[World Tax News] Finland Proposes Legislation on Minimum Tax for Large Corporations and More

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Finland proposes legislation on minimum tax for large corporations

Finland’s Ministry of Finance has issued a statement regarding the draft Bill HE 77/2023 for implementing the global minimum tax under Pillar 2, as per Council Directive (EU) 2022/2523, dated December 14, 2022.

This draft bill encompasses the introduction of the Pillar 2 income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR) to ensure that multinational enterprise (MNE) groups with annual consolidated revenues of at least EUR 750 million over a minimum of two of the preceding four fiscal years adhere to a minimum tax rate of 15%.

The proposal also includes introducing a qualified domestic minimum top-up tax (QDMTT) for members of groups subject to these rules, referred to as a domestic supplementary tax in Finland.

Currently, the IIR and QDMTT will apply to financial periods commencing on or after December 31, 2023, while the UTPR will generally apply to financial periods starting on or after December 31, 2024.

However, in cases where another EU Member State elects not to apply the IIR and the UTPR for six consecutive fiscal years commencing from December 31, 2023 (as per Article 50 of the Directive), the UTPR will be enforced for financial periods starting on or after December 31, 2023, in relation to MNE groups headquartered in that particular Member State.

Source: Release by Finland Ministry

Draft Bill HE 77/2023 vp

2. Tax Certainty Enhancement Scheme in Hong Kong: Clarifications on the Non-Taxation of Onshore Gains from Equity Interest Disposals

Currently, Hong Kong has a simple and competitive tax system which does not tax capital gains. Therefore, gains or profits arising in or derived from Hong Kong on disposal of equity interests (Onshore Disposal Gains) that are of a capital nature are not subject to profits tax in Hong Kong.

Under the existing rule, the nature of Onshore Disposal Gains is essentially determined based on a “badges of trade” analysis, where considerations are given to the relevant facts and circumstances of the case, such as the frequency of similar trades, the holding period, the holding percentage, reasons for purchase or sale of the equity interests, etc.

If the Onshore Disposal Gains are determined to be capital in nature after the “badges of trade” analysis, they are not subject to profits tax. If they are determined to be revenue in nature, they are subject to profits tax. Similarly, onshore losses on disposal of equity interests of capital nature are not tax deductible, but onshore disposal losses of revenue nature are deductible.

The Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 (the Amendment Bill) provides for a tax certainty enhancement scheme for Onshore Disposal Gains. Under the Scheme, any Onshore Disposal Gain derived by an eligible investor entity meeting specified conditions is to be regarded as capital in nature and not chargeable to profits tax, and there is no need to conduct the “badges of trade” analysis.

The Scheme applies to Onshore Disposal Gains in relation to any disposal that occurs on or after January 1 2024, and accrues in the basis period for a year of assessment beginning on or after April 1 2023.

The application of the Scheme is not compulsory, and taxpayers can choose whether to apply or not. In the case where the Scheme does not apply to an Onshore Disposal Gain for the reason that the investor entity does not elect for the Scheme or that the Onshore Disposal Gain is excluded from the Scheme, the status quo will apply, i.e. whether the Onshore Disposal Gain is capital or revenue in nature will continue to be determined based on the “badges of trade” analysis.

In respect of onshore losses on disposal of equity interests, the Scheme will not affect the existing tax rule under which its nature is determined based on the “badges of trade” analysis.

Source: Onshore Gain on Disposal of Equity Interests – Tax Certainty Enhancement Scheme, dated 20-10-2023

3. Hungary Seeks Input on Draft Law for Global Minimum Tax under Pillar 2

Hungary’s Ministry of Finance has released a preliminary legislative proposal to enforce the global minimum tax under Pillar 2, as outlined in Council Directive (EU) 2022/2523, dated December 14, 2022.

This proposal encompasses the incorporation of the Pillar 2 Income Inclusion Rule (IIR) and the Undertaxed Payment/Profit Rule (UTPR), designed to incorporate a minimum tax rate of 15% for multinational enterprise (MNE) groups with annual consolidated revenues of at least EUR 750 million in at least two of the preceding four fiscal years. Furthermore, the draft law introduces a Qualified Domestic Minimum Top-Up Tax (QDMTT) for eligible members within the defined scope.

The effective date of this draft law is set to begin with financial years commencing on or after December 31, 2023, with the exception of the UTPR, which will take effect for financial years commencing on or after December 31, 2024.

Source: Legislative Draft