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MNEs subject to 15% minimum tax rate from 2023: main OECD provisions and EU implementation proposals now available
MNEs subject to 15% minimum tax rate from 2023: main OECD provisions and EU implementation proposals now available
The OECD two-pillar approach
In October 2021, the OECD’s 137 Inclusive Framework members agreed to adopt a two-pillar approach to address the tax challenges of the digital economy.
Pillar I provides for new profit allocation and nexus rules for MNEs with a turnover greater than EUR 20 billion and profit before tax margins of 10% of revenue. It creates a new taxing right for market jurisdictions such that 25% of the profits in excess of 10% of revenue will be allocated to market jurisdictions using a revenue-based allocation key. The details on sourcing rules and revenue-based allocation keys are still under construction.
The Pillar II provisions, released in December 2021, set out the global anti-base erosion (GloBE) rules. They include an Income Inclusion Rule (IIR) and an Undertaxed Payment Rule (UTPR).
The IIR ensures a top-up tax on a parent entity in respect of the low-taxed income of constituent entities within the MNE group. The UTPR requires an adjustment (such as the denial of a deduction) in an MNE constituent entity, where the income is not subject to the IRR. The IIR is expected to apply from 2023.
The UTPR can be reduced by any qualified IIR (imposed by domestic rules that are in line with the GloBE rules). Generally, if the effective tax rate (ETR) in the IIR jurisdiction exceeds 15%, it is unlikely there will be a UTPR adjustment. The UTPR is expected to apply from 2024.
Pillar II also includes a Subject to Tax Rule (STTR) imposing limited source taxation on certain related-party payments that are subject to tax below a minimum rate.
In early 2022, the OECD will release the Commentary relating to the model rules and address co-existence with the US Global Intangible Low-Taxed Income (GILTI) rules. This will be followed by the development of an implementation framework focused on administrative, compliance, and coordination issues relating to Pillar II. The Inclusive Framework is also developing the model provision for a Subject to Tax Rule, together with a multilateral instrument for its implementation, to be released in the early part of 2022. A public consultation event on the implementation framework will be held in February, and another on the Subject to Tax Rule in March.
The approach in the EU
On 22 December 2021, the European Commission published the proposal for the “Directive on ensuring a global minimum level of taxation for multinational groups in the Union”, which adopts the OECD Pillar II proposal and ensures that large groups operating in the European Union pay a minimum tax rate in every jurisdiction in which they operate.
The Directive implements only the GloBE OECD Pillar II model rules and acknowledges that the STTR should be addressed in bilateral tax treaties. The proposal provides for a minimum ETR of 15% for groups, both domestic and international, with combined financial revenues of more than EUR 750 million a year, and with either a parent company or a subsidiary situated in an EU Member State.
Calculation of the ETR and top-up tax
The ETR will be calculated by the ultimate parent entity of the group, taking into account the adjusted covered taxes of the group and dividing them by the adjusted income earned by the group following a jurisdictional approach. If the ETR for the entities in a particular jurisdiction is below 15%, the group must pay a top-up tax to bring its rate up to 15%.
The top-up tax is calculated per jurisdiction. It is the difference between the minimum ETR of 15% and the ETR of the jurisdiction. In addition, the top-up tax is then multiplied by the ‘excess profits’ for the GloBE purposes for a respective jurisdiction and year. Excess profits are determined after calculating a substance-based deduction (to take account of payroll costs and tangible assets in the jurisdiction).
The definitions of adjusted covered taxes and adjusted income are the same as in the OECD Pillar II model rules as well as the minimum ETR of 15%.
The scope includes also purely domestic groups
The scope of the proposed Directive is broader than the minimum required under the OECD Pillar II rules. The provisions are not limited to MNE groups but also include purely domestic groups.
The OECD proposal gives an option to apply a domestic top-up tax to low-taxed domestic subsidiaries. As a consequence, the Directive will allow the top-up tax due by the subsidiaries of the MNE group to be charged locally in the respective Member State, and not at the level of the parent entity.
Substance carve-out and transitional period
The Directive includes a substance carve-out so that companies will be able to exclude from the top-up tax an amount of income that is at least 5% of the payroll costs and 5% of the value of tangible assets. However, a ten-year transition period allows the substance carve-out rates to start at 10% of the payroll costs and 8% of the carrying value of tangible assets. For tangible assets, the rate declines annually by 0.2% for the first 5 years and by 0.4% for the remaining period. In the case of payroll, the rate declines annually by 0.2% for the first 5 years and 0.8% for the remaining period.
Excluded entities
In line with the OECD pillar-two agreement, government entities, international or non-profit organisations, pension funds, or investment funds that are parent entities of MNE groups, are not within the scope of the Directive.
Key takeaways
The proposed Directive is very similar to the OECD Pillar II model rules with the novelty that large domestic companies will also be covered, and the jurisdiction of the low-taxed subsidiary will be permitted to charge a domestic top-up-tax in place of the parent jurisdiction top-up tax.
As this is a fiscal proposal, the adoption of the proposal for a Directive requires unanimous agreement by all 27 EU Member States. This proposal has the support of the majority of the EU Member States. Cyprus, which is not a member of the Inclusive Framework, is expected to support the proposed EU Directive. In addition, the approval of the European Parliament and European Economic and Social Committee opinion is required during a legislative process. The EU set a goal of reaching an agreement on the implementation of the Directive by Spring 2022, with the new rules entering into force by the beginning of 2023.
These new rules will require businesses to consider how to collate the relevant information and calculate top-up taxes. While there may be some element of uniformity within the EU, there may also be differences in implementation between jurisdictions that need to be considered.
