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The outlook forglobal tax policy

in 2013Executive summary


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3/36contents

1Global tax policy in 2013

62013 tax policy outlook for the Americas

10*()+lYphgda[qgmldggc^gj9kaY%HY[a[

162013 tax policy outlook for Europe,

Middle East, India and Africa (EMEIA)

25Ernst & Young contacts


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The outlook for global tax policy in 2013


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1

The high volume of tax

changes in response to the

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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 theybelieve 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 alleyes are on future direction

Làkj]na]og^lYphgda[qaf.([gmflja]kaf*()+f\k[gmflja]k

Z]dgf_afgf]g^l`j]][Yehk&L`]jkl_jgmh[YfY[lan]dq

hmjkm]gjY[à]n]ka_fa[YfllYpj]^gje$dYj_]dqoal`gml

hindrance. The second group can actively pursue or achieve

ka_fa[YfllYpj]^gjeZmlakk]]flgZ]lYcaf_Y_j]Yl]jjakc

Y_YafklYZY[c\jghg^YffmYd\][alYf\_jgkk\]Zl&;gmflja]k

afl`]làj\_jgmhoak`lghmjkm]gjY[à]n]ka_fa[YfllYp

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

lggYj]dd]\oal`klgja]kYZgml`go_gn]jfe]flkl`Ylgf[]

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 countriesare 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.

O]`gh]qgmf\làkj]hgjlmk]^mdaf`]dhaf_qgmfYna_Yl]

l`][`ghhqoYl]jk&

Christopher Sanger

Global and EMEIA Leader Tax Policy Services

Ernst & Young LLP

Global tax policy in 2013


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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

G=;


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3

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.

Làkj]hgjlf\kl`Ylkgn]j]a_f_jgkk\]ZlYf\YffmYd\][al

kalmYlagfkYj]\]egfkljYlaf_Ykljgf_afm]f[]gflYphgda[q$

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

[gmflja]k`Yn][gflafm]\lghanglYoYq^jge]j[]Ymkl]jalq

e]Ykmj]kYld]Ykl$o`]j]l`gk][gmflja]k`Yn]Yfqk[Ydjgge

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 thoseactivities given rise to the greatest gains over the long run.

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

Zgllge^gjj]\m[af_;ALjYl]kakgn]jgjl`]jmff]jk`Yn]bmkl

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 Europeanlevel 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

Ye]f\hjgnakagfk[gf[]jfaf_N9LgffYf[aYdk]jna[]k&

Other supranational initiatives will also attract attention this

year. The United Nations publication of the draft text of theTransfer 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

Kingdoms recent government procurement regulations are an

example. All this activity focusing on multinational companies

aligns in a timely manner with the OECDs planned refreshment

g^l`]]f`Yf[]\j]dYlagfkàhkYhhjgY[àfEYqg^làkq]Yj$

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

lgaf[j]Yk]d]n]dkg^[ggh]jYlan][gehdaYf[]&

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 & Youngs Tax

Policy leader in each jurisdiction.

1See Ernst & Young tax alert: =uropean Coeeission 9ction Plan to strengtèng`t against tap frau\ an\ tap evasion, 7 December 2013.


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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

\]\m[lagfkYf\fYf[aYd]ph]fk]Z]f]lk3egj]

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

f]ogjklj]f_l`]f]\?99J$kh][a[Yfla%Ynga\Yf[]jmd]k

(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 useit 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 taxpolicy change

By 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

2Of 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.

3See Ernst & Young report ?99J rising2eapping tap enforceeents

evolution: www.ey.com/gaarrising.


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Americas

5


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

l`]_dgZYdfYf[aYd[jakakoal`eafaeYd\YeY_]Yf\l`]flg

fare equally well through Europes 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

\]ZlYf\\]l]jagjYlaf_YffmYd\][alk&O`ad]l`]][gfgea[\YlY

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)

ak]p[dm\]\^jgel`]9kaY%HY[a[\YlY$l`]9e]ja[Yk,+&0!

akafZjgY\Yda_fe]floal`l`]mfo]a_`l]\9kaY%HY[a[j]_agf

average (38% of GDP) in 2017.

