This week in tax: PwC Australia warns of revenue loss
Partners at PwC Australia may lose up to 30% of their income following the sale of the government consultancy, while Brazilian politicians are divided over green tax breaks.
PwC Australia acknowledged today, September 1, that the financial impact of the spin-off consultancy Scyne Advisory means the firm’s partners may lose up to 30% of their income.
CEO Kevin Burrowes issued a public statement on the revenue loss and acknowledged the impact of the tax leaks scandal: “We completely accept that past leadership failed to meet the standards our people, our clients, the community and the Australian government rightly expect, and for that I apologise.”
Although PwC Australia reported revenue of A$3.4 billion ($2.2 billion) for the last financial year in June 2023, the ‘big four’ firm is expecting to see its turnover drop after it sold off its government consulting business in July.
The government services practice accounted for 20% of the firm’s revenue. This could mean a loss of A$680 million by June 2024.
Private equity group Allegro Funds acquired the firm’s government services practice for just A$1 as part of a deal to invest A$100 million in Scyne Advisory. More than 1,500 PwC Australia staff, as well as 117 partners, are set to join the new firm.
Brazilian govt divided over green tax agenda
The Brazilian government is considering a range of tax incentives for the energy industry, but there are disagreements over whether to include the oil sector, Reuters reported yesterday, August 31.
President Luiz Inácio Lula da Silva has vowed to lead Brazil through a transition to renewable energy. A key part of this is a tax regime offering R$9 billion ($1.8 billion) in tax breaks for infrastructure projects such as power plants and electricity grids.
However, there are reportedly divisions in the Lula administration over whether tax breaks should be offered to oil refineries. The Finance Ministry favours targeted tax incentives for sustainable energy, whereas the Mines and Energy Ministry wants to offer tax breaks to the oil sector.
Meanwhile, state-run oil company Petrobras is still at the centre of Brazil’s energy industry. The company is boosting investment in renewable energy but is set to continue oil production for the next four decades.
Global minimum tax threatens US tax base, says think tank
The OECD’s global minimum corporate tax plan threatens the tax base of the US and limits the powers of Congress to set tax policy, according to a new report published on Wednesday, August 30.
US companies will face higher compliance costs and shareholders will have lower after-tax incomes, according to the Tax Foundation, a think tank based in Washington DC. However, the report claims that the fiscal impact of foreign governments adopting the minimum rate is ambiguous.
The OECD’s pillar two plan is designed to impose a minimum effective rate of 15% on corporate profits worldwide. Even though the US has minimum rates in place for inbound and outbound investment, the country has yet to adopt pillar two.
Pillar two could mean higher tax revenue for the US government, but there are strings attached. The plan includes a country-by-country tax system rather than the US blended model. It would also introduce the undertaxed profits rule, which could allow foreign tax authorities to tax American companies on US income.
Germany agrees multi-billion corporate relief package
The German government has announced a €7 billion ($7.6 billion) corporate tax relief package for businesses as it seeks to boost the country’s economy, reported the Financial Times on Tuesday, August 29.
Chancellor Olaf Scholz announced the measures in a statement on the opening day of a two-day cabinet retreat in Meseberg on August 29.
Businesses, particularly SMEs, will be able to write-off losses in taxes more easily as part of the reforms. The €7 billion tax cuts form part of a 10-point plan to stimulate economic growth and encourage investment in Germany, according to Scholz.
Germany’s economy, which is the largest in Europe, recorded stagnated growth in the second quarter of 2023 after having fallen into recession in the first quarter of the year.
UK opposition rules out wealth tax and capital gains tax hike
The Labour Party has ruled out a new wealth tax if it wins the next general election, due by January 2025.
Shadow Chancellor Rachel Reeves told The Telegraph newspaper on Saturday, August 26, that the party would do “whatever it takes” to attract business investment to the UK and that additional money for public services would have to come from economic growth.
Reeves said Labour had “no plans for a wealth tax” and ruled out raising the top rate of income tax – currently at 45% for those earning above £125,000 ($158,000) a year.
She also confirmed that Labour would not increase capital gains tax, which starts at 10% to 18% on earnings below £50,000 and has higher rates of 20% to 28% for anything above that threshold.
“We don’t have any plans to increase taxes outside of what we’ve said.
“I don’t see the way to prosperity as being through taxation. I want to grow the economy,” she added.
However, left-wing campaign group Momentum criticised Labour’s decision to rule out a wealth tax, saying yesterday, August 31: “Politically, it's a terrible decision. Morally, it's a terrible decision. Economically, it's a terrible decision. It's a terrible decision.”
US conservative groups back Supreme Court TCJA case
Conservative think tanks and lobby groups waged a campaign to get the US Supreme Court to hear the Moore case, reported The Guardian on Friday, August 25.
The Supreme Court announced it would take on the case of Moore v the United States when it resumes work this month. The case concerns the mandatory repatriation tax of the Tax Cuts and Jobs Act, imposed in 2018, which applied a one-off levy to foreign earnings brought back to the US.
However, the Moore legal team argues that the repatriation tax breaches the 16th Amendment of the US Constitution, which grants Congress the power to collect taxes from realised income. The Supreme Court will decide if this means the levy was unconstitutional.
Eight conservative organisations, including the Competitive Enterprise Institute and the Manhattan Institute, reportedly lobbied to get the Moore case to the Supreme Court. These groups filed amicus briefs with the court in March 2023.
Next week in ITR
ITR will be following up on the Moore case and its implications for US tax law, as well as UK business demands over energy taxes. We will also be publishing our monthly newsletter on indirect tax on September 6. It will feature updates on all the major issues in areas such as VAT.
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.