The outlook for global tax policy in 2013...contents 1 Global tax policy in 2013 6 2013 tax policy...

The outlook for global tax policy in 2013

Executive summary

contents

1 Global tax policy in 2013

6 2013 tax policy outlook for the Americas

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16 2013 tax policy outlook for Europe, Middle East, India and Africa (EMEIA)

25 Ernst & Young contacts

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The high volume of tax changes in response to the

to give way to more targeted, selective and nuanced tax policymaking in many countries around the world in 2013, even as most developed economies continue to wrestle with high debts and austere budgets.

While many countries including the United States still aspire to wide-scale tax reform, others such as Australia and the Netherlands have stretched their tax bases as far as they believe to be competitively or politically prudent. And whatever the sovereign status, there is little doubt that the respite of sorts in the pace of policy change will be temporary in nature, as countries wait to see what recommendations come from the Organisation of Economic Co-operation and Development (OECD) and other supranational bodies in 2013.

Policy changes become more selective, and all eyes are on future direction

hindrance. The second group can actively pursue or achieve

reform but cannot, either as a result of their economic and/or political situation.

No matter how well-positioned or ill-positioned countries are to effect structural change, we see near-universal commitment to the stronger enforcement of existing tax laws, giving rise to more controversy and disputes around the world. Newspapers

competed primarily to reduce corporate tax rates in a bid to attract investment are now taking coordinated action to combat perceived tax abuse that has arisen as a result of divergences in national tax systems. The rhetoric has not (yet) been matched with widespread legislative proposals; that said, more countries are pursuing general anti-avoidance rules (GAAR), demanding greater public disclosure of company tax affairs and, in some cases, tying the ability to secure government contracts to an unblemished tax compliance history.

All these issues and more add to increased challenges, complexity and the potential for tax controversy in 2013.

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Christopher Sanger Global and EMEIA Leader — Tax Policy Services Ernst & Young LLP

Global tax policy in 2013

2 The outlook for global tax policy in 2013

Broadly speaking, the OECD work will cover three key areas: transfer pricing, jurisdiction to tax and measures for countering base erosion. The establishment of separate workstreams in each of these areas with country delegates chairing for each — the United Kingdom for transfer pricing, France and the United States for jurisdiction to tax, and Germany for measures for countering base erosion — underscores the keen interest of the

project and its outcomes.

The results of the OECD work are ultimately expected to

OECD transfer pricing guidelines, changes to the OECD model tax treaty for countries to consider incorporating through amendments to their bilateral agreements, and recommendations for changes in tax law and administration. As part of this project, the OECD has also called on the Forum on Tax Administration, which brings together the heads of the revenue authorities of OECD member countries and non-member countries, to continue its focus on improving tax compliance.

in 2013Increasingly, many countries are supporting focus on cross-border taxation by supranational organizations. The rapid pace of globalization, the rise in connectivity caused by innovations in technology and communications, and the growing importance of intangibles all mean that models

long-standing international tax concepts were developed. The OECD’s February 2013 report titled “Addressing Base Erosion

drawn from national experiences to share tax jurisdiction may

This concern about the tax treatment of global businesses,

that there is both public and political focus on cross-border taxation. With the OECD set to release in July its initial “action

that development in the cross-border taxation landscape will continue to unfold in the months and years to come.

Table 1: Anticipated changes in tax burden across all countries covered in this report

Tax type Increase in burden in 2013

Decrease in burden in 2013

No change in burden in 2013

Total countries levying tax type

Corporate income tax (CIT) 13 (22%) 18 (31%) 28 (47%) 59

Personal income tax (PIT) 16 (28%) 15 (26%) 27 (46%) 58

Value-added tax (VAT)/goods and services tax (GST)/sales tax 20 (35%) 4 (7%) 33 (58%) 57

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The corporate tax burden in 2013While this ream of supranational recommendations, guidelines and proposals will undoubtedly have an impact on future national tax legislation, sovereign tax policy in 2013 will continue to take new directions.

notwithstanding the relatively small number of countries continuing to bet that a strongly stimulatory set of tax policies will result in either a rise in the number of companies calling them home or stimulating domestic growth and inbound foreign direct investment.

Overall, our data shows that after rapid and profound policy measures in previous years, the pace of change has slowed but has certainly not stopped. Of the 59 jurisdictions in this report that CIT, 13 anticipate an increase in CIT burden during 2013, 18 anticipate a decrease in burden, and 28 anticipate no overall change. That would seem to demonstrate that many

to maneuver) and instead have chosen to use their available resources in a far more effective, targeted manner. As a result, business incentives of all types continue to experience a real sense of recalibration, improvement and tighter focus on those activities given rise to the greatest gains over the long run.

It remains to be seen whether the so-called “race to the

taken a short water break. The data suggest that rapid and regular cuts in headline CIT rates have slowed considerably; only a small group of countries, mostly in Asia, continue to move in this direction.

Within its December 2012 Action Plan,1 the European Commission (EC) recommended ways for Member States to tackle double non-taxation, asking them to ensure that, in the context of their double tax conventions, income may only remain untaxed in a contracting state if it is subject to tax in the other contracting state, which may be either another Member State or a third country. The recommendation also asks Member States to include a new provision in their double tax conventions that ensures income covered by the treaty is taxed by at least one of the countries and suggests countries adopt a GAAR provision, the language of which will be provided by the Commission.

