E-News from KPMG’s EU Tax Centre

OECD Working Group on Pillar One MLC postpones self-imposed deadline to a yet to be defined date

During its 16th meeting, held between May 28 to 30, 2024, the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) had self-imposed a one month deadline (June 30, 2024) to conclude the final terms of the Multilateral Convention to Implement Amount A of Pillar One (MLC) (PDF 1.79 MB).

Nevertheless, this deadline was not met, and it has been reported that negotiations continue. A revised timeline has not been communicated by the IF. There have been no recent official statements from the EU with regard to the delay in this process and any related EU action.

Public consultation on the GloBE Information Return XML Schema and User Guide

On July 10, 2024, the OECD launched a public consultation on the GloBE Information Return (GIR) XML Schema and User Guide. This initiative  aims to facilitate domestic GIR filings and to provide the technical format for exchanging GIR information between tax administrations (for more information, please refer to a dedicated KPMG report (PDF 0.34 MB)).

The GIR XML Schema User Guide (PDF 2.4 MB) is structured as follows:

• Message header: includes information on the sender, recipient, message type and reporting fiscal year;
• ID Type and tax identification number (TIN) Type;
• GloBE Body:
  • Filing Info: information identifying the filing constituent entity and the multinational group (MNE Group);
  • General Section: information on the corporate structure of the MNE Group;
  • Summary: high-level summary of GloBE information;
  • Jurisdiction Section: contains information on the relevant safe harbours and exclusions, effective tax rate (ETR) computations, top-up tax computations where necessary, and the allocation of top-up tax, if any;
  • UTPR Attribution: details on the attribution of Top-Up Tax amongst relevant jurisdictions in case the UTPR is applicable.

Interested parties are invited to submit their comments on this consultation document by August 19, 2024.

CBAM competent Authority  

On June 30, 2024, the French Government published a decree to designate the Minister for Carbon Market Policy as the competent authority for the Carbon Border Adjustment Mechanism (CBAM) during the transitional phase, running from October 1, 2023, to December 31, 2025. During this period, importers of CBAM goods in the EU are required to submit a CBAM report containing information on those goods imported, including the actual total embedded emissions of each type of goods.

For more details on the CBAM, please refer to the KPMG’s dedicated CBAM webpage.  

Pillar Two proposal and other announcements in the 2024 Budget

On July 1, 2024, the Chief Minister of Gibraltar announced the 2024 Budget, including several tax measures. The following day, on July 2, 2024, the Minister for Justice, Trade and Industry presented additional tax proposals to the Gibraltar Parliament in relation to the 2024 Budget. Key takeaways include:  

• Corporate income tax rate: the corporate income tax rate will increase from 12.5 percent to 15 percent (no announcement of the date from which this will take effect).
• Pillar Two: it was previously announced that the Gibraltar is considering the introduction of a qualified domestic minimum top-up tax (QDMTT), which will apply to accounting periods commencing on or after December 31, 2023. Draft legislation is expected later in September 2024, followed by a wider consultation. The IIR is expected to be implemented in 2025.
• Net-zero deduction: an additional 50 percent deduction will be introduced for costs or expenses related to achieving net-zero targets. This deduction must be deemed by the Commissioner of Income Tax to be reasonable and directly related to achieving the net-zero objective and is capped at GBP 10,000 per year.
• New purchase agreements: new purchase agreements, such as off-plan purchases and assignments, will become registrable instruments. A special stamp duty of 0.5 percent will be payable by the assignor on the assignment of the purchase agreement, excluding sales in subsidized estates.
• Tax Losses: whilst tax losses can still be carried forward and current year losses can be deducted, their usage will be restricted at a slower rate for the financial services and gaming sectors. This measure takes effect on July 1, 2024, and applies to tax returns filed after this date, regardless of the accounting period, due to delayed filings in these sectors.

For a state of play of the implementation of Pillar Two, please refer to KPMG’s dedicated implementation tracker in Digital Gateway.

Changes to CIT rates

In June 2024, the Lithuanian Parliament approved the establishment a State Defense Fund and adopted the following corporate tax amendments, effective from January 1, 2025:

• the standard corporate income tax rate will increase to 16 percent (from 15 percent);
• the reduced corporate income tax rate for small businesses will be increased from five percent to six percent. The rate applies to small businesses with a maximum of ten employees and an annual income of up to EUR 300,000;
• the reduced rate for cooperatives (entities that receive at least 50 percent of their total income from agricultural activities during the taxable period) will also be increased to six percent; 

the reduced rate may also apply to taxable income derived from the commercialization of assets developed through R&D activities, calculated using a special formula.

