Updates on Pillar 2 Guidance and OECD Commentary

The Singapore Inland Revenue Authority (IRAS) has recently introduced a comprehensive section on its website dedicated to providing foundational insights into Pillar 2 regulations. In addition to this initiative, they have also uploaded user-friendly slides to aid in understanding these rules.

Moreover, PwC has issued an alert regarding the recently released OECD Consolidated Commentary and Examples. This publication serves to provide invaluable insights and interpretations essential for navigating the complex landscape of international tax regulations.

You can find the section from IRAS via this link and PwC Consolidated Commentary and Examples via this link.

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Plans to Increase Turnover Tax for Businesses in Armenia

There are plans to increase the turnover tax for small and medium-sized businesses in Armenia to 10%, doubling the current rate of 5%. This proposal, approved at a government meeting, will be sent to parliament for consideration.

The new tax rates will be 10% for trading enterprises, 7% for manufacturing, and 12% for the hospitality sector. The tax threshold will remain at 120 million drams per year, after which companies will switch to paying VAT and profit tax.

The Minister of Finance emphasized that this increase has been discussed for several months. Data from the Revenue Committee indicates that under the current tax, companies pay 2-3 times less than under the standard tax regime.

Along with the rate increases, a wide range of tax deductions is proposed for companies with documented operations. Thus, trading companies will be able to reduce the tax from 1.5% to 1%, while manufacturing and the hospitality sector will also have the opportunity to reduce their tax liabilities.

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IRS Commissioner Targets Wealthy Tax Evaders in AP Interview

In an interview with the Associated Press, IRS Commissioner Danny Werfel emphasized the agency’s determination to target wealthy tax evaders who exploit loopholes such as deducting private jet travel. Werfel urged these individuals to pay their fair share to alleviate the burden on other taxpayers. He also encouraged ordinary taxpayers to promptly file their taxes with accuracy.

Under Werfel’s leadership, the IRS plans to intensify efforts against high-wealth tax dodgers through new initiatives, leveraging tools like artificial intelligence. Despite ongoing criticism, including from Republican lawmakers, Werfel noted progress in curbing tax evasion among large corporate filers. He aims to enhance taxpayer service and dispel misconceptions about the IRS, countering claims of excessive enforcement.

Facing challenges such as understaffing and funding cuts, Werfel strives to improve agency efficiency and taxpayer experience. Initiatives like the Direct File program, allowing simple tax filing directly to the IRS, have garnered positive feedback. However, commercial software companies and some Republicans have raised concerns.

Despite advancements in online services and reduced wait times for phone assistance, Werfel acknowledges the IRS’s ongoing technological shortcomings. He emphasizes the importance of sustained funding to address past deficiencies and ensure effective taxpayer support. Major recent initiatives include targeting high-wealth earners and enhancing accessibility through various channels, though technological modernization remains a work in progress.

You can find the original article via this link.

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Romania Corporate Income Tax (CIT)

This guide provides a detailed overview of Romania corporate income tax (CIT) regime, including rates, residency, taxable income calculation, filing procedures, deductions, and other relevant aspects.

Romania Corporate Income Tax Rates:

Standard Rate: The general Romania corporate income tax rate is 16%. This applies to the taxable profit of most Romanian companies, foreign companies operating through a permanent establishment (PE) in Romania, and foreign companies considered tax resident in Romania due to their place of effective management.
Micro-Companies: Companies classified as micro-companies can benefit from reduced tax rates:
- 1%: Applicable to micro-companies with revenues not exceeding EUR 1 million, provided they have at least one employee.
- 3%: Applies to micro-companies with revenues exceeding EUR 1 million or those involved in specific activities not eligible for the 1% rate (even with employees).
Special Cases: Certain industries like gambling and nightclubs are subject to a different tax regime. They are taxed at either 5% of their revenue from such activities or 16% of their taxable profit, whichever is higher.

Romania Corporate Income Tax – General Information:

Residence: A company is considered resident in Romania if it’s incorporated under Romanian law, has its legal seat, or its place of effective management located in Romania.
Taxable Income: Resident companies are taxed on their worldwide income, with potential adjustments based on double tax treaties. Taxable profit is calculated as the difference between revenues and expenses, with specific adjustments for non-taxable income, tax deductions, non-deductible expenses, and similar elements.
Non-Resident Companies: Non-resident companies operating through a PE in Romania are liable for CIT on the taxable profit attributable to the PE.

