Martin is a Partner and Tax Advisor at AREA Bollenberger in Austria, specialising in Transfer Pricing. He delivers innovative, end-to-end solutions in Transfer Pricing, Customs Law, VAT, and Tax Technology for multinationals.
Transfer Pricing in 2025: What businesses need to know
January 30, 2025
Transfer pricing in 2025 will be defined by stricter global regulations, enhanced tax scrutiny, and the increasing role of technology in compliance. In an article forInternational Tax Review, Martin Bonner and Yiwen Ping of Kreston Global outline how key developments from 2024—including Pillar Two, Amount B, and the Apple v EU Commission ruling—will influence multinational enterprises in the year ahead.
Key global Transfer Pricing trends
Pillar Two: Global Minimum Tax implementation
The rollout of Pillar Two in 2024 introduced a 15% minimum tax for multinationals earning over €750 million annually. A major shift in the framework was the expansion of permanent establishment (PE) definitions, including the introduction of “stateless” PEs. This means businesses must carefully assess economic substance to avoid disputes over profit allocation.
Amount B: Standardisation with challenges
The OECD’s final report on Amount B was released in February 2024, aiming to simplify transfer pricing for routine distribution activities. While intended to streamline compliance, its qualitative criteria leave room for interpretation, creating potential inconsistencies across jurisdictions. Businesses must proactively assess eligibility to benefit from reduced documentation requirements.
Apple v EU Commission: Economic Substance under scrutiny
The landmark Apple v EU Commission ruling reinforced the importance of aligning profit allocation with actual business functions and risks. The case highlights increased scrutiny on mismatches between legal ownership and operational control, urging companies to refine their transfer pricing policies to withstand regulatory challenges.
Regional Transfer Pricing developments
Germany: Stricter compliance deadlines
Germany introduced tighter transfer pricing documentation requirements in 2024, reducing the deadline for submitting master and local files to just 30 days. This underscores the urgency for companies to maintain well-organised documentation and compliance processes to avoid penalties.
China: Digitalisation and transparency in taxation
China has positioned itself as a leader in digital tax administration. Its nationwide electronic tax system integrates real-time data processing, enhancing tax authorities’ ability to scrutinise transfer pricing practices. Additionally, China’s push for greater transparency includes new fair competition rules aimed at reducing selective tax incentives.
Technology and the future of Transfer Pricing compliance
Tax administrations worldwide are leveraging AI, big data, and blockchain to enhance risk assessments and regulatory enforcement. Businesses must invest in automation and robust data management systems to meet evolving compliance expectations.
Preparing for Transfer Pricing in 2025
With increasing regulatory complexity, businesses must take a proactive approach to transfer pricing in 2025. Aligning with global tax reforms, enhancing digital capabilities, and ensuring compliance with new reporting standards will be critical to managing risks and optimising tax strategies in the coming months.
CBIZ has recently published the CBIZ-Hofstra University CEO 2025 survey, which provides an essential snapshot of middle-market CEOs’ perspectives on the current business climate. This analysis explores their priorities and challenges for the next 12 months, focusing on critical topics such as proposed tariffs, the Tax Cuts and Jobs Act (TCJA), the Inflation Reduction Act (IRA), and workforce concerns. Download your copy by clicking the link or read the summary below.
Potential financial implications of proposed tariffs weigh heavily on CEOs, prompting decisive actions. Most respondents are exploring strategies to minimise risks, with over 80% considering relocating production to avoid additional costs. Workforce reductions are another likely response, with three-quarters of CEOs preparing for this possibility. Additionally, more than 70% of businesses anticipate delaying planned investments, and two-thirds are evaluating changes to their supply chains to counter tariff-related challenges.
The Tax Cuts and Jobs Act (TCJA)
The findings related to the Tax Cuts and Jobs Act illustrate the uneven impact of tax reforms across sectors. While 42.6% of CEOs reported benefiting somewhat from provisions such as reduced corporate tax rates and bonus depreciation, a notable 39.5% indicated no tangible benefits. Only a small proportion—10.9%—experienced extensive advantages from the legislation. This disparity underscores how differently businesses perceive and experience the impact of such reforms, depending on their size, industry, and structure.
The Inflation Reduction Act (IRA)
There were mixed opinions on the Inflation Reduction Act. Although 43.3% of respondents reported some benefits, nearly half (47.7%) indicated that the legislation had no discernible impact on their business. When asked about the potential extension of IRA provisions, 41.8% expressed optimism, believing it would positively influence their financial outlook. However, 37.1% predicted no impact, and 14.1% were uncertain or chose not to answer.
Workforce challenges
Hiring and retention remain at the forefront of CEOs’ concerns, with many identifying economic stability and compensation adjustments as critical to workforce development. The evolving landscape of remote work, combined with an increased focus on diversity and inclusion, is prompting companies to rethink their talent strategies. Regulatory compliance and adapting to workforce changes further complicate planning. These challenges highlight the importance of long-term workforce strategies to ensure resilience and growth in a competitive hiring market.
Economic outlook: Renewed optimism
CEOs displayed a cautiously optimistic outlook for the coming year despite the challenges of tariffs, tax reforms, and workforce concerns. The survey recorded a slight increase in those rating their business outlook as “very positive,” rising from 9.1% in the previous report to 10.2%. Furthermore, the percentage of respondents placing their confidence in the higher range (8–10) grew to 45%, compared to 34.5% in the previous survey.
