2012 – An Important Year for International Tax
As governments worldwide continue to react to economic conditions, a variety of measures and approaches to tax policies are emerging to not only plug holes in public finances and claw back much needed revenue, but to attract new investments to countries' shores. Taxand looks at the changing tax policies around the world and what 2012 holds for multinationals
The ongoing Eurozone debt crisis has forced some countries in Europe into emergency deficit reduction leading to more aggressive positions on taxes. Notably Greece has paralysed markets and in many cases forced a re-evaluation of Greek tax policy. Interestingly, this has led to the formulation of integrated solutions to claw-back revenues across the continent, the most high profile being the proposal of an EU-wide financial transaction tax (FTT). This initiative has prompted a significant backlash from the European finance sector, in particular the fund industry, and has also thrown up questions over political unity within Europe. With these issues being hotly debated it's unlikely the draft proposal will be adopted on an EU wide level. However, the next few months will be crucial for the outcome of these discussions.
The difficult economic backdrop is not, however, solely limited to Europe. In certain jurisdictions, elsewhere across the globe, governments are lowering corporate tax rates in order to stimulate investment and secure an attractive environment for those companies that drive the country's tax take. In the US, the reduction of corporate tax rates (to between 23% and 29%) is currently in the proposal stage and would be implemented through the elimination of certain corporate and individual deductions. Canada has also scheduled another reduction in general corporate tax rates for early 2012.
In Asia, the Thai Government has resolved to reduce the Thai corporate income tax rate from 30% to 23% this year, falling further to 20% in 2013, positioning the country as the second most competitive location in the region, behind Singapore. Similarly, a reduction in corporate tax rates will be implemented in Japan from April 2012 where the current rate of 41% will be reduced to around 36%.
A number of European countries are also looking to increase their attractiveness for investment through a reduction in rates and revision of policies. This has been evident in a number of jurisdictions and a one percent cut (from 26% to 25%) has come into force in Finland as of the 1 January 2012 in response to international tax competition and to attract business investment to the country. The UK has placed CFC reform under the microscope resulting in a complete re-write of the rule book to incentivise investment into the UK. Similarly, whilst the 2012 Cyprus budget announced plans to reduce the country's deficit to 2.8 % of GDP, the government reassured corporates that the measures will not adversely affect the country's competitive position as an investment jurisdiction.
Reductions in corporate rates will inevitably see tax authorities becoming increasing vigilant in ensuring tax compliance to secure tax revenues, which in turn increases the compliance burden on multinationals across the globe. Other countries are seeking to stimulate investment through tax incentives. The Netherlands, for example, sees the introduction of a new Dutch incentive scheme for Research and Development, seeking to improve the appeal of the country for foreign investment. Against these measures, multinationals should remain aware that tax planning increasingly throws up numerous reputational issues for those potentially viewed as evading tax by tax authorities.
The need to cut budget deficits is also exemplified by a number of other measures that will come to fruition in 2012, not least Austria's withdrawal of its exemption for tax on capital gains, which is expected to take effect in April. Similarly, Denmark is expected to tighten its rules on the right to carry forward losses from 2013 with only 60 percent of losses being available to set off against taxable income.
In a similar vein, a raft of tax treaties have been negotiated over the course of 2011, in an attempt to clarify European tax systems and curb tax evasion. The Russian Government has recently renegotiated a number of Double Taxation Treaties, signing agreements with both Switzerland and Luxembourg.Switzerland also signed treaties with both the UK and Germany during 2011, hoping to provide a solution to the transparency issue and alleviate, at least for now, the pressure on banking secrecy. As a more cooperative approach begins to prevail between companies and their tax authorities, we may see further treaties going forward.
VAT will undoubtedly prove an important aspect of tax policy for a number of jurisdictions during 2012 as a method of clawing back revenue to plug country deficit. Perhaps most significant is China's move to pilot a change from Business Tax to Value Added Tax in November 2011. Due to the big difference between these systems the trial may well create uncertainty for taxpayers, particularly since there won't be any clear policy guidance during the transitional period. Also of note is the EC's current consultation on the future of VAT in order to address the colossal administrative burden for multinationals that are forced to deal with 27 different tax authorities and a variety of compliance obligations.
Romania has also implemented a number of changes to their VAT rules, beginning this year, which should prove beneficial to Romanian businesses, particularly traders who are importing goods which are subsequently sold locally. 2012 also sees the onset of increased VAT rates in Hungary (from 25% to 27%) and in Portugal where, for example, the VAT on food and beverage supply services will increase from 13% to 23%.
Transfer pricing continues to be a key area of tax focus across the globe with transfer pricing laws increasing in sophistication and authorities increasingly scrutinising related party transactions. In India, the Direct Tax Code Bill, affecting all transactions in the country from April 2012, will be a game-changer for all multinationals conducting business in the region.
And it seems that's not it. Since the onset of the global financial crisis, we've seen a rise to number of strange and somewhat bizarre taxes. Here's what we've discovered in 2011:
- Christmas Tree Tax - Obama revealed plans to tax Christmas trees in November 2011. Imposed on "producers and importers" of fresh Christmas trees, the tax would add about 9p to the cost of a festive spruce for buyers. The introduction of this tax has now been delayed until winter 2012.
- Death Tax - On 1 January 2011, Seattle introduced in $50 fee to report a death to the Medical Examiner Office. The paperwork-and the money-is required up front before the office will grant the needed permission allowing burial or cremation.
- Fat Tax - Last year Denmark was the first country in the world to introduce a "Fat Tax" on foods that contain more than 2.3% saturated fat - such as butter, bacon and oil.
- Soda Tax - On 29 December 2011, France brought in a health tax targeting sugary fizzy drinks. The new tax will add just over the equivalent of 1 penny to a can of fizzy drinks, and this nominal increase is expected to raise more than £100million a year.
- Witch Tax - In January 2011, Romanian witches, fortune tellers and embalmers became included for the first time in labour codes for income tax. These professions must now pay 16% income tax and health and pension payments.
2012 is a big year for multinationals, with a string of tax changes and policies to watch out for around the world and many more to come - it's clear tax is high on the agenda. With the global economy in turmoil resulting in fiscal uncertainty and increasing demands both on and from governments it's important that businesses continue to drive efficiencies whilst remaining compliant.
- Multinationals are likely to be subject to new innovative approaches by governments seeking to increase their tax take
- Cross border issues remain integral to multinationals' tax strategies, so awareness of new treaties and the implications is essential
- Despite a difficult global economy, opportunities remain, so multinationals should particularly be aware of those jurisdictions implementing a more attractive tax regime
Establishing tax at the heart of the a multinational's strategic and operational agenda, keeping abreast of ever-changing tax policies to maximise business performance and ensuring a sound tax risk management framework, is key to remaining competitive and achieving profitability through these uncertain times.
So, how did 2011 fare in comparison? Discover our Taxand Global Survey 2011 Research Findings. In our 2011 survey we uncovered some fascinating insights into the key tax issues and trends facing multinationals worldwide. Access our key findings to understand the pressing tax challenges affecting businesses
Coming Soon - Taxand Global Survey 2012 Research Findings - Watch this space!
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