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This week in tax: Article 12B is ready for use in tax treaties

Disney's Florida tax bill may rise

In another eventful week in tax, the 2021 edition of the UN Model Taxation Convention was officially launched, while Disney is facing a higher tax bill over its disagreement with Florida Governor Ron DeSantis.

In the news this week was the inclusion of Article 12B in the UN Model Tax Convention. The 2021 edition of the UN Model Taxation Convention was launched on April 26, which included the Article 12B provision to tax automated digital services.

Many African countries are likely to adopt Article 12B in their treaties, rather than using the OECD’s digital tax framework. The UN’s version is intended to be simpler and easier to administer for tax administrations and taxpayers. However, many warn that it may lead to a rise in unilateral digital services taxes (DSTs).

The OECD’s efforts to avoid unilateral DSTs by agreeing a digital tax framework has not been entirely successful to date. The organisation is hoping to avoid a similar fate on cryptocurrency. Raffaele Russo, an international tax and policy expert, wrote an article for ITR this week explaining why the OECD’s Crypto Asset Reporting Framework (CARF) offers a big opportunity for tax progression.

However, Russo stressed that the proposed framework still needs some improvements to strike a balance between the need for a single global system and fintech innovation.

With technology developing rapidly, tax professionals would be wise not to forget about security. A survey commissioned by software company Ideagen found that tax professionals are predominately choosing convenience over security when sharing files with clients and each other.

Rather than using a single secure and encrypted file sharing program, many of the 547 accounting and advisory professionals surveyed in the UK and US prefer to use their emails or Microsoft Teams. This is despite 82% of respondents having access to a client portal for data security within their organisation.

Other concerns occupying the minds of tax professionals include tougher investigations on transfer pricing (TP) documents. TP directors told ITR’s Leanna Reeves that they are coming under an increasing amount of pressure as transfer pricing audits carried out by tax authorities become more aggressive and detailed.

At the same time, ITR spoke to several leading tax directors in India over the past week about the anticipated changes to GST rates. Although no decisions have been made yet, the rate changes are causing concerns for many.

“The GST rate rationalisation is a concern with uncertainty about what the new GST rates will be, when they will come into effect and how they will impact our businesses, said Mohan Nusetti, senior vice president and head of indirect tax at Lupin India. Others discussed how they are considering the changes and what impact they could have.

Back in Europe, France’s political future remains uncertain despite Emmanuel Macron winning another five-year term as President. There is still one more political hurdle to pass in June before Macron’s tax plans can be acted upon.

Politics is also a central topic for ITR’s hub on the Russia-Ukraine war. The page offers a central location where you can find all of ITR’s content on the tax implications of the conflict. Do not forget to bookmark the page as we will regularly add more details.

Finally, it is time to nominate yourself and your peers for the best in-house teams and practitioners across tax and transfer pricing for ITR's 2022 Awards. The submissions period has officially opened and the deadline for entries is May 27 2022.

In other news: Disney’s tax bill to rise

In the US, Disney’s tax bill in Florida is set to increase after the local government repealed a 1967 law that created a special tax district, known as Reedy Creek, for the corporation’s theme parks and resorts in Orlando.

The change, which comes into effect on June 1 2023, is estimated to cost the corporation billions of dollars in extra annual tax payments and have a potential knock-on effect on local residents inside the special district.

The bill, which was signed into law on April 22, was a reaction to Disney’s opposition to another state proposal. Republican Governor Ron DeSantis wants to limit how sexual orientations, gender identity and other LGBTQ issues are discussed by teachers in classrooms. Disney has publicly opposed the bill and DeSantis is punishing the corporation with taxes.

The company could appeal the law change but has not made a public statement about it. Instead, the Municipal Securities Rulemaking Board of Reedy Creek issued a statement saying it will not back down easily and said the dissolution of the district would mean the state takes on its debts.

“Reedy Creek expects to explore its options while continuing its present operations, including levying and collecting its ad valorem taxes and collecting its utility revenues, paying debt service on its ad valorem tax bonds and utility revenue bonds, complying with its bond covenants and operating and maintaining its properties,” the board stated.

Meanwhile, the OECD released data this week showing that tax revenues in Latin America and the Caribbean (LAC) fell by 8.0% on average in nominal terms and by 0.8% as a share of GDP in 2020 because of the COVID-19 pandemic.

Taxes on goods and services, which accounted for about half of total tax revenues in LAC, were the worst affected, decreasing by 0.7% of GDP on average. On a more positive note, the report published on April 27 said tax revenues were better in 2021 as the economy began to recover.

Next week, on May 3, the OECD will be publishing its report on Tax Transparency in Latin America 2022. Covering 16 countries, the document may help taxpayers with their tax planning and give them a detailed insight into the tax challenges in the region. The EU economy and finance ministers are also meeting on the same date for an informal video conference.

Next week in ITR

After a busy week in tax developments, the first week of May could be calmer for some.

Although developments and meetings are taking place at the OECD and EU levels, there may be fewer things changing nationally. However, ITR will still be busy sharing the views of tax professionals with you.

For example, Danish Mehboob will be looking at how the European Commission’s work on regulating tax advice in the EU market could simplify mandatory disclosure (DAC6) compliance too. This is not the only area where there is a growing burden for taxpayers.

Leanna Reeves will be following this up from a transfer pricing perspective, examining the “compliance overload” brought on by tax transparency requirements. This includes country-by-country reporting (CbCR), as well as DAC6.

Meanwhile, the EU wants to re-open negotiations with Norway to strengthen tax information exchanges and joint audits on VAT. The European Commission published its recommendation on April 26, seeking approval from members states to use more information exchange tools and undertake joint enquiries.

ITR’s indirect tax reporter Siqalane Taho will be sharing how this could impact tax planning for corporations.

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.

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