KPMG’s Week in Tax: 9 - 13 October 2017 | KPMG | LU

KPMG’s Week in Tax: 9 - 13 October 2017

KPMG’s Week in Tax: 9 - 13 October 2017

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

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Transfer Pricing and BEPS

  • Finland: The Finnish tax administration, following a decision of Finland’s Supreme Administrative Court concerning a cost-sharing arrangement, issued guidance that sets out its policy on the transfer pricing treatment of intra-group services and how to determine the arm’s length mark-up. In light of this new policy, the Finnish tax administration has advised taxpayers to review their transfer pricing arrangements.
  • Kosovo: Annual reports of controlled transactions for 2016 must be completed and filed no later than 30 November 2017.
  • Czech Republic: An amendment implementing country-by-country (CbC) reporting requires all multinational entity groups with an annual consolidated turnover exceeding €750 million to file a CbC report. A CbC notification must be filed on or before 31 October 2017.
  • OECD: Activation of automatic exchange relationships under the multilateral competent authority agreement (MCAA) for the exchange of CbC reports was announced by the OECD. Over 1,000 automatic exchange relationships have been established among jurisdictions committed to exchanging CbC reports as of mid-2018.
  • Poland: A decree sets out information that is to be included in the statutory transfer pricing documentation for related-party transactions.
  • Greece: A new law reflects ratification by Greece of the MCAA on the exchange of CbC reports, so that CbC reporting rules will apply to multinational enterprises with business operations in Greece.
  • India: The Central Board of Direct Taxes released draft rules and forms for use by taxpayers in complying with the CbC reporting and Master file reporting rules. As proposed, the draft CbC rules generally follow the recommendations under the OECD’s base erosion and profit shifting (BEPS) Action 13.

Read TaxNewsFlash-Transfer Pricing

Europe

  • Austria: A decree on capital repayment and internal financing sets out requirements for distribution of profits and, for  the first time, draws a distinction between available and unavailable sub-accounts of capital contributions and internal financing.
  • Netherlands: A coalition agreement includes measures that may end up as amendments or additions to the 2018 Tax Plan, and would affect corporate and individual income tax. One item under the coalition agreement includes measures for the partial repeal of the Dutch dividend withholding tax (to be introduced as of 2020) and the introduction of a partial interest and royalty withholding tax (to be introduced as of 2023).
  • EU: The European Commission announced that EU Member States agreed to a new process to “better resolve tax disputes” from tax treaty-related issues. The goal is to allow businesses and individuals to resolve disputes related to the interpretation of tax treaties and to address issues related to double taxation. 
  • France: The French Constitutional Court issued a decision holding that the 3% tax imposed on distributions of dividends is unconstitutional. The decision was effective immediately, and because the 3% dividends distribution tax no longer has any legal existence in France, there may be refund opportunities.
  • Ireland: There is no corporation tax rate change proposed in the 2018 budget presented this week.
  • Malta: The 2018 budget includes measures that in large part concern individual taxpayers.
  • Poland: A new version of a draft bill to amend the corporate income tax law was submitted to the parliament, and includes provisions on thin capitalisation rules, source of income, controlled foreign corporations measure, among other items.
  • Romania: Recent discussions concerning the value added tax (VAT) split-payment mechanism reflect efforts, especially from the business community, to repeal or, at least, postpone the effective date when the split-payment mechanism will be mandatory for all entities registered for VAT purposes in Romania. The VAT split-payment mechanism currently is optional from 1 October 2017, and mandatory from 1 January 2018.
  • Luxembourg: As an update to 2018 tax reform measures, the tax authorities released guidance regarding an option for individual taxpayers to elect for full individual taxation; individual taxation with reallocation of income for resident and non-resident taxpayers; and joint taxation.

Read TaxNewsFlash-Europe

Americas

  • Canada: The Department of Finance received comments on a consultation paper concerning tax planning using private corporations. 
  • Canada: The Canada Revenue Agency (CRA) has caused confusion with an apparent change to its policy on employee benefits (fringe benefits), and whether items purchased at an employee discount are taxable benefits to employees. The CRA indicated it intends to clarify its position, but did not provide specifics.
  • Canada: The CRA postponed to 1 January 2019, a policy to subject certain investment management fees to taxation in order to allow time to consider submissions received from the investment industry.

