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  • Tag Archive: OECD

    1. What is Country-by-Country Reporting (CbCR)?

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      Introduction: What is Country by Country Reporting (CbCR)?

      Country-by-Country Reporting (CbCR) is a tax transparency measure introduced by the OECD as part of its Base Erosion and Profit Shifting (BEPS) initiative.

      CbCR requires large multinational companies to report detailed information about their operations, profits, and taxes paid in each country where they do business.

      This information is then shared with tax authorities to help them detect tax avoidance practices, such as profit shifting to low-tax jurisdictions.

      How Does CbCR Work?

      CbCR applies to multinational companies with global revenues of more than €750 million.

      These companies must file an annual CbCR report that provides a breakdown of their income, profits, taxes paid, and other economic activities in each country where they operate.

      For example, if a company has subsidiaries in 10 different countries, it must provide information on how much revenue each subsidiary earns, how much profit it makes, and how much tax it pays in each country.

      This level of detail helps tax authorities identify where a company might be shifting profits to avoid taxes.

      Why Was CbCR Introduced?

      as introduced as part of the OECD’s effort to tackle tax avoidance by multinational companies.

      Before CbCR, it was difficult for tax authorities to see the full picture of a company’s global operations.

      By requiring companies to disclose their activities on a country-by-country basis, CbCR gives tax authorities the information they need to detect tax avoidance schemes.

      This reporting helps ensure that multinational companies are paying their fair share of taxes in the countries where they actually do business, rather than shifting profits to tax havens.

      Conclusion: Country by Country Reporting

      Country-by-Country Reporting is a critical tool for improving tax transparency and combating tax avoidance.

      By requiring large multinational companies to report detailed information about their global operations,

      CbCR helps tax authorities ensure that companies are paying their fair share of taxes and operating in a fair and transparent manner.

      Final thoughts

      If you have any queries about this article – What is country by country reporting? – then please do get in touch.

       

    2. OECD Releases Global Minimum Tax Guidelines

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      OECD’s global minimum tax guidelines – Introduction

      The OECD has published new technical guidelines to assist countries in implementing the global minimum corporate tax rate of 15%.

      This initiative aims to ensure that multinational corporations contribute a fair share of taxes, regardless of where they operate.

      Key Features of the Guidelines

      The technical guidance addresses several challenges, including calculating effective tax rates, identifying low-tax jurisdictions, and handling cross-border complexities.

      It also provides a framework for dispute resolution between nations.

      Implications for Multinational Corporations

      The guidelines will require multinationals to reassess their tax strategies, particularly those involving low-tax jurisdictions.

      Compliance costs are expected to rise, but the rules aim to create a more level playing field globally.

      Challenges in Implementation

      Countries with tax-friendly regimes may resist adopting these guidelines, fearing a loss of competitiveness.

      Additionally, differing interpretations of the rules could lead to disputes between jurisdictions.

      OECD’s global minimum tax guidelines – Conclusion

      The OECD’s technical guidance is a significant step towards implementing a global minimum tax. While challenges remain, this initiative represents a milestone in international tax cooperation.

      Final Thoughts

      If you have any queries about this article on OECD’s global minimum tax guidelines, or tax matters in OECD member states, then please get in touch.

      Alternatively, if you are a tax adviser in OECD member states and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.

    3. Ireland Progresses New Participation Exemption: What It Means for Foreign Investors

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      Ireland Progresses New Participation Exemption: Introduction

      A participation exemption is a key tax mechanism designed to avoid double taxation on income earned from foreign subsidiaries.

      It allows companies to receive dividends from their foreign investments without being taxed again in the home country.

      This exemption is an attractive feature for businesses with a multinational presence, as it encourages cross-border investments while eliminating the risk of double taxation.

      Ireland, already known for its business-friendly tax environment, is introducing a new participation exemption as part of its tax reforms.

      This is expected to enhance its appeal to multinational companies and investors looking for efficient tax structures within the EU.

      Ireland’s New Participation Exemption: An Overview

      Ireland’s low corporate tax rate of 12.5% has long made it a popular choice for multinationals.

      Now, with the introduction of a participation exemption, Ireland is aligning itself with other European countries that already offer similar incentives.

      The exemption allows Irish-based companies to receive dividends and capital gains from foreign subsidiaries without paying additional tax in Ireland, provided the subsidiary meets certain conditions.

      These conditions generally require the subsidiary to be based in a country with which Ireland has a tax treaty and for the Irish company to hold at least a 5% ownership stake in the subsidiary.

      This is particularly advantageous for companies looking to repatriate profits from their overseas operations, as they can now do so without incurring a tax burden in Ireland.

      How It Works: Conditions and Benefits

      The new participation exemption applies under specific conditions, as follows:

      • Qualifying Subsidiaries: The subsidiary must be located in a country that has a tax treaty with Ireland.
      • Ownership Threshold: The Irish parent company must own at least 5% of the subsidiary’s shares.
      • Nature of Income: The income must be from qualifying dividends or capital gains related to the sale of shares in the foreign subsidiary.

