Direct Tax
Statement by the OECD Secretary- General on the 16th meeting of the Inclusive Framework on BEPS1
Excerpts from oecd.org – dated 30 May 2024
The Organization for Economic Cooperation and Development (OECD) Secretary-General Mathias Cormann has welcomed the commitment of the 147 Members of the Inclusive Framework on Base Erosion and Profit-Shifting (BEPS) to keep working to resolve any remaining issues in time to start the signing process of the Multilateral Convention (MLC) implementing Amount A of Pillar One by the end of June this year.
This Inclusive Framework plenary meeting has clarified the outstanding issues in its ongoing effort to reach an agreement on a fairer allocation of taxing rights globally.
It has also been an opportunity to reflect on the significant progress already realized over more than a decade of multilateral discussions on addressing the tax challenges arising from digitalization and globalization of the economy.
Advances in global tax cooperation have included the minimum standards agreed upon in the initial BEPS project: reforming harmful tax practices, reducing treaty abuse, improving dispute resolution, and increasing tax transparency through the exchange of the Country-by-Country Reporting (CbCR) on the largest multinationals, where we remain committed to ensuring that all countries can benefit.
Importantly, the Global Minimum Tax agreed under Pillar Two is in the process of coming into force in countries worldwide and will raise significant revenues of up to USD 192 billion per year for both developed and developing countries.
With the significance of these achievements in mind, the OECD will continue to support the Members of the Inclusive Framework toward a successful conclusion of their necessary work.
Transfer Pricing
Pillar Two – Minimum Global Tax
The OECD Inclusive Framework on BEPS has been interminably evolving with burgeoning developments in agreements on a two-pillar approach to help address tax avoidance, coherence of international tax rules and inculcating a transparent tax environment. The Pillar Two forms one of the elements to sew up the intent of OECD, thereby ensuring income is taxable at an appropriate rate.
On 20 December 2021, the OECD/ G20 Inclusive Framework on BEPS released the Model Global Anti-Base Erosion (GLoBE) rule (Model Rules), divulging the common approach for Global Minimum Tax at 15% for multinational companies with a turnover exceeding EUR 750 million. The OECD published a consolidated commentary on 25 April 2024 in response to several discussions. It will be applicable to cross-border profits of large multinational corporations with a significant economic footprint across the world, befitting the rules of the OECD.
Pillar Two encompasses three rules applicable to multinational corporations – Income Inclusion Rules (IIR), Under- Taxed Profit Rules (UTPR) and Qualified Domestic Minimum Top-Up Tax (QDMTT) rules. Many of 140 countries have supported the framework, inclusive of the EU, and enacted or are expected to enact rules set out under Pillar Two. Hereunder stating supporting developments incorporated and adhered to by various jurisdictions in relation to OECD Pillar Two:
Belgium Tax Authorities released GLoBE registration terms to be adhered to by MNEs and large-scale domestic groups. Belgium Ultimate Parent Entity (UPE) or Constituent Entity (CE) is responsible for registering with the Belgium Commercial Register upon being covered within the scope of minimum tax rules. Alongside, the mandate of filing an additional form for IIR and UTPR has been introduced. Also, it has adopted modified GLoBE computation; revised charging provisions for partially owned parent entities; introducing QDMTT permanent safe harbor, transactional UTPR safe harbor and safe harbor for non-material CE; and incorporating hybrid arbitrage rules in CbCR safe harbors.
GreeceEnacted legislation for implementing a minimum global tax on 5 April 2024 in line with the EU directives, thereby subjecting multinationals exceeding the threshold to 15% minimum global tax. It incorporated CbCR, safe harbor, UTPR safe harbor and the permanent QDMTT safe harbor through the enactment of legislation.
IcelandPublished Fiscal Strategy Plan confirming the intent to implement Pillar Two by year-end for a planned entry in 2025. The object behind the implementation is to boost tax revenue in the jurisdiction.
