November 2022

The Council of Ministers has submitted a proposal for amendments to the Value Added Tax Act (VAT Act) to the parliament. Among other things, it introduces a VAT bad debt relief.

The current VAT Act does not include an option for recovery of VAT by suppliers in situations of total or partial non-payment by their customers. The proposal, however, would introduce the "bad debt relief", which makes it possible, subject to certain conditions, for suppliers to recover the VAT paid into the budget on supplies for which they did not receive, either fully or partially, the payments from their customers.

As next steps, the proposal should be voted on at two readings by the parliament.

The full text of the proposal, issued on 31 October 2022, is available here (in Bulgarian only).

The Council of Ministers has submitted to the parliament a proposal for the introduction of a windfall tax on companies in the crude petroleum, natural gas, coal and refinery sectors.

The windfall tax will be in the form of a temporary solidarity contribution of 33% and apply to the excess profits generated by EU companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors. The contribution will be calculated based on the taxable profits for 2022 and 2023 that are above a 20% increase in the average of the taxable profits, as determined under the Corporate Income Tax Act, for the tax periods 2018, 2019, 2020 and 2021.

The deadline for payment of the temporary solidarity contributions will be the same as the deadline for payment of the annual corporate income tax, i.e. not later than 30 June of the year following the tax year.

The proposal is in in line with the EU proposal for a Council regulation on an emergency intervention to address high energy prices, which was presented at the end of September 2022.

As next steps, the proposal should be voted on in two readings by the parliament. Further developments will be reported when they occur.

The full text of the proposal, issued on 1 November 2022, is available here (in Bulgarian only).

The Council of Ministers has submitted a proposal for amendments to the Excise Duties and Tax Warehouses Act (EDTWA) before the parliament. Among other things, it proposes the implementation of Art. 21(6)(b) of the Energy Taxation Directive (2003/96), which provides that Member States need not treat as "production of energy products" operations by which the user of an energy product makes its reuse possible in their own undertaking provided that the taxation already paid on such product is not less than the taxation which would be due if the reused energy product were again to be liable to taxation.

Additionally, the amendments also introduce:

• an exemption from registration and reporting obligations for people who consume their own electricity produced from renewable energy sources for their own needs in a plant with a total installed capacity of up to 1 MW;
• a clarification that persons who import or introduce compressed natural gas transported with specialized vessels are obliged to register under the EDTWA; and
• an obligation for persons that import or receive various energy products from other EU member states to declare (before the customs authorities) whether these products are intended to be used as motor fuel or heating fuel.

As next steps, the proposal should be voted on at two readings by the parliament.

The full text of the proposal, issued on 31 October 2022, is available here (in Bulgarian only).

The Ministry of Finance ("MOF"), together with the General Administration of Customs ("GAC") and the State Taxation Administration ("STA"), recently released the Announcement on Levying Consumption Tax on Electronic Cigarettes, to be effective on November 1, 2022.

The country will impose consumption tax on electronic cigarettes ("E-cigarettes"), and create a sub-item of e-cigarettes under the tobacco tax items, according to the Announcement, which defines E-cigarettes as the electronic transmission system that are used to produce aerosol for people to smoke, including cartridges, smoking utensils and e-cigarette products sold in combination with cartridges and smoking utensils. It is stated that organizations and individuals that produce (import) or sell e-cigarettes in bulk in China are taxpayers of consumption tax, which will be levied at an ad valorem rate, and the applicable tax rate in the process of production (import) is 36 percent, while the tax rate for wholesale is 11 percent. The Announcement also made provisions on taxable price, import and export policies and others.

According to a source released on the website of the Ministry of Finance ("MOF") on November 4, 2022, the MOF and the State Taxation Administration ("STA") have released the Announcement of the Personal Income Tax Policies on Private Pensions, clarifying that preferential deferred tax policies would be implemented on private pensions.

Private pension is a system supported by government policies, voluntary participation by individuals, marketization operation and supplementary function of pension insurance. Private pension system of personal accounts, capture expends fully borne by the participants personal, choose to buy conform to the provisions of the savings and wealth management products, commercial endowment insurance, public funds and other financial products (hereinafter generally referred to as the personal pension products), practice accumulation, completely in accordance with the relevant state regulations, enjoy preferential tax policies.

Participants in private pension shall be workers who participate in the basic pension for urban workers or the basic pension for urban and rural residents within the territory of China. People who participate in private pensions should open a private pension account on the information platform.

It is clarified that the country has begun to implement preferential deferred tax policies on private pensions since January 1, 2022. Specifically, an individual's contribution to the private pension fund account can be deducted from the comprehensive income or operating income for the actual amount based on the upper limit of 12,000 yuan/year, investment income included in private pension fund accounts is temporarily exempted from the personal income tax, and private pensions received by an individual would not be included in the comprehensive income but calculated separately for payment of the personal income tax at the tax rate of 3 percent, and the tax paid would be included in the "income from wages and salaries" item.

The Finance Bureau, Taxation Bureau and Economic Development Bureau of Guangdong-Macao In-depth Cooperation Zone in Hengqin ("Hengqin Cooperation Zone") have jointly released the Circular on Issuing the Tax Measures in Ten Aspects to Support the Development of the Metaverse Industry, in a bid to provide full-cycle support for the development of metaverse enterprises with 23 tax policies and service measures in ten aspects.

