This week in tax: Biden talks up US tax hikes

US President Joe Biden has hinted he will be looking to raise taxes in the March 9 budget proposal, setting off speculation about what measures he might introduce.

“I want to make it clear: I’m gonna raise some taxes,” said Biden in a speech on Tuesday, February 28. “No one making less than $400,000 is going to pay a penny more in taxes.”

The Biden administration has floated a so-called ‘billionaire tax’ that levies a 20% rate on the income of the wealthiest individuals. Biden also made the case for a stock buyback tax in February.

Congress passed a 1% tax on stock buybacks as part of the Inflation Reduction Act, which was approved in August 2022. This levy came into effect on January 1 2023. However, Biden called for a rate increase to 4% in his state of the union address on February 7.

Biden’s biggest problem has been keeping his own allies on side, especially West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Sinema.

The East African Community aims to implement a double taxation agreement covering all seven of its partner states, but Tanzania is holding out according to local media.

Tanzania is still dragging its heels on signing the East African Community’s Double Tax Treaty, reported the Daily Monitor yesterday, March 2. This is due to concerns that the treaty will cost the country tax revenue.

All EAC partner states are obliged to sign and ratify the regional double taxation agreement by the end of 2023. This deadline was agreed by all partner states, but Burundi, Kenya and Tanzania delayed signing. Now only Tanzania is left.

The EAC includes Burundi, Democratic Republic of the Congo, Kenya, Rwanda, South Sudan, Tanzania and Uganda.

An EAC-wide tax treaty is a major step towards tax harmonisation. The EAC aims to align all taxes among its partner states by 2024 and establish a common currency by 2031.

The Court of Justice of the EU ruled on Tuesday, February 28, that Fenix International, widely known for its OnlyFans platform, is liable to pay VAT in the UK on content regardless of where it is produced.

UK-registered company Fenix International is subject to 20% VAT on any sum paid to OnlyFans content creators even if they are outside the country, according to the ruling. Under the EU VAT Directive, the company was presumed to be the supplier of services when acting as an intermediary.

Fenix International collects and distributes payments made by users to creators, and charges creators 20% on the sums paid by way of a deduction. The company applies VAT to the 20% deducted, but the UK tax authority disputed the tax base.

HM Revenue and Customs (HMRC) sent VAT assessments to Fenix International for the period from July 2017 to January 2020. HMRC argued that the company should have accounted for VAT on the amounts passed on to the creators, and not just the amount deducted.

In response, Fenix filed an appeal with the First-tier Tribunal, which referred the case to the CJEU on December 15 2020. The CJEU still had jurisdiction on UK cases until December 31 2020.

The European Commission and the UK government announced an agreement in principle on a new framework to revise the Northern Ireland Protocol, with implications for VAT and customs rules.

A new internal UK trade scheme will be established if the Windsor Framework goes ahead, according to the agreement, reached on Monday, February 27.

The Windsor Framework would introduce a ‘green lane’ for goods imported for internal use to Northern Ireland from the UK mainland and a ‘red line’ for goods imported to the EU through Northern Ireland. This is intended to ease the supply chain problems holding back trade.

Under the protocol, Northern Ireland is still subject to EU VAT and excise rules on goods and services bought and sold there even though it is within UK borders. The framework would change this and extend UK VAT and excise rules to Northern Ireland.

Meanwhile, the Northern Ireland Assembly will gain a greater say – a so-called ‘Stormont brake’ – over whether to adopt EU legislation. But the Court of Justice of the EU will still arbitrate over tax disputes related to the protocol.

Multinational companies continue to use tax havens to shield profits from authorities despite the OECD’s BEPS project to crackdown on tax avoidance, according to a recent UN research paper.

Tax havens are still widely used even though many countries have implemented anti-avoidance measures as part of the BEPS project.

Corporations moved an estimated $969 billion into tax havens in 2019, up from $616 billion since 2015, the UN University study found. This shift represents an increase in the share of multinational profits from 20% in 2012 to 37% in 2019.

Gabriel Zucman, associate professor of economics at the University of California, Berkeley, carried out the research with Ludvig Vier, external lecturer of economics at the University of Copenhagen.

“If countries could agree on a global minimum corporate tax rate of, say, 20%, the problem of profit-shifting would, in our estimation, largely disappear, as tax havens would simply cease to exist,” wrote Zucman and Vier.

The study estimated that governments lost $250 billion in tax revenue in 2019 and found that US companies accounted for half of this figure, followed by UK and German businesses.

These findings were highlighted in an article in The Conversation late on Friday, February 24.

ITR will be keeping an eye on developments ahead of the US budget announcement on March 9 and the UK spring statement on March 15. Both events are set to be politically contentious after months of wrangling over fiscal policy.

Meanwhile, Special Reports Editor Josh White will also be starting a series of articles on intangibles and transfer pricing particularly the impact of the BEPS project on intellectual property management.

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.