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This week in tax: UAE lays out 2023 corporate tax plan

UAE moves to tax influencers

Companies in the UAE can prepare for a corporate tax regime in 2023, while the Trump Organization was found guilty of 17 counts of tax fraud.

The UAE issued a federal decree on the taxation of corporations and businesses today, December 9, to prepare the groundwork for a 9% rate on taxable profits of more than Dh375,000 ($102,000).

The legislation will come into force on June 1 2023. Profits below Dh375,000 will face a zero rate to provide support to small businesses and start-up companies. This may still allow smaller businesses to claim money back from the tax administration.

At the same time, the federal corporate tax regime will maintain targeted exemptions for extractive industries, pension funds and investment funds. A zero rate will apply to qualifying income made in free trade zones.

The Ministry of Finance designed the corporate tax regime to normalise UAE tax policy because the Arab Gulf nation was blacklisted by the EU as a non-cooperative tax jurisdiction. However, the 9% headline rate is below the OECD’s global minimum rate of 15%.

Nevertheless, the UAE government maintains it supports the global minimum corporate rate, so it’s possible that the 9% will be raised to 15% if the world implements pillar two.

Airbnb and Uber must collect users’ VAT, says European Commission

The European Commission said yesterday, December 8, that transport and accommodation platforms including Airbnb and Uber will have to collect VAT paid by users of their platforms.

The Commission announced the measures as part of its long-awaited legislative amendments to the EU VAT system that are referred to as ‘VAT in the Digital Age’.

Ride-sharing and hospitality apps will be required to collect and remit VAT to tax authorities when the underlying suppliers on their platforms fail to pay the levy. Service providers may have failed to pay VAT due to the different sizes of businesses on online marketplaces.

“It will also make life easier for SMEs who would otherwise need to understand and comply with VAT rules in all [EU] member states where they do business,” said the Commission in its statement.

The VAT changes are intended to reduce the compliance burden on SMEs, while levelling the playing field between online and traditional providers in the sectors.

These proposed measures are part of a wider set of VAT amendments that are intended to help EU member states collect an additional €18 billion ($19 billion) annually.

Unanimous approval by the Council of Ministers will still be required before the proposals are enacted into EU legislation.

Sumitomo faces Indian tax bill over acquisition

Sumitomo Mitsui Financial Group is facing a hefty tax bill of ₹55 billion ($670 million) in India over its acquisition of almost 75% of financial services company Fullerton India Credit from its previous owner.

India’s Income Tax Department is asking SMFG to pay on behalf of the seller, Fullerton Financial Holdings, reported The Economic Times on Wednesday, December 7. SMFG only held back $170 million from the $2 billion deal but the tax administration argues it should have withheld $500 million more.

SMFG and Singapore-based firm Fullerton, which still owns 25% of Fullerton India Credit, completed the deal in 2021. The Indian tax authority reportedly issued its demand in late November.

A spokesperson for SMFG declined to comment on the acquisition itself, but stressed that the Japanese financial institution is taking action to comply with local laws and regulations.

The Indian government previously ended longstanding tax disputes with multinational companies Cairn Energy and Vodafone Group by negotiation. SMFG and Fullerton are working with officials to reach a settlement.

EU leaders wary over Inflation Reduction Act

European Parliament President Roberta Metsola warned EU leaders against getting into a trade war with the US, on Wednesday, December 7, following its passing of the Inflation Reduction Act in August.

Metsola said that the EU should steer clear of falling into a race to the bottom on protectionist measures, according to Politico. European leaders fear the IRA’s subsidies and tax breaks threaten to undermine investment in green technology and vehicle production across the EU.

These concerns are also shared by European Commission President Ursula von der Leyen. She has called on the EU to address the distortions created by the IRA and to adjust the bloc’s rules on state aid to boost investment.

“There is a risk that the IRA can lead to unfair competition, could close markets, and fragment the very same critical supply chains that have already been tested by COVID-19,” said von der Leyen.

She also highlighted three main concerns with the US legislation: 1) the ‘buy American’ principle that underpins the IRA, 2) tax breaks that could lead to discrimination, and 3) production subsidies that could result in a subsidies race.

US President Joe Biden has acknowledged EU leaders’ unease over the law, including comments made to him by French President Emmanuel Macron. Biden suggested that tweaks could be made to the IRA to also benefit European businesses.

Two Trump subsidiaries found guilty of tax fraud

Two subsidiaries of the Trump Organization were found guilty of 17 counts of tax fraud by a New York jury on Tuesday, December 6.

Trump Corp and Trump Payroll Corp were convicted on all counts of tax fraud and falsifying business records. These companies will face a fine of $1.6 million, and the ruling could make it harder for the Trump Organization to secure financing in the future.

The Trump Organization’s former chief financial officer Allen Weisselberg will face sentencing in January 2023. Weisselberg admitted the charges in a plea deal with New York prosecutors in August. He is expected to face no more than five months in prison.

Former President Donald Trump has vowed to appeal the verdict. Though Trump was not personally implicated in the charges, the case comes as he faces a civil lawsuit over allegations of estate tax avoidance. If Trump loses the civil case, he may lose his right to do business in New York state.

Next week in ITR

ITR speaks to tax professionals about the potential impact of new disclosure requirements in Brazil's draft TP legislation. These requirements may force taxpayers to reveal any changes to their TP arrangements to the tax authority. Meanwhile, ITR will review the most important corporate tax and transfer pricing cases of 2022.

The team will also analyse the UAE’s plans to impose a federal corporate tax system in 2023. ITR will be speaking to tax professionals in the Arab Gulf region about the implications of the new tax regime.

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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