This week in tax: Colombia plans LatAm tax summit
Colombian Finance Minister José Antonio Ocampo announced preparations for a Latin American tax summit, while the potentially ‘dangerous’ Inflation Reduction Act has come under fire.
The Colombian government is hoping to hold a Latin American summit on global tax reform in July, its finance minister announced at the World Economic Forum on Tuesday, January 17.
José Antonio Ocampo criticised the OECD’s work on digital tax and claimed the Paris-based organisation failed to address the interests of developing countries. He wants the Latin American tax summit to achieve this.
“The idea is to have a mechanism of real cooperation that will go over what we consider the frustrating results of the OECD negotiations of a couple of years ago,” Ocampo told Reuters on the sidelines of the WEF on Tuesday, January 17.
“Only very large multinationals were captured by that regulation, which is too limited. And there is still a bias in favour of [countries that host] the headquarters of multinationals,” he said.
The LatAm tax summit will be held in Cartagena, Colombia, in July. However, the Colombian government is still making preparations and Ocampo is in talks with his counterparts in Brazil and Chile. He will also be approaching the Mexican government.
If the summit goes ahead, Latin American governments will have an opportunity to contest the OECD’s work on international tax reform. This may even help shape the UN tax convention, which was floated towards the end of last year. Countries outside the OECD may gain greater influence as a result.
In September 2022, Colombia was the first Latin American country to announce its support for a UN tax convention. A bloc of African countries later tipped the UN General Assembly vote in favour of the proposal in November.
UK business minister raises protectionism fears over Inflation Reduction Act
The UK’s business, energy and industrial strategy minister, Grant Shapps, has warned that “it’s very important” that the US Inflation Reduction Act doesn’t become a protectionist policy.
Speaking on a panel at the World Economic Forum in Davos, Switzerland, yesterday, January 19, Shapps was discussing what is a wide-ranging piece of legislation that will offer US tax incentives for green technology and electric vehicles.
“It’s very, very important we don’t slip into protectionism, and that is where at the edges the Inflation Reduction Act is dangerous because it could slip into protectionism,” said Shapps.
“That’s not its intention, I don’t think that’s necessarily where it is going… but that is where we have to be really careful,” he added.
The landmark law includes a $369 billion green subsidy package and will provide more funding to the Internal Revenue Service, among other things.
But it has come under fire in the EU – and now the UK – over its potential to raise protectionism.
Speaking separately in Davos this week, European Commission President Ursula von der Leyen said Brussels would temporarily water down state aid regulations and invest in strategic climate-friendly businesses in direct response to the US green subsidy package, the Financial Times reported.
Oxfam calls for windfall tax on supermarket chains
Oxfam International called for governments to impose windfall taxes on food retailers to reduce excessive profits at a time of high costs for consumers, according to a report on Tuesday, January 17.
Gabriela Bucher, executive director at Oxfam International in the UK, stressed the importance of not just raising taxes on the energy sector.
“What we’re calling for is windfall taxes, not only on energy companies but also on food companies to end this crisis profiteering,” Bucher told The Associated Press.
According to the Oxfam report, 84% of 95 companies with excessive profits paid greater dividends to shareholders while charging higher prices to consumers.
Some countries are already considering such measures since windfall taxes have been imposed on energy companies. One such case is Portugal, where the government has introduced a windfall tax on excessive profits of food retailers.
Supermarket and hypermarket chains are facing a 33% levy on profits in-scope of the windfall tax. Profits over 20% higher than the average profit rate going back four years are deemed excessive under this regime.
The Portuguese government has pledged to use the tax revenue to cover the cost of greater public spending on welfare programmes. This policy came into force on January 1 and will stay in place for at least a year.
Student among nine appointees to IRS advisory board
The Internal Revenue Service has picked nine new members of an advisory panel including a student, a veteran lawyer and a senior policy analyst, according to an announcement on Wednesday, January 18.
The selections are for the Internal Revenue Service Advisory Council, a public forum for IRS officials and representatives of the public to discuss a broad range of issues in tax administration. It provides the IRS commissioner with feedback, observations and recommendations.
All new members will start this month and will serve three-year terms.
The diverse group includes Aidan Hunt, a computer science student at the University of North Carolina, Chapel Hill who has volunteered as a tax preparer.
Other appointees include Joseph Bender, a partner at Difede Ramsdell Bender in Washington DC with 30 years’ experience in federal tax law, and Brayan Rosa-Rodriguez, a senior policy analyst at Hispanic non-profit UnidosUS in Washington DC.
The remaining members are: Christine Freeland, president of Christine Z Freeland; John Kelshaw, director of tax compliance at Jackson Hewitt Tax Service; Anthony Massoud, vice president of corporate finance and tax at Van Metre Companies; Susan Nakano, senior manager of corporate tax at Discover Financial Services; Annette Nellen, professor of accounting and taxation at San Jose State University; and Brian Yacker, partner of non-profit services at Baker Tilly.
TotalEnergies expects to take £1bn hit from UK windfall tax
French energy company TotalEnergies expects to take a £1 billion ($1.2 billion) hit from the UK energy profits levy, it said on Tuesday, January 17.
TotalEnergies is set to cut back on its North Sea investments by £100 million partly in response to the windfall tax. Overall, the French company expects to pay $2.1 billion in UK and EU windfall taxes – but it is far from alone in the energy sector.
British energy company Shell disclosed a $2.4 billion hit from UK and EU windfall taxes on January 6. The UK energy profits levy increased from 25% to 35% on January 1. This means the North Sea oil and gas sector faces a combined headline tax rate of 75%.
Many oil and gas companies will have access to tax breaks, but the effective rate of taxation is still historically high. Windfall taxes have been back on the political agenda since the Russia-Ukraine war worsened the global energy crisis and resulted in waves of inflation. But windfall taxes come in various guises.
The EU introduced a solidarity contribution levied on the energy sector in September 2022 with the aim of raising €25 billion ($27 billion). However, the policy is facing a legal challenge from US oil company ExxonMobil.
Next week in ITR
ITR will be providing analysis of South Korea’s effort to implement pillar two. The Korean government may be setting a model for other East Asian countries to follow with its minimum corporate tax policy.
Meanwhile, ITR will also be looking at the most important tax trends to follow in 2023, including cryptocurrency tax regulations and the rise of carbon borders.
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.