Of course, these are not the only activities at the European level that readers will need to monitor in 2013; an important consultation has been opened on a Taxpayer Code for the European Union, while the Common Consolidated Corporate Tax Base discussions also continue. Preparatory activity related to the implementation of the Financial Transaction Tax on 1 January 2014 will increase, and VAT discussions (primarily around place of service and vouchers) will no doubt continue, even as the hope seems to have been abandoned on the possibility of reaching any compromise on the proposal to

Other supranational initiatives will also attract attention this year. The United Nations’ publication of the draft text of the Transfer Pricing Practical Manual for Developing Countries in October 2012 shows the increased activity of the UN Tax Committee, for example.

It is also possible that innovative approaches to perceived tax abuse may be developed at the national level. The United Kingdom’s recent government procurement regulations are an example. All this activity focusing on multinational companies aligns in a timely manner with the OECD’s planned refreshment

likely to be replaced with a new program of efforts by countries

While economic data for each country has been sourced from the International Monetary Fund, where an increased, decreased or stable tax burden is referred to at country level, this represents the subjective viewpoint of Ernst & Young’s Tax Policy leader in each jurisdiction.

1 See Ernst & Young tax alert: uropean Co ission ction Plan to strengt en g t against ta frau an ta evasion, 7 December 2013.


It has been common to see a decrease in headline CIT rates coupled with base-broadening that offsets, at least in the short term, the cost of such a rate reduction. This steady and consistent pruning away of various exemptions and deductions is a widespread trend that our respondents report will likely continue in 2013. Popular base-broadeners include limitations on interest

restrictive use of losses; and in a more limited number of jurisdictions, the introduction of minimum taxation regimes.

Companies operating globally ignore VAT at their peril. This mantra, increasingly being adopted by business, looks to be particularly true in 2013. Countries anticipating an increase in the VAT/GST/sales tax burden in 2013 outnumber those anticipating a reduction in burden by a factor of 5 to 1.2

Finally, but by no means a footnote, almost all countries report the growing use of tax enforcement — including

(SAAR) and tax disclosure requirements — as a method of further expanding the tax base. In the area of GAAR, many multinational companies increasingly fear that countries that once used GAAR only reluctantly, and in the most extreme circumstances, are beginning to use it more extensively than it was originally designed to be used. This is but one area of policy development meriting close monitoring in 2013.3

Leading practice for managing tax policy changeBy identifying trends and anticipating changes in policy, legislation and enforcement, business can plan for adverse impacts, take proactive steps to adapt to changes and even engage with policymakers to contribute their perspective to the legislative process. Companies today are beginning to take this opportunity to get ahead of the curve on tax changes very seriously. The integration of this knowledge and awareness into business planning will lead decisions to be made with potential future outcomes in mind. Close monitoring of individual countries in your global footprint, combined with the insights of experienced policy specialists and the integration of a country mindset with a global framework, is important to anticipating potential tax changes and their effects on the global enterprise. In that vein, we set out a six-point action plan that may help you manage change in 2013:

Integrate all major tax areas for potential tax policy and regulatory changes in key jurisdictions into tax risk planning

Understand the local dynamics of the potential tax changes, alternative policy designs and ways in which the changes link to global tax policy trends

Assess the implications of the potential change on your business operations

Develop clear lines of responsibility, lines of communication and some form of knowledge sharing among all those who are responsible for monitoring and anticipating tax policy and legislative change

Fully leverage the tax information, and consider insights provided by outside providers

Consider active engagement with policymakers over sources of future controversy

2 Of the 57 countries in this report that levy VAT, GST or sales taxes, 20 anticipate an increase in their overall burden in 2013, while only 4 anticipate a decrease in burden.

3 See Ernst & Young report rising apping ta enforce ent s evolution: www.ey.com/gaarrising.

Am

eric

as

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Sovereign debt in the AmericasMuch has been made of emerging markets’ ability to weather

fare equally well through Europe’s sovereign debt crisis during 2012. With many of the 18 Americas countries falling into the emerging markets category, one might expect the region to have pivoted more sharply away from increasing sovereign

would seem to align to this concept, the projected changes in tax burden tell a slightly different story.

For the period 2011 to 2017, the International Monetary Fund (IMF) projects that 8 of the 17 Americas countries (or around 47% of them) for which data are available will see an overall net increase (of more than 1% of GDP) in their gross debt, while the same number will see an overall net decrease. Only Mexico will see a change of less than 1% either way. Across the 17 countries, the average unweighted gross debt in 2017 is projected to be around 43.8%. Once Japan (where gross debt in 2017 is projected to run at more than 250% of GDP in 2017)

average (38% of GDP) in 2017.

As might be expected, the relatively mixed sovereign debt picture across the region is accompanied by similarly mixed projections for the health of annual budgets in most of the 18 countries. Overall, 8 out of the 18 countries in this report are

the 2011 to 2017 period,4 while 8 see a net deterioration of 1% or more. Only Mexico projects overall net change of less than 1%, while IMF data was not available for Puerto Rico.

The group of 18 Americas countries within this report is very mixed, with few strong policy

trends pervading the region. That said, data show that while the overall economic performance of the region is

track where (across corporate, personal and indirect taxes) anticipated tax burden increases outnumber anticipated decreases in 2013 by a factor of more than four to one. Following underlying trends elsewhere, indirect taxes are the most popular way to increase revenues, according to our responders.

Although increases outnumber decreases, a majority of Americas countries are projected to remain in a holding pattern

18 delivered a surplus in 2011, the last year for which actual data is available) by maintaining the tax burden where it was in 2012. More than half of the responses across all tax types note no anticipated changes in 2013.

