As the UK government faced a leadership crisis, new UK Chancellor Nadhim Zahawi hinted at revising government plans to raise corporation tax from 19% to 25% by April 2023.
“I will watch everything. There is nothing on the table. I want to be one of the most competitive countries in the world for investment,” Zahawi told Sky News.
“I know that boards around the world, when making investment decisions, are long-term, and the only tax they can compare globally is corporate tax” , he added. “I want to make sure we are as competitive as possible while maintaining fiscal discipline.”
Zahawi succeeded Rishi Sunak as Chancellor on Tuesday July 5. Sunak implemented the corporate tax increase plan to offset emergency expenses during the COVID-19 pandemic. However, Sunak resigned this week, calling on Prime Minister Boris Johnson to step down.
More than 50 ministers soon followed and the Prime Minister decided to step down as Conservative leader. Johnson announced his resignation in a public statement yesterday, July 7.
“I have agreed with Sir Graham Brady, the chairman of our backbenchers, that the process of choosing this new leader should start now,” he said.
The Conservative Party is expected to hold a leadership election, while Johnson plans to remain caretaker prime minister until October. In the meantime, UK tax policy could be overhauled.
In the 2020 budget, the UK government announced that corporation tax would remain at 19% for the financial years 2020 to 2022. The rate was due to increase to 25% for the financial year 2023. This is now in doubt.
This could trigger a debate in the UK, as economic and fiscal pressures caused by Brexit, COVID-19 and Russia’s invasion of Ukraine may require tax hikes or spending cuts.
On July 7, the Office for Budget Responsibility (OBR) declared that the UK was entering an “unsustainable” level of public debt. The average fiscal cost of recessions could push public debt to more than 320% of the country’s GDP, according to the OBR report.
British taxpayers can expect more announcements next week, but a new Tory leader may not be elected until September.
Hungary in talks with GOP to block second pillar
The Hungarian government has said it is working with U.S. Republican lawmakers to find ways to resist the implementation of an EU directive to impose an overall minimum tax rate on multinational corporations, according to the Washington. Post.
Hungarian Foreign Minister Péter Szijjártó said he was taking advice from senior Republican officials on steps the country could take to block the measure.
It also follows Republican opposition to the global tax initiative, which has been blocked in Congress over fears it will make the United States less competitive.
The OECD agreement was negotiated by 137 countries in October 2021 and aims to revise international tax rights and impose a global minimum effective tax rate. This minimum rate would be set at 15%.
In June, the EU failed to agree to a directive to impose the minimum tax rate in the bloc after Budapest withdrew its previous support for the measure at a meeting of EU finance ministers. EU in Luxembourg.
It was a blow to the EU, which had hoped to unanimously adopt its position on the second pillar directive after overcoming resistance from Poland.
The second pillar had faced objections from Poland in its dispute with the European Commission over concerns over the rule of law in the Eastern European nation. This led to delays in the EU’s approval of a 36 billion euro ($37.9 billion) COVID-19 economic recovery plan for the country.
Some observers believe that Hungary could use the OECD agreement as a bargaining chip to obtain more financial support from the EU.
French Finance Minister Bruno Le Maire suggested the EU could consider bypassing Hungary to find an alternative solution. This could be achieved through enhanced cooperation.
Enhanced cooperation would require only nine EU member states to support the proposal, and the minimum rate is supported by most member states. This may be a way for the minimum rate to become a reality in the EU.
The first pillar obliges multinational companies to declare and pay taxes on digital profits in the countries where they operate. However, the details of the new taxing rights are hotly contested. Nevertheless, the OECD aimed to reach consensus on the details of the first pillar and implement the plan in 2023.
But delays both internationally and at EU level have pushed the date of entry into force to 2024.
Japan poised to reap benefits of tax windfall
As RTI reported, Japan reported a windfall of all types of taxes on June 4 after the government revised its stimulus package. This could lead to greater tax incentives for businesses.
The Japanese government has announced a record 67 trillion yen ($496.2 billion) revenue estimate for fiscal year 2021/2022 despite calls from the International Monetary Fund in January 2022 to cut spending and raise taxes to following the COVID-19 pandemic.
Tax professionals said this would likely boost incentive spending further in future budgets as well. They expect increased government spending on incentives, such as patent box benefits or targeted tax cuts that will spur growth in coming years.
This is a record for the second year in a row, with the largest revenues coming from sales tax, corporation tax and personal income tax. All tax revenue estimates have been revised upwards from previous calculations, based on Reuters reports.
Read the full article here
Shareholders slam multinationals with GRI transparency proposals
In other news, Amazon, Cisco and Microsoft’s biggest investors are pushing for the GRI Tax Transparency Standard, but it could be the start of a trend in shareholder activism.
At least 30 companies could adopt the Global Reporting Initiative tax standard in the coming months, as a growing number of public companies come under pressure from investors to publish information in country-by-country reports.
Katie Hepworth, tax manager at Pensions & Investment Research Consultants in Sydney, said she expects to see more shareholders demanding companies adopt higher tax transparency standards.
“PIRC is currently engaging with more than 30 companies about their tax reporting, and our decision to support further proposals will depend on the results of our engagements,” Hepworth said.
The GRI Tax Standard is a voluntary reporting framework that would disclose tax receipts to shareholders in all countries where the company operates. This would effectively make CbCR public on a voluntary basis, but lasting changes can only come in the form of law.
Read the full article here
Other RTI this week’s headlines include:
Cyprus increases tax certainty with TP legislation
Businesses still awaiting CRA guidance after Cameco case
Failure to register multinationals for South African VAT risks hefty fines
Companies need strong tax risk management for outsourcing
EU rules on tax advice could reduce the scope of DAC6 disclosures
The RTI will cover Germany’s slow repeal of Section 49 of the German Withholding Tax Act. The law removes the WHT on royalty income for non-resident companies with transactions that have any type of exposure to intellectual property registered in Germany.
In other news, RTI examines why online marketplaces and e-commerce businesses are urged to review their Canadian sales tax obligations in all jurisdictions across the country to ensure compliance.
RTI will analyze Chinese updates to transfer pricing rules following collaboration between customs and tax authorities in Shenzhen.
Meanwhile, RTI will also examine trends in tax risk insurance as the global economy grapples with supply chain issues and inflation in the wake of the COVID-19 pandemic.
Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.