The International Tax Round Winter 2023

Editor’s message

Whether it’s the scent of cinnamon and clove, the sight of twinkly lights, or the sounds of George Michael that trigger you, I truly believe there is something for everyone to love about Christmas.

Choosing just one thing I adore about the festive season would be tricky for me. It could be the onset of icy weather which justifies my residence by the fireplace, draped in a blanket, lost in the comforts of my favourite festive movies. This month, I don’t question whether binge-watching is an acceptable pastime, be it day or night and despite the discourse around being outdated, Love Actually remains firmly on my watchlist.

As always, I reflect on the year that has passed in what feels like a flash. It has been intense, overwhelming at times and testing. But I’m grateful for the experiences, learning lessons and the growth that comes with challenge.

My travels this year kicked off in South Africa for my first business trips and concluded with an international conference in Bangkok, a city that is truly restless. Delicious street food, bustling streets, zealous tuk tuk drivers drumming up business, and wonderfully unique products to take home, all contributed to a great trip but the highlight was reconnecting with colleagues across the globe.

In catching up with them, it was clear that a globally shrinking talent pool remains a significant challenge in the tax world however the hottest topic was the advancement of artificial intelligence. Whether seeded in fear or excitement, most discussions centred around the improved proficiency of generative AI, increasing its potential to transform the tax world. Aside from those topics, there was of course hope for a positive shift in the economy for 2024.

I’m now looking forward to winding down over Christmas, enjoying good food and catching up with friends and family. There’s not a huge amount that will lure me away from the fireplace but there are certainly some Christmas cocktails on my list to concoct. Is it any wonder why they call it the most wonderful time of the year?

Wishing you and your families the very best the year ahead– roll on 2024!

In this edition, I’m delighted to bring you updates on…

• Portugal to end attractive digital nomad tax relief
• EU adds four new countries to list of non-cooperative jurisdictions
• Register of Overseas Entities to be updated
• Danish Tax authority wins unanimous decision in Supreme Court
• UK announces intention to crackdown Crypto tax evasion
• Rules of Origin and electric cars
• Capital gains and tax exemption on overseas income by Monteck Carter Chartered Accountants

Portugal to end attractive digital nomad tax relief

The Portuguese prime minister, Antonio Costa, has announced an end to the Non-Habitual Resident tax status that meant digital nomads and foreign workers pay less tax. Currently, foreign nationals in ‘high value’ professions such as architects can live and work in Portugal for up to 10 years and pay a flat rate of 20% tax on income. This is in comparison to tax of up to 48% on Portuguese citizens.

The scheme was originally introduced to entice foreign workers to come to Portugal in an attempt to help the country’s economy. The scheme has recently drawn a lot of ire from citizens, as a lack of housing is a big concern for many residents.

This move hopes to free up housing as this possibly reduces the influx of digital nomads and foreign workers to the country.

Will other countries follow suit?

EU adds four new countries to list of non-cooperative jurisdictions

The EU at an international and EU level tries to achieve good tax governance and promote fair taxation. They maintain a list of countries that do not cooperate with them nor meet their commitments to transparency.

On October 17, four new countries have been added to the list, being Antigua and Barbuda, Belize and Seychelles. At the same time, British Virgin Islands, Costa Rica, and the Marshall Islands have been removed from the list. This brings the total number of jurisdictions to sixteen.

Register of Overseas Entities to be updated

The Register of Overseas Entities (ROE) went live in August 2022 and has since had thousands of entities apply to avoid the harsh penalties and restrictions that come with non-compliance. On 26 October 2023, The Economic Crime and Corporate Transparency Act 2023 received Royal Assent. This Act will bring several changes to the ROE.

The type of information provided will change and include the following:

• Corporate owners will have to disclose their principal office in place of the registered office.
• Entities will have to disclose title numbers of property held which need to be verified by an agent.
• In instances where the settlor of a trust was a company, the registrable beneficial owner of the settlor will need to be disclosed.
• Trustees and trusts are now always disclosable.
• Corporate owners that were ‘not subject to their own disclosure requirements’ will need to be disclosed.
• Entities that hold property or land via a bare trust will need to assess their need to register.

These changes are not currently in force but will introduce a mean an increase in the administration needed to remain compliant with the law.

As a reminder, the initial annual update is due 12 months from the date of the original overseas entity registration. Overseas entities will have 14 days from that anniversary to complete the update.

