Top 10 ITR articles of 2022
ITR looks back at its best articles of 2022 with features on everything from Brazilian tax reform to the ‘Uber files’.
We have selected the best 10 articles by our team in 2022 going by the number of readers, as well as qualitative factors such as exclusivity and writing style.
The most read ITR article of 2022 was Danish Mehboob's report on EY's plan to separate its auditing and consulting businesses. Just some of the other top stories we covered in 2022 include Brazilian tax reform, EU support for a minimum corporate tax rate and Germany’s VAT exemption for transactions made in the metaverse. Last year was a hectic time for tax professionals and policymakers alike, but 2023 shows no sign of being any less busy.
No.1: EY’s ‘Project Everest’ could boost business but not the brand
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Tax professionals familiar with EY’s plan to separate its auditing and consulting businesses say the ‘big four’ accounting firm could be allowed to approach clients that were previously off limits as regulatory pressures soften after its restructure.
Advisers from inside and outside EY suggest that separating the operations will help each grow faster.
“Some data modelling shows that the full potential of the two businesses has been hindered by regulatory restrictions,” says one senior tax leader at EY in Boston.
A conflict of interest arises when EY’s auditors are unable to question their corporate client’s management team because it may stop consultants at the same firm from acquiring more profitable advisory work.
No.2: Five EU finance ministers promise to enact pillar two
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
Tax professionals say the latest version of the US corporate tax rate is inconsistent with the global rules under the OECD’s pillar two framework and may threaten its stability.
The latest 15% corporate alternative minimum tax (CAMT) in the Senate-backed Inflation Reduction Act of 2022 could pass the House by the end of the week and stands a chance of becoming law by the end of August.
While the global minimum tax under pillar two is also set at 15%, there are several discrepancies with the CAMT that could introduce uncertainties in the international tax environment and distort business decisions as the cost of corporate investment increases.
No.3: Pillar one Amount A: rules too complex, say corporations
Businesses say pillar one sourcing rules lack simplicity and could lead to administrative burden costs, following the OECD’s progress report in July.
Shortfalls remain in the OECD’s progress report on Amount A of pillar one, according to public comments published on August 25, with companies raising concerns over complex sourcing rules and an uneven playing field.
“The common theme in comments made by large corporates in respect of pillar one, both formal and informal, is that the proposed rules are incredibly complicated, difficult to understand in terms of practical application and that they still house some major gaps,” Leiza Bladd-Symms, partner at law firm LCN Legal in London, tells ITR.
Amount A has been designed to address tax challenges arising from the digitalisation of the global economy.
Under the rule, large profitable enterprises can be taxed by individual jurisdictions and have a portion of their profits allocated to the countries from which their sales originated.
No.4: German metaverse VAT exemption lacks clarity, say tax experts
Companies welcome the German Tax Court’s decision to exempt virtual land rentals from VAT, but are wary about the rulings lacks clarity.
Tax professionals and businesses see the Tax Court decision to exempt land rentals in the metaverse from VAT as positive, but they also fear that the decision lacks clarity for businesses.
The comments followed a November 2021 decision by the German Federal Tax Court, which found that virtual land rentals in the metaverse were exempt from VAT.
Paul Blaccard, chief executive officer and owner of RentMainland.com, a virtual property rental firm in Second Life but based in the US, says he welcomes the decision by German tax authorities not to impose VAT on rentals.
“Sometimes governments have nothing better to do than create more bureaucracy,” he says.
The decision overturned a case from August 2019 by the Tax Court of Cologne, which held that landlords were liable for VAT in Second Life, a virtual world in the metaverse, as land had been rented in exchange for payment in Linden dollars, the currency in Second Life.
No. 5: Brazil interest rate rises leave foreign-facing companies exposed
Sources want Brazil’s TP regime to align internationally, as some local companies face high interest rates and taxation after continuous rises.
Brazil’s 12th straight rise in interest rates is starting to bite, with transfer pricing consultants saying it could reduce tax deductibility for resident companies that have inter-company transactions with entities abroad.
The Central Bank of Brazil increased the benchmark interest rate to 13.75% on August 3, to combat inflation, before maintaining it on September 16.
“When there is an increase in interest rate by the Central Bank, somehow there is an indirect effect on the application of TP rules by Brazilian companies,” says Ricardo Bolan, tax partner at law firm Lefosse Advogados in São Paulo.
Brazil’s current TP rules for inter-company financing differ from those of countries that align with OECD standards.
No.6: VAT introduction in Kuwait and Qatar likely to be delayed until 2024
Tax directors and advisors do not expect VAT regimes in Kuwait and Qatar to be introduced before 2024 as concerns over rising inflation and high oil prices bolster tax revenues.