2013 tax policy outlook for the Americas

4 2011 is the latest year for which actual data is available from the IMF, instead of projected data.

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The sole country projected to be in annual surplus by 2017 is Peru, while four countries (Canada, Chile, Nicaragua and Panama)

the weakest performer by 2017. The economic performances of Peru and Costa Rica at each end of the spectrum would seem to be directly aligned to ongoing tax policy measures in both countries, demonstrating the unquestionable link between economic performance and short-term policy stance.

Economic performance drives tax policy decisions

the comparison would seem to end there. Overall, across all three tax classes tracked (CIT, PIT and VAT/GST/sales tax) in all 18 Americas countries (resulting in a total of 54 measurement points), 17 of the 54 classes (or approximately 35%) are projected to see an increase in overall tax burden in 2013,5 with only 7 classes projecting a decrease in tax burden in the same year. The

where only four tax classes overall (three of which are related to indirect taxes) are projected to see an increased tax burden in 2013.

Given such mixed economic fortunes, it is perhaps unsurprising that the outlook for corporate taxation in the region in 2013 is equally mixed. Of the 18 countries, 5 (Colombia, Guatemala, Nicaragua, Panama and Peru) projected an increase in CIT burden in 2013, 1 projects a decrease, and 10 see no overall change in burden for the year. Of the 5 countries pursuing an increase in CIT burden, only Guatemala is anticipated to do so via a headline rate increase, expanding its General Tax Regime, which applies on a gross receipts basis (as opposed to the Optional Tax Regime, which applies on a net income basis) from 5% to 6%.

The outlook for taxes in 2013Table 2: Anticipated changes in tax burden in Americas countries




Total countries levying tax type*

CIT 5 2 11 18

PIT 5 3 10 18

VAT/GST/sales tax 7 2 9 18

Total for all tax types 17 7 30

*Countries covered in this report

5 The increase or decrease in tax burden for each class of taxes is based on the subjectivity of the Ernst & Young responder in each country and not any formulaic methodology.


The others follow the more widespread global trends of broadening the tax base via increased tax enforcement (Peru, Panama and Nicaragua) or by limiting other deductions (deductibility of expenses in Guatemala and limitation on the deduction of goodwill amortization in Colombia). Although Colombia’s headline CIT rate falls from 33% to 25%, the overall CIT burden increases in 2013 due to other base-broadening measures. While not affecting 2013 outlook, the Dominican Republic plans successive CIT rate cuts in 2014 and 2015, from today’s 30% down to 28% and 27%, respectively.

PIT is expected to follow the same overall trajectory in the region in 2013. Of the 18 countries tracked, 10 anticipate no overall change in tax burden, while 5 (Canada, Colombia, Dominican Republic, Guatemala and Nicaragua) anticipate an increase in burden and

measures to achieve their results. Canada, for example, shows a continuing focus on high net worth individuals and new prohibited investment rules for tax deferral plans, while the Dominican Republic introduces a new 10% withholding tax on interest.

As is the case in other parts of the world, indirect taxes (VAT, GST, sales tax) borne by the ultimate consumer attract favor as a policy tool of choice, with seven countries (Argentina, Canada, Colombia, Dominican Republic, Guatemala, Peru and Puerto Rico) reporting a potential increase in the indirect tax burden in 2013. Only the Dominican Republic sees a headline VAT rate increase (from 15% to 18%), and Colombia sees base broadening by introducing VAT (at 10%) on immovable property leases and lodging. Only a single country (Nicaragua) anticipates an overall decrease in this tax class in 2013.

Political landscapeThere is much to watch on the Americas political horizon in 2013. In Chile, there will be presidential elections in December, and tax will likely be a central topic for all candidates as the country demands more government services and the longer-term policy goal of a balanced budget is pursued.

While not a presidential election year, 2013 will see

one-third of both houses of parliament will be replaced. Nicaragua, like many other countries in the region, has a raft of ongoing tax proposals in play, including in the areas of transfer pricing, telecommunications taxation and customs duties.

And of course, 2013 will be another important year for tax in the United States, with focus on sequestration, the possible extension of business and tax provisions set to expire at year-end, the continuing international tax reform debate and preparation for the key provisions of the Affordable Care Act, which will go into effect in 2014.


Over the past few years most

region have adopted policies

expected to continue in 2013 with most countries projecting sovereign debts and

those seen in 2011 and 2012.

For the 2013 to 2017 period, most counties are projecting improvements in (or at the very least stabilization of)

encouraging, improvements in sovereign debt levels are not expected to be dramatic (with only China projecting a reduction in debt in excess of 10% over the 2013 to 2017 period).

Although this might seem to indicate that tax burdens will increase generally, this is certainly not borne out by the subjective outlooks from our 13 responding countries. Instead,

European sovereign debt crisis — at least in terms of its impact on taxation policy in the region.

In fact, across all tax classes tracked (CIT, PIT and VAT/GST/sales tax) in all countries, only four increases are reported. Of the four, three (New Zealand, the Philippines and Singapore) are in the area of indirect taxes and involve base-broadening as

in the region seem to be using the delivery of stimulus via the CIT regime as a key plank of policy. Of the 13 countries reporting, the overall CIT burden is projected to decrease in 10, a far higher ratio than in other regions. PIT attracts projected burden reductions in 7 of the 13 (with no substantive changes

global trend of an overall move to the taxation of consumption: none of the 13 countries are projected to decrease the indirect tax burden in 2013.

