International Tax Changes for 2024 – What You Need to Know

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Get up to speed with 2024’s international tax law updates. We’ve pulled together key information on the latest compliance trends and changes from around the world to help prepare you for how they might affect your business and the wider marketplace.

Read on for the headlines, challenges, and potential impact of the changes, as well as links to recommended further reading to explore relevant areas in more depth.

Global Minimum Tax (GMT) Implementation: 2024 Update

The implementation of GMT (also known as OECD Pillar Two) in 2024 will mark a significant shift in the international tax landscape. This framework aims to address profit shifting by multinational enterprises (MNEs) and create a fairer tax environment.

While some jurisdictions have already implemented it, others are still in the process, resulting in a dynamic and evolving landscape for businesses operating globally.

The key goal of Pillar Two is to ensure that large MNEs pay a minimum level of tax, regardless of where they locate their profits. It’s designed to combat profit shifting to low-tax jurisdictions, preventing a “race to the bottom” in corporate taxation. It aims to create a more level playing field for businesses operating globally while generating revenue for governments.

Key Challenges

• Navigating Complexities: MNEs face the challenge of navigating intricate new regulations, including the Income Inclusion Rule (IIR), the Undertaxed Payment Rule (UTPR), and the Domestic Minimum Top-Up Tax (DMTT).
• Varying Implementation Timelines: Different countries and regions are implementing the GMT at different paces, creating complexities for businesses operating across multiple jurisdictions.
• Uncertainties and Potential Disputes: Gray areas and uncertainties remain regarding the interpretation and application of the GMT, potentially leading to disputes with tax authorities.

Global Responses

• The OECD has released extensive guidance documents and model rules to assist countries in implementing the GMT consistently. [1]
• The EU has adopted a directive, setting out a common framework for implementing the Pillar Two rules within the bloc.
• Many individual countries are also developing their own domestic legislation to comply with the GMT framework.

Business Impact

• Businesses face increased compliance burdens associated with determining their effective tax rate, managing top-up taxes, and preparing additional tax filings.
• Depending on their existing tax structures and profit allocation, businesses may face potential tax liabilities under the new rules.
• The GMT might necessitate strategic reassessments of business models, transfer pricing policies, and inter-company transactions to optimize tax positions within the new framework.

Digital Tax Regulations for Cross-Border Ecommerce on the Rise

Over 100 countries now require foreign businesses to register and collect local taxes. While these requirements have traditionally focused on digital services, an increasing number of countries are looking to expand the scope in 2024.

Key Challenges

• Expanding Scope of Taxable Services: The initial focus on digital services is expanding to include remote services like accounting, legal, and consulting.
• Low-Value Goods Now Subject to Tax: Previously exempt, low-value goods are increasingly included in tax requirements across different countries.
• Navigating Evolving Regulations: Countries are constantly updating and introducing new tax laws, making it crucial for businesses to stay informed and compliant.

Global Responses

• In Singapore, non-resident businesses now need to charge and collect a Goods and Services Tax on consumer sales of low-value goods and non-digital services. [2]
• Norway implemented a tax collection obligation on foreign companies providing local consumers with remote services.
• In 2023, Malaysia introduced tax collection regulations on imported, low-value physical products, although enforcement hasn’t begun yet. [3]
• Both the Philippines and Israel are exploring the possibility of implementing new laws targeting remote sellers of digital services.
• In the US, states’ existing sales tax laws are being changed, which could impact interstate commerce. Both South Dakota [4]and Louisiana [5] have dropped their 200 transactions requirement, streamlining compliance for smaller businesses.

Impact

• Businesses entering new markets need to understand their tax compliance obligations.
• Requirements are expanding beyond digital services to include remote services like accounting, legal, and consulting, as well as low-value goods.

The Rise of the Platform Economy and its Tax Challenges

The global platform economy, with its digital platforms connecting buyers and sellers internationally, has emerged rapidly in recent years, with more tax changes to come in 2024. This shift presents a unique set of challenges for tax systems across the globe.

Key Challenges

• Tax Compliance for Platform Sellers: Determining the tax obligations of sellers utilizing platforms can be complex.
• Platform Service Categorization: Classifying the services provided by platforms themselves for appropriate tax treatment is another hurdle.
• Tax Collection Responsibility: Deciding who is responsible for collecting taxes on transactions facilitated by platforms raises further questions.

Global Responses

• Countries including Switzerland [6], Japan, and New Zealand [7] are exploring an expansion of tax collection obligations for platform operators.
• The UK recently (effective January 2024) implemented regulations requiring their platforms to collect and report income information from sellers offering personal services, tangible goods, and property rentals. [8]
• The EU’s proposals, VAT in the Digital Age (ViDA) and Customs Union Reform, aim to widen the scope of tax collection for platforms facilitating short-term rentals and passenger transportation. [9]
• In the US, all sales tax states have marketplace facilitator laws, adding complexity for platforms navigating their obligations.

Impact

• Increased compliance costs for platforms due to greater tax collection responsibilities.
• Reduced compliance burdens for platform sellers, potentially leading to faster international expansion.

Initiatives Around Global Tax Simplification Rolling Out

Filing indirect tax returns can be time-consuming and challenging, especially in environments with complex regulations. Here’s how 2024 is shaping up for ongoing efforts toward simplification, and the potential impact on businesses.