While economic concerns remain the dominant factor influencing decision-making, cited by 55.1% of respondents, issues such as talent availability and rising operational costs also weigh heavily on planning. Encouragingly, worries about access to capital and interest rates appear to be easing, suggesting some stabilisation in the economic environment.
If you would like to talk to an expert at CBIZ about this report, please get in touch.
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Mark Taylor
Head of International and Tax Director, Duncan & Toplis, Chair of Kreston Global Tax Group
Mark is a Duncan & Toplis’s Management Board member and head of tax advisory services, covering all of their 11 offices. Mark has particular expertise in international structuring and corporate and property taxes. Mark is head of international tax for the firm while also heading up their corporate and business tax group and property tax departments. He has extensive experience of tax planning and due diligence having worked on many large property transactions, corporate restructures, acquisitions and disposals. Mark thrives on adding value to his clients and having a great team culture. Mark was made Chair of the Global Tax group at Kreston in June 2020.
Mark Taylor, Chair of the Kreston Global Tax Group, provides a critical analysis for FT Adviser on the OECD’s guidance regarding “amount A of Pillar 1”. He explores the Organisation for Economic Co-operation and Development’s (OECD) guidance on a new “Multilateral convention to implement amount A of Pillar 1”. This is a component of the OECD’s wider base erosion and profit shifting (BEPS) project, specifically designed to address tax challenges from the digitalisation of the economy. Amount A aims to redistribute taxing rights to ensure multinational corporations (MNCs) pay taxes where their customers are, rather than solely where they are tax residents.
The introduction of a multilateral convention
This framework introduces a pivotal shift in international tax policy, requiring multinational corporations (MNCs) to align tax contributions with the location of economic activities and value creation. It moves away from the traditional tax residency model, placing a greater tax obligation on MNCs in the countries where they generate profits through consumer engagement.
The OECD guidance signifies progress in the desire to implement Pillar 1, although the Multilateral Convention (MLC) required for its enactment is not yet in force.
The BEPS regime: Objectives and outcomes
The BEPS initiative combats tax avoidance strategies that exploit gaps in international tax rules, which the OECD estimates to cost up to $240 billion annually in lost revenue. Pillar 1 affects the largest and most profitable MNCs, proposing to reallocate a portion of their profits to the countries where they engage in business. Meanwhile, Pillar 2 targets a broader range of companies, imposing a minimum corporate tax rate of 15%.
The commercial impact and strategic response
Taylor highlights the need for MNCs to reassess their tax strategies in light of these developments. Digital businesses, despite their lack of physical presence in some jurisdictions, must comply with the tax laws where their users are based. This evolution in tax regulation could increase tax liabilities and compliance costs, especially for small and medium-sized enterprises (SMEs) that operate internationally on tighter budgets.
Tackling avoidance and embracing compliance
The OECD’s 15 actions provide a framework to standardise compliance and empower governments to prevent tax avoidance. These include ensuring taxation in the digital economy, countering hybrid mismatch arrangements, defining controlled foreign companies (CFCs) and their taxation, targeting preferential tax regimes, closing loopholes in tax treaties, and aligning transfer pricing with value creation.
Preparing for the BEPS shift
MNCs, and the SMEs affected indirectly, must now engage with international tax advisers to navigate this complex landscape. Advisers will play an essential role in restructuring business models, assessing global tax risk, and developing transfer pricing policies that conform to OECD guidelines. Non-compliance risks severe penalties, but thorough preparation can enhance visibility into a company’s operations and effective global tax rate.
The future of international taxation
The push to reform international tax laws to reflect the modern digital and globalised economy will undoubtably affect all businesses with cross-border activities. While the full implications of these reforms are still unfolding, they signal a firm commitment from policymakers to adapt international tax frameworks to modern economic realities. These changes are not limited to the largest corporations; any business with cross-border sales must adapt. With professional guidance, businesses can position themselves advantageously for these shifts in global taxation.
If you would like to speak to one of our global tax experts, please get in touch.
Certified tax advisor and dedicated tax expert with a focus on and experience in multinational group tax, transfer pricing, VAT and tax technology. Background in business, law and IT and keen to combine those fields.
The role of ICAP in transfer pricing
February 19, 2024
Experts are highlighting how the International Compliance Assurance Programme (ICAP), facilitated by the Organisation for Economic Co-operation and Development (OECD), can add value to multinational enterprises (MNEs) that are seeking to align their transfer pricing strategies with global tax administrations.
In a recent article in the International Tax Review, Martin Bonner, transfer pricing expert at Area Bollenberger and member of the Kreston Global network, sheds light on the significance of the ICAP’s role in transfer pricing.
ICAP’s role in tax compliance
ICAP represents a voluntary, multilateral framework designed to enhance early engagement, transparency, and mutual understanding between multinational enterprises (MNEs) and tax authorities, particularly regarding transfer pricing.
Understanding ICAP’s impact on transfer pricing
The programme’s value, highlighted by Martin Bonner and other experts, lies in its capacity to encourage proactive dialogue between businesses and tax administrations. It enables a coordinated assessment of tax risks, allowing companies to confidently demonstrate their compliance with tax regulations. This proactive engagement aims to preemptively resolve potential disputes, enabling MNEs to present well-substantiated transactions and foster a mutual understanding of transfer pricing methodologies.
