This week in tax: ECB criticises Italy windfall tax on banks
The ECB warns the tax could leave banks with weaker capital levels, while the UAE publishes guidance on its new corporate tax regime.
The European Central Bank has criticised Italy’s windfall tax on banks, expressing concern through a non-binding legal opinion delivered on Tuesday, September 12.
Italy’s government last month said it would apply a one-time 40% tax on banks' "surplus profits" gained as a result of ECB interest rate hikes.
It has since announced that taxes would be capped at 0.1% of a bank’s total assets.
The ECB warned the tax could leave banks with weaker capital levels or cause smaller institutions, which are more dependent on traditional lending activities, to become less able to absorb the potential negative impacts of an economic downturn.
The ECB noted that it has previously given its view on draft legislation on taxes applicable to credit institutions in several EU member states.
It made clear that it has, in general, argued that imposing an “extraordinary tax” on the banking sector could make it more difficult for credit institutions to build up additional capital buffers.
This, the EBC argued, would reduce their retained earnings and thus make them less resilient to economic shocks.
“In effect, such extraordinary taxes could have negative economic effects by limiting credit institutions’ ability to provide credit, contributing to less favourable terms for customers when providing loans and other services,” the ECB stated.
Clyde & Co appoints tax expert to bolster Middle East offering
Rachel Fox has joined global law firm Clyde & Co as a partner in its Dubai office.
Clyde & Co announced Fox’s appointment on Wednesday, September 13.
She has joined the firm’s global corporate and advisory practice and will lead Clyde & Co's Middle East tax offering.
Fox previously worked for law firm William Fry in Ireland, where she was made partner in 2019.
“Clyde & Co’s reputation and reach in the Middle East provides the greatest opportunity for building a successful tax offering,” Fox said on her move being announced.
Naji Hawayek, Clyde & Co partner and head of corporate for the Middle East, suggested Fox’s appointment comes at a significant time for tax law in the region.
“Tax continues to be a fast-moving area of law in the Middle East since the introduction of VAT in the GCC countries in 2017 and corporation tax coming into force in the UAE in June 2023.
“Rachel’s hire means we now have a dedicated tax partner in the Middle East. Our clients are already seeking advice on how to navigate the new tax requirements, and Rachel’s appointment responds to their needs,” he said.
Clyde & Co said it has more than 30 years of experience in the Middle East as well as 59 partners operating through five offices in the region.
UAE publishes corporate tax guidance
The UAE Federal Tax Authority has issued general guidance about its new corporate tax regime, which came into effect on June 1.
Companies now face a standard corporate tax rate of 9% in the UAE.
The guidance sets out who is subject to corporate tax and activities that are within the scope of the tax.
It also covers the main exemptions that apply to certain entities, such as government bodies.
Transfer pricing is one of many elements of the new guidance.
The guidance also highlights that the UAE’s FTA can compel a taxable person to disclose their tax return as well as information concerning their transactions and arrangements with their related parties and connected persons.
Research lays bare corporate tax struggles with tech resourcing
Nearly half of corporate tax departments are under-resourced for technology and hiring, shows research released by Thomson Reuters yesterday, September 14.
The 2023 State of Corporate Tax Department report also found that under-resourced tax departments are more likely to face audits and penalties.
Improving efficiency, acquiring additional software and automating processes were at the top of tax departments’ wish lists, according to the report.
It also found that more than two thirds of corporate tax professionals expect their companies to undergo significant change within the next two years.
The research stems from a survey of tax professionals globally that was conducted in June and July this year.
UK corporate transparency bill close to approval
A draft UK law that has been described as good for tax transparency is now in the final stages of approval after being returned to the House of Lords for further consideration.
The Economic Crime and Corporate Transparency Bill, which will require small and micro-enterprises to make their profit and loss statements publicly available, went back to the House of Commons on Wednesday, September 13, before going up to the House of Lords.
Paul Monaghan, CEO of the Fair Tax Association in the UK, said that it’s often assumed that big businesses are mainly responsible for “tax dodging” but that small companies are actually responsible for 56% of the UK’s tax shortfall.
“The current regime that allows abridged or abbreviated accounts to be filed creates an information blackhole and fraudsters’ paradise,” he said, noting that the vast majority of businesses registered in the UK at Companies House are small or micro-businesses.
Monaghan said that the new law will bring the UK’s regime into line with other countries.
Next week in ITR
ITR will be following up on a partner move in the Middle East by speaking to Rachel Fox, who has been hired by global law firm Clyde & Co in its Dubai office. More tax experts are going to move to the region, she believes.
We will also publish analysis of new stimulus legislation in Germany and how firms are advising clients on it.
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.