KPMG’s Week in Tax: 27 February - 3 March 2017

KPMG’s Week in Tax: 27 February - 3 March 2017

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

Related content

U.S. tax reform

  • President Trump, addressing a joint session of Congress, indicated that his economic team “…is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.” He stated that “it will be a big, big cut.” He also indicated that his administration will provide “massive” tax relief for the middle class. However, he has provided no details regarding specific tax reform proposals, and did not indicate when his administration might release its tax reform proposal.
  • President Trump has said that healthcare reform and tax reform are two of his administration’s highest priorities, and congressional Republicans have echoed this sentiment.

Read TaxNewsFlash-Tax Reform

Transfer Pricing

  • Cyprus: Transfer pricing studies will be required as of 1 July 2017, and will replace the current treatment with respect to back-to-back finance transactions.
  • Vietnam: A decree was approved concerning transfer pricing documentation, and introduces requirements for country-by-country (CbC) reporting as well as Master file and Local file requirements.
  • Argentina: A majority of the Argentine tax court held for the tax authorities in a case concerning the treatment of an intercompany loan between an Argentine taxpayer and a foreign related party.
  • India: A tribunal held that the Assessing Officer correctly sought to apply Rule 10 of the Income-tax Rules, 1962 for purposes of determining the profits attributable to a branch in respect of the marketing activities related to direct sales made by the head office, absent a “correct” transfer pricing study report. The tribunal found 30% of the profits were attributable to the branch for its marketing activities in India.
  • Poland: There has been an increase in revenues collected (that is, increased tax collections) stemming from the heightened focus on transfer pricing audits.

Read TaxNewsFlash-Transfer Pricing

BEPS

  • China: An update noting that China and Hong Kong have committed to the OECD's base erosion and profit shifting (BEPS) project.

Read TaxNewsFlash-BEPS

Asia Pacific

  • India: The liaison office of an overseas taxpayer group constitutes a fixed place permanent establishment in India under the provisions of the India-United States income tax treaty.
  • Singapore: Guidance clarifies application of the “total asset method” of attributing common interest expenses (including borrowing costs that are akin to interest) to income-producing and non-income-producing assets.
  • India: The Central Board of Direct Taxes (CBDT) issued standard operating procedures for Assessing Officers to follow in verifying cash transactions relating to demonetisation.
  • India: A tribunal held that certain tax law provisions do not override provisions of an applicable income tax treaty, to the extent that the treaty provisions are beneficial to the taxpayer.
  • Australia: The government plans to ban the importation and sale of cosmetic products that contain ingredients tested on animals.
  • Australia: Newly introduced legislation proposes changes to the New South Wales state taxes including revisions to the landholder duty, the general anti-avoidance provision, and the merger of credit unions and authorised deposit-taking institutions.
  • Australia: Superannuation funds that are unsegregated for tax purposes face particular issues in relation to the transitional capital gains tax relief when members transfer part of their balance to an accumulation account prior to 1 July 2017. 

 

This week, reports from KPMG member firms in the Middle East and South Asia provide the following:

  • Bangladesh: Corporate tax rate changes; tax holiday; VAT law effective July 2017
  • Sri Lanka: Update on VAT and NationBuilding Tax (NBT); proposals in 2017 budget
  • Egypt: VAT introduced, new rules for settling tax disputes
  • Gulf Cooperative Council: GCC countries prepare for VAT in 2018
  • Jordan: New tax treaties, tax rates, investment incentives
  • Kuwait: Tax cards, tax declarations, investment promotion applications
  • Oman: 2017 budget highlights
  • Saudi Arabia: Follow-up, tax and zakat postponed for listed companies
  • UAE: Updates on tax treaties, information exchange agreements; new free zone