Challenges for MNEs
MNEs encounter challenges in aligning with the diverse expectations of tax authorities across jurisdictions. ICAP aids in facilitating a multilateral dialogue to harmonise transfer pricing methodologies and practices.
The significance of ICAP in international taxation
Martin Bonner emphasises ICAP’s role in providing assurance and a mechanism for risk assessment to participating MNEs. Nonetheless, the absence of legal certainty, in contrast to Advanced Pricing Agreements (APAs), warrants careful consideration by companies.
As the global tax landscape evolves, the importance of ICAP in fostering constructive dialogue and understanding between MNEs and tax administrations is clear. The programme offers a route towards more transparent and harmonious transfer pricing practices, within its limitations and the strategic approaches of participating companies.
The future of ICAP
While ICAP has had successes, with 20 cases completed and more underway, the limited capacity of tax authorities and the programme’s voluntary nature raise concerns. Tax experts, including Martin Bonner, acknowledge ICAP’s potential in enabling MNEs to proactively demonstrate compliance and resolve disputes, yet they also highlight its limitations.
For more advice on the ICAP’s impact on transfer pricing, please get in touch.
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A guide to setting up business in Cambodia
January 30, 2024
The team at Kreston Cambodia have written a guide to setting up business in Cambodia. The guide offers local insight on registering a business in Cambodia, Cambodian tax regulations and a list of free trade agreements.
Kreston Cambodia share their local knowledge of the country, including the economic overview and advantages of setting up a business in Cambodia.
Step-by-Step Process for business setup
Follow a roadmap for setting up your business in Cambodia written by Mr Keat Heng, Audit Partner of Kreston Cambodia. From initial planning to operational execution, our guide provides practical steps, including obtaining necessary permits and navigating local bureaucracies.
Legal essentials for businesses in Cambodia
Learn about the necessary legal steps to establish your business in Cambodia. The guide covers company registration, types of business entities, and the importance of understanding local laws, including tax regulations and employment law.
Cambodian tax obligations
Kreston Cambodia share detailed knowledge of the tax structure and obligations that businesses looking to establish themselves in the country should consider.
Incentives
Discover financial strategies and incentives crucial for your business. The guide highlights Cambodia’s taxation system, investment incentives, and tips on effective financial planning for new ventures in the country.
Dividend payments
For businesses that have shareholders to consider, the guide covers tax obligations on dividend payments.
Free trade agreements in Cambodia
Cambodia has many interesting bilateral, Double Taxation and free trade agreements that are worth considering before opening a business in Cambodia.
Get in touch
Benefit from Kreston Global’s continuous support and resources. Access our network of experts in the region, for on-the-ground insights and tailored advice. To ensure your business flourishes in the Cambodian market, get in touch.
Herbert Chain is a highly experienced author is a financial expert with 40 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance, and experience with SPACs.
US issues final accounting standards for (certain) Crypto Assets
January 23, 2024
On December 13, 2023, the US issued the final accounting standards for Crypto Assets. The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, titled “Accounting for and Disclosure of Crypto Assets”, an amendment of FASB Codification Intangibles—Goodwill and Other— Crypto Assets (Subtopic 350-60), to address the accounting challenges posed by cryptocurrency. The ASU aims to enhance accounting procedures and disclosure requirements for certain crypto assets, providing a more transparent view for investors, creditors, and other users of financial statements prepared by organizations with holdings of crypto assets.
Cost less impairment
As desired by many users and preparers of such financial statements, the new standard departs from the historical “cost less impairment” accounting model for crypto assets, requiring entities to measure qualifying assets at fair value with changes recognized in net income. In the ASU, the FASB noted that “accounting for only the decreases, but not the increases, in the value of crypto assets in the financial statements until they are sold does not provide relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position.”
Crypto Asset disclosures
The ASU also mandates disclosures about significant crypto asset holdings, contractual sale restrictions, and reporting period fluctuations to provide investors with comprehensive insights. To be subject to these amendments, crypto assets must meet specific criteria, including meeting the definition of an intangible asset as defined by FASB, not providing the asset holder with enforceable rights to or claims on underlying goods, services, or other assets, being created or residing on a distributed ledger based on blockchain or similar technology, being fungible, secured through cryptography, and not created by the reporting entity.
Fair value measurement
There are certain implications on businesses’ operations and recordkeeping resulting from the pronouncement. Fair value measurement introduces the need to stay informed about market prices and markets, and to report the impact of price fluctuations on financial performance. The detailed disclosures now mandated will require organizations to maintain comprehensive records of crypto transactions, and real-time tracking and valuation systems will be necessary to meet reporting demands.
2024 deadline
Entities are expected to comply with the new standards for fiscal years starting after December 15, 2024, with early adoption permissible for yet-to-be-issued financial statements. The changes, if adopted in an interim period, must be retroactively applied from the start of the fiscal year.
For more advice on the recent update from the FASB, please get in touch.
Tarek Zouari is a seasoned chartered accountant with over 20 years of international experience in Finance and Audit, serving as the Regional Chair for Kreston’s Africa Steering Committee & Advisory Group. He is also the past President of Exco Africa, the first African network of independent accounting and auditing firms.
