E-News from KPMG’s EU Tax Centre

Latest CJEU, EFTA, ECHR

CJEU decision on the UK tax treatment of multinational groups under the CFC regime

On September 19, 2024, the Court of Justice of the European Union (CJEU) issued its decision in joined cases C-555/22 P, C-556/22 P, C-564/22 P. The cases concern the compatibility of the UK Controlled Foreign Companies Group Finance Company Partial Exemption Rules (“Finco Exemption”) with EU State aid rules.

The UK Controlled Foreign Company (CFC) regime aims at ensuring that the UK corporate tax base is not inappropriately reduced by transactions undertaken by non-UK subsidiaries of UK companies. This is achieved by allowing the UK to tax profits of foreign subsidiaries, at the level of the controlling UK shareholder, in cases where the profits are considered to be ‘artificially diverted’ from the UK. For non-trading finance profits, the rules outline several situations in which the foreign profit has to be taxed in the UK, including where one of the following tests is met:

•  a ‘UK activities’ test, focused on whether the profits are arising from lending activities where the significant people functions are carried out in the UK, or
•  a ‘UK connected capital’ test, met if the offshore profits stem from injections of capital from the UK.

The Finco Exemption under dispute provided a derogation from the general CFC rules for non-trading financing profits derived by a CFC in circumstances where the profits arose from lending activities performed in the UK. In short, the regime, which was in place between 2013 and 2018, allowed for either a 75 percent or a full exemption from UK CFC taxation for profits arising from qualifying loans. Qualifying loans were considered to be intra-group loans granted by the CFC to companies which were not resident in the UK. The Finco Exemption was applicable even in cases where the two tests set out to identify situations in which the foreign profit had to be taxed in the UK were met.

The plaintiffs were three UK-based groups which applied the FinCo Exemption. Following an in-depth State aid investigation, the European Commission (EC or the Commission) found on April 2, 2019, that the exemption from the ‘UK connected capital’ test was justified and did not constitute illegal State aid under EU rules. However, the Commission found that multinationals claiming the Finco Exemption while meeting the ‘UK activities test’ received an unjustified preferential tax treatment that was unlawful under EU State aid rules.

It should be noted that the EC relied on the UK CFC rules as the appropriate reference system for determining the existence of a selective advantage¹. In the subsequent appeal, the General Court of the EU (the General Court) confirmed that the regime under dispute represented unlawful State aid and upheld the Commission’s decision, including the determination of the relevant reference system.

The CJEU decision broadly followed the Advocate General’s opinion, setting aside the judgment of the General Court and annulling the Commission’s decision.

The CJEU highlighted that, in cases involving tax measures, the determination of the reference framework is of particular importance since the existence of an economic advantage may be established only when compared with ‘normal’ taxation. The CJEU repeated that an error made in determining the reference system vitiates the entire selectivity analysis.

The CJEU then recalled its settled case-law according to which only the national law applicable in the Member State concerned should be considered when identifying the reference system in direct taxation matters. In case a tax measure is inseparable from the general tax system of the relevant Member State, reference should be made to the general system. Additionally, the Court noted that, for the determination of the reference system, the Commission is required, in principle, to accept the interpretation of the relevant provisions of national law provided by the Member State concerned, during an exchange of arguments, provided that the interpretation is compatible with the wording of those provisions. The Commission may depart from that interpretation only if it is able to establish, based on reliable and consistent evidence, that another interpretation prevails in the case-law or the administrative practice of that Member State.

The CJEU then concluded that the General Court and the Commission erred in law when selecting the UK CFC rules as the reference framework, instead of the general UK corporate tax system, as the CFC rules are not severable from the general corporation tax system. The CJEU held that the Commission failed to demonstrate that the UK’s interpretation of the CFC rules and their relationship with the broader UK corporate tax system was incorrect. The CJEU found that the rules governing CFCs, taken as a whole and, in particular, with regards to non-trading finance profits, form an integral part of the UK corporate tax system, which the CFC rules supplemented  and followed the same logic - the UK corporate tax system is largely based on the principle of territoriality, whereby profits with a sufficient territorial link with the UK are subject to tax.

Specifically, the CFC charge was not, or not fully, applied where the risk of artificial profit diversion or erosion of the UK tax base was not sufficiently high.

 In the Court’s view, the error made in the determination of the reference framework, vitiated the Commission’s and the General Court’s whole analysis with regard to the existence of a selective advantage.

For more details, please refer to a report prepared by KPMG in the UK.

The CJEU sets aside the judgement of the General Court in the Irish State-aid case

On September 10, 2024, the CJEU issued its decision in case C-465/20 P. The case concerns two transfer pricing rulings issued by the Irish tax authorities in favor of two Irish incorporated, but non-Irish tax resident companies that had Irish trading branches (the Plaintiffs).

In short, the rulings endorsed the profit allocation methods related to the trading activity of the Irish branches of the two entities concerned i.e., the allocation of certain intellectual property (IP licenses) for tax purposes outside of Ireland, to the head-offices of the two Irish branches and not to the Irish branches. In the EC’s view, the Irish tax authorities accepted a profit allocation which diminished the tax base in Ireland, thus leading to a selective advantage granted to the Plaintiffs. Therefore, on December 19, 2016, the EC determined that the two rulings constituted unlawful State-aid, incompatible with the EU internal market, and ordered Ireland to recover the related amounts of approximately EUR 13 billion.

Ireland and the companies benefiting from the rulings appealed and, in 2020, the General Court annulled the Commission’s decision. Although the General Court reiterated CJEU case law according to which the European Commission cannot argue that Article 107 TFEU gives rise to a freestanding obligation for Member States to apply the arm’s length principle where that principle is not embedded in their national law, the Court did note that the arm’s length principle, as described by the Commission in the contested decision, is nevertheless a tool that enables the EC to determine (in the exercise of its powers under Article 107(1) TFEU) whether the level of profit under dispute corresponds to the level that would have been obtained through carrying on that trade under market conditions. However the General Court took the view that the Commission did not succeed in demonstrating methodological errors in the tax rulings under dispute, which would have led to a reduction in the Plaintiffs’ chargeable profits in Ireland. In this respect, the General Court held that the existing inconsistencies identified by the EC were not sufficient to constitute a selective advantage for the purposes of Article 107(1) of the Treaty on the Functioning of the European Union.

On appeal by the EC, the CJEU set aside the judgment of the General Court. In line with the AG’s opinion, the CJEU concluded that the General Court committed a series of errors in law when it found that the EC had not shown to the requisite legal standard that the intellectual property (IP) held by the two Plaintiffs was attributable to their Irish branches. In particular, the CJEU held that the General Court erred when it ruled that the Commission’s primary line of reasoning was based on erroneous assessments of normal taxation under Irish tax law, and when it upheld the complaints raised by the Plaintiffs regarding the Commission’s factual assessments of the activities of the Irish branches and those of the head offices. Consequently, the CJEU decided to set aside the General Court’s judgment.

