Weekly Tax News - Monday 3 June 2024

June 3, 2024

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OECD Pillar One tax reform holds on to June deadline

In a statement released on Thursday 30 May, after a three-day meeting in Paris, the Co-Chairs of the OECD/G20 Inclusive Framework on BEPS, Marlene Nembhard-Parker (Jamaica) and Tim Power (United Kingdom), said that the Inclusive Framework is “nearing completion” of the negotiations on a final package on Pillar One (which includes a text of the Multilateral Convention (MLC) for Amount A and a framework for Amount B) with the goal of reaching a final agreement in time to open the MLC for signature by the end of June. France and Brazil have already expressed interests in hosting a signing ceremony as soon as possible after the MLC is opened for signature. During the G7 meeting, on 25 May, the Italian Finance Minister Giancarlo Giorgetti reportedly said that, due to political and technical resistance from India and China against Amount B, the June deadline was likely to be missed. Despite the challenges in the Inclusive Framework talks, G7 Finance Ministers said in their final communiqué that implementing the Two-Pillar Solution remains their top priority. During its meeting, the Inclusive Framework also discussed a range of topics including the implementation and impact of the BEPS minimum standards, the opportunities to further broaden the reach of this impact through technical assistance and capacity building, the status of and experience with implementation of the global minimum tax, plans for participation in a signing ceremony for the Subject to Tax Rule that will be held in Paris on 19 September 2024, and ongoing tax policy work and delegate interest in role of tax in addressing inequality.

OECD says further work needed on Pillar Two dispute resolution

Countries should keep working on approaches for resolving disputes related to global minimum tax rules, the OECD said in its 2024 Progress report on tax cooperation for the 21st century, prepared for the G7 Finance Ministers meeting. There could be situations where the MNE is subject to the Global Minimum Tax in more than one jurisdiction in respect of the same low-tax outcome, the report says, adding that tax administrations could disagree on how to calculate the tax for the same low-taxed entity of the MNE group. This could create uncertainties in applying and administrating the Global Minimum Tax. A dispute resolution mechanism would need to clearly define the circumstances when an inconsistency in the application of the rules gave rise to a dispute that was eligible to be brought within the dispute resolution procedure, it adds. It is important to establish a legal basis for any dispute resolution mechanism, which could take the form of a multilateral instrument, model bilateral instrument, or domestic law based on a common template, the OECD said. The OECD previously said it was exploring possible GLOBE dispute resolution mechanisms, including a multilateral convention and a domestic approach. Many external stakeholders have voiced support for a multilateral instrument on the basis that it would provide greater legal certainty, it argued. Two more rounds of OECD administrative guidance for GLOBE rules are expected in 2024 and could cover this issue.

OECD releases additional CbCR guidance

The OECD published on Monday 27 May additional guidance for the implementation of Country-by-Country reporting to clarify the treatment of dividends received from other constituent entities in a multinational enterprise group. OECD and G20 countries have committed to implementing CbC reporting, which was set out in the action 13 report from the OECD base erosion and profit-shifting project. Action 13 requires large MNEs to file a CbC report every year providing the amount of revenue, profit before income tax, and income tax paid and accrued for each tax jurisdiction in which they do business. The BEPS Inclusive Framework has clarified how to report in Table 1 payments received from other constituent entities, ensuring a consistent treatment of payments across jurisdictions in a CbC report. In preparing their CbC reports, MNE groups should ensure that payments treated as dividends in the payer’s tax jurisdiction are excluded from the total revenue and profit (loss) before income tax. If a payment from a constituent entity is treated as anything other than a dividend in the payer’s tax jurisdiction, it should be included in the total revenue and profit (loss) before income tax, according to the guidance. This is consistent with Pillar Two guidance published in December 2023, the OECD said. The guidance recommends that Inclusive Framework members implement the new guidance as soon as possible. The guidance applies to MNE groups’ reporting fiscal years starting on or after 1 January 2025.