Investing in Africa: Trade Finance Global magazine
January 16, 2024
Recently, our Kreston Global expert in Tunisia Tarek Zouari, Managing Partner Exco Tunisie wrote a piece on the trend of investing in Africa for Trade Finance Global magazine. You can read the full article here or the summary below.
Investment boom in Africa
The United Nations Conference on Trade and Development’s World Investment Report 2023 highlights that foreign direct investment (FDI) flows to Africa reached $45 billion in 2022.
Factors driving Foreign Direct Investment in Africa
Natural Resources: Africa, with 30% of the world’s mineral reserves, offers abundant opportunities for exploration, extraction, and export. The continent is also a hotspot for renewable energy investments, especially in solar and hydropower.
Demographic Dynamics: Africa’s rapid population growth, with 1.4 billion people, 60% of whom are under 25, drives demand for infrastructure, agriculture, education, and healthcare.
Emerging trends and governmental policies
A significant trend is the insistence by African governments on local transformation of extracted resources, ensuring local value addition and potentially boosting FDI.
Diversity and cultural considerations
It’s crucial to understand the economic, legal, and cultural diversity across African regions for successful investment and engagement.
Investment considerations
Cultural Understanding: Approach investments with a deep understanding of cultural nuances.
Local Support: Engaging the right local partners and professionals is key.
Business Model Adaptation: Align your business model with local costs, especially in personnel expenses.
Knowledge Transfer: Implement plans for knowledge transfer to integrate and be recognized as a responsible company.
Legal and tax frameworks
OHADA: The Organisation for the Harmonization of Business Law in Africa aims to increase legal certainty in West and Central Africa.
Local Expertise: Engage local advisors with international experience
Essential Steps Before Expanding into Africa
Market Study: Conduct thorough research on local consumer behaviour and market opportunities.
Tax and Legal Study: Understand local regulations, legal requirements, and international treaties.
Solid Business Plan: Develop a detailed plan tailored to the African market.
Regulatory and Financial Aspects
Investment Protection: Evaluate the legal framework for protecting investments.
Dividend and Capital Transfer: Understand regulations concerning profit repatriation.
Local Currency Trends: Analyse the stability and trends of the local currency.
Financing Options: Explore local and international financing avenues.
Carlos Sierra is an accomplished expert in tax planning, risk reduction, and financial consulting, boasting over 10 years of experience. Specialising in intelligent tax strategies, he helps clients navigate complex tax laws, minimising liabilities ethically and legally. His focus includes risk assessment and mitigation, ensuring accurate and timely tax filings. With a comprehensive skill set in financial consulting, Carlos aids business owners in financial optimisation and growth. He remains dedicated to staying informed about evolving tax regulations and economic trends, equipping clients with the latest insights for sound financial decisions.
Understanding the Mexican Federal Revenue Law 2024 update
November 29, 2023
Overview of the 2024 revenue projections
The Mexican Federal Revenue Law 2024 update by the Mexican Senate is now benefitting from the recently approved Federal Revenue Law for the fiscal year 2024, marking a significant increase in the country’s projected revenues. The total expected revenue for 2024 is 9.066 trillion pesos, a notable 9.36% increase from the previous year’s 8.29 trillion pesos. This section will delve into the specifics of these projections, including the breakdown of various revenue sources such as taxes, social security fees, and other contributions.
Key points of the Mexican Federal Revenue Law 2024 update
The Senate approved the Revenue Law for fiscal year 2024. The total amount of expected revenues for the next fiscal year is detailed as follows:
Projected revenues for 2024 are 9.066 trillion pesos. For fiscal year 2023, it was 8.29 trillion pesos, an increase of 9.36% by 2024. Federal participatory revenue is projected at 4.585 trillion pesos, compared to 4.44 trillion pesos in 2023.
Authorized to contract and exercise loans for a net domestic indebtedness of up to 1 trillion 990 billion pesos, and external indebtedness of up to 18 billion dollars.
Four trillion 942,030.3 million pesos corresponding to Taxes.
535,254.7 million pesos to Social Security Fees and Contributions.
36.5 million pesos to Improvements Contribution.
59 thousand 091.4 million pesos to Duties.
8 thousand 641.6 million pesos to Products.
193 thousand 877.0 million pesos to Utilizations.
One trillion 312 thousand 289.4 million pesos from Goods Sales Revenues, Services rendered and Other Revenue.
277,774.3 million pesos to Transfers, Allocations, Subsidies and Grants, as well as Pensions and Retirements.
One trillion 737,050.6 million pesos correspond to Revenues Derived from Financing.
Monthly surcharge rates are maintained at the same level as for 2023:
Extension: 0.98%.
Installments up to 12 months: 1.26%.
Partial payments from 12 to 24 months: 1.53%
Partial installments over 24 months and deferred term: 1.82%.
Monthly surcharge rate will continue to be 1.47% during 2024.
The income tax withholding rate on interest is increased from 0.15% to .50%.
Debt management and loan provisions
A crucial aspect of the new revenue law is the authorization to contract and exercise loans. The law permits a net domestic indebtedness of up to 1 trillion 990 billion pesos and an external indebtedness of up to 18 billion dollars. This section will discuss the implications of these debt allowances and their role in the overall fiscal strategy of the government.
