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This week in tax: Shipping industry calls for global carbon tax

Shipping companies can expect the cost of fuel to rise

Ireland pushed back on a US proposal for a 21% global minimum tax rate this week, and the shipping industry has also called for a worldwide carbon tax regime ahead of the Leaders’ Summit on Climate.

The International Chamber of Shipping (ICS) has joined growing calls for a global carbon tax solution to the problem of carbon emissions in the industry. The idea is to raise incentives for shipping companies to invest in technologies to enable cleaner shipping.

The ICS timed its intervention just before the Leaders’ Summit on Climate hosted by the US began on April 23. This summit could set the climate agenda ahead of the UN Climate Chance Conference of the Parties (COP26) in November.

“It’s complex, it needs to be a global solution, and not regional solutions, as has been mooted by various places around the world. So that’s why we’re calling for this discussion to start now,” said Gerald Platten, secretary-general at the ICS, in a BBC interview.

The ICS is not alone, the Baltic and International Maritime Council (BIMCO), the Cruise Lines International Association (CLIA) and the World Shipping Council (WSC) all came out in support of the idea. These organisations represent more than 90% of world shipping.

The Biden administration is expected to take a tougher line on climate change given that US Treasury Secretary Janet Yellen is a well-known carbon tax advocate. So the shipping industry is using this summit as an opportunity to argue for mandatory market-based solutions.

International shipping is responsible for more than 2% of all carbon emissions worldwide. This may not sound like a large amount, but it is more than some countries including Germany. Yet the Paris Climate Agreement does not include the shipping industry directly.

The International Maritime Organisation (IMO) has called for targets to cut carbon emissions by 2050. The real difficulty is that there is no viable alternative to fossil fuels for largescale shipping. So the industry is arguing for governments to help create a $5 billion fund as a starting point.

Meanwhile a carbon tax would help raise the cost of fossil fuels and make them less attractive once an alternative is developed. The world is still very far from zero-carbon shipping.

This week ITR featured two interviews, including with the OECD’s Dimitra Koulouri on VAT and the gig economy and another with academic Lukas Hakelberg on US policy on international tax.

Top stories this week also included the Canadian budget announcement and Ireland’s response to US support for a global minimum corporate tax rate. Canada is joining the ever-growing list of countries enacting digital services taxes (DSTs), while Ireland is trying its best to argue the case for a low corporate tax regime.

Canada goes ahead with DST

Canadian Minister of Finance Chrystia Freeland presented the budget on April 19 as the country grapples with a third wave of COVID-19 infections. Titled ‘A recovery plan for jobs, growth, and resilience’, the document offers economic stimulus measures to help Canada escape from the pandemic-induced recession.

As part of the plans, Canada is moving ahead with its proposals for a DST, despite gathering momentum for the OECD’s international solution. The 3% tax, first proposed in the 2020 Fall Economic Statement, would apply to companies with a gross revenue of more than 750 million euros ($903 million) from January 1 2022.

“While Canada’s hope and preference is for a multilateral solution this summer, whether or not a deal is reached, Canada intends to take action,” said the government.

However, multinational enterprises (MNEs) will be relieved to hear that Canada’s DST will only apply until an “acceptable multilateral approach” comes into effect. The government estimates that the tax will raise CAD 3.4 billion ($2.7 billion) in revenue over five years.

The announcement raises questions about how the US will react to the proposed DST. The US Trade Representative office has threatened tariffs on countries including Austria, India, and Italy, in retaliation to unilateral DSTs.

Read the full article here

Ireland pushes back against the US

The Irish government drew a red line under US plans to support a global minimum corporate tax rate of 21% since the proposal would mean Ireland could no longer operate its low corporate tax regime. The country has established itself as a key gateway for US investment into European markets.

Irish Finance Minister Paschal Donohoe said that the OECD’s digital tax agenda, particularly pillar two on a global minimum tax rate, should take into account smaller countries that rely on tax policy to compete with larger nations, speaking at an international tax seminar hosted by the Government of Ireland on April 21.

The conference follows the release of US tax proposals that have reignited negotiations at the OECD, including suggestions to set a 21% global minimum tax under pillar two and to ensure that the world’s 100 biggest companies pay more in market jurisdictions under pillar one.

Ireland, known for its 12.5% corporate tax rate, has expressed reservations about the proposal for a 21% minimum corporate tax rate, because the country’s low tax regime makes it a key destination for global investment.

Parts of the Irish tax regime have already been phased out, including the controversial double Irish structure. Meanwhile, incoming tax reforms in line with the OECD’s BEPS project are estimated to cost Ireland one-fifth of its annual corporate tax revenue.

Read the full article here

Next week in ITR

ITR will be revisiting the topic of blockchain and tax, but this time the focus will be on the rise of non-fungible tokens (NFTs) and whether or not revenue authorities should be worried about this trend.

At the same time, ITR will be looking at the Gulf Cooperation Council (GCC) and its continuing efforts to establish a regional VAT model. Qatar is pushing ahead with its plans to introduce VAT this year, however, the country has to learn the lessons of Oman’s VAT mistakes.

Meanwhile past European court rulings have made taxpayers think twice about their acquisition structures. There may be a need for alternative acquisition structures in some cases.

The European Court of Justice’s (ECJ’s) decisions on Danish beneficial ownership cases from 2019 revised the substance requirements of holding structures involved in M&A activity, and led to increased use of special purpose acquisition companies (SPACs) during the pandemic to manage tax uncertainties.

These stories are just a sample of things to come.

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