      This new rule makes Ireland a more attractive location for holding companies that manage international subsidiaries, further boosting its competitiveness in the global tax landscape.

      Why This Matters: Attracting Foreign Investments

      Ireland’s participation exemption is expected to attract even more foreign direct investment, particularly from multinationals looking for an efficient tax regime within the EU.

      By eliminating the risk of double taxation on foreign earnings, Ireland offers a compelling proposition for companies with global operations.

      Furthermore, this new tax policy could encourage companies to restructure their international holdings to take advantage of Ireland’s favourable tax regime.

      As many businesses seek alternatives to the UK post-Brexit, Ireland’s new participation exemption strengthens its position as a key financial hub within the EU.

      Challenges and Global Tax Trends

      While the participation exemption is a welcome addition to Ireland’s tax policies, it will need to be balanced with the global trend towards higher corporate tax transparency and compliance.

      For instance, the OECD’s Pillar 2 of the Base Erosion and Profit Shifting (BEPS) initiative introduces a global minimum tax of 15%, which could limit the effectiveness of Ireland’s low-tax regime.

      Moreover, Ireland’s tax policies have been scrutinised by the European Union in the past, especially regarding state aid and preferential treatment of multinationals.

      The participation exemption, while beneficial, will need to comply with these international regulations.

      Ireland Progresses New Participation Exemption – Conclusion

      Ireland’s introduction of a participation exemption is a strategic move that will likely increase its appeal as a destination for multinational companies.

      By offering a tax-efficient way to manage foreign earnings, Ireland positions itself as a leading hub for international investments.

      However, companies will need to ensure that they remain compliant with evolving global tax standards while taking advantage of this new opportunity.

      Final thoughts

      For more information about Ireland Progresses New Participation Exemption, or Irish tax matters more generally, then please get in touch.

    4. Singapore two pillar solution or BEPS 2.0

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      Singapore two pillar solution – Introduction

      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. 

      Pillar talk

      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.

      Pillar fight

      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.

      A lack of detail?

      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.

      Singapore two pillar solution – Conclusion

      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.

    5. Irish Finance Bill 2022: Pillar Two changes for R&D & KDB regimes

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      IntroductionIrish Finance Bill 2022

      The Irish Finance Bill 2022 provides for changes to:

      • the Research and Development (R&D) tax credit; and
      • Knowledge Development Box tax regime

      Both changes are to reflect the OECD’s Pillar Two model rules and the EU’s draft Pillar Two Directive.

      Ireland’s R&D regime

      Ireland has an attractive R&D tax credit for qualifying expenditure on R&D activities. This includes certain expenditure on plant and machinery and buildings.

      The credit is currently 25% of the allowable expenditure.

      The mechanics of the regime are that the tax credit can be offset against the claiming company’s current and prior year corporation tax liability. In addition, any excess credit may be:

      • carried forward against future corporation tax labilities of the company;
      • or claimed as a payable credit in three instalments over a period totalling 33 months

      Pillar and post?

      The OECD Pillar Two model rules and the EU draft Pillar Two Directive introduce the concept of a “qualified refundable tax credit” (QRTC).

      Going forward, the R&D tax credit regime in Ireland will need to be consistent with QRTC requirements.

      In order to qualify as a QRTC require, the tax credit to be paid as cash (or available as cash equivalents) within four years of the date on which the taxpayer is first entitled to it.

      How does a QRTC interact with the Global Minimum Corporate Tax Rate?

      A tax credit that qualifies as a QRTC will be treated as income and not as a reduction in taxes paid. This is important when it comes to calculating the relevant effective rate of tax rate for the purposes of the global minimum corporate tax rate.

      Irish Finance Bill 2022 proposals

      The Finance Bill proposals seek to revise the R&D tax credit so that it is consistent with the QRTC criteria. This will include providing that the credit is fully payable in cash or cash equivalents.

      The new proposals under the Finance Bill measures provide that the first instalment of the R&D tax credit should be equal to the greater of:

      • €25,000 or, if lower, the total amount of the credit claimed; or
      • 50% of the value of the credit claimed, with the balance of the credit being refunded in the subsequent two periods.

      The cap on payable credits linked to the corporation tax/payroll tax payments will no longer apply.

      A consequence of the change is that companies that could have obtained the full value of the credit in a current year versus their corporation tax liabilities, will now instead see that benefit spread over three years.

      In addition, to ensure alignment with the Pillar Two rules, the R&D credit should be paid within the four-year period. This includes where there is an open investigation by the tax authority.

      Knowledge Development Box (“KDB”)

      The Finance Bill also provides for Pillar Two related changes to Ireland’s KDB.

      The KDB is a form of patent box regime and provides for a 50% reduction of qualifying income. This results in an effective tax rate of 6.25% for the taxpayer in respect of the qualifying income.

      However, the requirements are relatively strict and it is understood that uptake has been limited

      The Finance Bill measures provide that the KDB trading expense deduction is reduced from 50% to 20% of qualifying income. This results in a new effective rate of 10% as opposed to the existing 6.25% on qualifying income.

      If you have any queries about the Irish Finance Bill 2022, or Irish 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