GLOBAL TAX UPDATE

 §  The Australian Taxation Office (ATO) publishes the updated guide to taxation of financial arrangements (TOFA). TOFA aims to reduce the influence of tax considerations on how financial arrangements are structured. TOFA also aims to closer align the taxation recognition of gains and losses on financial arrangements with commercial recognition of gains and losses.Although Tob FA provides a comprehensive and overarching framework to address the economic substance of arrangements, it is not an exclusive code for the taxation of gains and losses from financial arrangements. Unless otherwise specified, other provisions of the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997 still deal with gains or losses from financial arrangements where TOFA does not. 

 

The ATO has published the Division 7A benchmark interest rate for the 2024 income year, which is 8.27%. As a point of reference, it was 4.77% for the 2023 income year and 4.52% for the 2022- and 2021-income years. Whilst an increase in the benchmark interest rate this year may have been expected, many clients with outstanding Division 7A loans may not fully appreciate its impact on the minimum annual repayment they must make by 30 June 2024

 

§  Switzerland will be implementing the global minimum tax. It expects the Income Inclusion Rule (IIR) and Qualified Domestic Minimum Top-up Tax (QDMTT) to be applicable as per 1 January 2024. 

 

§  The Brazilian lower house of Congress approves the Tax Reform Bill which would replace the current framework of consumption taxes with just two value-added taxes, one federal and the other local. Taxpayers would shift to the new rates during a transitory period between 2026 and 2032. The standard VAT rate is expected to be about 25 percent. 

 

§  Dutch Court handed down its judgement siding with Tax Administration in its determination that effective management of a company was exercised in Netherlands. In brief, the case involved a Dutch incorporated company but tax migrated to Malta appointing a Maltese tax resident Director. The Convention’s tie breaker rule -place of effective management- for settling the residency, was at the core of the dispute. Relevant indicia, leading to the plausible inference that the effective management exercised in Netherlands, inter alia included (i) Dutch advisers continued having key role post relocation, (ii) Maltese management was completely indemnified over routine Director’s liability, (iii) constraining the Maltese Director’s power, (iv) emails from Dutch advisors showing that Board’s decision were planned by them, (v) time records of the Directors show minimum time and low remuneration  

 

§  The parliament of Bangladesh has repealed the Income Tax Ordinance,1984 and enacted new Income Tax Act, 2023 effective from 22 June 2023  

 

§  Ireland releases consultation document to deny withholding tax exemption or deny deduction on payment of royalty, interest and dividend made to jurisdictions on the EU list of non-cooperative jurisdictions, no-tax, and zero-tax jurisdictions.
Ireland is the second country after Australia to do so. This is akin to developed countries introducing STTR through domestic law.  

 

§  Bermuda Considers Introducing a Corporate Income Tax

 

§  Italy imposes 40% tax on profits earned by bank. Several other European countries have also imposed taxes like Italy’s in recent months. 

 

§  The Inland Revenue Authority of Singapore (IRAS) published its fourth edition of e-tax guide on tax exemption for foreign-sourced income. Foreign income refers to income derived from outside Singapore. Generally, such income is taxable in Singapore when remitted to and received in Singapore. Where the foreign income arises from a trade or business carried on in Singapore, it is taxable in Singapore upon accrual, regardless of whether it is received in Singapore. In many cases, foreign income is taxed twice - once in the foreign jurisdiction and a second time in Singapore.  There are tax reliefs available to Singapore tax residents to alleviate the double taxation suffered, such as:
- Exemption or reduction in tax imposed on specified foreign income that is derived in a jurisdiction that has an Avoidance of Double Taxation Agreement with Singapore;

- Tax exemption on specified foreign-sourced income such as foreign-sourced dividends, foreign branch profits and foreign-sourced service income under Section 13(8) of the Income Tax Act 1947;

- Foreign tax credit for the taxes paid in the foreign jurisdiction against the Singapore tax payable on the same income.

 

The Singapore IRAS has issued a new tax guide on the deductibility of keyman insurance premiums on August 29, 2023. Keyman refers to individuals who possess unique qualifications and experience that are invaluable to a business.

 

§  The Israeli tax authority ("ITA") published new guidelines for Israeli taxpayers wishing to utilize the mutual agreement procedure under Israel's double tax treaties. Income Tax Circular no. 01/2023 replaces in this regard the previous guidelines, under Executive Order no. 23/2001.
The new guidelines provide more insight into the ITA's implementation of the mutual agreement procedure 

 

§  The Polish Constitutional Tribunal issued a judgement in which it found the legal definition of the structure for Real Estate Tax (RET) purposes as unconstitutional. Moreover, the Tribunal has stated that the relevant tax provisions will cease to apply within 18 months from the date of publishing the judgement. Therefore, it is expected that starting from 1st of January 2025, a brand new regime of RET on structures in Poland will come into force.

 

§  The New Zealand Government has introduced the Digital Services Tax Bill into the House.

The Bill would allow the Government to impose, at an appropriate time, a tax on gross revenues of large multinational entities with highly digitalised business models that earn income from New Zealand. The digital services tax would not be imposed before 1 January 2025. The application date can be extended by an Order in Council, which the Government would do if it was satisfied with the progress of the Pillar One of the OECD’s multilateral solution.

 

§  Withholding tax on payments to head office and related parties has been reduced to 5% from erstwhile 15% in Saudi Arabia. The decision quite resonates with the Saudi's vision 2030 which can be useful in importing the capital in a tax efficient manner