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Background The State Administration of Taxation (“STA”) has made a continuous effort to promote Advanced Pricing Arrangement (“APA”). On 26 July 2021, the STA issued STA Public Notice [2021] No.241 (“Bulletin 24”), which sets forth simplified procedures for unilateral APA for enterprises that meet certain conditions. On 29 October 2021, it also published the China […]
Proposed changes to the offshore regime for passive income in Hong Kong
Background To address harmful tax competition, the European Union (“EU”) requires Member States to refrain from introducing any new harmful tax measures and amend any laws or practices deemed to be harmful. Regarding non-EU jurisdictions, the EU has also evaluated their tax regimes against international tax standards and put in place a list of noncooperative […]
Chile looks to overhaul tax credit system
Chile introduced a new tax reform bill on 7th July 2022. The “tax reform towards a fiscal pact for social development and justice” was presented by the Chilean President and is currently progressing through the National Congress. In line with Chile’s ongoing plans to restructure the current system, the bill is aiming for a 4.1% […]
Taxation, sustainability and ESG in your business
ESG and sustainability are increasingly at the centre of business thinking about a more purpose driven approach to enterprise and therefore to attracting and retaining staff, clients, and capital. It is rarely out of the news one way or another with, as just one example, the gifting of the outdoor clothing company Patagonia to a […]
VAT alert in Croatia – change in tour operators’ margin scheme regulations for non-EU travel agencies
Starting from January 2021, Tour Operators’ Margin Scheme (TOMS) is no longer applicable to entities that have established their businesses or have a fixed establishment from which they render the services outside the European Union (EU). In this regard, non-EU companies should be aware of the new taxation approach applied to them under the TOMS […]
New CEE tax guide outlines fundamental changes and long-term trends
Providing information on taxation in 22 Central and Eastern European (CEE) states, the latest Mazars CEE tax guide analyses long-term taxation trends and fundamental tax regime changes in each country, both now and in previous years.
United States responds to Hungary’s global minimum tax veto
On 8 July 2022, the US Treasury Department announced that it would unilaterally terminate its 1979 bilateral treaty with Hungary. The decision follows Hungary’s veto of an EU directive implementing a global minimum tax.
The Google tax: The UK story, 7 years later
The Diverted Profits Tax (DPT), or what the media have dubbed the Google tax, was introduced in 2015 to dissuade and counteract contrived arrangements used by large multinational groups that divert profits from the UK and erode the UK tax base.
France is an innovation-friendly country offering many beneficial opportunities for European groups
credit. In the recently published 2021 OECD study (Measuring Tax Support for R&D and Innovation – OECD (oecd.org) France was ranked amongst the most favourable jurisdictions in Europe.
The impact of digital assets and cryptocurrencies decentralised finance on taxation in various jurisdictions
Digital assets and cryptocurrencies continue to evolve by offering new services and products such as Decentralized Finance (DeFi) and non-fungible tokens (“NFTs”), but is tax legislation also keeping up to date with the ever-changing world of digital assets and cryptocurrencies?
New Transfer Pricing Bill Passed in Israel
Transfer Pricing Bill in Israel passes third reading in June 2022 and is approved. What are the implications for businesses in Israel? In June 2022, the new transfer pricing bill was approved. This is another step towards the Israel Tax Authorities (ITA) efforts to streamline the ITA’s supervision and control of transfer pricing relating to […]
Mexico’s preferential domestic manufacturing regime for export supply chains
Did you know that in Mexico you can have a branch or a manufacturing relationship with a Mexican company in which the manufacturing process can be performed using your machinery, equipment, and inventory without the tax exposure of a permanent establishment and under a preferential customs regime? Below we’ll explain more about this tax regime, […]
Questions raised on Italy’s penalty protection regime
Following Italy’s new transfer pricing (TP) requirements1 introduced on 23 November 2020, there has been much discussion as to whether the taxpayer may benefit from penalty protection that also covers additional withholding tax otherwise due when the Italian tax authorities (ITA) perform adjustments that recharacterise the nature of a transaction. A Circular2 letter was then […]
Estate, gift and trust tax considerations for US domiciliaries and non-residents
Federal income versus transfer tax The US taxes its citizens and residents on their worldwide income but also levies a gift, estate and generation-skipping transfer tax (GSTT) on worldwide assets of both citizens and individuals domiciled in the US. A non-citizen is subject to US income tax when they become a resident. Transfer tax applies […]
Are you ready for the GloBE tax challenges?
On 14 March 2022, the OECD published a comprehensive commentary and illustrative examples of how implementing the Global Anti-Base Erosion Model Rules (GloBE rules) could look. In this blog, we discuss the GloBE rules and examine how the rules apply and filing requirements. On 20 December 2021, the OECD published model rules that member countries […]
New deadlines for reporting ultimate beneficial ownership to the Peruvian tax authorities
Legal entities and certain legal arrangements within the scope of Peru’s disclosure rules are obliged to implement suitable mechanisms allowing the collection and storage of data relating to the identity of their Ultimate Beneficial Owner (UBO). This information supports the data that must be shared with the Peruvian tax authorities by filing a UBO informative […]
Environmental tax pillar in the environmental, social, and governance system
The information regarding environmental taxes paid by an organisation, as well as the actions taken to mitigate the impact on the environment could be included in environmental, social, and governance (ESG) reporting. Environmental reporting in total is an important element for parties to consider when doing business. Along with environmental reporting, environmental taxes play a […]
India: Most Favoured Nation Clause causes controversy
India has signed double tax avoidance agreement (DTAA) treaties with several countries and entered into a protocol, inter-alia, containing the Most Favoured Nation (MFN) clause with 13 countries including France, Belgium, Spain, Sweden Switzerland, and the Netherlands. The MFN clause usually states that if, after date of entry into force of the tax treaty between […]
French landmark decision on foreign tax credit imputation for capital gains on shareholdings: an extension to dividends?
