Senators voted 63 to 36 in favour of the US debt limit deal yesterday, June 1, which will see the Internal Revenue Service lose $21 billion over the next 10 years.
President Joe Biden and Kevin McCarthy, Republican Speaker of the House of Representatives, reached a US debt ceiling deal on Saturday, May 27.
The Fiscal Responsibility Act of 2023 will reverse the $1.39 billion of $80 billion funding allocated to the IRS by the Inflation Reduction Act this year, as well as reallocating another $20 billion of IRS funding.
McCarthy stated that the deal would stop more than $1 billion from being “wasted on hiring Biden’s new army of IRS agents”. However, the IRS still has significant resources to bolster tax enforcement.
Conservative Republicans have criticised McCarthy for what they see as cuts that don’t go deep enough. Nevertheless, the House of Representatives voted 314 to 117 for the Fiscal Responsibility Act on Wednesday, May 31.
Amazon UK Services reaps benefits of 130% ‘super-deduction’
Amazon UK Services has paid no corporation tax for the second year in a row after taking advantage of the ‘super-deduction’ scheme, reported The Guardian yesterday, June 1.
The scheme granted tax credits to businesses that invest in infrastructure. After investing £1.6 billion ($2 billion) in ventures deemed as infrastructure, such as robotics, Amazon’s main UK division received a tax credit of £7.7 million for 2022.
For two years from April 2021, businesses were able to offset 130% of their investment spending on infrastructure, such as machinery and plant investment, against taxable profits. However, the deduction has been replaced with a new expensing regime.
Private equity executives take home £2.7bn in carried interest
The UK’s top private equity executives took home £2.7 billion ($3.3 billion) through the carried interest ‘loophole’ between 2020 and 2021, according to analysis by law firm Macfarlanes.
Over 250 executives at PE firms made £2.7 billion in a single year accounting for 80% of carried interest in the UK, reported the Financial Times on Wednesday, May 31.
Carried interest is taxed as capital gains in the UK, at a rate of 28%, instead of being subject to the top rate of income tax which is 45%. This is despite capital gains often being much larger than an executive’s salary.
It’s possible that the Labour Party, if it won power, would come down hard on the loophole, which, according to its estimations, would raise an extra £440 million a year. The UK is due to hold a general election next year.
Businesses may get compensation in Vietnam for minimum corporate tax
The Vietnamese government is preparing a draft resolution for October to offer compensation to companies hit by the minimum corporate tax rate, reported Reuters on Tuesday, May 30.
Vietnam is committed to the OECD’s pillar two plan for a 15% minimum rate, but the government fears this could cost the country foreign investment.
South Korean technology company Samsung Electronics is one business to push for compensation, according to a source involved in the talks with investors. Other companies demanding compensation reportedly include German engineering group Bosch and US technology company Intel.
The compensation resolution would grant after-tax cash handouts or refundable tax credits to cover the costs of manufacturing and research in Vietnam. However, this would undermine the minimum corporate tax rate.
Israeli lawmakers to consider 65% tax on NGO donations
The Israeli government is facing criticism over a draft bill to impose a 65% tax on foreign donations to NGOs and human rights groups, reported Al Jazeera on Friday, May 26.
Prime Minister Benyamin Netanyahu agreed to support the proposal as part of the coalition agreement he made with the far-right Otzma Yehudit party in December 2022. It would amend the Income Tax Ordinance to redefine ‘public institution’ to abolish the tax-exempt status of certain organisations and impose a 65% levy on foreign donations to such groups.
The Ministerial Committee on Legislation was due to review the draft bill on Sunday, May 28, but this was postponed in response to growing international criticism.
Israeli human rights organisations such as B’Tselem, Peace Now and Yesh Din, as well as Palestinian NGOs in the occupied territories, rely on foreign support from EU countries including France and Germany.
Kenya Revenue Authority accused of corruption
Kenyan President William Ruto accused the Kenya Revenue Agency of corruption and collusion with tax evaders, reported Reuters on Friday, May 26.
“Collusion, wanton bribe-taking and general corruption continue to pervade operations of KRA,” Ruto told the KRA board and management at an event live-streamed on social media.
“I have to be candid because I have a job to do,” he added.
Ruto claimed corrupt KRA staff have aided tax evasion rather than crack down on the problem, and that the agency had resisted digitalisation of tax collection to keep loopholes open.
The Kenyan government faces a fiscal squeeze from debt repayments and tax collection shortfalls amid a cost-of-living crisis. Annual interest payments on domestic debt have reached 680 billion shillings ($4.9 billion) in 2023.
Next week in ITR
ITR will be analysing the tax implications of the US debt limit deal, as well as the PwC Australia tax leaks scandal. Meanwhile, the UK Upper Tribunal will hear the case of Danish renewable energy company Ørsted over access to capital allowances for wind farms on Monday, June 5.
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.
