Other news in brief

A round up of other news this week.

A round up of other news this week.

In October 2022, the sixth annual progress report of the OECD/G20 Inclusive Framework (IF) on BEPS was published, covering the period from September 2021 to September 2022. The report provides an update on progress on the implementation of BEPS 2.0 (the two-pillar solution to address the tax challenges arising from the digitalisation of the economy), the BEPS minimum standards, and other BEPS Actions, as well as activities undertaken to support the Inclusive Framework developing countries. In respect of Pillar One of BEPS 2.0, the report notes that work on the detailed provisions of the Multilateral Convention (MLC) and its Explanatory Statement are expected to be completed so that a signing ceremony of the MLC can be held in the first half of 2023, with the objective of a 2024 entry into force. Meanwhile regarding Pillar Two, the Global Anti-Base Erosion Rules Implementation Framework and a draft model tax treaty provision and associated commentary for the Subject to Tax Rule will be released later this year.

The OECD has published a new report on ‘Tax Incentives and the Global Minimum Corporate Tax’. According to the OECD website, the report provides a number of concrete considerations for countries to take into account as they prepare for the implementation of Pillar Two. Specifically, the report discusses the existing use of tax incentives in developed and developing countries, analyses key provisions of the Global Anti-Base Erosion Rules and shows how they may impact different types of tax incentives.

On 6 October 2022, the OECD issued a press release asking for public comments on the ‘Progress Report on the Administration and Tax Certainty Aspects of Amount A of Pillar One, which includes the rules on the administration of the new taxing right, including the tax-certainty related provisions. In particular, the OECD is looking for input that explains the additional guidance that would be needed to improve the application of the rules and procedures, as well as input on whether anything is missing or incomplete. Comments are requested by 11 November 2022.

The OECD published on 28 September 2022 the Bilateral Advance Pricing Arrangement Manual (BAPAM). The manual comes as part of the OECD’s continuing commitment to advancing the tax certainty agenda of the Forum on Tax Administration (FTA). The manual is intended to act as a guide for streamlining the Bilateral Advance Pricing Agreement (BAPA) process, setting out information about the operation of BAPAs and 29 best practices that can be followed without imposing any binding rules. It also includes “practical resources for tax administrators and taxpayers, such as templates and examples”. The manual was approved by the Inclusive Framework on BEPS and all members of the OECD FTA on 6 July 2022.

The OECD has published an updated version of its ‘Guidance on the Implementation of Country-by-Country Reporting’ (BEPS Action 13). Three new sub-sections have been added to the guidance covering: (i) when positive and negative amounts should be used in completing Table 1 of the Country-by-Country (CbC) report; (ii) reporting permanent establishment information in Table 2 of the CbC report; and (iii) completing Table 1 and Table 2 of the CbC report where a reporting multinational enterprise has a short or long reporting fiscal year. In addition, the OECD has published its fifth annual peer review report on the implementation of the BEPS Action 13 Minimum Standard: ‘Country-by-Country Reporting – Compilation of 2022 Peer Review Reports’. The report evaluates the implementation of the Action 13 Minimum Standard in 134 jurisdictions.

There have been some updates regarding devolved taxes since the recent Fiscal Event. Starting with Scotland, a date has been set for the 2023-24 Scottish Budget, which is to take place 15 December 2022. However, the Deputy First Minister’s announcement notes that at least 10 weeks are needed to prepare spending forecasts and “given the uncertainty and volatility of UK Government’s plans, [they] may need to revisit [their] plans if there are implications for this 10-week period.” Meanwhile, in Northern Ireland the Department of Finance is seeking comments on the recommendations made by the Independent Fiscal Commission in its report ‘More Fiscal Devolution for Northern Ireland?’ In contrast to Wales and Scotland, the Northern Ireland Executive currently “has no real substantive powers to vary taxes” other than rates on businesses and households.

On 6 October 2022, HMRC published information about a new series of guidance notes called ‘Guidelines for Compliance’. The programme of new ‘Guidelines for Compliance’ was first announced in November 2021 as part of the Government’s response to the review of tax administration for large businesses as a way to help mitigate uncertainty for taxpayers. The guidelines are intended to provide HMRC’s view on “complex, widely misunderstood or novel risks that can occur across tax regimes”. The first guideline to be published covers PAYE Settlement Agreement calculations.

On 2 October 2022, the UK Government announced a widening of the definition of ‘small business’ for regulatory purposes to those with fewer than 500 employees (previously set at fewer than 50 employees), with effect from 3 October 2022. As a result, many businesses previously defined as 'medium-sized' are now characterised as 'small businesses'. The change is the result of a bid by the Government to "stimulate growth” and "cut red tape" and will lead to thousands more UK businesses being exempt from reporting requirements and other regulations in the future. The new threshold applies to new regulations under development, and to those under current and future review, including retained EU laws. According to the press release, the Government will also consider consulting in the future on further extending the definition of ‘small business’ to include those with one thousand employees. The size of a business is relevant to several areas of UK tax legislation, including the transfer pricing rules, and many tax reliefs and incentives that refer to the size of a business or number of employees to determine eligibility. Further detail is expected in the coming months.

The Financial Reporting Council (FRC) has published a thematic review of deferred tax assets which considers the basis of recognition of, and disclosure in relation to, deferred tax assets in the light of the effect of the COVID-19 pandemic on companies’ profitability. Companies should recognise deferred tax assets only to the extent their recoverability is probable and although the FRC did not identify any obvious issues with over-recognition in this area, it commented that “in some cases it was difficult to make a full assessment due to the lack of informative disclosure”. The review found several instances of good practice across most individual aspects of deferred tax asset disclosure but there were clear opportunities for improvement. The review also includes examples of good practice where companies have provided informative, transparent disclosures in relation to deferred tax assets. Companies are therefore likely to find it helpful to review the findings in the thematic review before drafting their own annual reports and accounts.