Tax Period, Returns, and Assessment:

The tax period typically follows the calendar year. Companies can choose a different fiscal year according to accounting regulations, but filing requirements may differ.
Corporate income tax is generally calculated and paid quarterly. Advance payments are made for the first three quarters, with the final calculation and payment for the entire year due by March 25th of the following year.
Exceptions to the standard filing and payment schedule apply to specific entities like companies with a non-calendar year fiscal year, non-profit organizations, and educational institutions.

Deductions and Carry-Forward of Losses:

As a general rule, expenses incurred for legitimate business activities are deductible, unless classified as limited-deductible or non-deductible by law.
Starting with the 2024 tax year, companies can carry forward annual tax losses and offset them against taxable profits in the following five consecutive years, with a maximum offset of 70% per year.

Research and Development (R&D) Incentives:

Companies can benefit from a 50% additional deduction for qualifying R&D expenses. Additionally, accelerated depreciation for R&D equipment is available.

Tax Exemptions for Reinvested Profit:

Profit invested in new and specific technological equipment can be exempt from CIT, provided the equipment is used for business purposes for a significant portion of its useful life.
Profit reinvested in supporting vocational-dual education programs may also qualify for a CIT exemption.

Withholding Tax (WHT):

Domestic Dividends: Generally, dividends paid by a Romanian company to another Romanian company are subject to an 8% withholding tax. However, this tax is waived if the receiving company has held at least 10% of the Romanian company’s shares for at least one year.
WHT for Non-Resident Companies: The applicable withholding tax rates for non-resident companies vary depending on the type of income:
- Dividends: 8% (potentially exempt under the EU Parent-Subsidiary Directive).
- Payments to bank accounts in non-cooperative countries: 50% (only for payments deemed artificial transactions).
- Other income from Romania: 16%.

Dividends Paid:

Non-resident companies typically face an 8% withholding tax on dividends received from Romania. However, the EU Parent-Subsidiary Directive can eliminate this tax if specific ownership and holding period requirements are met.

Interest and Royalties:

Withholding tax rates of 16% generally apply to interest and royalty payments made to non-resident companies.
The EU Interest and Royalties Directive can potentially exempt these payments from withholding tax if specific holding period requirements are fulfilled.

Anti-Avoidance Rules:

Romania’s thin capitalization rules were abolished in 2018. Instead, a new concept of “exceeding borrowing costs” was introduced. This limits the deductibility of interest expenses exceeding certain thresholds.

Controlled Foreign Company (CFC) Rules

Romania has implemented Controlled Foreign Company (CFC) rules to prevent companies from shifting profits to low-tax jurisdictions. A Romanian taxpayer who controls a foreign company may be subject to Romanian Corporate Income Tax on the undistributed income of that foreign company under certain conditions:

Ownership and Control: The Romanian taxpayer must directly or indirectly own (alone or with associates) more than 50% of the voting rights or capital of the foreign company, or be entitled to receive more than 50% of its profits.
Lower Effective Tax Rate: The foreign company must be subject to a corporate income tax rate significantly lower than the Romanian CIT rate (16%).

Transfer Pricing:

Transactions between related parties (both domestic and involving non-resident entities) are subject to transfer pricing rules. These rules ensure transactions are conducted at arm’s length, meaning the prices are comparable to what unrelated parties would charge in similar circumstances. Failure to comply with arm’s length principles can lead to adjustments to taxable income by the Romanian tax authorities.

International Aspects – Double Tax Treaties:

Romania has concluded double tax treaties (DTTs) with numerous countries. These treaties aim to eliminate double taxation and prevent tax evasion. When a DTT exists, the most favorable tax rate (between the domestic Romanian rate and the treaty rate) applies. To claim treaty benefits, the non-resident recipient of income may need to provide a tax residence certificate to the Romanian payer.

Conclusion about Romania Corporate Income Tax:

Understanding Romania corporate income tax regime is crucial for businesses operating in the country. This guide provides a comprehensive overview, but it’s always recommended to consult with a Romanian tax professional for specific advice and to stay updated on any changes to the tax laws.

