Direct Tax

Lesotho deposits ratification instrument for MLI

Excerpts from, 28 July 2022

Lesotho has deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS Convention), which now covers over 1820 bilateral tax treaties, thus underlining its strong commitment to preventing the abuse of tax treaties and base erosion and profit shifting (BEPS) by multinational enterprises. The BEPS Convention will enter into force on 1 November 2022 for Lesotho.

On 1 August 2022, over 890 treaties concluded among the 77 jurisdictions which have ratified, accepted or approved the BEPS Convention will have already been modified by the BEPS Convention. Around 930 additional treaties will be modified once all Signatories have ratified the BEPS Convention.

OECD's Global Forum publishes Eight New Peer Review Reports on transparency and exchange of information on request

Excerpts from, 16 August 2022

The Global Forum published today eight new peer review reports on transparency and Exchange of Information on Request (EOIR) for the Cook Islands, Ecuador, Finland, Pakistan, Poland, Portugal, Sint Maarten and Sweden. The travel restrictions due to the COVID-19 pandemic have prevented assessment teams from performing on-site visits to evaluate the practical implementation of the EOIR standard, six of the eight reports only cover the first phase of the assessment, analyzing the jurisdictions’ legal and regulatory frameworks. The ratings for each of the ten elements of the assessment and overall ratings will be attributed at a later stage for these six jurisdictions once on-site visits are carried out and full reviews encompassing the implementation of the standard in practice can be undertaken.

OECD issues a progress report on Harmful Tax Practices on 12 nominal or no tax jurisdictions

Excerpts from, 27 July 2022

At its April 2022 meeting, the Forum on Harmful Tax Practices (FHTP) agreed on new conclusions on 12 regimes as part of implementing the BEPS Action 5 minimum standard on harmful tax practices. Eswatini and Honduras made government commitments, and therefore, three regimes are now in the process of being amended/eliminated. Four regimes have been amended to be in line with the standard and are now not harmful (Costa Rica, Greece and Kazakhstan). Italy abolished its patent box regime. Furthermore, three regimes were concluded as potentially harmful (Armenia and Pakistan); the FHTP will assess at its next meeting if these regimes are actually harmful. Finally, one new regime from Cabo Verde is under review.

Since the start of the OECD/G20 BEPS Project tackling international tax avoidance, the FHTP has reviewed a total of 319 regimes.

Transfer Pricing

Australia: Consultation paper on changes pertaining to thin capitalization rule

The Treasury recently released a consultation paper in relation to the preelection tax policies of the government targeting multinational entities.

The key change of the consultation paper is as under:

Thin capitalization rule

The existing thin capitalization rules are in line with the Safe Harbour test, wherein the debt is limited to 60% of the average value of the Entity’s Australian assets.

The government is proposing to replace it with a fixed ratio rule that will limit the net interest deductions to 30% of Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) in order to align with OECD’s recommended approach under Action 4 of BEPS program. One of the discussion points would be the computation of EBITDA would be whether to rely on the accounting or tax numbers while computing the EBITDA.

The change proposed by the government would be applicable to the general entities, which are defined for the purpose of thin capitalization. However, in the interim, the financial entities and authorized deposit-taking institutions will continue to apply the current thin capitalization rules.

In addition to the above, the government has also proposed certain proposals pertaining to tax transparency which inter-alia would cover increased public reporting of tax information, mandating public CbC reporting on an annual basis, mandatory reporting of material tax risk to the shareholders, etc.

Indirect Tax

Free Trade Agreement negotiations between EU and India

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Bilateral negotiations with respect to digital trade, state-owned enterprises, and intellectual property (IP) have been proposed. Additionally, the EU has demanded that all government and sub-government procurements and all services other than construction services should be brought within the ambit of the India-EU FTA.

UK Foreign Secretary considers cutting VAT to 15% to ease UK crisis

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Liz Truss is considering cutting Britain’s VAT by 5% points across the board to help tackle the cost-of-living crisis if she becomes the Prime Minister.

Introduction of a Cultural Levy of 6% on turnover generated by Danish and EU-based digital streaming platforms and services in Denmark

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The Danish Minister of Culture published a draft bill proposing to introduce a levy calculated at 6% of the provider’s turnover in Denmark as a financial culture contribution, collected from digital streaming platforms and services that offer on-demand streaming services aimed at a Danish audience. The bill is proposed to be applicable as of 1 January 2023.

Canada imposes a levy on luxury cars, yachts and private jets

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Canada’s ‘Select Luxury Items Tax Act’ imposes a ‘luxury tax’ on the sale and import of subject vehicles, aircrafts, and vessels that exceed specified price thresholds. The luxury tax takes effect on 1 September 2022. The tax will only apply to new vehicles purchased by consumers for personal use. The registered vendors will be required to file luxury tax returns on a calendar quarterly basis.