Additionally, the CJEU concluded that it had sufficient information to rule on all the pleas raised by Ireland and the taxpayers, as these issues were fully debated before the General Court. In the CJEU’s view, no further procedural steps or investigations were required, enabling it to issue a final judgment. After reviewing and rejecting the arguments presented by Ireland and the taxpayers in their initial appeal, the Court ultimately dismissed their claims.

For more information on the judgement, please refer to Euro Tax Flash Issue 547.

Application of legal professional privilege in the context of an exchange of information on request under the DAC 

On September 26, 2024, the CJEU rendered its decision on the application of legal professional privilege in the context of an exchange of information on request on the basis of the Directive 2011/16/EU on administrative cooperation in the field of taxation (the “DAC”), following a request for a preliminary ruling on July 12, 2023 by the Luxembourg Higher Administrative Court. The case involves a request sent by the Spanish authorities to the Luxembourg tax authorities for information on a Spanish company, which would be required from its Luxembourgish lawyer. The lawyer refused to provide information about the client on the grounds that it was covered by legal professional privilege.

The Court followed the opinion of the AG (published on May 30, 2024 – please refer to E-News Issue 196 for details) and ruled that Article 7 of the Charter of Fundamental Rights of the European Union (‘the Charter’), which recognizes the right to respect for private and family life, home and communications, must be interpreted as meaning that the legal advice from a lawyer in matters of company law falls within the scope of the enhanced protection of exchanges between lawyers and their clients, guaranteed by that article. Therefore, a decision ordering a lawyer to provide the requested Member State, for the purposes of an exchange of information on request provided for by the DAC, with all documentation and information relating to their client, constitutes an interference with the right to respect for communications between lawyers and their clients.

The CJEU also held that the Directive is compatible with Articles 7 and 52(1) of the Charter. In this regard, the Court noted that for the purposes of the exchange of information on request, the Directive only determines the obligations that Member States have towards each other, meaning that they can choose not to act on a request if carrying out the requested investigations or collecting the information in question would be contrary to their domestic legislation. In the Court’s view, it is the Member States’ responsibility to ensure that their national procedures, implemented for the collection of information for the purposes of that exchange, comply with the Charter, in particular Article 7 and Article 52(1) thereof.  Therefore, the fact that Chapter II, Section I of the DAC, which lays out the regime for the exchange of information on request, does not protect the communications between lawyers and their clients, does not affect the validity of the Directive with regards to Articles 7 and 52(1) of the Charter.

The CJEU noted that Article 7 and Article 52(1) of the Charter must be interpreted as precluding an injunction of the tax authorities that is based on national legislation under which advice and representation by a lawyer in tax matters do not benefit, except in the event of a risk of criminal prosecution for the client, from the enhanced protection of communications between a lawyer and their client as guaranteed by Article 7.

The decision confirms the view of AG Kokott, who argued in her opinion that Luxembourg law is in breach of Article 7 of the Charter, as it currently protects the confidentiality of exchanges between lawyers and their clients only where this does not relate to tax matters (unless an affirmative or negative response to questions would put their clients at risk of criminal prosecution). A change of law could therefore be expected, and the practical implications of this decision will have to be monitored.

CJEU decides in Dutch anti-abuse case

On October 4, 2024, the CJEU rendered its decision in case C-585/22. The case concerns the compatibility of the Dutch interest deduction limitation anti-profit shifting rule with EU law. Under settled case-law in the Netherlands, the interest deductibility restriction applied regardless of whether the interest rate was set at a level which would have been agreed between independent parties on an arm’s length basis.

The dispute reached the Dutch Supreme Court (Supreme Court), which tentatively agreed with the position of the Court of Appeal that the rule under dispute was justified and proportionate in light of the aims of combating tax avoidance and preserving the Dutch tax base. However, the Supreme Court expressed doubts as to whether this conclusion was in line with the CJEU’s decision in case C-484/19, concerning the Swedish interest deduction limitation rules. In that judgment, the CJEU held that the exception to the 10 percent rule in the Swedish interest deduction limitation rules, applicable between 2013 and 2018, was contrary to the freedom of establishment. In its judgement in that case, the CJEU noted that the exception to the 10 percent rule could cover transactions carried out on market terms, which in the CJEU’s view as expressed in that judgement, do not constitute wholly artificial or fictitious arrangements. Consequently, the Dutch Supreme Court referred the case to the CJEU to clarify whether the rule under dispute was compatible with EU law. For more details, please refer to E-News Issue 124.

In summary, the CJEU found that, whilst the Dutch interest limitation rule represents a de facto restriction on the freedom of establishment, this restriction is justified as it aims to combat tax fraud and evasion. The CJEU therefore held that the rule under dispute is permissible under EU law.

The CJEU did not explicitly revisit its judgement in case C-484/19, as was advised by the AG (please refer to E-News Issue 193). Instead, the CJEU held that it cannot be inferred from its ruling in that particular case that compliance with the arm’s length principle was sufficient to deem a loan and the related transaction as non-artificial.

For more information, please refer to Euro Tax Flash Issue 550 and a report prepared by KPMG in the Netherlands.

Infringement Procedures and CJEU Referrals

Hungary asked to abolish its retail tax regime

On October 3, 2024, the Commission announced that it had decided to send a letter of formal notice to Hungary with respect to its retail tax regime.

Retailers operating in Hungary are subject to a retail tax on gross revenues derived from retail sales. When calculating the tax base, the turnover of associated companies must be added-up. The tax is progressive, with the highest applicable rate currently set at 4.5 percent for turnover exceeding HUF 100 billion (approximately EUR 249 million).

In practice, foreign-controlled retail companies operating in Hungary are often subject to the highest progressive tax rates due to their business model. This is because the turnover of associated companies is aggregated for tax purposes, and foreign retail groups generally operate in Hungary through associated companies. In contrast, domestic retailers of similar size, operating under a franchise model, are not subject to the highest tax rates, as their turnover is not aggregated for retail tax purposes. The EC has highlighted that this tax regime prevents foreign-controlled retailers from restructuring their operations in a manner similar to that of domestic competitors. The Commission is of the view that this difference in treatment represents a restriction on the freedom of establishment.

Hungary had been previously informed, through the 2023 and 2024 Country-Specific Recommendations, that the retail tax disproportionately burdens foreign multinationals. As part of its Recovery and Resilience Plan, Hungary committed to phasing out the retail tax regime. However, Hungary has continued to extend the regime and has progressively increased the highest tax rates.

As a result, the Commission decided to issue a letter of formal notice to Hungary, which is the first step of the infringement procedure. Hungary is required to reply to the letter and address the issues raised by the EC within two months. If Hungary fails to provide a satisfactory response, the Commission may proceed by issuing a reasoned opinion.

For more details, please refer to the Commission’s October 2024 infringement package.

Malta receives a letter of formal notice for failing to provide effective assistance to recovery claims from other Member States

On October 3, 2024, the European Commission announced its decision to send a letter of formal notice to Malta for failing to provide effective assistance in recovering tax, duty, and other claims from other Member States.

