As previewed in earlier editions of the year-end tax letter, a continuing theme for investments and operations that cross international borders is the real tangible risk of global effective tax rate (ETR) creep (and potential double taxation) for an increasingly larger number of taxpayers. Key drivers of that risk include U.S. tax law changes that more generally went into effect for calendar year taxpayers starting with the most recently completed 2022 tax year. These include those pertaining to stricter eligibility requirements for creditability of foreign taxes paid and new expense capitalization requirements for research and development costs incurred.
For certain multinational enterprise (MNE) groups that are in-scope for the application of new global minimum tax rules being implemented in jurisdictions around the world, and generally effective beginning in 2024, that risk looms even larger. Collectively, these and other changes have brought about a need for taxpayers to take a fresh look at their existing legal entity and capital structures as well as their cross-border transaction flows, which, now more than ever, may be ripe for rationalization and value chain alignment planning.
This international tax update will highlight some of the latest trends and developments in the time since last year’s publication up through this current release date as we look to help you navigate through the risk and optimize overall global tax efficiency from a value protection and enhancement perspective. We will also take the opportunity to touch upon select recent case law updates as they may inform emerging trends in the international tax controversy and procedure space.
We first begin with a discussion of the latest developments impacting foreign tax credit eligibility determinations which is a topic having particularly broad applicability and one which has been the cause of much angst for taxpayers.
As previewed in last year’s edition of the year-end tax letter, newly released final foreign tax credit regulations include fundamental changes that might (subject to any available treaty claim being made in the alternative) adversely impact credit eligibility of foreign taxes paid or accrued in taxable years beginning on or after Dec. 28, 2021. While prescribed realization and gross receipts requirements largely follow prior law, the final regulations include material changes made to the cost recovery requirement (previously referred to as the net income rule) and add a new attribution requirement that have proven particularly troublesome in raising real creditability concerns for many affected taxpayers.
Under the cost recovery requirement included in the final regulations, all significant costs and expenses attributable to gross receipts (includes costs or expenses related to capital expenditures, interest, rents, royalties, services, and research and experimentation as enumerated per se significant costs) must more generally (certain exceptions aside) be fully recoverable for creditability purposes. For many, this was a high hurdle indeed.
On Nov. 18, 2022, the IRS and Treasury released new proposed foreign tax credit regulations that include much-needed relief in modifying the rule under the final regulations in providing that the cost recovery requirement is satisfied where foreign law permits recovery of “substantially all” of each item of significant cost or expense, and, separately, in providing for a new safe harbor for permissibility of foreign law disallowances within prescribed limits. Where foreign law does not permit recovery of substantially all of each item of significant cost or expense, and the new safe harbor does not apply, taxpayers would need to test the disallowance under an available principles-based exception which, due to its subjective nature, might not provide taxpayers the certainty sought in their foreign tax credit claims.
Under the new attribution requirement included in the final regulations, there must be a sufficient connection between the income being taxed and the foreign country imposing the tax for creditability purposes. This requisite “nexus” can be satisfied under prescribed activities-based, source-based or property situs tests for a foreign country’s taxation of nonresidents and, for residence-based taxes imposed by a foreign country, requires that any allocation of income, gain, deduction or loss between a resident taxpayer and a related or controlled entity follow the arm’s length principle for transfer pricing. For foreign countries that do not follow the arm’s length principle, creditability concerns extend beyond residence-based taxes imposed in implicating similar concern for withholding taxes imposed on nonresidents which are not in lieu of a qualifying generally imposed net income tax (where, as an example, the arm’s length principle observed).
The source-based attribution requirement for royalties set forth in the final regulations (requiring that foreign law sourced gross income from royalties based on the place of use, or the right to use, the intangible and not, as is not uncommon amongst a number of jurisdictions across the globe, on the basis of the residence or location of the payor) has proven particularly pervasive to a broader set of taxpayers having cross-border licensing arrangements through which foreign withholding taxes are imposed but might potentially be ineligible for credit. The new proposed regulations provide some limited relief here as well through introduction of a new single-country license exception under which foreign withholding tax imposed on certain qualifying royalty payments made pursuant to the terms of a written license agreement meeting certain prescribed conditions (here, input and review of agreement drafts by a transfer pricing specialist is highly recommended) may be treated as a creditable tax. We currently remain within an allotted transition period during which agreements put in place might (where certain prescribed conditions met) be given retroactive effect for foreign tax imposed on prior royalties paid that would otherwise fail the new source-based attribution requirement.
