Direct Tax
International tax reform: OECD/G20 Inclusive Framework releases new information on key aspects of the Two-Pillar Solution
Excerpts from oecd.org dated 18 December 2023
Inclusive Framework on BEPS (Inclusive Framework) released further technical guidance to assist governments with the implementation of the global minimum tax under Pillar Two and a statement on the timeline of the Multilateral Convention (MLC) under Pillar One.
The Agreed Administrative Guidance for the Pillar Two Global Anti-Base Erosion (GloBE) Rules (December 2023) released today supplements the Commentary to the Global Anti-Base Erosion Model Rules in order to clarify their application, including guidance on the application of the Transitional Country-by-Country Reporting Safe Harbour and a mechanism for allocating taxes arising in a Blended Controlled Foreign Corporation (CFC) Tax Regime when some of the jurisdictions the MNE operates in are eligible for the safe harbor.
The Inclusive Framework will continue to release further Agreed Administrative Guidance on an ongoing basis in response to stakeholder requests for clarification of various aspects of the GloBE Rules and, where necessary, to address aggressive tax planning that may undermine the integrity of the rules or their application to certain MNE Groups. The Inclusive Framework will also continue to develop simplifications on key compliance items on a timely basis, which includes guidance expected in the first half of 2024 on the application of deferred tax liability recapture rules and the allocation of deferred taxes relating to cross-border taxes such as CFC Tax Regimes. The Inclusive Framework will also implement a robust and transparent peer review process and continue the ongoing work on the administrative framework and dispute resolution mechanisms with a view to providing a high level of tax certainty to stakeholders in applying the rules.
The Inclusive Framework also released today a statement updating the timeline to finalize the text of the MLC to implement the coordinated reallocation of taxing rights over the profits of the world’s largest and most profitable companies (Amount A of Pillar One). The statement expresses the continued and strong commitment of Inclusive Framework delegates to resolve the outstanding issues, achieve a consensus-based solution, and finalize the text of the MLC as swiftly as possible.
Transfer Pricing
Mutual Agreement Procedure (MAP) – Information and Statistics7
The DTAA is a treaty between two countries that enables the following:
- Allocating taxing rights amongst the treaty partners;
- Avoidance of economic (same income getting taxed in the hands of two separate entities) and juridical double taxation (same income getting taxed twice in the hands of the same entity in two different jurisdictions);
- Resolution of issues relating to taxation not in accordance with the treaty through MAP.
MAP is an additional and alternate dispute resolution mechanism for cross-border transactions, which resolves the disputes relating to double taxation or any taxation disputes not in accordance with the DTAAs. It enables the CA of one country to engage with the CA of the other country and facilitates discussions and negotiations between both authorities to resolve international tax disputes.
All members of the Organisation for Economic Co-operation and Development (OECD)/G20 inclusive framework on Base Erosion and Profit Shifting (BEPS) commit to implementing the Action 14 minimum standard, which seeks to improve the resolution of tax-related disputes between jurisdictions. Action 14 minimum standard is committed to having minimum standards reviewed and to have a robust peer review process to improve efficiencies and timeliness of resolution of disputes.
Statistics
The 2022 MAP statistics were released during the 5th OECD Tax Certainty Day, which covered 133 jurisdictions and practically all MAP cases worldwide. The key observations are given below for ease of reference:
- Increase in new MAP cases in 2022 by almost 3% compared to 2021.
- Fewer cases were closed in 2022, approximately 4% less as compared to 2021 (as many competent authorities prioritized simpler cases)
- Around 73% of MAP cases were concluded as fully resolved issues for transfer pricing cases (TP) and other cases, and 2% of MAP cases were concluded with no agreement.
- During the year 2022, it was observed that the MAP cases were closed in 25.3 months as compared to 26 months in 2021. Furthermore, the TP cases took a record-breaking timeline of around 29 months as compared to 32.3 months in 2021.
The OECD also recognized efforts by CAs under various categories – the Netherlands was awarded as the most improved jurisdiction as it closed around 102 additional cases with positive outcomes as compared to 2021. The award for the pairs of jurisdictions that dealt the most effectively with their joint caseload went to Denmark-Ireland for TP cases and to Germany-Ireland for other cases.
Our Comments
The increasing trend in the MAP cases and MAP being a by-product of BEPS Action 14 minimum standards depicts that more taxpayers are inclined to MAP as a tool for the dispute resolution mechanism. While there is more work to be done, this highlights the significant investment made by jurisdictions into their competent authority functions in spite of the increasing strain on resources in general. With the governments advocating the use of MAP for dispute resolution, it would be worth watching if MAP would continue to provide complete and determinative, one-time, cost-effective solutions for international tax disputes.
Indirect Tax
Sri Lanka revises VAT exemption list starting 2024
Excerpts from lankabusinessonline.com
The Inland Revenue Department (IRD) of Sri Lanka has updated the list of goods and services exempted from VAT beginning 1 January 2024. As part of the amendments to the VAT Act passed in 2023, the IRD has inter alia provided import duty waiver on certain products like aircraft parts and goods for government infrastructure projects funded by foreign loans while continuing the exemption on healthcare services and medications except hospital room charges, financial services such as bank accounts, loans, and insurance, etc.
Polish government extends VAT reduction on basic food products
Excerpts from various sources
Poland has issued a regulation extending the application of reduced VAT rates on basic food products until 31 March 2024 and for medicinal products and selected products used in agricultural products until 31 December 2024. The move comes as part of the Inflation Shield Program for a reduced VAT rate of 0% as against the standard 5% rate.
The Netherlands waives default penalties for non-compliance with VAT E-commerce Package
Excerpts from various sources
The Dutch tax authority has announced a waiver of default penalties until 1 June 2024 for taxpayers failing to comply with the One Stop Shop (OSS) mechanisms of the EU VAT E-commerce Package. This includes a reversal of previously imposed payment default penalties. The waiver applies to all non-resident users of OSS mechanisms, regardless of whether they use the Union, Non-Union, or Import mechanisms. The EU VAT E-commerce Package requires both non-EU and EU providers to charge VAT on cross-border services and goods to consumers in the country of destination.
Greece issues guidance on VAT treatment of OTC derivatives
Excerpts from various sources
The Greek Ministry of Finance has issued two circulars to clarify the VAT treatment of revenues from certain over-the-counter (OTC) derivatives. The key takeaways are summarized below:
- Circular E.2066/2023: In accordance with the treatment under EU and national law, as well as the established case law of the Court of Justice for the European Union (CJEU), revenues arising from contracts for difference (CFDs) are subject to VAT at the rate of 24% because CFDs are derivatives that are not traded on a stock market and are utilized for hedging risks.
- Circular E.2068/2023: Supply of services and respective income therefrom related to transactions concerning OTC derivatives, when at least one of the contracting parties is a credit institution or an Investment Services Company (AEPEY), is exempt from VAT. Furthermore, clarification is also provided when one of the parties to a CFD is established outside Greece.