Overall, the tax policy landscape in 2013 is expected to be very similar to that of 2012, with continuance of most trends

Reductions in corporate and personal tax rates aimed at attracting domestic and foreign investment and boosting spending

taxes on carbon emissions

Introduction of taxes on mineral resources and/or property

A more targeted approach to the provision of tax incentives

De facto broadening of the tax base (across all taxes: CIT, PIT and VAT/GST/sales tax) through targeted compliance programs

2013 tax policy outlook

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While not a broad trend across the region, there has been a marked increase in the focus by some countries (primarily Australia and Japan) on the taxation of cross-border transactions and e-commerce activities, aligning to the overall global focus on these issues.

Although many countries’ ability to implement proposed tax policy changes was hampered in recent years due to political instability and/or natural disasters, the appetite for tax policy change appears to be developing. Nonetheless, a majority of proposed changes, while important, are not overly ambitious, which may be symptomatic of narrow political mandates in a number of countries.

Asia’s sovereign debt picture Consistent with global trends, sovereign debt as a percentage

region in the 2007 to 2011 period.

In contrast, sovereign debt as a percentage of GDP was relatively stable over 2011 and 2012. This trend is projected to continue in 2013 with countries in the region falling into one of three broad categories:

Those countries with relatively moderate levels of sovereign debt (i.e., with sovereign debt in the vicinity of 33% of GDP or less). This group comprises the more developed economies of Australia and Hong Kong but also includes China, Korea and Indonesia.

Those countries with relatively high levels of sovereign debt (i.e., with sovereign debt in the vicinity of 40% to 50% of GDP). This group comprises the rapidly developing economies of Malaysia, the Philippines, Taiwan, Thailand and Vietnam but also includes New Zealand.

group comprises Japan, which boasts the highest public debt burden in the developed world (projected to be 245% of GDP in 2013), and Singapore, with a debt/GDP ratio of 106% for 2012.

Most countries in the region forecast a reduction in sovereign debt as a percentage of GDP of between 1.6% and 9.5% over the 2013 to 2017 period with the exceptions being Japan, Malaysia and Thailand (whose debt/GDP ratios are expected to increase by 5.3%, 2.3% and 5.2%, respectively). Interestingly, average unweighted projected sovereign debt for the 13 countries in 2013 stands at approximately 57% of GDP — or, excluding Japan, approximately 42% of GDP. This shows how much more capacity to control policy decisions is available in

As would be expected, the stabilization of sovereign debt levels across the region is accompanied by projections of modest

Overall, 8 out of the 13 countries in this report anticipate an

while 4 countries project overall net change of less that 1%.6 The exceptions to this trend are Indonesia (a net contraction of 1.2% of GDP during this period) and Singapore. Given that the latter possesses a relatively rare bond market situation and continues to run an annual surplus through this time period, it is probably wise to consider this to be exceptional.7

6 2011 is the latest year for which actual data is available from the IMF, instead of projected data.7 Singapore’s sovereign debt is a product of its issuance of debt on international bond markets.


The Australian federal Government recently moved away from a long-standing commitment to delivering a budget surplus in

is primarily the result of lower-than-expected returns from the Government’s controversial Mining Rent Resources Tax. The tax, which took effect from 1 July 2012, was supposed

the Australian mining industry, with collections earmarked for a range of funding programs and tax cuts. Recently released

six months, which has called into question the ability of the Government to deliver on its promises without increasing its

The failure of the tax to generate the anticipated level of revenues is due to a combination of falling commodities prices and features of the law that (among other things) allow miners to deduct asset values from current earnings when calculating

stable over the course of this six-year period, will rely heavily on the Government’s growth policy being delivered through

in 2013.





CIT 1 10 2 13

PIT 0 7 6 13


Total for all tax types 4 17 16 37

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The leveling out of sovereign debt across the region has been accompanied by an increase in the number of implemented and anticipated tax policy changes in the region (compared with the 2012 year, at least), albeit on a cautious basis.

However, rather than seek to implement any major changes, most countries have adopted an approach that is effectively a continuation of previously announced proposals. These generally include a combination of at least two of the following:

Reductions in corporate and personal tax rates aimed at attracting domestic and foreign investment and boosting spending: Malaysia, Thailand and Vietnam

The introduction of incentives to promote green activities and taxes on carbon emissions: Australia and Thailand

The introduction of taxes on mineral resources and/or property: Australia, China, Hong Kong, Indonesia, New Zealand and the Philippines

Taking a more targeted approach to the provision of tax incentives: Australia, China, Japan, Malaysia, New Zealand, the Philippines, Singapore and Vietnam

The de facto broadening of the tax base (across all taxes) through targeted compliance programs: Australia, Indonesia, New Zealand, the Philippines, South Korea and Thailand

Taxation of cross-border transactions and e-commerce activitiesWhile not a broad trend across the region, there has been a marked increase in the focus by some countries on the taxation of cross-border transactions and e-commerce activities.

In terms of cross-border transactions, the Australian Taxation

moves are in line with the wider efforts by the G20 and OECD, referred to on page 2.

The Australian Treasury paper titled “Ways to address

development at the time of writing and will set out the risks to the sustainability of Australia’s corporate tax base from multinational tax minimization strategies and identify potential responses for public discussion.8 The Assistant Treasurer also instructed the Treasury to analyze whether greater reporting of taxes paid by multinationals in every country is desirable. A specialist reference group will provide input, and the Treasury will consult directly with interested stakeholders before the Treasury paper is released for public consultation in mid-2013. Other countries, most notably Japan, have raised the prospect of similar legislative changes, demonstrating how important this issue is being taken at the national and supranational levels, as outlined in the introduction to this report.