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New Ethical Standards for Accountants and Tax Professionals

The International Ethical Standards Board for Accountants (IESBA) has released an updated version of its ethics recommendations, incorporating for the first time guidance urging accountants and other tax professionals to consider the public interest when engaging in tax planning for clients.

These new ethical standards come in response to numerous public scandals associated with tax evasion schemes perceived as “aggressive” and harmful to public interests, as stated in IESBA materials.

The standards establish a clear framework of expected behavior and ethical provisions for use by all professional accountants and auditors. Additionally, the standards aim to restore public trust in the tax planning industry, which has been tarnished by the role played by consultants in light of recent revelations such as the Paradise Papers and Pandora Papers.

The guiding principles are designed to encourage tax professionals to go beyond the letter of the law, using an “principles-based framework and global ethical guidelines” set by IESBA.

IESBA recommendations are utilized in over 130 jurisdictions and have been adopted by more than 30 major audit firm networks.

Recommendations can be found via this link.

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COCG: Assessment of Cooperative Jurisdictions

Following the recent update to the list of non-cooperative jurisdictions for tax purposes, as per the Code of Conduct Group (COCG) on Business Taxation’s program from February 2024, efforts to refine the list with specific assessment criteria will continue. The next steps include:

During the COCG meeting on November 22, 2023, a proposal was discussed regarding monitoring the implementation of protective measures in the tax sphere. Work will proceed based on this discussion, aiming to evaluate the effectiveness of EU member states’ application of tax protective measures concerning jurisdictions on the “blacklist” according to the approved 2019 Guidance (refer to Annex 4).

Consideration is underway to introduce a new criterion 1.4 regarding beneficial ownership as the fourth criterion for tax transparency (potentially utilizing AML/Global Forum on Transparency lists).

Preparation for future monitoring of compliance with criteria 1.1 and 1.2 following expected changes in the expert assessment process of information exchange (Automatic Exchange of Information – AEOI and Exchange of Information on Request – EOIR) by the Global Forum from 2025 onwards.

Preparation for an assessment in the second half of 2024 under criterion 3.2 on country-by-country reporting (CbCR) by relevant jurisdictions that joined the BEPS Inclusive Framework after December 31, 2017.

Possible scrutiny of trusts and similar structures in jurisdictions with low or zero corporate tax rates in close collaboration with the Harmful Tax Practices Forum (FHTP).

Assessment of three new non-EU jurisdictions: Brunei Darussalam, Kuwait, and New Zealand.

Evaluation of compliance with the rules of the OECD’s GloBE Inclusive Framework BEPS, after the implementation of its second component (Pillar 2), for the purpose of criterion 2.2 on fair taxation.

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Corporate Income Tax in Poland

Corporate Income Tax in Poland is a multifaceted system that impacts resident and non-resident companies alike, influencing their global income streams. Under Polish tax law, resident companies bear the responsibility of paying Corporate Income Tax (CIT) on all revenue sources worldwide. A company gains resident status if it’s either incorporated within Poland or centrally managed from Polish territory. Conversely, non-resident entities are subject to CIT solely on income generated within Poland’s borders.

Comprehensive CIT Coverage

Broad Applicability

Polish CIT casts a wide net, encompassing legal entities ranging from corporations to limited partnerships and joint-stock partnerships. Even general partnerships, under specific conditions, find themselves subject to CIT if non-natural person partners are present and shareholder information remains undisclosed.

Residency Nexus and Taxation

Residency Determination

Residency status delineates the scope of tax in Poland. Tax residents face obligations on global income, save for instances where double tax treaties (DTTs) carve out exemptions for foreign income. Conversely, non-residents contend solely with income derived within Polish borders. The nuanced interplay of DTTs can significantly impact tax obligations, rendering certain income immune to Polish taxation irrespective of its origin.

Tax in Poland, Rates

Standard vs. Reduced CIT Rates

The prevailing corporate tax rate, standing at 19%, is applicable for the entirety of the tax year, aligning seamlessly with the standard calendar year. Compliance requirements mandate that companies furnish tax declarations and balance sheets to the fiscal office within three months following the conclusion of the fiscal year. Furthermore, these entities are obliged to remit monthly taxes based on their current year’s income.