Taxation changes and surcharge rates
One of the key highlights of the 2024 revenue law is the modification of tax structures and surcharge rates. Notably, the law maintains monthly surcharge rates at the same level as in 2023, with specific rates for extensions, installments, and deferred payments. Additionally, the income tax withholding rate on interest has seen an increase. This section will provide a detailed analysis of these changes and their potential impact on businesses and individuals.
Anticipated impact on the Mexican economy
While the Senate’s approval of the Federal Revenue Law is a crucial step, the final authorization from the Executive Branch remains pending. This section will discuss the potential economic implications of the new fiscal measures, focusing on how they might influence the national economy. It will also emphasize the importance of staying informed about the evolution of these measures and their practical impact.
Preparing for fiscal changes
Although the Senate’s approval represents a significant step forward, waiting for the final authorisation from the Executive Branch will be crucial for the implementation and effectiveness of these fiscal measures. Therefore, it is important to keep informed about their evolution and impact on the national economy.
If you would like more advice on the Mexican Federal Revenue law update, please contact the Kreston BSG team.
Fabio Mazzini is an Associate Partner at Studio TDL, with a solid background in corporate and tax consultancy for multinational operations. Registered with the Vigevano (PV) Register of Chartered Accountants since April 7, 2004, and as a Statutory Auditor from March 3, 2008, he offers knowledgeable assistance in both national and international taxation. His areas of expertise include direct and indirect taxes, tax litigation, financial and tax due diligence. Mazzini is skilled in conducting company appraisals and evaluations, particularly in the contexts of corporate reorganisations and acquisitions. He serves as an auditor and Statutory Auditor for notable Italian and international companies. Fluent in English and Spanish, his professional focus encompasses Accounting and Financial Statements, Management Control, and Corporate and Contractual consultancy, as well as guiding Extraordinary Operations.
Italy’s new Delegation Law to launch tax reform
November 16, 2023
Italy’s new tax Delegation Law is set to create a significant overhaul of the tax system following the introduction of the Delegation Law, Law no. 111, effective from 29 August 2023. The legislation, published on 14 August in the Official Gazette, outlines the framework for a comprehensive tax reform to be implemented by August 2025.
The law is structured across five titles encompassing 23 articles. It outlines the general principles and implementation schedule, delves into various tax categories including income tax, VAT, and IRAP, and addresses regional and local taxes as well as gaming.
Italy’s new tax Delegation Law – Article 7
Article 7 of the law brings VAT into sharp focus, signalling a shift towards greater alignment with European Union standards. Key amendments include redefining VAT bases to reflect EU terminology, particularly in the classification of goods and services. This realignment is expected to clarify definitions surrounding contracts, share transfers, and leasing arrangements.
VAT implications
In a move to modernise the VAT system, the law also revises exemptions, potentially expanding VAT liability in the real estate and financial sectors. VAT rates are set for a rationalisation process, aligning with EU criteria and potentially easing the burden on socially essential goods and services. A notable change in the VAT landscape is the introduction of more flexible deduction mechanisms. This aligns Italy with EU VAT guidelines and offers businesses a tailored approach to deductions, depending on the usage of goods and services in taxable transactions.
Customs updates
The law doesn’t overlook customs procedures. Article 11 proposes a digital and streamlined future for customs, enhancing efficiency in coordination, checks, and procedural aspects. This includes a comprehensive reorganisation of liquidation, assessment, and collection processes. While the Delegation Law sets out the blueprint for reform, its full impact will unfold as specific regulations and measures are introduced. At present, no new VAT rules have come into effect, but the stage is set for significant changes.
Tax efficiencies
As Italy embarks on this ambitious reform, the business community and individuals alike await the practical implications. The reform promises a more integrated and efficient tax system, in line with EU standards, but it also brings a period of adjustment and adaptation.
Read the full analysis in Italian and English here.
If you would like to get in touch with one of our tax experts in Italy, please get in touch, or contact Studio TDL directly.
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Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Audit Methodology Steering Committee.
Guillermo Narvaez is a Tax Partner at Kreston FLS Mexico City Office and the Technical Tax Director, Global Tax Group, Kreston Global and member of the International Fiscal Association (IFA). Guillermo is a tax expert on international taxation, corporate taxes, transfer pricing, mergers and acquisitions, corporate reorganisations and litigation.
Within international taxation, Guillermo specialises in the analysis and interpretation of treaties to avoid double taxation applied to international transactions.
Global cryptocurrency accounting and tax standards
September 8, 2023
In a recent article exploring global cryptocurrency accounting and tax standards in Bloomberg Tax, Herbert M. Chain, Deputy Technical Director of Kreston Global Audit Group and Shareholder, Mayer Hoffman McCann P.C., and Guillermo Narvaez, Technical Tax Director at Kreston Global Tax Group and Tax Partner, Kreston FLS, delve into the difficulties of codifying digital assets within the scope of existing accounting standards. You can read the full article on Bloomberg Tax, or read the summary below.