The Commission considers that Maltese legislation does not treat claims from other Member States as immediately enforceable. Instead, such claims must first be recognized by national courts before enforcement actions can be initiated. In the Commission’s view, this requirement violates Article 12(1) of Directive 2010/24 (the Mutual Assistance Directive), which grants executive powers to enforcement instruments and prevents Member States from making their enforcement contingent on additional national recognition.

Furthermore, the Commission considers that Malta failed to correctly apply the Mutual Assistance Directive and to provide the required assistance. As a result, the Commission decided to issue a letter of formal notice to Malta. Malta is required to reply to the letter and address the issues raised by the EC within two months. If Malta fails to provide a satisfactory response, the Commission may proceed by issuing a reasoned opinion (the second step in the infringement procedure).

For more details, please refer to the Commission’s October 2024 infringement package. 

Four Member States referred to the CJEU for failing to notify measures transposing the EU Minimum Tax Directive

On October 3, 2024, the Commission decided to refer Cyprus, Poland, Portugal and Spain to the CJEU for failing to notify the national measures transposing Council Directive (EU) 2022/2523 (the EU Minimum Tax Directive) into domestic legislation.

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. The four Member States referred to the CJEU had previously been issued reasoned opinions by the Commission for lack of transposition of the relevant EU provisions – see E-News Issue 196.

The Commission acknowledged the significant efforts being made by the authorities to finalize the implementation of the Minimum Tax Directive into their national laws. However, as these Member States have not yet notified the transposition measures, the Commission has taken formal action by referring Cyprus, Poland, Portugal, and Spain to the CJEU.

For more details, please refer to the Commission’s press release.

For information on the current status of implementation of the EU Minimum Tax Directive into the national law of Member States, please refer to the implementation tracker in KPMG’s Digital Gateway.

EU Institutions

October 2024 update of the EU list of non-cooperative jurisdictions

On October 8, 2024, the General Affairs Council adopted conclusions on the EU list of non-cooperative jurisdictions (Annex I) and the state of play with respect to commitments taken by cooperative jurisdictions to implement tax good governance principles (Annex II – so called “grey list”).

The Council agreed to move Antigua and Barbuda from Annex I to Annex II in respect of criterion 1.2² after the decision of the Global Forum on Transparency and Exchange of Information for Tax Purposes to grant Antigua and Barbuda a supplementary review (following its “partially compliant” rating in the 2023 second round EOIR peer review). In addition, the Council release notes that the entries in Annex I for Fiji and Palau have been amended to reflect recent steps towards compliance with the listing criteria.

According to the Council release, the ECOFIN Council further adopted the following conclusions with respect to Annex II:

• Armenia was removed from section 2.1³ of Annex II (and therefore removed completely from the grey list) after the country abolished its “Information Technology Projects” regime and amended its “Free Economic Zones” regime, which had previously been deemed a ‘harmful regime’ by the Forum on Harmful Tax Practices (see below).
• Malaysia was removed from section 2.1 of Annex II (and therefore removed completely from the grey list) following amendments to its foreign source income exemption (FSIE) legislation concerning the treatment of capital gains.
• The release also notes that Vietnam has been given more time to comply with its commitment on Country-by-Country Reporting (criterion 3.2).

Following this latest revision, Annex I of the EU list of non-cooperative jurisdictions therefore includes the following eleven jurisdictions: American Samoa, Anguilla, Fiji, Guam, Palau, Panama, the Russian Federation, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu.

Annex II (the grey list) now includes the following nine jurisdictions: Antigua and Barbuda, Belize, the British Virgin Islands, Costa Rica, Curaçao, Eswatini, the Seychelles, Türkiye and Vietnam.

The revision will take effect from the day of publication in the Official Journal of the European Union. The next update of the EU list of non-cooperative jurisdictions is expected to take place in February 2025.

For previous coverage on the EU list of non-cooperative jurisdictions, please refer to Euro Tax Flash Issue 538.

Work program of Code of Conduct Group (Business Taxation) published

On October 1, 2024, the Council published the new work program of the Code of Conduct Group (Business Taxation) for the second half of 2024 under the Hungarian Presidency. Key work items include:

• assessment of the progress made by jurisdictions in respect of the automatic exchange of information (criterion 1.1) and exchange of information on request (criterion 1.2) based on the results of the Global Forum monitoring and peer reviews reports;
• work on the future criterion 1.4 on the exchange of beneficial ownership information;
• monitoring of economic substance requirements for collective investment funds (CIVs) and partnerships as well as for trusts and fiduciaries in close cooperation with the Forum on Harmful Tax Practices (criterion 2.2);
• assessment of commitments made by jurisdictions with regards to the application of the County-by-Country Reporting minimum standard following the Inclusive Framework peer review report in the autumn of 2024 (criterion 3.2);
• review of the methodology used for selecting jurisdictions in relation to the geographical scope;
• evaluate possible impacts of the OECD Pillar Two agreement, including on the EU listing criteria.

For more information, please refer to the Code of Conduct Group’s website.

Paper on fiscal implications of green transition published

On September 5, 2024, the European Commission published a paper on the on fiscal implications of the green transition.

The paper explores the fiscal implications of the global shift towards climate neutrality, analyzing its effects on government budgets. The document also focuses on the need for a comprehensive fiscal strategy within country-level transition plans.

The paper suggests several options to broaden the tax base and to introduce innovative financing options to ensure fiscal sustainability. Additionally, it recommends ongoing assessments of the fiscal impacts of climate policies and emphasizes the need for stronger G20 coordination to mitigate the fiscal risks associated with a disorderly transition to climate neutrality.

Amongst others, the paper identifies a financial transaction tax as one of the most promising options to raise resources for the transition. The document notes that a tax of 0.1 percent on the trading of stocks and bonds could deliver up to USD 418 billion (approximately EUR 381 billion) per year at global level.

New Commissioner-designate for Taxation

On September 17, European Commission President Ursula von der Leyen, who was elected for a second mandate on July 18, 2024, presented her proposal for a new College of Commissioners for the next five years.

In a significant change compared to previous mandates, taxation will no longer be part of the Economy portfolio but will be the responsibility of the new Commissioner for Climate, Net Zero and Clean Growth. Wopke Hoekstra – a Dutch national and the Commissioner-designate for the Climate portfolio, will work on implementation and adaptation, climate diplomacy and decarbonization, as well as taxation. As part of the mandate given to him with regard to taxation, Mr. Hoekstra has been asked to:

• lead the work to level the energy taxation playing field and the strategic use of taxation measures to incentivize the uptake of clean technologies. If approved, the Commissioner will be expected to help conclude the negotiations on the revision of the Energy Taxation Directive and to explore how to further green the VAT system;
• identify innovative solutions for a coherent tax framework for the EU financial sector;
• continue the work on the reform of corporate taxation (including concluding the negotiations on the corporate tax package);
• ensure the European Union keeps the highest level of ambition in fighting tax fraud, tax evasion and tax avoidance;
•  work with the Member States on the implementation of the global agreement on minimum taxation.

