Tax and Legal News, June 2021

Corporate taxation

G7 finance ministers agree on key terms of global tax reform

G7 finance ministers have agreed on key terms of global tax reform led by OECD, aiming to re-establish allocation of taxing rights of large multinational enterprises (‘Pillar 1’) and to set up a global minimum corporate tax rate (‘Pillar 2’). 

Under the rules in Pillar 1, 20% of profits exceeding 10% profit margin would be reallocated for tax purposes to the countries where the company actually operates. Under the rules in Pillar 2, a global minimum tax of at least 15% would be introduced in order to restrain global tax competition and tackle tax avoidance.

Working group report on taxation of certain dividends and profits derived from real estate investments published

A working group was set up in June 2020 to examine the prospects for introducing a 5 percent withholding tax on dividends payable to funds and other entities that are exempt from dividend tax, and to examine the prospects for levying a reasonable tax on profits derived from real estate investments. Its final report was published in June 2021.

Whilst the working group considered that introducing the 5 percent dividend withholding tax would not be justified, it suggested that the Finnish domestic legislation would be changed so that indirect transfers of real estate would be more broadly covered by Finnish capital gains taxation. 

Furthermore, the working group examined possibilities to reform the taxation of special investment funds investing in real estate assets. The examined reform would mean fundamental changes to such funds, but extensive further studies and analysis of issues related to EU law would be needed before concrete proposals may be made in this respect.

The Finnish Supreme Administrative Court did not grant leave to appeal against complaints concerning the taxation of carried interest income

The Finnish Supreme Administrative Court has dismissed the Tax Recipients Legal Services Unit’s applications for leave to appeal concerning earlier Administrative Court rulings on the taxation of carried interest. Very generally, the Finnish Tax Administration had issued a preliminary ruling stating that carried interest in the circumstances shall be taxed as earned income of managers that had invested in the GP company. The taxpayer appealed to the Administrative Court which ruled, contrary to the Tax Administration, that the legal form of the arrangement should be respected. The Supreme Administrative Court did not grant leave to appeal and the Administrative Court rulings are now final, the result being generally in line with existing case law.

The European Commission Communication on measures for future business taxation

The European Commission has published a Communication on business taxation as part of the EU's forthcoming tax reform program. The aim of the program is to achieve a stable, efficient and fair corporate tax system in the European Union. The Commission intends to present a framework for corporate taxation in the EU with a view to harmonizing taxation around the EU by the end of 2023. The objectives and actions are in line with the G7 Communication published in June, in which they commit themselves to working towards a global minimum tax rate.

The communication also sets out tax measures for the next two years to increase investments, protect tax revenues and support the green transition and digital transformation. The first measure aims to improve transparency. The Commission proposes that large companies should publish their actual tax rates. Economic recovery is being pursued by encouraging companies to finance their operations with equity instead of debt.

The Supreme Administrative Court applied the anti-avoidance rule to an exchange of shares

A parent company of a construction group was planning to transfer six housing companies to its subsidiary. As the housing companies were to be developed and thereafter sold, and the exchange of shares would have increased the tax acquisition cost of the housing company shares, thereby lowering taxable profit on disposal, the Court applied the anti-avoidance rule, stating that the exchange of shares was just an intermediate phase in the arrangements, motivated by tax considerations. 

People & organisation

UK Share Plan Reporting - time to take action for UK based companies

Now the 2020/21 tax year has ended, companies need to start thinking about their employment related securities (ERS) online share plan reporting obligations in the UK. Generally, employment related securities means share options/awards and any shares held by employees or directors. Companies need to register their share plans with HMRC, self-certify their tax advantaged arrangements, and file online annual returns setting out certain share plan related activities which occurred during the 2020/21 tax year by 6 July 2021.

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