8 Treasury Portfolio Ministers, http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/005.htm&pageID=003&min=djba&Year=&DocType=, 4 February 2013


Political landscapeAlthough the ability of a number of countries to implement proposed tax policy changes was hampered in prior years due to political instability and/or natural disasters, the ability to effect tax policy change does appear to be improving. For example:

Thailand’s overall political stability improved in 2012 following the inauguration of the Puea Thai Party. With solid control of the lower house and a strong popular mandate, the Government has been able to push through a number of tax policy changes, including a reduction in the CIT rate from 30% to 23% in 2012 and to 20% in 2013 and a reduction in the top personal tax rate from 37% to 35% in 2013 (notwithstanding the fact that this creates a growing misalignment between the two types of tax).

The expected re-election of the Malaysian Government in the upcoming April 2013 election should pave the way for implementation of long-awaited GST legislation in 2014.

Nonetheless, a majority of proposed changes are not overly ambitious, which may be symptomatic of narrow political mandates in a number of countries.

Debate has also risen in Australia in relation to the tax treatment of online purchases, and the deliberations

policies in the future. An expert panel has urged the federal Government to halve the AU$1,000 GST-free threshold for goods bought from overseas, which is out of step with other countries in the region and elsewhere.

Despite the arguments in favor of lowering the threshold, the federal Government has indicated that it has no plans to make such a change in the short term.

EMEI

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2013 tax policy outlook for Europe, Middle East, India and Africa (EMEIA)


A number of lessons can be drawn from the responses of the 28 countries of EMEIA covered in

this report. First and foremost is the assumption that, while many countries are now rethinking their strategy in regard to austerity, the macroeconomic situation would seem to indicate that a heightened tax burden is here to stay

of years of trends data now available to

crisis, it is clear to see that the bulk of consolidation efforts continue to occur within personal and indirect tax classes.

Of course, corporate taxation has not and will not be immune. Although an earlier trend of introducing corporate tax rate surcharges seems to have slowed (and, unless they are extended, measures such as France’s two-year surcharge will expire at the end of 2013), according to our country respondents, the underlying trend of slowly but surely whittling down various deductions and exemptions (especially

continues to traverse the region. Another trend that is either slowing or is perhaps taking a pause is that of rapid and profound reductions in headline CIT rates. Of the 26 countries that levy CIT, only the United Kingdom is anticipated to move in that direction in 2013 and then, only by a single percentage point.9 Countries such as the Netherlands, which had traded base expansion for rate reduction in pursuit of tax competition, have now seemingly reached the point where further base expansion to fund such rate reductions is either unattractive or politically unachievable. In terms of setting out their stall as a headquarters location, bets have now largely been placed.

Within the region, countries such as Portugal, Ireland, Italy, Greece and Spain (the so-called PIIGS grouping) may have had

short term and should therefore be viewed through a different lens. To a degree, and judging from the number of active or proposed tax policy changes, France may be judged via a similar lens. But whatever policy measure contemplated and whichever area of tax impacted, one thing is clear: much can be learned from the experiences of countries that have already traveled in one particular direction.

9 2011 is the latest year for which actual data is available from the IMF, instead of projected data.

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important barometer10 The sovereign debt picture in the 28 EMEIA countries covered

experiences at country level. Of the 26 countries for which IMF data is available (data was not available for Libya or Pakistan), 10 are projected to see an overall contraction (improvement) in sovereign debt levels between the years of 2011 and 2017, while 14 are projected to see an overall expansion (deterioration) of gross debt during this period.11 France and Italy are projected to see overall net change of less than 1% during this period. Of the 26 countries, Luxembourg is projected to see the biggest expansion of gross debt (101% expansion between 2011 and 2017) while Botswana (-53%) is projected to see the largest contraction. In the PIIGS countries, Portugal, Ireland and Spain are projected to expand their sovereign debt, Greece is projected to contract, and Italy is projected to see a marginal change of less than 1% (from 120.1% of GDP in 2011 to 120.6% in 2017).

decisionsWhile only 10 of the 26 EMEIA countries for which data is available are projected to see a contraction of gross sovereign debt between now and 2017, 20 are projected to see their

surplus expand), while 6 are projected to deteriorate. As before, data was not available for Libya and Pakistan. Sweden sees the largest annual expansion of surplus, moving from a projected surplus of 0.1% of GDP in 2011 to a projected surplus of 2.4% in 2017. Turkey sees the largest percentage contraction of the 26 countries across this period, moving

of 1.3% in 2017. Of the 26 countries for which annual data are available, 4 were projected to be in a surplus position in 2011; this number rises to only 6 in 2017. Overall, this data

situation continues to improve over the medium term, both short-term positions and underlying gross sovereign debt

therefore the overall tax burden experienced by taxpayers. This is especially true of sovereign debt, which remains

in a majority of countries tracked.

contract between 2011 and 2017, perhaps not surprising given the baseline from which they will travel. While none are projected to move into a surplus position during that period, Italy is projected to come closest, ending with a (projected)

of GDP.