In a decision “Air Liquide” dated 15 November 2021, the French Administrative Supreme Court (Conseil d’Etat) ruled for the first time that French resident companies realising capital gains upon the alienation of eligible participation (titres de participation – generally presumed for a 5% interest held for a minimum two-year period) in a foreign company are […]
The proposed new EU “Unshell” directive
On 22 December 2021, the European Commission published a number of Directives impacting a wide variety of corporate structures and taxpayers. One of these Directives is “laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU’’, commonly referred to as ATAD3 or the Unshell Directive (see here) (hereinafter […]
Tax compliance and incentives during martial law in Ukraine
A crucial number of Ukrainian companies (including subsidiaries of international enterprises) experienced negative business and financial impacts as a result of the Russian invasion of Ukraine which started on 24 February 2022. The urgent relocation of staff to other regions of Ukraine and abroad, interruption of access to internal databases, IT systems, and paper documents […]
A new tax treaty between France and Belgium: Transfer of tax residence and sale of shares
The currently applicable double tax treaty between France and Belgium was concluded in 1964 and then amended many times until 2009. After several years of negotiations, Belgium and France finally signed a new double tax treaty (hereafter, the “new Treaty”). The 1964 Treaty remains applicable until the new Treaty has been ratified by the French […]
Corporate income tax changes in Poland for 2022
As of January 1, 2022, significant changes concerning the Polish tax system called the Polish New Deal came into force. These amendments also include Corporate Income Tax (CIT). Changes in withholding tax The major changes concern: Implementation of pay and refund mechanism (mechanism introduced in 2019 and suspended until the end of 2021) as the basic mechanism of […]
Turkey issued the first legislation in relation to the Mutual Agreement Procedure (MAP)
With Law No. 7338 on Turkish Tax Procedure Law (TPL) and Amending Certain Laws (“Law No. 7338”) published in the Official Gazette dated October 26, 2021, a domestic regulation was made for the first time regarding the mutual agreement procedure (MAP) in Turkey. The Turkish Revenue Administration (TRA) aims to eliminate uncertainties regarding the application […]
Swiss VAT: a system similar to the EU and yet with many differences
The Swiss and European VAT systems are similar in many respects, but there are also differences that can lead to serious adverse tax consequences. Switzerland, for the most part, follows unilaterally the same broad lines as neighboring countries, thus trying to avoid VAT mismatches. However, when European countries have transposed the EU Directive they have […]
New double tax treaty between France and Belgium: nothing is set in stone for French real estate
In this blog post we focus on the situation of individuals residing in Belgium who hold real estate property located in France, looking specifically at the changes introduced by the new Treaty. National provisions have not been changed by this new Treaty, so additional French and Belgian taxes thus remain fully applicable
What US taxpayers need to know about changes to R&E expenditures tax law
One item that has so far failed to make headlines amongst the many changes in the Tax Cuts and Jobs Act of 2017 (“TCJA”), is the treatment of research and experimental (“R&E”) expenditures under Section 174. This is likely because the change in treatment was not applicable until tax years after December 31, 2021, which […]
International tax outlook from the UK
International business everywhere will have been affected by the devastating events in Ukraine, with a knock-on impact on energy, supply chains, consequent inflation and the impact of sanctions. This comes with significant developments in the international tax landscape, which also requires attention. This article discusses the tax landscape from a UK perspective, considering domestic and […]
What to expect from South Africa’s advance pricing agreement programme
A proposed model for establishing an advance pricing agreement (“APA”) programme in South Africa (“SA”) was issued by the South African Revenue Authority (“SARS”) during December 2021. This article highlights some notable aspects of this proposed programme, by comparing it to those of other jurisdictions. An APA is an agreement between a taxpayer and a […]
Takeaways from the latest edition of the OECD Transfer Pricing Guidelines
On 20 January 2022, the Organisation for Economic Co-operation and Development (OECD) released the 2022 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG). This blog provides a summary of the revised Chapters of the OECD TPG, and highlights what tax advisors and taxpayers need to know. The revised […]
Transfer pricing: is Africa ready for advance pricing agreements?
Advance pricing agreements (“APAs”) could provide taxpayers and revenue authorities with some certainty during the unprecedented times that we are living in. The African APA landscape is however underdeveloped, but some recent developments in South Africa (“SA”) indicate that this may be changing. On 18 December 2020, the Organisation for Economic Co-operation and […]
New tax rules in Luxembourg impacting cross-border workers and PEPPs
Guidelines on the taxation of cross-border workers during the Covid-19 pandemic and an update on PEPP as defined in the latest budget laws in Luxembourg.
