International tax updates for 2023 March

March 2023 

Louise Cupples - Tax Partner, Neil Williams - Partner 

For international law firms, consultancy and other professional services business, the pace of tax change has stepped up in recent years with countries looking to implement new tax laws and refine their tax systems. Changes affecting multiple countries have also come from the OECD and the EU with legislation affecting member states. In this article we have provided a high-level summary of some key international tax developments which will be of relevance to those professional services businesses with international structures and clients during 2023.

The past years have seen an unprecedented amount of information and updates from the OECD in an attempt to ensure the international tax framework remains fit for purpose as the nature of trade and the provision of services between businesses and their customers has changed.  

On 20 December 2022, the implementation package for Pillar Two was released followed by technical detail on 2 February 2023 intended to provide guidance to ensure jurisdictions apply the rules in a consistent way. See our previous article on how Pillar Two is anticipated to impact large professional service businesses. 

In our previous article, we covered how material additional taxes are unlikely for most in scope professional service businesses, although administration and possible systems changes will be required to ensure that businesses can collate the information to satisfy themselves that top up taxes are not due and also to prepare the “GloBE information return – (GIR)”.  The implementation package covers detail on the information and data which in scope businesses will be required to prepare; seeking input from stakeholders on the amount and type of information which businesses should be expected to collate/ report along with details of safe harbour provisions, and a consultation on guidance to ensure a consistent application by member states.  

In the UK, Pillar Two will come into scope for accounting periods beginning after 31 December 2023. For those businesses with consolidated turnover exceeding the threshold of €750m, we would recommend that attention is given to understanding the likely requirements on their specific business structure and to ensuring that accounting systems will enable the relevant information to be compiled.  

From 1 April 2023, there will be a specific requirement for groups with consolidated revenue of €750m or more to prepare a Master File and Local File in the UK.  Most professional service businesses are already preparing this documentation in accordance with best practice and where this has been a requirement in other territories, so it is unlikely to lead to an additional compliance burden.  However, there will be an additional requirement to produce a “Summary Audit Trail” (“SAT”).  The content of the SAT or its implementation date has yet to be determined and will be subject to a HMRC consultation.  It is anticipated it will take the form of a questionnaire which is designed to establish that appropriate work has been undertaken by the taxpayer to support and evidence the conclusions in its transfer pricing documentation.  

The introduction of the SAT, and the explicit requirement for a Local File and Master File TP documentation format, represents part of a broader signalling to taxpayers, and large businesses in particular, that they will likely be subject to increasing scrutiny, and higher expectations as to how they support, document and implement their transfer pricing policies.  Large businesses within the scope of the new requirements may benefit from building out existing documentation and formalising processes to make fulling the requirements of the SAT less onerous when it becomes operative.  Smaller businesses may benefit from reviewing transfer pricing documentation and ensuring it is fit for purpose as part of best practice, and if focus widens to other businesses in due course.  

The awaited UAE corporate tax law was published on 9 December 2022.   It will be effective for periods starting on or after 1 June 2023.  The headline rate is 9% but businesses in “Free Zones” generating “Qualifying Income” may be subject to a 0% rate.  “Qualifying Income” is not currently defined in the law, although the public consultation document implies this could be income which is sourced from outside of mainland UAE (to prevent businesses sourced in the freezone from gaining an exemption compared with mainland established businesses).   Where a business has clients from across the UAE subject to the definition of income being “sourced” from mainland UAE, it could therefore be difficult for a business to qualify for the 0% rate.  

Some details will still need to be clarified in future regulations and hence the applicable rate for professional service businesses could vary.  With the implementation date approaching, businesses will need to keep up to speed with the key provisions.  BDO UAE’s website which provides further detail will be regularly updated and features a piece on The Much-Awaited UAE Corporate Tax Law is Published.


Certain regulated businesses operating in Germany such as law firms and patent attorneys have been restricted in the types of entity they can use to practice regulated professions – particularly post Brexit. However, after the amendment of the German Federal Lawyer‘s Act (BRAO) and the German Patent Attorney Code (Patentanwaltsordnung) with effect as of August 1, 2022 , it should be possible for lawyers and patent attorneys to register a limited partnership – a “GmbH & Co. KG”. The GmbH & Co. KG is a limited partnership with a German company (the GmbH) as unlimited   partner. Profits allocated to limited partners would be subject to personal taxation – i.e. the structure is transparent for UK and German tax purposes.  

Alternative German tax transparent incorporated entities such as the Partnerschaftsgesellschaft – (“PartG”) available for certain regulated professions may to date have been considered to provide inadequate liability protection for its partners. The GmbH & Co. KG (subject to legal analysis) could provide a more preferable degree of liability protection with respect to commercial liabilities with a GmbH as the general partner  . 

The tax implications of transferring existing activities in Germany to a new structure would need to be analysed as it should not be assumed that a reorganisation would be tax neutral automatically in Germany. The ongoing tax status of the GmbH & Co. KG would also need to be confirmed – for example it will in accordance with the established case law of the German Federal Court of Justice (Bundesgerichtshof) generally result in the German activities becoming subject to German Trade Tax. The structure might specifically be of interest for those businesses looking to establish new activities in Germany.

