This week in tax: EU Commission presents CBAM rules
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This week in tax: EU Commission presents CBAM rules

European Union flag against European Parliament

The European Commission is set to face WTO complaints from India and other countries over the Carbon Border Adjustment Mechanism, while a federal judge dismisses two tax charges against Hunter Biden.

The European Commission presented the implementing regulations for the Carbon Border Adjustment Mechanism yesterday, August 17.

Companies will face penalties of up to €50 ($54) per tonne of carbon emissions if they fail to comply with CBAM reporting requirements from October 1 2023, according to the new rules. The border tax will apply to goods made from high-carbon materials from 2026.

However, the transitional phase to the EU mechanism begins in October. It will run for 18 months to give EU member states time to adopt new policies to enforce CBAM rules. Some variation will be allowed during this trial period, but a uniform EU standard will apply from January 2025.

The Commission has set out to create a level playing field for companies operating in the EU, but it will raise the cost of carbon emissions. Importers will not be charged during the trial period, but they will face penalties for non-compliance.

Judge throws out Delaware tax charges against Hunter Biden

Delaware District Judge Maryellen Noreika dismissed two misdemeanour tax charges against Hunter Biden, CNN reported yesterday, August 17.

Biden was charged with failing to pay taxes on time in 2017 and 2018, but he now may face far more serious allegations in court. These could include six federal felonies such as tax evasion and filing false tax returns.

Special Counsel David Weiss may now bring more charges against Biden in another district as part of the case. Weiss asked Noreika to throw out the two tax charges in Delaware after a plea deal collapsed earlier in August.

Biden’s legal team agreed that the tax charges should be dismissed because they were only brought forward in Delaware in the plea agreement. However, this means Biden could face charges in California or Washington DC as part of Weiss’s probe.

India building opposition to CBAM ahead of WTO meeting

A growing number of developing countries are set to oppose the EU’s Carbon Border Adjustment Mechanism at a World Trade Organization summit in the UAE next year, according to Indian financial publication Mint.

India has raised concerns about the CBAM, particularly that the mechanism may raise protectionist barriers to Indian exporters. However, the country is far from alone and a record number of WTO complaints have been filed against the EU plan.

The CBAM will apply to imports of goods with a high-carbon impact, including cement, iron, fertilisers and steel. Many export companies will face higher tax charges as a result, and developing countries are concerned this will hit domestic industries hard.

The 13th WTO Ministerial Conference is set to be held in Abu Dhabi in February 2024.

EY rejects TPG Capital’s offer to spin off consulting wing

‘Big four’ firm EY rejected an offer by private equity group TPG Capital to buy a stake in its consulting function and establish it as a separate company, according to the Financial Times.

EY CEO and global chairman Carmine Di Sibio, who led the failed ‘Project Everest’ initiative to spin off the consulting division, downplayed the proposal in a note to partners on Wednesday, August 16.

“We frequently receive inquiries from private equity firms and other investors expressing interest in parts of EY businesses. This was the case before Everest and will continue,” he told partners.

“The TPG approach was a preliminary expression of interest and there has not been further engagement. We are not actively engaging in any transactions,” wrote Di Sibio.

Project Everest would have seen the consulting division spun off in an immediate initial public offering (IPO). The global leadership hoped the IPO would have raised about $100 billion for the new company.

Partners were divided over the details, especially on how to divide revenue and services. In the end, Project Everest was cancelled in April 2023 amid reports of infighting.

Italy continues to retreat on banking windfall tax

Deputy Prime Minister Antonio Tajani called for the Italian government to water down the banking windfall tax in an interview with Naples newspaper Il Mattino on Tuesday, August 15.

The Italian government shocked financial markets last week when it announced the windfall tax plan, and now appears to be backpedalling further on the levy. Tajani argued that the windfall tax should only apply to large financial institutions supervised by the European Central Bank (ECB).

Many smaller companies may struggle to meet the costs of the levy. However, the government may be more concerned about the stock market fallout of the policy – shares lost €10 billion ($10.8 billion) in value the day after the announcement, before rebounding.

The government tried to reassure financial markets by pledging a taxable income cap of 0.1% on total assets. This levy would generate an estimated €2 billion in tax revenue. However, it would be much lower if more companies steered clear of the tax.

The ECB supervises a dozen Italian financial companies, including BPER, Credito Emiliano, Fineco and UniCredit.

UK financial leaders expect BEPS 2.0 to hit their companies

Most UK financial professionals are expecting BEPS 2.0 and the Carbon Border Adjustment Mechanism to have a major impact on their companies, according to an EY survey published on Tuesday, August 15.

Almost 90% of respondents are anticipating a ‘significant’ to ‘moderate’ impact from the global minimum corporate tax rate, while 72% expect CBAM to have a major impact on their companies’ financing functions.

Meanwhile, 85% of financial professionals are planning to freeze or cut budgets for their finance teams over the next two years as a result. The EY survey polled 1,600 CFOs, heads of tax and other financial professionals at UK companies.

British businesses will have to adapt to new reporting obligations for the global minimum corporate tax rate from December 31 2023, while the CBAM’s transitional phase will start on October 1.

Even though the UK is no longer in the EU, the bloc is still the country’s biggest trading partner so multinational companies will have to be CBAM-compliant.

Korean companies pull EV production from China over tax breaks

Korean businesses are moving production for electric vehicle batteries from China to South Korea in a bid to qualify for US tax credits, reported the Financial Times on Sunday, August 13.

Steelmaker Posco is relocating its production facilities to reorganise its EV supply chain, and other Korean companies are following suit.

The Inflation Reduction Act, which became US law in August 2022, offers manufacturing companies billions of dollars in tax credits to source EV battery components from the US and its allies. The law was designed to exclude China.

However, China still dominates the supply chain for critical materials to produce clean energy technologies. Many Korean manufacturing companies rely on Chinese materials to make EV batteries, but this may now be changing due to US policy.

For example, Posco has to source nickel from Australia as part of a new supply chain. The steel company will no longer produce or source anything in China, though it will still rely on Chinese facilities to process nickel and graphite.

Next week in ITR

ITR is following the Joe Biden administration’s efforts to secure the OECD’s global minimum corporate rate in law. The US has still not implemented pillar two despite the approval of the Inflation Reduction Act last summer.

Meanwhile, the Australian tax leaks scandal continues to unfold every week and multiple investigations are ongoing. This includes an independent review of PwC Australia set to be completed next month.

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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