It is stated that enterprises in industries related to the development of metaverse, such as 5G, artificial intelligence, blockchain, XR and others, may apply for the access to the preferential tax by comparing their industries with the catalogue of 150 items in nine industries eligible for preferential corporate income tax rate of 15 percent for enterprises in the Hengqin Cooperation Zone, and those enterprises falling under the catalogue may declare for exemption of the corporate income tax for the income from overseas direct investment. It is also clarified that those high-tech metaverse enterprises which the country needs to particularly support would be eligible for a reduced tax rate of 15 percent in payment of corporate income tax.

China plans to reduce the COVID-19 quarantine period for incoming travelers and close contacts from 10 days to eight, cancel circuit breakers for inbound flights and no longer trace secondary close contacts of confirmed cases.

Categories of COVID-risk areas will also be adjusted to two — high and low — from the previous categories of high, medium and low, according to a notice released by the State Council's Joint Prevention and Control Mechanism that lays out 20 measures aimed at upgrading disease control measures.

According to the notice, all passengers arriving from overseas will undergo five days of centralized quarantine plus three days of home — or hotel-based isolation, compared with the current protocol of seven days of centralized isolation plus three days of self-isolation. It also stipulates that inbound travelers should not be placed into isolation again after finishing required quarantine periods at their first points of entry.

The circuit-breaker mechanism, which bans flight routes if inbound international flights carry COVID-19 cases, will be canceled. Inbound travelers will only need to provide one, rather than two, negative nucleic acid testing results taken 48 hours before boarding.

Meanwhile, quarantine periods for close contacts of confirmed infections have also been reduced from 10 to eight days, while secondary close contacts will no longer be traced.

The notice said that modifying categories of COVID-risk areas is aimed at minimizing the number of people facing restrictions on movement. The optimization of virus control policies does not signal relaxation, but aims for more scientific and precise approaches to fend off the epidemic while minimizing the impact on the economy and livelihoods

The notice also requires ramping up stockpiles of COVID-19 drugs and medical equipment, preparing more hospital and intensive care unit beds, bolstering booster vaccination rates — especially among the elderly — and accelerating research of broad-spectrum and multivalent vaccines.

China's Ministry of Industry and Information Technology has recently released a guideline to facilitate the digital transformation of small and medium-sized enterprises (SMEs).

The guideline calls for the creation of digital applications for instant communication, long-distance collaboration and project management in order to better meet the needs of such companies during the transformation.

Digital service providers and internet platforms have been asked to develop more convenient solutions for the issues faced by SMEs in advancing digital transformation.

To step up policy support for the companies, relevant departments should offer more guidance, increase financial assistance, expand pilot programs and improve services, according to the guideline.

The ministry has also published the 2022 list of standards for assessing the digital capability of SMEs.

Source: China SCIO

A total of 145 countries, regions and international organizations attended the expo, Sun said, adding that more than 2,800 enterprises from 127 countries and regions participated in the business exhibition, showcasing 438 new products, technologies and services.

There were 284 Fortune 500 companies and corporate giants among the participants, the official said.

Registration for the sixth CIIE has begun, with over 100,000 square meters of the business exhibition area already booked.

The CIIE is the world's first national-level import expo. It was held from Nov. 5 to 10 this year in Shanghai.

Source: Xinhuanet

 

The value of China's digital economy reached 45.5 trillion yuan (about 6.3 trillion U.S. dollars) in 2021, accounting for 39.8 percent of the country's GDP, according to a report released by the Chinese Academy of Cyberspace Studies on Wednesday.

The digital economy has become an important cornerstone of China's stable economic development, said the China Internet Development Report 2022, which was released during the 2022 World Internet Conference (WIC) Wuzhen Summit, held in the water-town of Wuzhen, in east China's Zhejiang Province.

In addition to the above report, the summit also released another report titled "World Internet Development Report 2022." It says the added value of the digital economy in 47 countries around the world reached 38.1 trillion U.S. dollars in 2021, with an increase of 15.6 percent year-on-year.

The digital economy has become an important engine driving global economic recovery, said the report.

Themed "Towards a Shared Digital Future in a Connected World -- Building a Community with a Shared Future in Cyberspace," this year's summit was attended by more than 2,100 guests from over 120 countries and regions, both in person and online. The reports have been released for six consecutive years since 2017 as an important part of the summit.

Source: China.org

$31 billion Investment commitments secured by the African Development Bank at the recently concluded Africa Investment Forum. The financing will target projects in a number of priority sectors, including the development of agriculture processing zones. (Reuters)

85,000 ounces Gold produced in Nigeria since the Segilola Gold Mine was commissioned in December 2021. The West African country is now working to merge mainstream activities artisanal miners into legal system for effective management. (Punch Nigeria)

30 Hotels Marriott International plans to open across Africa by 2024. The company's expansion, which will add more than 5000 rooms to its stock, is attributed to growth of travel and tourism sector on the continent. (Africa Business Communities)

$50 million Credit issued by Africa Development Bank to First City Monument Bank to support access to finance for small and medium-sized and women-empowered enterprises in Nigeria. The credit will focus on the agribusiness, manufacturing, healthcare and renewable sectors. (CEO Business Africa)

