KPMG’s Week in Tax: 23 - 27 July 2018 | KPMG | LU
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KPMG’s Week in Tax: 23 - 27 July 2018

KPMG’s Week in Tax: 23 - 27 July 2018

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

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Transfer Pricing and BEPS

  • Canada: The Canada Revenue Agency reported statistics of the advance pricing arrangement (APA) program for 2017, reflecting that there were a record number of APAs for the year.
  • United States: The IRS issued a release reporting new content on country-by-country (CbC) reporting in the United States, including: (1) an updated jurisdiction table; (2) new guidance and resources on the IRS webpage; and (3) clarifications to a jurisdictional schedule that is to be filed with the CbC reporting form.
  • United States: The U.S. Court of Appeals for the Ninth Circuit reversed a 2015 decision of the U.S. Tax Court that had found certain Treasury regulations were invalid. The appeals court found the regulations—that require related entities to share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as “qualified cost-sharing arrangements”—were a valid interpretation of the law.
  • Australia: A proposal would extend the “significant global entity” definition and align Australia’s CbC reporting framework with the OECD model requirements.
  • Belgium: The civil penalties to be imposed for failures to comply with the transfer pricing documentation requirements range from €1,250 (for a second infringement) to €25,000 (for five or more infringements).
  • OECD: A report on the status of the Inclusive Framework on base erosion and profit shifting (BEPS) project was released for the period July 2017-June 2018.

Read TaxNewsFlash-Transfer Pricing and TaxNewsFlash-BEPS

Africa

  • Mauritius: Draft legislation incorporates tax measures that would affect corporate and individual taxpayers and that would revise certain indirect tax provisions. The draft legislation reflects tax measures as previously announced in the budget.
  • South Africa: Proposed changes would affect the determination of doubtful debt allowances. The tax authority has the authority to grant an allowance of an amount of any debt due to the taxpayer that is considered to be in doubt. In practice, the South African Revenue Service (SARS) allows 25% of doubtful debt provisions as a deduction (based on a specific list and determined with reference to a listing of debtors).
  • South Africa: Draft measures would address certain unintended consequences when a company enters into debt subordination agreements that under current measures, could result in taxable income in the company.

Read TaxNewsFlash-Africa

Americas

  • Canada: Certain general partners may have goods and services tax / harmonized sales tax (GST/HST) liabilities for past management services. 

Read TaxNewsFlash-Americas

Asia Pacific

  • Australia: Draft legislation would expand the information reporting of payments made to sub-contractors for certain types of services.
  • Myanmar: Companies and branches must re-register with the “Myanmar Companies Online” system beginning 1 August 2018.
  • India: The Authority for Advance Rulings (AAR) found that services supplied to an associate concern (based outside India) are taxable services and subject to good and services tax (GST).
  • India: The Central Board of Direct Taxes announced an amended form for reporting tax audits—Form 3CD, Tax Audit Report—as required to be certified by an auditor. The changes will be effective 20 August 2018.
  • India: The AAR concluded that a liaison office in India did not provide consultancy or other services, either directly or indirectly or for consideration, to the foreign head office. Thus, the AAR found that the head office and the liaison office could not be treated as separate persons for the purpose of a GST levy. 
  • India: A tribunal held that a limited liability partnership (LLP) and an Indian company could amalgamate under provisions of Indian law.
  • India: A tribunal—addressing applicability of a “most favoured nation” clause of a Protocol to the India-Sweden income tax treaty—observed that the Protocol must be considered to be part of the underlying tax treaty. Because the India-Sweden income tax treaty and Protocol were not considered by the Assessing Officer, the case was returned for a fresh adjudication. 
  • Hong Kong: An amendment to the Inland Revenue Ordinance provides an exemption from salaries tax, the amount of income received for services that an individual renders in another territory when that amount is subject to tax in that territory. 

Read TaxNewsFlash-Asia Pacific

Europe

  • Serbia: The Ministry of Finance addressed the individual income tax and social security contributions with respect to corporate directors when they do not receive remuneration for their service and they are not employees of the company.
  • Spain: The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning the Spanish tax lease system—a shipbuilding financing agreement (that is no longer available) that provided Spanish tax relief for those investors that provided the finance. The CJEU determined that the tax lease system may constitute illegal state aid. 

Read TaxNewsFlash-Europe

FATCA / IGA / CRS

  • Ireland: Updated technical guidance was issued for Irish financial institutions and agents with respect to FATCA and the common reporting standard (CRS) registration and reporting procedures.
  • Australia: CRS updates concern: (1) invalid characters; (2) “nil” reports; (3) applications for an extension of time; and (4) enquiries after lodgment (filing).

Read TaxNewsFlash-FATCA / IGA / CRS

United States

  • The U.S. Court of Appeals for the Ninth Circuit reversed a decision of the U.S. Tax Court, and remanded with instructions to enter judgment for the IRS in a case involving an assessment for transferee liability. The taxpayer sold its assets to a second company, and then the taxpayer’s shareholders sold their shares to that same company which then changed its name and was later administratively dissolved for failure to file an annual report. The appeals court explained that the sale to the second company was a cash-for-cash exchange lacking “independent economic substance beyond tax avoidance.” 
  • U.S. states continue to respond to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. concerning the sales tax implications of remote or online sales. A KPMG report provides a summary of state actions.
  • A Texas appeals court held that a taxpayer’s software purchases were not exempt from sales tax under the state’s manufacturing exemption. The purchased software was used to produce semiconductor chips in a virtual design process, with the semiconductor chips being produced by a third-party foundry in Taiwan. The court concluded that the software was not used in manufacturing for sales tax purposes in Texas.
  • A Wisconsin appeals court upheld a sales tax assessment against a provider of contract cleaning services. The taxpayer provided management, supervision, labor, and materials necessary for performing housekeeping and laundry services for several nursing home, retirement center, and rehabilitation facility clients. The court found the taxpayer was providing taxable laundry services.
  • A KPMG report of U.S. state and local tax developments concerning technology-related tax issues, for the second quarter of 2018, provides updates in table format and covers topics such as access to web-based services, guidance on digital equivalents, taxability of software, and other items.

Read TaxNewsFlash-United States

 

  • The chairman of the U.S. House Ways and Means Committee released a two-page document on “tax reform 2.0” that briefly outlines plans to make permanent the individual and small business tax cuts from the new tax law (enacted in December 2017); to promote family savings; and to spur new business innovation.
  • The House of Representatives passed a number of health-related tax bills, including legislation to repeal the medical device excise tax. There is no information on possible Senate action on these bills.

Read TaxNewsFlash-Legislative Updates

Trade & Customs

  • The U.S. Department of Agriculture (USDA) announced it will take action to assist farmers affected by “trade damage from unjustified retaliation.” The USDA will authorize up to $12 billion in programs—reported to be in line with the estimated $11 billion of retaliatory tariffs on U.S. agricultural goods, and intended to assist agricultural producers to meet the costs of disrupted markets.
  • The Office of the U.S. Trade Representative (USTR) scheduled public hearings regarding proposed tariffs on Chinese products.
  • U.S. officials issued a release about evasion tactics used by North Korea that could expose businesses—including manufacturers, buyers, and service providers—to sanctions compliance risks.

Read TaxNewsFlash-Trade & Customs

Exempt Organizations

  • The IRS—for the second time in less than year—has revoked the tax-exempt status of a “dual status” hospital for failure to meet the requirements of section 501(r).

Read TaxNewsFlash-Exempt Organizations

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