Cryptocurrency accounting and tax standards in the United States
On September 6 2023, the Financial Accounting Standards Board (FASB) approved new rules for accounting for cryptocurrencies. The standard requires crypto assets to be measured at fair value each reporting period, while also requiring enhanced disclosures for annual and interim reports. The rules will be effective for 2025 annual reports, but may be adopted for earlier periods. The FASB expects to formally issue the standard by year-end. On the taxation front, crypto assets are considered personal property, subject to capital gains tax. The U.S. Internal Revenue Service recently proposed new regulations set to come into effect in 2026, with a focus on simplifying tax filings and curbing evasion.
Global accounting and tax standards for cryptocurrency
The authors highlight that there is currently no unified global framework to govern cryptocurrencies due to the divergence in local criteria, with China, Japan, Canada and the EU offering no classification. The tax treatment varies from jurisdiction to jurisdiction, often classifying crypto as personal property, intangibles, or other asset classes for tax purposes. The lack of consensus extends to valuation models, though countries like the U.S., UK, and Australia propose fair value accounting.
Cryptocurrency regulatory challenges
When it comes to regulation, the global scene is diverse and regulators worldwide find themselves in a difficult position. Guidelines must be robust enough to address the inherent risks of this fast-evolving sector, without curbing its innovative potential. The urgency of these efforts has been underscored by recent setbacks in the crypto space, including the collapse of the FTX digital currency exchange platform. Such incidents have heightened concerns and accelerated regulatory initiatives.
In the United States, the government has released “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” a comprehensive guide addressing issues surrounding protection and enforcement. Meanwhile, the European Union has made strides in creating a unified regulatory framework through its recently adopted Markets in Crypto Assets (MiCA) rules. Not to be left behind, Canada has also stepped into the regulatory arena by issuing its first set of federal guidelines.
As nations continue to take individualistic or collective strides, the onus remains on stakeholders to remain updated and adaptable, ensuring compliance while optimising opportunities.
Double taxation challenge for cross-border activity
Cross-border transactions of crypto assets also present unique tax implications. With no uniform classification of digital assets as currencies, existing double taxation treaties play a pivotal role in determining tax liability.
Navigating the maze of global tax and accounting rules for cryptocurrencies is not straightforward, but Double Tax Treaties (DTAs) offer some guidance. These treaties, modelled on a global standard, contain Articles 7 and 12, which help determine whether income from selling a crypto asset counts as a “business profit” or a “royalty.”
Establishing the application of Article 7 and Article 12
Article 7 applies when you Are making money from ongoing operations in another country, but only if you have a stable, permanent business there. Article 12 comes into play when you get paid for allowing, among others, the use of an intangible asset like a cryptocurrency.
Countries often hold back some tax right at the source when a royalty payment is involved. So, figuring out whether your crypto sale is a business profit or a royalty is crucial. Business profits are usually taxed in your home country unless you have a permanent operation in a foreign country. Royalties, on the other hand, can be taxed right where the payment originates.
Considering cryptos under Article 12
Cryptos are intangible, just like a piece of copyrighted software. However, there is debate around whether just using the software counts as “use of copyright,” which is what traditionally triggers a royalty tax. Typically, you would need to have in-depth control or rights over the software for it to be considered a royalty.
Think of it like this: If you buy off-the-shelf software, you are paying for the use of the software itself, not the underlying algorithms or any other intellectual property. Therefore, this payment is not considered a royalty. Likewise, if you are simply buying or selling cryptocurrencies, and not tapping into its underlying algorithm for further financial gains, it may not count as a royalty either.
What is the practical impact? If your crypto income is not a royalty, you might escape withholding tax in the other jurisdiction, as per Article 7. This is especially significant given crypto assets’ growing market capitalisation, which currently hovers around $1.2 trillion.
As cryptocurrencies continue to disrupt traditional financial systems and gain economic relevance, the regulatory landscape is ever-changing. Whether it is accounting standards or tax treatments, differences exist across countries—from complete bans to open-armed acceptance. It is crucial, then, to consult experts to understand how each jurisdiction treats crypto assets, as global policies are far from settled.
As the regulatory landscape for crypto assets is still developing, with very different positions being taken across jurisdictions. Accordingly, seeking expert advice from accounting and/or tax advisors is vital.
If you have questions about crypto assets, accounting and taxation challenges and would like to speak to an expert, please get in touch.
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Kreston BSG to host webinar on U.S. market expansion for Latino entrepreneurs
August 30, 2023
Kreston BSG is hosting a webinar on U.S. Market expansion for Latino entrepreneurs with guest speaker Veronica Quintana, Leader of the Latin-Owned Business Practice at CBIZ MHM. The webinar is on 7 September 2023 at 16:30 (Mexico Central Time) and will be held in Spanish.
Latinos own nearly 5 million businesses in the U.S. and account for over $800 billion in revenue. If you’ve ever thought about taking your business across borders and stepping into the lucrative U.S. market, now is the perfect opportunity. Kreston BSG is thrilled to partner with CBIZ in the United States for a webinar aimed at guiding entrepreneurs through the tax and legal implications of starting or expanding a business in North America.
Event Details:
Date: September 7
Time: 16:30 pm (Mexico Central Time)
Language: Spanish
Audience: Open to the general public, clients, and collaborators of Kreston Global and CBIZ
Leader of the Latino-Owned Business Practice at CBIZ & MHM, Veronica Quintana brings a wealth of knowledge and experience in navigating the U.S. market.