While the new proposed regulations provide welcome relief in the specific areas noted as part of their coverage, they do nothing to allay widely held concerns that remain with the new attribution requirement under the final regulations. These include credit eligibility concerns raised for foreign taxes imposed on nonresidents for each services income sourced based on location of the service recipient (and not where the services are performed) in failing the source-based attribution requirement and capital gains on alienation of shares or other property dispositions not satisfying the property situs attribution requirement. Separately, the requirement that a foreign country follow the arm’s length principle for transfer pricing in ameliorating creditability concerns for each residence-based and nonresident withholding taxes imposed also remains unaltered by the new proposed regulations.
This last item has been an area of particularly heightened concern for numerous taxpayers with taxes imposed in Brazil, a major U.S. trading partner that has not historically followed the arm’s length principle (and with which there is no existing treaty in place with the U.S. that might lend any relief). While Brazil has since adopted the arm’s length principle under its domestic legislation, those newly adopted rules are first mandatory beginning Jan. 1, 2024, and may do nothing to satisfy the residence-based attribution requirement for Brazilian taxes paid in taxable years beginning on or after Dec. 28, 2021, and ending before the effective date of the new rules. For the typical calendar year taxpayer, this may generally mean that Brazilian taxes paid during the 2022 taxable year (and perhaps the 2023 taxable year where there exists uncertainty as to whether the attribution requirement would be satisfied on an elective early adoption basis available beginning Jan. 1, 2023) might not appear creditable under the final regulations. Thankfully, that concern for the creditability of Brazilian taxes during these interim 2022 and 2023 taxable years before Brazil’s new rules are mandatorily effective might be ameliorated through temporary relief since released.
On Jul. 21, 2023, the IRS and Treasury released Notice 2023-55 providing temporary relief that more generally allows eligible taxpayers to determine whether foreign taxes they paid during the relief period (taxable years beginning on or after Dec. 28, 2021, and ending on or before Dec. 31, 2023) are creditable foreign taxes by effectively reverting to prior rules requiring that the ‘predominant character’ of the foreign tax be an income tax in the normal sense and without application of the stricter cost recovery and new attribution requirements contained in the final regulations. The temporary relief under the notice is anticipated to be most beneficial where there is no overlapping relief as provided under the new proposed regulations. This includes relief for taxpayers looking to credit foreign withholding taxes imposed on gross royalty and service income that otherwise would fail the source-based attribution requirement, taxpayers looking to credit nonresident capital gains taxes imposed that otherwise fail the property situs attribution requirement, and taxpayers looking to credit taxes imposed by foreign countries that do not follow the arm’s length principle for transfer pricing as condition for satisfying the residence-based attribution requirement under the final regulations.
Taxpayers taking advantage of this relief must also satisfy certain prescribed consistency requirements, with taxpayers who are unable to avail themselves of this temporary relief or who are otherwise outside the relief period needing to perhaps find some consolation in the separate relief provided in the new proposed regulations. Taxpayers should also be mindful that the relief under this notice is limited to the express grant of relief provided, such that other aspects of the final regulations remain unaltered by this notice and continue to present undue complexity and challenges of their own.
Furthermore, while the IRS is on record as stating an additional one-year extension of this temporary relief is likely (in part believed to address issues with fiscal year taxpayers needing an extended relief period before Brazil’s adoption of the arm’s length principle becomes mandatory), a substantial overhaul of the final regulations might not be anticipated (note, however, that we await new regulations providing incremental guidance pertaining to the creditability of foreign taxes imposed under the Organization for Economic Cooperation and Development’s (OECD’s) two-pillar approach to global minimum taxation as set forth in Treasury’s 2023-2024 priority guidance plan released on Sep. 29, 2023). As such, taxpayers should now be planning accordingly to help mitigate any potential double taxation concerns on the horizon when otherwise outside the relief period.
As previewed in last year’s edition of the year-end tax letter, the new capitalization requirements for research and experimental expenses could have a particularly pervasive impact for foreign research activities due to a longer 15-year amortization recovery period. Additionally, for research activities performed by controlled foreign corporations (CFCs), there has been an uptick in the number of “U.S. shareholder” owners now having deemed inclusion amounts and residual U.S. tax liability due under the global intangible low-taxed income (GILTI) and subpart F income rules.