The benefits of VAT Groups in Poland
From 1 January 2022, VAT taxpayers will be able to create a VAT Group in Poland. The act implementing this “Polish Deal” introduced the separate institution of a VAT Group, previously unknown in the Polish tax system, enabling consolidated VAT accounting within a capital group. What are the benefits of establishing a VAT Group in Poland?The creation […]
New income tax relief supporting innovation of enterprises in Poland
The package of tax changes known as the “Polish Deal” introduces several new tax reliefs aimed at supporting the innovation of enterprises, as well as extending the scope of some reliefs that already exist. These changes should increase Poland’s attractiveness as a location from which to undertake R&D activities. The new incentives may be used […]
New transfer pricing requirements in Italy
On 26 November 2021, the Italian tax authorities (“ITA”) issued the final version of Circular Letter no.15/E (the “Circular”), providing clarification on the new transfer pricing requirements introduced by Measure no. 360494 (“New Measure”) on 23 November 2020. This article analyses the most important amendments to the transfer pricing documentation rules in Italy, and what […]
Nigeria’s simplified compliance regime for non-resident suppliers
Many tax jurisdictions encounter difficulties exercising their tax legislation against taxpayers who do not reside in their jurisdictions. The adoption of a simplified registration and collection mechanism is one of the approaches suggested by the OECD to address these difficulties. The simplified compliance regime is more appropriate for business-to-consumer (B2C) transactions as most B2C customers […]
Proposed new EU “UNSHELL” Directive will impose penalties on entities
On 22 December 2021, the European Commission published a proposal for a Directive to prevent the misuse of shell entities for tax purposes (described as “Unshell Directive” or also referred to as ATAD III). The draft Directive aims at identifying and penalising entities that do not maintain sufficient substance within the EU. Additional reporting requirements […]
R&D and innovation tax incentives
Many jurisdictions around the world offer generous tax credits and other incentives to companies that invest in R&D and innovation activities. Incentives are one of the key factors that management considers when deciding where a company should invest in innovation. Companies will also look into specific talent offerings, economic structure, education systems, and culture, amongst […]
Changes to Belgian special tax status expected in 2022
The Belgian government has approved a draft bill in which changes for the new Belgian special tax status for foreign executives and specialists are embedded. The limited duration of the tax benefits, the minimal remuneration threshold, and the ‘30%-rule’ are the most profound changes. The changes will be effective from January 1, 2022. As a […]
Greece’s beneficial tax regime for foreign residents
In December 2020, Greece introduced tax incentives to attract foreign tax residents. Specifically, the provisions of Article 5C of the Greek Income Tax Code (ITC), which came into force on 1 January 2021, stipulate that foreign employees or foreign freelancers becoming Greek tax residents can enjoy a 50% tax exemption from income derived in Greece […]
Improved tax flexibility for Belgian / Luxembourg cross-border workers
Due to the Covid-19 pandemic, many Belgian tax residents working in Luxembourg were no longer able to travel since remote working/home working was recommended or mandatory, based on governmental rules. As such, ‘the 24-day rule’ (whereby taxation of days working in Belgium are treated as fully taxable in Luxembourg and not in Belgium, provided the […]
Impact of the UK’s new Health and Social Care Levy Bill on expatriates
In response to the unprecedented spending on public services during the recent pandemic, the UK government has introduced a 1.25% health and social care levy applicable to every person liable to National Insurance Contributions (NIC), including self-employed individuals and internationally mobile employees (IMEs). Where employees are concerned, employers will also be required to pay the […]
BEPS 2.0: The future impact on businesses in Singapore
Rapid digitalisation and globalisation have led to significant changes in business operations. The digital economy has also uncovered vulnerabilities in the basic rules that have governed global taxation in the past, creating opportunities for profits to be “shifted” to lower-taxed jurisdictions, and sparking debates surrounding a ‘fair’ allocation of taxing rights. Against this backdrop, the […]
Criminalisation of tax litigation in France
Many jurisdictions have refined and improved their legislative defenses against tax avoidance in recent years, making the penalties for tax fraud even tougher.
South African approach to BEPS and transfer pricing in light of Covid-19
The South African (“SA”) tax regime is being strengthened by the implementation of base erosion and profit shifting (“BEPS”) action 4, relating to the limitation of interest deductions, but extra borrowings by businesses to deal with Covid-19 has caused the Government to defer its introduction. This article highlights some aspects relating to the implementation of […]
The Anti-Tax Avoidance Directive II: Will other jurisdictions follow the UK’s lead?
ATAD II is the EU translation of BEPS Action 2, the part which is focused on the ability of taxpayers to design situations of double non-taxation or heavily reduced taxation by exploiting hybrid mismatches. They apply to mismatches between the EU Member States, the UK, Mexico, Australia, New Zealand, and third countries. This legislation has […]
Tax updates in the context of the digital economy
Key milestones are being reached in the digital economy in 2021. In this post, we review the most recent legislation and provide insight on how to keep up with the tax aspects of this fast-developing topic. Digital commerce is increasing globally as the world becomes ever-more interconnected. More and more companies are exclusively active in […]
EU Carbon Border Adjustment Mechanism: ensuring your supply chain is compliant
In July 2021, the European Commission presented its ambitious Fit for 55 legislation package, which supports its commitment to reduce net greenhouse gas emissions within the EU by at least 55% by 2030 (compared to 1990). From an international trade point of view, the most important part of the package is the Carbon Border Adjustment […]
Key transfer pricing considerations for startups
Startups and entrepreneurship are concepts that have recently grown more important globally. To put it simply, startups are entrepreneurial companies that are generally established to offer solutions to any problem and exhibit rapid growth potential. In many countries, the importance of technology-oriented startup business models is gradually increasing, and a rising number of “unicorns”[1] are […]
Is the new two-pillar solution to address tax challenges suitable for African countries?
This new solution is expected to reallocate more than $100bn of profit annually to market jurisdictions. However, this raises the question, to what extent emerging economies, and more specifically, African countries, will be entitled to levy taxes on profits generated by multinational enterprises from their markets? This source and others are sorely needed by these […]
Recent Tribunal ruling on the taxation of ESOPs (Employee Stock Option Plans) in India
In accordance with OECD guidelines, the taxability of ESOP in India depends on where employment is exercised and the period of service for which ESOP has been granted.
