Latest international tax changes

14th February 2022

Following some of the landmark changes to international tax rules introduced during summits of finance ministers in 2021, not least the introduction of a global minimum corporation tax of 15%, the reforms due to international tax systems continue. Authorities and Governments want to ensure that they collect the right amount of tax revenues owed by both domestic and foreign companies within their tax jurisdictions. Recruitment companies placing contractors around the world need to keep up to date with the latest tax developments in the territories they operate in.

Our first story takes us to South America’s west coast and the state of Ecuador where the government has passed new legislation affecting the taxation of both corporations and individuals – as a means to tackle the spiralling debt caused by the pandemic. Companies whose assets at the end of 2021 exceeded $5m will be hit with a non-deductible 0.8% tax levy that is applicable in the 2022 and 2023 tax years, payable by 31st March.

But it’s not just corporations that are being targeted to help reduce the national debt. Individual taxpayers in Ecuador with assets greater than $1m or $2m (in the case of couples) will also have to pay an extra 1%. For those with $1.2m or more, that rate jumps by 50% to 1.5% up to the $2m threshold. However, shareholdings in companies will not be part of the new measures, which also allows for taxpayers to deduct $200,000 of the value of their primary residence and agricultural land from their assets. The changes will apply to both resident and non-resident taxpayers, for assets held in Ecuador and abroad.

Those not meeting their tax requirements will face the consequences. The government is making it very clear that any form of tax evasion or fraud will be subject to significant fines, with penalties imposed of 50% of the amount due plus interest. The rules also introduced a tax amnesty for those with assets held overseas, which will be taxed at 3.5% if these are declared by 31st March 2022. Higher rates of 4.5% and 5.5% will apply if the declarations are made by 30th June and 31st December respectively.

Developments in global corporate taxation

Long a haven for wealthy global investors, Switzerland has been involved in some high-profile tax business fraud cases and has come under increasing pressure to combat cross-border tax evasion and profit shifting, while creating a more robust tax reporting structure of its own. A recent review by the State Secretariat for International Financial Matters reported that it had shared information on 3.3 million accounts with 96 countries – receiving information in return itself on 2.1m account holders. To further boost transparency, the Federal Council also began a consultation to promote the automatic exchange of information with 12 more countries.

The article also revealed that Switzerland has double tax agreements (DTAs) with over 100 countries, with Ethiopia, Bahrain, Brazil and Saudi Arabia joining the ranks in 2021. Otherwise known as double tax treaties (DTTs), these bilateral agreements seek to protect businesses against the risk of having their income and gains taxed twice while seeking to clamp down on cross-border tax evasion. Protocol agreements have also been signed with Armenia, Japan and North Macedonia with protocol amendments to DTAs with Cyprus, Liechtenstein and Malta also applied.

The review also noted that Switzerland had finalised Mutual Agreement Procedures with 181 partners, which prompted the Organisation for Economic Cooperation and Development (OECD) to hail “the efficiency of these procedures” referring in particular to its efforts to curb transfer pricing. A practice by which multinationals shift their profits from higher tax jurisdictions to tax havens. Switzerland acknowledged that the “interests of small, robust economies” must be taken into consideration so that these nations would not lose out on tax revenues from digital services.

Our final stop takes us to South-East Asia and the Philippines, where the department of finance (DOF) has argued against introducing a tax targeting the super-rich who have assets of over PHP1bn (the equivalent of around £14.4m). Finance Secretary Carlos Dominquez III highlighted in a letter that this could lead to avoidance and investment overseas, crucially only boosting tax revenues in the short term while increasing the “risk of capital flight” and driving money out of the country. He noted that Belgium, Norway, Spain and Switzerland were the only four countries to have a wealth tax.

The proposals outlined in House Bill (HB) 10253 seek to impose a 1% tax on those whose assets exceed the PHP1bn threshold with subsequent one percentage point rises for those with earnings of PHP2bn (2%) and PHP3bn (3%) respectively. With the top rate of tax already having increased from 32% to 35% for those above the PHP8m (c. £115,000) threshold, such a move would be counterproductive to the government’s desire to increase investment in the economy. Losses from other taxes would also prove to be greater than forecast tax revenue gains from the wealth tax.

The global tax community continues to usher in changes promoting transparency in tax systems to create a fairer playing field to curb unfair tax competition and profit shifting practices. Global taxation rules and regulations remain a complex minefield and recruitment businesses placing contractors abroad must ensure that they remain tax compliant or run the risk of potential prosecution. Our 6CATSPRO experts can help you navigate this difficult terrain.

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