9ffmYd\][alkAs 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

hjgb][l]\lg]ph]ja]f[]Yfaehjgn]e]flaf\][ald]n]dkgn]j

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 Americascountries 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

ZjgY\dqkaeadYjlgl`Ylg^9kaY%HY[a[$

l`]9e]ja[Ykf\kalk]d^gfYhgda[q

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

af*()+$[gflafmaf_lgj]hYajYffmYd\][alkgfdq*g^l`]

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 outlookfor the Americas

42011 is the latest year for which actual data is available from the IMF, instead of projected data.


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7

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

Yj]Yddhjgb][l]\lgZ]oal`af)g^Y[`a]naf_YfYffmYdkmjhdmkZq*()/&;gklYJa[Yoal`Yhjgb][l]\\][alg^.&.g^?


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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 Colombias 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

todays 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

gfdq+Y\][j]Yk]&G^l`]n]$Yddmladar]\a^^]j]flhgda[q

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 sevencountries (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

]d][lagfk^gjd]_akdYlan]g^[]af9j_]flafYafo`a[`

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.


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9k

aY%HY[a[

9


14/36


Over the past few years most[gmflja]kafl`]9kaY%HY[a[

region have adopted policies

Yae]\YlYkoal[`^jgek[Ydklaemdmk

lgk[Yd[gfkgda\Ylagf&Làklj]f\ak

expected to continue in 2013 with most

countries projecting sovereign debts and

YffmYd\][ald]n]dkg^YkaeadYjkar]lg

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)

Zgl`kgn]j]a_f\]ZlYf\YffmYd\][ald]n]dk&Oàd]làkak

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,alk]]eklgaf\a[Yl]`goo]dd9kaY%HY[a[`Yko]Yl`]j]\l`]

_dgZYdfYf[aYd[jakakYf\Z]]fdYj_]dqhjgl][l]\^jgel`]

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

ghhgk]\lg`]Y\daf]jYl]af[j]Yk]k&Egj]kh][a[Yddq$[gmflja]k

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

afZmj\]fafl`]j]eYafaf_.!oàd]l`]j]_agf[gfjekl`]

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

a\]fla]\afl`]hjagjq]Yj$fglYZdq2

Reductions in corporate and personal tax rates aimed at

attracting domestic and foreign investment and boosting

spending

Afljg\m[lagfgâf[]flan]klghjgegl]_j]]fY[lanala]kYf\

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^gj9kaY%HY[a[


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11

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.

Asias sovereign debt picture

Consistent with global trends, sovereign debt as a percentage

g^?


16/36


The Australian federal Government recently moved away from

a long-standing commitment to delivering a budget surplus in

*()+Yf\akfgohjgb][laf_Yeg\]kl\][al&L`]lmjfYjgmf\

is primarily the result of lower-than-expected returns from

the Governments controversial Mining Rent Resources Tax.

The tax, which took effect from 1 July 2012, was supposed

lgjYak]9M*Zaddagfafalkjklq]Yj^jgel`]c]qhdYq]jkaf

the Australian mining industry, with collections earmarked for

a range of funding programs and tax cuts. Recently released

_mj]kk`gol`Yll`]lYpgfdqjYak]\9M)*.eaddagfafalkjkl

six months, which has called into question the ability of the

Government to deliver on its promises without increasing its

Zm\_]l\][al&

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

l`]Yegmflg^hjgl_]f]jYl]\l`YlakkmZb][llgl`]lYp&

L`]`]Ydl`g^L`YadYf\kYffmYd\][alkalmYlagf$o`ad]ZjgY\dq

stable over the course of this six-year period, will rely heavily

on the Governments growth policy being delivered through

ka_fa[Yfl;ALjYl][mlk^jge+(lg*+af*()*Yf\lg*(

in 2013.