The responsibility for initiatives on reducing administrative and reporting burdens in the EU will fall with the Commissioner for Economy and Productivity, Implementation and Simplification.

Proposed Commissioners are subject to confirmation by the European Parliament. The public confirmation hearings will take place between November 4 and 12, 2024. Based on the detailed schedule published, the hearing of Wopke Hoekstra will take place on November 7, 2024. The College of Commissioners as a block is subject to the approval of the European Parliament. Following confirmation by the Parliament, the Commission is formally appointed by the European Council.

For more details, please refer to Euro Tax Flash Issue 549.

KPMG responds to European Commission’s call for evidence for the evaluation of ATAD

On September 11, 2024, KPMG member firms in the EU submitted a response to the European Commission’s call for evidence for the evaluation of the Anti-Tax Avoidance Directive.

KPMG welcomes the opportunity to comment on the implementation, functioning and future-proofing of the Directive, as well as on its relevance in the current economic and regulatory environment. Key points highlighted in the KPMG submission can be summarized as follows:

• The interaction of ATAD with the EU Minimum Tax Directive creates an additional level of complexity and has created a risk of double taxation, which should be addressed at EU level. In particular, KPMG recommends that ATAD is amended to exempt from CFC regimes those groups that are in scope of Pillar Two.
• Based on our practical experience with the application of ATAD, KPMG notes a number of areas where further clarity and certainty would be welcomed, such as with regard to the treatment of capitalized interest costs for the purposes of the interest limitation rules, and issues related to group taxation in the context of the anti-hybrid rules.
• KPMG also recommends that the adequacy of the deductibility threshold and de minimis rule and the scope of exclusions for long-term public infrastructure projects are revisited to better reflect the current economic environment and international landscape.

For more information, please refer to Euro Tax Flash Issue 548.

OECD and other International Organisations

Local Law and Regulations

Decree-Law released to introduce Domestic Minimum Top-Up Tax under Pillar Two

On September 1, 2024, Decree-Law No. (11) was released to implement a GloBE rules compliant domestic corporate income tax referred to as a domestic minimum top-up tax (DMTT) in Bahrain. Key takeaways include:

• Timeline: the DMTT would apply from January 1, 2025,to Bahrain Constituent Entities of large MNE groups having total consolidated global annual revenues exceeding EUR 750 million. The DMTT Law does not include the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR).
• Accounting Standard: the calculation of the DMTT will be based on a Local Financial Accounting Standard (i.e., IFRS or any other financial accounting standards permitted under the Regulations).
• Safe Harbours: the DMTT Law provides for the transitional Country-by-Country Reporting Safe Harbour and the simplified computation Safe Harbour for Bahrain Constituent Entities of MNE Groups where those meet specified conditions.
•  Administration: Bahrain Constituent Entities of an in-scope MNE group will be required to appoint a Filing Constituent Entity, which will be responsible for paying tax liabilities and handling all tax administration matters. A joint venture and its joint venture subsidiaries are also required to appoint a Filing Constituent Entity. Due dates, required information and procedures for registration, return filing and tax payments will be prescribed in separate regulations. It is noted, however, that advance tax payments will be required.

The executive regulations and decisions for the implementation and enforcement of the DMTT Law are yet to be released. The Regulations will prescribe detailed rules, conditions and procedures for implementing the DMTT Law in a manner consistent with the GloBE rules, guidance and commentary issued by the OECD.

For more information, please refer to a September report and October report both prepared by KPMG in Bahrain.

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

Consultation on amendments to the Bulgarian Pillar Two rules

On September 18, 2024, the Bulgarian Ministry of Finance launched a public consultation on draft legislation amending the Corporate Income Tax Act, including the Bulgarian Pillar Two rules (enacted in December 2023).

Key takeaways include:

• Safe Harbours: the draft includes several amendments to the Transitional CbCR Safe Harbour to reflect the OECD December 2023 Administrative Guidance. This includes the anti-hybrid arbitrage rules that would apply to transactions entered into after December 18, 2023. The draft also includes the Transitional UTPR Safe Harbour.
• Domestic Minimum Top-Up Tax (DMTT): the draft removes the reference to IFRS, as adopted by the EU or the national accounting standard, as the relevant financial reporting framework for the purposes of the Bulgarian DMTT. This implies that the DMTT would need to be calculated based on the UPE’s Financial Accounting Standard except where it is not reasonably practicable to use such accounts (in accordance with Article 3.1.2 and 3.1.3 of the Model Rules). The design of the DMTT remains unchanged and is aligned with the general GloBE rules. However, the Bulgarian DMTT departs from the general rules in certain aspects allowed for under the OECD QDMTT guidance (e.g., a more limited scope for the substance-based income exclusion).
• Additional OECD guidance: the draft incorporates into the legislative text several elements of the OECD Administrative Guidance (e.g., treatment of marketable transferable tax credits, changes for Blended CFC regimes), as well as several elections (e.g., Equity Investment Inclusion Election).

The consultation runs until October 18, 2024.

Consultation on amendments to the Pillar Two rules in Czechia 

On August 16, 2024, the government of Czechia approved draft amendments to the Act on Top-Up Taxes, which became effective on December 31, 2023 and provides for the implementation of the EU Minimum Tax Directive. The draft amendments have been submitted to Parliament for discussion.

Key takeaways include:

• DMTT: the draft includes several amendments to the DMTT to ensure alignment with OECD guidance, including an extension of the DMTT to certain group of entities (e.g., joint ventures and affiliates and stateless entities). Another amendment is the removal of the option to choose the accounting standard for purposes of calculating the DMTT. Instead, the draft provides that the DMTT would need to be calculated using the accounting standard of the UPE, except where it is not reasonably practicable to use such accounts (in accordance with Article 3.1.2 and 3.1.3 of the Model Rules).
• QDMTT Safe Harbour: the current legislation provides for a QDMTT Safe Harbour applied in line with article 11(2) of the EU Minimum Tax Directive in respect of EU countries and in line with the OECD July  2023 Administrative Guidance in respect of non-EU countries. The draft amendment proposes to remove the QDMTT Safe Harbour as per the EU Minimum Tax Directive, so that only the QDMTT Safe Harbour as per the OECD July 2023 Administrative Guidance would become applicable in respect of both EU and non-EU countries. The comments to the draft legislation explain that this change is supported by the European Commission, which has confirmed to the EU Member States that the application of the QDMTT Safe Harbour in line with OECD guidance is seen as a proper implementation of article 11(2) of the EU Minimum Tax Directive.
• Other Safe Harbours: the draft amendments also include the Transitional UTPR Safe Harbour and propose changes to the Transitional CbyC Reporting Safe Harbour to incorporate the OECD December 2023 Administrative Guidance (including anti-hybrid arbitrage rules that would apply to transactions entered into after December 15, 2022).
• Administration:  Several changes are being proposed to the filing deadlines of the GloBE Information Return (GIR) and local top-up tax returns. For the GIR, the deadline would be aligned with the OECD deadline, meaning that the GIR would need to be filed 15 months from the end of the reporting period (18 months for the first year). The same deadline applies for notifications in case the GIR is filed in another jurisdiction where the group operates. The local tax return filing and payment deadlines would be due no later than 22 months after the end of the fiscal year (the current legislation requires DMTT returns to be filed no later than 10 months after the end of the fiscal year).