Corporate income tax is stratified into two tiers: a standard rate of 19% and a reduced rate of 9%, tailored for smaller taxpayers and newly established businesses in their inaugural year of operation. Cross-border payments trigger withholding tax, fixed at 20% for diverse income streams, although potential reductions are feasible through EU Directives or bilateral double taxation treaties.

Unveiling Withholding Tax Realities

The landscape of withholding tax is intricate, with dividends, interest, and royalties subject to specialized rates. Non-residents receiving interest and royalties face a 20% tax bite, while dividends, regardless of residency status, incur a 19% levy. These withholding tax dynamics underscore Poland’s commitment to equitable taxation across diverse income streams.

Categorizing Income and Welcoming Foreign Participation

Classifying Income Streams

Income and loss undergo categorization into two distinct baskets: capital gains and operational activities. This delineation facilitates tailored tax treatments, ensuring equitable fiscal treatment across varied income sources. Notably, Polish resident companies embrace foreign participation without constraints, subject to general CIT regulations, while branches of foreign entities navigate the fiscal landscape in harmony with Polish tax norms.

Exemptions and Special Cases

The tapestry of Polish CIT is enriched by exclusions and exceptions. Entities such as the Treasury and the National Bank of Poland enjoy immunity from CIT obligations. Moreover, Polish and EU/EEA-based investment funds revel in exemptions, enriching the fiscal landscape. The advent of family foundations introduces a novel facet, exempting ongoing activities from CIT, with tax liabilities crystallizing only upon benefit transfer to beneficiaries, echoing Estonia’s CIT framework.

Conclusion:

Embarking on a voyage through the labyrinthine corridors of corporate income tax in Poland unveils a tapestry rich in complexity and nuance. By delving into its depths, businesses glean actionable insights to navigate the fiscal seas with clarity and confidence, ensuring compliance while optimizing their fiscal strategies within the dynamic contours of Poland’s tax terrain.

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New Tax for Foreign Banks in Dubai

Dubai ‘s foreign banks are facing a new 20% tax, issued by Dubai’s hereditary ruler, Sheikh Mohammed bin Rashid al-Maktoum.

The tax applies to all foreign banks operating in Dubai, with the exception of institutions licensed to operate in the Dubai International Financial Centre (DIFC).

Under the new law, foreign banks will be subject to a 20% tax on their annual taxable income. If banks are already paying corporate tax in accordance with the law, the amount will be deducted from their total tax liability.

In February, it was reported that UAE banks, due to the risk of secondary sanctions, had restricted transactions with Russia and begun closing accounts for companies and individuals.

Three businessmen with offices in the UAE noted that the difficulties began long before the US President’s decree on secondary sanctions was issued in December 2023.

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Updated Comments on Article 26 of the OECD Model Convention

In February 2024, the Council of the Organization for Economic Cooperation and Development (OECD) approved updated comments to Article 26 (Exchange of Information) of the OECD Model Convention. These changes aim to streamline the process of international tax cooperation and information exchange.

As a result of the update, technical amendments were made to align with the provisions of the Guidance on the Application of Confidentiality Provisions in the Convention on Mutual Administrative Assistance in Tax Matters and Article 26 of the OECD Model Convention, including comments from February 8, 2021.

Particular attention is given to the fact that information obtained through administrative assistance can be used for tax matters concerning individuals other than those originally provided, to the extent that it affects the outcome of a tax case involving such specific taxpayers. Rules and conditions for the exchange of information not pertaining to specific taxpayers, including statistical data on exchanged information or derived from it, which may be disclosed to third parties, are also established.

The OECD document released last year examines the benefits, conditions, and challenges of using information exchanged under double taxation avoidance agreements (DTAs) for non-tax purposes, including combating illegal financial flows. It proposes possible approaches to optimize and streamline this form of cooperation, based on experience gained through the Latin American Initiative. This is relevant for discussion in the context of the question: “How does this information become accessible?”

You can find original document via this link.

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New Rules for Cryptocurrency Taxation in Portugal

The realm of finance has finally found clarity on how cryptocurrency transactions will be taxed. However, the Internal Revenue Service (IRS) isn’t the sole tax authority concerned with such transactions. Additional taxes like stamp duty (IS), IRC, and even IMT come into play. Let’s delve into the specifics.

