The following article highlights key provision considerations, current issues in corporate tax and updates for companies preparing income tax provisions for the third quarter of 2024. Read more about global tax law changes, year-end planning considerations and the newly proposed Corporate Alternative Minimum Tax regulations below.
With the presidential election only a month away, the news is abuzz with political promises, including many involving income taxes. With all of the speculation about which way the tax winds will blow post-election, corporate tax departments will appreciate the relatively quiet quarter as they finalize their 2023 tax returns and prepare for year end. The provisions of the Tax Cuts and Jobs Act that made broad changes to corporate taxation in 2017 were permanent provisions. Therefore, corporate tax law changes will be heavily dependent on control of Congress and the White House. To learn more about potential tax developments, considering joining RSM’s Tax in Motion webcasts on Oct. 22, 2024.
The IRS and Treasury published several hundred pages of proposed regulations addressing the Corporate Alternative Minimum Tax (CAMT). The CAMT imposes a 15% minimum tax on the adjusted financial statement income of applicable corporations. The regulations propose making permanent the simplified safe harbor for determining whether a corporation is an applicable corporation. The regulations also lay out rules for determining a partner’s distributive share of partnership income and expand on other adjustments to arrive at adjusted financial statement income. Read more in RSM US LLP’s article: Treasury issues long-anticipated proposed regulations on CAMT.
The fast-approaching corporate tax return deadline for extended calendar year returns also means it is time to revisit any changes in estimate from the related provision. Under ASC 250-10-45-17, changes in estimates, are accounted for prospectively in the period of change. As companies finalize their calculation of taxable income for return purposes, return-to-provision adjustments should be reflected in the period they are known. While companies may have identified return-to-provision adjustments that are appropriate to include in the third quarter as discrete adjustments, there may be other effects of individual adjustments, such as impacts on interest expense limitations and state taxes, that may support waiting until the fourth quarter to record these changes in estimate.
The FASB did not issue any accounting standards updates (ASUs) during the third quarter of 2024, with only two accounting standards updates issued so far this year. The focus of most tax departments continues to be on ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, released in December 2023. ASU 2023-09 focuses on income tax disclosures around effective tax rates and cash income taxes paid and is effective for public business entities for annual periods beginning after Dec. 15, 2024 (generally, calendar year 2025), and for all other business entities one year later.
While entities have some time to comply with the additional disclosure requirements, as entities prepare for year-end, even if there is not intent to adopt ASU 2023-09 early or retrospectively, it may be beneficial for corporate tax departments to consider their provision processes and the configuration of any tax provision software. Reviewing processes and configurations now allows for the 2024 year-end provision to serve as a test run of updated processes to ensure those processes are designed to collect the necessary data to comply with the requirements of the ASU. For additional information on the income tax disclosure ASU, read our article: ASC 740: FASB releases ASU 2023-09: Improvements to Income Tax Disclosures.
Read more about state and local tax law changes in our companion article: State tax law changes for the third quarter 2024.
While not an income tax, companies with employees in Australia should be aware that effective July 1, 2024, the compulsory employer superannuation (retirement) contributions required for eligible employees is now 11.5%, up from 11%.
Three legislative bills have been introduced into the Australian Parliament to impose a 15% global minimum tax and domestic minimum tax for all multinational enterprise groups (MNEs) with annual global revenue of at least 750 million euros. The legislation introduces the mechanisms to apply the Australian Domestic Minimum Tax (DMT) and Income Inclusion Rule (IIR) tax effective years beginning on or after Jan. 1, 2024, and the Undertaxed Profits Rule (UTPR) for years beginning on or after Jan. 1, 2025. Read more from RSM Australia in: Introduction of Global Minimum Tax and Australian Domestic Minimum Tax.
Law number 14,973/24 published on Sep. 16, 2024, allows legal entities to update the value of the real estate assets included in the permanent assets of its balance sheet to the market value and tax the difference to the acquisition cost, through the Corporate Income Tax – IRPJ, at the definitive rate of 6% and the Social Contribution on Net Profit – CSLL, at a rate of 4%. The same law offers a new opportunity for individuals and legal entities domiciled in Brazil to update the value of their real estate assets and regularize undeclared assets, both in Brazil and abroad. The amounts will be taxed at 15% income tax rate.