Tax professionals in the Middle East are concerned that surging inflation and global energy prices may lead to further delays by tax authorities in introducing VAT in Kuwait and Qatar.
Mohamed Faycal Charfeddine, group head of tax at Aujan Coca-Cola Beverage Company (ACCBC), said he is not expecting VAT to be introduced in Kuwait until at least 2024.
“If I was a betting man, I would say it would be another 3-4 years at minimum before VAT would see the light of day,” said Ali Kazimi, managing director of Hansuke Consulting. “On one side, you have so much inflationary pressure kicking in and you add more fuel to it by hiking up prices through VAT, it just does not make any economic sense,” he added.
Inflation in the Kuwait has hit a decade high of more than 5% while the price of brent crude oil remains at about $100 per barrel on the back of the Russian invasion of Ukraine. These developments are resulting in a windfall for Middle Eastern economies as revenues from record high commodity prices such as oil and liquified natural gas (LNG) swell Treasury coffers.
No.7: Why global consensus on pillars one and two is unrealistic
Tax policymakers are confident the implementation of the OECD’s two-pillar solution is only a question of timing – but is it really?
For years and years, the tax world has been tuning into debates around the adoption of the revolutionary pillar one and two, which aim to reduce profit shifting and tax avoidance by multinationals across the globe.
G20 countries and the OECD initiated the BEPS project in 2013. While significant progress has been made over the past nine years, some countries are still cringing over the words “pillar one” and “pillar two”.
Is it because the world is entering a recession, with central banks forced to increase interest rates at record levels? Is it because countries are still combatting the economic effects of the COVID-19 pandemic and potentially facing a new wave? Maybe it’s because world leaders are struggling to mitigate the soaring prices of oil and gas? Or is it because the climate crisis has finally topped the political agenda?
While it might all sound doom and gloom, the OECD pillars one and two – if implemented – expect to generate further revenues for governments. If anything, this could be a great time to adopt the new tax framework.
No.8: Brazil’s draft reform offers tax planning disclosure rule, say sources
Tax professionals are divided about the impact of the draft transfer pricing legislation in Brazil, while everyone waits for the incoming government to make the final decisions.
Brazil’s draft transfer pricing rules are expected to increase the tax and compliance burden on businesses as companies face new tax planning disclosure laws, say sources.
Sources who have seen the draft legislation say that the new regulations will require taxpayers to tell the Brazilian federal tax authority, Receita Federal (RFB), each time they make changes to their tax arrangements.
“This could impact a lot of companies because as you can imagine there’s substantial tax planning happening in Brazil every year with companies changing their [tax] structures and the nature of their service flows,” says an in-house source.
He adds that this requirement could also threaten to make the relationship between taxpayers and the RFB more adversarial.
No.9: ‘Uber files’: spotlight on the company’s disruptive tax strategy
The ‘Uber files’ show how Uber Technologies has changed its tax strategy to keep up with the pace of international tax reform and state aid investigations.
Uber Technologies has operated a nimble tax strategy for more than a decade, but the ride-hailing company is facing questions about its transfer pricing arrangements in low-tax jurisdictions following the release of the ‘Uber files’ last week.
One tax director in the technology industry in the UK says Uber Technologies has “taken Silicon Valley’s maxim of ‘growth at the expense of everything else’ to another level”.
Uber’s losses comprise “unrealised capital losses on its shareholdings in other companies,” he adds. This is despite the surge in grocery and takeaway deliveries during the COVID-19 pandemic.
The ride-hailing company has been reporting losses for most of its history and this is part of the reason its corporate tax burden has been low. Some tax experts have questioned whether it is right to expect the company to be paying more in corporate tax.
No.10: BIAC and OECD divided over pillar two model rules
The OECD’s business advisory committee is against pillar two because their experts say rules on credits and hybrid accounting will lead to serious technical problems.
Will Morris, vice chair of the Business and Industry Advisory Committee to the OECD, called for another round of changes to the pillar two model rules, but the OECD’s top proponents of the rules argue otherwise in an August 19 article.
Tax professionals are calling the OECD’s response less than favourable to the stability of the international tax agreement involving almost 140 countries. Less than 20 countries have issued draft legislation so far.
“It is a slightly stingy opinion,” says one head of international tax at a retail company based in London, about the article from the OECD’s tax leaders.
“Content aside, the fact they feel the need to respond in this way is not a good sign,” he adds.
Although the implementation G20/OECD deadline is still end of December 2023, some countries have postponed their implementation dates at least until January 2024.