10 All data: IMF, World Economic Outlook Database, October 2012.11


Survey respondents predicted whether the overall tax burden would rise or fall in 2013 for CIT, PIT, and taxes on goods and services (including VAT, GST or other sales taxes). While their responses are purely subjective, they paint an interesting picture. If all three tax types are considered across all 28 countries, the overall assessment (for countries that levy tax on those classes of income — countries such as Bahrain do not) is that there will be an increase in tax burden in 2013 across 28% of all tax types, no change in 51% of all tax types and a decrease in tax burden in just 21% of all tax types tracked. After such strict austerity in earlier years, it is notable that almost half of all tax types tracked are anticipated to see no change in 2013. This indicates that while austerity measures have not been abandoned altogether, they have certainly slowed somewhat as countries strive to replace strict austerity with more growth-friendly, targeted policy measures.

This picture is somewhat different in the PIIGS countries, where

the tax burden across all tax classes. Perhaps of more interest

countries report projected increases in PIT and VAT burden through the course of 2013, CIT seems to retain some form

and Spain (depreciation limitations, losses, deductibility of

Italy and Ireland project no major changes to CIT in 2013. Greece, meanwhile, reports a 6% increase in headline CIT rates

reduction (from 25% to 10%) in withholding on dividends. It remains to be seen whether that reduction will form a long-term mainstay of Greece’s policy stance.

Indirect taxes (VAT, GST and sales taxes) seem to be the most popular choice of revenue raiser for countries polled, with the perceived burden being raised in 20 of the 28 EMEIA countries tracked that levy such taxes. PIT is a very close second most-popular revenue raiser (16 of 28 countries), followed by CIT (13 of 28 countries). On the counter side, PIT also seems to be a popular way for governments to reduce the tax burden (16 countries decreasing, the same as the number decreasing the overall PIT burden, showing how this tax is

Table 4: Anticipated changes in tax burden in EMEIA countries





CIT 7 5 14 26

PIT 11 5 10 26


Total for all tax types 28 11 39

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used at either end of the income spectrum to effect policy change). Three-quarters of reductions in the PIT burden will be delivered through increased personal allowances to taxpayers, while only the United Kingdom is reducing the top rate of PIT, moving away from its 50 pence top marginal rate, reducing to 45 pence in 2013 as a result of both policy criticisms and the

policy objectives.

The outlook for CITIn the area of corporate income taxation, of the 28 countries tracked that levy CIT, 7 project an increase in CIT burden in 2013, while more than half (15 of 28) project no change in burden. Just 6 of the 28 (Denmark, Finland, Greece, Netherlands, Sweden and the United Kingdom) project an overall decrease in CIT burden for the year, with only the United Kingdom actually reducing the headline statutory CIT rate. This leaves Greece’s more unusual situation: a refocusing and increased support of tax incentives, including the use of patent and innovation boxes, which seems to be behind much of the stimulatory activity as it relates to CIT. In fact, even countries such as Belgium, France and Luxembourg, which are all projected to pursue a higher CIT burden in 2013, note that business incentives will be one area where government will continue to expand investment. Only the United Kingdom,

development incentive in 2013, seems to be continuing down the path of aggressive headline CIT rate cuts (from 24% in 2012 to 23% in 2013, 21% in 2014 and 26% in 2015).

The Portuguese Government is reported to be trying to negotiate a reduced 10% CIT rate for new investments made in the country with the IMF, European Union and European Central Bank, but the future of that measure is not yet certain. Greece and the Slovak Republic both report planned CIT rate increases in 2013, while the former’s rate increase (from 20% to 26%) is more than tempered by a reduction in the tax on distributed dividends from 25% to 10%, in the hopes of spurring growth.

Almost all countries report the growing use of tax enforcement (including new or strengthened GAAR, SAAR and disclosure requirements) as a method of further expanding the tax base, and this will be a key area for business to monitor in 2013. The raft of limitations and restrictions to interest deductibility passed in 2011 and 2012 looks to slow in 2013 though Finland, Portugal and Spain all report ongoing developments in this area. Switzerland and Luxembourg report measures around minimum taxation levels. Luxembourg’s 2013 budget law contains the introduction of a minimum tax regime on corporate entities, while in Switzerland plans to abolish the

privilege to meet international standards and to introduce a minimum tax rate for holding and mixed companies. Elsewhere, policy measures in 2013 look to focus on the continuing trimming or removal of various exemptions and deductions, or more subtle expansions to the corporate tax base. Hungary

2013 while Spain will see a range of measures related to restricting amortization.

The outlook for PIT

tend to focus on high net worth individuals. Special surcharges on higher-earning taxpayers (sometimes referred to as

(7% surcharge), Finland (2% surcharge) and Portugal, with the latter’s comprising a surcharge of 3.5% for all taxpayers and an additional tax of 2.5% for those paying the top marginal rate of tax. India and Kenya note the potential for an increase in top marginal rate of PIT during the course of 2013, while the Slovak Republic has already announced such

at 19%) to one where the portion of gross income exceeding €3,311 per month will be taxed at 25%. Greece, meanwhile, consolidates the number of taxable bands from seven to


Luxembourg and the Netherlands report plans to limit the deductibility of consumer interest, seeing that trend bleed over from corporate taxation into the PIT space. France, Portugal and Spain have either implemented or plan to implement a wide-ranging set of changes designed

to establish which of the three may be more punitive, France’s changes merit mention because they included a new top rate of PIT of 75% (which was later abandoned), a new 45% rate, the taxation of capital gains and dividends at the taxpayers marginal rate, and increased social taxes. As noted, the four countries projected to reduce the PIT burden all do so through more generous personal allowances to taxpayers, with only the United Kingdom reducing its top marginal rate of PIT.

