[World Tax News] China Extends Reduced Tax Rate for Enterprises Engaged in Pollution Prevention & Control 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. China extends reduced tax rate for third-party enterprises engaged in pollution prevention and control

China’s Ministry of Finance, State Administration of Taxation, National Development and Reform Commission, and Ministry of Ecology and Environment have collaboratively issued Announcement No. 38 of 2023.

In order to encourage the professional and large-scale development of pollution prevention and control enterprises and better support the construction of ecological civilization, the relevant corporate income tax policies are hereby announced as follows:

(a) Qualified third-party enterprises engaged in pollution prevention and control shall be levied a corporate income tax at a reduced rate of 15%.

(b) The third-party prevention and control enterprises referred to in this announcement shall meet the prescribed conditions such as:

• • Resident enterprises registered in accordance with the law in China (excluding Hong Kong, Macao and Taiwan);
  • Have been continuously engaged in the operation of environmental pollution control facilities for more than one year and can ensure the normal operation of the facilities;
  • Have at least 5 technical personnel who work in this field and have intermediate or above technical titles in environmental protection-related majors, or at least 2 technical personnel who work in this field and have senior or above technical titles in environmental protection-related majors;
  • The annual operating income from environmental protection facility operation services accounts for no less than 60% of the total income;
  • Have testing capabilities, have its own laboratory, and have instrument configurations that can meet the testing needs for conventional pollutant indicators within the scope of operational services.

The implementation period of this announcement is from January 1, 2024 to December 31, 2027.

Source: Announcement No. 38 of 2023

2. Italy seeks inputs on the implemantation of Pillar 2 Global Minimum Tax

The Ministry of Economy and Finance in Italy has initiated a public consultation concerning a preliminary legislative decree to enact the global minimum tax under Pillar 2, as stipulated by Council Directive (EU) 2022/2523 dated December 14 2022.

This set of rules was carefully created to follow the guidelines in the Directive, using the right references to Italian laws and utilizing terminology consistent with Italian legislative conventions. This encompasses the income inclusion rule (IIR), the undertaxed payment/profit rule (UTPR), and the qualified domestic minimum top-up tax (QDMTT).

According to the current draft, the IIR and QDMTT will become effective from the fiscal year succeeding the one ongoing as of December 31 2023, while the UTPR will come into effect from the fiscal year following the one in progress on December 31 2024.

The closing date for submitting comments is October 1 2024.

Source: Public Consultation

3. Ireland increases Knowledge Development Box Rate ahead of Global Minimum Tax

The Finance Minster, Michael McGrath, has signed an Order to commence a Finance Act 2022 provision. This order puts into action a change in the tax rate for the Knowledge Development Box, thereby making it higher. Starting from October 1 2023, the tax rate will be increased to 10% from the previous 6.25%.

The Knowledge Development Box (KDB) is an OECD-compliant intellectual property (IP) regime that relieves corporation tax on income from qualifying assets such as computer programs, inventions protected by a qualifying patent, or certified inventions for SMEs.

The signing of this order is another step in implementing Pillar Two of the OECD Agreement to Address the Tax Challenges arising from the Digitalisation of the Economy as part of Ireland’s continuing commitment to agreed international tax reforms.

Source: Release dated 05-09-2023

4. Lithuania considering delay in implementation of the Pillar 2 Global Minimum Tax regulations

Lithuania’s Ministry of Finance recently convened a meeting to discuss adopting the Pillar 2 global minimum tax (GloBE) regulations outlined in Council Directive (EU) 2022/2523 dated December 14 2022.

According to a statement released after the meeting, Lithuania is considering postponing the enforcement of the core rules by six years. This includes the income inclusion rule (IIR) and the undertaxed payment/profit rule (UTPR).

The option to defer these rules is provided within the Directive, permitting Member States where no more than 12 top-level parent entities of covered groups are situated to abstain from applying the IIR and UTPR for a continuous six-year fiscal period.

Source: News Release

5. Sweden Proposed Legislation for Enacting the Global Minimum Tax under Pillar 2

The government has approved a legislative council referral proposing introducing an additional tax for large corporate groups. This measure aligns with international efforts to combat tax evasion and safeguard national tax revenues. It aims to incorporate an EU directive into Swedish law, establishing a global minimum tax rate of 15 percent for multinational and national groups with annual revenues exceeding 750 million euros.

A temporary simplification rule will be in place for three years to streamline administrative processes, allowing groups to utilize existing country-by-country reports for their additional tax reporting. Permanent simplification rules will be developed in line with OECD progress.

Under this proposal, such companies could face an additional tax if their profits are subject to low taxation. To enforce this, affected companies must submit an extra tax report to the Swedish Tax Agency. Non-compliance may result in penalties, including late fees and tax surcharges.

These changes are rooted in an EU directive that draws from OECD proposals. The new regulations are slated to take effect on January 1, 2024.

Source: Press Release