Apart from a resulting acceleration of cash tax burden for these deemed inclusion amounts (not all of which might be recovered over time through deferred deductions at the CFC level based on the nuances of a prescribed annual calculation), the new capitalization requirements might also result in changes in ETR from a financial statement tax cost (benefit) perspective. This might result where, potential for real double taxation aside, the financial statement filer has elected period cost treatment in its calculation of a tax provision under ASC 740 for the related GILTI or subpart F liability and has no ability to record a deferred tax asset for expense deductibility deferred at the CFC level.
While the “fix” taxpayers had hoped for through congressional action in either retroactively repealing or further deferring the effective date of the new capitalization requirements never did materialize, the IRS and Treasury released Notice 2023-63 on Sep. 9, 2023, providing much anticipated technical guidance for the application of the new capitalization requirements. That guidance included favorable interpretation for the “risks and rights” tests for contract research to limit or eliminate capitalization where the taxpayer has no financial risk and has only incidental rights to use or exploit the “know how” gained from the research conducted under the contract. This was particularly welcome relief for taxpayers with offshore contract research and development (R&D) performed through CFCs in helping allay the great consternation that existed around a potential double capitalization of research costs incurred both at the funding service recipient as well as service provider levels in potentially wreaking havoc for MNE groups given the disproportionate impact that might otherwise result through application of the GILTI or subpart F deemed inclusion rules.
Particular to cross-border research activities, the notice also describes proposed changes to the rules under the transfer pricing regulations for determining the treatment of cost-sharing transaction (CST) payments between controlled participants in a cost-sharing arrangement. Pursuant to modifications proposed by the notice, CST payments would proportionally reduce the amount of the recipient’s capitalizable and deductible intangible development costs (IDCs); with any payment in excess of the payor’s ratable share of total IDCs treated as income by the recipient. This too, provided some welcome relief to affected taxpayers, but, as with the guidance provided for the risks and rights test for contract research, not necessarily complete relief in requiring a fresh look at placement for research activities from a value chain alignment and overall global ETR management perspective.
Transfer pricing plays a key role in ensuring that research activities performed within a controlled group are appropriately compensated for on an arm’s length basis to minimize risk of any unintended transfers of intangible property (IP) that can bring about costly consequences, including phantom income and a potential double inclusion of income for U.S. tax purposes for certain outbound transfers of IP. As discussed in a prior tax alert, the IRS and Treasury issued new proposed regulations on May 2, 2023, that help facilitate tax-efficient repatriations of IP back to the U.S. whether as a fix for earlier inadvertent outbound transfers or perhaps to bring back IP originally intended (but perhaps no longer feasible in continuing) to be maintained offshore amidst introduction of new GILTI deemed inclusion rules under TCJA (Tax Cuts and Jobs Act of 2017) and new global minimum tax proposals under the OECD’s two-pillar approach.
As an example of how things can go horribly wrong, the First Circuit on Sep. 8, 2023, had upheld an earlier Tax Court decision finding for the IRS that TBL Licensing LLC (owner of The North Face and Timberland clothing labels) owed nearly $505 million in taxes as a result of an outbound transfer of that company’s assets (principally IP) to a foreign subsidiary (see, TBL Licensing LLC v. Commissioner, 1st Cir., No. 22-1783, 9/8/23). This continues to be an area ripe for careful analysis and planning.
As previewed in earlier editions of the year-end tax letter, over 135 countries agreed in October 2021 to a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy. What follows is an overview of certain key developments that have transpired over the past year since our last update that would be of interest to larger MNE groups. Larger MNE groups may be impacted by these new rules as implementation around the globe continues in earnest, with certain of these rules first scheduled to be effective beginning in 2024. We will start with an update on the new global minimum tax rules under Pillar Two having a nearer term effective date, as well as broader application than the Pillar One rules that are reserved for the largest of MNE groups.
To refresh, Pillar Two consists principally of the Global Anti-Base Erosion (GloBE) rules which introduce a 15% global minimum tax that applies to MNE groups with consolidated revenues of at least 750 million euros. They consist of a coordinated system of rules under a common framework, which ensures in-scope MNE groups pay at least the agreed minimum level of tax on the income arising in each of the jurisdictions in which they operate.