930 Homes to be powered by an emerging market technology company that launched the first-of-its-kind distributed mini-grid in Rwanda. The 120-KWp solar mini-grid project is set to deliver clean, affordable and reliable power to homes, schools, business and clinics. (ESI Africa)

21% Increase recorded for gold production in Zimbabwe's Blanket Mine, pushing the company's production to 59,726 ounces in the first three quarters of the year, compared to 48,872 ounces in the same period of 2021. Gross profit for the period also jumped to $50.5 million, up from $40 million the year before. (The Harald)

$225 million Facility launched by IFC to strengthen venture capital ecosystems in Africa and other regions. This platform will also receive additional $50 million from Blended Finance Facility International Development Association's Private Sector window, which helps de-risk investments in low-income countries. (Disrupt Africa)

37,000 tonnes Avocados expected to be produced annually by Ruvuma Region in Tanzania. This increase in production will rely on strategic plans put in place to enable farmers grow avocados as a third cash crop. (Daily News)

1650 MW Hydropower construction project approved in Nigeria for an estimated cost of $3 billion, making it one of the biggest power projects in the country. The plant will be funded under a public-private partnership arrangement even as private sector financing for the industry is growing. (The Africa Report)

$3 billion  Financing set aside by Standard Bank to fund renewable energy projects around Africa for the next three years. The funds will be used for solar and wind projects across the 20 markets the bank operates. (Africa Business Communities)

10,000 tonnes Maize arrived at the port of Mombasa in Kenya as the East African country re-opens the duty-free window for grain imports. The shipment will help to address the shortage of maize in the country that has seen flour prices skyrocket. (Business Daily Africa)

20% Of public transport buses in Rwanda to be converted to electric vehicles by 2030. This initiative will promote sustainable mobility in both cities and rural areas and reduce carbon emissions. (The New Times)

African countries intend to discontinue the granting of tax waivers and incentives to high-net-worth individuals (HNWIs) and multinationals.

The African Tax Administration Forum (ATAF) is developing a proposal to the African Union (AU) for an African minimum domestic tax. The minimum tax would aim to counteract revenue leakages and illicit financial flows out of Africa, resulting from granting tax waivers to certain companies that pay their taxes in other jurisdictions.

The proposal was announced by the Executive Secretary of the ATAF at the 7th ATAF General Assembly held from 31 October to 4 November 2022, in Lagos, Nigeria.

Chief Executive John Lee delivers Hong Kong's new policy address, which is summarized in the following key highlights.

Fully and faithfully implement "One Country, Two Systems"

Enhance quantity, speed, efficiency and quality

• Introduce new Light Public Housing (LPH), and build 30 000 such units in next five years
• Counting both LPH units and traditional public rental housing (PRH) units, increase significantly overall public housing production by 50% to 158 000 units in next five years, and shorten the Composite Waiting Time for Subsidised Rental Housing to around 4.5 years in four years' time (i.e. in 2026-27)
• Introduce a pilot scheme to encourage participation of private developers in building subsidised sale flats
• Make available sufficient land for private housing development in next five years to meet projected demand, to stabilise private housing supply
• Compress land production procedures to reduce the time required for turning "primitive land" into "spade-ready sites" by one-third to half. Build up a land reserve in the long run to gain control in land supply
• Lower the compulsory sale application thresholds to 60% or 70% of ownership to facilitate urban renewal of old areas
• Establish Dedicated Processing Units to expedite approval of general building plans, so that about 80% of the plans can be approved on their first or second submission
• Recommend taking forward three major road projects and three strategic railway projects to improve the territory-wide transport network and promote development

Groom local talents

• Step up STEAM education, including implementing enriched coding education for the upper primary and introducing I&T elements such as Artificial Intelligence for the junior secondary
• In next five years, 35% of students in the University Grants Committee (UGC)-funded universities to study STEAM subjects and 60% study subjects relevant to the "eight centres" in the National 14th Five-Year Plan
• Increase about 1 600 UGC-funded research postgraduate places to build a strong pool of I&T talents
• Promote vocational and professional education and training, including increasing 3 000 subsidised places for self-financing higher diploma and undergraduate programmes, and considering to introduce more applied degree programmes
• Publish the first edition of the Youth Development Blueprint within this year
• Increase participating advisory committees in the Member Self-recommendation Scheme for Youth to no less than 180 five years later, and open up some seats in two district committees for young people to nominate themselves as members
• Make available land for Starter Homes in the next financial year to help more young people buy their own homes. Subsidise the leasing of hotels and guesthouses to provide 3 000 additional hostel places under the Youth Hostel Scheme within five years