Read TaxNewsFlash-Americas

Asia Pacific

  • Australia: For companies with a 31 December 2016 year-end, the deadline for registering research and development (R&D) activities with “AusIndustry” is 31 October 2017 (i.e., 10 months after the end of the income year).
  • China: To boost foreign direct investments in China, a “pilot city program” of corporate income tax incentives for “advanced technology services enterprises” (ATSEs) has been extended on a nation-wide basis. The existing ATSE incentives are temporary, and currently are effective until the end of 2018.
  • India: The Supreme Court held that the provisions of a “transfer” under an income tax law provision were not applicable when a joint development agreement entered into by the taxpayer with the developers was not registered as an enforceable contract.
  • India: Guidelines for the tax department to reopen re-assessment proceedings were stated in a decision by the Delhi High Court. 
  • India: A measure under the general corporate law provides holding companies may not have layers of subsidiaries beyond a prescribed number.
  • India: A tribunal held that a civil penalty applies concerning the original income tax return, even though the taxpayer subsequently filed a revised return of income and paid the tax.
  • India: The Supreme Court, on addressing application of the dividend distribution tax, held that these tax provisions apply on the entire dividend income of the company.
  • India: The Central Board of Direct Taxes set out a process for filing a statement of income from a foreign country or territory for purposes of the foreign tax credit in India.
  • India: The Jammu and Kashmir High Court held that contract receipts were not to be treated as income of a joint venture company; income diverted at source before it accrues to the taxpayer cannot be regarded as income.

Read TaxNewsFlash-Asia Pacific

FATCA / IGA / CRS

  • Hong Kong: The Inland Revenue Department announced the publication of an amendment intended to align Hong Kong’s tax rules to the common reporting standard (CRS) provisions.

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • NAFTA: The third round of trade agreement re-negotiations were completed by Mexico, Canada, and the United States.

Read TaxNewsFlash-Trade & Customs

United States

  • Proposed regulations under section 754 remove a signature requirement for partnerships and their partners in making a valid election to adjust the basis of partnership property. The proposed regulations offer a process beyond the “9100 relief” measures, and taxpayers may rely on the proposed regulations for periods prior to the regulations being finalized.
  • An IRS “practice unit” sets out guidance concerning the penalty regime when there are certain failures to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.
  • Two revenue procedures—Rev. Proc. 2017-56 and Rev. Proc. 2017-57—relate to the automatic approval process for changes to the method used to determine the minimum funding standard for defined benefit plans, and procedures for requesting approval for a change in funding method.
  • The U.S. Tax Court held that after IRS revocation of an entity’s tax-exempt status, the starting date for computing interest on the ensuing corporate income tax deficiency is determined by reference to the date when the corporate income tax return would have been due—not the date when the IRS issued the final determination letter revoking the tax-exempt status.
  • The U.S. Tax Court held in a “reviewed opinion” that a facade easement failed to satisfy the rules for a charitable conservation contribution under section 170(h) because the easement deed did not meet the “in perpetuity” requirements and a “savings clause” in the deed was invalid to retroactively reform the deed to comply with the in perpetuity rules.
  • The California Franchise Tax Board issued a ruling concluding that an acquiring company was deemed to have made a water's-edge election for combined reporting purposes because: (1) goodwill is a “business asset” for purposes of the total business assets test of the water’s-edge measures; (2) the goodwill at issue was integral to the target company’s business, and was attributed to that company; and (3) the value of the target company’s total business assets, including goodwill, was greater than that of the acquiring company when the new unitary affiliate group was established.
  • The Colorado Department of Revenue issued a general information letter concluding that the taxpayer’s sale of information (information collected from government entities, and then sold and delivered electronically to customers) was subject to sales tax as the sale of tangible personal property. 
  • South Dakota filed a 70-page petition for a writ of certiorari with the U.S. Supreme Court, asking the Court to reconsider and overturn the Quill physical presence rule. 
  • A Washington State tax hearing officer addressed various issues concerning retailing arrangements and whether payments for the use of retail space were subject to the state’s B&O tax regime (in this situation, a third-party shoe retailer did not have exclusive control over the retail space and, thus, was not liable for B&O tax on the annual license fees).

Read TaxNewsFlash-United States

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