The Dutch tax authorities recently published their 2023 Budget proposals with many changes operative for calendar year 2023 onwards.  For those trading with partnership structures in the Netherlands, it is worth noting that we are still waiting for the law regarding the tax classification of foreign entities (such as UK LLPs).  The law had been expected to be published at the start of 2023 although has been delayed until September 2023, following the large number of responses to the consultation. The legislation is expected to be operative from 1 January 2024.  It is not expected that the law will change the tax status of many businesses operating in the Netherlands, although the tax classification of each entity will need to be considered separately.  These details were covered in detail on our webinar of 18 August 2022. The recording can be accessed here.

The budget contained a number of other proposals which are operative from 1 January 2023. Overall the measures are stated to have the objective of improving wealth equality and hence there are some tax rises.  In summary the main changes are: 

  • A two tier income tax bracket to tax distributions from substantial holdings.  This could affect partners in the Netherlands who operate through personal service companies and extract income as a dividend.  Currently the applicable tax rate is 26.9%.  This will change to 24.5% for the first €67,000 of income, and 31% thereafter.  This measure could have the effect of making the use of personal companies in the Netherlands less tax efficient. 
  • Under current tax law, the general tax credit is phased out for those with higher work and property income.  The applicable income for phasing out will be widened to include to include a tax payer’s total income (including dividends and investment income).  
  • Modest changes to the income tax rates and corporation tax thresholds. 
  • Previously “entrepreneurs” (which incorporates partners in a professional services business) in Netherlands were able to defer tax on part of their income ringfenced in a retirement provision.
  • From 1 January 2023, a retirement reserve can no longer be built up although reserves accumulated before remain subject to the current rules. 
  • Some employees recruited from outside the Netherlands are currently eligible to receive 30% of their income tax free under the “30%-scheme”.  For employees applying for the scheme from 1 January 2023, the 30% scheme will be limited to apply only to income up to €216,000.  There will be a phased reduction for employees already in the scheme before 1 January 2023.  

Changes have been announced to the Spanish Corporate Income Tax (“CIT”) legislation applying for the 2023 fiscal year which could be relevant for professional service businesses with Spanish companies within the group, or branches of UK Limited Liability Partnerships where profits may be subject to Spanish CIT.  The changes result in some tax reductions for small and start up enterprises to encourage investment, and enhanced tax deductions for energy efficient investments. 
In summary the most relevant developments are:

  • Tax deductions up to €500,000 for investments made in relation to certain energy efficient equipment. 
  • 200% in year tax deductions for investments in certain new energy efficient vehicles 
  • A reduced tax rate of 23% (rather than 25%) for entities with a turnover of less than €1,000,000. 
  • A reduced tax rate of 15% for “start up” entities during the first four tax periods, along with an ability to defer certain tax payments (interest free) and exemption from advanced corporation tax payments.  Start up entities are explicitly defined in Spanish legislation. Broadly, they must be Spanish entities, must have employed 60% of the workforce with a labour contract in Spain, and have an innovative nature as certificated by a Spanish public certifier.  

There are also changes to the expatriate tax regime (commonly known as the “Beckham” tax regime) which provides for a 24% rate of income tax for qualifying expatriate employees on annual income of up to €600,000. The changes are designed to encourage more expatriates to work in Spain and can now apply where an individual has a contract which permits them to work remotely in Spain.  Other changes reduce the numbers of years the individual is required to have been non-Spanish resident before the assignment from 10 to 5 years.  In certain circumstances spouses and children can also now benefit from the favourable tax regime.  

In 2017, US Tax Reform included sweeping changes to US Federal tax law, many of which were detrimental to partners and shareholders of professional service firms operating as “Pass-through entities” (“PTE”). One of the changes impacting individual owners of PTE’s was the limited Federal deduction for state and local income taxes, which was capped at $10,000 per individual or joint filer.  For those PTE’s with owners in high state/local tax jurisdictions and/or who operate in those jurisdictions, the limited deduction potentially created significant increases in the individual’s federal personal tax liability.
To counter this state and local income tax limit, many states have enacted legislation allowing PTE’s to elect to have business income taxed at the entity level vs. the individual partner level. Such entity level state income taxes would generally not be included in the $10,000 state and local income tax limit. Thorough and proper analysis is generally recommended to capture the maximum benefits of this emerging legislation. For example, a PTE should analyse its eligibility to elect in each state, the impact the election would have on each individual partner’s income liability, how the election could impact partners in no- or low-income tax states and ultimately consider who bears the cost of the entity level state tax. BDO continues to monitor legislation in this area and assist clients with analysing PTE elections in order to maximize potential benefits. 

Operating in Brazil and with Brazilian clients can be challenging for professional services businesses where work undertaken for Brazilian clients can be subject to high rates of withholding tax as “technical fees” under Brazilian legislation.  Brazil and the UK have recently signed a double tax treaty although the treaty is subject to an internalisation process which is not expected to conclude for several years. 

Currently UK businesses receiving payment for technical fees from client in Brazil can expect to suffer withholding tax at a rate of 15%.  The new treaty provides for a lower rate of 8% and could also provide some potential for treaty relief to be claimed for the withholding tax in the UK.  However, the treaty does limit benefits for “tax transparent” entities not subject to taxation in the jurisdiction of incorporation and hence it remains to be seen whether the treaty will provide practical assistance with regards to withholding tax for partnerships invoicing Brazilian clients.

It is well documented that foreign law firms have been restricted in the activities they are able to undertake in India. We explore what has changed recently in our article viewed here: 



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