Boost primary healthcare Strengthen support for elderly and disadvantaged

• Publish the Primary Healthcare Blueprint, revamp the healthcare system to focus on prevention and early treatment, and establish the Primary Healthcare Authority
• Launch the Chronic Disease Co-Care Pilot Scheme to refer people identified by District Health Centres to be at high risk of hypertension or diabetes mellitus to the private sector for further examination and treatment
• Allow shared use of Elderly Health Care Voucher between spouses and extend the coverage. Roll out a pilot scheme to encourage use of primary healthcare services through increasing the annual voucher amount from existing $2,000 to $2,500 with conditions
• Adopt a basket of measures to reduce the waiting time of stable new case bookings for the specialty of Medicine in Hospital Authority by 20% in 2023-24
• Create the post of Commissioner for Chinese Medicine (CM) Development, and increase the annual quota of CM out-patient service by one-third to 800 000
• Restructure the Commission on Poverty and identify any other target group for poverty alleviation
• Strengthen support for carers, including regularising and increasing carers' allowance to $3,000 per month to benefit about 10 000 carers
• Regularise the Pilot Scheme on Community Care Service Voucher for the Elderly and increase the number of beneficiaries by 50% to 12 000. Provide 6 200 additional subsidised places in residential care homes for the elderly by end-2027, i.e. 20% increase
• Launch a special scheme to import care workers on an appropriate scale, to safeguard local workers' priority for employment, while enhancing service quality of care homes
• Invite the Minimum Wage Commission to study how to enhance the review mechanism of statutory minimum wage
• Set up the District Services and Community Care Teams in Tsuen Wan and Southern District in the first quarter of next year

Ideal for living and leisure

India has improved its position by six slots and is now placed at 61^st rank as per the Network Readiness Index 2022 (NRI 2022) report released recently. In its latest version of 2022, the NRI Report maps the network-based readiness landscape of 131 economies based on their performances in four different pillars: Technology, People, Governance, and Impact covering a total of 58 variables. The report has been prepared by the Portulans Institute, an independent non-profit, nonpartisan research and educational institute based in Washington DC.

India has not only improved its ranking, but also improved its score from 49.74 in 2021 to 51.19 in 2022.  It is noteworthy that India leads in several indicators. The report states that India secured 1^st rank in “AI talent concentration”, 2^nd rank in “Mobile broadband internet traffic within the country” and “International Internet bandwidth”, 3^rd rank in “Annual investment in telecommunication services” and “Domestic market size”, 4^th rank in “ICT Services exports”, 5^th rank in “FTTH/Building Internet subscriptions” and “AI scientific publications”.

NRI-2022 report states that India has a greater network readiness than would be expected given its income level.  India is ranked 3^rd out of 36 in the group of lower-middle-income countries after Ukraine (50) and Indonesia (59).  India has a score higher than the income group average in all pillars and sub-pillars.

Source: Press information Bureau

With its companies, institutes, and research centers active in the field of Industry 4.0, Switzerland has excellent resources to exploit the potential of the fourth industrial revolution.

Digital transformation is a current phenomenon that impacts all companies’ activities. This phenomenon is called Industry 4.0, also known as the fourth industrial revolution, the upheaval that follows the three previous industrial revolutions, namely the Industrial Revolution in the 18th century, the Technological Revolution in the late 19th century, and the Digital Revolution in the 20th century.

Industry 4.0 is the digital revolution applied to industry. Thanks to the introduction of new technologies such as Big Data, artificial intelligence, 3D printers, the Internet of Things (IoT), or augmented reality, the industrial sector is seeing a new way of producing machines, objects, or consumer goods. Digital integration in the value chain makes new business models possible. Industry 4.0 thus aims at a more efficient and qualitative production. The challenges of Industry 4.0 are to implement intelligent production, create unique and customized products, and increase their added value.

Numerous development opportunities for Industry 4.0 in Switzerland

As changes towards Industry 4.0 become more and more inevitable, Western Switzerland offers excellent conditions to exploit the potential of this fourth industrial revolution.

The Swiss Smart Factory, one of the research centers of the Switzerland Innovation Park Biel/Bienne, is the first test and demonstration platform for Industry 4.0 in Switzerland. The promoters want to activate the transformation of research results into marketable products. On the one hand, the SSF offers all the organizations involved an excellent advertising showcase and a showroom that is not specific to a manufacturer. In fact, it is a real think tank where companies of all sizes can learn and define which technology fits their business and product needs. On the other hand, SSF acts as a platform for the mutual exchange of knowledge and new business relationships. The initiative is supported by numerous technology providers as well as by institutes such as the Bern University of Applied Sciences.

Other institutes like EPFL and CSEM are also involved in Industry 4.0 research and innovation. In 2022, the two institutions inaugurated the M2C in Neuchâtel, a center focused on different methods of high-precision 3D manufacturing processes, a technique at the heart of the current industrial transformation. It aims to cover all stages of development, from fundamental research – carried out by EPFL laboratories – to the transfer of sustainable technologies with a high economic impact to industry – under the leadership of CSEM. It acts as a catalyst to foster collaboration between academic, institutional, and industrial partners, and functions as a training platform for its stakeholders.

They have chosen Western Switzerland to set up their 4.0 company

Thanks to Industry 4.0 development opportunities, several companies active in the field have decided to set up shop in Western Switzerland with the help of the Greater Geneva Bern area.

Among them, Biel/Bienne-based company Seb’Automatisme, which specializes in the construction of special and exclusive machines for industry. The company has found strong support at the SSF, by having the opportunity to exhibit its machines and show its know-how to customers.

Lausanne-based engineering company Inoprod which offers support and improvement to industrialists using Industry 4.0 technologies.

The many projects, academic and research institutes, and companies in Western Switzerland involved in the development of Industry 4.0 technologies act as the leading players of innovation in this field in the region. They help accelerate the adoption of new production technologies and contribute to the prosperity of the Swiss industry. Western Switzerland thus has a solid base on which to build competitiveness and innovation on the international stage of the fourth industrial revolution.

