Global Tax Policy and Controversy Watch | June 2023 edition

Key highlights

Pillar Two developments

The Australian government announced the intention to adopt legislation to implement the BEPS 2.0 Pillar Two rules. The Dutch Government sent draft legislation to Parliament to implement the Pillar Two rules. The New Zealand government introduced legislation that includes implementation of the Pillar Two rules. And, the Swiss Federal Council opened the second public consultation of the ordinance that will temporarily regulate the Pillar Two rules in Switzerland during a transition phase.

See EY Global Tax Alerts: Australia to adopt the 15% Global Minimum Tax (Pillar Two) measures, dated 11 May 2023; The Netherlands issues proposed Pillar Two legislation, dated 31 May 2023; New Zealand to adopt the OECD GloBE (Pillar Two) rules and Switzerland opens public consultation on procedural aspects of the OECD's Pillar Two minimum corporate tax, both dated 25 May 2023.

G7 Finance Ministers welcome OECD progress report on tax cooperation and reiterate commitment to implementation of Pillars One and Two

The communiqué released after the G7 Finance Ministers and Central Bank Governors' meeting in Japan on 11-13 May 2023 reaffirms their strong political commitment to the swift global implementation of Pillars One and Two and welcomes the progress that has been made. The OECD's "2023 Progress Report on Tax Co-operation for the 21st Century," prepared for the G7 meeting, describes the evolving international tax landscape and updates its 2022 report.

See EY Global Tax Alert, G7 Finance Ministers welcome OECD progress report on tax cooperation and reiterate commitment to implementation of Pillars One and Two, dated 19 May 2023.

New global survey from EY highlights business concerns on the outlook for tax audits and disputes

In the coming years, Global Tax Directors predict a 50% increase in the number and intensity of tax audits and disputes, according to the EY 2023 Tax Risk and Controversy Survey.

Read the latest EY Global Tax Controversy monthly flash news article, EY Global Tax Controversy Flash Newsletter (Issue 58) | New global survey from EY highlights business concerns on the outlook for tax audits and disputes, dated 16 May 2023.

News items

Final regulations published for new EU CBAM and EU ETS revisions

A transitional period will apply for European Union (EU) Carbon Border Adjustment Mechanism (CBAM) from 1 October 2023 to 31 December 2025 with solely quarterly reporting obligations. From 2026 onward, purchasing CBAM certificates will be required. The EU Emission Trading System (ETS) will be extended in the aviation and maritime sectors and the new ETS II will cover fuels for transportation and heating.

See EY Global Tax Alert, Final regulations published for new EU Carbon Border Adjustment Mechanism (CBAM) and EU Emission Trading System revisions; CBAM transition period begins 1 October 2023, dated 22 May 2023.

EU customs reform proposal embraces modern approach to e-commerce

The European Commission has proposed reforms to the EU's customs regime, including the introduction of a single online data system. The changes aim to simplify customs obligations and processes and introduce EU-level risk management to better enforce EU standards.

See EY Global Tax Alert, EU customs reform proposal embraces modern approach to e-commerce, dated 18 May 2023.

EU finance ministers reach political agreement on updated compromise text for DAC8

EU finance ministers reached political agreement on updated compromise text for revising the Directive on administrative cooperation to implement the OECD rules on the Crypto-Asset Reporting Framework and the amendments to the Common Reporting Standard. The rules require reporting as of 2026 by institutions that offer crypto-asset services or electronic-money services to customers in the EU. The rules also update existing automatic exchange of information rules, including provisions targeting advance cross-border rulings involving natural persons.

See EY Global Tax Alert, EU finance ministers reach political agreement on updated compromise text for Directive introducing tax transparency rules for crypto assets (DAC8), dated 17 May 2023.

Australia delivers 2023/24 Federal Budget

The Australian 2023/24 Federal Budget, delivered on 9 May 2023, includes (i) an announcement of the intention to adopt the Pillar Two rules, (ii) changes to the Petroleum Resource Rent Tax from 1 July 2023, (iii) an expansion of Australia's general anti-avoidance rule and (iv) various incentives and measures to support Australia's transition to net-zero carbon emissions and to address ongoing housing supply.

See EY Global Tax Alert, Australia delivers 2023/24 Federal Budget, dated 10 May 2023.

Australia issues second draft of compliance guidelines on intangibles arrangements

On 17 May 2023, the Australian Taxation Office released the second draft of its guidance on intangible arrangements with international related parties in the draft Practical Compliance Guideline (PCG) 2023/D2, which supersedes the first draft released two years ago. This represents the latest of the ATO's transfer-pricing-focused PCGs.

See EY Global Tax Alert, Australia delivers 2023/24 Federal Budget, dated 10 May 2023.