;`Yjlaf_Y[gmjk]af9kaY2Ymkl]jalq$klaemdmk$Zgl`7LYZd]+29fla[ahYl]\[`Yf_]kaflYpZmj\]faf9kaY%HY[a[[gmflja]k

Tax typeIncrease in

burden in 2013

Decrease in

burden in 2013

No change in

burden in 2013

Total countries

levying tax type

CIT 1 10 2 13

PIT 0 7 6 13

VAT/GST/sales tax 3 0 8 11

Total for all tax types 4 17 16 37


17/36

13

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 activitiesand 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 transactionsand e-commerce activities

While 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

G^[]`Ykj]d]Yk]\\jY^lj]nakagfklglYpdYok$oà[`Yj]

\]ka_f]\lghj]n]flZYk]]jgkagfYf\hjglkà^laf_&L`]k]

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

lYpeafaearYlagfgêmdlafYlagfYd]fl]jhjak]kakmf\]j

development at the time of writing and will set out the risks

to the sustainability of Australias 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 nationaland supranational levels, as outlined in the introduction to

this report.

8?j]Yl]jljYfkhYj]f[qg^lYphYa\ZqdYj_]Yf\emdlafYlagfYdZmkaf]kk]k$Treasury Portfolio Ministers, http://ministers.treasury.gov.au/DisplayDocs.

aspx?doc=pressreleases/2013/005.htm&pageID=003&min=djba&Year=&DocType=, 4 February 2013


18/36


19/36

EM

EIA

15


20/36

2013 tax policy outlook

for Europe, Middle East,India and Africa (EMEIA)


Anumber of lessons can be drawnfrom 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

^gjYld]Ykln]q]Yjk&9f\oal`Y[gmhd]

of years of trends data now available to

j]na]okaf[]l`]`]a_`lg^l`]fYf[aYd

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 Frances 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

Yjgmf\l`]hYqe]flg^afl]j]klYf\gl`]jfYf[aYd]ph]fk]k!

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 tradedbase 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

l`]^mddd]n]jkg^kgn]j]a_fhgda[qeYcaf_[gfk[Yl]\afl`]

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.

92011 is the latest year for which actual data is available from the IMF, instead of projected data.


21/36

17

L`]kgn]j]a_f\]Zlha[lmj]2Yfimportant barometer10

The sovereign debt picture in the 28 EMEIA countries covered

Zql`akj]hgjlakn]jqeap]\$j]][laf_l`]oa\]jYf_]g^

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).

9ffmYd\][alkYdkg\jan]hgda[qdecisions

While 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

YffmYd\][al[gfljY[lgj$afYdaeal]\fmeZ]jg^[Yk]k$l`]aj

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

^jgeY\][alg^(&*g^?


22/36


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

l`]ha[lmj]akgf]g^ka_fa[YflZmlfgl]p[dmkan]!af[j]Yk]kaf

the tax burden across all tax classes. Perhaps of more interestlgl`]j]Y\]jkg^l`akj]hgjlakl`YlYdl`gm_`^gmjg^l`]n]

countries report projected increases in PIT and VAT burden

through the course of 2013, CIT seems to retain some form

g^hjgl][l]\klYlmk&Hgjlm_YddaealYlagfg^fYf[aYd]ph]fk]k!

and Spain (depreciation limitations, losses, deductibility of

fYf[aYd[gklk!j]hgjlhgl]flaYdaf[j]Yk]kaf;ALZmj\]f$o`ad]

Italy and Ireland project no major changes to CIT in 2013.

