KPMG’s Week in Tax: 15 - 19 October 2018 | KPMG | LU
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KPMG’s Week in Tax: 15 - 19 October 2018

KPMG’s Week in Tax: 15 - 19 October 2018

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

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Transfer Pricing

  • Czech Republic: The Supreme Administrative Court dismissed a taxpayer’s appeal from a decision of a regional court concerning an issue about the provision of services within a taxpayer group. The court agreed with the tax authority’s conclusions concerning the evidence (or more specifically, the lack of probative value of such evidence) supporting the pricing of the services.
  • Czech Republic: A judgment from the Supreme Administrative Court reveals that the arm’s length principle applies to individuals and to intra-state transactions as well as to corporate entities and cross-border transactions.
  • Pakistan: The Securities and Exchange Commission of Pakistan issued guidance that requires companies to maintain records of their related-party transactions. The new recordkeeping rules have an effective date of 1 January 2019.
  • Australia: An updated version of a “Practical Compliance Guideline” sets out a compliance approach to transfer pricing issues related to centralised operating models commonly referred to as “hubs.”

Read TaxNewsFlash-Transfer Pricing

Africa

  • Zambia: The 2019 budget tax measures—generally proposed to be effective 1 January 2019—include proposals for reducing the corporate income tax; imposing an export customs duty for exports of certain metals, gemstones, manganese ores, and concentrates; and introducing a general “thin capitalisation” measure.
  • Nigeria: A new law provides rules concerning flare gas—including a certification system and a new gas-flaring payment regime.
  • South Africa: Changes to the value added tax (VAT) rules that apply for foreign suppliers of e-services are being considered in South Africa.

Read TaxNewsFlash-Africa

Americas

  • Uruguay: The tax authority introduced compliance and tax-payment rules relating to taxation of the digital economy.
  • Canada: Investment limited partnerships must act now if they want to make an important new GST/HST election for their 2018 fiscal year (GST/HST = goods and services tax / harmonized sales tax). 
  • Costa Rica: A draft tax reform bill was approved by the national legislature in the first debate. The next steps include a constitutional inquiry, approval in the second debate, executive branch approval, and finally enactment with official publication.
  • Costa Rica: A new process has been established for settlements of value added tax (VAT) and excise tax with respect to goods that are exempt from tax (for instance, under free trade zone rules) and acquired in the domestic market. 

Read TaxNewsFlash-Americas

Asia Pacific

  • Qatar: The Ministry of Finance issued guidance about the withholding tax requirements under provisions of Qatar’s income tax law. Taxpayers must file withholding tax statements online (electronically) beginning 1 November 2018.
  • Thailand: An international business centre (IBC) regime was introduced by the Thai Revenue Department to replace the current tax incentive regimes of regional operating headquarters (ROH), international headquarters (IHQ), and international trade center (ITC).  
  • Hong Kong: The Chief Executive’s policy speech focused on tax incentives to foster international finance centres and the maritime industry.

Read TaxNewsFlash-Asia Pacific

Europe

  • France: Software, cash box systems, and other IT environments that record transactional and payment data about VAT-able transactions with customers must be secured pursuant to the conditions set forth by provisions of French tax law. These conditions require that the IT environments must be unalterable and secure, and must provide for appropriate record retention and archiving.
  • Germany: The German Federal Tax Court (BFH) has asked the Court of Justice of the European Union (CJEU) to clarify whether VAT may be charged on EU subsidies. The submission to the CJEU also concerns the minimum basis for the VAT calculation for discounted payments made, for example, by corporations to their trading partners.
  • Ireland: The CJEU rendered its judgment in a case concerning an Irish airline (taxpayer) that had incurred costs—and related VAT—in respect of its attempt to acquire its competitor airline. The CJEU concluded that for the purposes of acquiring the shares in the target airline, the taxpayer could fully and directly recover all VAT paid for professional advisor services.
  • Italy: Recent guidance from the tax agency and court cases offer some clarification regarding the tax treatment of certain merger and acquisition (M&A) transactions.
  • Netherlands: The government announced it will repeal the dividend tax (as had been proposed on Budget Day). Instead, the government proposes to improve the business climate through other corporate tax measures.
  • Switzerland: Foreign sellers of “low-value” goods (totaling more than CHF 100,000) must register for Swiss VAT as of 1 January 2019.