If approved, the proposed amendments would become applicable for tax periods starting on or after December 31, 2023.

For more information, please refer to an August report and September report both prepared by KPMG in Czechia.

Public consultation on tax credit for investments supporting green transition

On September 16, 2024, the Finnish government released a draft proposal for a corporate income tax credit aimed at large-scale industrial investments supporting the transition to a net-zero economy.

This may include certain investments in:

•  renewable energy production and storage;
•  decarbonization of industrial processes and energy efficiency measures;
•  production of batteries, solar panels, wind turbines, heat pumps, as well as other equipment that is deemed crucial for the net-zero transition (including equipment for carbon capture, usage, and storage).

The credit would equal 20 percent of qualifying costs (capped at EUR 150 million per group) provided that the qualifying costs amount to at least EUR 50 million per facility.

Taxpayers would need to apply by 2025, with credits granted by the end of that year. A maximum of 10 percent of the credit would be usable against the annual corporate income tax liability between tax years 2028 and 2047 (i.e., the credit can be used over a maximum period of 20 years).

Based on the proposed design, the credit would not be considered a qualified refundable tax credit for Pillar Two purposes. As such, the credit would reduce the amount of covered taxes and, thus, would have a downward impact on the jurisdictional ETR. Where this would trigger top-up tax liability, the credit would be declined for the respective year.

Amendments to the draft proposal may still occur given that the law's enactment requires the European Commission’s approval under its Temporary Crisis and Transition Framework in relation to EU State aid rules (for more information, please refer to Euro Tax Flash Issue 508). The release notes that Finland has already submitted a preliminary notification to the European Commission in mid-2024.

Comments on the draft proposal may be submitted until October 11, 2024.

Tax measures in draft 2025 Finance Bill

On October 10, 2024, the French government published a draft of the 2025 Finance Bill. Key measures from a corporate tax perspective include:

New temporary surtax on corporate income tax:

The bill would introduce a surtax on corporate income tax for companies with annual turnover in France of at least EUR 1 billion. The surtax would apply for the first two fiscal years ending on or after December 31, 2024. The surtax would be calculated based on the corporate income tax before applying tax credits or deductions multiplied by specific rates, as follows:

• turnover between EUR 1 billion and EUR 3 billion: 20.6 percent for FY 2024, 10.3 percent for FY 2025 (resulting in an effective tax rate (ETR) of 30.975 percent and 28.4 percent, respectively (excluding 3.3 percent social surcharge));
•  turnover above EUR 3 billion: 41.2 percent for FY 2024, 20.6 percent for FY 2025 (resulting in an ETR of 36.125 percent and 30.975 percent, respectively (excluding 3.3 percent social surcharge)).

A mechanism would mitigate the surtax for companies just above the thresholds (i.e., turnover between 1 and 1.1 billion or 3 and 3.1 billion, respectively).

The surtax would be payable within the same deadline as for the corporate income tax liability. No deductions for tax credits or receivables would be offsetable again the surtax liability.

New temporary tax for large shipping companies

An exceptional contribution on the operating income of large maritime transport companies would be introduced for two consecutive fiscal years ending on or after December 31, 2024. The rate would be 9 percent for the first fiscal year and 5.5 percent for the following fiscal year. The contribution would apply to companies with annual revenue of at least EUR 1 billion that determine their taxable income under the tonnage tax regime. The contribution would be payable within the same deadline as for the corporate income tax liability. No deductions for tax credits or receivables would be offsetable again the surtax liability.

New Tax on Share Repurchase

The finance bill would introduce an 8 percent “share buyback” tax for companies in France with turnover over EUR 1 billion. The tax would apply to capital decreases from share buybacks (subject to certain exceptions) occurring on or after October 10, 2024.

Implementation of DAC8

The bill proposes to transpose Directive 2023/2226 on the automatic and mandatory exchange of tax information concerning digital assets (DAC8), which amends the Directive on Administrative Cooperation (2011/16/EU). This would include new reporting obligations for crypto-asset service providers effective from January 1, 2026.

For more information, please refer to a report (in French) prepared by KPMG in France.

Proposed amendments to French Pillar Two legislation 

As part of the draft of the 2025 Finance Bill, the French government also proposed amendments to the French Pillar Two legislation (in force since 2024). Key takeaways include:

• DMTT: The bill proposes to amend the current DMTT rules with a view to aligning them with the OECD QDMTT guidance. As a result, cross-border taxes, such as CFC taxes that would be allocated to domestic Constituent Entities under the regular GloBE rules, would need to be excluded for DMTT purposes. In this context, it is also proposed to remove the option to choose the accounting standard for purposes of calculating the DMTT. Instead, the draft provides that the DMTT would need to be calculated using the accounting standard of the UPE, except where it is not reasonably practicable to use such accounts (in accordance with Article 3.1.2 and 3.1.3 of the Model Rules).
• QDMTT Safe Harbour: the current legislation provides for a QDMTT Safe Harbour designed in line with article 11(2) of the EU Minimum Tax Directive. The draft amendments propose to replace the existing rules with a QDMTT Safe Harbour as per the OECD July 2023 Administrative Guidance including a reference to the outcomes of the OECD Inclusive Framework peer review process.
• Other Safe Harbours: the bill includes amendments to the Transitional CbCR Safe Harbour to incorporate the OECD December 2023 Administrative Guidance (including anti-hybrid arbitrage rules that would apply to transactions entered into after December 15, 2022). The bill also introduces the simplified calculation Safe Harbour for non-material constituent entities.
• OECD Administrative Guidance: the bill would incorporate into the legislative text several elements of the OECD Administrative Guidance (e.g., treatment of marketable transferable tax credits, clarifications on the application of the substance-based income exclusion).

The amendments would apply to financial years ending on or after December 31, 2024.

For more information, please refer to a report (in French) prepared by KPMG in France.

Ministry of Finance postpones reporting requirements introduced as part of the Withholding Tax Relief Modernisation Act 

On August 27, 2024, the German Ministry of Finance published a circular providing for a postponement of reporting requirements introduced as part of the Withholding Tax Relief Modernisation Act published in 2021. The Act introduced a requirement for certain financial intermediaries disbursing capital income to submit summarized notifications to the German Federal Tax Office (BZSt) regarding the certification and payment of withholding tax by July 31 of the calendar year following receipt of the capital gains. The summarised notification has to include for each type of security or customer’s custody account, the credited capital income and the certified withholding tax withheld. In addition, domestic listed companies must submit information electronically to the BZSt on the identity of their shareholders (information received from the custodians of the shares). For more information, please refer to a report prepared by KPMG in Germany.

