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This week in tax: Australia sets out plan for public CbCR


The Australian government announced plans for public country-by-country reporting, while energy company Shell reported bumper profits and sparked calls for a higher windfall tax.

Treasurer Jim Chalmers delivered Australia’s ‘mini-budget’ on Tuesday, October 25, and it included public country-by-country reporting, new thin capitalisation rules, and stricter rules for tax deductions.

The Australian government wants to limit a company’s debt-related deductions to 30% of earnings before interest, taxes, deductions, and amortisations under new thin capitalisation rules. These rules will allow deductions for a share of earnings on the full group’s net interest expense and keep the arm’s length debt test too.

The mini-budget also features stricter deduction rules for intangible assets in low-tax countries when the corporate tax rate is less than 15% or when there is a preferential patent box regime.

All of these changes will apply to industry groups in tax years starting from July 1 2023, if approved. The next budget announcement is due in May 2023. Local advisers say it will focus on tax hikes.

Hong Kong strengthens anti-tax avoidance regime

The Hong Kong Inland Revenue Bill 2022 addressing the tax treatment of foreign-sourced passive income will be filed today, October 28, before going to the Legislative Council next month.

Since the EU added Hong Kong to its watchlist of tax jurisdictions, the Hong Kong authorities have set out to reinforce anti-tax-avoidance measures by imposing the foreign-sourced income exemption (FSIE) regime.

The FSIE regime will be designed to offer tax exemptions for passive income from foreign entities received in Hong Kong. This may help tackle tax avoidance partly by reducing the tax compliance burden for companies, as well as tackling the issue of double taxation and maintaining the tax competitiveness of the jurisdiction.

"As an international financial centre, Hong Kong prides itself on being a responsible and co-operative player in international taxation,” said a government spokesperson.

This follows a consultation period, which had taken place since mid-June 2022.

UK may raise windfall tax after Shell reports bumper profits

Multinational energy company Shell reported profits of £8.2 billion ($9.5 billion) on Thursday, October 27.

The oil and gas company paid no windfall tax on its summer profits, but it expects to start paying more tax in 2023.

UK Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are considering whether to increase the windfall tax, known as the energy profits levy, according to Conservative Party Chairman Nadhim Zahawi. This could bring down energy bills at a time of rising costs.

As chancellor, Sunak introduced the energy profits levy in May to tax the profits of oil and gas companies at a rate of 25%. However, the levy allows energy companies to claim back tax savings of 91p for every £1 invested.

The Treasury expects the levy to raise £5 billion in 2022, but critics are sceptical given the generous tax break built into the regime.

Colombia pushes ahead with tax reform

The Colombian government may be able to go ahead with its tax reforms after Congress granted the proposals first-stage approval on Wednesday, October 26.

President Gustavo Petro has set out proposals to implement higher taxes, including raising capital gains tax from 10% to 15% and imposing a 5% surtax on top of a 35% corporate tax rate. He also wants to ensure Colombia implements the OECD’s pillar two minimum corporate rate of 15%.

The 5% surtax applies to certain sectors such as financial services and insurance. For example, the surtax would hit stockbrokers earning more than COP$4.7 billion ($989,000). At the same time, the tax plan would impose a temporary tax of 1.5% on equity of more than COP$5.7 billion from 2023 to 2026.

However, the Senate and the Chamber of Representatives will debate the bill for a second time before it can be passed into law. The president has already had to compromise to get this far.

Netherlands opens consultation on minimum tax rate

The Dutch Ministry of Finance opened a consultation on Monday, October 24, on enacting a global minimum corporate tax by 2024 – including a move to introduce a top-up tax even without an EU directive.

The Dutch proposal is the most recent European pillar two draft legislation, and it combines the OECD’s pillar two model rules with the EU’s minimum tax directive. The directive applies to all large local industry groups, but the OECD’s rules only target companies with more than €750 million ($747 million) in group revenue over two consecutive years.

This consultation fulfils a promise by the Dutch government on September 9 to implement the global minimum effective corporate tax rate. The Netherlands now ranks alongside France, Germany, Spain and Italy, where governments want to go ahead with pillar two even without EU support.

Although the Netherlands is prepared to go ahead without EU backing, the Dutch proposal would introduce the key components of pillar two in full alignment with the EU directive. The Dutch consultation is open until December 5, before the Dutch Ministry of Finance will pass the proposal on to the Lower House of Parliament in Q1 2023.

Next week in ITR

The ITR team will cover a global industry outlook on the uptick in European lawmakers’ championing of windfall taxes on excessive profits in banking and energy to address national budget deficits.

The second round of the Brazilian presidential election will take place on Sunday, October 30. ITR will be reporting on the tax implications, particularly for the country’s transfer pricing regime.

Meanwhile, ITR will also examine some carbon pricing policies, particularly varying carbon border adjustment mechanisms, ahead of the UN’s annual climate conference (COP27) starting on November 6.

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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