KPMG’s Week in Tax: 2 - 6 October 2017 | KPMG | LU

KPMG’s Week in Tax: 2 - 6 October 2017

KPMG’s Week in Tax: 2 - 6 October 2017

Tax developments or tax-related items reported this week include the following.

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Transfer Pricing and BEPS

  • Luxembourg: The European Commission—in a final decision in its state aid investigations into transfer pricing rulings granted by Luxembourg to a multinational entity (MNE) group—found that the rulings may underestimate the taxable profits of the MNE group by deviating from the arm’s length principle and, therefore, constituted illegal state aid.
  • Malaysia: Guidance has been issued for implementing and complying with the country-by-country (CbC) reporting requirements, and includes instructions, templates, and samples of a notification letter for reporting and non-reporting entities. Notification as to which entity will be filing the CbC report is due by 31 December 2017.
  • Switzerland: The Swiss Federal Council adopted an ordinance concerning the international exchange of CbC reports of MNEs. Without a referendum being called until 5 October 2017, the CbC reporting measures are intended to satisfy the requirement for an effective date of 1 December 2017. 

Read TaxNewsFlash-Transfer Pricing

United States

  • The U.S. Treasury Department publicly released a final report with recommendations for specific actions with respect to eight regulatory projects that were identified as either imposing an undue financial burden on taxpayers, or adding excessive complexity to the tax system. Certain regulations are to be withdrawn, while others will be modified.
  • Final regulations and related IRS guidance were released for use by most defined benefit pension plans, by specifying the probability of survival year-by-year for an individual based on age, gender, and other factors.
  • Delaware plans to invite numerous companies that have been identified as potentially non-compliant with Delaware’s unclaimed property reporting requirements to participate in the state’s unclaimed property voluntary disclosure agreement (VDA) program.
  • IRS Notice 2017-57 announces that a deferred effective date for regulations (issued in late 2016) under section 987 concerning currency gains and losses with respect to the operations of a “qualified business unit” (QBU) with a different functional currency than the taxpayer. 
  • The U.S. Tax Court issued an opinion holding that unemployment compensation received by a nonresident alien (a graduate student) was not exempt from U.S. income tax under a provision of the income tax treaty between the United States and Canada.
  • An Alabama appeals court held that a city’s business license-tax, as applied to receipts from a taxpayer’s lumber sales, did not violate the Import-Export Clause of the U.S. Constitution, when the gross revenues from export sales were used in calculating the business-license tax liability. 
  • An Illinois appeals court held that an internet retailer with “bricks and mortar” affiliates (stores) in Illinois did not have nexus with the state and, thus, was not required to collect and remit sales tax on internet sales to Illinois customers. The court found that the physical presence of the retail stores could not be attributed to the internet retailer, given the two businesses were separate entities with separate financial statements, balance sheets, and tax returns.
  • A New York tax appeals tribunal upheld a determination of an administrative law judge that certain related corporations were required to file a combined report for the tax years 2007 through 2014, and that intercompany royalties were subject to addback in determining substantial intercorporate transactions.
  • The Wisconsin budget bill (recently signed into law) includes corporate income tax changes concerning IRC conformity, the treatment of net operating losses, and sourcing rules for service receipts, among others.

 

Guidance in relation to the recent hurricanes

  • IRS Notice 2017-56 extends the “physical presence” test and, thus, provides relief for individuals who may otherwise lose their status as a “bona fide resident” of Puerto Rico or the U.S. Virgin Islands because of the unexpected and prolonged dislocation caused by Hurricane Irma and Hurricane Maria.
  • The U.S. Securities and Exchange Commission (SEC) issued an order and interim final temporary rule that extend filing deadlines for companies affected by Hurricanes Harvey, Irma, and Maria.
  • IRS Notice 2017-58 extends the due date to 31 October 2017 for taxpayers who were participants in certain “syndicated conservation easement transactions” by providing more time to file disclosures if these taxpayers were affected by recent hurricanes.
  • The Puerto Rico Department of Treasury issued a series of internal revenue bulletins and circular letters with information about issues and pending tax return or tax payment deadlines as part of its hurricane-related relief measures. 

Read TaxNewsFlash-United States

 

U.S. tax reform

  • A KPMG report about the tax reform framework provides a high-level summary of certain significant proposed changes that would affect states and/or state business taxpayers.
  • A KPMG report summarizes key provisions and initial observations of the potential effects of the tax reform framework on banks and their customers.

Read TaxNewsFlash-Tax Reform

Americas

  • Canada: The government’s 75-day consultation period on its proposals for changes to the taxation of private companies ended 2 October 2017. It remains to be seen what changes (if any) the government would make to the tax proposals, including whether would be any delay in the effective date of the proposed tax regime for private companies.

Read TaxNewsFlash-Americas

Europe

  • EU: The European Commission announced a proposal for reforming the value added tax (VAT) rules in the EU. A goal is enhanced collection of VAT revenue.
  • Germany: Courts issued decisions concerning certain corporate tax issues including the interpretation of the term “income from debit-claims with participation in profits;” whether certain measures of the corporate income tax law are constitutional; the treatment of the transfer of certain reserves to a foreign permanent establishment within the European Union; and the rules for business expense deductions.
  • Norway: A foreign company was assessed NOK 30 million (approximately U.S. $3.8 million) including penalties and interest, for the company’s failure to report and pay VAT on its electronic dating services sold to Norwegian consumers. This serves as a reminder to foreign suppliers of e-services to register for VAT purposes.
  • Netherlands: Two cases pending before the Court of Justice of the European Union (CJEU) concern: (1) whether the VAT on professional services is deductible if the proposed takeover of a participation is ultimately unsuccessful; and (2) whether VAT on due diligence that is performed for a proposed, but ultimately unrealized, sale of shares in a subsidiary is deductible. These cases could affect private equity firms and merger and acquisition (M&A) practices within groups, if the CJEU renders judgments that differ from the current Dutch practice.
  • Turkey: A draft tax law includes increased rates of tax for corporate and individual taxpayers.
  • Turkey: Guidance clarifies the rights to taxation under Turkey’s network of income tax treaties. 

Read TaxNewsFlash-Europe

FATCA / IGA / CRS

  • Switzerland: A final version of transmission guidance under the common reporting standard (CRS) provides Swiss financial institutions with the technical descriptions and specifications required for the transmission of the CRS returns.
  • Pakistan: Detailed procedures were issued for the automatic exchange of financial account information under the multilateral competent authority agreement for purposes of the common reporting standard (CRS).

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • EU: The European Commission announced the launch of a new pan-EU electronic system that is intended to make it easier for businesses to obtain permission to import goods. Importers in all EU Member States also use the same portal, with applications being exchanged among all relevant customs authorities.
  • United States: The U.S. International Trade Commission (ITC) determined that imports of crystalline silicon photovoltaic cells (whether or not partially or fully assembled into other products) into the United States presented a substantial cause of serious injury to the domestic industry producing an article like or directly competitive with the imported article. The ITC will submit a report of its injury determination, remedy recommendations, and certain additional findings by 13 November 2017.

Read TaxNewsFlash-Trade & Customs

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