International updates: Tax news and other global updates for Q4 2023
Each quarter, our international tax and global consulting professionals compile updates from around the world to help you stay up to date on international changes.Take a look at the updates below and reach out to your Plante Moran advisor if you have any questions about how these items may affect you.
European Union (EU)
Proposals to reduce tax on multinational businesses
On September 12, the EU proposed a new set of tax initiatives in order to reduce tax costs for large multinationals operating within the EU. One of the initiatives, “Business in Europe: Framework for Income Taxation” (BEFIT), introduces a new single set of rules to determine the tax base of groups of companies. This proposal is aimed at reducing compliance costs for large businesses who operate in more than one EU country. Similar to the new global minimum tax, these new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million, and where the ultimate parent entity holds at least 75% ownership. Small and medium enterprises can choose to opt in. The other initiatives include harmonized transfer pricing rules within the EU and simplification of Head Office Tax rules for small and medium enterprises.
Government action for increased tax measures on corporations, billionaires, and multinationals
There is no official estimate of the amount of tax fraud happening in France, but the French government launched a Fraud Assessment Council in October, tasked with analyzing the phenomenon. The document recommends an increase in the minimum tax on corporate earnings to 25% (compared with 15% at present). Regarding the wealth of billionaires, the report calls for a parliamentary resolution to guarantee France’s support for a European tax of up to 2%. It also advocates for a tougher stance on tax havens and tougher measures against “transfer pricing” — cross-border transactions between subsidiaries of multinationals designed to seemingly reduce profits and avoid tax. It equally recommends the introduction of a unitary tax on multinationals.
Canada
Tax legislation packages become effective in 2024
Canada’s draft Pillar Two legislation will be effective starting Jan. 1, 2024. Taxpayers should analyze how this legislation could impact their group.
Introduced in Budget 2023, Canada proposed changes to its general anti-avoidance rules (GAAR). These proposed changes would be effective for transactions occurring Jan. 1, 2024, and onward.
On Aug. 4, 2023, a revised draft of the Digital Services Tax (DST) was released. The revised draft included a new election to determine a taxpayer’s DST for the initial years of application.
China
China lifts control over capital funds outflow in Beijing and Shanghai FTZ
In China, there are varying levels of foreign exchange controls/restrictions over the cross-border flow of funds, categorized into trading funds and capital funds:
1. Trading funds (service and goods transactions)
Payments under $50,000 USD face less strict controls; no specific government approval is needed, and payments can be processed directly.
Payments exceeding $50,000 USD require approval from the local tax authority and the bank before processing.
2. Capital funds (e.g., capital reduction, equity transfers)
This category faces much stricter control, and the process usually involves approval from various governmental authorities, including the Administration for Market Regulations, the State Administration for Foreign Exchange (SAFE), the Tax Authority, and the bank.
Recently, there has been a positive development in Beijing and Shanghai Free Trade Zones (FTZs). In September 2023, both regions announced plans to relax controls on capital funds transfers for legitimate foreign investments. This means that in these areas, there are no limits on foreign investors’ capital funds leaving China, as long as the transfer complies with Chinese laws and regulations. While currently limited to Beijing and Shanghai FTZ, this positive change may influence other cities to adopt similar provisions.
China eases the cross-border data transfer rules
The existing regulations for cross-border data transfers (CBDT) require the data exporters to perform safeguard procedures, including security assessment, standard contract filing, or personal information protection certification. In late September 2023, the Cyberspace Administration of China released the draft, Provisions on Regulating and Promoting Cross-Border Data Flows, for public consultation (The Provisions), proposing substantive clarifications and exemptions for businesses’ compliance requirements and allowing free data export under the following conditions:
- Organizations exporting personal information of less than 10,000 individuals per year from China will be exempted from the compliance requirements.
- Transferring employees’ personal information outside China for necessary internal HR management purposes will be exempted from the compliance requirements.
- Data export for international trade, academic cooperation, and cross-border manufacturing and marketing, if no personal information is involved, will be exempted from compliance requirements.
- Transferring personal information outside China for purposes of essential transactions, visa application, e-commerce, cross-border remittance, airline and hotel booking, and for the protection of people’s life, health, and property safety in emergencies, etc.
The Provisions are expected to enter into effect in the coming months. If passed in their current form, they will significantly ease the compliance burden of many international companies in China. At the same time, companies not qualified for the above exemptions will still be subject to the CBDT regulations and filing requirements.
China abolished the authentication of U.S. apostille documents
In March 2023, China acceded to the 1961 Hague Convention of Abolishing the Requirement of Legalization for Foreign Public Documents (in subsequent places, the Convention). On Nov. 7, 2023, the Convention officially entered into force between China and the United States, and any public documents applicable to the Convention only need to apply for the State apostille without further application for consular authentication by the Chinese Embassy or Consulates-General in the U.S. The Convention simplifies the process and reduces the time and costs for business documents authentication process that are required by the relevant governmental organizations in China.
