This week in tax: Using Earth Day for tax digitisation

The UN’s Mother Earth Day is a call to action, urging everyone to make changes that protect our planet. Digitisation is one aspect that allows the tax sector to go paperless and reduce its carbon footprint. The requirement from governments to submit election tax filings and data has expedited the digital transformation.

The OECD is also leading this change through its environmental tax plans and Tax Administration 3.0, which is focused on the digital transformation of tax administrations in support of a more seamless model for taxation.

“The FTA has also developed two new tools – a Digital Transformation Maturity Model and a web-based Inventory of Tax Technology Initiatives – to help administrations to understand the global landscape on digitalisation and how they are positioned,” Bob Hamilton, chair of the Forum on Tax Administration (FTA), told ITR.

In ITR next week, we will be analysing how tax authorities are using QR codes to push the compliance burden onto taxpayers. We will also assess how the EU’s revised withholding tax system will use distributed ledger technology (DLT) to seamlessly transfer tax data between national systems.

On environmental tax policy, there is a vast swathe of measures being introduced to tackle the climate crisis. Ireland, the EU, the US, Mexico, the UK and numerous other countries have implemented rules that encourage businesses and individuals to change their behaviours. However, the high inflation rates and economic impact of COVID-19 has hampered some efforts. For example, many governments across Europe have had to cut taxes of fuel duty.

Meanwhile, an April survey by PwC found that companies operating in EU countries are not all prepared for the EU Green Deal. The accounting firm found that fewer than half of the businesses said they were prepared for the impact of the EU initiative.

“A key takeaway here is that businesses need to build up their capability, knowledge, and communication channels to assess the impact and transform their operations,” said Evi Geerts, director, and Jean-Philippe Van West, senior counsel, at PwC.

ITR’s research has shown that MNEs are upskilling employees and centralising tax functions to manage the rise of environmental tax reforms around the world. Nevertheless, governments, businesses and individuals still have a lot to do to prevent climate change.

In other news, some of the tax advantages of using a holding company in Norway for mergers and acquisitions (M&A) may be about to come to an end.

The Norwegian government intends to change the VAT scheme for foreign providers of services, such as bankers and advisors, working on M&A, property and holding company deals that could result in a 25% VAT payment. Espen Qvist, partner and head of international indirect tax at PwC Norway, said the impact could be significant for foreign service providers.

In Brazil, taxpayers are preparing for more compliance headaches. After the OECD and Brazil agreed to revise the TP system, tax analysts have warned that companies will incur high compliance costs and challenges with finding the right data for comparables. Complex benchmarking analyses and expanded TP methods add further risks of lengthy disputes, say tax experts.

Also in ITR this week:

• Embracing automation: Are you prepared for the digitisation of VAT?

• Survey: Post-pandemic TP management for intangibles

• Women in Business Law Awards Americas 2022: shortlist revealed

• China’s Hainan free trade port: Sales tax reform brings new opportunities

• Taxing alcoholic spirits in India: The litmus test of potability

In the UK, the controversy around audits continues to haunt the Big Four accounting firms. Deloitte and one of its audit engagement partners were fined for breaches relating to one audit year of outsourcing group Mitie.

The Executive Counsel of the Financial Reporting Council (FRC) announced on April 21 that it fined the accounting firm £2 million ($2.6 million), plus a sanction of £65,000 for Partner John Charlton. Both fines were adjusted for admissions and early disposal to £1.45 million and £40,056, respectively.

“This represents the latest example of the FRC flexing its regulatory muscles and follows hot on the heels of last week’s fines issued to KPMG,” said Paul Brehony, partner at Signature Litigation.

However, Deloitte may face further sanctions after the FRC opened another investigation in relation to the audits conducted by the accounting firm for the financial statements of Go-Ahead Group between 2016 and 2021.

Brehony said further fines are inevitable for audit firms in the UK. “Given the 44% growth of the FRC’s Enforcement Division in 2021 and the forthcoming transfer of control of large company audit licensing to the watchdog, auditors can expect further ugly (and expensive) headlines and for regulatory scrutiny to be ramped up further,” he said.

So far this month, the FRC has published a revised audit firm governance code for the Big Four audit firms and a proposed plan to register of public interest entities.

There is never a quiet moment in tax and things are getting interesting with the elections in France, more debate on the OECD digital tax agenda and controversy over India’s GST regime.

ITR is following the French presidential election, with the second round of voting to be held on April 24. The Tax Foundation noted how the election will have a significant impact on national and EU tax policy depending on who wins.

EU Policy Analyst Sean Bray stated in his article that a second term for President Emmanuel Macron would allow for pro-growth tax reforms. Macron has pledged, among other things, to abolish the contribution on added value (CVAE) in his second term to build on his tax reform efforts.

By contrast, a win for National Rally candidate Marine Le Pen is likely to “destabilise French government revenue streams with narrow and distortive tax policies”. However, if the legislative election results in a “cohabitation government”, there could be little progress on tax policy over the next five years.

At the OECD, the Paris-based organisation will hold a virtual public consultation meeting on April 25 to discuss how tax administrations and MNEs can implement and apply the global anti-base erosion (GloBE) rules in a consistent and co-ordinated manner. The conversation will allow attendees to raise questions and concerns not yet covered during panel meetings.

In India, meanwhile, the GST Council is planning to amend the GST rates as the compensation scheme supporting its 28 states and eight union territories comes to an end. The changes will impact businesses, supplies chains and consumers. ITR will provide details on how companies are preparing for the proposed changes.

Businesses are also busy in Indonesia. Some financial technology companies in Indonesia are scrambling to adjust their operations ahead of the government’s introduction of an 11% VAT charge on the fees and commissions of digital wallet and crypto-asset service providers.

On TP, reporter Leanna Reeves will be analysing the Maersk Oil and Gas and ConocoPhillips cases that offers guidance on how other taxpayers can avoid similar disputes with tax authorities.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.