Corporate Tax News is closing out 2022 with two lead articles from the Netherlands: a temporary windfall profits tax on companies in the gas, oil and coal sectors and an interesting Supreme Court decision on the static versus ambulatory approach to the interpretation of tax treaties.
The government wants to impose an additional levy on companies that have benefited disproportionally from the significantly increased energy prices. Revenue from the windfall tax is estimated at EUR 3.2 billion and would be used (amongst others) to cover the costs of compensation measures for households. The windfall levy would apply only for (fiscal) year 2022 and is based on the recent EU regulation that introduces a temporary windfall tax and mandate reduced consumption of electricity.
On 14 October 2022, the Dutch Supreme Court published a decision on whether the definition of “employer” in the 2010 Commentary on the OECD Model Tax Convention could be used for the interpretation of the 1959 Netherlands-Germany tax treaty. According to the court, a definition from an OECD Commentary adopted after the signing of a treaty may be used only if it represents a clarification or explanation of a definition (i.e., in the Commentary prevailing at the time the treaty was signed). If it deviates from the definition at the time the treaty was signed or if the treaty text deviates from that of the OECD model treaty, the OECD Commentary cannot be used to interpret a definition in the treaty.
The European Commission has launched a public consultation on its proposal for the introduction of a common set of rules for EU groups operating cross-border to calculate their taxable base, along with an agreement on a method for allocating profits between EU member states based on a formula. The CJEU has released two important decisions: one on the long-standing Fiat case involving potential state aid from Luxembourg and another on a German case involving the ability of a member state to disallow the deduction of final losses incurred by a foreign PE.
A formal meeting of the ECOFIN Council took place on 4 October, during which finance ministers sought to reach consensus on the draft EU second pillar directive, which would implement the second pillar rules against global base erosion and introduce a global minimum tax of 15%. Under EU law, a directive on tax legislation must be approved unanimously; a political agreement was not reached during the ECOFIN Council meeting on 17 June, when Hungary vetoed the proposal (for previous information, see the Global Tax Alert of 20 June 2022). How the rules might be implemented is currently unclear.
On September 9, 2022, the governments of France, Germany, Italy, the Netherlands and Spain published a joint statement reaffirming their commitment to implementing the OECD's second pillar rules from 2023. The statement was made during a press conference at the informal economic meeting of the EU and the Financial Affairs Council (ECOFIN ) in Prague. Countries intend to implement the second-pillar rules unilaterally if an EU consensus is not reached in the coming weeks.
France’s finance bill 2023 includes the introduction of a windfall tax and the reintroduction of a generous tax credit for SMEs carrying out energy-efficient renovations of their buildings.
Ireland’s finance bill contains measures that weren’t included in the budget announcements and omits some measures that were included. Both bills are expected to be enacted by year-end.
Poland aims to finalize rules to implement DAC 7 z (new EU tax transparency rules on digital platforms) into domestic law before the end of 2022 and a UK article, which looks at draft regulations that will bring data sharing into effect for the gig economy.
Turning to the Asia-Pacific, Cambodia has clarified the documentation needed to substantiate an arm’s length interest rate on related party loans and the rates to be used in such transactions.
China has granted temporary enhanced benefits to encourage high-tech enterprises to engage in technological innovation and upgrade their equipment and allowing a higher deduction for R&D expenses.
Further refinements are being made to Hong Kong’s proposed FSIE regime to address EU concerns. Interest income and capital gains derived by nonresidents from Korean government bonds and monetary stabilization bonds are exempt through the end of 2022. Malaysia’s budget confirms that the country will introduce the 15% global minimum tax under Pillar Two in 2024, as well as a qualified domestic minimum top-up tax.
And in Latin America, with Brazil’s presidential elections now concluded, we’ll have to wait to see how the new President will move his ambitious agenda for income tax and VAT reform forward.
BDO Corporate Tax News summarises recent tax developments of international interest across the world.
In this issue, you can find:
- Argentina: Mandatory disclosure regime suspended until end of 2022
- Australia: Budget 2022-23 includes measures affecting MNEs, including changes to the thin cap rules
- Brazil: Post-election tax reform: What can we expect?
- Cambodia: Guidance issued on related party loans
- China: New temporary incentives to support scientific and technological innovation
- European Union: Francer: Corporate tax measures in 2023 draft finance bill
- European Commission seeks input on BEFIT
- Luxembourg: CJEU rules no state aid in Fiat case
- Three jurisdictions added to list of noncooperative jurisdictions for tax purposes
- Germany: CJEU rules in favour of Germany on PE final loss deduction
- Five member states release statement on unilateral implementation of Pillar 2
- Hong Kong: Bill on proposed FSIE regime to be further revised to address EU concerns
- International: Corporate - tax bytes
- Finance bill 2022 published
- 2023 budget measures affecting businesses
- Korea: Tax exemption for interest and capital gains of nonresidents and key corporate measures for 2023
- Malaysia: Highlights of corporate tax measures in Budget 2023
- Supreme Court uses static approach to interpretation of old treaty with Germany
- One-time windfall tax to be levied on fossil fuel companies for 2022
- Highlights of main tax proposals in budget 2023
- Consultation launched on Minimum Tax Act 2024 (Pillar Two)
- Poland: DAC 7 implementation rules being drafted
- Singapore: Administrative concession for employer contributions to mandatory pension/provident funds to be withdrawn
- South Africa: Navigating the logistics of the corporate income tax rate reduction
- Thailand: Enhanced focus on international business
- United Kingdom:
- Autumn Statement: what can we expect?
- Tax transparency moves a step closer for the gig economy
- Mini budget measures include scrapping of planned corporate tax rate increase
- United States: What the new corporate AMT means for your business
For further information and the whole edition, click HERE.