Danish tax authority wins unanimous decision in Supreme Court

The case involved Solo Capital Partners LLP (UK LLP) and a widespread fraud where individuals falsely claimed refunds of 27% withholding taxes for dividends they hadn’t received. They exploited a flaw where tax authorities reimbursed without verifying legitimacy. Recovery efforts faced challenges due to cross-border litigation.

The Danish tax authority (SKAT) pursued claims against entities for fraudulent refund claims totaling £1.5 billion. Initially rejected by the England and Wales High Court citing rules relating to enforcement of a foreign state’s laws, SKAT’s appeal succeeded in the England and Wales Court of Appeal (EWCA), which recognized SKAT as a fraud victim seeking restitution, not enforcing Denmark’s tax laws.

Solo’s appeal to the Supreme Court was dismissed. The court agreed with EWCA, clarifying that SKAT’s claims, rooted in fraud, fell outside the revenue rule. The ruling emphasized that SKAT wasn’t aiming to recover taxes but to rectify fraud, thus not infringing on Denmark’s sovereign rights.

This decision introduces new case law to refer to when decisions about UK entities defraud foreign countries, with the change in perspective will we see more claims from other jurisdictions in the future?

UK announces intention to crackdown Crypto tax evasion

On 10 November 2023, the UK government released a policy paper to implement the OECD’s ‘Crypto-Asset Reporting Framework’ (CARF). The framework allows for the automatic exchange of information between the signatory jurisdictions in efforts to crack down on tax evasion relating to crypto-assets. 48 other countries have joined the UK in this effort including countries such as the USA, Australia, France, and Canada.

CARF aims to ensure tax compliance across all jurisdictions and prevent tax evasion that could total billions in lost government revenue. The current timeframe for this sweeping new standard is set to be 2027 and it will be interesting to see how this is enforced in the future!

Rules of Origin and electric cars

The effects of Brexit, and in particular the negotiations back in December 2020, continue to reverberate across the UK and the EU. Currently, there are zero tariffs for the sale of cars from the UK to the EU, as long as at least 40% of the content of the vehicle and at least 30% of the battery pack is sourced from the UK. From 1 January 2024, these percentages were due to change to at least 45% of the vehicle to originate in the UK and at least 60% of the battery pack. These rules also apply to EU-built cars being supplied into the UK. From 1 January 2024, a planned tariff of 10% was to be added to the price of electric cars if they did not fulfil the new criteria.

While both the EU and the UK have announced large-scale battery building facilities, which would help meet the new criteria these will not be operational for another two to three years.

In a dramatic change of stance, on 6 December 2023, the EU Commission proposed a three-year reprieve meaning that both the EU and the UK would continue with the existing rules for a further three years until 2027. This will need to be formally ratified by the member states but is likely to be a formality.

Comment – This news is very welcome and comes off the back of a sharp fall in demand for electric cars after the announcement that the UK would ban the sale of petrol and diesel cars from 2035 rather than 2030. More importantly, this suggests that the relationship between the EU and the UK is thawing and hopefully both sides will continue to seek and agree pragmatic solutions to the long-term effects of Brexit in the future.

VOICES FROM XLNC – OUR INTERNATIONAL ALLIANCE

Capital gains and tax exemption on overseas income

My fellow attendees at the recent XLNC conference in Bangkok were surprised to know that New Zealand still does not have a capital gains tax. Political parties who have raised this possibility are so frowned upon by the electorate that they are reluctant to be the ones to go through with this type of tax policy.

More recently we have a quasi-capital gains tax on a second property (any residential property except the main family home) where, if sold within a certain time frame, any gain is taxed. This started at two years, then moved to five, and now sits at 10 years. The political party that recently won the NZ election (along with coalition partners) has promised to bring this back to two years.

Changes in political parties certainly keep our professionals busy with the constant updating of tax law depending on whether the government is left or right leaning. One policy that has now been in place since 2006 was introduced to encourage foreign migrants with investment funds. This is a temporary tax exemption from NZ tax on overseas income for the first four years of the migrant living in NZ.  This exemption applies to overseas income except for that earned by personal services or employment income.

This policy allows migrants time to get their affairs in order once they arrive in NZ. During those four years, if they get the right advice, their overseas investment structures can be managed and moved,  if necessary, to ensure the best tax position after the four-year exemption period finishes.

For further information, contact Karen Tobeck, Partner at Monteck Carter Chartered Accountants.