BDO Corporate Tax News summarises recent tax developments of international interest across the world.
In this issue: The United Arab Emirates which historically has been known for its 0% corporate tax is set to impose a 9% federal corporate tax from June 2023, a development that will affect domestic and multinational business operations and structures in the country. The introduction of a corporate tax regime indicates that the UAE (as a member of the OECD Inclusive Framework) intends to address the challenges arising from the digitalisation of the global economy and ensure the implementation of a global minimum tax.
The OECD has released for public comment draft model rules on “Amount A,” the share of a business’s residual profits that will be subject to the new taxing right created under Pillar One.
The European Commission has published a draft directive to combat the misuse of shell entities for improper tax purposes in the European Union. Known as “ATAD III (Anti-tax Avoidance Directive III), the directive would introduce a “minimum substance test" and reporting requirements, which could result in the denial of tax benefits to EU entities that are considered to have no or minimal economic substance.
A variety of tax changes are being made in annual budgets and tax reforms:
• Belgium’s 2022 budget includes major changes to the tax regime for expatriate taxpayers and researchers to simplify the rules and provide more certainty for taxpayers and their employers. • To address the increase in crypto-currency transactions, India has proposed a 30% tax on income from the transfer of digital assets, without any deductions.
• Italy’s 2022 budget law makes beneficial changes to the new super deduction for R&D expenses, including increasing the deduction amount and allowing taxpayers to benefit from both the super deduction and the R&D tax credit.
• To align the treatment of domestic and foreign entities, Japan intends to expand the scope of the earnings stripping rules to apply to to foreign entities without a PE in Japan that earn certain Japan-source income and to Japanese PEs of foreign entities where the PE’s Japan-source income is not attributable to the PE.
• After withdrawing the tax exemption for foreign-source income for Malaysian residents as part of the 2022 budget due to the inclusion of Malaysia on the EU’s grey list of noncooperative jurisdictions, the government has decided to temporarily reinstate the exemption for certain types of income.
• New rules in the Netherlands’ tax package for 2022 could have an impact on the tax positions recognized in financial statements.
• Changes to the tax law included in South Africa’s 2021/2022 budget have been enacted but amendments to the corporate interest deductibility rules are expected to come into effect 1 April 2022. There are corporate tax rate changes in Myanmar, Netherlands and Turkey, new withholding tax rules in Cyprus and a reduced rate on dividends in Turkey.
On the regulatory front, the tax authorities in Australia have issued final guidance on the assessment of tax compliance risk associated with imported hybrid mismatches, and in the United States, the IRS has issued regulations on the foreign tax credit and passive foreign investment companies.
An appellate court in South Africa has ruled against the taxpayer in a factually complex case concluding that the taxpayer’s contribution to a trust relating to the implementation of an employee share incentive scheme was not sufficiently connected to its income-producing operations to qualify for a deduction. Read these articles and more in the February 2022 issue of Corporate Tax News. Be sure to check out the Corporate Tax Bytes and COVID-19 updates columns.
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