Read TaxNewsFlash-Asia Pacific

Europe

  • Belgium: The due date for paying the stock exchange tax owed by foreign intermediaries, for transactions in 2017, has been extended to 30 June 2017.
  • Germany: The status of tax benefits available under a “restructuring decree” issued by the Finance Ministry is uncertain given that the federal tax court concluded that the tax benefits available with respect to the treatment of “restructuring profits” (similar to discharge of indebtedness income) violated a constitutional principle for administrative actions.
  • Sweden: A proposed tax on financial activity will not move forward, with the governing political parties agreeing to consider another tax—one more specifically aimed towards banks.
  • Netherlands: The Court of Justice of the European Union (CJEU) decided a case that clarifies the application of the “standstill clause” under Dutch law. The case was referred to the CJEU from Dutch Supreme Court for an opinion as to whether the standstill clause applied to the recovery period when there was an additional assessment on foreign income derived by a Dutch resident through a Swiss securities account.
  • Netherlands: The CJEU issued a judgment in a case concerning an individual taxpayer whose total income was split between two states, neither of which was his country of residence. At issue was whether one of the states was to take the “negative income” arising from his dwelling in his EU Member State of residence into account and, if so, how much. The CJEU found that the negative income was to be taken into account on a pro rata basis, provided that the taxpayer’s EU Member State of residence is not in a position to grant him an advantage.
  • United Kingdom: A discussion of how the new hybrid rules can apply to deny a deduction for the purchase of goods.
  • United Kingdom: The Upper Tribunal dismissed the taxpayer’s appeal in a case concerning the transfer of loan relationship assets to a Jersey subsidiary in exchange for issues of shares.
  • United Kingdom: The CJEU found that EU Member States have a discretion to determine the scope of the “cultural exemption.”
  • United Kingdom: A discussion considers mitigating value added tax (VAT) costs in relation to corporate acquisitions.

Read TaxNewsFlash-Europe

Americas

  • Mexico: Tax relief measures allow for the repatriation of assets or resources held abroad, and for an immediate deduction of expenses related to the acquisition of new fixed assets for small companies.     
  • Canada: Quebec Finance has announced that it will expand certain
    business-friendly tax relief measures.
  • Canada: New guidance is provided for individuals reporting their sale of a principal residence.

Read TaxNewsFlash-Americas 

FATCA / IGA / CRS

  • New Zealand: Legislation containing measures to implement the common reporting standard (CRS) received Royal Assent.
  • Denmark: An updated version of reporting guidelines under the CRS was published. The updated guidelines reflect technical issues around the reporting of CRS information by Danish financial institutions.
  • United States: The IRS announced updates to the qualified intermediary (QI) system.
  • Cayman Islands: It was announced that the AEOI portal is closed, and is expected to be available for financial institution users in mid to late March 2017, and for CRS return submission functionality around mid to late April 2017.

Read TaxNewsFlash-FATCA / IGA / CRS

United States

  • An IRS “practice unit” (guidance for IRS personnel) was publicly issued concerning summary of foreign and domestic loss impacts on the foreign tax credit.
  • The U.S. Tax Court held that an individual taxpayer was not entitled to a charitable contribution deduction for a gift of an aircraft because the taxpayer failed to satisfy the substantiation requirements applicable to contributions of motor vehicles, boats, and airplanes.
  • A case from the Fourth Circuit concerns the income tax treatment of stock issued to an executive officer / owner of a company.
  • Notice 2017-20 extending the period for an employer to provide notice under a “qualified small employer health reimbursement arrangement” (QSEHRA) until additional IRS guidance is issued.
  • Legislation in the District of Columbia providing for universal paid leave has been approved by the D.C. Council, and has been sent to the U.S. Congress for a mandatory 30-day review period. Under the program, “covered employers” would be required to make contributions to a fund, with the amount to be contributed being 0.62% of the wages paid for each “covered employee.”
  • The Georgia tax tribunal held that an out-of-state bookseller had nexus with Georgia and, thus, was required to collect and remit sales and use tax. The taxpayer (a school textbook provider) did not have employees, property, or any other physical presence in Georgia, but marketed its products to students through teachers (who earned bonus points on sales that could be redeemed for books or other types of items used in the classroom).
  • The Kentucky claims commission concluded that purchases of “smart paper” by the taxpayer (and used by the taxpayer in providing various insurance-related services to several affiliated insurance companies) was not exempt from sales tax as “sales for resale.” The insurance affiliates were paying for the taxpayer’s insurance-related services, and not for any tangible personal property (the smart statements) provided to Kentucky members. 
  • The Utah tax commission ruled that a pet food manufacturer was not entitled to a refund of sales tax paid on rentals of pallets used to ship pet food to customers. Because the pallets were returned to a pallet-pooling company, the taxpayer did not qualify for a sales and use tax exemption available for non-returnable shipping containers.

Read TaxNewsFlash-United States

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