’s proposal introduces a framework to tax teleworking activities conducted outside Switzerland by residents of neighboring countries, provided international treaties grant taxation rights to Switzerland.
This approach not only aligns with the agreements with France and Italy but also sets a precedent for future international collaborations on teleworking taxation.
The implementation of these regulations will necessitate detailed certification of teleworking days, which must be submitted to tax authorities.
While the new rules specifically address arrangements with Italy and France, they do not impact agreements with other neighboring countries like Germany, Liechtenstein, and Austria.
However, the broader objective remains clear: to safeguard Swiss tax revenues while enhancing the nation’s appeal as a workplace for international talent.
As Switzerland prepares for parliamentary approval of these proposals, the future of teleworking taxation is poised to offer greater clarity and certainty for cross-border commuters and their employers.
If you have any queries on this article on Switzerland Cross Border Teleworking, or Swiss tax matters generally, then please get in touch.
On 19 January 2024, the Dutch Supreme Court delivered a landmark decision addressing the contentious issue of beneficial ownership concerning Dutch dividend tax credits.
This judgement overturns a prior ruling by the Court of Appeal and provides crucial guidance on the interpretation of anti-dividend stripping rules within Dutch tax law.
The case involved a Dutch taxpayer, X BV, a subsidiary of an international banking group that held shares in Dutch companies as part of its investment portfolio.
These shares were loaned to its indirect UK parent company and were returned to X BV’s securities account, managed by a French custodian, just before dividends were distributed.
X BV claimed it was both the recipient and beneficial owner of these dividends, crediting the Dutch dividend tax against its corporate income tax.
The Dutch tax authorities contested this, denying the credit based on anti-dividend stripping rules.
The Court of Appeal had previously determined that X BV was not the beneficial owner of the dividends due to the influence of the UK parent company over the shares and dividends.
However, the Supreme Court found this interpretation overly broad and vague, ruling that the anti-dividend stripping rule did not apply in this context.
It clarified that the legal owner of a dividend, who can freely dispose of it and is not acting as an agent, is generally considered the beneficial owner, except under specific circumstances outlined in anti-abuse rules.
The Supreme Court also instructed a reevaluation of X BV’s legal ownership of the shares under French law, given the securities account’s location.
This is essential for determining X BV’s right to credit the dividend tax.
This ruling has significant implications for Dutch taxpayers and the Ministry of Finance, particularly concerning the interpretation and application of beneficial ownership and anti-abuse rules in dividend transactions. It highlights:
The Supreme Court’s decision offers welcome clarity on the open norm of beneficial ownership, limiting its application and enhancing legal certainty for taxpayers.
It is a crucial development for entities engaged in similar transactions, providing a clearer path to navigate the complexities of Dutch dividend tax law.
As of January 1, 2024, amendments to the rules on beneficial ownership have broadened the scope of specific situations of abuse and shifted the burden of proof to the taxpayer for dividend tax amounts exceeding €1,000.
The verdict also has potential implications for ongoing tax litigation and existing investment structures, warranting a review of stock agreements and tax planning strategies.
If you have any queries about this article on Dutch Supreme Court Clarifies Beneficial Ownership in Dividend Case, or Dutch tax matters in general, then please get in touch.
A year after Hong Kong lifted its final COVID-19 restrictions, the city continues grappling with economic recovery challenges, exacerbated by global geopolitical tensions and high interest rates.
Despite these hurdles, the Financial Secretary, Mr. Paul Chan, unveiled several tax-related measures in the 2024-25 Budget Speech on 28 February2024, aimed at revitalising the economy.
This article delves into the key measures affecting high net worth individuals, fund managers, and property investors.
In an effort to increase public revenue, the government proposes a two-tiered standard rate for salaries tax and personal assessment.
The new regime maintains the standard 15 percent rate on the first HK$5 million of net income, while income above HK$5 million will incur a 16 percent rate.
Targeting the city’s wealthiest, this adjustment is expected to affect approximately 12,000 taxpayers, or 0.6 percent of the taxable population.
Despite these changes, Hong Kong’s tax rates remain competitive globally, with rates significantly lower than those in Australia, the United Kingdom, the United States, and Singapore.
This strategic move aims to preserve Hong Kong’s appeal as a low-tax haven for affluent professionals and talents.
In a decisive move to stimulate the stagnant property market, all existing cooling measures were abolished as of February 28, 2024.
This sweeping reform followed a partial relaxation last October, including a 50 percent reduction in Buyer’s Stamp Duty (BSD) and New Residential Stamp Duty (NRSD).
