In brief from international taxation [May 2024]

The EU Council has agreed on a proposal for the FASTER Directive to streamline the procedures for withholding tax relief in EU countries. The OECD published a consolidated commentary on the Second Pillar rules. HM Revenue & Customs has released new guidance discussing common errors in applications for capital allowances for plant and machinery. The Belgian Parliament has passed a bill allowing the tax authorities to collect tax on insurance premiums from Belgian entities covered by foreign insurance policies. For more information on these and other tax news from abroad, see our article.

EU: EU agrees on “FASTER” directive on withholding tax relief procedures

On 14 May 2024, the EU Council agreed on the FASTER directive that aims at streamlining and securing withholding tax relief procedures across the EU. This directive requires member states to integrate it into national law by the end of year 2028, with enforcement starting 1 January 2030. FASTER addresses inefficiencies and high costs in current withholding tax relief processes, enhancing transparency and reducing tax fraud. Key measures include issuing digital tax residence certificates (eTRCs) and establishing rules for excess withholding tax relief on dividends and interest from publicly traded securities. The directive introduces fast-track withholding tax reclaim procedures, allowing either immediate tax relief or quick refunds. The directive will be formally adopted in 2025, and the Commission will oversee its uniform implementation.

OECD: OECD Pillar Two: Consolidated commentary published

On 25 April 2024, the OECD/G20 Inclusive Framework on BEPS published a consolidated commentary on Pillar Two global minimum tax rules. This document integrates guidance approved by the OECD before December 2023. The commentary outlines the mechanics, scope, and computation methods for Pillar Two, aiming to ensure a minimum effective tax rate of 15% for large multinational groups. It covers various aspects such as transitional rules, safe harbors, and definitions, providing clarity for jurisdictions implementing Pillar Two. The commentary is expected to be updated as new guidance is released by the OECD.

UK: Tax authorities publish additional guidance on plant and machinery allowance claims

The UK tax authorities, HM Revenue & Customs (HMRC), have released new guidance titled “Help to avoid errors in claims for plant and machinery allowances” under their Guidelines for Compliance (GfC) program. This guidance addresses common mistakes in capital allowances claims for plant and machinery, which often result from incorrect assumptions. It outlines recommended approaches and emphasizes the importance of maintaining clear records. HMRC clarifies that this guidance does not change existing laws or policies and should be used alongside current HMRC capital allowances guidance, rather than as a standalone compliance process.

Italy: Implementing rules provided for investment management exemption from creation of PE

Italy’s Minister of Economy and Finance issued a decree outlining rules for the “investment management exemption” (IME) regime. This regime allows asset managers or advisory companies operating in Italy for nonresident investment vehicles to be considered independent agents, preventing the creation of an Italian permanent establishment (PE) for these vehicles, provided certain conditions are met. Key requirements include arm’s length remuneration supported by transfer pricing documentation, and compliance with specific independence criteria. The decree also incorporates transfer pricing guidelines, detailing appropriate methods for determining the arm’s length nature of remuneration. These guidelines categorize services into investment management services and related ancillary services, specifying the preferred transfer pricing methods for each.

Switzerland: Federal Supreme Court to lower level of evidence in intercantonal tax law

The Swiss Federal Supreme Court’s decision (9C_591/2023 dated 2 April 2024) lowers the level of evidence required in intercantonal tax law. This means tax authorities now need to prove a tax claim is “more likely than not” rather than “highly probable.” Consequently, taxpayers face higher burdens to counter the tax authorities’ claims. This decision stems from a case where a company moved its headquarters from St. Gallen to Appenzell Ausserrhoden but maintained significant operations in St. Gallen. The ruling allows tax authorities to question a taxpayer’s main tax domicile more readily, potentially increasing the need for taxpayers to thoroughly document and prove their claims.


IPT liability extended to domestic entities covered by foreign policies

The Belgian parliament passed a draft bill allowing tax authorities to collect insurance premium tax (IPT) from Belgian entities covered by foreign insurance policies. This applies when a foreign company insures risks in Belgium for its Belgian subsidiary or branch. The Belgian establishment is now responsible for reporting and paying IPT instead of the foreign company. If IPT hasn’t been paid, the authorities will hold the insured clients accountable. The law is expected to take effect shortly after publication in the official gazette, prompting stakeholders in the insurance industry to review their procedures and business models.

Tax authorities issue first clarification of new CFC rules

The Belgian tax authorities issued initial clarification on the new CFCs rules. The guidance focuses on defining CFCs and applying the participation requirement. Taxpayers must adhere to the rules for financial years ending on or after 31 December 2023. The guidance clarifies that indirect participations are not included, leading to differences from the Belgian Code of Companies and Associations (BCCA). However, several unanswered questions remain regarding accounting standards, successive application of CFC rules, and the exemption for “substantial economic activity.” Future administrative guidelines are expected to address these issues.

Parliament adopts new Pillar Two law

The Belgian parliament passed a new Pillar Two law, incorporating OECD guidelines and addressing errors in the original law. Amendments aim to align with EU directives and OECD model rules, ensuring a minimum tax rate of 15% while fostering innovation. Modifications include clarifications on country-by-country reporting and adjustments to the Belgian innovation income deduction (IID). The law also extends definitions to include marketable transferable tax credits (MTTC) and introduces safe harbor rules for simplified calculations and transitional provisions.

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