Greece, meanwhile, reports a 6% increase in headline CIT ratesaf*()+Zmlegj]l`Yfl]eh]jkl`Ylaf[j]Yk]oal`Yka_fa[Yfl

reduction (from 25% to 10%) in withholding on dividends. It

remains to be seen whether that reduction will form a long-

term mainstay of Greeces 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 numberdecreasing the overall PIT burden, showing how this tax is

9mkl]jalqgjklaemdmkaf*()+7Gjf]al`]j7Table 4: Anticipated changes in tax burden in EMEIA countries

Tax typeIncrease in

burden in 2013

Decrease in

burden in 2013

No change in

burden in 2013

Total countries

levying tax type

CIT 7 5 14 26

PIT 11 5 10 26

VAT/GST/sales tax 10 1 15 26

Total for all tax types 28 11 39


23/36

19

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

^Y[ll`Ylj]n]fm]_mj]k\]egfkljYl]l`YlaloYkfgle]]laf_

policy objectives.

The outlook for CIT

In 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 Greeces 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,o`a[`Ydkgk]]kYka_fa[Yfl[`Yf_]lgalkj]k]Yj[`Yf\

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 formers 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. Luxembourgs 2013 budget

law contains the introduction of a minimum tax regime on

corporate entities, while in Switzerland plans to abolish the

klYlmkg^\gea[ad][gehYfqlgY\bmkll`][YflgfYd`gd\af_

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

oaddk]];gfljgdd]\>gj]a_f;gehYfq\]falagfk]phYf\af

2013 while Spain will see a range of measures related to

restricting amortization.

The outlook for PIT

Afl`]Yj]Yg^HAL$l`]egklka_fa[Yflaf[j]Yk]kaflYpZmj\]f

tend to focus on high net worth individuals. Special surcharges

on higher-earning taxpayers (sometimes referred to askgda\Yjalqkmj[`Yj_]k!oaddZ]afhdY[]afl`];r][`J]hmZda[

(7% surcharge), Finland (2% surcharge) and Portugal, with

the latters 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

Ye]Ykmj]$egnaf_YoYq^jgeYhmj]dqYllYpkqkl]ed]na]\

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

bmkll`j]]$Yf\Hgjlm_Ydegn]k^jge]a_`lZYf\klgn]&


24/36


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

lgjYak]Y\\alagfYdj]n]fm]k^jgeHAL&O`ad]\a^[mdl

to establish which of the three may be more punitive,

Frances 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 Kingdomreducing its top marginal rate of PIT.

The outlook for VAT, GST andsales taxes

The 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 ratesfrom 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 2013l`Yloaddafm]f[]lYphgda[q7

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 Germanys election in September, alongside

tracking of the success (or otherwise) of the countrys

)*%hgafllYpY[lagfhdYfjklmfn]ad]\af*()*&?j]][]

is likely to see reform of the tax legislative framework

afl`]jklkapegfl`kg^*()+$o`ad]l`]Af\aYf

Governments 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.


25/36

21

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

Indirect Tax in 2013 is Ernst & Youngs fourth annual roundupof developments in VAT, GST, excise duties, customs duties andenvironmental taxes around the world. We present changesthat have been introduced recently or that are expected in thecoming year in more than 100 countries, provide four summarymaps to give a snapshot of where the changes are takingplace, examine the changes we are seeing around the world

in more detail to identify key trends and their implications forglobal businesses.

2013 already looks set to be another challenging year forindirect taxes. Globalization and the spread of advancedtechnologies continue to increase the levels of cross-bordertrade in goods and services and to present opportunities and\a^[mdla]k^gjlYphYq]jkYf\lYpY\eafakljYlagfk&

Download the report at www.ey.com/indirecttaxin2013

Af\aj][llYpaf*()+2with change comes complexity


26/36


Access the full report with jurisdiction-

kh][a[\]lYadk[gn]jaf_.(eYjc]lk

Online:

www.ey.com/taxpolicy2013

Mobile app:

EY Insights

The outlook forglobal tax policyin 2013


27/36

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

245.0246.2

247.6248.8

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)

0.02011 2012 2013 2014 2015 2016 2017

Tax policy and

controversy

Koichi Sekiya

[email protected]