Tax vendor due diligence is an attractive tool in the M&A transaction process
Background – the current market The disruptive effect of the Covid-19 pandemic and the economic recovery currently underway in many jurisdictions has driven strong momentum in the M&A market in recent months. Among the factors that drive this demand may be the need to enhance growth, diversify, raise finance or refocus on core activities. Commercial and […]
Tax issues arising from corporate amalgamations in Hong Kong
In June 2021 Hong Kong finalised legislation codifying the Inland Revenue Department’s tax assessment practice relating to corporate amalgamations. For qualifying companies, it is possible to elect (within one month of the amalgamation) for special tax treatment for pre-amalgamation losses, succession to business assets, amongst other areas. While the new legislation provides greater certainty on […]
Compliance bulletin helps businesses in Mexico
Mazars experts around the world deliver tailored services in audit, accounting, tax, financial advisory, consulting, and legal services. In Mexico, local experts have created a compliance dashboard with news items to help guide businesses as they navigate issues related to finance, tax, legal, and labour updates. With the global economy recovering from Covid-19, new government-required procedures […]
Spotlight on Tax Lawyer Tifphani White-King
The latest edition of the Bloomberg spotlight series focuses on Tifphani White-King, the U.S. National Tax Practice Leader for Mazars in the U.S. and a member of the Mazars Global Tax Leadership Team. White-King shares the tax code changes she would most like to see, the best financial advice she ever received, and what she […]
The globalisation of the German Reorganisation Tax Act through the Corporate Modernisation Act
Many countries have their own versions of tax-free or tax-neutral reorganisations. We are seeing instances where such domestic legislation now is subject to amendment with some added or bonus enhancements to these laws. What follows below are some recent changes to the German restructuring tax code provisions. We aim to continue to highlight more countries […]
The future of renewable energy taxation: considerations on EU competitiveness
A public debate in the European Union on environmental issues is heating up. It emphasises the urgency to develop environmental policies to mitigate climate change and opens a discussion on the revision of energy taxation rules currently in place. In its May 2021 review of the Energy Taxation Directive, the EU Commission analysed the impact […]
Switzerland is an attractive business hub. What is their secret?
Choosing a business location involves many considerations, with tax being only one of them. Nevertheless, tax is a consideration. Below is a note commenting on the attractions of Switzerland as a business location. There may of course be other locations that should be considered. Switzerland attracts global business, research, and innovation, and maintains the high ground […]
Agreement on OECD pillar 1 and 2 proposals (as refined by the US initiative)
As of 13 July, 132 of 139 jurisdictions (including Bermuda, Cayman Islands, BVI, Switzerland, and the Bahamas) agreed to the OECD Pillar 1 and 2 proposals as refined by the US initiative. The seven that did not were: Ireland, Estonia, Hungary, Barbados, Kenya, Nigeria, Sri Lanka. The OECD press release can be found here and […]
Changes in UK government revenues, and the impact of Covid-19 on environmental and digital services taxes
Total UK Government receipts for 2020/21 were £795bn, £34bn down on the previous year (see here). In this article, we focus on how the environment and the digital economy contribute to this result and the future implications. In future articles, we will consider how other jurisdictions are reacting to developments in this area. The £34bn […]
Tax aspects of opening a business hub in Asia
The Asian Development Bank has forecast that developing Asia’s growth is forecast to rebound to 7.3% in 2021 and 5.3% in 2022. This compares to 4.2% and 4.4% respectively for Europe (see here) and 6.9% and 3.6% for the US (see here). Businesses already with a footprint in the Asian region will be gearing up their operations to deal with the region’s expected […]
Recent developments in the concept of a permanent establishment in Chile
International taxation is based on residence as the point of connection of a subject with a given territory. However, today’s world is characterized by open economies competing to attract many companies and governed by technology. Apart from the tax connection point represented by the tax domicile in a given country, another element relevant when taxing […]
Migrants and refugees have employment rights and obligations in Uruguay
As Covid restrictions begin to lift there will inevitably be increased movement of workers across borders. This brings back into focus a range of global mobility and tax considerations for businesses and individuals. Examples include work permits, visas, payroll and social security amongst other issues. Below is a snapshot of some pints concerning Uruguay to […]
Challenges of global mobility – focus on Mauritius
Global mobility is a significant advantage in a world where all countries are connected by monetary flow, means of transports and digital communication. A comprehensive global mobility strategy takes time, teamwork, and careful thought. The main challenges faced when designing a global mobility program are payroll, tax issues and laws, and compensation among others. It […]
Special Purpose Acquisition Company (SPAC) – Is this tax vehicle a blank check?
Is it a bird? Is it a plane? Why is a SPAC considered a ‘high flying’ concept and what tax issues need to be considered to reap the benefits and avoid the pitfalls of a SPAC transaction? In this article, we provide a brief overview of SPACs, the particular tax issues relevant to the US […]
G7 Global tax agreement
The finance ministers of the G7 have issued a news brief indicating their agreement on global tax reform that “….will mean the largest multinational tech giants will pay their fair share of tax in the countries in which they operate….”. This consists of two parts: global firms with at least a 10% profit margin would […]
The latest transfer pricing updates on Europe, Asia and America
This article identifies the different types of documentation requirements in three macro-areas (i.e., Pan Europe, Asia-Pacific and America) and it explains the thresholds used for the different taxpayers’ obligations. In addition, it provides an overview of the administrative penalties imposed. The countries analysed in the article are the following: Pan European: France, Germany, Hungary, the […]
Updated OECD guidance on the impact of Covid-19 for cross border workers
In April 2020 the OECD issued guidance on the impact of Covid-19 on double taxation agreements (DTA) and their application to cross border workers. In January 2021 they updated this guidance. This guidance is necessary as some cross-border workers have been stranded in a country that is not their normal residence, and double taxation could arise without applying a practical approach to the […]
The new great debate: minimum global corporate income tax?
The new U.S. Secretary of Treasury, Janet Yellen, has garnered this week’s tax spotlight with her support and request for the world to support a minimum global corporate income tax. This would apply to the largest and most profitable businesses (numbering around 100), with the suggestion that the minimum rate to be applied to be […]
Why Czech Republic’s tax system is attractive for expatriate employees?
