This week in tax: OECD finalises crypto rules, UK imposes windfall tax

The OECD published its crypto-asset reporting framework on Monday, October 10, and set global transparency standards for the automatic exchange of information on blockchain transactions.

Cryptocurrencies and other crypto-assets have raised regulatory headaches for tax authorities. The crypto-asset reporting framework sets out reporting rules for intermediaries and service providers involved in the trade of these decentralised assets.

This framework was included in the OECD secretary-general’s tax report to finance ministers and central bank governors at the G20 meeting on Wednesday, October 12, in Washington DC. This means the implementation of the rules across jurisdictions could start as early as 2023.

Crypto traders can expect the OECD framework to be transposed into domestic laws. This will help tax administrations set tax compliance standards for the crypto industry.

The Bank of England’s chief economist, Huw Pill, said at the Scottish Council for Development and Industry in Glasgow on Wednesday, October 12, that a “significant monetary policy response” was likely as inflation continued to hit the UK economy.

Pill said the month of October will be decisive in the BoE’s next move. The base interest rate is at 2.25% to combat the surge of prices. In August, prices were 9.9% higher than they were a year ago – caused mainly by the Russia-Ukraine conflict, according to the BoE governor Andrew Bailey.

Prime Minister Liz Truss has been forced into a series of U-turns over tax policy since the ‘mini-budget’ sparked chaos in the financial markets. However, the rate increase will also have implications for transfer pricing affecting inter-company loans.

The UK announced a temporary revenue cap on low-carbon electricity providers on Wednesday, October 12, a move that reverses the government’s position to avoid higher taxes on the energy sector.

This temporary measure targets energy providers that sell power at higher-than-normal prices. No details are available on the incoming price cap, but tax professionals say the cap must not discourage investment in renewable energy. They are lobbying for the limit to match the €180 ($175) cap in the EU.

Corporate tax teams facing the regulations say investment will fall if the measure is not well designed. Tax directors are calling the price cap a de facto windfall tax, but the Department for Business, Energy and Industrial Strategy argues this is not the case.

The IMF, however, accused the UK government of making the Bank of England’s inflation-cutting job harder after a U-turn on reversing the increase of corporate tax from 19% to 25%. The decision to cap revenue at renewable power companies could be seen as another sign of the instability.

The European Commission is pushing for the US government to reconsider tax breaks introduced as part of the Inflation Reduction Act, approved in August, but a trade dispute may be the likely outcome.

Electric carmakers are granted generous tax breaks under the IRA, including tax credits for electric vehicle batteries, to drive up the production of US-made green vehicles. But this is seen by EU officials as a new form of protectionism.

Margrethe Vestager, executive vice president of the European Commission, told the Financial Times that the EU might pursue legal action through the World Trade Organization (WTO).

“As a matter of principle, you should not put this up against friends,” said Vestager on Sunday, October 9. “You have what we see as an unbalanced subsidy.”

EU and US officials will meet at the Trade and Technology Council meeting in December. The hope is that this can be settled without recourse to the WTO.

The ITR team will recap sessions at Hansuke’s Financial Services Tax Conference 2022, including an emerging trend of quiet quitting in workplaces. Another topic will be the positive effects of the OECD’s treaty relief and compliance enhancement initiative on EU withholding tax systems.

Meanwhile, ITR will continue to monitor the impact of economic uncertainty in the form of interest rate increases around the world and what this means for taxpayers.

We will also cover the crypto industry’s response to the OECD’s crypto-asset reporting framework, which could be adopted globally as early as 2023.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.