KPMG’s Week in Tax: 19 - 23 December 2016

KPMG’s Week in Tax: 19 - 23 December 2016

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

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BEPS

  • OECD: The Organisation for Economic Cooperation and Development (OECD) released an updated version of the base erosion and profit shifting (BEPS) Action 4 report (Limiting base erosion involving interest deductions and other financial payments).
  • Luxembourg: The parliament passed legislation providing for non-public country-by-country (CbC) reporting, and transposing an EU directive—EU Directive 2016/881 (25 May 2016) or “DAC 4”— into Luxembourg domestic law.

Read TaxNewsFlash-BEPS

Americas

  • Dominican Republic: Foreign employees who do not have possession of an identification (ID) card but are residing in the Dominican territory under a “regular migratory status” may be registered in the “single systems for information and collection” (SUIR) using one of three alternative legal documents.
  • Canada: Dividend tax savings for 2016 are still available for corporate business owners or individuals with an investment portfolio held in a corporation.
  • Canada: The KPMG member firm in Canada has prepared a summary of tax developments in 2016.
  • Mexico: The First Chamber of the Supreme Court of Justice of the Nation reviewed a constitutional question concerning a transitional provision of the 2014 tax reform related to the tax treatment of real estate investment companies.
  • Uruguay: Proposed legislation would require certain resident and nonresident entities to disclose the identity of their ultimate beneficial owners to the Central Bank of Uruguay. The bill would also require the owners of nominative shares of Uruguayan entities to register with the central bank.

Read TaxNewsFlash-Americas

Asia Pacific

  • New Zealand: The customs and excise tax bill has been referred to Select Committee for consideration. The bill contains a number of changes to revise the customs and excise tax law.
  • New Zealand: The Opportunities Party (TOP) released one of its key tax policies that aims to close two “loopholes.”
  • New Zealand: The latest release under the Inland Revenue’s business transformation proposals would have broad implications. Submissions are due by 24 February 2017.
  • Malaysia: The Finance Bill 2016 was passed by the Dewan Rakyat and includes significant changes to the Malaysian withholding tax treatment of royalty and service fee payments made to non-residents.
  • India: The Supreme Court of India concluded that the deduction under section 10A of the Income-tax Act, 1961, is to be determined at the point when computing the gross total income of the eligible undertaking—and not in the computation of total income. 
  • India: The Punjab and Haryana High Court held that services rendered between the taxpayer and its associated enterprise are not necessarily required be recorded in writing, but can be communicated orally.
  • India: The Central Board of Direct Taxes (CBDT) announced that to achieve the government’s mission of moving towards a “cashless economy” and to encourage small businesses to accept payments by digital means, the rate of “deemed profit” of 8% is reduced to 6% with respect to the amount of total turnover or gross receipts received through banking channel or digital means for the financial year 2016-17. However, the existing rate of deemed profit at 8% will continue to apply in respect of total turnover or gross receipts when received in cash. 
  • India: To curb “black money,” bank notes of existing series in denominations of INR500 and INR1000 have been withdrawn by the Reserve Bank of India. Concerns have been raised that certain tax law provisions could possibly be used for concealing “black money”. Accordingly, the government has introduced a bill that would provide that defaulting taxpayers are subjected to tax at a higher rate and at increased penalties.
  • India: The Supreme Court of India held that a “subvention” received from the parent company to recoup losses of a subsidiary is not taxable as a revenue receipt because it is a voluntary payments made by the parent company to its loss-making Indian company, and the payment is made to protect the capital investment.
  • India: A tribunal considered the scope of “fees for technical services” under a Protocol to the India-Switzerland income tax treaty. In this proceeding, the tribunal held that payments made to a Swiss-based company for technical and consultancy service constituted “fees for technical services” under the income tax treaty. 
  • India: Guidance relates to the procedure for compromises, arrangements, and amalgamations under provisions of the Companies Act 2013.
  • India: The Calcutta High Court held that the amount of foreign exchange gains realised had the characteristics of a capital receipt being return, when arising out of blocked funds. 
  • India: The Bombay High Court held that capital gains were not “chargeable” at the time of a partnership’s conversion into a private limited company. 
  • India: The Delhi High Court looked to the taxpayer’s physical presence in geographical area, to find that the taxpayer carried on business in India for the duration of a formula one race (in this case, two weeks before the race and one week after the race). 
  • India: The CBDT issued guidance on the procedure for electronic filing of Form 26A/27BA for short deduction/collection and non-deduction/collection of tax withheld at source.