Tax reform continues to come in waves across the globe. One common theme of many reforms is tax breaks for low to mid wage earners and surprising tax hikes for high wage earners. This trend seems to be consistent with the latest out of the Czech Republic. New changes to the Czech tax law effective […]
How to attract private capital to fund the new American Jobs Plan?
On March 31, 2021, the Biden administration released The American Jobs Plan, which detailed, among other critical items, the need for infrastructure improvements to enhance America’s competitiveness and to create well-paid American jobs. For this to be successful in attracting needed private capital, the existing regulations concerning Real Estate Investment Trusts (REIT) and Foreign Investment in […]
Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 2)
The Covid-19 pandemic has resulted in unprecedented disruptions across multiple countries and economies in the world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses. This article provides an insight into the tax considerations in respect of the current crises with focus on the Singaporean personal income tax regime and the possible creation of permanent establishment risk. Permanent Establishment considerations […]
Impact of Covid-19 on personal income tax and permanent establishments in Singapore (Part 1)
The Covid-19 pandemic has resulted in unprecedented disruptions across multiple countries and economies in the world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses. This article provides an insight into the tax considerations in respect of the current crises with a focus on the Singaporean personal income tax regime and the possible creation of permanent establishment risk. Taxation […]
Tax reclaim opportunities regarding withholding taxes in Germany
As a result of a number of recent cases there are tax reclaim opportunities for non-German investors in German companies that have suffered withholding taxes (WHT), subject to meeting certain conditions. Points to consider A complete or partial WHT relief may now be possible: i) where there is no Double Taxation Treaty (DTT) in place […]
Governmental proposal for redraft of German “Anti-Treaty Shopping Provision”
Background On January 20, 2021, the German government published a draft law for the Gesetz zur Modernisierung der Entlastung von Abzugsteuern undder Bescheinigung der Kapitalertragsteuer (Act for modernization of the relief of withholding taxes and the certification of capital gains tax, AbzStEntModG). Among other things, this draft contains a new wording proposal of the so-called “Anti-Treaty Shopping” provision in Sec. 50d (3) German Income Tax Act (ITA), in order to comply with European law requirements. Sec. 50d (3) […]
Transfer Pricing: Is Africa ready for advance pricing agreements?
Advance pricing agreements (“APAs”) could provide taxpayers and revenue authorities with some certainty during the unprecedented times that we are living in. The African APA landscape is however underdeveloped, but some recent developments in South Africa (“SA”) indicate that this may be changing. On 18 December 2020, the Organisation for Economic Co-operation and […]
Brexit impact on in/outbound payments
When the UK finally left the EU ended on 31 December 2020, the application of provisions that have been beneficial to cross-border payments within the EU ceased, or will cease to apply. The elimination of withholding taxes, formerly part of these provisions, means companies with cross-border dividend, interest and royalty payment flows to or from […]
Is your business eligible to claim support under Government Covid and business recovery support schemes?
Government’s around the world have acted to help support individuals and businesses to get through to Covid pandemic. Mazars Covid-19 global tax and law tracker provides an overview of the measures different jurisdictions have put in place and there is a range of information and webinars at the above link. In this article we focus […]
New German tax developments regarding intellectual property (IP)
Decree of the Federal Ministry of Finance dated 11 February 2021 – Remuneration of the temporary transfer and the disposal of rights which are entered in a German public register. Further information on German tax developments relating to intellectual property (IP) registered in Germany has been released by the German Authorities. This helps to clarify how the German taxing right can apply to non-German users or vendors of this IP. This […]
DAC 7: EU Proposed changes to information reporting by digital platforms
On 25 November 2020, the Council of the European Union unveiled its updated draft of proposed EU Directive 2011/16 on administrative cooperation. The proposed directive marks the seventh amendment to the directive on administrative cooperation (DAC), earning itself the DAC 7 nickname. The proposed DAC 7 originally unveiled on 15 July 2020, forms part of […]
Avoiding tax traps when relocating
Relocation is a factor that can drive M&A transactions and many jurisdictions use various strategies to attract or retain businesses, whether that be on tax, regulation, creation of critical business mass, or other reasons. There may be many non-tax reasons for enterprises to relocate, but there will always be tax consequences to consider. In this article, we outline the possible tax traps and opportunities for this type of activity. Main tax traps The main tax issues in business relocations, which can amount to traps if not fully taken into account in […]
Covid-19 and the impact on taxation of individuals and permanent establishments in Nigeria
world. In addition to adversely affecting the world economy, the restrictions placed on travel could have personal income tax implications for individuals and permanent establishment risks for businesses.
