October 2021 – International Tax Planning Review

October 2021 – International Tax Planning Review

The global minimum tax agreement has been finalised under the auspices of the OECD

One hundred thirty-six countries have joined the agreement under which the minimum corporate tax rate must be set at the minimum level of 15%. The countries that are parties to the agreement generate over 90% of the global GDP.

The agreement has been reached in accordance with Pillar 2 of the global tax reform developed by the OECD. The states that initially stood against the conditions proposed by the OECD (Hungary, Estonia, Ireland) also have joined the agreement.

According to the reform’s authors, it will help increase the collection of taxes in developing countries and exclude abuses associated with the redistribution of profits to low-tax jurisdictions. The reform primarily addresses the multinational companies with annual revenue above EUR 750 million.

It is expected that the new rules will be effective in 2023.

Hong Kong will undergo a tax reform

Hong Kong has committed to amend its tax laws by 31 December 2022. The revised rules will take effect on 1 January 2023. It is caused by the decision of the EU Council of 5 October 2021, under which Hong Kong was included in the EU’s “grey list” as a state that does not fully comply with global tax standards. The deadline for the measures coincides with implementing the OECD Pillar 2 global reform (from 1 January 2023).

The EU has the following concerns of the EU with Hong Kong’s legislation. Due to the territorial taxation regime, only income received in Hong Kong is subject to tax. Therefore, passive income, such as royalties, received by Hong Kong companies from other jurisdictions is not taxed in Hong Kong. This is at odds with the position of the EU Council, which considers this to be an abusive and “harmful” tax practice.

The Code of Conduct Group (Business Taxation) also noted that the total exemption from taxation of such income would lead to a situation of “double non-taxation”, which is considered unacceptable. In this regard, the Hong Kong authorities have undertaken obligations to adjust tax legislation in this part.

According to the Hong Kong Government, the proposed amendments will only target corporations that do not have significant economic activities within the country. If the changes are not adopted by 31 December 2022, the EU may include Hong Kong in the “black list”, which may result in such negative consequences as restrictions on the payment of dividends, withholding taxation at source of income, application of CFC rules, and others.

Seychelles has been removed from the EU blacklist

The Council of the EU issued a press release dated 5 October 2021, which informs that the Republic of Seychelles has been excluded from the list of jurisdictions that do not cooperate with the EU in the field of taxation.

This became possible due to the changes made to the corporate and tax legislation of Seychelles. Now Seychelles has been moved to the EU’s “grey list”, which does not provide the application of restrictive measures typical for blacklisted jurisdictions.

You can read more about the changes in the legislation of Seychelles here.

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