[World Tax News] USA Clarifies on Foreign Tax Credit Under GloBE Model Rules and More

Editorial Team – [2023] 157 taxmann.com 322 (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. USA clarifies on Foreign Tax Credit under GloBE Model Rules

The Internal Revenue Service (IRS) in the United States has released a notice called 2023-80. It provides guidance on the foreign tax credit and dual consolidated losses with respect to the GloBE Model Rules. Additionally, it addresses the Extension and Modification of the Temporary Relief outlined in Notice 2023-55.

The notice informs that the Treasury Department and the IRS plan to issue proposed regulations regarding specific sections of the Internal Revenue Code. The regulations will address the application of provisions, including those related to foreign tax credits and dual consolidated loss rules, in response to certain taxes outlined in the “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two)” (GloBE Model Rules).

The Treasury Department and the IRS anticipate that the proposed regulations will follow the guidance provided in sections 2 and 3 of the notice.

The notice also extends the relief period for the temporary relief described in Notice 2023-55 in determining whether a foreign tax is eligible for a foreign tax credit under §§ 901 and 903. In addition, this notice addresses the application of the temporary relief with respect to partnerships and their partners.

The GloBE Model Rules create a coordinated system of minimum taxation intended to ensure that Multinational Enterprise Groups (MNE Groups) with annual revenue of EUR 750 million or more pay a minimum level of tax on the income arising in each jurisdiction in which they operate.

Certain jurisdictions have enacted, and others have proposed, legislation to implement the GloBE Model Rules for the IIR and Qualified Domestic Minimum Top-up Tax (QDMTT), effective for Fiscal Years beginning on or after December 31, 2023, and for the UTPR, effective for Fiscal Years beginning on or after December 31, 2024.

Source: Notice 2023-80 released by Internal Revenue Service (IRS)

2. Bermuda tables corporate tax legislation, outlining the introduction of 15% corporate income tax

The Government of Bermuda has published the statement from Premier and Minister of Finance, E. David Burt, on the Corporate Income Tax Act 2023 tabling in parliament.The legislation provides for introducing a 15% corporate income tax for taxpayers in Bermuda that will fall within the scope of the Pillar 2 global minimum tax (GloBE) rule, which includes members of an MNE group with annual revenue of EUR 750 million or more.

Since 2015, the Organization for Economic Co-Operation and Development (OECD), in collaboration with the Group of Twenty Industrialised Countries (G20), have worked to address the issue of Base Erosion and Profit Shifting. In October 2021, a global agreement was reached to make material changes to the global tax system that would impose a minimum tax rate of 15% on the corporate profits of large multinational enterprise groups to be applied in every jurisdiction in which they had a corporate footprint, commonly referred to as the Global Minimum Tax.

In response, the Government of Bermuda determined that it would be prudent to receive input from tax experts from industry and other sources. Thus, in January 2023, the Government empanelled an international tax working group consisting of lawyers, accountants, and other corporate tax experts to review the Global Minimum Tax in detail, recommend an efficient framework to uphold Bermuda’s value proposition and continue compliance with existing commitments to the OECD and EU (European Union).

Source: Statement Tabling the Corporate Income Tax Act 2023

3. Austria announces suspension of tax treaty with Russia

On December 6, 2023, the Ministry of Finance in Austria released an official notice regarding the immediate suspension of the income and capital tax treaty with Russia. According to the notice, Russia had previously suspended specific treaty provisions on August 8, 2023. Consequently, Austria has decided to suspend the provisions that were suspended by Russia reciprocally. The suspended provisions include the following:

• Permanent establishment, including the associated protocol provisions (Article 5)
• All distribution standards, including the associated protocol provisions (Articles 6 to 22)
• Non-Discrimination (Article 24)
• Administrative assistance in the collection of taxes (Article 26.1)
• Limitation of benefits (Article 26.2)
• Protocol provision for Article 25

However, the following clauses remain unaffected by the suspension:

• Personal scope, including the associated protocol provisions (Article 1)
• Taxes covered by the treaty (Article 2)
• General definitions, including the associated protocol provisions (Article 3)
• Resident including the associated protocol provisions (Article 4)
• Elimination of double taxation (Article 23)
• Mutual agreement procedure (Article 25)
• Exchange of information, including the associated protocol provisions (Article 26)

Source: Notice dated 06-12-2023