The outlook for VAT, GST and sales taxesThe Czech Republic and Finland see a 1% increase across both standard and reduced VAT rates, while the harmonization of both rates at 17.5% is expected for the Czech Republic on 1 January 2016. Italy will see a 1% increase in the main VAT rate (to 22%) on 1 July 2013, and Kenya anticipates a potential increase in VAT rates from 16% to 18%. India is likely to increase Central Excise Duty and service tax rate from 12% to 14% in 2013, and the Netherlands, where the VAT rate was increased from 19% to 21% in 2012, sees insurance tax and excise duties also increase in 2013, adding to the indirect tax burden.

Are there key events in 2013

Major tax reform efforts or policy shifts driven by political change are not anticipated in 2013 — at least notwithstanding deterioration in the European theater. That said, some events do merit evaluation, including Germany’s election in September, alongside tracking of the success (or otherwise) of the country’s

is likely to see reform of the tax legislative framework

Government’s decision on whether to adopt the Shome Expert Committee recommendations on the indirect transfers of assets will be a key event of the year for multinational companies.

21

Indirect tax in 2013A review of global indirect tax developments and issues

Indirect Tax in 2013 is Ernst & Young’s fourth annual roundup of developments in VAT, GST, excise duties, customs duties and environmental taxes around the world. We present changes that have been introduced recently or that are expected in the coming year in more than 100 countries, provide four summary maps to give a “snapshot” of where the changes are taking place, examine the changes we are seeing around the world in more detail to identify key trends and their implications for global businesses.

2013 already looks set to be another challenging year for indirect taxes. Globalization and the spread of advanced technologies continue to increase the levels of cross-border trade in goods and services — and to present opportunities and

Download the report at www.ey.com/indirecttaxin2013

with change comes complexity


Access the full report with jurisdiction-

Online: www.ey.com/taxpolicy2013

Mobile app: EY Insights


23

For each jurisdiction, learn about key drivers of tax policy change, legislative highlights from 2012, the tax policy outlook for 2013 and existing tax proposals or public consultations.

229.6

236.6

245.0 246.2 247.6 248.8

250.3

215.0

220.0

225.0

230.0

235.0

240.0

245.0

250.0

255.0

2011 2012 2013 2014 2015 2016 2017

(9.8) (10.0)(9.1)

(7.2)(6.3)

(5.7) (5.8)

(12.0)

(10.0)

(8.0)

(6.0)

(4.0)

(2.0)

0.0 2011 2012 2013 2014 2015 2016 2017

Tax policy and controversy

Koichi Sekiya [email protected] +81 3 3506 2447

Erns

t & Y

oung

con

tact

s

11.1 Soverign debt as a % of GDP1

4

Japan

2229.6

3236.6

245.0

246.2

247.6

248.8

250.3

5

6

1

2

3

4

5


Chris Sanger Rob Hanson

Global and EMEIA Director — Tax Policy Global Director — Tax Controversy [email protected] [email protected] +44 (0)207 951 0150 +1 202 327 5696

