Current legislative trends
Aline Nunes dos Santos
Loyens & Loeff, Luxembourg
Report on a panel discussion at the 16th IBA/ABA US and Latin America Tax Practice Trends Conference in Miami
Friday 14 June 2024
Session chairs
Ana Cláudia Akie Utumi Utumi Advogados, São Paulo
Joshua Odintz Holland & Knight, Washington, DC
Speakers
María de los Angeles Olano Beccar Varela, Buenos Aires
José Maurício C Abreu Farroco Abreu, São Paulo
Juan Camilo de Bedout Posse Herrera Ruiz, Bogotá
Jorge Oben IRS Associate Office of Chief Counsel (International), Washington, DC
Introduction
This report summarises a panel discussion on current legislative trends in taxation. As introduced by Ana Cláudia Utumi, the panel focused on
- tax reforms;
- the implementation of OECD’s Pillar Two; and
- tax certainty, tax audits and tax litigation.
The panel featured experts from Brazil, Argentina, Colombia and the United States, providing a comprehensive overview of these critical issues.
Panel discussion
Tax reforms: what is expected to happen within the next 12 months
Argentina
María Olano summarised the main aspects of tax reform recently approved by Argentina’s Senate: the tax amnesty and asset regularisation regime, forgiveness (applicable to both individuals and companies) and amendments to the personal income tax regime.
Additionally, Olano highlighted that there is another bill pending which aims to introduce a large investments incentive regime. The new regime would apply to investments over $200m, offering various tax benefits, including reduced corporate tax rates and fiscal stability guarantees for 30 years.
Utumi asked whether any changes to the Argentinian treatment of inflow and outflow of funds were envisaged. Olano confirmed that none are foreseen.
Brazil
José Abreu pointed out the complexity of the Brazilian VAT system. The current system is fragmented, involves taxation at federal, state and city levels, and results in high compliance costs and legal uncertainties. He highlighted that the limitation on VAT credits has always been a challenge for taxpayers.
It was explained that an amendment to the Brazilian constitution had been approved to introduce a new dual VAT system, combining state and city VAT (IBS) with federal VAT (CBS). An excise tax on harmful products is also foreseen. The new system aims to simplify tax collection, ensure transparency and provide full credit rights. Exemptions and reduced tax rates are foreseen for specific sectors. The new VAT tax rate is yet unknown but expected to be approximately 27.5 per cent. Implementation will start in 2026, with a gradual transition from the old to the new system by 2033.
United States
Jorge Oben started by referring to there being a question mark as to what may happen in 2025. He explained that recent significant tax legislation included the 2017 Tax Cuts and Jobs Act (TCJA), which reduced the corporate tax rate and modified international tax rules, and the 2022 Inflation Reduction Act (IRA), which focused on green energy provisions. Both acts were introduced while the Democratic Party controlled both the Senate and the House.
Oben highlighted that some of the tax benefits arising from these two acts are expected to expire by 2025, and that the cost of extending them would be material (ie, trillions of US dollars).
It was pointed out that legislative proposals with focus on maintaining or adjusting such benefits have been pending. Joshua Odintz shared his expectation that the proposal will be brought forward shortly. Given the current divided US Congress, it was sustained that legislative changes depend on the outcomes of the 2024 elections.
Pillar Two implementation
Odintz introduced the second topic: the OECD’s Pillar Two project, which aims to establish a global minimum tax rate to address base erosion and profit shifting (BEPS). Focusing on implementation across countries, Joshua emphasised the implementation of a qualified domestic minimum top-up tax (QDMTT). From a US perspective, he considered that it would be a stretch to consider the existing corporate alternative minimum tax (CAMT) a QDMTT, given the fundamental differences between the two taxes.
United States
Oben stated that the US might consider introducing a QDMTT, especially if other countries start applying undertaxed profits rules (UTPR). He also highlighted that changes to global intangible low-taxed income (GILTI) might be introduced to serve as a qualifying Income Inclusion Rule (IIR).
Colombia
Juan De Bedout explained that Colombia introduced a minimum 15 per cent tax in 2022. He highlighted that it is calculated based on accounting, and no book-to-tax adjustments are currently foreseen. De Bedout expressed his concern that the legislation may give room to different results depending on taxpayers’ accounting policies, as well as the potential inability of the Colombian tax authorities to challenge the accounting positions of the taxpayers.
Brazil
Abreu explained that Brazil has exempted dividends from withholding tax (WHT) for about 30 years. Recently proposals to introduce dividend WHT have been submitted. For such an amendment, no constitutional tax change is needed.
In regard to Pillar Two, he explained that it has not yet been implemented, highlighting that few Brazilian groups are expected to be in scope. It is expected that the main focus of Brazil should be to avoid the implementation of Pillar Two jeopardising existing tax incentives.
Argentina
No Pillar Two implementation proposal has been presented yet.
Tax certainty, tax audits and tax litigation
Utumi introduced the last topic.
Colombia
De Bedout explained that the last Colombian tax reform was approved in 2022. Almost 40 per cent of the reform is currently being litigated, and half of the disputes involve constitutional issues. He highlighted cases involving the prohibition of deductibility of royalty payments and taxation of student loans. Both were ruled unconstitutional.
He also highlighted that there is a pending proposal to regulate tax arbitration, which has been supported by the Colombian government. The expectation is that the time to resolve tax cases would be reduced.
Brazil
Abreu explained that, historically from time to time, Brazil has launched a tax regularisation programme, which allowed settlement of tax debts at a discount with extended payment terms. Nowadays, a new settlement mechanism has been put in place, pursuant to which taxpayers are given a credit score based on their individual payment capacity. According to the new programme, taxpayers are always given a cash payment option, but carried-forward tax losses and judicial bonds might be also used.
United States
Oben pointed out that the increase in funding from tax audits had a positive impact on the speed and quality of services provided by the authorities. Odintz agreed.
Conclusion and final remarks
As a final remark, Odintz highlighted that countries are actively reforming their tax systems to address economic challenges, to comply with international standards like the OECD’s Pillar Two and to enhance revenue collection. Businesses and advisers must stay informed about these changes to navigate the evolving tax landscape effectively.