European Union Regulations Within the European Union, cryptocurrency turnover is now regulated under the Markets in Crypto Assets (MiCA) Regulation. In Portugal, cryptocurrency turnover and transactions are governed by the following regulations:

Income Tax Code (CIRS)
Corporate Income Tax Code (CIRC)
Stamp Duty Code (CIS)
Municipal Property Transfer Tax Code (CIMT)

Understanding IRS Taxation

Definition of Cryptocurrency: According to Article 10, Paragraph 17 of CIRS, cryptocurrency is defined as any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technologies or similar ones, such as blockchain.

Exclusions: Not all cryptocurrencies are considered for tax purposes. Paragraph 18 of the same article excludes non-fungible tokens (NFTs).

Categorization of Income: Under CIRS, cryptocurrency operations fall into three income categories:

1. Category B (Income from Entrepreneurial Activity):

Operations related to cryptocurrency issuance, including mining or transaction processing using consensus mechanisms (PoW – Proof of Work and PoS – Proof of Stake), are categorized as entrepreneurial activities under Article 4, Paragraph 1, Clause “o” of CIRS.
Taxation can follow either a simplified regime (Article 31 of CIRS) or an organized accounting approach.
Under the simplified regime (for annual income up to €200,000), specific coefficients are applied to determine the taxable base (Article 31 of CIRS).
Income from cryptocurrency is considered earned at the time of sale for remuneration, expressed in currency or natural form (excluding cryptocurrencies).
If cryptocurrencies are also part of the remuneration for the sale, no taxable event or obligation to pay tax arises.
Organized accounting follows the rules of the Corporate Income Tax Code (CIRC) with adjustments from Article 32 of CIRS.
The accumulated income is subject to taxation at the general rates set forth in Article 68 of CIRS.

2. Category E (Income from Capital):

According to Paragraph “u” of Part 2, Article 5 of CIRS, income from capital includes all rewards obtained from cryptocurrency operations.
However, if the income is received in tokens, no tax is levied.
All income received in the form of cryptocurrency is exempt from taxation as capital income, and taxation occurs only upon the sale of these cryptocurrencies, following the rules for capital income (Part 11, Article 5 of CIRS).
Although capital income is subject to withholding tax at a rate of 28% (Article 71, Paragraph “a” of CIRS), income from cryptocurrency transactions is exempt from such withholding by the tax agent (Part 5, Article 101b of CIRS), and IRS must be calculated and paid independently.

3. Category G – Capital Gain Income

Expanding Definition: For transactions involving the purchase and sale of cryptocurrencies not classified as business income or property, a new provision has been introduced to the definition of capital gain. Now, the sale of cryptocurrencies for remuneration is also considered a capital gain (Article 10, Paragraph “k” of CIRS), requiring such transactions to be declared as Category G income (Article 9, Paragraph “a” of CIRS).

Calculation Method: This income corresponds to the difference between the selling price and the purchase price of the cryptocurrency (Article 10, Paragraph “a” of CIRS). Since the selling price of cryptocurrencies is determined as the market value on the date of sale (Article 52, Paragraph 4 of CIRS), expenses related to the acquisition and sale of cryptocurrencies are allowed to be deducted (Article 51, Paragraph “b” of CIRS). The FIFO (First In, First Out) method is applied to determine capital gain income, similar to securities (Article 43, Paragraph 6 of CIRS).

Taxation and Reporting: Capital gain income is subject to a special rate of 28%, as specified in Article 72, Paragraph 1 of CIRS. However, taxpayers have the option to include this income in their taxable income using the progressive tax scale. If aggregation is chosen, capital gain income will be added to other income, and after relevant deductions (Article 22, Paragraph 1 of CIRS), the tax rate will be determined according to Article 68 of CIRS (Article 22, Paragraph 10 of CIRS). In the case of aggregation and a negative balance calculated from the sale of cryptocurrencies in the current year, it can be carried forward for the next five years (Article 55, Paragraph “d” of CIRS). If you have owned the cryptocurrency for more than 365 days, no capital gain tax arises upon its sale due to Article 10, Paragraph 19 of CIRS. However, if you exchange one asset for another during ownership, the holding period starts anew from the date of such exchange.

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