These rules require that MNE groups calculate their income (and taxes on that income) on a jurisdictional basis, starting with the financial accounts of each local constituent entity used in the preparation of the MNE group’s consolidated financial statements and then make certain prescribed adjustments when called for under the rules. Where the calculation results in a jurisdictional ETR below 15%, the rules require that the MNE group pay a top-up tax that brings the amount of tax on the excess profits (allowing for a provided substance-based income exclusion) in that low-tax jurisdiction up to 15%.
Prescribed ordering rules direct that the top-up tax be first collected in the low-tax jurisdiction itself to the extent it has a locally imposed Qualified Domestic Minimum Top-up Tax (QDMTT). In the absence of an implemented QDMTT, the top-up tax is imposed by another implementing jurisdiction (in which the MNE group has a taxable presence) under either an Income Inclusion Rule (IIR) or Under Taxed Profits Rule (UTPR). The IIR entails secondary taxing rights being allocated to the parent jurisdiction whereby the top-up tax is imposed on the ultimate parent entity (or, where the ultimate parent entity itself is not in an implementing jurisdiction, the next highest entity in the ownership chain with an implemented IIR). The UTPR works as a backup to the IIR, whereby, in the absence of a parent jurisdiction having an implemented IIR, residual taxing rights are allocated amongst other MNE group jurisdictions with an implemented UTPR.
Implementing jurisdictions are more generally adopting through their respective domestic legislation process an IIR which first effective beginning in 2024 and a UTPR which first effective beginning in 2025. Given an ability to preserve a local jurisdiction’s primary taxing rights over its own income through an implemented QDMTT, most implementing jurisdictions might naturally look to also implement a QDMTT which, where possible, would also first be effective beginning in 2024.
As of this writing, the current status of domestic legislation amongst jurisdictions implementing the GloBE rules (in whole or in part) varies from legislation already passed/approved (e.g., Japan, South Korea, United Kingdom (IIR and QDMTT)) to draft legislation released (e.g., Canada, European Union member states, New Zealand, Switzerland, United Kingdom (UTPR)) to stated intentions to draft legislation/apply the rules (e.g., Australia, Hong Kong, Indonesia, Malaysia, Mauritius, Mexico, Singapore, South Africa, Taiwan, Thailand, Vietnam, United Arab Emirates). Included amongst the largest jurisdictions (by GDP) with no formal indications having yet been made regarding a local implementation of the rules are Brazil, China, India, Russia and the U.S.
Despite Biden Administration support for Pillar Two, the prospect of a nearer-term implementation of the rules in the U.S. remains unlikely amidst an existing divide in Congress. Prior attempts to align U.S. GILTI rules with the IIR stalled with the expiration of earlier Build Back Better draft legislation, and a budget proposal that would repeal the U.S. base erosion and anti-abuse tax (BEAT) rules and replace them with a compatible UTPR had similarly died on the vine. While the U.S. has since enacted its own 15% corporate minimum tax (CAMT) for certain MNE groups with $1 billion or more in annual earnings as part of the Inflation Reduction Act signed into law on Aug. 16, 2022, that tax does not comply with the GloBE rules. Of additional note, House Republicans introduced bills on May 25, 2023 (Defending American Jobs and Investment Act) and Jul. 18, 2023 (Unfair Tax Prevention Act) that provide for defensive measures that would retaliate against foreign jurisdictions that attempt to impose either top-up tax under the UTPR or other extraterritorial taxes that affect U.S. interests.
On Dec. 20, 2022, the OECD published papers to form part of the implementation framework which included, amongst other things, provision for a new transitional safe harbor available to taxpayers that prepare a country-by-country report (CbCR) using prescribed qualified financial statements. This transitional CbCR safe harbor effectively reduces a MNE group’s top-up tax for a particular jurisdiction to zero where any one of three tests are satisfied. Those tests include: a de minimis test (more generally met where a jurisdiction’s total CbCR revenue is less than 10 million euros and total CbCR profit (loss) before income tax is less than 1 million euros); a simplified ETR test (more generally met where a jurisdiction has an ETR equal to or greater than the ‘transition rate’ which 15%, 16% and 17% for fiscal years beginning in 2024, 2025 and 2026, respectively); and a routine profit test (more generally met where a jurisdiction’s total CbCR profit (loss) before income tax is equal to or less than the substance-based income exclusion attributed that jurisdiction).