Key Challenges

• Home Rule States in the US: These states allow individual cities to administer separate sales taxes and define their own tax bases, leading to potential requirements for multiple registrations and returns within the same state.
• Multiple VAT Registrations in the EU: Businesses selling across different EU countries may currently need to register in each member state in which they operate, regardless of having a physical presence there.

Global Responses

• In the US, Colorado’s Task Force and Louisiana’s centralized return efforts represent advancements toward simplifying tax compliance for businesses.
• The EU’s reform package, ViDA, proposes a single VAT registration location, expanding the One-Stop Shop regime, introducing a new OSS regime for transferring goods within the EU, and widening the scope of mandatory reverse charge and platform tax collection liability.
• Brazil’s tax reform aims to simplify the complex indirect tax system with multiple overlapping levies at different government levels. [10]

Impact

• Be aware of different filing processes across jurisdictions.
• Ensure compliance with all requirements to avoid penalties for late filings.
• Stay updated on ongoing simplification efforts that may streamline future processes.
• While there’s hope for simplification in the US, it’s still in its early stages.

Real-Time Compliance Changes Gaining Traction

The growing trend of real-time tax compliance, initially implemented in Latin America, is gaining global traction as of 2024. It differs from traditional periodic filing by instantly transmitting data to authorities upon transactions. Digital reporting and e-invoicing can be set up by tax authorities to automatically flag transactions of invoicing that meet certain scrutiny criteria.

Key Challenges

• Non-Uniform E-Invoicing: Countries have their own e-invoicing regulations, which are not standardized within regions like the EU.
• Cross-Border Complexities:  Differing approaches to regulation create difficulties for cross-border trade.

Global Responses

• The EU’s proposed reforms require mandatory e-invoicing for B2B transactions within the EU, with specific data reporting within two working days.
• Currently, e-invoicing is only mandatory in Italy, but other EU nations are following their lead and planning to make e-invoicing obligatory in the near future. Although France, Romania, Belgium, Spain, and Germany have yet to determine a deadline, July 2024 will see mandatory e-invoicing rolled out in Poland. [11]
• E-invoicing initiatives in the US by the Business Payments Coalition aim to establish e-invoicing as a standard, although this is not currently mandatory. [12]

Impact

• The challenges around tax concerning e-invoicing mandates have to do with data, accuracy, and speed (which also have implications in data security and fraud prevention).
• Companies operating in countries considering mandatory e-invoicing need to ensure compliance capabilities.
• There is a need to understand and be ready to adapt to evolving requirements around e-invoicing, even in regions without current mandates.
• Businesses, even in the US, should explore e-invoicing solutions to be prepared for likely future changes.

Rate Changes Aimed at Tackling Inflation Incoming

Countries are grappling with inflation, leading to diverse approaches in managing the situation through indirect taxes. Understanding the strategies that are being rolled out, how 2024 is shaping up in this area, and remaining adaptable are crucial for businesses.

Key Challenges

• Variable Approaches: Countries, states, and even jurisdictions take different stances on VAT, ranging from temporary reductions to increases.
• Frequent Changes: Tax rates and the taxability of specific products can change frequently, especially for businesses operating across multiple locations.

Global Responses

• Some countries, like Estonia, Singapore, and Switzerland, are implementing VAT rate increases in 2024, while others, like some US states, are opting for temporary VAT reductions on essential items.
• In the US, states regularly modify tax codes, adding or removing specific products from the taxable list, as seen in Texas with family care items.

Impact

• Be prepared to adapt to diverse tax approaches across different regions.
• Develop the ability to implement new tax rates rapidly when regulations change.
• Stay informed of frequent changes in tax rates and taxability of goods across jurisdictions.

More News, Insights and Trends for 2024

Want to learn more about Digital River, our expertise as a Merchant of Record, and how we can help to navigate the complex global tax ecosystem? Contact us today and speak to our friendly team of experts.

If you’re looking to stay on top of the latest regulatory news and industry trends, look no further than our Ecommerce Resources.

 

[1] https://www.oecd.org/tax/beps/minimum-tax-implementation-handbook-pillar-two.htm

[2] https://www.iras.gov.sg/taxes/goods-services-tax-(gst)/gst-and-digital-economy/gst-on-imports-of-low-value-goods

[3] http://www.customs.gov.my/en/Documents/Website%20Version%20-%20Draft%20Guide%20LVG%20as%20at%2009.01.2023.pdf

[4] https://dor.sd.gov/businesses/taxes/sales-use-tax/2023-legislative-updates/

[5] https://www.legis.la.gov/Legis/ViewDocument.aspx?d=1315360

[6] https://www.parlament.ch/de/ratsbetrieb/suche-curia-vista/geschaeft?AffairId=20233012

[7] https://www.ird.govt.nz/sharing-economy/gst-and-income-reporting-rules/gst-changes

[8] https://www.gov.uk/government/publications/reporting-rules-for-digital-platforms/reporting-rules-for-digital-platforms

[9] https://taxation-customs.ec.europa.eu/taxation-1/value-added-tax-vat/vat-digital-age_en

[10] https://www.ft.com/content/38b6d3ed-47eb-4581-be9b-59113e0f5026

[11] https://www.podatki.gov.pl/ksef/

[12] https://businesspaymentscoalition.org/electronic-invoices/