[World Tax News] UAE Releases Corporate Tax Guide for Tax Groups 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. UAE releases Corporate Tax Guide for Tax Groups

The UAE Federal Tax Authority has released a Corporate Tax Guide for the tax groups. This guide covers various aspects, including what constitutes tax groups, relevant conditions to form a tax group, its tax compliance obligations, taxable income, losses and cessation of the tax groups.

The guide is designed to provide general guidance to taxpayers, helping them understand the taxation of two or more juridical resident persons who form a tax group.

Once a Tax Group is formed, the juridical Resident Persons that are part of the Tax Group are treated as a single Taxable Person and, therefore, Taxable Income needs to be calculated on a consolidated basis for the entire Tax Group. As a result, only one Tax Return for the Tax Group needs to be submitted to the FTA.

This guide provides readers with an overview of:

• what is a Tax Group;
• who is eligible to form or be a member of a Tax Group;
• when a Tax Group can be formed and when it ceases to exist;
• how the Taxable Income of a Tax Group is determined; and
• related compliance requirements.

Tax Groups are an optional regime, and a Tax Group is only formed if juridical Resident Persons who meet the relevant conditions apply to form one and the FTA approves it. Therefore, the concept of a Tax Group will not apply to every Taxable Person.

This guide should be read by any juridical Resident Person who thinks it may qualify to form a Tax Group (with a Parent Company and at least one Subsidiary) or join an existing Tax Group as per the Corporate Tax Law and who wants to enjoy the benefits of the Tax Group regime (for example consolidated Taxable Income, reduced compliance burden, etc.).

Source: Corporate Tax Guide  CTGTGR1

2. Switzerland publishes Transfer Pricing Guide aligning with OECD guidelines

On January 23, 2024, the Swiss Federal Tax Administration released a new Transfer Pricing Guide. This guide takes into account Swiss legislation as of January 1, 2024, and offers:

• A summary of the arm’s length principle and the ramifications of failing to adhere to it according to Swiss regulations. This encompasses situations where related parties receive either excessive compensation (or inadequate compensation), which is construed as a concealed profit distribution reintegrated into the taxable profit of a Swiss entity and is also liable to withholding tax.
• A review of the comparability analysis is provided, including a nine-step process aligned with OECD Guidelines, acknowledged as a best practice but not obligatory. Other methods are also accepted, provided their results’ reliability is ensured. Additionally, the necessary comparability factors for the analysis are outlined:

• 1. The contractual terms of the controlled transaction.
  2. The functions each party performs, considering the assets utilized and risks undertaken (functional analysis).
  3. The attributes of the property exchanged or services provided.
  4. The economic circumstances of the involved parties and the market where they conduct business.
  5. The economic strategies pursued by the parties.
• A summary of transfer pricing methods encompassing the five conventional transaction-based and transactional profit methods per OECD Guidelines is presented. It is emphasized that precedence should be given to methods endorsed in the OECD Guidelines. Other methods are to be employed only when warranted by the case’s specifics, ensuring that prices established by such methods align with the arm’s length principle.
• Instructions regarding specific application areas are provided, referencing pertinent sections of the OECD Guidelines concerning:

1. 1. Intangible assets, covering DEMPE functions and hard-to-value intangibles.
   2. Intra-group services, including low-value services.
   3. Financial transactions.

• Regarding Transfer Pricing Documentation, it is highlighted that Swiss legislation solely mandates the Country-by-Country report for eligible groups, omitting the necessity for a Master or Local file. However, the duty to cooperate stipulates that taxpayers must furnish the requisite information and documents for taxation purposes upon request by the competent tax authority. This obligation extends to transfer pricing, ensuring compliance with the arm’s length principle.
• Procedural elements include:

(i) The designated authorities concerning transfer pricing:

1. 1. 1. Cantonal tax authorities are responsible for income tax collection.
      2. The Federal Tax Administration is tasked with withholding tax collection.
      3. The State Secretariat for International Financial Matters oversees negotiations of advance pricing agreements and mutual agreement agreements with partner states.

(ii) Rulings and Advance Pricing Agreements, issued or negotiated by the respective competent authority.

(iii) Primary and correlative adjustments handled by cantonal tax authorities, and secondary adjustments managed by the Federal Tax Administration.

Source: Transfer Pricing Guide by Swiss Federal Tax Administration

3. Sweden releases tax proposals for the autumn budget 2024

The Ministry of Finance in Sweden has published a set of tax proposals open for consultation, which will serve as the foundation for budget discussions in the upcoming autumn. Among the key proposals is an enhancement and streamlining of regulations concerning the carry-forward of losses following a change in ownership.

These proposals include:

a) Raising the deductible amount (threshold) for prior year losses after a change in ownership from 200% to 300% of the acquisition cost for gaining control of a company with losses.

b) Introducing an exception where the threshold rule wouldn’t apply if a natural person or specific entities gained direct control over a loss-making company, provided that person or entity already held indirect control before the ownership change.

c) Simplifying the “herd rule” by implementing a loss restriction when two or more independent individuals each acquire shares representing at least 20% of all votes in a loss-making company (reduced from 5%) within three years (reduced from five years) and jointly acquired shares in the loss-making company total more than 50% of all votes.

d) Modifying the provision concerning capital contributions resulting in a change in ownership stipulates that this only pertains to contributions made to a company within the same group as the loss-making entity.

These proposed adjustments are slated to take effect on January 1, 2025, and will be applicable to ownership changes occurring after December 31, 2024.

Source: Tax proposals by Sweden Ministry of Finance