Source: Switzerland Global Enterprise

Secondary sector production rose by 3.4% in 3rd quarter 2022 in comparison with the same quarter a year earlier. Turnover grew by 7.6%, with more than half of this increase due to price increases. This growth has been uninterrupted since 1st quarter 2021. This is shown by provisional results from the Federal Statistical Office (FSO).

In comparison with the previous year industrial production grew in July by 0.1%, in August by 5.2%, and in September by 11.4%. For the whole of 3rd quarter 2022 production increased by 5.2% in comparison with the same quarter a year earlier.

Construction production declined by 6.5% in 3rd quarter 2022 in comparison with the same quarter a year earlier. Production declined by 5.9% in building, civil engineering also registered a decline (–13.7%). Lastly, specialised construction activities registered a decline of 5.7% in their production.

Turnover rose in industry but fell in construction

Industrial turnover in July rose by 4.8% in comparison with the previous year, and in August (+9.6%) and in September (+14.8%). For the whole of 3rd quarter 2022 in comparison with the same quarter a year earlier, turnover registered an increase of 9.5%.

Construction turnover fell by 0.2% in 3rd quarter 2022 in comparison with the same quarter a year earlier. Turnover rose by 0.4% in building, Civil engineering registered a decline of 9.5%, specialised construction activities an increase of 0.6%.

  Source: Swiss Federal Statistical Office (SFSO)

Switzerland's GDP grew by 0.2% in the third quarter of 2022, following an increase of 0.1% in the second quarter.* Growth has largely been driven by the domestic economy. The service sector delivered broad-based growth. Meanwhile, some of the more cyclical industrial sectors were held back by the international environment.

Despite relatively high inflation rates, private consumer spending (+0.7%) again increased above average in the third quarter. In particular, spending was up on housing and energy, leisure and travel, and non-food purchases. The value added in the retail trade increased accordingly; likewise, trade as a whole (+2.3%) again registered substantial growth after a run of four negative quarters. The accommodation and food services sector (+2.8%) continued to recover from the pandemic-related slump, buoyed by an upturn in international tourism among other things. Other service sectors such as healthcare (+0.7%) and business-related services (+0.6%) also registered a significant increase in value added. In contrast, value added in the financial services sector declined (−4.4%).

Investments in equipment (+2.1%) were another contributory factor to the robust growth in domestic final demand (+0.6%). Some easing in international supply bottlenecks allowed for extensive investment in vehicles; there was also an increase in investment in IT, in particular. In line with the pick-up in domestic demand, there was also a sharp rise in imports (+4.9%).**Construction investment (−2.0%) contracted yet again – the only component of domestic demand to do so – and with that also the value added in the construction industry (−2.2%). Turnover was down in building construction in particular but also in civil engineering and other construction site work.

In manufacturing (−0.2%), value added dipped slightly in the third quarter. While the chemical and pharmaceutical industry returned to substantial growth after two negative quarters, other sectors were increasingly being held back by a challenging international environment. The more cyclical industrial sectors experienced a downturn in value added, as reflected in declining exports of machinery and metals, for example. The nonetheless strong growth in total exports*** (+5.9%) is largely explained by a sharp increase in transit trade.

* Quarter-on-quarter growth rates in real terms. Adjusted for sporting events, GDP grew by the same 0.2% in the third quarter and by 0.1% in the second quarter. Further information on quarterly GDP can be found in Konjunkturtendenzen (Economic situation in Switzerland) at www.seco.admin.ch/gdp. ** Goods and services excluding valuables. Adjusted for sporting events: +4.6%. *** Goods and services excluding valuables. Adjusted for sporting events: +5.8%.

Source: The Federal Council

The Federal Tax Administration (FTA) has published a VAT Clarification concerning the main changes to the VAT Decree Law (Decree-Law). The principal amendments to the Decree-Law are as follows:

• new definitions (article 1);
• exception from registration for persons already registered for VAT (article 15);
• deregistration initiated by the FTA (article 21);
• place of supply of goods when the date of supply is determined under article 26(1) of the Decree-Law (article 27);
• clarifying the place of residence of the principal where its agent regularly negotiates and contracts in favour of the principal, or regularly maintains inventory of the principal to fulfil supply arrangements (article 33);
• value of supply and deemed supply between related parties (article 36);
• clarifying the period within which tax credit notes must be issued (article 62);
• clarifying the period within which tax invoices and tax credit notes must be issued (article 67); and
• statute of limitation (article 79 bis).

The amendments to the Decree-Law will come into force on 1 January 2023. The amendments were issued by Federal Decree No. 18 of 2022 on the amendment of certain provisions of Federal Decree No. 8 of 2017 on Value Added Tax.