Minimum Tax notification requirements

On June 21, 2024, the Lithuanian Ministry of Finance published an Order regarding the procedures for the submission of required information notices (notifications) in relation to the EU Minimum Tax Law (for previous coverage, please refer to E-News, Issue 197). Lithuania has opted for a deferral of the application of the GloBE rules under Article 50 of the EU Minimum Tax Directive. However, in such cases when the Ultimate parent entity (UPE) is located in Lithuania, the designated filing entity (located outside of Lithuania) shall file a top-up tax information return in accordance with the requirements set out in Article 44(5) of the EU Directive. Key takeaways include:

• The Order sets out the notification procedures for the designation of the filing entity and for the transfer of data to that designated filing entity. It also provides for the notification of the beginning of the initial stages of a group's international activity.
• Notifications must be submitted and revised electronically through the e-portal of the State Tax Inspectorate.
• Lithuanian constituent entities other than UPE are not required to submit the notification.
• The Order entered into force on July 1, 2024.

For a state of play of the implementation of Pillar Two, please refer to the dedicated implementation tracker in KPMG’s Digital Gateway.

Public consultation on the transposition of the Minimum Tax Directive

On July 10, 2024, the Portuguese Council of Ministers launched a public consultation on the bill to implement the EU Minimum Tax Directive (Council Directive (EU) 2022/2523 of 14 December 2022). The bill would generally follow the GloBE rules and states that the OECD Model Rules, Administrative Guidance and documents related to the Safe Harbour Rules and the GloBE Information Return should be taken into account when applying the Portuguese rules on minimum taxation.

Key features include:

• A Domestic Top-up Tax (DMTT) and an Income Inclusion Rule (IIR) which would apply for fiscal years beginning on or after January 1, 2024.
• An Under-Taxed Profits Rule (UTPR) which would apply for fiscal years beginning on or after January 1, 2025, except where the ultimate parent entity (UPE) of an MNE group is located in a Member State that has made an election for a delayed application of the IIR and UTPR, in which case the UTPR would be applicable for fiscal years starting on or after January 1, 2024. 
• A provision for the transitional CbyC Reporting safe harbour and the simplified calculation for non-material constituent entities. In addition, the draft provides for a QDMTT safe harbor rule (i.e., IIR and UTPR Top-up Tax are deemed to be zero in Portugal in relation to other jurisdictions that apply a qualified DMTT, subject to conditions).
• A transitional UTPR safe harbour rule, which would apply to fiscal years beginning on or before January 1, 2026, and ending on or before December 31, 2026.
• The GIR would need to be filed within 15 months after the end of the Reporting Fiscal Year (18 months for the transitional year).

The deadlines for stakeholders to provide input on the bill is the end of July 2024. A revised text will subsequently be presented to the Portuguese Parliament, which is expected to occur during the third quarter of 2024.

All EU Member States were required to bring into force the laws necessary to comply with the EU Minimum Tax Directive by December 31, 2023. On May 23, 2024, the European Commission decided to send a reasoned opinion to six Member States that had failed to notify the national measures transposing the EU Minimum Tax Directive into domestic legislation. These Member States are Cyprus, Latvia, Lithuania, Poland, Portugal and Spain (for previous coverage, please refer to E-News, Issue 196).

For a state of play of the implementation of Pillar Two, please refer to KPMG’s dedicated implementation tracker in Digital Gateway.

Parliament Approves Tax Package to Boost Capital Market

On June 14, 2024, the Parliament of Portugal approved several tax incentives to boost the internal capital market, foster capitalization in non-financial companies and encourage housing rentals. The package of tax measures can be found here (in Portuguese). Key takeaways include:

• If the assets are maintained for a period of more than two years, capital gains realized on securities admitted to trading, or on parts of open collective investment undertakings in a corporate form are eligible for a partial exclusion from personal income tax (up to 30 percent, depending on the holding period). 
• Securities investment companies and loan funds are to be exempted from corporate income tax. The taxation of these companies will become comparable to the regime for venture capital funds. 
• A special tax regime will apply to Collective Investment Schemes that invest in housing that is part of the affordable rental program.  
• The tax measures provide for an incentive on the deductibility of expenses related to initial public offerings, subject to conditions. 