Now, both sellers and buyers face only the Ad Valorem Stamp Duty (AVD) at Scale 2 rates, which are significantly more favorable and do not discriminate based on buyer type or residency status.
This policy shift is anticipated to rejuvenate market confidence and transaction volume.
It also opens new doors for using corporate vehicles or trust structures for property purchases and succession planning, a tactic previously deterred by high Stamp Duty costs.
Aiming to solidify Hong Kong’s status as a leading asset and wealth management hub, the Budget proposes to refine tax concession regimes for investment funds, single family offices, and entities receiving carried interest.
Plans include broadening the scope of tax-exempt transactions and easing limitations on incidental transaction income, which has been tightly capped until now.
These adjustments are designed to attract more fund managers and family offices by offering tax incentives on a wider array of financial transactions.
Although specifics are pending, the commitment to expand these tax advantages underscores a clear strategy to bolster investment and reinforce Hong Kong’s competitive edge in global finance.
The 2024-25 Budget reflects Hong Kong’s strategic approach to economic recovery, with significant tax reforms and regulatory easements designed to attract high net worth individuals, enhance the property market, and cement the city’s role as a global financial hub.
As these measures unfold, they promise to reshape Hong Kong’s economic landscape, offering new opportunities for growth and investment in the post-pandemic era.
If you have any queries about the Hong Kong 2024-25 Budget, or Hong Kong tax matters in general, then please get in touch.
The Canadian government has taken bold steps toward fostering a clean economy with the proposal of five new refundable investment tax credits (ITCs).
These measures, updated as of 6 March 2024, are intended to enhance Canada’s competitiveness in attracting clean energy investments.
This article provides an overview of the proposed ITCs as they stand, following developments from their initial announcement on 4 December 2023.
Aimed at boosting clean technology adoption and operations within Canada, this ITC offers a 30% refundable credit on eligible investments made between 28 March 2023, and the end of 2033.
Investments made in 2034 will receive a 15% credit, with no credit available for investments thereafter.
This incentive targets taxable Canadian corporations and mutual fund trusts, including those part of a partnership investing in eligible property.
This credit supports investments in carbon capture technology, offering up to 50% for direct carbon capture expenditures and 60% for capturing carbon from ambient air.
A 37.5% credit is also available for qualified carbon transportation, storage, and use expenditures.
These rates apply to expenses incurred from January 1, 2022, to December 31, 2030, halving for the following decade and expiring after 2040.
Investments in clean hydrogen production projects will benefit from a credit up to 40%, depending on the carbon intensity of the produced hydrogen.
This applies to projects available for use from 28 March 2023, to the end of 2033, with a reduced rate for 2034 and no credit thereafter.
A 30% credit is available for investments in clean technology manufacturing and critical mineral processing from 2024 to 2031, with a gradual reduction to 5% by 2034.
This aims to encourage the manufacturing or processing of renewable energy equipment and other clean technologies.
Offering a 15% refundable credit for investments in clean electricity generation, storage, and transmission, this ITC will be available following the 2024 federal budget delivery for projects not commenced before March 28, 2023.
The initiative encompasses a wide range of clean energy sources, including wind, solar, and nuclear, and will conclude after 2034.
Each tax credit is specifically designed to support different segments of the clean energy sector, from technology adoption and carbon capture to clean hydrogen production and clean electricity generation.
Taxpayers are generally restricted to claiming one credit per eligible investment, and none of these credits have yet become law.
These ITCs are refundable, meaning they are treated as payments already made by the taxpayer, with refunds issued if no additional tax is due.
The design of these credits involves specific labor and production requirements, with potential recapture for properties that change use, are exported, or disposed of within certain timeframes.
Canada’s proposed investment tax credits represent a significant push toward a sustainable, clean economy.
By incentivizing investments in clean technology, carbon capture, clean hydrogen, and clean electricity, the government aims to position Canada as a leader in clean energy while fostering economic growth.
As these credits move through the legislative process, businesses and investors should stay informed and consult with professionals to understand how these incentives could impact their operations and investment decisions.
If you have any queries about the proposed Investment Tax Credits for the Clean Economy in Canada, or other Canadian tax matters, then please get in touch.
In its 2024 budget, Zambia sets forth a series of tax measures designed to stimulate economic growth, enhance policy consistency, and ensure equitable development across various sectors.