Global Leaders

Ernst & Young contacts

25


Jurisdiction Tax policy leader Email/telephone

Tax controversy leader Email/telephone

Argentina Ruben Malvitano [email protected] +54 11 4318 1655

Ruben Malvitano [email protected] +54 11 4318 1655

Australia Alf Capito [email protected] +61 2 8295 6473

Howard Adams [email protected] +61 2 9248 5601

Austria Andreas Stefaner [email protected] +43 1 21170 1041

Martin Schwarzbartl [email protected] +43 1 21170 1405

Belgium Herwig Joosten [email protected] +32 2 774 9349

Philippe [email protected]+32 2 774 9385

Brazil Romero Tavares [email protected] +55 1 12 112 5444

Julio Assis [email protected] +55 1 12 112 5309

Canada Greg Boehmer [email protected] +1 416 943 3463

Gary Zed [email protected] +1 403 206 5052

Chile Ricardo Escobar [email protected] + 56 2 676 1439

Carlos Martinez [email protected] + 56 2 267 61261

Mainland China Becky Lai [email protected] +86 10 5815 2830

Henry Chan [email protected] +86 10 5815 3397

Colombia Margarita Salas [email protected] + 57 1 484 71 10

Margarita Salas [email protected] + 57 1 484 71 10

Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua

Rafael Sayagues [email protected] +506 2208 9880

Rafael Sayagues [email protected] +506 2208 9880

27



Croatia Denes Szabo [email protected] +385 2480 540

Denes Szabo [email protected] +385 2480 540

Cyprus Philippos Raptopoulos [email protected] +357 25 209 999

Philippos Raptopoulos [email protected] +357 25 209 999

Czech Republic Libor Fryzek [email protected] +420 225 335 310

Luice Rihova [email protected]+420 225 335 504

Denmark Trine Bonde Jense [email protected] +45 70 108 050

Trine Bonde Jense [email protected] +45 70 108 050

Ecuador Fernanda Checa [email protected] +59 32 255 5553109

Fernanda Checa [email protected] +59 32 255 5553109

Estonia Ranno Tingas [email protected] +372 611 4578

Ranno Tingas [email protected] +372 611 4578

European Union Marnix van Rij [email protected] +31 70 328 6742

Klaus Von Brocke [email protected] +49 89 14331 12287

Finland Tomi Johannes Viitala

+358 207 280 190

Jukka Lyijynen

+358 207 280 190

France Charles Menard [email protected] +33 (0)1 55 61 15 57

Charles Menard [email protected] +33 (0)1 55 61 15 57

Germany Ute Witt [email protected] +49 3025 471 21660

Jürgen Schimmele [email protected] +49 211 9352 21937




Greece Stefanos Mitsios [email protected] +30 21 0288 6363

Tassos Anastassiadis [email protected] +30 21 0288 6592

Hong Kong SAR Becky Lai [email protected] +86 10 5815 2830

Henry Chan [email protected] +86 10 5815 3397

Hungary Botond Rencz [email protected]+36 1 451 8602

Botond Rencz [email protected] +36 1 451 8602

India Ganesh Raj [email protected] +91 120 6717110

Rajan Vora [email protected] +91 22 619 20440

Indonesia Rachmanto [email protected]+62 21 5289 5587

Dodi Suryadarma [email protected] +62 21 5289 5236

Ireland David Smyth [email protected] +353 1 2212 439

David Smyth [email protected] +353 1 2212 439

Israel Arie Pundak [email protected] +972 3 568 7115

Gilad Shoval [email protected] +972 3 623 2796

Italy Giacomo Albano [email protected] +39 06 8556 7338

Maria Antonietta Biscozzi [email protected] +39 02 8514 312

Japan Koichi Sekiya [email protected] +81 3 3506 2411

Koichi Sekiya [email protected] +81 3 3506 2411

Latvia Ilona Butane [email protected] +371 6704 3836

Ilona Butane [email protected] +371 6704 3836

Lithuania Kestutis Lisauskas [email protected] +370 5 274 2252

Kestutis Lisauskas [email protected] +370 5 274 2252

29



Luxembourg Marc Schmitz [email protected] +352 42 124 7352

John Hames [email protected] +352 42 124 7256

Malaysia Lim Kah Fan [email protected] +60 3 7495 8218

Azhar Lee [email protected] +60 3 7495 8452

Malta Robert Attard [email protected] +356 2134 2134

Robert Attard [email protected] +356 2134 2134

Mexico Jorge Libreros [email protected] +52 55 5283 1300

Manuel Solano [email protected] +52 55 5283 1300

Middle East Mohammed Desin [email protected] +966 2667 1040

Mohammed Desin [email protected] +966 2667 1040

The Netherlands Arjo van Eijsden [email protected] +31 10 406 8506

Arjo van Eijsden [email protected] +31 10 406 8506

New Zealand Aaron Quintal [email protected] +64 9 300 7059

Kirsty Keating [email protected] +61 8 9429 2208

Norway Arild Vestengen [email protected] +47 24 002 592

Arild Vestengen [email protected] +47 24 002 592

Panama Luis Ocando [email protected] +507 208 0144

Luis Ocando [email protected] +507 208 0144

Peru David de la Torre [email protected] +5114114471

David de la Torre [email protected] +5114114471

Philippines Emmanuel Castillo Alcantara [email protected] +63 2 891 0307

Cirilo P. Noel [email protected] +63 2 891 0307

Poland Zbigniew Liptak [email protected] +48 22 557 7025

Agnieszka Talasiewicz [email protected] +48 22 557 7280




Portugal Carlos Manuel Baptista Lobo [email protected] +351 217 912 000

Paulo Mendonca [email protected] +351 21 791 2045

Puerto Rico Teresita Fuentes [email protected] +1 787 772 7066

Teresita Fuentes [email protected] +1 787 772 7066

Romania Alexander Milcev [email protected] +40 21 402 4000

Alexander Milcev [email protected] +40 21 402 4000

Russia Alexandra Lobova [email protected] +7 495 705 9730

Alexandra Lobova [email protected] +7 495 705 9730

Singapore Gek Khim Lim [email protected] +65 6309 8452

Bee Tin Poh [email protected] +65 6309 8017

Slovak Republic Richard Panek [email protected] +421 2 333 39109

Peter Feiler [email protected] +421 2 333 39155

Slovenia Lucijan Klemencic [email protected] +386 1 58 31721

South Africa Christel Brits [email protected] +27 11 502 0100

Christel Brits [email protected] +27 11 502 0100

South Korea Jong Yeol Park [email protected] +82 2 3770 0904

Dong Chul Kim [email protected] +82 2 3770 0903

Spain Eduardo Verdun [email protected] +34 91 572 74 21

Maximino Linares [email protected] +34 91 572 71 23

Sweden Johan Hörberg [email protected] +46 8 5205 9465

Johan Hörberg [email protected] +46 8 5205 9465

31



Switzerland Claudio Fischer

+41 58 286 3433

Walo Staehlin [email protected] +41 58 286 6491

Taiwan Sophie Chou [email protected] +886 2 2720 4000

Sophie Chou [email protected] +886 2 2720 4000

Thailand Yupa Wichitkraisorn [email protected] +66 2 264 0777

Ruth Chaowanagawi [email protected] +66 2 264 0777

Turkey Yusuf Gokhan Penezoglu [email protected] +90 212 368 55 47

Yusuf Gokhan Penezoglu [email protected] +90 212 368 55 47

Ukraine Jorge Intriago [email protected] +380 44 490 3003

Jorge Intriago [email protected] +380 44 490 3003

United Kingdom Chris Sanger [email protected] +44 (0)20 7951 0150

Chris Oates [email protected] +44 (0)20 7951 3318

United States Michael Dell [email protected] +1 202 327 8788

Debbie Nolan [email protected] +1 202 327 5932

Venezuela Alaska Moscato [email protected] +582 1290 56672

Alaska Moscato [email protected] +582 1290 56672

Vietnam Huong Vu [email protected] +84 903432791

Huong Vu [email protected] +84 903432791

Ernst & Young

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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