However, the completion of the U.S. apostille doesn’t guarantee the acceptance of the documents at any government authorities in China. It’s recommended to check with the local authorities in advance about specific requirements for format, content, validity, translation, etc. before going through the relevant procedures.
Germany
Tax legislation updates: Pillar Two and electricity subsidies
On Nov. 10, 2023, the German government passed legislation approving the global minimum tax rules as agreed to with other countries in a sweeping international tax reform under OECD Pillar Two. This legislation also coincides with the European Union Council Directive that requires member states to adopt forms of global minimum tax rules. As expected, the German legislation adopts a domestic minimum top-up tax, preserving Germany’s initial taxing rights in order to ensure covered entities meet the 15% global minimum tax. The new tax legislation will become effective on Jan. 1, 2024.
The German government has set out a plan to reduce electricity costs for local manufacturers for the next five years via tax incentives. The subsidy package will reduce the electricity tax rate to the minimum allowed under EU regulations. This subsidy is expected to provide EURO 12 billion in tax relief in 2024 and 2025. The subsidy may be carried forward through 2028, if included as part of a future budget plan.
On Oct. 25, 2023, a Cologne, Germany tax court reaffirmed the German law related to its domestic limitations on benefits (LOB) clauses; however, it took a taxpayer-favorable view of the business substance provisions. In this case, a Cypriot entity only holding investments was able to rely on business substance in a related Cypriot company to meet the LOB clause. Further, although tax advantages may have been obtained via the complex structure, the court took into account the typical business practices of companies in the shipping industry to rule that the existence of the Cyprus structure wasn’t primarily motivated by tax avoidance purposes.
India
Nonresident benefit in GIFT-City
On Oct. 10, 2023, the Indian government introduced an amendment in the income tax rules exempting nonresident individuals or foreign companies who don’t have any income chargeable to tax in India from the requirement of obtaining PAN while opening a bank account at Gujarat International Finance Tec-City (GIFT) International Financial Services Centre (IFSC). The nonresident individuals or foreign companies can instead submit a declaration in Form No 60.
Benefit of most-favored nation (MFN) clause
In the judicial ruling of Nestle SA (Civil Appeal Nos. 1420 to 1423 of 2023) dated Oct. 19, 2023, the Supreme Court of India decided that the benefit of the MFN clause under the Indian tax treaties can be availed only after the Indian government notifies the same.
Filing of Form No. 10F without PAN
On Oct. 7, 2023, the Indian government allowed electronic filing of Form 10F without obtaining a PAN in order to claim tax treaty benefits in India.
Japan
Economic outlook
Japan’s economy shrank at an annualized rate of 2.1% during the third quarter of 2023 after expanding in the second quarter, which is a deeper contraction than analyst estimates of a 0.4% contraction. This suggests that Japan’s economy is recovering more slowly than previously thought. The Bank of Japan has previously indicated that it will not raise rates until there are clearer signs of a strengthening economy.
Domestic manufacturing tax breaks for key industries
The Japanese government is reportedly considering plans to give tax breaks to electric vehicle and semiconductor makers who carry on production domestically. The details of such tax breaks are expected to be laid out in the ruling parties’ tax reform agenda for 2024, which may be published as early as the end of the year.
Mexico
Fiscal stimulus decree for key sectors of the export industry published Oct. 11, 2023
Mexico recently passed a decree that offers an immediate deduction for investments in new fixed assets acquired between Oct. 12, 2023, and Dec. 31, 2024. This deduction allows the application of specific percentage deductions — ranging from 59 to 89%, depending on the asset type or its use in key activities — to the original amount of the investment.
This tax incentive is granted to companies engaged in the production, processing, or industrial manufacture and exportation of the goods listed below:
- Food (human and animal)
- Fertilizers and agrochemicals
- Raw materials for the pharmaceutical industry
- Electronic components
- Machinery for clocks, measuring, control, and navigation instruments, and electronic medical equipment for medical use
- Batteries
- Gasoline
- Electrical and electronic equipment
- Internal combustion engines, turbines, and transmissions for aircraft
- Nonelectronic equipment and apparatus for medical, dental, and laboratory use
United Kingdom (U.K.)
Autumn Statement
Jeremy Hunt, chancellor of the Exchequer, delivered the Autumn Statement on November 22, which announced certain tax changes for the U.K.
One of the main provisions for businesses is the full expensing of qualifying capital expenditures will be made permanent. This additional tax benefit was set to expire in April 2026. This applies to certain expenses over £1 million per year. The separate annual investment allowance that has been in place already allowed for full expensing of certain plant and machinery expenses up to £1 million per year.
Other relevant provisions include:
- Investment Zone and Freeport tax relief extended to 10 years from the original five- year period.
- The previously proposed changes to the R&D tax relief will be effective April 1, 2024. This change merges the two current programs into one for most companies. Certain R&D-intensive companies will be able to get additional benefits in a new program that will apply when 30% or more of the total expenses of a company are spent on R&D.
- Corporate income tax rates will not change. They will remain at the current 25% rate for companies with profits over £250,000.