Read TaxNewsFlash-Europe

FATCA / IGA / CRS

  • United States: All qualified intermediary (QI) (including qualified derivatives dealer (QDD)), withholding foreign partnership (WP), and withholding foreign trust (WT) entities must submit their applications for the 2018 year by the due date of 16 November 2018.
  • Luxembourg: An updated version of the common reporting standard (CRS) “frequently asked questions” (FAQs) contains an additional section on self-certification and tax residence forms.
  • OECD: Under the CRS system, the OECD was addressing attempts by “residence and citizenship by investment” (CBI/RBI) schemes (also referred to as “golden passports”) to hide assets held abroad from CRS reporting. An OECD release includes results of analysis of over 100 CBI/RBI schemes offered by CRS-committed jurisdictions, and identifies schemes that potentially pose a high risk to the integrity of CRS.
  • Germany: A circular supplements the rules for implementing the automatic exchange of information (AEOI) in tax matters with regards to the CRS system in Germany.
  • Hong Kong: The government is expected to update the list of non-reporting financial institutions to comply with the OECD’s requirements.

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • EU and Vietnam: A fact sheet was released by the European Commission about the EU-Vietnam trade agreement. The trade agreement will eliminate over 99% of tariffs and partially remove the remainder through “limited zero-duty” quotas.
  • United States: Customs and Border Protection (CBP) announced its position that products imported from China eligible for Miscellaneous Tariff Bill Act of 2018 (MTB) duty-suspension or reduced tariffs nevertheless will be subject to the 25% or 10% tariffs under the “Section 301” action.
  • United States: CBP announced new procedures and guidance concerning certain provisions under the part of the new U.S. tax law concerning imports of spirits, wine, and beer and the foreign assignment aspects for 2018 entries.
  • United States: The U.S. International Trade Commission launched an investigation to assess the “likely impact” of the trade agreement with Mexico and Canada.
  • United States: The U.S. Court of International Trade held CBP and the U.S. Treasury Department failed to issue statutorily required drawback regulations within the congressionally mandated time frame, and ordered that the final regulations are to be published in the Federal Register by 17 December 2018.

Read TaxNewsFlash-Trade & Customs

United States

  • The Treasury Department released a report that lists future regulatory projects that are proposed or pending—including regulations to implement certain measures as enacted by the new U.S. tax law (Pub. L. No. 115-97). 
  • Notice 2018-84 announces that the Treasury Department and IRS intend to amend existing regulatory guidance relating to health insurance, guidance that is based in part on the personal exemption because the new U.S. tax law reduced the personal exemption deduction to "zero" for a 10-year period. 
  • OMB’s Office of Information and Regulatory Affairs (OIRA) completed its review of proposed Treasury regulations concerning capital gains invested in opportunity zones (regulations that concern measures that were enacted under the new U.S. tax law). 
  • Rev. Proc. 2018-54 provides guidance for insurance companies with regard to mortgage-backed securities as having deemed issuers for purposes of the diversification requirements under section 817(h).
  • Proposed regulations provide some penalty relief for failures to file correct information returns or furnish correct payee statements.
  • The U.S. Court of Appeals for the Sixth Circuit reversed a memorandum opinion of the U.S. Tax Court concerning whether the individual taxpayers had to treat, as income, the economic benefits resulting from their S corporation’s payment of a premium on the taxpayer-husband’s life insurance policy under a compensatory split-dollar arrangement.
  • More states—Alabama and Colorado, plus the District of Columbia—responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales).
  • The Missouri Department of Revenue ruled that an online marketplace used by a farmer to sell beef raised on a farm did not qualify as a “marketplace” for purposes of the “farmer’s market” exemption from the sales and use tax.
  • The Texas Comptroller determined that the taxpayer (a California company operating an online platform that allowed software developers to sell digital products to consumers and allowed third-party marketers to advertise a software developer’s products) did not have franchise tax nexus with Texas because it lacked a physical presence in the state.
  • Utah’s Supreme Court affirmed a lower court’s decision that the state’s discretionary authority statute (measures allowing the taxing authority to allocate income, deductions, etc., among affiliated entities to clearly reflect income) is substantially similar to IRC section 482 and thus must be interpreted by applying the federal regulations under IRC section 482. The Utah Tax Commission had invoked its discretionary authority statute to disallow royalty deductions made by the taxpayer to a related entity. The high court affirmed that the tax authority was prevented from exercising its discretionary authority because the transactions were at arm’s length (as defined pursuant to IRC section 482).
  • The IRS announced taxpayers in new lists of counties in Florida, Georgia, North Carolina, South Carolina, and Virginia could qualify for tax relief as a result of damage caused by Hurricane Michael and Hurricane Florence. The tax relief includes more time to file returns, pay taxes, and perform certain other time-sensitive acts. 
  • The IRS announced that because of shortages of undyed diesel fuel caused by Hurricane Michael, it will waive a penalty when dyed diesel fuel is sold for use or is used on the highway in Florida. 
  • The IRS is providing temporary relief from certain requirements under the low-income housing credit program to provide relief for individuals affected by the recent hurricanes and other disasters. The IRS relief allows low-income housing units (wherever located) to be offered to displaced victims of Hurricanes Michael and Florence or other recent disasters.

