This week in tax: Countries respond to Ukraine war with tax proposals
The tax implications of the Russia-Ukraine war continue to dominate headlines this week with governments proposing measures to counter soaring energy and fuel prices, change beneficial ownership rules and target crypto-assets secrecy.
Tax proposals announced in the UK budget, as well as announcements on planned legislative changes in the EU, US and New Zealand, reacted to the surge of energy prices and the need to identify business owners.
In the UK, Chancellor Rishi Sunak cut fuel duty for one year as Russia’s invasion of Ukraine raised oil prices. He also cut VAT rates on certain energy products. In Europe, Portugal's Prime Minister Antonio Costa said he wants the EU to set a maximum reference price for natural gas and VAT on energy products to protect consumers from soaring prices, according to Reuters.
While the UK and EU grapple with the need to manage soaring energy costs for consumers, the US and New Zealand are targeting companies and their owners.
In New Zealand, the government plans to amend its beneficial ownership rules to ease the process of seeing who owns or controls a company. The Minister of Commerce and Consumer Affairs David Clark said on March 22 that a bill to crack down on global and domestic criminals who use businesses to hide money laundering, tax evasion and the financing of terrorism will be introduced this year.
“The Pandora and Panama papers highlighted some key vulnerabilities which need to be addressed,” said Clark.
Legislative changes will require companies to provide accurate information about who the beneficial owner is, with each owner being assigned a unique identifier number, or serial number, that will be publicly available. However, the residential addresses of company directors will no longer be public. A bill will be tabled in Parliament after a consultation period.
The US government, meanwhile, plans to stop companies gaining US tax credits for taxes paid in Russia.
Senate Majority Leader Chuck Schumer and Senate Finance Committee Chairman Ron Wyden said in a statement that “Senate Democrats are exploring legislation to add Russia to existing laws that already deny foreign tax credits for taxes paid to North Korea and Syria. American companies that continue to do business in Russia should not receive US tax benefits that offset taxes paid to Putin’s regime.”
The statement was made in reaction to Koch Industries, a multinational conglomerate, deciding to continue operations in Russia.
“Koch Industries is shamefully continuing to do business in Putin’s Russia and putting their profits ahead of defending democracy,” the senators said. “It is time for Koch Industries to put the values of democracy ahead of its own profits. We are calling on Koch Industries to immediately suspend their operations in Russia.”
Impending TP filings keep tax teams busy
Transfer pricing managers are busier than usual with changes in Mexico’s rules and nearing deadlines for TP filings.
Many TP teams are carrying out multiple functional analyses and collecting data to submit their master file and local file after tax reporting requirements changed in Mexico. There is a rush to collect documents and data with less than three months to submit tax reports.
In Turkey, EY reminded taxpayers that they must meet their TP obligations when submitting their corporate tax filings, which are due by April 30 2022.
“All taxpayers must fill out a form in regard to transfer pricing, controlled foreign corporations and thin capitalisation to be sent to their relevant tax offices together with the corporation tax return,” EY said.
OECD to tackle crypto-assets secrecy
At the OECD, a public consultation document was released on March 22 proposing a tax transparency framework, called the Crypto-Asset Reporting Framework (CARF), to allow governments to exchange tax data on crypto-assets. Such assets can be exploited to undermine existing international tax transparency initiatives, such as the common reporting standard (CRS). The OECD’s proposals intend to develop a framework for the automatic exchange of information on crypto-assets to tackle this.
“It covers crypto-assets that can be held and transferred in a decentralised manner, without the intervention of traditional financial intermediaries, as well as asset classes relying on similar technology that may emerge in the future,” the OECD said. “Individuals and entities that, as a business, provide services to exchange crypto-assets against other crypto-assets, or for fiat currencies, must apply the due diligence procedures to identify their customers, and then report the aggregate values of the exchanges and transfers for such customers on an annual basis.”
However, advisors warn that agreement and adoption of the CARF will take several years.
Andrew Park, tax investigations partner at Andersen in the UK, said that although these proposals will help break crypto secrecy it is not going to happen quickly. “Implementation will be a huge logistical exercise for all involved, even once the format of the new rules is agreed and finalised,” said Park.
In addition to the CARF, the OECD consultation documents propose to extend the CRS to cover electronic money products, central bank digital currencies, and indirect investments in crypto-assets through investment entities and derivatives.
A public consultation meeting will be held at the end of May 2022. The OECD then plans to report to the G20 about the CARF and CRS amendments under the Indonesian Presidency at its October 2022 meeting.
In other news:
PWC published the results of its 2022 survey on tax challenges in the Middle East. There is growing confidence in how tax leaders interact with tax authorities but there are stil significant issues with tax data quality and tech systems;
India’s Central Board of Indirect Taxes & Customs (CBIC) published on March 22 the standard operating procedure for scrutinising GST returns filed for FY 2017-18 and 2018-19;
Japan’s double tax treaty with Morocco will enter into force on April 23 2022; and
The UN has published a number of tax reports ahead of the 24th Session of the Committee of Experts on International Cooperation in Tax Matters, which will be held between April 4 and 12.
Next week in tax
Next week, ITR will be analysing why Amazon’s investors want GRI-level tax transparency in 2023 from the company. We will also be looking at how multinationals in China are dealing with TP adjustments as the end of the financial year approaches.
Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.