Read TaxNewsFlash-Asia Pacific

Europe

  • Denmark: The Court of Justice of the European Union (CJEU) found certain Danish corporate tax rules were not compatible with EU law. The Danish rules provide an exemption from tax for interest income on loans provided by a Danish resident company to its Danish affiliated companies, if the corresponding interest expenditure deduction is denied the debtor because of application of the thin capitalization rules, but deny an exemption from tax when the affiliated debtor company is a resident in another EU Member State.
  • Ireland: The CJEU concluded that Ireland’s air travel tax—an excise tax on air passenger transport, that is applied at different rates depending on the distance between the departure and arrival airports—was not compatible with state aid rules.
  • Poland: The president has signed legislation that introduces amendments to the value added tax (VAT) law in Poland.
  • Portugal: The CJEU issued a judgment concluding that the Portuguese exit tax imposed on individuals infringes on the free movement of persons and the free movement of establishment, and that the provisions are not justified. 
  • Luxembourg: The 2017 tax reform bill includes measures for individual and corporate taxpayers that generally are effective 1 January 2017.
  • Netherlands: In the value added tax (VAT) final return for 2016, two items may need to be addressed: (1) VAT adjustment based on the VAT deduction exclusion decree, and (2) the private use of company cars.
  • Netherlands: The salary adjustment measures for highly skilled migrants has been released for 2017.
  • Netherlands: A bill—as of yet presented to the Parliament—would amend the dividend withholding rules, and would make holding cooperatives subject to tax in certain instances.
  • Spain: The CJEU found that the EU General Court erred when it set aside decisions of the European Commission concerning a Spanish tax rule that allows amortization of goodwill resulting from a shareholding in a foreign corporation, but not when the goodwill results from the acquisition of a company established in Spain.
  • Spain: A new “immediate supply of information” system will be effective for VAT purposes beginning 1 July 2017.
  • Bulgaria: Corporate income tax law and VAT amendments are effective in 2017.
  • Czech Republic: Discussions of employment-related tax issues and R&D tax treatment are included in a report prepared by the KPMG member firm in the Czech Republic.
  • Germany: Recent VAT and indirect tax developments are included in a report prepared by the KPMG member firm in Germany.
  • Romania: The standard rate of VAT is scheduled to be reduced to 19% (down from 20%) effective 1 January 2017. There is some uncertainty about the VAT rate reduction because of a recent change in the government of Romania.

Read TaxNewsFlash-Europe

Transfer Pricing

  • Dominican Republic: Taxpayers operating in free trade zones may apply for a request to be exempt from having to file an annual special transfer pricing return  as well as a transfer pricing study that includes an independent analysis of the reported intercompany transaction(s).

Read TaxNewsFlash-Transfer Pricing

FATCA / IGA / CRS

  • OECD: The OECD released a status update concerning the common reporting standard (CRS) and the number of bilateral automatic exchange relationships being established.
  • British Virgin Islands: There will be a temporary closure of the BVI Financial Account Reporting System, from 29 December 2016 until February 2017. During this period, FATCA returns cannot be filed.
  • Monaco: A law has been published that ratifies the Multilateral Convention on Mutual Administrative Assistance in Tax Matters for the implementation of the common reporting standard (CRS). Under this convention, exchanges of information will commence in 2018.
  • New Zealand: A draft guidance document provides guidance for financial institutions and others that may have New Zealand CRS obligations.
  • Brazil: The deadline for comments on the draft version of the CRS legislation was extended. The due date for CRS comments was 22 December 2016.
  • Ireland: A “reporting entity” registration form is required to be filed by entities that do not already have an Irish Tax Reference Number or a Revenue Customer Number, and that have reporting obligations in Ireland under FATCA / CRS / DAC2 regimes.
  • South Africa: An updated version of the business requirements specification (BRS) has been issued.
  • United States: An updated version of the FATCA Online Registration User Guide replaces the previous version from November 2015.
  • Germany: An unofficial German-language translation of the IRS FATCA XML Schema v2.0 User’s Guide has been released.

