In what has been described by tax justice campaigners as a landmark move forward on tax transparency, the EU ministers in the Competitiveness Council (COMPET) agreed on February 25 that public CbCR should be introduced.
The proposal only passed after Slovenia and Austria supported it. However, the legislation needs to include certain safeguards and be limited to reporting requirements on companies in EU member states or in the jurisdictions listed on the EU tax blacklist.
Although 14 countries backed public CbCR, ministers representing Germany, Ireland, Luxembourg, Malta, Sweden, Czech Republic, Hungary, and Cyprus were either against it or abstained. If all countries choose to formally adopt the proposal in writing next week, the measure will move forward to negotiations in the EU Council and EU Parliament.
“It is clear that a strong momentum is building for tougher measures to stop large-scale corporate tax avoidance,” said Tove Maria Ryding, tax coordinator at the European Network on Debt and Development (Eurodad).
“Finally, after years of delay and procrastination, we’re seeing a majority take shape among the EU member states, in favour of moving forward with a new directive on public [CbCR],” she added.
On the other hand, Ryding said there is still some way to go before the measure is effective and serves its purpose. “If we end up with loopholes and creative ways in which corporations can withhold information, it can undermine the entire purpose of the directive,” she said. “Therefore, we will be keeping a close eye on that.”
FACTI report calls for universal tax efforts under UN tax convention
In a further boost for tax transparency campaigners, the UN high level panel on international financial accountability, transparency and integrity (FACTI panel) released a long-awaited report on February 25, which included recommendations to improve international tax cooperation. The report supported public CbCR, as well as a range of other tax initiatives.
The panel issued several key recommendations on tax that included:
A call for the international community to initiate a process for a UN tax convention to ensure international tax norms, particularly tax-transparency standards, are established through an open and inclusive legal instrument with universal participation;
Under the UN tax convention, there should be mechanisms for effective capital gains taxation, digital services taxation, taxing multinationals on their global group profits, an agreement on a global minimum corporate tax, and an impartial and fair process for resolving international tax disputes;
All countries should be required to create a centralised beneficial ownership registry, which should ideally be made public;
Ending information sharing asymmetries so all countries receive tax data;
Establishing a centre for monitoring taxing rights to collect and disseminate national aggregate and detailed data about taxation and tax cooperation on a global basis; and
Creating an inclusive intergovernmental body on tax matters under the UN.
“Closing loopholes that allow money laundering, corruption and tax abuse and stopping wrongdoing by bankers, accountants and lawyers are steps in transforming the global economy for the universal good,” said Ibrahim Mayaki, FACTI co-chair and former prime minister of Niger.
First DAC6 case gets referred to CJEU
In the EU and UK, there has been a lot of activity on various controversy matters.
The Court of Justice of the EU (CJEU) received its first case under the EU Council’s Directive 2018/822 (DAC6). The Constitutional Court of Belgium has requested a preliminary ruling from the CJEU about exceptions to reporting tax arrangements.
Meanwhile, the European Commission has issued letters of formal notice to France and Sweden to amend their tax rules on the distribution of dividends to financial services (FS) companies in other member states.
In the UK, the Supreme Court’s ruling that classified Uber drivers as workers’ rather than self-employed continues to cause a stir. The tax implications of the judgment are still unclear but the UK revenue authority’s next steps could set a precedent for the tax treatment of multinational enterprises (MNEs).
Separately, in the Middle East, preparations are speeding up in Oman as companies get ready for the VAT regime being introduced from April 2021. Sweta Sancheti, former tax manager at Majid Al Futtaim, explained in an article for ITR how to get ready for the tax, sharing her top five tips.
More globally, companies are paying for tax risk insurance policies to protect them in M&A deals where transfer pricing (TP) integration is not possible or an advance ruling has been delayed. The trend has grown because of the impact the COVID-19 pandemic has had on economies and deal transactions.
To assess the wider impact of the pandemic on tax strategies and corporate plans, ITR launched a survey this week to assess how companies are adapting.
South Africa and Hong Kong budgets stall tax revenue raising measures in budgets
In South Africa and Hong Kong SAR, the governments announced their annual budgets on February 24, following the global trend of measures to support a post-pandemic economic recovery and not raise taxes too quickly.
South Africa to cut corporate tax rate
South African Finance Minister Tito Mboweni announced that fiscal year 2020-21 will see the “largest tax shortfall on record,” amounting to ZAR 213 billion ($14.3 billion) less than the 2020 budget expectations. In addition, ZAR 40 billion in tax measures initially proposed in the October medium term budget policy statement will be postponed.