The provisions were initially applicable for the first time to income from shareholdings arising at the level of the recipient after December 31, 2024. However, the German authorities now confirmed the postponement by one year to ensure a uniform application of the rules. As a result, the information must be provided for the first time for capital gains received after December 31, 2025.

Please note that these reporting requirements are largely aligned with the indirect reporting option under the “Faster and Safer Relief of Excess Withholding Taxes (FASTER)” Directive. Specifically, as opposed to implementing a direct reporting requirement for certified financial intermediaries (CFIs), EU Member States have the option to select an indirect reporting option, under which CFIs along the securities payment chain provide information sequentially, up to the withholding tax agent or designated CFI, which then reports to the competent authority. The Council reached an agreement (general approach) on the FASTER Directive on May 14, 2024. Once formally adopted, Member States will need to transpose the FASTER Directive by December 31, 2028. The rules will become applicable as of January 1, 2030.

For more information on the FASTER initiative, please refer to Euro Tax Flash Issue 541.

Tax measures in Finance Bill 2024

On October 1, 2024, the Irish Minister of Finance presented the Budget 2025, which included a number of new tax measures. On October 10, 2024, the Irish Department of Finance then published the Finance Bill 2024, which provided draft legislation for new tax measures and amendments to existing laws. Some of these provisions were announced in the Budget 2025.

Key highlights include:

• New draft legislation introducing a participation exemption regime for certain distributions. The introduction of such a regime was subject to two public consultations held by the Department of Finance in 2024.
• Technical Amendments to the Irish DAC7 law, which was implemented through the 2022 Finance Act and introduces an obligation for platform operators to report information on income derived by sellers through digital platforms. The amendments include actions that a reporting platform operator can take where a seller fails to provide the required information for reporting, consequences for cases where platform operators fail to comply with DAC7 requirements, and amendments with respect to the joint audits.
• Technical amendments to the interest limitation rules, to clarify, amongst others, the definition relevant to finance leases.
• Technical amendments to the outbound payment rules to clarify that the definition of “supplemental tax” includes qualifying IIR, UTPR, and DMTT.
•  The increase of the first-year payment threshold under the research and development (R&D) regime from EUR 50,000 to EUR 75,000. The R&D tax credit is repaid by the Irish Revenue over a three-year period, where in year one the payment amounts to EUR 75,000 or 50 percent of the R&D credit, whichever is higher. For more information on the R&D regime, please refer to a report prepared by KPMG in Ireland.
• The introduction of a corporation tax deduction for listing expenses of up to EUR 1 million relating to the first listing on an Irish/EEA stock exchange.
• The extension of the existing bank levy for one additional year to 2025. Previously, a revised basis for calculating the bank levy was introduced, which was applicable only for 2024.
• To enhance start-up relief for new small companies and relief for the audio-visual sector.

In the Budget 2025, the minister also announced a review of tax treatment of interest, with the aim of reducing complexity in tax legislation, while maintaining Ireland's attractiveness for businesses. In that regard, a public consultation has been launched to seek stakeholder views on, among others, the taxation of interest, the tax deductibility of interest in general and the interest limitation rules under the EU Anti-Tax Avoidance Directive, together with other anti-avoidance rules and restrictions relating to the deductibility of interest. 

For more information, please refer to a report on the Budget 2025 and a report on the Finance Bill 2024 prepared by KPMG in Ireland.

Introduction of Pillar One Amount B and Amendments to the Pillar Two Legislation  

As part of the Finance Bill, 2024, Ireland also introduced Pillar One rules on Amount B and several amendments to the existing Irish Pillar Two Rules.

Pillar One Amount B

The Finance Bill provides for the introduction of “Phase I” of the Pillar One Amount B rules into Irish law. The aim of Amount B is to provide for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities.

The new rules would apply to qualifying transactions, as defined by the Pillar One Amount B rules, between MNE constituent entities based in Ireland and in covered jurisdictions, as defined by the OECD. Companies having qualifying arrangements as per the Pillar One Amount B rules may now opt for the simplified approach under Amount B. The adoption of the simplified approach would need to be documented in the Irish Local File and a disclosure on the Amount B approach would also be required in the Irish local tax return.

The rules would enter into force on January 1, 2025.

Pillar Two Amendments

The Finance Bill amends the Irish Pillar Two law to incorporate parts of the OECD December 2023 Administrative Guidance and OECD June 2024 Administrative Guidance and to provide other clarifications:

• Safe Harbours: the Finance Bill includes amendments to the Transitional CbCR Safe Harbour to incorporate the OECD December 2023 Administrative Guidance (including anti-hybrid arbitrage rules that would apply to transactions entered into after December 15, 2022). The bill also introduces the simplified calculation Safe Harbour for non-material constituent entities.
• OECD Administrative Guidance: the Finance Bill also introduces several aspects from the OECD June 2024 Administrative Guidance, such as the new guidance on deferred tax liability (DTL) recapture, clarifications with respect to the identification of hybrid entities as defined under the GloBE rules, as well as the allocation of taxes to group members classified as hybrid and reverse hybrid entities.
• GloBE losses: the Finance Bill also includes a clarification that tax losses should be used on a Last-In-First-Out (LIFO) basis, meaning that tax losses arising in the most recent year will be used first, before losses arising in prior years are utilized.
• Financial services: the Finance Bill includes an amendment in line with the OECD June 2024 Administrative Guidance to allocate any DMTT liability arising from securitization entities on other group entities located in the jurisdiction (unless there are no other non-securitization entities in the jurisdiction). The Finance Bill also includes a proposal to remove standalone investment undertakings from the scope of Ireland’s DMTT.

For more information, please refer to a report on the Finance Bill 2024 prepared by KPMG in Ireland. 

The EU Public Country-by-Country Reporting Directive implemented into Italian law

On September 12, 2024, Italy published a decree implementing the EU Public Country-by-Country (CbyC) Reporting Directive (the Directive) into Italian law. Key takeaways include:

• The provisions of the Italian bill are largely aligned with the text of the Directive.
• Italy did not adopt the “safeguard clause,” which allows in-scope groups to temporarily omit information for up to five years if disclosing it would cause significant disadvantage to the companies concerned, provided they can justify the omission.
• Italy did not opt for the website publication exemption, which exempts companies from publishing the report on their own websites, if the report is already made publicly available to any third party in the EU, free of charge, on the website of the Italian commercial register.
• Administrative penalties are imposed on company management for failing to file the report. These sanctions range from EUR 10,000 to EUR 50,000 and are reduced by half if the report is published within 60 days of the original deadline. However, the penalty is doubled if the report contains materially false information or omits material facts.

The new provisions apply to financial years beginning on or after June 22, 2024.

For more information on public CbyC reporting, please refer to KPMG’s EU Tax Centre dedicated webpage.