Read TaxNewsFlash-FATCA / IGA / CRS

United States

  • Notice 2017-07 revises the effective date of temporary regulations concerning the recognition and deferral of foreign currency gain or loss under section 987 with respect to a “qualified business unit” (QBU) in connection with certain QBU terminations and other transactions involving partnerships.
  • The New York City Department of Finance issued an updated guidance memorandum addressing eligibility for broker-dealer receipts allocation.
  • Notice 2017-6 extends the waiver of the eligibility rule for making certain automatic changes in accounting methods.
  • An IRS field attorney advice memorandum concludes that an increase in a life insurance company’s tax reserves for an annuity rider due to a change in the statutory reserve, which eliminated the effect of the statutory cap, is a change in basis in computing reserves subject to section 807(f).
  • The U.S. Court of Appeals for the First Circuit reversed a federal district court and concluded that the government was entitled to summary judgment in a case concerning the economic substance of certain transactions that involved the taxpayer’s claim for foreign tax credits.
  • A life insurance company, not the variable contract holder, is the owner of a state business trust fund and its underlying assets because the contract holder doesn't have any control over the fund's investments, an IRS private letter ruling concludes.
  • Notice 2016-81 provides guidance relating to the excise tax imposed under section 4051 on the first retail sale of heavy trucks, trailers, and tractors and defines certain terms.
  • Notice 2017-1 provides information about eligibility for an exemption from the user fee requirement for employee plan determination letters filed on or after January 1, 2017.
  • Rev. Rul. 2017-01 provides the “base period T-bill rate” as determined by Treasury’s Office of Debt Management for the period ending 30 September 2016.
  • The U.S. Tax Court issued a decision concerning a taxpayer that had applied to have its investments in a therapeutic discovery project certified under section 48D; that elected to receive cash grants (in lieu of a tax credit); and changed its tax year from a calendar year to a short tax year and then filed a second section 48D application for its fiscal year.
  • A California appeals court affirmed a lower court decision concerning issues of unitary relationship and the characterization of a merger termination fee as business income. In this case, it was determined that a cable company (taxpayer) and a home-shopping channel subsidiary were not engaged in a unitary business, and that the merger termination fee received by the taxpayer constituted apportionable business income. 
  • The Indiana Department of Revenue concluded that the taxpayer (a provider of direct mail services) was entitled to use a costs of performance methodology to source its service receipts, and noted the taxpayer’s detailed study provided sufficient information for the taxpayer to conclude that the majority of its direct costs were incurred in other states.
  • The South Carolina Department of Revenue issued guidance to outline a new optional, streamlined method of reporting federal changes and adjustments to South Carolina. 
  • In Tennessee, economic nexus standards apply for business tax—as well as for corporate income tax—purposes. Thus, businesses that lack a physical presence in Tennessee may nevertheless be subject to the state-level business tax.
  • The Tennessee Department of Revenue, in addressing the excise and franchise tax filing consequences with respect to the conversion of corporations to “disregarded SMLLCs,” concluded that indirectly owned SMLLCs will have disregarded status.
  • A report, prepared by KPMG’s State and Local Tax practice, provides a summary of state and local tax developments for the fourth quarter of 2016 in table format.
  • Financial statement preparers and the SEC staff are gearing up for 2016 year-end financial reporting.

Read TaxNewsFlash-United States

Trade & Customs

  • An interim final rule announces the end of a test period and the establishment of “Centers of Excellence and Expertise” that assume certain trade functions previously assigned to port directors.

Read TaxNewsFlash-Trade & Customs

Cooperatives

  • The IRS has released a draft version of the 2016 instructions for Form 1120-C, U.S. Income Tax Return for Cooperative Associations.

Read TaxNewsFlash-Cooperatives

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