KPMG’s Week in Tax: 4 - 8 July 2016

KPMG’s Week in Tax: 4 - 8 July 2016

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

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Transfer Pricing and BEPS

  • OECD: The OECD released discussion drafts concerning follow-up work under BEPS Action 7, Preventing the artificial avoidance of permanent establishment status, and concerning work in relation to BEPS Actions 8-10, Assure that transfer pricing outcomes are in line with value creation.
  • OECD: The OECD issued a release inviting comments concerning changes to the OECD transfer pricing guidelines—specifically with respect to Chapter IX, "Transfer Pricing Aspects of Business Restructurings”—prompted by the BEPS recommendations. 
  • Hong Kong: Companies that perform Hong Kong-based research and development (R&D) activities, or that own any intangible property (IP) developed or used in Hong Kong—especially if that IP is owned by means of an offshore entity—need to weigh BEPS compliance and transfer pricing considerations. 
  • Sweden: The Supreme Administrative Court concluded that provisions of Sweden’s income tax law apply when a loan agreement with certain conditions is replaced with a loan agreement with less beneficial conditions (increased rate of interest), although both agreements are considered to be at arm’s length. This interpretation, the court found, is consistent with the OECD guidelines on transfer pricing.
  • Belgium: A law introducing country-by-country reporting and formal transfer pricing documentation requirements was published on 4 July 2016 in the Belgian official gazette.
  • India: A tribunal found a transaction was only a license agreement of a brand-name, and concluded that the taxpayer and the U.S. entity were not related parties because there was no direct or indirect ownership by the U.S. company of the taxpayer’s management, control, or capital. The tribunal thus rejected a proposed transfer pricing adjustment.
  • Japan: The national tax agency released guidance that includes certain reference materials for taxpayers to follow as they comply with the transfer pricing documentation rules.


Read TaxNewsFlash-Transfer Pricing 

Asia Pacific

  • China: It is necessary to evaluate the potential impact of the “Brexit” decision for those enterprises whose supply chain arrangements are connected with the UK and EU.
  • Australia: The Full Federal Court decided a case concerning redeemable shares issued to a partnership and debt interests for tax purposes.
  • China: Guidance issued by the tax authorities expands upon the value added tax (VAT) exemptions made available for the financial services sector. The new guidance is effective retroactively to 1 May 2016.
  • India: A tribunal held that income from the sale of software is not royalty under the India-Netherlands income tax treaty.
  • Indonesia: A government regulation expands the locations where tax incentives are available for investments made by certain business lines. Tax incentives—previously either not available or limited to investments in certain regions—are being available for the apparel industry and for the leather and footwear sector in all regions.
  • Vietnam: Guidance released in Vietnam concerns corporate income tax incentives and includes updated VAT guidance.


Read TaxNewsFlash-Asia Pacific


  • France: France’s high tax court has referred questions concerning the 3% surtax imposed on dividends distributed to foreign parent companies, to the French Constitutional Court and to the Court of Justice of the European Union (CJEU). At issue is whether the 3% surtax is compatible with French tax law and the EU rules.
  • Gibraltar: The first “post-Brexit” budget was presented, and includes a tax incentive program for start-up businesses that employ five individuals.
  • EU: The European Commission unveiled its latest proposals for “ultimate beneficial owner” registers, tax transparency, and anti-avoidance and anti-evasion measures.
  • Ireland: The Advocate General of the CJEU issued an opinion in cases concerning the Irish air travel tax—an excise duty on air passenger transport, that is applied at different rates depending on the distance between the departure and the arrival airports—and its compatibility with state aid rules.
  • Luxembourg: The reduction of the tax rate on gains realized from the disposal of certain real estate owned by private individuals is effective as of 1 July 2016.


Read TaxNewsFlash-Europe

United States

  • Final regulations concern the tax treatment of gains or losses with respect to redemptions of shares in floating or stable net asset value (NAV) money market funds. A related IRS revenue procedure provides guidance for an automatic accounting method change, for taxpayers seeking to change to or from the NAV method for the first time.
  • The IRS publicly released a “practice unit” (guidance for IRS personnel) concerning tax issues related to corporate inversions.
  • Proposed regulations were issued concerning the health insurance premium tax credit and an individual’s “shared responsibility” provision.
  • A federal district court held that Delaware’s enforcement of its unclaimed property laws against a holder violated the holder’s substantive due process rights.
  • In Louisiana, a second special legislative session concluded with lawmakers passing a number of bills that will affect business taxpayers.
  • An initial analysis includes observations about a revised proposed qualified intermediary (QI) agreement that, when finalized, will replace the current version of the QI agreement.
  • A notice provides the oil reference price for the enhanced oil recovery credit. Because the oil reference price is dramatically lower than last year, the enhanced oil recovery credit might be available in 2016 for the first time since 2005.
  • Proposed regulations under section 385 that would treat related-party debt as equity unless the debt would facilitate new net investment in the borrower’s operations may have state and local tax implications. 
  • The U.S. Court of Appeals for the Eighth Circuit affirmed the federal district court’s grant of summary judgment for the government in a tax lien dispute case.


Read TaxNewsFlash-United States


  • The U.S. House of Representatives passed a bill that would enhance tax benefits under certain health care arrangements. It is unclear whether the Senate will act on the legislation this year.
  • Member of Congress have written to Treasury expressing concerns about the regulations proposed under section 385. 


Read TaxNewsFlash-Legislative Updates


  • Proposed regulations would liberalize the rules of origin provisions for food and spices under the North American Free Trade Agreement (NAFTA). 
  • A notice of proposed rulemaking would expand the definition of “importer security filing” under a customs program. 


Read TaxNewsFlash-Trade & Customs


  • Canada: Certain 2016 income tax rate and other changes may need to be reflected in interim period financial statements for the second quarter 2016.
  • Bahamas: There are mechanisms for taxpayers to appeal disagreements with a VAT and indirect tax assessment, and the statutes provide time limits for written notice of such appeals. 


Read TaxNewsFlash-Americas

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