The Federal Tax Authority (FTA) has published Federal Decree-Law (DL) No. 28 of 2022, concerning tax procedures. The DL abrogates Federal Decree No. 7 of 2017. The most important features of the law compared to the previous law are the following:

• Article 1 - Definition: The DL has introduced the following new definitions:
  • business day: any day of the week, except weekends and official holidays of the Federal Government;
  • tax residency certificate: a certificate issued by the Authority confirming the tax residency of a person in the state, in accordance with Article 53 of this DL; and
  • tax resident: a person resident in the state in accordance with Article 53 of this DL;
• Article 3 – Scope of the DL: the provisions of DL would also cover the administrative penalties imposed by FTA;
• Article 5 – Language: the person who submits any translated copies of data, information, records, and any other documents related to any tax to the FTA shall be responsible for the accuracy and correctness of such translated copies and shall bear all the associated costs;
• Article 10 - Voluntary disclosure: the voluntary disclosure scope would also include any error or omission discovered by the taxpayer even if such error or omission does not result in a difference of the tax due;
• Article 16 – The right to perform a tax audit: the notification period for a tax audit would be extended from 5 to 10 business days;
• Article 18 – Timing of the tax audit: the right to decide to conduct the tax audit outside official working hours would be extended to any person acting on behalf of the FTA Director General;
• Article 23 – Tax assessment: the notification period for a tax assessment would be extended from 5 to 10 business days from the date of its issuance;
• Article 24 – Administrative penalties assessment: the amount of administrative penalties would be capped at two times the amount of tax for which the penalty was imposed, without any minimum amount (currently, the administrative penalties are capped at three times the amount of tax with a minimum amount of AED 500);
• Article 25 – Tax crime and their penalties: the monetary penalty for tax evasion would be capped at three times the amount of tax for which the penalty was imposed instead of five times. Furthermore, monetary penalties not exceeding AED 1,000,000 combined with a prison sentence can be imposed on anyone who commits any of the following acts:
  • deliberately providing false information, data or incorrect documents to the FTA; and
  • deliberately concealing or destroying documents, information, data or other materials required to hold and provide to the FTA;
• Article 28 – Tax assessment review request: prior to filing for reconsideration of a tax assessment, the taxpayer would have the possibility to request a review of such assessment or part thereof and any related administrative penalties within 40 business days from the date of the notification of the assessment; and
• Article 45 - Conflict of interest: the restriction to perform or participate in any tax procedure for would be extended to FTA employees who have a personal or financial interest, or any other relationship between the employee and person which affects an independent decision being made.

The DL No. 28 of 2022 was published on 30 September via the official website of the FCA and will enter into force on 1 March 2023.

The Chancellor of the Exchequer, Jeremy Hunt, noted in the Autumn Statement (see United Kingdom-1, News 17 November 2022) that with effect from 1 January 2023, the rate of the energy profits levy will increase to 35%. The levy will apply until March 2028.

The government believes that businesses in the energy sector are making extraordinary profits and therefore the energy profits levy (EPL) has been extended to operate until the end of March 2028, with a rate increased from 25% to 35% from 1 January 2023. The levy (commonly called a "windfall tax") applies to profits generated by oil and gas exploration and production companies. It was introduced in May 2022, because oil and gas prices had risen following the Russian invasion of Ukraine.

The increased EPL will apply in addition to the 40% tax already being paid by oil and gas companies, which consists of:

• the 30% ring fence corporation tax on profits from exploration and production in the UK; and
• the 10% supplementary charge on adjusted ring-fence profits, excluding finance costs.

Consequently, a total rate of 75% will apply from 1 January 2023. Furthermore, previous losses or decommissioning expenditure cannot be set against profits subject to the EPL.

Since the levy is rising from 25% to 35%, the previous 80% EPL investment allowance will be reduced to 29% so, when combined with the 100% first year capital allowance eligibility, the overall relief for expenditure will remain substantially the same. In fact, to support the government's net zero strategy, there is an 80% investment allowance for decarbonization expenditure. This will mean that for every GBP 100 spent on such costs, total tax relief of GBP 109.25 will be obtained.

The government had previously stated that if oil and gas prices return to historically more normal levels, the EPL would be phased out. However, it now says that this will not happen before the planned end date of March 2028, saying that this will give "companies greater certainty to plan their investments".

The UK Treasury has confirmed with the publication of order SI 2022/1147 (the Order) that a new version of the international transfer pricing guidelines is to be used when implementing national transfer pricing legislation.

The Organisation for Economic Co-operation and Development (OECD) published a new version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 in January 2022. The guidelines are now to be used by the United Kingdom's tax authority, His Majesty's Revenue and Customs, for the purposes of the definition of "the transfer pricing guidelines" in section 164(4)(a) of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). The new guidelines will be brought into effect by The Taxation (International and Other Provisions) Act 2010 Transfer Pricing Guidelines Designation Order SI 2022/1147.

The Order comes into effect for accounting periods beginning on or after 1 January 2023 for corporation tax purposes and from 6 April 2023 (the start of the 2023/24 tax year) for income tax purposes.

Transfer pricing rules are based on the arm's length principle. Similarly, the United Kingdom's transfer pricing rules operate by comparing the transactions between connected parties with those that would have been made between independent parties.

Prices are rising around the world, made worse by Putin’s war in Ukraine, and shops and businesses are facing these costs head on.

From 1 April 2023 many businesses will be facing new business rates bills too, following new valuations of their properties to reflect more recent market conditions, as committed to in the government’s review of business rates.

In light of both of these, the government will be taking a number of steps to help rate payers. A package worth £13.6 billion in total.

