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Innovation under the Spotlight

Kitty Miv, Editor
20 April, 2022

It's relatively rare that we look at incentives regimes in this column, but this week, we will be examining the tax treatment of innovation and development, starting in the Philippines, where the Government has finalized its Strategic Investment Priorities Plan (SIPP), under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law. The Plan sets out what criteria foreign and domestic investors will need to meet in order to benefit from tax incentives for their respective sectors, in addition to setting out which activities will be favored by the authorities.

CREATE cut the corporate income tax rate from 30 percent to 25 percent retroactively from July 1, 2020. The law also cut the regular CIT rate by 10 percentage points, from 30 to 20 percent, for domestic corporations with a taxable income of PHP5m and below, and with total assets of not more than PHP100m.

In the UK and Indonesia, meanwhile, all eyes were on the tax treatment of new growth area, cryptocurrencies, with the former outlining its ambitions for the UK to become a global cryptoasset technology hub.

Among other proposals, the UK Government has recently announced plans for stablecoins – virtual currencies pegged to the value of currency or metals – to be recognized as a valid form of payment.

Meanwhile, Indonesia has stated that it plans to introduce income tax and value-added tax on cryptocurrency transactions.

The changes will be effective from May 1, 2022, and under the new regulations, gains will be liable to a 0.1 percent tax rate. In addition, the sale of cryptocurrencies – treated as a commodity under Indonesian law – will attract value-added tax at either a one or two percent rate, with the lower rate applying to brokers that have secured approvals from the regulator. A 10 percent rate applies to consideration received by bitcoin miners.

Then towards the end of the week, the Irish authorities announced the launch of a consultation on the impact of international tax reform plans being developed by the OECD on the country's research and development tax reliefs.

The consultation focuses on potential changes to two regimes: the Research and Development tax credit, and the Knowledge Development Box.

The Knowledge Development Box (KDB) is an OECD-compliant intellectual property (IP) regime, which provides for relief from Corporation Tax on income arising from qualifying assets such as computer programs and inventions protected by a qualifying patent.

The consultation explained that: "The KDB may be claimed by companies with accounting periods commencing on or after January 1, 2016, and before January 1, 2023. As such, officials in the Department of Finance will be considering future policy options with respect to the KDB and how it may interact with the Pillar 2 agreement on minimum effective corporate tax rates, including in particular the Subject to Tax Rule (STTR)."

The Department of Finance is seeking input from stakeholders on the potential impact of Pillar Two on the two schemes until May 30, 2022.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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