+813 35062447

Ernst&Youngcontacts

1t=[gfgea[Yf\k[Yd\YlY

1.1 Soverign debt as a % of GDP1

)&*9ffmYd\][al'kmjhdmkYkYg^?mf\AE>!$Ogjd\=[gfgea[Gmldggc $Ogjd\=[gfgea[Gmldggc


28/36


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


29/36

Ernst & Youngcontacts

25


30/36


Jurisdiction Tax policy leaderEmail/telephone

Tax controversy leaderEmail/telephone

Argentina Ruben [email protected]

+54 11 4318 1655

Ruben Malvitano

[email protected]

+54 11 4318 1655

Australia Alf [email protected]

+61 2 8295 6473

Howard Adams

[email protected]

+61 2 9248 5601

Austria Andreas [email protected]

+43 1 21170 1041

Martin Schwarzbartl

[email protected]

+43 1 21170 1405

Belgium Herwig [email protected]

+32 2 774 9349

Philippe [email protected]

+32 2 774 9385

Brazil Romero [email protected]

+55 1 12 112 5444

Julio Assis

[email protected]

+55 1 12 112 5309

Canada Greg [email protected]

+1 416 943 3463

Gary Zed

[email protected]

+1 403 206 5052

Chile Ricardo [email protected]

+ 56 2 676 1439

Carlos Martinez

[email protected]

+ 56 2 267 61261

Mainland China Becky [email protected]

+86 10 5815 2830

Henry Chan

[email protected]

+86 10 5815 3397

Colombia Margarita [email protected]

+ 57 1 484 71 10

Margarita Salas

[email protected]

+ 57 1 484 71 10

Costa Rica, DominicanRepublic, El Salvador,Guatemala, Honduras,Nicaragua

Rafael Sayagues

[email protected]

+506 2208 9880

Rafael Sayagues

[email protected]

+506 2208 9880


31/36

27



Croatia Denes [email protected]

+385 2480 540

Denes Szabo

[email protected]

+385 2480 540

Cyprus Philippos [email protected]

+357 25 209 999

Philippos Raptopoulos

[email protected]

+357 25 209 999

Czech Republic Libor [email protected]

+420 225 335 310

Luice Rihova

[email protected]

+420 225 335 504

Denmark Trine Bonde [email protected]

+45 70 108 050

Trine Bonde Jense

[email protected]

+45 70 108 050

Ecuador Fernanda [email protected]

+59 32 255 5553109

Fernanda Checa

[email protected]

+59 32 255 5553109

Estonia Ranno [email protected]

+372 611 4578

Ranno Tingas

[email protected]

+372 611 4578

European Union Marnix van [email protected]

+31 70 328 6742

Klaus Von Brocke

[email protected]

+49 89 14331 12287

Finland Tomi Johannes Viitalalgea&naalYdY8&]q&[ge

+358 207 280 190

Jukka Lyijynen

bmccY&dqabqf]f8&]q&[ge

+358 207 280 190

France Charles [email protected]

+33 (0)1 55 61 15 57

Charles Menard

[email protected]

+33 (0)1 55 61 15 57

Germany Ute [email protected]

+49 3025 471 21660

Jrgen Schimmele

[email protected]

+49 211 9352 21937


32/36




Greece Stefanos [email protected]

+30 21 0288 6363

Tassos Anastassiadis

[email protected]

+30 21 0288 6592

Hong Kong SAR Becky [email protected]

+86 10 5815 2830

Henry Chan

[email protected]

+86 10 5815 3397

Hungary Botond [email protected]

+36 1 451 8602

Botond Rencz

[email protected]

+36 1 451 8602

India Ganesh [email protected]

+91 120 6717110

Rajan [email protected]

+91 22 619 20440

Indonesia Rachmanto [email protected]

+62 21 5289 5587

Dodi Suryadarma

[email protected]

+62 21 5289 5236

Ireland David [email protected]

+353 1 2212 439

David Smyth

[email protected]

+353 1 2212 439

Israel Arie [email protected]

+972 3 568 7115

Gilad Shoval

[email protected]