While not an income tax, the Digital Services Tax Act, which came into force on June 28, 2024, may be of interest to companies with operations in Canada. It imposes a 3% tax on revenue from digital services of corporations where the corporation or corporate group earns over 750 million euros annually in global revenue and the corporation earns annually over $20 million in revenue from Canadian-source digital services. In-scope revenue includes revenue from online marketplace services, online targeted advertising services, social media services, and the sale or licensing of user data obtained from an online marketplace, a social media platform or an online search engine.
On Aug.12, 2024, the Department of Finance released a package of new draft legislation, including:
Effective Sep. 30, 2024, the withholding tax and related reporting requirements under Regulation 105 will apply to reimbursements of subcontractor services performed in Canada. This change reverses prior Canada Revenue Agency policy. Generally, Regulation 105 imposes a 15% withholding tax on payments to non-residents for services rendered in Canada.
The German federal government wants to tackle the current structural challenges facing Germany as a business location, by introducing numerous fiscal stimuli as part of a growth initiative. On July 24, 2024, the German government introduced several draft measures into the legislative process as part of the Tax Further Development Act. The draft includes changes to depreciation and the research allowance. Read more from RSM’s German firm in Planned tax relief in Germany.
The Federal Ministry of Finance published the draft for a second Future Financing Act on Aug. 27, 2024. The preliminary draft aims to further strengthen the competitiveness and attractiveness of Germany as a financial center and improve access to financing for newer companies. In addition to changes in numerous laws and regulations that are intended to facilitate access to the capital market for companies and to promote the venture capital ecosystem, the draft also includes some changes in tax law.
On Dec. 15, 2023, the Organisation for Economic Co-operation and development (OECD) published additional administrative guidelines for country-by-country safe harbors related to the Pillar Two global minimum tax regime. Aiming to incorporate these new guidelines into the German Minimum Tax act, the Federal Ministry of Finance published the discussion draft of a Minimum Tax Adjustment Act on Aug. 20, 2024. Read more about the safe harbors in Discussion Draft of a Minimum Tax Adjustment Act.
On July 1, 2024, Italy introduced the implementing provisions for Italy’s domestic minimum top-up tax, as outlined in Article 18 of Legislative Decree 209/2023. In line with Pillar Two, this tax applies if the blended effective tax rate of companies within a multinational enterprise group falls below 15%.
The key points of the Ministerial Decree include:
With respect to transfer pricing, according to the Italian Supreme Court (decision no. 19512 of July 16, 2024), it is inconsistent with the OECD Guidelines to exclude comparable companies from a transfer pricing analysis solely because they have recorded losses. The ruling involved the transfer pricing of call center services provided by an Italian subsidiary to a Dutch entity within the same corporate group. The OECD Guidelines do not provide for the outright elimination of loss-making companies or those with reduced or absent accounting values from the comparability analysis, if such results are achieved with the aim of obtaining better ones in the future. Instead, the OECD Guidelines allow for the exclusion of companies in specific situations, such as when they are in a start-up phase or facing bankruptcy.
With Circular Letter no. 17 issued July 29, 2024, the Italian Tax Authority has provided important clarifications regarding the participation exemption regime for non-resident companies and commercial entities. The key clarifications include:
These clarifications aid companies in understanding the details of the Italian participation exemption regime and can help optimize tax planning and avoid unintended tax exposure when transferring participations, especially in cross-border transactions.
Legislative Decree 125/2024, published in the Official Gazette on Sep. 10, 2024, makes sustainability reporting mandatory for certain categories of Italian companies. Starting from Jan. 1, 2025, the reporting obligation will be extended to companies that meet two of the following criteria in the first fiscal year or for two consecutive fiscal years:
Groups of large companies will need to assess whether they exceed these thresholds on an aggregated basis, with a 20% increase (i.e., €30 million in total assets and €60 million in revenue). There are also significant exemptions for unlisted groups. For instance, a large company may be exempt from providing sustainability reporting if it is included in the consolidated financial statements of the parent company.
The Italian regulations, in accordance with the broader European Union directive, will expand the requirements to small and medium sized businesses starting Jan. 1, 2026, with the option to delay compliance until 2028. From Jan. 1, 2028, the obligation will also extend to companies from third countries.
Legislative Decree No. 128 published in the Official Gazette on Sep. 12, 2024, implements the country-by-country Reporting (CbCR) Directive in Italy. This decree mandates that large multinational enterprises (those with consolidated revenues exceeding €750 million for each of the two preceding consecutive fiscal years) must prepare and publish a report containing specific information on income taxes. The report must be filed within 12 months of the fiscal year-end and will apply to financial statements for fiscal years starting on or after June 22, 2024.
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