Understanding the U.S Tax system: Navigating the complex U.S tax landscape
Legal requirements: What are the do’s and don’ts when expanding or starting a business in the U.S?
Cultural considerations: Unpack the nuances of doing business in a diverse market.
Why Should You Attend?
Informative: The comprehensive coverage of the tax and legal aspects will equip you with the right tools to set up your business successfully in the U.S.
Networking: Opportunity to interact with experts and like-minded entrepreneurs.
Free of charge: Knowledge, insights, and an array of business benefits, all at zero cost to you.
Surandar Jesrani is the CEO of MMJS Consulting in Dubai, steering businesses toward successful VAT implementation in the UAE and GCC since 2017. Before MMJS, he managed finance and taxation at a top Private Equity Group and sharpened his international taxation skills at Infosys and General Motors. An alumnus of The Institute of Chartered Accountants of India, Surandar specialises in Accounting, Finance, and International Taxation.
UAE’s corporate tax update
August 10, 2023
Surandar Jesrani of MMJS consulting in Dubai shares his thoughts on the implication of UAE’s corporate tax update with eprivateclient magazine. Read the full article here or the summary below.
The United Arab Emirates (UAE) has long demonstrated its commitment to international tax transparency standards, notably as a member of the Organization of Economic Co-operation and Development (OECD). Here’s a glimpse into the recent evolution in the UAE’s tax scenario.
The path to global tax transparency
OECD’s 2015 Base Erosion and Profit Sharing (BEPS) Action Plans aimed at preventing Multi-National Enterprises (MNEs) from employing strategies to lower their tax liabilities across jurisdictions. Nonetheless, as the initial BEPS strategies weren’t wholly suited to the challenges of a digital economy, the OECD introduced an Inclusive Framework (IF) in 2021. This two-pillar model proposed that MNEs should pay a minimum corporate tax of 15% in every jurisdiction.
The UAE, endorsing this global tax framework initiative, joined a consensus with 139 other countries. In alignment with its OECD obligations and its vision of positioning itself as a leading global business hub, the UAE announced a federal corporate tax on business profits in 2022.
Key principles of the UAE corporate tax update
UAE’s corporate tax regime adheres to universally acknowledged principles ensuring:
Flexibility with modern business practices.
Simplicity and certainty.
Equitable taxation.
Transparent procedures.
Effective from 1 June 2023, the UAE corporate tax law encompasses 20 chapters and 70 articles detailing the scope, application, and compliance rules. All business and commercial activities, undertaken by individuals or entities, fall under this tax regime, divided into resident and non-resident classifications.
An overview of taxable entities
Resident Persons: Legal entities in the UAE are taxed on global income.
Non-resident Persons: Foreign businesses are taxed on income sourced in the UAE.
Moreover, all business-active individuals and legal entities will need to register under the UAE corporate tax law.
Certain entities can avail tax exemptions, like the UAE government entities, qualifying public benefit entities, qualifying investment funds, and some specific entities as designated by the Minister.
Tax rates and categories
Depending on the size and type of business, the UAE corporate tax rates vary:
Taxable Persons: 0% on income up to AED 375,000, and 9% on income above this threshold.
Qualifying Free Zone Persons (QFZP): 0% on qualifying income and 9% on other incomes.
Small businesses: 0% if the gross revenue of the previous year is under AED 3 million; otherwise, they’re taxed similarly to general taxable persons.
MNCs, until the full adoption of Pillar Two rules by the UAE, will be taxed under these regular corporate tax rates.
Compliances
Entities are required to file tax returns within nine months post the close of a tax year. While there are provisions for withholding taxes on specific domestic and foreign payments, currently, it stands at zero per cent.
Conclusion
UAE’s introduction of corporate tax is a strategic move in its journey as an OECD IF member, especially concerning the global minimum tax proposed by BEPS Pillar Two. With a 9% tax rate, the UAE remains an attractive proposition when compared to other tax jurisdictions. Furthermore, the UAE tax law’s foundation on internationally practised principles ensures a streamlined transition for businesses accustomed to similar laws elsewhere. As a result, many enterprises may re-evaluate their corporate structures to maximize genuine tax benefits under this new regime.
If you would like to speak to one of our UAE taxation experts, please get in touch.
News
BANSBACH Improved in Employer Ranking Index
December 23, 2022
Congratulations to Kreston firm BANSBACH who round off a successful 2022 by significantly improving their ranking in JUVE‘s Top Tax Employers 2023, moving up eight places to 14th in the country.
This is largely a result of employee workplace innovations such as part-time partnerships and the option to work from home, but also a significant strategic expansion plan. This has seen BANSBACH adding a number of acquisitions and strategic partnerships with firms like O&R Oppenhoff & Rädler in Munich as well as adding an entire team from BDO in Freiburg.
Partner at K Rangamani and Associates LLP, Global Tax Group Regional Director, Asia Pacific
Ganesh has extensive experience of more than 30 years in providing specialist tax services, particularly to large privately owned groups, with particular strengths in the property, retail, healthcare and hospitality industries. He has supported various entities with specialist advice on tax-effective structures and restructures, cross-border transactions on account of outbound and inbound India investments, mergers, acquisitions and divestments. Ganesh has also worked with stakeholders across businesses to deliver solutions such as tax due diligence, tax consolidation and restructuring of large family businesses in the Middle East, Asia, and Singapore.