DAC 6 developments, deadlines, and the question of legal privilege
While the first reporting deadlines for most EU members expired on 31 January 2021 and respectively 28 February 2021, there are still questions outstanding about whether intermediaries are obliged to report arrangements to tax authorities, or if they can use the right to waiver due to professional privilege. In 2020, countries across Europe implemented into […]
Changes to interest deduction limitation rules
The EU Anti-Tax Avoidance Directive (ATAD), contains five legally binding anti-abuse measures, which all EU member states are required to apply against common forms of aggressive tax planning. The Directive includes an exit tax, a general anti-abuse rule, controlled foreign company rules, measures to tackle hybrid mismatch arrangements, in addition to an interest limitation rule. We […]
EU-UK social security protocol and its implications
On 24 December 2020, a draft protocol on social security co-ordination for EU-UK cross border working arrangements that start from 1 January 2021 was published. The draft protocol contained an article covering detached workers, i.e. employees who normally work in one EU member state/the UK who are sent to work in the UK/an EU member […]
Corporate income tax reform: tax loss relief limited to 50% of annual profits
The Dutch government has provided further details concerning a potential reform of the tax loss relief rules in the corporate income tax regime. The proposed amendment will mean that losses can be set off indefinitely from 1 January 2022, but the number of losses that can be set off will be capped. The government had […]
European VAT rules for non-EU Business-to-Consumer exporters to EU countries will change from 1 July 2021
This article will provide you with an update on new VAT rules that will impact companies who sell goods (online) to consumers in the EU. As of July 2021, new VAT rules will enter into force in the EU. If a company sell goods (online) to consumers in the EU, the new rules will most […]
Africa is gearing up to fight base erosion and profit shifting
The African continent boasts a beautiful and diverse array of countries offering a wide range of valuable natural and human resources to the world economy. The past decade has seen significant foreign investments in African jurisdictions, ranging from massive investments in Mozambique’s gas reserves to tech companies capitalising on the technical excellence offered by software […]
OECD recommendations on comparability analysis during Covid-19 (Part 2)
Covid-19 has brought unprecedented social and economic challenges that will durably impact the world economy. Specifically, the pandemic has surrounded the Multinational Enterprises (MNEs) with many issues to be managed such as: insufficient cash flows, unpredictable profitability, unreliable third-party data (which is at the heart of arm’s length principle), non-operative supply chains, import/export limitations, possible […]
OECD recommendations on comparability analysis during Covid-19 (Part 1)
Covid-19 has brought unprecedented social and economic challenges that will durably impact the world economy. Specifically, the pandemic has surrounded the Multinational Enterprises (MNEs) with many issues to be managed such as: insufficient cash flows, unpredictable profitability, unreliable third-party data (which is at the heart of arm’s length principle), non-operative supply chains, import/export limitations, possible […]
Developments in transfer pricing documentation
(Updated 30 March 2021) Recent developments in transfer pricing documentation requirements should prompt MNCs to reassess management of cross border tax compliance. With a focus on protecting tax revenues in straightened economic times, many jurisdictions are focussing on transfer pricing compliance and raising awareness of documentation requirements and penalties for non-compliance. This indicates the groundwork […]
Shining the spotlight on more rigorous Transfer Pricing behaviour
While 2020 is a year we may all wish to forget, changes made during the year on Transfer Pricing (TP) give us some clues as to the primary drivers of TP behaviour in 2021. These clues include US guidance from the Internal Revenue Service (IRS) on TP documentation, highlighting the penalty risks; OECD work and […]
Making sense of tax systems in a digitalised world
How do we develop a global tax system that takes into account business innovation and the digitalised economy, yet is fair to all stakeholders? It’s a debate world governments continue to grapple with as they consider radical reforms to adapt century-old tax rules to the 21st-century digital economy. It’s also a question we put to […]
Mazars provides comments on the OECD proposals for taxation of the digitalized economy
Mazars has submitted comments in response to the Organisation for Economic Co-operation and Development’s (“OECD”) public consultation on its proposal for taxation of the digitalized economy, released last October. The proposals The OECD project refers to challenges associated with, and proposals to address, the taxation of the digitalized economy. It includes proposals for reforming international […]
Transfer pricing guidelines on financial transactions – have captives been caught?
In February of this year, the Organisation for Economic Co-operation and Development (OECD) released guidance for multinational enterprises (MNE’s) and tax authorities, on applying the arm’s-length standard to controlled financial transactions. The guidance, which the OECD plans to include in the next publication of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPG), […]
TRACE made it to the EU Commission’s agenda. Yet another burden approaching? Or an opportunity?
On 24 September 2020, the European Commission published Communication COM (2020) 590 (final) regarding the action plan in respect to the Capital Markets Union. Action 10 of this plan envisages a EU legislative initiative by Q4 2022 to introduce a common, standardised, EU-wide system for withholding tax relief at source, based on the OECD Treaty Relief and Compliance Enhancement (“TRACE”) Implementation Package. What is this […]
The impact of Covid-19 tax regulations on M&A transactions
In this article, we will focus on the impact of Covid-19 tax regulations in relation to M&A transactions. In particular, we will address the impact of several incentives that need to be addressed when transferring a company. Covid-19 Regulations Many countries have introduced Covid-19 related tax and other government incentives. These can – roughly – be broken into three categories: (i) extension of payment for taxes, (ii) a subsidy for wages (and sometimes […]
Home office: new tax and social security implications in France
With the Covid-19 crisis, working from home is expected to become the “new normal”. 2020 marks the end of many tax holidays with respect to home working arrangements within and between certain countries. We have already featured some general comments on the implication of remote working in previous blog posts; and we will regularly feature […]
Remote Worker – “necessity” or “choice”?