• Freezing the business rates multiplier for another year to protect businesses from rising inflation, worth £9.3 billion over the next 5 years
• An extended and increased relief for retail, hospitality and leisure businesses worth almost £2.1 billion. This is the most generous in year business rates relief in over 30 years, outside of Covid-19 support.
• Reforming Transitional Relief so for businesses seeing lower bills as a result of the revaluation, the government will make sure they benefit from that decrease in full straight away, by abolishing downwards transitional reliefs caps. The government also announced a £1.6 billion scheme to cap bill increases for businesses who will see higher bills as a result of the revaluation.
• Protection for small businesses who lose eligibility for either Small Business or Rural Rate Relief due to new property valuations through a more generous Supporting Small Business scheme worth over £500 million.

This package means that the total increase in business rates bills will be less than 1%, compared to over 20% without intervention. The package as a whole exceeds expectations from stakeholders including business representative organisations, ratings agencies and large retailers.

Protecting high streets from rising inflation: freezing the multiplier

• The government is freezing the business rates multiplier for another year (2023-24), saving ratepayers £9.3 billion over the next five years and protecting them from the headwinds of rising global inflation. A key ask from stakeholders, including business representative organisations and ratings agencies.
• Business rates bills for properties are calculated by multiplying the rateable value of a property by either the small business multiplier or the standard multiplier and subtracting any relevant reliefs. Multipliers usually rise with Consumer Price Inflation (CPI) inflation.
• Freezing the business rates multiplier will keep the small business multiplier and standard multiplier at 49.9p and 51.2p respectively – rather than rising to 52.9p and 54.2p.
• This will support all ratepayers, large and small, meaning bills are 6% lower than without the freeze.
• For a restaurant chain with 400 restaurants with a rateable value of £45,000 each, that means support worth around £2.7 million over the next 5 years.

Protecting high streets from rising inflation: extended and increased business rates relief for retail, hospitality and leisure

• To support high street properties the government is extending and increasing the Retail, Hospitality and Leisure relief scheme from 50% to 75% for 2023-24, up to £110,000 per business. This surpasses the ask of the main business representative bodies.
• This means an estimated 230,000 business properties will get a £2.1 billion tax cut next year.
• A typical small shop with a rateable value increasing from £20,000 in 2017 to £21,500 in 2023 will receive RHL relief worth around £8,000 (subject to the £110k cash cap per business).
• A typical pub with a rateable value decreasing from £31,900 in 2017 to £27,600 in 2023 will receive RHL relief worth over £10,300 (subject to the £110,000 cash cap per business).
• A small property in the retail, hospitality or leisure sectors eligible for the Supporting Small Business Scheme will not see an increase greater than £150 per year, equivalent to £12.50 per month.
• Chains that reach the £110,000 cash cap on relief can also still benefit from the multiplier freeze and transitional relief.

Addressing the ‘Bricks v Clicks’ tax imbalance: reforming Transitional Relief

• Transitional relief supports ratepayers facing large increases in their business rates bills as a result of a revaluation. Previous schemes to help protect ratepayers facing bill increases were funded by capping the reduction of those with falling bills (‘downwards caps’).
• At Autumn Statement 2022 the government announced that it will make sure that for businesses who see a declining business rates bill as a result of the revaluation will benefit from the full decrease straight away. The government is permanently removing downward caps, a longstanding ask from business representative organisations, ratings agencies and other stakeholders. For April 2023’s revaluation this benefits 300,000 business properties.
• This helps to address the tax burden imbalance between online retailers and bricks and mortar sales. Total business rates paid by the retail sector is estimated to fall by 20%, but will rise 27% for large distribution warehouses to reflect the growth in the online sales sector.
• Physical shops on the high street who are seeing a fall in bills, will therefore get the full reduction, as a result of transition relief reforms, whilst online marketplace warehouses will pay higher bills, as a result of the revaluation.
• At Autumn Statement 2022, the government also announced a new three-year Exchequer funded Transitional Relief scheme worth £1.6 billion, to keep bills manageable for around 700,000 properties adapt to their new bills from April 2023 through capping their increases.
• The government will limit bill increases to 5% next year for around 500,000 small properties and is providing significantly more generous support for large businesses than under the 2017 scheme. Transitional Relief means that only 9% of properties in England will see bill increases greater than 15% in 2023-24.
• Transitional Relief will cap bill increases to a set percentage each year before other reliefs and supplements:

Upwards Caps	2023/24	2024/25	2025/26
Small (RV up to £20k or £28k in London)	5%	10%	25%
Medium (RV between £20k to £100k)	15%	25%	40%
Large (RV greater than £100k)	30%	40%	55%

These caps are year on year increases. All caps are before other reliefs, supplements and, in years 2 and 3, inflation. Actual bill changes may vary.

• Following the recent consultation on an Online Sales Tax (OST), the government has decided not to introduce such a tax. The idea of an OST was put forward by certain stakeholders to “rebalance” the business rates bills paid by in-store retailers in comparison to their online counterparts.
• The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models. Stakeholders also expected it would lead to higher prices for consumers.
• A response to the Online Sales Tax consultation will be published shortly.

Addressing the ‘Bricks v Clicks’ tax imbalance: the business rates revaluation

• At revaluation, the Valuation Office Agency (VOA) adjusts the rateable value of business properties to reflect changes in the property market.
• The next revaluation will come into effect on 1 April 2023, based on property values from 1 April 2021.
• The last revaluation was in April 2017, based on a valuation date of April 2015.
• This means that some business rates bills will decrease whilst others increase, dependent on the rateable value of the property.
• Businesses have been clear that this delayed revaluation is necessary to update business rates from 2015 property values.