Surandar Jesrani is the CEO and Managing Partner at MMJS Consulting. A chartered accountant by qualification and entrepreneur by nature, Surandar prior to founding MMJS was in key positions at HSBC Private Equity, Infosys, L&T and GM.
Surandar is a thought leader and the leading newspapers in the region frequently seek his views. Surandar is a speaker at various International forums and was recognized as ‘Corporate Icon of the Year’ for three consecutive years.
The impact of OECD two-pillar solution on GCC countries
As the global economy becomes increasingly more digitalized, the OECD made the decision to update the framework on base erosion and profit sharing. Pillar one impacts the multi-national enterprise (MNE) with a turnover of more than 20 billion and profits before tax of over 10%. Pillar two is seeking a global tax rate of at least 15%.
The impact of OECD inclusive framework on the GCC
Parts of the region have been in a position to be able to adopt the pillar two framework with relative ease. Multiple countries within the GCC are already positioned to be able to adopt the 15% tax rate, with Oman already in that position. A 15% corporate tax rate exists for non-GCC companies in Kuwait with Saudi Arabia already exceeding the expectations at 20%. Bahrain and UAE currently have no corporate tax structure and are considering how to implement it.
Bahrain and UAE corporate tax announcements
UAE will meet obligations by introducing corporate tax in June 2023. This is a step-change for the country, however, guidance is yet to be issued with details of how that might affect businesses in the country. Bahrain has not yet made a full announcement, but is expected to follow the UAE in its adoption of pillar two principles.
Saudi, Kuwait and Qatar to update corporate tax policies
Saudi is seeking to make changes, considering the removal of the Zakat tax, with Qatar and Kuwait adopting corporate tax for GCC and non-GCC entities. In order to control BEPs within the GCC region, five of the six countries within the region will be adopting the OECD’s BEPs 2021 framework update. Kuwait is yet to confirm participation.
Transfer Pricing Manager with CBIZ’s National Transfer Pricing Practice.
OECD Transfer Pricing Guidelines
July 20, 2022
CBIZ Transfer Pricing experts, Srinidhi Tuppal and Ava Colocho were recently invited to share their expertise with International Accountant magazine on the most recent developments from the OECD 2022 update and the impact that has globally on transfer pricing.
OECD and the policy impact
For any multinational business, the inclusive framework and the 15-point action plan will have already had a significant impact on any existing transfer pricing/tax planning strategy. The recent article by Srinidhi and Ava gives readers an overview of the progression of the policy that impacts transfer pricing and outlines the specific impact of the new 2022 updates compared to the 2017 policy.
OECD 2022 updates
There are three main updates to the policy;
Revision to the transactional profit split method
Revision to the hard-to-value-intangibles (HTVI)
Transfer pricing guidance on financial transactions
The three new reports were developed in 2017 and the 2022 update clarifies points made in these reports, specifically;
The appropriate application of the transactional profit split method
Ex-post outcomes as presumptive evidence about the appropriateness of the ex-ante pricing arrangements, aiming to reach equitable practice of application of adjustments, to improve consistency and reduce the risk of double taxation.
OECD 2022 update takeaways
MNE should update their transfer pricing policies to reflect the new OECD policies, testing the processes used to determine the unique and valuable contributions provided by the parties and during the selection of an appropriate method. In addition, the risk of double taxation as a result of the updated HTVI policy is critical for effective tax planning.
We have launched a series of commemorative activities around the world in celebration of its 50th anniversary this year.
Running from May to November, the global anniversary campaign is formed of several different initiatives – including the inaugural global ‘Kreston Week’ in September, which will feature a global charity challenge open to all member firms. As part of the celebrations, we will also be launching an online, interactive timeline of the network’s 50-year history from 1971 to 2021, featuring key milestones for the network over the years, as well as insights from wider industry experts.
Further schemes include the upcoming release of two video campaigns, including ‘50 Voices of Kreston’ highlighting celebrations in countries around the world and ‘Kreston Natives’ featuring insights and stories from key figures across the Kreston network. The celebrations will culminate with the release of ‘Yearbook 50’, a special publication showcasing highlights from the entire Kreston 50th anniversary celebrations.
Since our foundation in 1971 as one of the earliest accounting networks, Kreston has grown to a network of 170 independent firms in more than 120 countries around the world. Now with five decades’ experience of world class client service, Kreston continues to be a top partner of choice for dynamic businesses and individuals with international ambitions.
Liza Robbins, Chief Executive of Kreston, said:
“Reaching our 50th anniversary is a significant milestone, and one of which we are immensely proud. One of the fundamental reasons for our success has been our collaborative and community-based culture, which I believe sets us apart from everyone else. Celebrating that culture and community lies at the heart of this year’s anniversary commemorations.
“Not only does this significant milestone give us an opportunity to reflect on the progress of the network over the past five decades, it also provides the chance to look toward the future as we further consolidate our leading position in the market and continue to enhance the network’s commercial value to our members and our clients.”
News
Taxation in Latin America
May 6, 2021
This publication aims to provide an overview of the different tax systems across Latin America, Spain and Portugal, to support member firms in this vital area of every practice.
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