Q3 2024 international updates: Tax and legislative updates from across the globe

Each quarter, our international specialists compile updates from around the world to help you stay up to date on international changes.

Take a look at the updates below and reach out to your Plante Moran advisor if you have any questions about how these items may affect you.

• Canada
• China
• Germany
• India
• Japan
• Mexico
• United Kingdom

Canada

Recent regulatory and tax developments

On June 20, 2024, Canada’s proposed legislation related to global minimum tax became effective. The Canadian global minimum tax regime helps to ensure that large MNEs with annual consolidated revenues exceeding 750 million euros are subject to a minimum effective tax rate of 15% on their profits wherever they do business by implementing Canada's Domestic Minimum Top-Up Tax (DMTT) and Income Inclusion Rule (IIR). The DMTT and IIR rules are effective for fiscal years starting on or after Dec. 31, 2023.

On the same date, Canada enacted the first package of Canadian hybrid mismatch rules. The enacted legislation addresses deduction/noninclusion mismatches (D/NI mismatches), which generally arise on cross-border payments where one country allows a deduction in respect of a cross-border payment, but the recipient doesn’t fully include the payment in its ordinary income. This first package appears to address mismatches that arise because of a difference in the tax treatment by each country of the financial instrument, but not mismatches that arise because of the difference between the countries in their tax treatment of entities (i.e., where there is an entity that’s disregarded or a flow-through entity).

China

New negative list 2024: China opens manufacturing sector to foreign investment, removing all restrictions

Jointly issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOC), the negative list, effective November 1, cutting restrictions from 31 to 29 and completely freeing up the manufacturing sector for foreign investment. Domestic and foreign investments in manufacturing are now treated the same. China’s ongoing move to open up more and cut back on rules against foreign investment is definitely a good thing. It might open up new chances for investors from other countries to invest in China.

Still, there are some important areas where foreign investments are limited. These include:

• Mining of special metals like rare earths and tungsten.
• Running news agencies and publishing books, newspapers, and media.
• Broadcasting stations and making TV and radio programs.
• Making movies and running theaters.
• Domestic shipping, air travel, and phone services.
• Building nuclear power plants and airports.
• Conducting market research and running schools and hospitals.
• Developing new types of wheat and corn seeds.

Announcement of new network data security management regulations

The State Council of China proclaimed the forthcoming Network Data Security Management Regulations on Sept. 30, 2024, scheduled for implementation from Jan. 1, 2025. These regulations are designed to bolster data security and privacy standards, setting forth compliance requirements for entities operating both within China and internationally. They’re expected to profoundly influence corporate data management practices, introducing more stringent norms for safeguarding personal information and regulating international data transfers, thereby empowering individuals with enhanced control over their personal data.

The regulations delineate precise criteria for entities seeking to transfer personal data abroad. They mandate fulfillment of several preconditions to ensure regulatory adherence and safeguard the rights of individuals, encompassing:

• Conducting an outbound security assessment to evaluate the risks associated with the international transfer of personal information, ensuring compliance with a standard contract for data export, and verifying that the transfer is contractually necessary.
• Facilitating cross-border human resources management by allowing the transfer of personal information overseas, provided it adheres to applicable labor laws, regulations, and collective agreements, which is crucial for organizations operating on a global scale.
• Upholding legal obligations by permitting the international transfer of personal information when required to meet statutory duties or obligations.
• Addressing emergency situations by enabling the transfer of personal information overseas to provide immediate protection and assistance when the life, health, or property safety of individuals is compromised.
• Adhering to legal provisions that specify additional conditions for the international transfer of data, ensuring that all legal requirements are met in the process of data transmission across borders.

Germany

Germany proposes new energy and EV incentives

The German Federal Cabinet has proposed new tax incentives to promote electric vehicle (EV) adoption, including a 40% bonus depreciation for newly acquired EVs starting in 2024. Additionally, the maximum retail price cap for company-owned EVs eligible for reduced fringe benefit taxation will increase from 70,000 to 95,000 euros for vehicles acquired after June 30. These measures, part of the Tax Development Act 2024, aim to spur growth by reducing German tax revenue by 2.5 billion euros between 2024 and 2028, on top of the already 21 billion euros in planned tax relief. The current proposals also include subsidies for electricity costs and social security recipients. Note that these proposals will require approval from the Bundesrat to become enacted.

