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Around the world, corporation tax is a highly contentious economic issue that sits near the top of many legislative agendas. A number of important developments have unfolded over the last 12 months or so. In response to the coronavirus (COVID-19) pandemic, countries across the globe have taken steps to tackle the challenges and cushion the devastating impact on companies. In the US, for example, the pandemic response bill made several business-friendly changes to the US tax code. Among other measures, it temporarily relieved limitations on claiming net operating losses and business interest deductions.

UNITED STATES

Elizabeth J. Stevens

Caplin & Drysdale Attorneys

“There have been three significant developments. First, the pandemic response bill, enacted by the US Congress in March 2020, made several business-friendly changes to the US tax code. Among other things, the legislation temporarily relieved limitations on claiming net operating losses and business interest deductions. Also, planning opportunities for corporate taxpayers arose from a summer 2020 regulatory change, the introduction of an election to exclude from global intangible low-taxed income (GILTI) earnings of foreign subsidiaries that pay relatively high rates of income tax in the countries where they operate.”

CHANNEL ISLANDS

Rupert Lee

Deloitte LLP

“There have been significant tax developments in the Crown Dependencies – together the Channel Islands, Jersey and Guernsey, and the Isle Man – over the past 18 months. Economic substance legislation, which previously only covered companies, now applies to partnerships. This can be of particular relevance to the funds industry where the use of vehicles such as limited partnerships is very common in fund structures. These rules apply an economic substance test to partnerships performing certain activities. Where the economic substance test is failed, the partnership can be subject to a financial penalty and an exchange of information with other tax authorities.”

FRANCE

Bruno Knadjian

Herbert Smith Freehills (Paris) LLP

“Over the last year or so, the French government has introduced a toolkit of measures to help French businesses recover from the economic consequences of COVID-19. These include grants and relief measures, such as temporary extensions and immediate refunds of loss carry-back, tax credits for rent waivers, larger tax reductions for philanthropy and the unchanged tax residence. Additionally, the government extended the deadline for filing income tax returns and paying certain taxes for businesses. It has also admitted deferred payment of social security contributions as well as 2019 corporate income tax upon request.”

LUXEMBOURG

Romain Tiffon

ATOZ Tax Advisers

“The legislative arsenal in Luxembourg has been massively enhanced over the past year or so, and more is to come before year-end, with the primary objectives being tackling tax avoidance, tax evasion and the use of shell entities. Following the base erosion and profit shifting (BEPS) initiative, Luxembourg transposed the first anti-tax avoidance directive (ATAD1), which introduced several anti-abuse rules, namely controlled foreign companies, interest deduction limitation rules, exit taxation and a general anti-abuse rule. The second anti-tax avoidance directive (ATAD2) was also transposed into domestic law, expanding the hybrid mismatch rules introduced by ATAD1 to third countries.”

SWITZERLAND

Bastian Thurneysen

Burckhardt Ltd

“In 2020, the biggest corporate tax reform in over 10 years came into force. Under international pressure, Switzerland had to give up tax privileges for holding, domiciliary and mixed companies. To cushion against any fiscal shock for the companies affected, profit tax rates were reduced in most cantons, in some cases massively. Capital taxes have also been reduced, in part so much that they have effectively been abolished in certain cantons. In addition to fiscally interesting transitional measures, such as the step-up or the special rate taxation, a patent box was introduced throughout Switzerland, which privileges income from patents or comparable IP rights for tax purposes.”

ITALY

Luca Bosco

Deloitte

“Over the past two to three years, mainly due to the base erosion and profit shifting (BEPS) project, many measures that significantly affect multinational enterprises’ operations were introduced. These include the anti-tax avoidance directives 1 and 2, mandatory disclosure rules, the unilateral digital service tax, and country-by-country reporting. Moreover, in the future Italy will also introduce multilateral instruments legislation. In light of this, the Revenue Agency will be focused on providing relevant clarification and guidance for all these provisions.”

SWEDEN

Marie Liebich

Ernst & Young AB

“One major development during the last year has been the increase in Swedish authorities monitoring foreign entities operating in Sweden. This is a result of Sweden introducing an economic employer concept as from 1 January 2021. In connection with this, a withholding obligation has been introduced on invoices from foreign entities for work performed in Sweden, unless the foreign entity is tax registered in Sweden. This forces foreign entities to registere with the Swedish Tax Agency, in order to receive full payment for work undertaken in Sweden. Thus, the Swedish Tax Agency will get an opportunity to assess whether a permanent establishment is in place or not.”

INDIA

Punit Shah

Dhruva Advisors LLP

“India has a vibrant tax system. The Indian government has introduced several significant changes in recent years. With a renewed focus on the ‘Make in India’ initiative to stimulate manufacturing activities, India has introduced a concessional tax regime of 15 percent for domestic companies engaged in manufacturing activities. The taxation of dividends has also undergone a paradigm shift wherein dividend income is now taxable in the hands of shareholders, thereby abolishing the burden which was hitherto on the company. In the M&A space, the law has been amended to deny depreciation of goodwill arising out of business restructurings.”

CHINA

Gilbert Shen

CMS, China

“From a macroeconomic perspective, the growth rate of tax revenue has rebounded significantly since March 2020, reflecting the momentum of China’s economic recovery from the coronavirus (COVID-19) pandemic. Key developments affecting China’s tax revenues stem from the steady recovery or rapid growth of sales of industrial enterprises, commodity consumption, online consumption, investment-related industries, the transportation and logistics industry, road cargo transportation and the gradual optimisation of energy structures.”

SINGAPORE

Mahip Gupta

Dhruva Advisors LLP

“To align with the base erosion and profit shifting (BEPS) initiatives and restrict tax benefits for intellectual property rights (IPR) generated outside Singapore, amendments have been made to the IP Incentive Scheme. Singapore has adopted the ‘modified nexus approach’ recommended by the Organisation for Economic Co-operation and Development (OECD) and has removed certain IP income from the existing scope of its tax incentives. General anti-abuse rule (GAAR) provisions have also been widened. Furthermore, a 50 percent surcharge has been introduced on additional taxes arising from any GAAR adjustments from 2023 onward.”

AUSTRALIA

Paul Sokolowski

Arnold Bloch Leibler

“Corporate tax residency has been in a state of some uncertainty for a few years now, with the Australian Taxation Office (ATO) taking a view that is not broadly accepted. The government has proposed legislative amendments, to apply retrospectively from 15 March 2017, to clarify that a foreign incorporated company would be treated as a tax resident of Australia if it has a significant economic connection to Australia — essentially looking for the company’s core commercial activities and central management and control to be in Australia.”

CONTRIBUTORS

Arnold Bloch Leibler

ATOZ Tax Advisers

Burckhardt Ltd

Caplin & Drysdale Attorneys

CMS, China

Deloitte

Dhruva Advisors LLP

Ernst & Young AB

Herbert Smith Freehills (Paris) LLP