On Wednesday 29 May, the OECD published its report “Designing a National Strategy against Tax Crime – Core elements and considerations”. The aim of this report is to support jurisdictions seeking to implement Principle 2 of the OECD Recommendation of the Council on the Ten Global Principles for Fighting Tax Crime. Principle 2 recommends that jurisdictions design a strategy for addressing tax crimes, which includes the identification of existing and emerging risks and threats, and mechanisms for the regular review and monitoring of the implementation and effectiveness of the strategy. In particular, the report highlights the importance of understanding risks, which will include threats and vulnerabilities, as part of developing or reviewing a national tax crime strategy. It also stresses the importance of using a wide range of sources of information and inputs from other stakeholders, both in the public and private sector. Moreover, it sets out guidance for the development of the strategy itself, based on the results of the tax crime risk assessment, including the establishment of measurable objectives, prioritisation of risks, the identification of key actions and the communication of the strategy internally and externally. The report also contains three case studies on the development of national tax crime strategies from Chile, the United States and the United Kingdom.

Fiji and Moldova have joined the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the OECD announced on Tuesday 28 May. Through their membership, Fiji and Moldova are also committed to addressing the tax challenges arising from the digitalisation of the economy by participating in the Two-Pillar Solution to reform the international taxation rules and ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate. Collaborating on an equal footing with the other 145 members of the Inclusive Framework, Fiji and Moldova will participate in the implementation of the BEPS package to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

On Tuesday 28 May, France and Germany published a new agenda to boost competitiveness and growth in the European Union for the next five years and a joint opinion in the Financial Times. The document notably proposes a joint contribution to the EU’s Strategic Agenda, emphasizing the need to maintain Europe's status as an industrial and technological leader while transitioning to a climate-neutral economy. Among several proposals ranging from the Green Deal to mobility, the two countries propose to optimize the Single Market by reducing unjustified barriers to it to enhance economic integration, promoting structural transformation and driving productivity gains. This includes addressing fragmentation in telecommunications, digitalization, and other key sectors. While welcoming the recent presentation of the High-Level report by Enrico Letta on the Single Market, they point out the European Commission should develop a new horizontal strategy for a modernised Single Market in this respect. The two countries are also looking forward to the presentation of the upcoming report by Mario Draghi on competitiveness and to taking the work forward on their recommendations.

The Council of the EU adopted on Thursday 30 May the package of new anti-money laundering rules. All rules applying to the private sector will be transferred to a new directly applicable regulation, while a directive will deal with the organisation of national competent authorities fighting against money laundering and countering the financing of terrorism (AML/CFT). The regulation harmonises anti-money laundering rules for the first time throughout the EU. It extends the anti-money laundering rules to new obliged entities, such as most of the crypto-sector, traders of luxury goods and football clubs and agents. The regulation also sets tighter due diligence requirements, regulates beneficial ownership and sets a limit of 10 000 € to cash payments, among other things. This is the final step of the adoption procedure. The texts will now be published in the EU’s Official Journal and enter into force. The AML regulation will apply three years after the entry into force. Member states will have two years to transpose some parts of the AML directive and three years for others. AMLA will be based in Frankfurt and start operations in mid-2025.

In an opinion delivered on Thursday 30 May (case C-432/23), the European Court of Justice Advocate General Juliane Kokott said that tax authorities generally cannot use the Council Directive (EU) 2011/16 on administrative cooperation in tax matters (DAC6) to require law firms to hand over advice given to clients. Ms Kokott determined that legal professional privilege generally comes before national legislation and protects a law firm from disclosing advice that it provided to a client even when presented with a request for information by the tax authorities. The national legislation of each Member State can and must stipulate the conditions, the scope and the limits of the duty to cooperate incumbent on lawyers, as information holders, in the context of the exchange of information on request under Directive 2011/16. In so doing, national law must, in particular, enable the competent authority to strike a balance on a case-by-case basis between the objectives in the general interest, on the one hand, and the protection afforded by legal professional privilege, on the other, she concluded. The opinion of the Advocate General is not binding and the Court will have to decide whether or not to follow these recommendations.

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