Next steps: the tax measures are to be ratified by the President and published in the official Gazette of Portugal. 

Government Approves Tax Package to Boost Economy

On July 4, 2024, the Portuguese Government approved a tax package to boost the economy. The proposals (published here (PDF 0.37 MB) and here (PDF 0.28 MB)) include, among others:

• A gradual reduction of the corporate income tax rate from 21 percent to 15 percent by 2027, decreasing by two percent pointsper year. The corporate tax rate for small or medium-sized enterprises, applicable to the first EUR 50,000 of taxable profit, will be reduced gradually from 17 percent to 12.5 percent.
• An increase in the deduction of finance costs from EUR 1 million to EUR 2 million for transactions involving the acquisition of more than 50 percent of a company's share capital and voting rights.
• An extension of the scope of the participation exemption by lowering the minimum holding requirement from 10 percent to five percent for a minimum period of one year.
• An extension of the goodwill tax deductibility regime in concentration operations to include assets and operations currently excluded, such as the acquisition of shareholdings.
• An update on tax incentives for research and development (Sistema de Incentivos Fiscais à I&D Empresarial).

The Azores publishes State Budget for 2024

On July 24, 2024, the Autonomous Region of the Azores released its State Budget for 2024. Key takeaways include:

• Reduced corporate income tax rate: a lower corporate income tax rate of 8.75 percent (previously 11.9 percent) now applies to micro, small, and medium-sized companies established in the Azores.
• Tax incentives: companies can benefit from a corporate income tax deduction for profits invested in projects considered significant for the regional economy.

Supreme Administrative Court ruled that debt push-down transaction does not constitute abuse of law due to its economic rationale

On June 25, 2024, the Czech Supreme Administrative Court (the Court) issued its decision in case 8 Afs 246/2022.

The case concerned an investment group that acquired a group of companies, including a Czech operational entity. To finance the acquisition, the investment group took out a bank loan from a third party and established a Czech holding company, which used the loan to acquire the Czech operational entity. The holding company was subsequently merged with the operational entity, meaning that the bank debt was effectively pushed down to the acquired entity. This operation was required by the external bank financing the acquisition in the relevant loan documentation. The tax authorities challenged the deductibility of the interest incurred by the operational company on the grounds that the transactions lacked economic purpose and constituted an abuse of law. The tax authorities argued, inter alia, that the acquisition could have been arranged in a different manner.

The Court disagreed with the tax authorities and held that the debt-push down was motivated by its economic substance, with the bank's requirements in the loan agreement playing a key role. The Court took that view that the bank's requirement to transfer the loan to the Czech operating entity was rational because it strengthened the bank's position as a creditor. The Court also held that the economic sense of the transaction could not be denied simply by stating that the transaction could have been carried out differently or that a different type of transaction could have been carried out. The Court noted however that not every third-party transaction automatically excludes the application of the abuse of law doctrine, it was considered that in the present case the group had sufficiently motivated the economic purpose of the transaction.

For more information, please refer to a report prepared by KPMG in Czechia. 

KPMG Webcast: New Administrative Guidance on GloBE rules

On July 11, 2024, KPMG held a session on the fourth tranche of Administrative Guidance released by the OECD as part of the Future of Tax & Legal webcast series.

During the session, BEPS specialists provided insights into this new guidance, which covers deferred tax liability recaptures, divergences between GloBE ad accounting carrying values, allocation of Cross-border Current Taxes, Allocation of Cross-border Deferred Taxes, Allocation of profits and taxes in structures including Flow-through Entities and Treatment of Securitisation Vehicles.

Please access the event page for a replay of the session.

Talking tax series

With tax-related issues rising up board level agendas and developing at pace, it’s more crucial than ever to stay informed of the developments and how they may impact your business.

With each new episode, KPMG Talking Tax delves into a specific topic of interest for tax leaders, breaking down complex concepts into insights you can use, all in under five minutes. Featuring Grant Wardell-Johnson, KPMG’s Global Head of Tax Policy, the bi-weekly releases are designed to keep you ahead of the curve, empowering you with the knowledge you need to make informed decisions in the ever-changing tax landscape.

Please access the dedicated KPMG webpage to explore a wide range of subjects to help you navigate the ever-evolving world of tax.

Key links

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