+972 3 623 2796

Italy Giacomo [email protected]+39 06 8556 7338

Maria Antonietta [email protected]

+39 02 8514 312

Japan Koichi [email protected]

+81 3 3506 2411

Koichi Sekiya

[email protected]

+81 3 3506 2411

Latvia Ilona [email protected]

+371 6704 3836

Ilona Butane

[email protected]

+371 6704 3836

Lithuania Kestutis [email protected]

+370 5 274 2252

Kestutis Lisauskas

[email protected]

+370 5 274 2252


33/36

29



Luxembourg Marc [email protected]

+352 42 124 7352

John Hames

[email protected]

+352 42 124 7256

Malaysia Lim Kah [email protected]

+60 3 7495 8218

Azhar Lee

[email protected]

+60 3 7495 8452

Malta Robert [email protected]

+356 2134 2134

Robert Attard

[email protected]

+356 2134 2134

Mexico Jorge [email protected]

+52 55 5283 1300

Manuel Solano

[email protected]

+52 55 5283 1300

Middle East Mohammed [email protected]

+966 2667 1040

Mohammed Desin

[email protected]

+966 2667 1040

The Netherlands Arjo van [email protected]

+31 10 406 8506

Arjo van Eijsden

[email protected]

+31 10 406 8506

New Zealand Aaron [email protected]

+64 9 300 7059

Kirsty Keating

[email protected]

+61 8 9429 2208

Norway Arild [email protected]

+47 24 002 592

Arild Vestengen

[email protected]

+47 24 002 592

Panama Luis [email protected]

+507 208 0144

Luis Ocando

[email protected]

+507 208 0144

Peru David de la [email protected]

+5114114471

David de la Torre

[email protected]

+5114114471

Philippines Emmanuel Castillo [email protected]

+63 2 891 0307

Cirilo P. Noel

[email protected]

+63 2 891 0307

Poland Zbigniew [email protected]

+48 22 557 7025

Agnieszka Talasiewicz

[email protected]

+48 22 557 7280


34/36




Portugal Carlos Manuel Baptista [email protected]

+351 217 912 000

Paulo Mendonca

[email protected]

+351 21 791 2045

Puerto Rico Teresita [email protected]

+1 787 772 7066

Teresita Fuentes

[email protected]

+1 787 772 7066

Romania Alexander [email protected]

+40 21 402 4000

Alexander Milcev

[email protected]

+40 21 402 4000

Russia Alexandra [email protected]

+7 495 705 9730

Alexandra [email protected]

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Singapore Gek Khim [email protected]

+65 6309 8452

Bee Tin Poh

[email protected]

+65 6309 8017

Slovak Republic Richard [email protected]

+421 2 333 39109

Peter Feiler

[email protected]

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Slovenia Lucijan [email protected]

+386 1 58 31721

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

Christel [email protected]

+27 11 502 0100

South Korea Jong Yeol [email protected]

+82 2 3770 0904

Dong Chul Kim

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Spain Eduardo [email protected]

+34 91 572 74 21

Maximino Linares

[email protected]

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Sweden Johan [email protected]

+46 8 5205 9465

Johan Hrberg

[email protected]

+46 8 5205 9465


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31



Switzerland Claudio Fischer[dYm\ag&k[`]j8[`&]q&[ge

+41 58 286 3433

Walo Staehlin

[email protected]

+41 58 286 6491

Taiwan Sophie [email protected]

+886 2 2720 4000

Sophie Chou

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Thailand Yupa [email protected]

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Ruth Chaowanagawi

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Turkey Yusuf Gokhan [email protected]

+90 212 368 55 47

Yusuf Gokhan Penezoglu

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Ukraine Jorge [email protected]

+380 44 490 3003

Jorge Intriago

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United Kingdom Chris [email protected]

+44 (0)20 7951 0150

Chris Oates

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United States Michael [email protected]

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Debbie Nolan

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Venezuela Alaska [email protected]

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Alaska [email protected]

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Vietnam Huong [email protected]

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36/36

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