International tax reform latest: What you need to know

3rd March 2022

For staffing agencies that operate globally, keeping on top of the latest international tax reform is a perpetual challenge. As the examples below demonstrate, the complexities surrounding the international tax system are not only intricate and often ambiguous, but also ever-changing. Failing to keep pace can have severe consequences for your business and those you work with.

Here are just some of the recent changes you need to be aware of:

Tax to fund Africa’s digital transformation

International tax reform was hailed as a means to facilitate the digitalisation of the economy across Africa at the recent EU-African Union Summit. The Democratic Republic of Congo (DRC) is just one of 136 countries and jurisdictions which has subscribed to the Organisation for Economic Co-operation and Development’s (OECD) ambitious plan for international tax reform, which includes a minimum tax rate of 15% and is designed to stifle tax competition and boost tax revenues by ensuring that the largest multinationals pay, ‘their fair share’.

At the summit, which was attended by over 60 leaders from across the two continents, Désiré Cashmir Eberande Kolongele, DRC Minister for the Digital Economy, said, “We must absolutely regulate digital activities on the continent. That means having clear rules that specify access conditions”. Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration at the OECD added, “In Africa, you have so many wasteful tax incentives, which result from the pressure of multinational companies that said ‘Please, give me an exemption, otherwise I will go elsewhere”. Most of these incentives are wasteful and because there will be a minimum tax at 15%, African countries will now have the opportunity to put an end to these incentives, and that means significant money”. Across Africa currently, it is estimated that just 25% of the population have internet access.

India’s 30% tax on digital assets

During India’s most recent budget announcement, Finance Minister, Nirmala Sitharaman placed earnings from cryptocurrencies and non-fungible tokens (NFTs) on India’s highest tax band of 30% and also confirmed that losses from their sale could not be offset against other income, delivering another disincentive to investment in digital assets for residents in the country.

What’s more, the physical presence of the cryptocurrency exchange is irrelevant. As the latest guidance details, “The crypto holder in India will not be absolved of tax liability in India just because the exchange is headquartered overseas”. Investors will need to report cryptocurrencies held in exchanges globally as foreign assets in their income tax returns. Resident crypto traders will need to pay 30% tax on their transfer even if the crypto exchange is located overseas and the funds are repatriated to India.

Elsewhere in Asia, Thailand recently quashed its 15% tax proposal on crypto transactions, while South Korea has delayed its 20% tax proposal amid uncertainty around crypto regulators.

Multinationals challenge India’s tax reform

Also in India, several multinationals are reportedly looking to challenge India’s decision to introduce unilateral measures which disallow lower tax on dividends that override bilateral tax treaties.

Foreign investors who have acquired interests in India through entities in the Netherlands, France and Switzerland are now consulting with lawyers to explore the legal options open to them following recent local tax changes.

The recent clarification by India would mean that investors from these countries will not be able to benefit from 5% tax on dividends and will now have to pay between 10% and 15%. India has, however, entered into tax treaties with Colombia, Slovenia, and Lithuania and offered the favourable 5% rate to entities based in these jurisdictions.

Commenting on the situation, Girish Vanvari, founder of tax advisory firm Transaction Square, said: “The question is whether the sovereign right of a country supersedes the bilateral tax treaty and this is what many companies want clarity on”. He also went on to confirm that many multinationals based in the Netherlands, France or Switzerland and operating in the country will also see their tax liability jump for earlier years and may even have to pay additional interest.

Changes to Singapore’s tax regime

Singapore has announced a phased increase in its Goods and Services Tax (GST) to keep pace with government expenditure in areas such as healthcare and infrastructure. In the country’s latest Budget Statement, unveiled by Finance Minister Lawrence Wong in February 2022, it was confirmed that the GST rate will rise from 2% to 8% in January 2023 and then to 9% in 2024.

Faced with increasing calls for the government to consider more types of wealth taxes, the finance minister has also expanded the country’s wealth tax system to address both income and wealth inequality and help to reduce the burden of over-reliance on GST to bring in revenue.

Recent changes include higher income tax for individuals with more than $500,000 taxable income, property tax for higher-valued residential properties, and additional registration fees for luxury cars with an open market value exceeding $80,000.

The island nation has also suggested that it may consider making changes to its corporate tax system and explore the feasibility of introducing a minimum 15% tax rate. This is in line with OECD recommendations to address tax challenges arising from the digitisation of the economy.

Keeping abreast of the latest international tax reform

Working internationally is a great way to both spread risk and capitalise on new markets. However, operating globally is not without its challenges, and you have a responsibility to ensure that your organisation and any contractors you place are not inadvertently on the wrong side of local or international laws.

The international contractor recruitment market can be a minefield where taxation is concerned, and the vast majority of business leaders could benefit greatly from specialist advice. If you are struggling to keep abreast of international tax changes, talk to 6CATSPRO to ensure you are always operating compliantly.

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