During the first wave of Covid-19 back in the spring of 2020, many employers found themselves dealing with the issue of “remote workers” in significant volumes, for the first time. When “working from home”, means working from home in another part of the city or the country then the issues are more likely to be […]
State tax telework developments
It seems right now that most countries around the world are busy regulating certain telework arrangements cross border with a keen focus on taxation rights. The U.S. is no different. In fact, the U.S. has the matter pending before its highest Court for review. A decision will not only impact the states named but obviously […]
Brexit implications for international private clients
Now that we are a couple of weeks into the new year, we are seeing lots in the press and media on Brexit’s impact to the business community. But what about the people behind the business – the individuals. At Mazars, we have been educating clients on the future of Brexit from both an entity […]
Another ‘Google’ tax hits this week – this time in Spain
Following the path of other developed countries (e.g., France, United Kingdom, Italy), Spain enacted last October a brand new “tax on certain digital services” that will come into effect on 16 January 2021. Background of a tax (not so new) The origin of this tax can be found in Action 1 of the BEPS report […]
Important tax developments for digital economy
Over the past few years, the digital economy has become a hot topic around the world. The international community has made substantial progress towards reaching a consensus-based and long-term solution to prevent tax challenges arising from the digitalisation of the economy. Seeking to keep working towards an agreement by mid-2021, the Organisation for Economic Co-operation […]
OECD guidance about the transfer pricing implications of the Covid-19 pandemic
The OECD released its guidance on the transfer pricing implications of the Covid-19 pandemic on 18 December 2020. This guidance was eagerly awaited by many MNEs whose statutory accounts will be closed by the end of the year, and which need to adjust their 2020 transfer pricing policies to reflect the financial impact of the […]
The UK fiscal environment for international business following Brexit
Following the UK’s spending review statement of 25 November, there is now greater clarity on how the UK economy will be taken forward into 2021 following the Covid-19 pandemic and exit from Brexit transition. Despite incurring record UK government borrowing this year of around £395bn, the significant further borrowing to fund investment during the recovery […]
VAT to-do list 2021
From a general VAT perspective, the coming year of 2021 will be a turbulent one and will create a lot of work for businesses operating in an European environment. Below are the key VAT aspects to consider before the end of the year. 1. Restructuring of supply and service chains during the pandemic Covid-19 has […]
French landmark decision fighting against “commissionaire” arrangements in the digital economy
After the French government enacted a 3% digital services tax on gross income, it is now the French Administrative Supreme Court which rendered a landmark decision for international groups providing digital services in France by strongly extending the definition of permanent establishment in the presence of commissionaires. This new case law remains also relevant for […]
Permanent establishment through a management company
BEPS 2.0 continues to call into question what indeed is a permanent establishment (PE). We all know that ‘bricks and mortar’ is almost ‘a ghost of Christmas past’ and states are now focused more on activities that have the potential to create nexus or PE status. This is certainly the underpinning of the sweeping world […]
South Africa and others: broadening the tax base by clamping down on “white collar schemes”
Near-term objective of the South African Revenue Service confirmed: “Remaining focused on international taxes, particularly aggressive tax planning using transfer pricing.” The South African (“SA”) economy, like many others, has been severely impacted by the Covid-19 pandemic. A recent speech by the country’s Finance Minister painted a dire picture of a country that is, in […]
Tax holiday checklists: make your list and check it twice, especially for withholding tax changes
Generally speaking, year-end is that time of year when we clean up all open items in the current year and head into the new year with a fresh outlook and perspective. This also applies to tax. You cannot be blind to the overwhelming number of tax checklists published to help individuals, in particular, get their tax affairs […]
Welcome (bienvenidos, willkommen, karibu, bienvenue) to a world of tax incentives
The pandemic has led to many people choosing to relocate. Many are leaving densely populated cities to work remotely to where they feel are more desirable locations for themselves and family. Others are holding steadfast to their crowded city dwellings. Either way, geographies are challenged to retain (or welcome) existing residents and newcomers. Many are […]
DAC6 tightens the reigns on M&A deals across the globe
EU Directive 2018/822 or DAC 6 (acronym of “Directive on Administrative cooperation”) is in the minds of many European tax practitioners. In this article we will set out its importance for the European M&A market. Beyond this mysterious acronym, the European Union is pursuing its efforts to prevent tax fraud and tax evasion (and thus create legal and business ” fairness […]
The new year brings new social security challenges post- Brexit
What is the issue? With Brexit talks still ongoing, employers should be planning for the impact of a hard Brexit on social security coverage and benefit provision for their employees who travel between the UK and EU (including EEA & EFTA countries and Switzerland) for work. HMRC’s October employer bulletin provided a welcome update on […]
Is patience growing thin for a unified approach to digital taxation?
The global economy is experiencing digital transformation at a blistering pace with the rise of e-commerce. The digital economy permeates all aspects of life including how we eat, sleep, breathe, and communicate. It has immense impact on the world’s economic landscape touching all industries and sectors from aviation to wholesale trade. The digital economy is […]
The impact of Covid-19 on transfer pricing
The Covid-19 pandemic has far-reaching consequences, and will have serious implications on transfer pricing for many multinational enterprises (“MNEs”). This is particularly challenging for businesses to manage due to the current lack of guidance from the OECD. With this guide, we review the impact of Covid-19 on: • Transfer pricing treatment of government aid • […]
ICAP 2.0 – A solution to aggressive tax audits for MNEs during Covid-19
Governments damaged by the Covid-19 pandemic are likely to be taking a more aggressive approach in tax field audits on multinational enterprises (MNEs), at least until after their respective economy is on its way to recovering from the impacts of the pandemic. The OECD launched a pilot of the International Compliance Assurance Programme (ICAP) on […]
Welcome to ‘Let’s talk global tax’
We warmly welcome you to ‘Let’s talk global tax’, Mazars’ global tax blog. We have launched this blog to keep readers up-to-date on the latest tax regulations, market developments, topical debates and news from around the world. Our blog will provide updates on all areas of tax, including global mobility, employment tax, VAT & indirect […]
The future of joint tax audits beyond Covid-19
The current restrictions imposed by multiple countries to combat the Covid-19 pandemic have limited the possibilities for conducting external tax audits. However, the current pandemic and its consequences for the world economy highlight again that the number of internationally active companies is increasing. This has a significant impact on the future of tax audits. Coordinated […]
Which documents are required for VAT-exempt intra-community transport of goods within the EU?
Since 1st January 2020, the VAT “quick fixes” brought several amendments to the EU VAT legislation; one of the most important amendments being stricter rules for the justification of the VAT exemption for intra-community supplies of goods. As cross-border VAT fraud is primarily linked to the exemption for intra-community supplies, it is necessary to clearly […]