[World Tax News] France Affirms Applicability of MFN Clause to Dividend Income With Kenya and More

Editorial Team – [2024] 158 taxmann.com 128 (Article)

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. France affirms the applicability of Most Favored Nation (MFN) clause to dividend income with Kenya

The convention between France and Kenya contains, in Article 28, a most favoured nation clause allowing the application of tax exemptions or lower rates of withholding tax on dividends, interest or royalties as provided for in the agreements signed by Kenya with third Member States of the Organization for Economic Co-operation and Development (OECD).

Following the signing of a tax treaty between Kenya and South Korea in 2014, and in the application of the most favoured nation clause, the rate of withholding tax applicable to dividends referred to in paragraph 2 of article 10 of the convention between France and Kenya is now:

• 8% of the gross amount of dividends if the beneficial owner is a company (other than a partnership) which directly holds at least 25% of the capital of the company paying the dividends;
• 10% of the gross amount of dividends in all other cases.

Source: Notice by the French Republic

2. Slovenia releases Minimum Tax Act ensuring 15% tax on MNEs

Slovenia officially released the Minimum Tax Act through the Official Gazette. This legislation is designed to enforce the implementation of the global minimum tax under Pillar 2, aligning with the guidelines set out in Council Directive (EU) 2022/2523 dated December 14, 2022.

The Minimum Tax Act encompasses provisions related to the income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR). It aims to ensure a minimum tax threshold of 15% for multinational enterprise (MNE) groups with annual consolidated revenue of at least EUR 750 million in at least two of the preceding four fiscal years.

Additionally, the Act incorporates measures for a qualified domestic minimum top-up tax (QDMTT) applicable to members of groups falling within the scope of the legislation.

The Minimum Tax Act came into effect on December 22, 2023, and is typically applicable to financial years commencing on or after December 31, 2023. However, it’s important to note that the undertaxed payment/profit rule (UTPR) takes effect for financial years starting on or after December 31, 2024.

Source: Minimum Tax Act

3. Philippines imposes 1% withholding tax on online merchants

The Bureau of Internal Revenue (BIR) has announced that online merchants with more than PHP 500,000 annual earnings are now subject to a 1% withholding tax.

BIR Revenue Regulation 16-2023 stated that the withholding tax would apply to one-half of the gross remittances by electronic marketplace operators and digital financial service providers to the sellers or merchants for the goods or services sold through their platform.

Further, the Bureau defines an electronic marketplace as a digital service platform whose business is to connect online buyers/consumers with online sellers/merchants, facilitate and conclude the sales, and process the payment of the products, goods or services through such digital platform, or facilitate the shipment of goods or provide logistic services and post-purchase support within such platforms. These include marketplaces for online shopping, food delivery platforms, and platforms for accommodation booking.

However, it was clarified that the withholding tax would not be imposed if the annual total gross remittances to an online seller do not exceed PHP500,000, and the sellers subject to a lower income tax rate pursuant to any existing law are also excluded.

Source: Release by the Bureau of Internal Revenue (BIR)