International Taxation
Updates April 2024
Colombia
Q3 of FY 2023-24 | October 2023 The Colombian Tax Authority has issued new rulings on Significant Economic Presence (SEP), stating that non-residents with SEP in Colombia must pay either a 10% withholding tax or a 3% annual income tax on their gross income. Payments to these non residents are exempt from the limitations of Article 122 if they file an income tax return, for which they must obtain a tax ID (RUT) and register. (W.e.f. January 1, 2024.)
Poland
On April 25, 2024, Poland released draft legislation for implementing the Global Minimum Tax, including Qualified Domestic Minimum Top Up Tax (QDMTT), Income Inclusion Rule (IIR), and Undertaxed Profit Rule (UTPR). The legislation, which includes a permanent QDMTT Safe Harbor, will take effect on January 1, 2025. However, there is an option to apply the QDMTT Safe Harbor and Income Inclusion Rule (IIR) starting from January 1, 2024.
April 2024
Finland
The Finnish Government's public finance plan for 2025–2028 introduces a tax credit for substantial green industrial investments, covering 20% of costs up to EUR 150 million per project and is available for new projects with final investment decisions made by the end of 2025. The tax credit can be applied to corporate tax liabilities starting from 2028, upon project completion.
UAE
On April 3, 2024, the Federal Tax Authority issued a guide detailing how companies within a qualifying group can transfer assets and liabilities without incurring corporate tax, as outlined in Article 26 of the UAE's Corporate Tax Law. This guide ensures that transfers conducted at book value are tax-neutral, implying that no taxable gain or loss is recognized. This approach reflects that the overall ownership of assets and liabilities within the group remains unchanged.
May 2024
United States
On May 20, 2024, the Federal Administration of Public Revenue (AFIP) announced that the first automatic exchange of financial information under the FATCA agreement between Argentina and the U.S. will occur in September 2024. This follows confirmation from the IRS that Argentina has implemented the required data security measures and infrastructure. Malaysia Malaysia has introduced a new tax incentive scheme for
Malaysia
Digital (MD) companies, offering new Investment companies can receive a reduced tax rate of 0% on Intellectual Property (IP) income and 5% or 10% on non-IP income for 10 years or choose an Investment Tax Allowance of 30%-100% on capital expenditure. To qualify for the incentive scheme, a company must be a Malaysian resident with a minimum paid-up capital of RM 50,000, apply for MD Status, and must not have issued sales invoices for the qualifying activity before applying for the incentive.
May 2024
UAE
The UAE Federal Tax Authority has issued a guide explaining the application of the Corporate Tax Law to Free Zone Persons. It outlines the criteria for qualifying as a Qualifying Free Zone Person (QZFP) to take advantage of the 0% Corporate Tax rate and differentiates between Qualifying Activities and Excluded Activities for QZFPs. This guide should be used with the Corporate Tax Law and related FTA guidance.
European Union
On 14 May 2024, the EU Finance Ministers approved the FASTER Directive to streamline the relief of excess withholding taxes and address issues of double taxation and tax fraud in securities investments. The directive introduces a common digital tax residence certificate (eTRC) and includes compromises like a market capitalisation ratio and a delayed implementation start date of six years.
June 2024
OECD
On June 17, 2024 the OECD/G20 Inclusive Framework released new Administrative Guidance on the Pillar Two Global Anti-Base Erosion (GloBE) Rules. This guidance addresses issues such as deferred tax liability recapture, differences between GloBE and accounting values, allocation of cross-border taxes, and treatment of Flow-through Entities and securitization vehicles.
On June 17, 2024, the OECD released guidance on Pillar Two's Global Minimum Tax and Pillar One's Amount B. Amount B simplifies transfer pricing for marketing and distribution, defining "qualifying" and "covered" jurisdictions. Pillar clarifies Two guidance administrative rules and introduces a streamlined process for recognizing jurisdictions compliant tax rules.
Australia
On June 18, 2024, the NSW government announced increases in the foreign purchaser duty surcharge to 9% and the foreign owner land tax surcharge to 5%, effective July 1, 2025. Land tax thresholds will also be raised for the 2024 land tax year.
Canada
On June 20, 2024, Canada introduced significant tax measures, including a 15% global minimum tax for multinationals (W.e.f. December 31, 2023), a 3% digital services tax (W.e.f. January 1, 2024), earnings-stripping rules, hybrid mismatch rules, and changes to dividend deductions and the general anti-avoidance rule.
Denmark
All royalty payments to nonresidents must be reported to the Danish tax authorities, regardless of whether the recipient is liable for Danish tax, except for those exempt under the EU Interest and Royalty Directive. Reports must be submitted by the last banking day of the month for large companies and by the tenth day of the following month for small companies. – W.e.f July 1, 2024.
April 2024
The Court of Appeal ruled against allowing tax deductions for interest payments on an intra-group loan used to acquire a business. The court determined that the loan was arranged solely to gain a tax advantage, thus invoking the unallowable purpose rule. This ruling emphasizes the necessity for genuine commercial purposes in such financial arrangements to qualify for tax deductions.. – HMRC UK vs M/s. BlackRock Case No [2024] EWCA Civ 330 (CA-2022-001918) (Court of Appeal).
May 2024
The taxpayer, initially a full-fledged manufacturer, restructured to a contract manufacturer. During this process, the technical know-how was transferred to group companies. Since Malaysia did not have a capital gains tax at that time, the taxpayer did not report the income from the transfer of IP. The revenue authorities classified this income as Business Income and taxed it. However, the Malaysia Court of Appeal applied the badge of trade test and ruled that the transfer of intellectual property was capital in nature, and thus, not subject to tax. KPHDN vs. M/s. Keysight Technologies Malaysia SDN BHD [2024] Appeal no. W-01(A)-272 05/2021(Malaysia Court of Appeals).
June 2024
Delhi ITAT held that income received by Denso Thailand for services to Indian entities, cannot be taxed in India as Fees for Technical services in the absence of specific clause under the India-Thailand DTAA. Due to the absence of an FTS clause, the income would be considered as Business profits that will be subject to tax only if the Assessee had permanent establishment in India. – M/s. Denso (Thailand) Co. Ltd V. ACIT [2024] ITA No.1986/Del/2023 (ITAT Delhi).
The Supreme Court of Italy denied a tax credit for withholding taxes paid in Pakistan on what was classified as royalties telecommunication services. The court determined the income should be treated as business income under Article 7 of the Italy Pakistan DTAA and not royalties. Consequently, Italy was not obligated to grant a tax credit, and the taxpayer was advised to seek a refund from Pakistan.– Wis Telecom Srl (Civile Sent. Sez. 5 Num. 28092 Anno 2023) (Supreme Court of Italy)
PepsiCo's Singapore affiliate sold concentrate to Schweppes Australia under Bottling Agreement, with no royalties or withholding tax paid. The Australian Taxation Office reclassified these payments as royalties, citing the use of PepsiCo's and trademarks. However, the Federal Court ruled that the payments were solely for the concentrate, not including any component for PepsiCo's intellectual property, and thus not subject to royalty tax. PepsiCo, Inc. v. Commissioner of Taxation [2024] FCAFC 86 (Federal Court of Australia).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