Latvian government approves temporary solidarity contribution on credit institutions

On October 8, 2024 the Latvian government approved the legislative draft on the introduction of a temporary solidarity contribution on surplus profits generated by companies in the banking sector. In the proposal it is stated that the solidarity contribution model will in essence be based on the existing model in Lithuania (please refer to E-News 177) – subject to certain exceptions.

Key takeaways include:

• the contribution will apply to banks and credit institutions operating in Latvia;
• the contribution will be levied at a rate of 60 percent on surplus net interest income generated for the relevant calendar year - the draft law states that the contribution will have to be paid for three payment periods (2025, 2026 and 2027);
• surplus net interest income is 50 percent of the net interest income (interest income minus interest expenses), which exceeds the average net interest income of the five years between on January 1, 2018 to December 31, 2022;
• no contribution is payable where the overall financial result is a loss or where the bank has started its operations after December 31, 2022;
• the contribution will be reported annually by June 10 of the year following the end of the payment period;
• advance contribution will be reported and paid quarterly;
• the draft also provides for a discount model, which ensures a discount of up to 100 percent on the payable contribution, if the respective credit institution reaches a certain credit growth rate during the payment period.

Note that a solidarity contribution on companies in the oil, gas, coal, and refinery industries (as required under EU Regulation 2022/1854 of October 6, 2022) has not been implemented by Latvia.

The law proposal has been approved by the government, and now is to be reviewed and approved by the Parliament for it to become effective.

For previous coverage, please refer to E-News Issue 182

Consultation on legislative proposal to implement full minimum taxation rules under Pillar Two 

On September 19, 2024, the Lithuanian government launched a public consultation on a draft bill to fully implement the OECD’s Pillar Two Model Rules as set out under the EU Minimum Tax Directive. This follows the previous partial implementation of the GloBE Rules, in alignment with Lithuania’s use of the option to defer the application of the IIR and UTPR – as per Article 50 of the EU Minimum Tax Directive (for previous coverage, please refer to E-News Issue 197).

The proposed minimum tax rules would closely follow the text of the EU Directive. Key features include:

• General: the IIR, UTPR and DMTT would be applicable for fiscal years starting on or after January 1, 2025.
• DMTT: the DMTT would generally follow the regular GloBE rules for calculating the ETR and Top-up Tax liability. However, the DMTT would need to be imposed with respect to 100 percent of the Top-up Tax calculated for local Constituent Entities (i.e., it cannot be limited to the UPE's ownership percentage in the local Constituent Entities). Cross-border taxes, such as CFC taxes that would be allocated to domestic Constituent Entities under the regular GloBE rules, would need to be excluded for DMTT purposes. In addition, the draft requires for the DMTT computations to be based on a local financial accounting standard, subject to conditions in line with the OECD July Administrative Guidance.
• Safe Harbours: the draft legislation currently includes a placeholder for Safe Harbour provisions that would deem top-up tax to be zero when the conditions of a Qualified International Safe Harbour Agreement are met. The government or an authorized authority would be empowered to determine the terms and conditions for the application of the Safe Harbour provisions.
• Administration: the GIR would need to be filed within 15 months after the end of the Reporting Fiscal Year (18 months for the transitional year). An option is provided to transfer the obligation to file the GIR to another Constituent Entity (along with the requirement to notify the local tax authorities where the GIR has been filed by a foreign Constituent Entity). In addition, a local tax return would need to be filed and any top-up tax would need to be paid within the same deadline as for filing the GIR. For DMTT purposes, the draft provides for the option to identify a local group member that is responsible for declaring and paying the top-up tax on behalf of all minimum tax group members. The Ministry of Finance would be further empowered to clarify, by separate ordinance, the form and procedure of submissions and notifications.
•  Penalties: the draft legislation includes transitional penalty relief provisions as provided for in the GloBE Implementation Framework release in December 2022.

Update to the DAC7 Guidance 

On September 16, 2024, the Luxembourg tax authorities announced an update to the FAQ on the registration and declaration of reporting obligations under the Luxembourg law implementing the Council Directive (EU) 2021/514 (DAC7), which introduces an obligation on platform operators to report information on income derived by sellers through digital platforms and allows tax authorities of EU Member States to automatically exchange such information.

The purpose of the update of the FAQ is to provide further clarifications for sellers in Luxembourg. New question number eight emphasizes that this law does not introduce a new tax for sellers, but generally only introduces registration and reporting obligations for platform operators. However, since the information received by the platform operators will be shared with the relevant tax authorities, investigations may be initiated if determined necessary. Therefore, it may be possible that any declared transactions would nevertheless become subject to tax in Luxembourg, as determined by the Luxembourg corporate income tax law.

Details on the procedure for registration and reporting have been published earlier this year and can be found on MyGuichet website.

2025 Tax Plan submitted to Parliament

On September 17, 2024, the Dutch government submitted the 2025 Tax Plan to the lower house of Parliament. Key corporate tax measures include:

• Implementation of the general anti-abuse rule (GAAR) of ATAD I: the GAAR was already implemented in the Dutch tax law by means of the ‘fraus legis’ doctrine (abuse of law). Due to the attention of the European Commission to the statutory basis of the GAAR in corporate income tax, the Netherlands will implement the GAAR in a legal provision in the Corporate Income Tax Act as from 2025. No substantive amendment is however envisaged in respect of the application of the fraus legis doctrine in the Netherlands.
•  Amendment to the interest deduction limitation rules: as of January 1, 2025, the net borrowing costs of a taxpayer may  be deducted up to the highest amount of either 25 percent of the fiscal EBITDA (currently 20 percent) or EUR 1 million.
• Application of the Dutch withholding tax exemption: the current optional withholding tax exemption for the Dutch Dividend Withholding Tax will be amended to a mandatory withholding tax exemption.
• Repurchase tax relief for dividend withholding tax purposes: The repurchase tax relief for listed funds was set to end on January 1, 2025, as a result of an amendment that was adopted based on the 2024 Tax Plan. However, this will now be reversed so that the repurchase tax relief will be retained.
•  Allowance for highly skilled employees: the earlier proposed scaling back of the 30 percent ruling has been largely reversed. Instead, as of January 1, 2027, the untaxed allowance for highly skilled employees recruited from abroad will be set at a constant maximum percentage of 27 percent. For the years 2025 and 2026 the percentage for all incoming employees will remain at 30 percent.

On October 3, 2024, four Memorandums of Amendment to the 2025 Tax Plan package were published that relate to other proposals (e.g., Business Succession Tax Relief).

For more information, please refer to a September report and October report prepared by KPMG in the Netherlands.