Withholding tax refunds for EU-based investment funds

Germany’s highest tax court (BFH) has ruled that the withholding tax on dividends paid to public EU-based funds from German-based investments violates EU law and must be refunded with 6% interest. This decision, which affected French and Luxembourgish public investment funds, extends previous rulings and could result in refunds and interest payments estimated to be up to 8 billion euros. The funds were originally denied refunds by the German courts under the public interest exception to the relevant EU law. However, the upper court noted that in certain Germany-to-Germany fact patterns, no taxation would occur. Therefore, the German provision imposing additional withholding tax on the non-German EU funds was in violation of EU law.

Relocation of functions taxability

The Tax Court of Lower Saxony in Germany ruled that the transfer of rights after a license agreement’s termination from a German subsidiary to a Swiss sister company of a U.S. group is not a taxable business restructuring. This decision, published on July 17, 2024, aligns with the principle that an expired contract doesn’t entitle parties to further compensation. The court’s decision follows a similar case earlier in 2023, reinforcing the stance that such transactions don’t constitute hidden profit distributions or taxable events under German tax law.

The case involved a German tax subgroup of a multinational group, where the German entities used intangible assets owned by a U.S.-based parent company through a nonexclusive license agreement. The restructuring saw the Swiss sister company taking over the role of the European principal entity, leading to changes in how the German entities were compensated. Despite the tax authorities’ claims of a taxable relocation of functions, the court found that the restructuring didn’t significantly alter the German entities’ strategic control or earnings prospects.

Germany transfer pricing documentation requirement reduction

Germany’s Bundestag has approved a bill that extends the deadline for taxpayers to submit detailed transfer pricing documentation by 30 days. The original legislation required all detailed transfer pricing documentation to be provided within 30 days of receiving an audit notice. With the new legislation, only the master file, transaction matrix, and records of extraordinary events are due within 30 days of an audit notice. The remaining documentation is due within 60 days of an audit notice. The transaction matrix will include detailed information about transactions, such as the parties involved, the volume and consideration, and the transfer pricing method applied. However, there are concerns that this new requirement may increase bureaucracy rather than reduce it, as it demands information that may not be readily available from foreign transaction partners. Critics argue this change is more symbolic than practical, as the 30-day deadline will continue to be challenging for taxpayers to meet if they haven’t already prepared the documentation contemporaneously.

India

Union Budget 2024

The Union Budget 2024 was passed by the Indian Parliament in the month of August 2024. The Union Budget 2024 makes considerable progress in addressing problems and fostering sustainable economic development to achieve Viksit Bharat, or “Developed India,” by 2047. The Union Budget 2024 has outlined nine key areas of focus: infrastructure, innovation, research and development, social justice, productivity and resilience in agriculture, employment and skill development, inclusive human resource development, energy security, urban development, and next-generation reforms. Read our insights on Union Budget 2024.

Other regulatory and tax developments

• The Reserve Bank of India (RBI) lifted the restrictions on remittances made through the online filing of Form A2. These restrictions were lifted in a notification issued to all authorized foreign currency dealers on July 3, 2024. This change in restriction represents a step forward for India’s banking sector as it attempts to make overseas transactions easier for both individuals and corporations.
• Foreign Portfolio Investors (FPI) selling Indian stocks will be taxed at 20% (formerly 15%) on short-term capital gains under the new capital gain regime effective July 23, 2024. Similarly, gains on long-term capital (LTCG) will be taxed at 12.5% (up from 10%). 
• The Directorate General of Foreign Trade (DGFT) has announced a gradual extension of the Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme by the recommendations of the RoDTEP Committee on Oct. 1, 2024. The notification includes the following deadline extensions:
  • Domestic Tariff Area units — extended from Sept. 30, 2024 to Sept. 30, 2025. 
  • Advanced Authorization holders (except deemed exports), Export Oriented Units (EOU), and Special Economic Zones (SEZ) — extended from Sept. 30 to Dec. 31, 2024.