With a projected growth increase from 4% in 2023 to 4.8% in 2024, and amid a backdrop of contained external debt and decreasing inflation, these reforms aim to unlock Zambia’s economic potential through both incentives and tightened tax administration.
Enhancements to the Pay-As-You-Earn (PAYE) system include raising the income tax exemption threshold from K4,800 to K5,100 and reducing the top monthly tax rate from 37.5% to 37%, effectively increasing disposable incomes and stimulating consumer spending.
A reduction in income tax by 20% for five years for investments in rural areas, applicable to all sectors except mining, encourages businesses to contribute to rural economic development.
Tax exemptions for up to 10 years for profits derived from the cotton value chain promote the agriculture sector’s diversification and competitiveness.
Immediate 100% tax write-offs for new equipment for both developers and investors in MFEZs aim to spur significant investment in these special economic zones.
Aligning with incentives for other crops, this measure encourages the production and processing of sorghum and millet, supporting agricultural diversification.
The law now acknowledges the final ruling date in disputes as the official date for assessment, ensuring fairness in transfer pricing adjustments.
Removing the six-year limit on assessing transfer pricing issues enhances the tax authority’s flexibility in managing complex audits.
This measure ensures that related-party transactions employing non-OECD methods meet the Commissioner’s standards, aligning Zambia with international best practices.
The redefinition of terms to match OECD standards demonstrates Zambia’s commitment to maintaining coherence with global tax norms.
The introduction of agents to manage royalty withholding aims to improve compliance among small-scale miners, ensuring a level playing field in the mining sector.
Harmonizing penalties across the mining sector, including artisanal and small-scale activities, deters tax evasion and fosters fair competition.
Enhancing the Commissioner General’s authority to request information from various professionals and regulators strengthens the tax administration’s capacity to enforce compliance.
By incentivizing investment in key sectors, adjusting direct tax measures for individuals and industries, and tightening tax administration, Zambia is poised to harness its full economic potential while ensuring fairness and transparency in its tax system.
If you have any queries about this article on Zambia’s 2024 tax reforms, or other related tax matters, then please get in touch.
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.
Important changes in employment law, prompted by the Finance Act 2023, are set to reshape the landscape for employers and employees alike in Kenya.
Understanding these changes is crucial for businesses to ensure compliance and adapt their employment strategies effectively.
One of the key changes introduced by the Finance Act 2023 is the implementation of a housing levy.
Employers are now required to deduct 1.5% of an employee’s gross monthly salary as a contribution towards this levy, match this contribution themselves, and remit both amounts.
This move is designed to foster a more inclusive housing scheme for employees.
Additionally, the Act has redefined the taxation landscape for employees participating in employment share ownership plans, particularly those working for eligible startups.
This initiative aims to encourage employee ownership while providing tax-efficient benefits.
Moreover, the amendments to the Income Tax Act, including adjustments to the Pay-As-You-Earn (PAYE) system, target higher-income earners with increased tax deductions.
These changes are part of a broader effort to ensure a more equitable tax regime.
The rise of the ‘virtual workspace’ is another significant development, with legal implications for employers.
A landmark ruling involving Meta Platforms Inc. highlights the legal responsibilities of employers in virtual work environments, especially concerning employee rights.
This ruling underscores the importance of understanding the legal framework governing virtual workspaces.
The concept of an employee’s ‘right to disconnect’ has gained traction, with legislative proposals aiming to protect employees from being obligated to engage in work-related communications outside of work hours.
This initiative reflects a growing recognition of the need for work-life balance in the digital age.
The courts have also addressed the contentious issue of mandatory employee vaccinations, ruling that such policies are permissible under certain conditions.
This decision emphasizes the delicate balance between individual rights and public health imperatives.
A notable legal challenge has resulted in a ruling against mandatory contributions to the NSSF by employees who are already part of alternative pension schemes.
This decision highlights the importance of freedom of choice in pension contributions.
The introduction of an Unemployment Insurance Fund represents a significant policy shift, aiming to provide financial support to those affected by job loss or inability to work due to illness.
Employers and employees are expected to contribute to this fund, underscoring a collective approach to social protection.
The pandemic has accelerated the adoption of flexible working arrangements, prompting legislative proposals to formalize these practices.
These changes, along with adjustments to policies on sexual harassment, non-compete clauses, and employee rights in business transactions, signal a comprehensive update to employment law.
Businesses should proactively review employment contracts and benefits, ensuring they are compliant with the new legal framework.
If you have any queries about this article on Kenya’s employment law changes then please get in touch.