This transitional CbCR safe harbor is a temporary relief measure that applies only for years beginning on or before Dec. 31, 2026, which is three years for most MNE groups. There exist a number of more detailed requirements needing to be satisfied for eligibility under this new safe harbor necessitating a proper modeling and analysis be performed. In particular, a careful review is needed in determining qualification of the taxpayer’s prepared CbCR which serves as the basis for testing under this safe harbor and, if not otherwise qualified, might require updates to the reporting process with the assistance of a transfer pricing specialist. While the transitional CbCR safe harbor might initially reduce the Pillar Two burden for qualifying jurisdictions, there might remain MNE group jurisdictions not meeting one of the safe harbor tests for which more comprehensive calculations, reporting, and impact assessment would still be needed.
On Feb. 2, 2023, the OECD published new administrative guidance that included treatment for a so called ‘blended controlled foreign corporation tax regime’ under the GloBE rules. This guidance was particularly helpful to U.S.-parented MNE groups where the GILTI regime in the U.S. does not qualify as an IIR, and a real double taxation exposure presents if the low-taxed profits of a CFC are each taxed at the U.S. shareholder level under the GILTI rules while also being taxed again under the GloBE rules. (This was likely introduced in large part to appease the U.S. in looking to obtain its buy-in for an implementation of the GloBE rules) The new guidance treats GILTI as a blended CFC regime and provides for a mechanical allocation formula, whereby the taxes arising under GILTI are allocated down to the CFCs with the lowest ETRs for purposes of determining whether top-up taxes under the GloBE rules are required for a given jurisdiction.
On Jul. 17, 2023, the OECD published a package of documents that included additional new administrative guidance for application of the GloBE rules. That guidance included, among other things, additional new safe harbors.
First, a jurisdiction with an implemented QDMTT that also meets additional prescribed accounting, consistency, and administration standards (determined as part of a peer review process) can qualify for a new permanent QDMTT safe harbor which reduces the jurisdiction’s top-up tax to zero. This new safe harbor is intended to provide a practical solution to address the issue of increased compliance costs for MNE groups and administrative burdens for tax authorities where separate top-up tax calculations are otherwise needed in respect of the same jurisdiction, while balancing any integrity risk for taxes payable under the GloBE rules in requiring more heightened standards that qualifies a QDMTT for this safe harbor.
Second, a new transitional safe harbor was introduced whereby the UTPR shall not apply before 2026 in respect of the ultimate parent entity jurisdiction if it has a nominal corporate tax rate of at least 20%. Not coincidentally, the minimum rate needed for application of this new safe harbor was set below the existing federal corporate tax rate of 21% in the U.S. which, as with the treatment of GILTI as a blended CFC regime under the Feb. 2023 guidance, appears an attempted appeasement of U.S. interests in allowing additional time in hope that the required support needed for legislative action might sort itself out for a U.S. implementation of the GloBE rules sometime in 2025.
The new transitional UTPR safe harbor buys an additional year for the typical calendar year U.S.-parented MNE group before other jurisdictions might look to impose a top-up tax under the UTPR on the excess profits of U.S. constituent entities (as might result where ETR in the U.S. driven below 15% through application of R&D and other nonrefundable general business credits, adjustments for purchase accounting, benefits claimed under the foreign-derived intangible income (FDII) rules, limitations placed on effect given to deferred tax accounting, etc.). However, the new safe harbor does nothing to preclude imposition of the UTPR starting in 2025 for constituent entities not in the ultimate parent entity jurisdiction (e.g., on excess profits of foreign subsidiaries of a U.S. parent).
Additionally, the new transitional UTPR safe harbor is of likely diminished utility for U.S.-parented MNE groups that otherwise qualify under the separate transitional CbCR safe harbor which is more forgiving in its calculation of jurisdictional ETR (e.g., GILTI, subpart F and foreign branch taxes included in the tax expense of a U.S. parent are not allocated down to the local jurisdictions as otherwise required under a full implementation of the GloBE rules) and might provide for a longer transition period. Furthermore, and importantly, election of the transitional UTPR safe harbor in 2025 might preclude separate election of the transitional CbCR safe harbor in 2026 under a prescribed “once out, always out” rule requiring a close attention be given before any elections are made.
Also published on Jul. 17, 2023, was much-needed guidance providing for the treatment of transferable tax credits in the calculation of jurisdictional ETR under the GloBE rules. This became an area of increased importance to U.S. constituent entities based on the size and scale of transferable energy-related tax credits arising under the Inflation Reduction Act that had been passed into law in the time since the earlier release of the GloBE Model Rules and Commentary. The guidance provided helps allay the concern previously shared by a number of taxpayers that the benefit of credits under this Act might be offset or eliminated altogether through taxes imposed under the GloBE rules.
