This week in taxation: Spain plans an exceptional tax

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Investors are shocked by unexpected windfall taxes on the banking and energy sectors that could cost taxpayers $7 billion over two years.

The Spanish government on Tuesday (July 12th) announced temporary one-off taxes on banks and energy companies, to raise around 7 billion euros ($7 billion) in tax revenue by the end of 2024.

Prime Minister Pedro Sánchez said his government would work on legislation to tax the windfall profits of power companies, starting next year in 2023.

“We call on big companies to ensure that any exceptional benefits obtained in the current circumstances are redistributed to workers,” Sánchez said.

The tax will generate around €3.5 billion per year, of which around €1.5 billion per year will come from the financial sector and more than €2 billion per year from the energy sector.

The move makes Spain the biggest country in the EU to impose a windfall tax on both sectors to limit their gains from rising interest rates and high gas prices. Banco Bilbao Vizcaya Argentaria (BBVA), Santander and other Spanish banks alongside energy companies like Repsol traded lower after the news.

The unexpected bank tax drew strong criticism from stakeholders. Santander and BBVA – the two largest banks in the country by market capitalization – traded nearly 4% lower in the market.

“It’s a crude form of populism. The government’s argument is that banks benefit from rising interest rates,” said José Ramón Iturriaga, an analyst at Abante Asesores, according to reports from the Financial Times. “But there was no state compensation during the long period when rates were negative.”

The Sánchez government plans to use tax revenues to reduce transportation costs and mitigate the impact of rising inflation. The levies on financial institutions and energy companies will only last two years, but companies are worried about the fallout for their industries.

The OECD postpones the first pillar to mid-2023

A report released by the OECD on Monday July 11 shows that progress has been made in ironing out the technical details of the first pillar, but the original aim of implementing the proposals in 2023 has been abandoned.

“We have made good progress in implementing a new right to tax under the first pillar of our international tax treaties,” said OECD Secretary-General Mathias Cormann.

“We will continue to work as quickly as possible to finalize this work, but we will also take all the time necessary to put the rules in place. These rules will shape our international tax arrangements for decades to come. It is important to do them well,” he added.

The report includes technical model rules that present a taxing right that allows jurisdictions to tax multinational companies’ digital profits derived from their markets. This is a change from traditional tax rules based on physical presence.

The OECD aims to finalize the multilateral convention by mid-2023 before it comes into force in 2024. Originally, the first pillar was to come into force in 2023.

Cormann said the deadline would give citizens, businesses and parliamentary bodies more time to engage with the first pillar proposals.

The new deadline could increase pressure on jurisdictions to adopt the first pillar, and failure to do so could mean a loss of tax revenue.

The OECD has opened a public consultation, which will end on August 19.

Disclosure rule revisions create TP issues for India-listed companies

As RTI Reported this week, transfer pricing issues persist for companies listed in India as April changes to Securities and Exchange Board of India registration requirements and disclosure requirements make it difficult to identify transactions between parties linked.

“Taxpayers must obtain additional shareholder approval for intercompany transactions. The problem now is that if there are transactions between subsidiaries, they also have to be approved,” says an official of a large consulting firm in Mumbai.

Introduced in 2015, the SEBI LODRS have been modified this year to strengthen corporate governance in India. However, the amendments have significantly expanded the scope of TPRs, which has created a variety of transfer pricing challenges for listed companies.

Sagar Wagh, international tax and TP expert at consultancy firm EY in Mumbai, says companies are even exploring opportunities for automation to locate TCNs to avoid “unwanted compliance leakage”.

Subsidiaries involved in controlled transactions must ensure that these transactions comply with the arm’s length principle or risk being the subject of questions from the tax authorities.

The revisions to the SEBI LODR will provide more certainty and protect shareholders from risk, but it means listed companies will have to create a separate report for shareholders.

Changes in disclosure requirements present only one challenge when it comes to TP in India.

Extensive audits and delays in advance pricing agreements are other issues facing companies, while the increase in global capacity centers has led to additional complexities in TP.

Read the full article here

The CJEU opens the door for businesses to recover overpaid VAT

In other RTI news this week, businesses could be in line to challenge the Polish tax authorities to reclaim overpaid VAT following an EU court ruling, experts say.

It follows a July 7 ruling by the Court of Justice of the EU (CJEU) in a Polish case (C-696/20) involving chain transactions.

The court ruled that the National Tax Authority (KAS) was wrong to apply a double tax rate of 46% on chain transactions. This went against the principles of neutrality and proportionality in the application of Article 41 of the VAT Directive (2006/112/EC).

Although the court concluded that there was no element of fraud in the case, it held that member states could adopt strict anti-fraud legislation similar to Article 25(2) of the Polish Law on VAT. But these regulations must not violate the EU principles of neutrality and proportionality.

Tax professionals have welcomed the court’s decision as it provides much-needed clarity and certainty for businesses when conducting cross-border on-chain transactions, while opening the door to potential claims to recover excess VAT payments. .

Read the full article here

Other headlines this week include:

“Uber files”: spotlight on the company’s disruptive tax strategy

Taxpayers should review Canadian sales taxes to avoid errors

A CJEU adviser supports the maintenance of the famous Airbnb tax in Italy

Germany set to remove WHT for IP

RTI will examine how pharmaceutical company AbbVie used profit shifting arrangements to avoid paying US corporation tax.

At the same time, the tax team will examine the investment benefits of tax-transparent funds for post-Brexit trading and whether this is a new trend in European trading.

In other news, RTI will analyze how UK businesses could have made an extra £5.2bn ($6.1bn) from exports if EU e-commerce VAT reforms had been implemented six months earlier .

Readers can expect these stories and more next week. Don’t miss the main developments. Sign up for a free trial for RTI.

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