Tax Cogs Lock Into Place

Last week we focused on BEPS, and the various ways in which governments and multilateral bodies are seeking to prevent base erosion and profit shifting, and to hang onto revenue in these straitened economic times.

This week, we'll be looking at how national authorities are trying to collect taxpayer cash in the first place, starting with South Korea, which recently unveiled a package of reforms in response to COVID-19, including a review of corporate tax breaks, taxes on securities trading, and value-added tax regime changes.

Under the measures, the turnover threshold for companies to take advantage of the simplified VAT regime will rise to KRW800m a year or less, up from KRW480m a year. Further, the tax registration threshold will rise to KRW480m a year from KRW300m.

A number of tax incentives will reportedly be amalgamated, and a negative list for eligibility for existing corporate tax incentives introduced, while tax breaks for investment in certain sectors will be enhanced, including for companies engaged in 5G, big data, and AI.

The package will double the period in which investment tax credits can be carried forward to 10 years, and allow tax deductions for losses to be carried forward 15 years, from 5 years, and a new capital gains tax waiver is to be introduced for venture capital funds investing in manufacturing sector-focused SMEs, in addition to other changes to the tax treatment of capital gains.

Finally, new anti-avoidance provisions will be introduced to prevent companies and shareholders from permanently deferring liability to tax, controlled foreign corporation (CFC) rules will be expanded to cover capital gains from property sales and income from stocks and bonds, and the existing corporate tax reduction of between 5-30 percent for SMEs will be extended by two years.

Meanwhile in the Philippines, the push for significant corporate tax change was ongoing as President Rodrigo Duterte, called on Filipino lawmakers to immediately pass the Corporate Recovery and Tax Incentives for Enterprises Act.

CREATE includes an immediate five percent reduction in the corporate tax rate, from 30 percent to 25 percent. The House of Representatives had previously approved an annual one percentage point reduction in the rate over the next 10 years under the Corporate Income Tax and Incentives Rationalization Act, a package that has been superseded by CREATE.

The President used his state of the nation address to call for the passage of the legislation.

Then on July 31, 2020, the Polish Ministry of Finance announced the launch of a consultation on plans to introduce an "Estonian-style" corporate tax regime.

Under Estonia's corporate tax system, tax is generally due only when profits are distributed. The Polish proposals are intended to encourage companies to retain profits and reinvest them into the economy, thereby helping the country to recover from the COVID-19 crisis.

The proposals are aimed at small- and medium-sized companies, and the Ministry previously said that the regime would be subject to certain restrictions on shareholdings, passive vs. active income, the reinvestment of profits, and revenue thresholds. If approved, the new corporate tax rules would enter into force from January 2021.

In terms of personal taxes, however, things seemed to be heading in the other direction; in Saudi Arabia, the government stated that it is not actively considering a personal income tax, following a number of news reports stating that the Finance Minister had hinted at the introduction of such a tax.

The state news agency, the Saudi Press Agency, cited "an official source" as explaining that an income tax has not been discussed by Saudi Arabia's cabinet, government councils, or committees.

And last but not least, in Austria the Government confirmed that a personal income tax cut approved by the Cabinet last month will be introduced in September.

On June 30, the Cabinet approved a tax plan, which featured a cut to the lowest income tax rate from 25 to 20 percent. According to the Ministry of Finance's announcement, the change will be introduced on September 1, 2020, and apply retroactively from January 1, 2020. Taxpayers will therefore receive backdated refunds of tax paid since January in September.

The cabinet also approved on June 30 the extension until the end of 2025 of the temporary 55 percent rate of tax on incomes above EUR1m. Originally, this temporary tax hike was due to expire at the end of 2020.

Until next week!