Direct Tax
Inclusive framework members make further progress in addressing harmful tax practices
(Excerpts from oecd.org – dated 27 August 2024)
Jurisdictions have made further progress in addressing harmful tax practices by implementing the international standard under BEPS Action 5, as evidenced by the release of the latest results of the reviews by the Forum on Harmful Tax Practices (FHTP) of preferential tax regimes.
At its May 2024 meeting, the FHTP reached the following new conclusions on six regimes as part of the implementation of the Base Erosion and Profit Shifting (BEPS) Action 5 minimum standard on harmful tax practices:
| # | Jurisdiction | Regime | Status | Comments |
|---|---|---|---|---|
| 1 | Armenia | Free economic zones | IP part: Abolished | Ring-fencing removed. Substance requirements (non-IP) in place. |
| Non-IP part: Not harmful (amended) | Grandfathering in accordance with FHTP timelines. | |||
| 2 | Bulgaria | Tonnage tax | Not harmful | No harmful features. |
| 3 | Croatia | Investment promotion act | Under review | Regime under review by the FHTP. |
| 4 | Croatia | Tonnage tax | Not harmful | No harmful features. |
| 5 | Eswatini | Special economic zones | IP part: Abolished* | Ring-fencing removed. Substance requirements (non-IP) in place. |
| Non-IP part: Not harmful (amended)* | Grandfathering in accordance with FHTP timelines. | |||
| 6 | Hong Kong (China) | Profits tax concession for aircraft lessors and aircraft leasing managers | Not harmful | Grandfathering in accordance with FHTP |
Note:
- *Subject to the adoption of final legislation.
Transfer Pricing
Global update
CbC reporting updates in multiple countries
In recent years, the landscape of international tax compliance has undergone significant transformation, with an increasing emphasis on transparency and accountability. One of the key developments in this arena is the evolution of Country-by-Country (CbC) reporting , a crucial component of the BEPS Action Plan spearheaded by the OECD. CbC reporting requires multinational enterprises to disclose detailed financial and operational information on a country-by-country basis, enhancing the ability of tax authorities to assess and address tax risks effectively. Some of the latest updates and changes in CbC reporting in multiple countries are encapsulated as under:
- In Austria, the National Council has
implemented public CbC reporting.
This new law will take effect for
financial years starting after 21 June
2024. For companies with financial
years aligned with the calendar year,
the first public CbC report will need
to be prepared and published for
2025.
Notable updates from the draft law
include:
- Clarified reporting timelines for ultimate parent and unaffiliated companies, and for subsidiaries and branches.
- Income reporting aligned with national law and accounting principles.
- Option to disclose information either aggregated or separately for different tax jurisdictions.
- On 1 August 2024, the European Commission launched a public consultation on standardizing the template and electronic formats for public CbC reports. The final template is expected to be adopted by the end of Q3 2024.
- Australian Senate Economics
Legislation Committee
recommended passing the
legislation for public CbC reporting
in Australia. However, coalition
senators suggested amendments to:
- Include a five-year deferral for sensitive information.
- Clarify the Tax authorities’ discretionary exemption.
- Align the non-cooperative jurisdiction list with the EU Directive.
- Provide details on jurisdiction listing and delisting.
- Review the regime within one to two years of implementation.
UAE: FTA directive on Advance Pricing Agreements (APA)
The Federal Tax Authority (FTA) has issued a decision viz Decision No 4 of 2024, enunciating the FTA’s policy on issuing clarifications & directives relating to federal taxes.
Article 59 of the Federal Decree law no 47 of 2022 provides that a person may make an application to FTA for entering into an Advance Pricing Agreement (APA) with respect to an existing/ proposed transaction with related parties. The FTA shall prescribe the form and manner in which application for APA should be made.
The said decision now clarifies that the start date for receiving APA applications, the procedures relating to submission and issuance of agreements will be announced by FTA during the fourth quarter of 2024.
Nevertheless, the UAE TP laws are broadly based on the OECD Guidelines; accordingly, it is expected that the UAE APA program will also be in line with Chapter IV of the OECD TP Guidelines.
Our Comments
The APA program will undoubtedly be an effective tool for resolving disputes, promoting tax certainty, and ensuring a consistent approach for related party transactions. However, since this is an optional scheme, the decision to opt for APA will lie with the businesses that need to evaluate the same basis the value of related party transactions as compared to the efforts and cost involved in the APA process.
Indirect Tax
Poland increases excise on tobacco products, approves cash-based VAT reporting for small businesses
Excerpts from various sources
Legislation increasing the excise duty on tobacco products and their substitutes was published on the Polish Legislation Centre’s website on 2 August 2024. The bill also extends the excise duty scheme to vaping devices and establishes a one-year validity for excise stamps on electronic cigarette liquids.
Additionally, starting 1 January 2025, small businesses and entrepreneurs with annual sales below EUR 250,000 will have the option to use cash-based VAT reporting. This represents a change from the previous EUR 1.2 million threshold applicable to all businesses.
Under the cash-based system, taxpayers will pay VAT only when receiving it and will deduct input VAT only when paying their suppliers’ invoices. This differs from the accrual-based system, where VAT is reported basis the sales invoices issued and purchase invoices received.
Romania’s new pre-completed eVAT returns from 1 August 2022
Excerpts from various sources
Romania has released draft legislation detailing the new format for precompleted VAT returns, known as RO eVAT. Taxpayers must review and address any discrepancies in the listings of VAT transactions, which are derived from e-invoicing and Standard Audit File for Tax (SAF-T) , by the 20th of the month following the reporting period.
From 1 August 2024, Romanian taxpayers are required to approve a new monthly list of their VAT transactions, which effectively serves as a pre-filled return. This would be reconciled with their regular VAT return submitted to the Ministry of Finance and the National Agency for Fiscal Administration (ANAF). This measure was enacted through emergency ordinance (OUG) 70/2024, passed on 21 June 2024.
Phase I of e-invoicing mandate in Malaysia begins from 1 August 2024; 6-month soft launch until February 2025
Excerpts from various sources
From 1 August 2024, Malaysia launched its mandatory e-invoicing regime for B2B, B2C, and B2G transactions. The initial phase includes a soft launch, allowing taxpayers to choose between adopting the new e-invoicing system or continuing to report monthly consolidated e-invoices.
The schedule for the phased implementation of the pre-clearance e-invoicing regime is as follows:
- August 2024: Mandatory for taxpayers with an annual turnover exceeding MYR 100 million (approximately USD 21 million), affecting about 5000 taxpayers.
- January 2025: Applies to taxpayers with an annual turnover between MYR 25 million (approximately USD 5 million) and MYR 100 million.
- February 2025: Marks the end of the 6-month soft landing phase for the large taxpayers from the August 2024 wave.
- July 2025: Mandatory for all remaining taxpayers.
Businesses with annual sales below MYR 150,000 are exempt from this mandate.