Read TaxNewsFlash-United States

Indirect Tax

  • France: Software, cash box systems, and other IT environments that record transactional and payment data about VAT-able transactions with customers must be secured pursuant to the conditions set forth by provisions of French tax law. These conditions require that the IT environments must be unalterable and secure, and must provide for appropriate record retention and archiving.
  • Germany: The German Federal Tax Court (BFH) has asked the Court of Justice of the European Union (CJEU) to clarify whether VAT may be charged on EU subsidies. The submission to the CJEU also concerns the minimum basis for the VAT calculation for discounted payments made, for example, by corporations to their trading partners.
  • Ireland: The CJEU rendered its judgment in a case concerning an Irish airline (taxpayer) that had incurred costs—and related VAT—in respect of its attempt to acquire its competitor airline. The CJEU concluded that for the purposes of acquiring the shares in the target airline, the taxpayer could fully and directly recover all VAT paid for professional advisor services.
  • Zambia: The 2019 budget tax measures—generally proposed to be effective 1 January 2019—include proposals for reducing the corporate income tax; imposing an export customs duty for exports of certain metals, gemstones, manganese ores, and concentrates; and introducing a general “thin capitalisation” measure.
  • Uruguay: The tax authority introduced compliance and tax-payment rules relating to taxation of the digital economy.
  • United States: CBP announced new procedures and guidance concerning certain provisions under the part of the new U.S. tax law concerning imports of spirits, wine, and beer and the foreign assignment aspects for 2018 entries.
  • Canada: Investment limited partnerships must act now if they want to make an important new GST/HST election for their 2018 fiscal year (GST/HST = goods and services tax / harmonized sales tax). 
  • Costa Rica: A new process has been established for settlements of value added tax (VAT) and excise tax with respect to goods that are exempt from tax (for instance, under free trade zone rules) and acquired in the domestic market. 
  • South Africa: Changes to the value added tax (VAT) rules that apply for foreign suppliers of e-services are being considered in South Africa.
  • Switzerland: Foreign sellers of “low-value” goods (totaling more than CHF 100,000) must register for Swiss VAT as of 1 January 2019.
  • United States: The IRS announced that because of shortages of undyed diesel fuel caused by Hurricane Michael, it will waive a penalty when dyed diesel fuel is sold for use or is used on the highway in Florida. 
  • United States: The Missouri Department of Revenue ruled that an online marketplace used by a farmer to sell beef raised on a farm did not qualify as a “marketplace” for purposes of the “farmer’s market” exemption from the sales and use tax.
  • United States: The Texas Comptroller determined that the taxpayer (a California company operating an online platform that allowed software developers to sell digital products to consumers and allowed third-party marketers to advertise a software developer’s products) did not have franchise tax nexus with Texas because it lacked a physical presence in the state.
  • United States: More states—Alabama and Colorado, plus the District of Columbia—responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales).

Read TaxNewsFlash-Indirect Tax

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