Japan

Election of Prime Minister Ishiba

Shigeru Ishiba became Japan’s new Prime Minister on Oct. 1, 2024. Ishiba, the former defense minister, defeated Sanae Takaichi, the economic security minister, in a close election race.

Ishiba’s leadership is expected to bring changes, particularly in policy areas of national defense and the economy. Key policy areas throughout the election campaign included:

• Inflation control — ensuring wage outpace price increases. Real wages have declined in recent months, including by 0.6% in August 2023.
• Revitalizing rural areas and underdeveloped regions.
• Labor market reforms to increase productivity — this includes incentives for companies that raise wages and invest in employee education.
• Corporate tax reform, including tax credits for companies investing in green and digital transformations.

Several of these policies reflect proposals or reforms that have already been advanced in recent times. For example, the 2024 tax reforms included a new tax credit for enterprises that increase wages above a minimum level of 7% over the prior year. Large enterprises enjoy a tax credit for 25% of the increase, while small/medium enterprises can receive a tax credit up to 45% of the increase. The policies proposed by during the campaign for prime minister suggest that such credits will continue to be emphasized and may be expanded in the future.

Mexico

Mexico approves new reform to its judicial branch

In a move aimed at transforming the judicial landscape, Mexico’s Senate approved significant amendments to the Mexican Federal Constitution concerning the Judicial Branch on Sept. 11, 2024, following its presentation by former Mexican president, Andrés Manuel López Obrador (AMLO) in February. The reform received 86 votes in favor and 41 against, marking a pivotal moment in the country’s governance.

The key changes introduced by this reform include:

1. Supreme Court of Justice:
   • The number of justices is reduced from 11 to 9.
   • Justices will serve 12-year terms, down from 15 years, with no possibility of reelection.
   • The Supreme Court will operate solely in Plenary, not in Chambers, requiring 6 votes for a qualified majority.
2. Election of judges:
   • Citizens will elect justices, magistrates, and judges through direct and secret votes.
   • The first extraordinary election is scheduled for June 2025, with subsequent elections in 2027.
   • Campaigns will be limited to 60 days, with strict regulations on financing and media usage.
3. Administrative and disciplinary bodies:
   • The Federal Judiciary Council will be dissolved and replaced by the Judicial Administration Body and the Judiciary Disciplinary Court.
   • These new bodies will oversee administration and disciplinary actions within the Federal Judicial Branch.
4. Salaries and benefits:
   • Judicial officers’ salaries will be capped at the level of the Mexican president’s salary.
   • Current justices participating in elections and not elected will not receive retirement pensions unless they resign before the election call.
5. Next steps:
   • The National Electoral Institute will begin preparations for the 2025 elections.
   • The Mexican Senate will issue a call for candidates within 30 days.
   • Federal and Local Constitutions will be adapted to align with the reform by 2027.

United Kingdom

Policy updates from recent election

The election victory by the Labour Party in July 2024 brought a new government and new prime minister, Keir Starmer, brought a major change in the UK’s political dynamics. The Labour Party focused their campaign on economic policies focused on employment and worker’s rights. The new government has promised to bring sweeping employment law changes within the first 100 days of being in office, and the first of those proposals was introduced on Oct. 10, 2024, with the presentation of the Employment Rights Bill 2024 to Parliament.

The Employment Rights Bill contains 28 individual reforms, and highlights include:

• Removes a 2-year period before unfair dismissal claims can be brought. Under the proposal, employees can bring a claim from the first day of employment.
• Proposed restrictions on “fire and rehire” practices that could be used to implement changes in contracts.
• Enhanced trade union rights and laws.
• Flexible working arrangements are proposed to be the default setting for employment contracts, such that employers must provide a “reasonable explanation for refusal to allow flexible working.”
• Omits a “right to disconnect” provision that had been much discussed.

The Employment Rights Bill must be passed by both houses of Parliament before becoming law. This consultation process is expected to continue throughout 2025, with the first proposals expected to go into effect in 2026.