In Brief from International Taxation [February 2022]

Temporarily reduced or zero VAT rates were introduced in Poland. The clarity on taxation of crypto coins shall be secured by recently published guidelines by Swiss Tax Authorities. New tax measures for taxation of employees were implemented in Belgium as of 1 January 2022. You can find more detailed information on these issues and other important news on international taxation in our article.

Poland: Temporary VAT rate reductions as of 1 February 2022

The Polish authorities recently adopted several measures in order to counter the effects of high inflation. Among others, temporarily reduced VAT rates for certain products/groups of products have been introduced for the period from 1 February 2022 through 31 July 2022.

For instance, the VAT rates are reduced down to 0% for certain food products (such as meat, dairy products, fruits and vegetables, fats and oils, products for special medical purposes, etc.) or natural gas. Reduction to 5% was approved for electricity and heat energy. And last but not least, the VAT rate with respect to motor gasoline or diesel oil (and others) was temporarily reduced to 8%.

Germany: Decrees on the application of the royalty barrier rule

The German Ministry of Finance published two decrees regarding the application of the limitation on the deductibility of certain related-party royalty payments (“royalty barrier rule” or “RBR”). Both decrees provide additional guidance for assessing the risk that royalty payments could fall under the royalty barrier rule and be classified as being (partially) nondeductible.

Generally, the RBR limits the deductibility of related party royalty payments that result in the “low taxation” of the royalty income at the level of the recipient as a result of the application of a preferential tax regime (e.g., IP box, patent box, license box, etc.) in situations where the preferential regime is not based on the “nexus approach” as described under action 5 of the OECD BEPS project.

The first decree includes mainly interpretative guidance regarding (i) the definition of a preferential tax regime, (ii) nexus-conformity in terms of action 5 of the OECD BEPS project, and (iii) the burden of proof regarding the application of the RBR.

The second decree provides an (updated) non-exclusive list of foreign tax regimes that are considered harmful by the tax authorities for calendar years 2018 to 2020 for purposes of the RBR (the previously published list was only for the year 2018).

Germany: Another COVID-19 tax aid bill proposed

The German Ministry of Finance has recently published a draft of the “Fourth bill on tax relief measures relating to the COVID-19 crisis”. The draft proposed several important measures to aid taxpayers during the ongoing pandemic that will mainly have an impact on:

  • deadlines for filing the annual income tax returns for 2020, 2021, and 2022;
  • application of already increased loss carryback amounts;
  • possibility to use the accelerated depreciation method for newly acquired movable assets; or
  • the reinvestment period that allows for tax-neutral treatment of capital gains from the sale of certain business assets.

However, these amendments are still at the phase of a draft and first must be approved by the German government and then go through the legislative process.

Switzerland: Additional clarity on crypto taxation

The Swiss tax authorities published updated work papers and guidelines on the taxation of crypto coins and projects. These documents provide mainly:

  • specifications on the taxation for any common transaction with various types of tokens (such as traditional payment tokens or debt tokens, asset-backed tokens and utility tokens as well); and
  • comments on the practice regarding initial token and coin offerings, trading gains and losses, rewards and airdrops, revenue generated from mining and staking by delegators and validators, and even considerations for the treatment when rewarding employees with tokens.

Concerning the private crypto investors, the publications differentiate between tax-free capital gains from private investing and taxable capital gains from self-employed trading and specifically refer to the published safe haven rules for securities trading, which treat capital gains as tax free (if certain conditions are met).

Belgium: Tax developments affecting employers

At the turn of the year, Belgium introduced various legislative updates that will mainly concern employers. These changes were presented through the following laws/decrees:

  • The program law presents the new tax regime for “inbound taxpayers and inbound researchers”. With this respect, the Belgian tax authorities further issued a circular letter concerning the repeal of the previous special tax regime for foreign executives and the application of the transitory regime.
  • The law formalising the interprofessional agreement regulates the number of voluntary overtime hours or the maximum number of overtime hours for which the wage withholding tax incentive for employers can be applied.
  • Royal Decree relating to the valuation of the benefit in kind for heating and electricity.
  • The law on miscellaneous tax provisions contains several new tax measures regarding replacement income of co-working spouse, exemption with reserve of progression or net income from immovable property.

Furthermore, there is an ongoing initiative at the government level to strengthen the legislative framework for payroll incentives (such as the wage tax incentive for night and shift work).

Italy: Possible tax limitation for indirect change of ownership

At the beginning of 2022, the Italian tax authorities issued a tax ruling that added an additional level of complexity to business reorganizations and acquisitions resulting in an indirect transfer of an Italian company.

Through this ruling, the tax authorities clarified their position and interpretation of article 84(3) of the Italian tax code that stipulates certain limitations on the transfer of tax attributes. In general, this article shall prevent the acquisition of Italian companies with the sole or main purpose of using their net operating losses and other tax attributes. According to the Italian tax authorities, such restrictions shall also apply in case of a change of the indirect owner of the majority of the shares of an Italian company. Otherwise, it would offer a clear way to circumvent these rules by taxpayers in order to pursue tax-loss harvesting strategies.

Due to this ruling, the Italian companies should assess if there is a change in their business activities in the two years prior to or the two years after the year of a change in the indirect control of the company. If so, the Italian company would need to meet a “vitality test” to prevent the forfeiture of tax attributes.

India: Highlights of Union Budget 2022

At the beginning of February 2022, India’s finance minister presented a new Union Budget. The Union Budget focuses on four priorities (i) the Gati Shakti scheme (targeted at aiding economic growth and sustainable development through the development of roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure), (ii) inclusive development, (iii) productivity enhancement and investment, sunrise opportunities, energy transition, and climate action, and (iv) financing of investments.

The Union Budget contains no changes to corporate or personal income tax rates. However, there is a number of key tax proposals, including (among others) a new tax on virtual digital assets, extended incentives for units in the International Financial Services Centre, an extended qualifying period for eligible start-ups/new manufacturing companies, a cap on the surcharge applicable to long-term capital gains, and the introduction of an optional updated income tax return facility.

Once the finance bill has gone through the legislative process, the key tax proposals will be applicable from April 1, 2022 (unless specified otherwise).

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