[World Tax News] Portugal Approves Draft Law to Implement Pillar 2 Global Minimum Tax 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. Portugal approves draft law to implement pillar 2 global minimum tax

On 11 September 2024, Portugal’s Council of Ministers approved Draft Law 21/XVI/1, aimed at implementing the Pillar 2 global minimum tax in line with Council Directive (EU) 2022/2523 of 14 December 2022. The draft law was submitted to Parliament on the same day. It proposes the introduction of the Pillar 2 Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR) to ensure a minimum 15% tax rate for multinational enterprise (MNE) groups with annual consolidated revenues of at least EUR 750 million in two of the last four fiscal years. Additionally, the draft law includes provisions for a Qualified Domestic Minimum Top-up Tax (QDMTT).

Once approved by parliament and published in the Official Gazette, the IIR and QDMTT will be effective for fiscal years beginning on or after 1 January 2024, while the UTPR will generally take effect for fiscal years starting on or after 1 January 2025. However, the UTPR will apply to tax years starting on or after 1 January 2024 for groups with ultimate parent companies located in EU Member States that have opted for deferred implementation of the IIR and UTPR, as permitted under Article 50 of the Directive.

Source: Press Release

2. UKHMRC launches consultation on multinational and domestic top-up tax draft guidance

The UK HMRC has opened a consultation on additional draft guidance for the Multinational Top-up Tax and Domestic Top-up Tax, which includes new and revised sections of the manual. The consultation will remain open until 23 October 2024.

HMRC has published further draft guidance on Multinational Top-up Tax and Domestic Top-up Tax. This draft HMRC guidance manual release includes all previously released pages (including updates in some cases) in addition to newly drafted pages.

HMRC invites comments from stakeholders on this draft guidance. Publication of the manual will begin following the review of consultation responses.

A supplementary release of draft guidance will follow in due course. This will include remaining draft guidance on flow-through entities, joint ventures, the insurance sector, additional top-up amounts, and the undertaxed profits rule (UTPR).

Source: Public consultation

3. US FinCEN issues updated FAQs on beneficial ownership reporting requirements effective January 2024

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) released new and revised FAQs on the beneficial ownership reporting requirements effective from 1 January 2024. Published on 10 September 2024, these FAQs address reporting companies that dissolve before their initial report is due, foreign companies that discontinue operations in the U.S., and notifications regarding past beneficial owners. The FAQs include:

(a) General Questions

(b) Reporting Process

(c) Reporting Company

(d) Beneficial Owner

(e) Company Applicant

(f) Reporting Requirements

(g) Initial Report

(h) Updated Report

(i) Corrected Report

(j) Newly Exempt Entity Report

(k) Compliance/Enforcement

(l) Reporting Company Exemptions

(m) FinCEN Identifier

(n) Third-Party Service Providers

(o) Access to Beneficial Ownership Information

Source: Frequently Asked Questions on Beneficial Ownership Information

4. Japan’s Ministry of Finance proposes reform to address double taxation relief for suspended tax treaty

Japan’s Ministry of Finance has released a tax reform proposal for the 2025 fiscal year from the Financial Services Agency, focusing on double taxation relief. The proposal explains that Japan typically uses the credit method to eliminate double taxation, allowing a foreign tax credit for taxes paid abroad. However, when Japan has a tax treaty with a foreign country, any foreign tax exceeding the amount allowed under the treaty is not eligible for a tax credit. This restriction applies even if certain provisions of the treaty are suspended, as is the case with Japan’s treaty with Russia, leading to additional tax burdens, particularly for domestic financial institutions. As a result, the proposal suggests implementing measures for foreign tax credits that consider the international landscape to prevent excessive tax burdens, such as offering a full foreign tax credit.

Source: Proposal

5. US IRS issues proposed regulations and guidance on Corporate Alternative Minimum Tax (CAMT)

The United States Internal Revenue Service issued proposed regulations to provide guidance on the Corporate Alternative Minimum Tax (CAMT). The Inflation Reduction Act created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations for taxable years beginning after December 31, 2022. The CAMT generally applies to large corporations with an average annual AFSI exceeding $1 billion.

The proposed regulations provide definitions and general rules for determining and identifying AFSI. They also include rules regarding various statutory and regulatory adjustments in determining AFSI, determining if a corporation is subject to the CAMT, including rules for members of a foreign-parented multinational group (FPMG), and determining the CAMT foreign tax credit.

Additionally, the proposed regulations address the application of the CAMT to affiliated corporations filing a consolidated income tax return.

The IRS previously issued Notice 2023-07, Notice 2023-20, Notice 2023-64, and Notice 2024-10 to provide interim guidance on the CAMT. The proposed regulations issued include rules incorporating this interim guidance. Furthermore, the IRS issued Notice 2024-66 PDF, which waives the penalty for a corporation’s failure to pay estimated tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2023, and before Jan. 1, 2025.

Source: Press Release