UK: Draft legislation to implement Pillar Two global minimum tax rules published

The UK government has released draft legislation for an income inclusion rule and qualified domestic minimum top-up tax in line with the OECD’s global minimum tax rules under Pillar Two. Once enacted, these will apply from 2024 (accounting periods beginning on or after 31 December 2023).

According to the presented draft, the qualified domestic minimum top-up tax applies not only to multinational groups but also to UK domestic groups and UK standalone entities that meet the size threshold (annual revenues of more than EUR 750 million). Both the income inclusion rule and qualified domestic minimum top-up tax rule include temporary safe harbours in line with those agreed upon at the end of 2022 by the inclusive framework.

Germany: Draft legislation published to implement EU Pillar Two directive

As one of the first EU member states, Germany has published draft legislation on the implementation of the so-called Pillar Two Directive. The draft legislation covering an income inclusion rule (“IIR”), an undertaxed profits rule (“UTPR”) and a qualified domestic minimum top-up tax (“QDMTT”) is set forth as a separate tax act and closely reflects the EU directive. The IIR and QDMTT are expected to apply for fiscal years starting after 30 December 2023. The UTPR is expected to apply for fiscal years starting after 30 December 2024.

Germany intends to introduce a QDMTT to ensure that low-taxed profits of German entities that are part of a group become subject to a German top-up tax. Taking into account the (approximately) 30% German tax rate, it is not expected that a German QDMTT will have a significant impact in this regard.

Germany: Lower tax court rules on applicable dividend WHT rate during liquidation process

In a decision dated 26 October 2022 (and published on 27 March 2023), Germany’s lower tax court ruled that a 0% dividend withholding tax (WHT) rate under the EU parent-subsidiary directive applied to a German company’s distribution of operating profits that were generated prior to a liquidation period, even though the dividend was resolved and paid during the liquidation period.

Belgium: Proposal for “broad tax reform” heralds a changing M&A landscape

The released amended proposal of a “broad tax reform” contains some new measures (such as suggested amendment of the existing dividends received deduction regime or advance tax ruling system) that have the potential to leave a permanent mark on the M&A landscape.

The originally discussed question of the tax non-deductibility of costs relating to the acquisition, financing, and holding of shares was not included in the pre-draft law as this measure was identified as significantly damaging to Belgium’s attractiveness as an investment location.

The Netherlands: Publication of synthesized texts of double taxation treaties reflecting MLI

The Dutch Ministry of Finance updated the list of published synthesized texts of DTAs the Netherlands concluded with other 22 jurisdictions (including the Czech Republic and Slovakia) to which the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

India: WHT rate doubled on royalty and fees for technical services income

From 1 April 2023, the local WHT rate has been increased on royalty and fees for technical services (‘FTS’) income for non-resident taxpayers (not having a PE in India) from 10% to 20% (plus applicable surcharge and cess), i.e., effective tax rate being 21.84%. Before claiming the double tax treaty benefits, additional compliance is to be undertaken (obtaining PAN, filing of electronic Form 10F, furnishing return of income, etc.).

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