Tax Authorities Across the World are Coordinating to Reduce Opportunities for Tax Avoidance

 

Transfer pricing continues to be a focus for tax authorities around the world. In order to reduce tax avoidance, changes are being proposed around the world that will impact businesses global tax compliance.

Many of these proposed changes are also being discussed across borders to prevent businesses using international situations to minimize their taxation rate.

 

Asia

Notable changes in Asia include a move by The Inland Revenue of Singapore tax authorities away from a consultation process for transfer pricing to an audit requirement. Taxpayers are required to be cooperative, have proper transfer pricing documentation and a good compliance record. In China, the application process for an APA has been simplified.

 

The USA

In the U.S. the upcoming budget reconciliation bill is expected to include new tax legislation. Proposals include an increase in the corporate tax rate to 26.5% and other measures that aim to tackle base erosion and profit shifting. [See separate article on BEPs]

A consensus is still to be reached on the planned Global Intangible Low Taxed Income (GILTI) rate of 16.5% with the Democrats arguing that this rate should be either equal to the domestic corporate tax rate, or at least 21%, higher than the OECD’s suggested minimum of 15%.

 

Africa and BEPs

It is currently difficult for African countries to establish taxing rights over profits made by multinationals.  Twenty-two African countries are included in negotiations for Base Erosion and Profit Shifting (BEPS) 2.0. BEPS 2.0 has a two-pillar approach.

 

  • Pillar 1 proposes that profits that exceed 10% of revenue will be now allocated to a market jurisdiction. It is unclear however, whether this will be enough to fix the imbalance in taxing rights between source and residence jurisdictions.
  • Pillar 2 will establish a tax rate of at least 15%, this compares with a tax rate as high as 27% in Togo.

 

Brazil

Brazilian tax reform includes a recently approved bill to reduce the corporate income tax rate from 34% to 27%. The imposition of a 15% withholding tax on dividends as well as the elimination of tax-deductible interest on net equity payments is proposed.

Dividends have been exempt from withholding tax by law in Brazil since 1996, and the introduction of a 15% withholding tax rate will be a major change. If approved, this could be applicable from 2022.

 

New Zealand

The “liquorice all sorts” bill in New Zealand is a taxation bill that contained over one hundred policy and remedial amendments and was tabled on 8th September. This included both confirmation that cryptocurrency assets are not financial arrangements for tax purposes and new proposals to modernise and update Goods and Services Tax (GST) invoice requirements. There are also expected to be more added to the bill in the coming months.

 

The European Union

In the European Union, no decision has yet been made on digital tax proposals. The European Commission originally committed in 2020 to putting forward proposals for digital tax services by June 2021, but this has been postponed.

For more information about international tax regulation, please contact Briars.