Draft amendments to minimum taxation rules under Pillar Two 

On September 17, 2024, as part of the 2025 Tax Plan, the government published the Minimum Tax Act (Amendment) Act 2024, which proposes changes to the Dutch Pillar Two law (in force since 2024). Key highlights include:

• DMTT: the bill includes several amendments to the DMTT to bring it in line with the OECD July 2023 Administrative Guidance to ensure that the DMTT receives qualified status under the OECD peer review. This includes an extension of the application of DMTT to group entities based in the Netherlands that are part of a joint venture group. The bill also clarifies the financial accounting standard to be used for DMTT purposes, i.e., DMTT in the Netherlands should generally be calculated based on the local financing accounting standard. In addition, the bill includes a tie-breaker rule in case the financial reporting packages for Dutch-based group entities are prepared using more than one local financing accounting standard.
• Additional OECD guidance: the bill incorporates into the remaining elements from the OECD February 2023 Administrative Guidance and OECD July 2023 Administrative Guidance (e.g., currency conversion rules, treatment of qualifying marketable tax credits, rules related to the substance-based income exclusion (SBIE)), and some elements from the OECD December 2023 Administrative Guidance (e.g., anti-hybrid arbitrage rules that would apply to transactions entered into after December 15, 2022). Other elements from the OECD December 2023 Administrative Guidance and the OECD July 2023 Administrative Guidance are still being reviewed.

Most of the provisions in the bill will have retroactive effect as of December 31, 2023. An exception applies to four measures that are seen as burdensome for the taxpayers, which would become applicable for the first time for reporting years starting on or after December 31, 2024. This includes the tie-breaker rule for DMTT, the measure related to carried-forward excess negative tax expenditure, the measure related to the allocation of qualifying payroll costs and qualifying tangible assets for the purposes of the SBIE, if there is an Ultimate Parent Entity that is subject to a deductible dividend regime, and the anti-hybrid arbitrage rules mentioned above.

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

Dutch government gazettes updated decree on participation exemption

On September 20, 2024, the Dutch government gazetted the updated Decree on applying participation exemption. The Decree provides details and examples on when and subject to which conditions the participation exemption applies, among others for:

• compensation payments received for damages arising from a cancelled purchase or sales transaction;
• costs related to the acquisition or sale of a participation;
• benefits from option rights;
• adjustments to the sales or acquisition price;
• currency exchange risks;
• liquidation losses.

The Decree entered into force on September 21, 2024. The previous Decree of March 9, 2020, was repealed with effect from this date.

Bill amending Pillar Two law submitted to Parliament  

On September 11, 2024, the government of Slovakia submitted a bill to the Parliament that would amend the minimum taxation rules under Pillar Two that were enacted in Slovakia in December 2023 (for more information, please refer to a report prepared by KPMG in Slovakia).

Slovakia is one of five EU Member States that has made use of the option for a delayed application of the IIR and UTPR (in accordance with Article 50 of the EU Minimum Tax Directive). However, Slovakia has implemented a DMTT applicable from 2024. Key highlights of the draft amendments to the DMTT regime include:

• DMTT accounting standard: one of the main changes relates to the financial accounting standard to be used for calculating the DMTT. The draft removes the option to compute the DMTT using an acceptable financial accounting standard instead of the one used for the consolidated financial statements and replaces it with a mandatory use of the accounting standard of the UPE, except where it is not reasonably practicable to use such accounts (in accordance with Article 3.1.2 and 3.1.3 of the Model Rules).
• Safe Harbours: the draft amendments include the permanent Safe Harbour for non-material Constituent Entities and propose changes to the Transitional CbCR Safe Harbour to incorporate the OECD December 2023 Administrative Guidance (including anti-hybrid arbitrage rules that would apply to transactions entered into after December 15, 2022).
• Additional OECD guidance: the draft incorporates into the legislative text several elements of the OECD Administrative Guidance (e.g., additional guidance on the substance-based income exclusion, treatment of marketable transferrable tax credits), as well as several elections (e.g., Equity Investment Inclusion Election).

The amendments would apply from December 31, 2024.

Proposal for changes to the corporate tax rates and introduction of financial transaction tax

On September 18, 2024, the government of Slovakia published a proposal for amendments to the Slovak tax system. Key proposed amendments in the area of corporate taxation include:

• The corporate income tax rate would be increased from 21 percent to 22 percent for taxpayers whose taxable income exceeds EUR 5 million.
• The corporate income tax rate would be reduced from 15 percent to 10 percent for taxpayers whose taxable income does not exceed EUR 100,000.
•  The withholding tax rate on dividends paid to individuals would be reduced from 10 percent to 7 percent.
•  The plan also provides for the introduction of a tax on financial transactions carried out by legal entities and individual entrepreneurs. The applicable rates would depend on the transaction type. For example, bank transfers, cash withdrawals in a bank or from an ATM, use of company payment cards, purchases of securities, loan interest payments, commissions and fees would be subject to this tax.

The measures would apply from January 1, 2025.

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

Consultation on additional batch of Pillar Two draft guidance 

On September 12, 2024, HMRC launched a public consultation on further draft guidance on the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) updating the previously-released draft guidance from June and December 2023.

The additional draft guidance aims to provide the HMRC’s interpretation of certain provisions of the UK MTT and DTT (including, but not limited to, sections treating the allocation of top-up tax amounts, the QDMTT Safe Harbour, permanent establishments, transitional provisions). In addition, the consultation seeks input on the revision of certain sections included in the previous draft guidance releases (e.g., on the transitional CbyC Reporting Safe Harbour).

Comments on the draft guidance are due by October 23, 2024. Following HMRC’s review of the feedback received, finalized guidance is expected to be published as a new HMRC manual in autumn 2024.

Further guidance not addressed in this draft guidance is expected later in the year and would likely cover flow-through entities, joint ventures, the UTPR, tax equity partnerships, post-filing adjustments of covered taxes, and additional top-up tax amounts.

For more information, please refer to the related report prepared by KPMG in the UK.

EU Financial Services Tax Perspectives Webcast – replay now available

On October 8, 2024, KPMG held the latest EU Financial Services Tax perspectives session as part of the Future of Tax & Legal webcast series.

With the influx of various tax initiatives in recent years from both the Organization for Economic Co-operation and Development (OECD) and European Union (EU), multinational financial services organizations continue to face a rapidly shifting regulatory landscape.

With that in mind, a panel of KPMG tax professionals shared their insights with respect to some of the latest proposals that are likely to impact asset managers, banks, and insurers, including a closer look at:

•  State of play of key EU direct tax initiatives including the direction of EU tax policy following the recent European Parliament elections and the change in the Presidency of the Council.
•  CRD VI – what does it mean for tax?
•  EU case law update focused on withholding tax developments.

The replay of the webcast is available on the event page.

Where are we now in BEPS 2.0? – replay now available

On October 1, 2024, KPMG held its latest webcast focused on OECD’s Pillar Two initiative. A panel of KPMG tax professionals provided:

• An update on where we are for all elements of the BEPS 2.0 project, including Amounts A and B, GloBE and the Paris meeting on the Subject to Tax Rule.
• What businesses are finding in implementing the GloBE rules including technology tools.
• Developments in the EU and looking forward in the US.

The replay of the webcast is available on the event page.

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.