Digital taxation reforms given green light | Specified period for RSP amended

By November 7, 2021 No Comments

Digital taxation reforms given green light

If you follow the tax-related news that is regularly released on the OECD (Organisation for Economic Co-operation and Development) website, or alternatively, have at least heard a whisper of something referred to as the BEPS (base erosion and profit shifting) project, then you may have already heard about the recent meeting of the minds of the 136 member jurisdictions (representing >94% of global GDP) on the “Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy”.

Post news of this historic agreement having been released, G20 leaders attending a summit in Rome have called for the swift development of the model rules and multilateral instruments, to enable the agreement to come into effect globally in 2023.

Once implemented, this Two Pillar Solution will attempt to reallocate more than $125 billion USD of profits from around 100 of the world’s largest and most profitable MNE’s, to those countries where the MNE’s actually have a presence and generate profits. One consequence of this profit reallocation mechanism, will be the establishment of a global minimum corporate tax rate for the MNE’s of 15%.

Under Pillar One:

  • Taxing rights over 25% of the residual profit of the largest and most profitable MNEs would be re-allocated to the jurisdictions where the customers and users of those MNEs are located.
  • Tax certainty through mandatory and binding dispute resolution, with an elective regime to accommodate certain low-capacity countries.
  • Removal and standstill of Digital Services Taxes and other relevant, similar measures; and,
  • The establishment of a simplified and streamlined approach to the application of the arm’s length principle in specific circumstances, with a particular focus on the needs of low capacity countries.

Then under Pillar Two:

  • GloBE rules provide a global minimum tax of 15% on all MNEs with annual revenue over 750 million Euros.
  • Requirement for all jurisdictions that apply a nominal corporate income tax rate below 9% to interest, royalties and a defined set of other payments to implement the ‘Subject to Tax Rule’ into their bilateral treaties with developing Inclusive Framework members when requested to, so that their tax treaties cannot be abused; and,
  • Carve-out to accommodate tax incentives for substantial business activities.

I note that there are 140 member jurisdictions, so who are the missing four? No detail in the linked PDF, and I’m not bored enough yet to go searching, but you do have to wonder…

And for those of you who are keen for a little more reading, here is the link.

It will be interesting to see how the theory works in practice.

Specified period for RSP amended

The Covid-19 Resurgence Support Payments Scheme (August 2021) Order 2021 (the August Order) contained the following criteria for any person to be eligible for an RSP payment:

The person:

  • Must have experienced a minimum 30% decline in revenue in relation to a business or organisation during a nominated seven-day period, and
  • The nominated seven-day period must be during the specified period for that grant.

The referenced ‘specified period’ in accordance with the August Order, was a period that ended immediately before all areas of New Zealand returned to Covid alert level one. Clearly Delta in the community has now ensured that alert level one is a thing of the past for the historians to write about (that switch will never be flicked again), and consequently an amendment to the ‘specified period’ was required.

Introducing therefore the Covid-19 Resurgence Support Payments Scheme (August 2021) Amendment Order (No 4) 2021 (LI 2021/341), which now provides that the specified periods for each of the first, second, and third grants end at the close of 1 November 2021.  

This article from the ‘A Week in Review’ newsletter was originally published Monday 8th November 2021. If you have any questions or would like a second opinion on any national or international tax issues, please contact me richard@gilshep.co.nz. 

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