Decision of CJEU on Bulgarian referral raises refund potential for certain VAT payments

The Court of Justice of the European Union issued an important decision opening the door to the possibility of obtaining a refund of value-added tax (VAT) paid due to adjustment of the input VAT deduction when goods that have lost their usefulness are scrapped.

See EY Global Tax Alert, Bulgaria: Decision of CJEU on Bulgarian referral raises refund potential for certain VAT payments, dated 16 May 2023.

Chile approves new mining royalty law

The Chamber of Deputies of Chile approved a mining royalty bill that had been under discussion for several years in Parliament. Some provisions of the bill still need to pass a constitutional review by the Constitutional Court, after which the bill will be ready for promulgation by the President.

See EY Global Tax Alert, Chile | New mining royalty is approved and ready to become law, dated 30 May 2023.

Costa Rican Executive Branch files comprehensive tax reform bills

The Costa Rican Executive Branch filed several bills that seek to reform the current tax system. The bills include approving a new Income Tax Law, eliminating specific VAT exemptions and granting greater control and inspection powers to the Tax Authority.

See EY Global Tax Alert, Costa Rican Executive Branch files comprehensive tax reform bills, dated 30 May 2023.

Denmark expands tax liability scope to include activities carried out in the Exclusive Economic Zone

On 1 June 2023, the Danish Parliament passed a bill expanding the scope of tax liability for nonresident companies and individuals engaged in activities outside of Denmark's sea territory (12 nautical miles) but within Denmark's Exclusive Economic Zone. The new rules apply beginning 1 July 2023.

See EY Global Tax Alert, Denmark expands tax liability scope to include activities carried out in the Exclusive Economic Zone, dated 1 June 2023.

Danish Supreme Court issues rulings on beneficial ownership of interest and abuse of EU law

The Danish Supreme Court has issued rulings in two beneficial-ownership cases, which the Danish Eastern High Court had previously submitted to the Court of Justice of the European Union for preliminary ruling.

See EY Global Tax Alert, Danish Supreme Court issues rulings on beneficial ownership of interest and abuse of EU law, dated 8 May 2023.

Dominican Republic implementing mandatory electronic invoicing

On 16 May 2023, the President of the Dominican Republic enacted a new electronic invoicing (EI) law regulating the mandatory use of EI and establishing the EI tax system, including its characteristics, optimization results, contingencies, entry deadlines and fiscal facilities granted to taxpayers.

See EY Global Tax Alert, Dominican Republic Executive Branch enacts law implementing mandatory electronic invoicing, dated 1 June 2023.ww.ey.com/en_gl/tax-alerts/german-federal-administrative-court-confi

German plastics and packaging taxes

Based on the EU Single-Use Plastics Directive regulations, Germany will implement a Single-Use Plastics levy for single-use plastics released on the market from 2024, with first payments expected to be due in 2025. Additionally, on 24 May 2023, the German Federal Administrative Court confirmed the legality of a local packaging tax in the city of Tübingen. This case may open the door for further local packaging taxes in other cities in Germany and beyond in Europe.

See EY Global Tax Alerts, Germany to implement Single-Use Plastics levy from 2024, extending scope to certain fireworks from 2027 and German Federal Administrative Court confirms legality of local packaging tax in city of Tübingen, dated 2 June 2023.

Hong Kong passes bill on tax concessions for Family-owned Investment Holding Vehicles

The new law introduces a dedicated tax-concession regime for Family-owned Investment Holding Vehicles (FIHVs) managed by eligible single-family offices (ESFOs) in Hong Kong. Upon making an irrevocable election in writing, an FIHV managed by an ESFO in Hong Kong will be taxed at a 0% concessionary tax rate on its assessable profits derived from qualifying transactions and incidental transactions, subject to a 5% threshold. The law has retroactive effect from 1 April 2022.

See EY Global Tax Alert, Hong Kong passes bill on tax concessions for Family-owned Investment Holding Vehicles, dated 23 May 2023.

Israel's Tax Authority explains its stance on classification of SAFE instruments

On 16 May 2023, the Israeli Tax Authority responded to an inquiry from the Israeli Advanced Technology Industries organization regarding the classification of Simple Agreements for Future Equity instruments commonly used by early-stage startup technology companies to secure initial funding.

See EY Global Tax Alert, Israel's Tax Authority explains its stance on classification of SAFE instruments, dated 22 May 2023.

Italian Tax Authority rules effects of UK VAT groups not recognized for Italian VAT purposes

The Italian Tax Authority has published a ruling response addressing the VAT relevance of supplies between an Italian branch or head office and a United Kingdom branch or head office of the same entity, where the UK establishment is a member of a UK VAT group.