EstoniaLegalized and implemented EU minimum tax directive (EU Directive), wherein it has deferred the application of IIR and UTPR till 31 December 2029. Estonia has partially transposed EU Directives having restrictive applications, wherein Estonia's UPE will be required to designate a foreign constituent entity to submit GLoBE Information Return (GIR). Consecutively, mandating local constituent entities to exchange information within the group for filing of GIR.
NorwayIssued public consultation paper in 2023 aligning with EU Directives and implemented Pillar Two in Supplementary Tax Act effective from 1 January 2024. However, UTPR will be implemented later, whereas QDMTT and IIR will be applicable to companies, undertakings, associations, and units that are part of both multinational and national groups exceeding the threshold. Adhering to new rules, covered groups will be required to file the first reporting by June 2026.
SpainPublished draft legislation to implement Pillar Two aligning with EU Directives to establish top-up tax ensuring global minimum tax being charged at 15%. The draft exchanges views on the eligible taxpayer, tax base calculation, information return, complementary tax management and insurance companies.
SwitzerlandSeveral Swiss cantons have changed corporate tax rates in line with the latest enactment of Pillar 2 in Switzerland, effective from 2024. The corporate tax rate increased from 13.8% to 15% in Canton of Schaffhausen (for profits higher than CHF 15 million) and 14% to 14.7% in Canton of Geneva. Canton of Grisons proposed a draft bill rewarding companies with higher value creation, robust R&D, and enhanced environmental sustainability.
Indirect Tax
No consensus amongst EU on ViDA proposal
Excerpts from various sources
The Economic and Financial Affairs Council (ECOFIN) of the European Union (EU) met on 14 May 2024 to discuss changes in the EU VAT Rules as part of the VAT in the Digital Age (ViDA) initiative, based on the revised proposal issued on 8 May 2024.
The ViDA proposal aims to fundamentally change the VAT system across three pillars, viz:
- E-invoicing and digital reporting – to be implemented from 1 July 2030, would affect all businesses engaged in B2B cross-border trade within the EU;
- Platform transactions – to be implemented from 1 July 2027, would affect online platforms mainly in the accommodation and passenger transport sectors;
- Single VAT registration – most provisions would be implemented from 1 July 2027, but an earlier effective date of 1 January 2026 has been prescribed for B2C supplies of electricity, natural gas, and cooling/ heating by non-established suppliers.
However, the Council Ministers did not reach an agreement and the discussions will now continue on 21 June 2024 to reach a compromise that all 27 Member States can approve.
No cut in high VAT on food, says Greek Finance Minister
Excerpts from various sources
The Greek Finance Minister has affirmed that the new government has no plan to cut the tax rate on food. The standard VAT rate in Greece is 24%, with certain goods and services eligible for reduced rates of 13% and 6%. As per the Minister, the government will review the rates at the end of 2024 to see if they can be reduced.
Kenya to introduce new tax on electric vehicles and financial transactions
Excerpts from various sources
The Kenyan government is poised to introduce new taxes on certain electric vehicles and their batteries. The proposed Finance Bill 2024 includes provisions for VAT on electric bikes and buses, as well as solar and lithiumion batteries. Additionally, an eco-tax is slated to increase the price of a 60 kg solar battery in Kenya by USD 312, as per the Associated Battery Manufacturers (ABM).
Furthermore, the Finance Bill proposes a 16% VAT on financial transactions covering services such as credit and debit card issuance, money transfers, foreign exchange transactions, and cheque handling.
Philippines proposes new VAT on digital services
Excerpts from various sources
The Senate has approved the bill to impose 12% VAT on digital service suppliers, whether they are residents or non-residents. This will be done by amending the National Internal Revenue Code (Tax Code) to expressly include "digital services" and "digital service providers" as among the transactions and entities subject to VAT. A nonresident digital service provider shall not be allowed to claim creditable input tax.