Prior to this latest guidance, tax credits were more generally categorized as either qualified refundable tax credits’(QRTCs) which are treated as GloBE income or ‘nonqualified refundable tax credits (non-QRTCs) which are treated as a reduction in covered taxes. Tax credits will reduce calculated jurisdictional ETR under either treatment, but QRTCs have a far less dilutive impact as an adjustment in the denominator. While a transferable tax credit may be similar in many respects to a refundable tax credit, it might also not be as valuable if the originator hasn’t sufficient tax liability to absorb the credit and must sell the credit at a discount rather than obtaining a full refund from the government.
The new guidance neither categorizes transferable tax credits as QRTCs nor non-QRTCs, but, rather, establishes new categories of marketable transferable tax credits (MTTCs) and ‘nonmarketable transferable tax credits’ (non-MTTCs) with the former, like QRTCs, more favorably treated as GloBE income, and the latter, like non-QRTCs, treated as a reduction in covered taxes. Qualification as a MTTC requires that each legal transferability and marketability standards be satisfied, with the former generally met if the credit can be transferred by the originator or purchaser to an unrelated party and the latter generally met if the credit can be transferred by the originator or purchaser at a price which is equal to 80% or more of its net present value. Satisfaction of these standards is determined separately for tax credit originators versus purchasers.
While certain of the energy-related tax credits under the Inflation Reduction Act have a direct-pay election that allows for refundability not dependent upon taxable income or tax liability as might be considered QRTCs under the GloBE rules, taxpayers eligible for that option are more generally limited to a narrow class of tax-exempt and governmental entities. Note, separately, that tax credits under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act signed into law on Aug. 9, 2022, also have that direct-pay refundability feature which open to a broader class of eligible taxpayers that might be treated as having QRTCs under the GloBE rules.
The energy-related tax credits under the Inflation Reduction Act are, however, eligible for a one-time transfer with the result more generally being that the originators of these credits should more favorably be treated as having MTTCs that increase GloBE income (and not reduce covered taxes) when realized. As these tax credits would not again be transferable in the hands of the purchaser, non-MTTC treatment should naturally ensue to the purchaser of these credits whereby the difference in sales price and value of the credits is treated less favorably as a reduction in covered taxes under the GloBE rules.
As a refresher, Pillar One principally involves the reallocation of taxing rights under a so called ‘Amount A’ that relates to the residual profits of the largest MNE groups having global revenues above 20 billion euros and profitability above 10%, whereby 25% of profit above the 10% threshold is to be reallocated to market jurisdictions using a formulaic approach. The new rules for Pillar One and taxing rights for Amount A are to be implemented through a Multilateral Convention (MLC) to be signed by implementing jurisdictions.
On Oct. 11, 2023, the OECD released a package of guidance in relation to Amount A that included, among other things, text of a consensus-based MLC and accompanying explanatory statement. A number of unresolved issues remain, including disagreements amongst jurisdictions on the effect withholding taxes play on reallocations to market jurisdictions and in relation to unilaterally imposed digital services taxes (DSTs). For the MLC to take effect, the governments of 30 jurisdictions having collectively 60% or more of the MNE groups subject to Amount A must sign and ratify it.
Given that a large number of the in-scope MNE groups are U.S. based, U.S. approval appears critical for an implementation. In remarks made on Oct. 16, 2023, Treasury Secretary Janet Yellen indicated that, due to unresolved issues, the U.S. would be unable to sign the MLC (which is part of a larger global tax deal) by the end of 2023, “so this process will take into next year.”
This delay is particularly important due to the prospect of unilateral DSTs being imposed once an agreement between jurisdictions to freeze that imposition expires at the end of 2023 if not otherwise extended through 2024 as called for under the MLC should enough jurisdictions sign by this calendar year’s end. The potential for that imposition, taken together with the complexities raised under Pillar Two (inclusive of its imperfect implementation amidst still evolving interpretive guidance and perhaps even substantive changes needing to be incorporated under respective domestic legislation processes around the globe), only lends to a real concern around ETR creep (and potential double taxation exposure) making impact assessment from a tax readiness perspective and other tax planning all the more important.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.