See EY Global Tax Alert, Italian Tax Authority rules effects of UK VAT groups not recognized for Italian VAT purposes, dated 18 May 2023.

Kenya proposes tax changes under the Finance Bill, 2023

The Kenya Treasury Secretary has proposed changes that would affect the imposition of income tax, value-added tax, excise tax and various fees and penalties, as well as tax compliance requirements.

See EY Global Tax Alert, Kenya proposes tax changes under the Finance Bill, 2023, dated 15 May 2023.

Luxembourg enacts tax transparency rules for digital platforms

On 1 June 2023, a law requiring the automatic and mandatory exchange of information reported by platform operators comes into force, with the first reports to be filed with the Luxembourg Tax Authority no later than 31 January 2024. The law also introduces some generic changes to the existing legislation on administrative cooperation in tax matters and amends the Common Reporting Standard and Mandatory Disclosure Regime laws to comply with data protection requirements.

See EY Global Tax Alert, Luxembourg enacts tax transparency rules for digital platforms, makes other changes regarding administrative cooperation in tax matters, dated 2 June 2023.

Nigeria enacts wide ranging business law changes

The Business Facilitations Act includes 21 amendments to existing laws that will affect certain businesses, government agencies, organizations and individuals.

See EY Global Tax Alert, Nigeria | Highlights of the Business Facilitation (Miscellaneous Provisions) Act, dated 25 May 2023.

Qatar amends Executive Regulations to the Income Tax Law

The Amended Regulations principally focus on the expanded definition of permanent establishment (PE) in the Income Tax Law, a revised determination of taxable income for a PE, amendments to certain criteria for tax exemption, expanded powers of the General Tax Authority to collect information, and new economic substance rules.

See EY Global Tax Alert, Qatar amends Executive Regulations to the Income Tax Law, dated 24 May 2023.

Saudi Arabia announces fifth wave of Phase 2 e-invoicing integration

The Saudi Arabia Zakat, Tax and Customs Authority announced that taxpayers resident in Saudi Arabia with taxable turnover above SAR100m during the year 2021 or 2022 should comply with the Phase 2 e-invoicing requirements beginning 1 December 2023.

See EY Global Tax Alert, Saudi Arabia announces fifth wave of Phase 2 e-invoicing integration, dated 30 May 2023.

Saudi Arabia clarifies interpretation of service-PE provisions in its tax treaties

On 17 May 2023, Saudi Arabia's Zakat published a circular to clarify and provide guidance on the taxation of nonresidents who provide services in Saudi Arabia where an effective tax treaty is in place between Saudi Arabia and the relevant jurisdiction.

See EY Global Tax Alert, Saudi Arabia clarifies interpretation of service-PE provisions in its tax treaties, dated 31 May 2023.

US IRS interim guidance on review and acceptance of APA submissions fundamentally changes early stages of the process

The IRS's Acting Director of Treaty and Transfer Pricing Operations informed IRS employees of new internal procedures for Advance Pricing Agreement (APA) pre-filing meeting requests and the review and acceptance of APA submissions.

See EY Global Tax Alert, US IRS interim guidance on review and acceptance of Advance Pricing Agreement submissions fundamentally changes early stages of the process, dated 4 May 2023.

US IRS officials highlight latest transfer pricing developments

At an 18 May 2023 conference, IRS officials discussed an increasing focus on transfer pricing with the help of new hires and enhanced data analytics, stated the IRS will accept unspecified methods when they lead to a reliable result, expressed support for Amount B under Pillar One and committed to handling complex cases through the Advance Pricing and Mutual Agreement Program.

See EY Global Tax Alert, IRS officials highlight latest transfer pricing developments, dated 25 May 2023.

 

For additional information with respect to this Alert, please contact the following:

• Matt Andrew, Asia-Pacific Tax Policy Leader, Auckland
• Barbara M. Angus, Global Tax Policy Leader, Washington, DC
• Julie Byrne, Global Tax Policy, Washington, DC
• Jorge Libreros Calderon, Latin America North Tax Controversy Leader, Panama City
• Martin Caplice, Asia-Pacific Tax Controversy Leader, Sydney
• Bryon Christensen, United States Tax Controversy Leader, Seattle
• Luis Coronado, Global Tax Controversy Leader, Singapore
• Cathy Koch, Americas Tax Policy Leader, Washington, DC
• Jean-Pierre Lieb, EMEIA Tax Policy and Controversy Leader, Paris
• Paul Mulvihill, Canada Tax Controversy Leader, Ottawa
• Rodrigo Munhoz, Latin America South Tax Controversy Leader, São Paulo
• Gilad Shoval, Israel Tax Controversy Leader, Tel Aviv

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.