Helping small businesses transition to new bills

• The government is also protecting small businesses that, due to the revaluation, will lose their eligibility for either Small Business or Rural Rate Relief (SBRR or RRR).
• The Supporting Small Business (SSB) scheme will provide over £500 million in support over the next 3 years to cap bill increases at £50 per month (£600 per year) for an estimated 80,000 properties at the 2023 revaluation.
• Together with the Retail, Hospitality and Leisure relief, no eligible small retail, hospitality or leisure business losing eligibility for SBRR will see an increase in bills greater than £12.50 per month in 2023 (£150 per year).

Further background

• Ratepayers in England will be able to see the future rateable value for their property and get an estimate of what their business rates bill may be from 1 April 2023 through the Find a Business Rates Valuation Service: https://www.gov.uk/find-business-rates
• Business rates are devolved in Scotland, Wales and Northern Ireland. They will receive Barnett consequentials in the usual way.
• Autumn Statement 2022’s business rates package follows the conclusion to the government’s review business rates in 2021, where the government committed to reform the business rates system by delivering more frequent business rates revaluations and new reliefs to help properties go green. Read the conclusion to the government’s review of business rates.

Source: UK Governement

Document

Stamp Duty Land Tax — temporary increase to thresholds

This tax information and impact note explains the temporary increases to the nil-rate bands for Stamp Duty Land Tax on residential property and to the amount that a First Time Buyer may pay while qualifying for relief.

Details 

This document gives information about the changes and the impacts in the reduction of Stamp Duty Land Tax by temporarily increasing the:

• residential nil-rate threshold from £125,000 to £250,000
• nil-rate threshold for First Time Buyers’ Relief from £300,000 to £425,000
• maximum amount that an individual can pay for a home while remaining eligible for First Time Buyers’ Relief, from £500,000 to £625,000

The change will apply from 23 September 2022 to 31 March 2025.

Source: UK Government        

The Office of Chief Counsel of the US Internal Revenue Service (IRS) issued a memorandum clarifying that foreign taxpayers are not permitted to claim a reduced rate of US tax of their Domestic International Sales Corporation (DISC) distributions under article 10 (Dividends) of an applicable US income tax treaty by taking the position that, pursuant to article 5 (Permanent Establishment), their DISC distributions are not at attributable to a permanent establishment within the United States. The IRS Chief Counsel released the memorandum (AM 2022-005, 4 November 2022) on 18 November 2022.

The DISC regime (sections 991 through 994 of the US Internal Revenue Code (IRC)) was added to the IRC in 1971 to promote exports of domestic goods by deferring corporate taxes on export income. IRC section 991 provides that a DISC is not generally subject to income tax. IRC section 996(g) requires foreign shareholders of a DISC to treat DISC distributions as attributable to a permanent establishment even though they are not so attributable under an applicable US income tax treaty.

US income tax treaties generally provide that, with respect to dividends, the country of residence of a shareholder has the primary right to tax and not the country of source. The country of source is generally limited to taxing a dividend at a reduced rate of 5% or 0% for certain corporate shareholders and 15% in all other cases.

Under article 10(6), however, these benefits do not apply if "the beneficial owner of the dividends, being a resident of a contracting country, carries on business in the other contracting country, of which the payer is a resident, through a permanent establishment situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment."

When foreign taxpayers choose the beneficial DISC regime under the IRC, either directly or indirectly, including as a founding shareholder or as a transferee of the DISC shares, they must forgo article 10 benefits (or any other treaty benefit that does not apply to income attributable to a permanent establishment) with respect to their DISC distributions. The well-established principle of US tax treaties that the IRC and treaty must be applied consistently prohibits foreign shareholders of DISCs from claiming treaty benefits applicable to income that is not attributable to a permanent establishment.

These foreign taxpayers must therefore report their DISC distributions as taxable under IRC section 871(b) or IRC section 882, as applicable.

Furthermore, the IRC and US income tax treaties prevent foreign shareholders of DISCs from claiming treaty benefits on DISC distributions, and thus the "later-in-time" rule codified in IRC section 7852(d) does not apply.

On 14 November 2022, the US Government Accountability Office (GAO) published a report (GAO-23-105359) recommending Congress to work with US states to create guidelines for e-commerce businesses navigating the variety of tax requirements among the 50 states.

In 2018, the US Supreme Court held that individual states could collect sales tax from out-of-state businesses absent a physical presence. This resulted in states creating tax requirements that vary across the United States, creating a more complex tax landscape for businesses to navigate.

To evaluate the approaches taken to address the need for a more unified approach of e-commerce taxation among the states, the GAO evaluated reform proposals. While states and multistate organizations have begun the steps towards an incremental approach (e.g. a single state-wide point of registration, filing, administration and auditing), a comprehensive approach (e.g. uniform standards and centralized processes) has not been adopted.

To address the patchwork of tax compliance for e-commerce businesses along with legal disputes that may arise, the GAO suggested Congress use its authority under the Constitution's Commerce Clause to regulate interstate commerce. Furthermore, the GAO provided that the Supreme Court has already stated that Congress has the "ultimate power to resolve" issues with taxation of remote sales.

The GAO suggested Congress use the power to put into place federal legislation which would provide nationwide parameters for state taxation of remote sales. This would help address uncertainties and multistate complexities and improve the overall system.