Direct Tax
Multinational enterprises continue reporting low-taxed profit, even in jurisdictions with high corporate tax rates, underlining need for global tax reform
Excerpts from oecd.org dated 21 November 2023
Jurisdictions with high tax rates account for more than half of the low-taxed profits reported globally by multinational enterprises (MNEs), according to a new OECD analysis.
The new data and estimates on taxation of large MNE profits show how tax incentives and other concessions in jurisdictions with high statutory and average tax rates enable some firms to pay low Effective Tax Rates (ETRs). The findings highlight how the introduction of a global minimum tax rate on the profits of large MNEs as agreed by the OECD/G20 Inclusive Framework would create new opportunities for domestic resource mobilization for high-tax and low-jurisdictions alike.
The OECD’s latest Corporate Tax Statistics report and a new accompanying working paper, Effective Tax Rates of MNEs: New evidence on global low-taxed profit, provide new data on global low-taxed profit, a key issue for determining the impact of the global minimum tax.
The working paper finds that an estimated 37.1% (USD 2 411 billion) of global net profits (totaling USD 6 503 billion) are taxed at ETRs below 15%. In contrast to earlier studies, which have focused on low-taxed profit only in low-tax jurisdictions, the new paper estimates that high-tax jurisdictions – jurisdictions with statutory and average tax rates above 15% – account for more than half (56.8%) of all global profits currently taxed below 15%. This profit in high-tax jurisdictions exists across all country groups regardless of income level, with an estimated 28% of all global low-taxed profit being located in low or middle-income jurisdictions.
High-tax jurisdictions even account for more than 20% of very low-taxed profits – those with an ETR below 5%. These low-taxed profits in jurisdictions with high tax rates, which are likely the result of tax incentives and other targeted concessions, highlight the revenueraising potential of the global minimum tax, even in jurisdictions that have previously been thought to be high-tax.
The data in Corporate Tax Statistics covers MNE taxation in more than 160 countries and jurisdictions, bringing together new detailed information on MNEs’ international activities, as well as two years of aggregated Country-by-Country Reporting (CbCR) data shared between companies and tax authorities.
The report shows continued misalignment of MNE profits and real economic activity in markets worldwide. The median value of MNE revenues per employee in investment hubs is USD 1 710 000, as compared to USD 290 000 for all other jurisdictions. While these effects could reflect some commercial considerations, they likely also indicate the existence of base erosion and profit shifting (BEPS) practices, further highlighting the importance of implementing the global tax agreement.
Indirect Tax
Resellers of telecommunication services in Denmark liable to reverse-charge VAT from January 2024
Excerpts from various sources
With effect from 1 January 2024, the purchase of telecommunications services for resale between VATregistered entities in Denmark will be subject to VAT on a reverse charge basis in the hands of the purchaser. Internal transactions within a group of companies (e.g., where the group has a local procurement company) are also covered. Businesses selling telecommunications services would need to verify if the purchaser is a reseller to apply the reverse charge.
Companies in Egypt taking payments in foreign currency to pay VAT in same currency
Excerpts from various sources
The Egyptian Finance Ministry has amended the executive regulations of the unified tax procedures law to require companies to pay the VAT in foreign currency where the goods and services are sold in such currency. The new requirement has been introduced to tackle the longstanding foreign currency deficit faced by the treasury. While this amendment would not affect the export sector, which is exempt from VAT, it is likely to impact tourism companies.
Germany re-instates 19% VAT on Restaurant and Catering Services from January 2024
Excerpts from various sources
As part of the COVID-19 relief package, the VAT rate on food served in restaurants and catering services was reduced from 19% to 7%. The reduction was extended until 31 December 2023 due to energy crisis.
However, the German government has announced that the original rate of 19% will be reinstated with effect from 1 January 2024.
Belgium imposes joint VAT liability for electronic interfaces
Excerpts from various sources
Belgium has adopted a law introducing joint VAT liability for electronic interfaces, even when they are not deemed suppliers (commissionaire), effective from 1 January 2024. The new joint liability regime can only be invoked when the VAT authorities demonstrate that the electronic interface is not acting in good faith or has committed an error or negligence. Minimum due diligence obligations specified for electronic interfaces include:
- Verification of VAT identification number of the taxable supplier before facilitating the sales and at least once per calendar year.
- Upon receipt of notice from VAT authorities, intimation is to be given to the concerned supplier whose supplies are being facilitated by the electronic interface.
Malaysia imposes sales tax on lowvalue goods
Excerpts from various sources
The Royal Malaysian Customs Department (RMCD) has announced that sales tax on Low Value Goods (LVG), which had been deferred previously, will be brought into effect from 1 January 2024. LVG refers to all goods that are sold at a price not exceeding MYR500 and are brought into Malaysia by land, sea or air. Accordingly, sales tax at 10% will be applicable on all LVGs, regardless of their Harmonized System (HS) Code. However, specified exclusions include cigarettes, tobacco products and intoxicating liquor.