Nevertheless, the corporate income tax rate will be lowered to 27% from April 1 2022. This will be done alongside a broadening of the corporate income tax base by limiting interest deductions and assessed losses. More changes may also take place next year based on the recommendations of the Davis Tax Committee.
Companies should, however, be aware that the South African Revenue Services (SARS) has started to deepen its technology, data and machine learning capability.
“It is also expanding specialised audit and investigative skills in the tax and customs areas to renew its focus on the abuse of transfer pricing, tax base erosion and tax crime,” Tito told Parliament.
“In this coming fiscal year, SARS will establish a dedicated unit to improve compliance of individuals with wealth and complex financial arrangements. This first group of taxpayers have been identified and will receive communication during April 2021,” the finance minister added. The government intends to give SARS and additional ZAR 3 billion over the medium term to support this move.
In other proposals, the income tax brackets for individuals will rise by 5% to offer tax relief to more lower and middle‐income earners from March 1 2021. However, fuel levies and excise duties on alcohol and tobacco products will increase with immediate effect.
Hong Kong SAR limits tax changes
In Hong Kong SAR, Financial Secretary Paul MP Chan announced only a few tax measures in hisannual budget proposals.
“As businesses and individuals are generally under considerable financial pressure amid the prevailing economic environment and the epidemic, I consider that it is not the appropriate time to revise the rates of profits tax and salaries tax, which are our major sources of revenue,” said Chan. “Nevertheless, we will keep in view the situation and make adjustments at the appropriate time.”
Regardless, Chan said the government intends to expand Hong Kong SAR’s trade, investment and tax agreement networks and is committed to the OECD’s efforts to find an international agreement on taxing the digitalisation of the economy.
The financial secretary said that the free trade agreement and the investment agreement between Hong Kong SAR and the Association of Southeast Asian Nations (ASEAN) has entered into effect, the government’s efforts have turned to the Regional Comprehensive Economic Partnership agreement among 15 economies.
“We are actively seeking to be among the first batch of economies joining the RCEP after it comes into effect, so as to help Hong Kong businesses and investors open up markets, thereby fostering the long-term economic development of Hong Kong,” said Chan.
For businesses operating in Hong Kong SAR, Chan did announce a few tax reliefs. For example, tax concessions will be provided for carried interest issued by private equity funds operating in Hong Kong SAR.
He also announced that the government intends to “provide for half-rate profits tax concessions to eligible insurance businesses including marine insurance and specialty insurance”. This includes facilitating the issuance of insurance-linked securities (ILS), expanding the scope of insurable risks of captive insurance companies, and enhancing the group-wide supervision framework by the end of March 2021.
Legislative efforts are also underway to replace the country’s rule-based capital adequacy regime for the insurance industry with a risk-based capital regime.
For individuals, the financial secretary proposed a one-off 100% reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment (YA) 2020/21, subject to a ceiling of HK$10,000 per case. Business registration fees will also be waived for 2021-22, while the rate of ad valorem stamp duty will be increased from 0.1% to 0.13% of the consideration or value of each transaction of Hong Kong stock payable by buyers and sellers respectively.
In other news:
The UN Conference on trade and development issued a report on February 25, which calls for taxes on robots, digitalisation and automation to finance the revenue gap left by a changing workforce and the inequality this will create; and
The OECD and inclusive Framework member countries have approved the process for the BEPS Action 5 peer review of the transparency framework for the years 2021 to 2025. Results are expected later this year.
Next week in ITR
Next week, ITR will be reviewing the CJEU’s latest judgment that Article 63 of the Treaty of the Functioning of the European Union (TFEU) does not preclude local rules in the Société Générale SA case about double taxing dividend income between EU countries.
ITR also kicks off its 2021 women in tax events with a forum on March 3 and 4, ahead of International Women’s Day. Ahead of the event, ITR Reporter Alice Jones spoke to Karine Halimi-Guez, managing director of tax at FedEx, in a podcast about diversity and inclusion and FedEx's Benelux networking and mentoring project for women.
In addition, taxpayers will be sharing why they think the UK’s Making Tax Digital plan offers opportunities for MNEs. Preparing for the legislation has been more work than taxpayers expected, and there are issues around dealing with foreign exchange, multiple ERP systems, and partial exemptions. Although, tax directors welcome the chance to comprehensively update antiquated VAT processes. One MNE has cut the time spent on a VAT return from a week to 10 minutes.
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