KPMG’s Week in Tax: 19 - 23 June 2017

KPMG’s Week in Tax: 19 - 23 June 2017

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

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Transfer Pricing - BEPS

  • Following the OECD signing ceremony of the “multilateral instrument” (MLI) on 7 June 2017 to implement tax treaty related measures to prevent base erosion and profit shifting (BEPS) under BEPS Action 15, KPMG tax professionals in countries around the globe continue to evaluate the effects of MLI on their network of tax treaties. Read a June 2017 report with updates this week from India and the Asia Pacific region.
  • OECD: A toolkit was issued so as to provide practical guidance to “developing countries” as they address transfer pricing issues, including “comparables.” 
  • OECD: An update of the “inclusive framework” on BEPS includes an announcement that Vietnam is the newest member of the inclusive framework. It was also reported that the United States has concluded a further set of bilateral competent authority arrangements for the automatic exchange of country-by-country (CbC) reports, and now has arrangements for exchanging CbC reports with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, the Netherlands, New Zealand, Norway, the Slovak Republic, and South Africa. Negotiations with other countries are pending. 
  • OECD: Two BEPS discussion drafts were released concerning: (1) attribution of profits to permanent establishments, and (2) revised guidance on profit splits for transfer pricing purposes.
  • Canada: The Finance Department reported that Canada and the United States signed a new exchange arrangement that will implement the CbC reporting standard between the two countries.
  • India: Guidance addresses the computation of “notional interest” for amounts deemed to be advances from the taxpayer to a related party. The advances are deemed to exist when the taxpayer does not repatriate and offer to tax in India, amounts of taxable profits (or reductions in losses) that flow from transfer pricing adjustments that are assigned to a related party.
  • India: A tribunal held that the “internal cost plus method” (comparing profit margin on sales to related parties in relation to sales to non-related parties) could not be used to benchmark exports of finished goods to a related party when there were differences in the geographical location of the market and in the value chain and utility of the product.
  • UK: Updates relating to CbC reporting include a notification requirement for “constituent entities” to inform HM Revenue & Customs about: (1) when the corporate group’s CbC reporting will be filed; (2) which entity will file the CbC report; and (3) which UK tax resident entities the CbC report will cover. The deadline for notification is the later of the end of the period to which the report relates, or 1 September 2017.

Read TaxNewsFlash-Transfer Pricing and TaxNewsFlash-BEPS

FATCA / IGA / CRS

  • Bermuda: The online common reporting standard (CRS) portal is open for enrolment and submission of CRS returns.
  • Cayman Islands: The registration deadline for Cayman financial institutions has been extended to 31 July 2017.
  • Jersey: The reporting deadline for the submission of the 2016 reports relating to the CRS is 30 June 2017. However, penalties will not be imposed against any Jersey financial institution that successfully complies with the reporting procedures by 31 July 2017.
  • British Virgin Islands: An updated version of the user guide concerning financial accounts reporting was issued, relating to CRS submissions.
  • Canada: CRS self-certification for reporting financial institutions begins 1 July 2017.
  • Germany: Information concerns the transmission of FATCA returns, among other items.
  • Switzerland: The Swiss Federal Council has adopted measures that would allow for the introduction of the automatic exchange of financial account information (AEOI) with 41 countries and territories. The AEOI agreements with these jurisdictions would enter into force on 1 January 2018, so that the first transmission of data would occur in 2019.
  • United States: The IRS posted a final version of a publication that serves as a user guide with respect to notifications concerning FATCA reports.
  • France: Guidance was issued regarding the CRS regulation application for French reporting financial institutions. The deadline for transmission of the CRS returns for the reporting year 2016 has been extended to 8 September 2017 (from 31 July 2017).
  • Hong Kong: The legislative council passed a bill that expands the list of reportable jurisdictions under the CRS from two to 75 countries. The bill will come into effect on 1 July 2017.

Read TaxNewsFlash-FATCA / IGA / CRS

Americas

  • Canada: Large businesses must prepare their systems for the last phase of the phase-out period for recaptured input tax credits under the Ontario harmonized sales tax (HST) regime. On 1 July 2017, the recapture rate used in these calculations will be reduced to 25% (from 50%). Affected business may need to adjust various accounts and calculations related to the specified property and services subject to the recapture input tax credit rules, including common area maintenance charges and employee expense accounts. In addition, Quebec will begin a three-year phase-out period of the restrictions related to input tax refunds on 1 January 2018, and Prince Edward Island will begin a three-year phase-out of the province’s HST recaptured input tax credit rules starting 1 April 2018.
  • Dominican Republic: Banking regulations—to provide for better adherence to the banking laws of the Dominican Republic—set forth the criteria and guidelines for financial intermediaries regarding their integral risk management and their involvement in the buying and selling of mortgage-backed securities.

Read TaxNewsFlash-Americas

Asia Pacific

  • Australia: Tax provisions contained in the New South Wales 2017 budget include, among other items, increases to the rate of the foreign purchaser surcharge duty and the land tax surcharge rate.
  • Australia: A court determined that for purposes of claiming customs duty drawbacks, only the “legal owner” (the owner of goods at the time of export) may file a claim for duty drawbacks.
  • Thailand: A new regulation exempts certain qualifying services from the foreign business license requirement.
  • Vietnam: A new law, effective 1 January 2018, provides qualifying small and medium-sized enterprises (SMEs) with various incentive measures such as support with credit access, support with tax and accounting, support with acquiring production space, among other items. The goal of the new law is to support SMEs.
  • Indonesia: A regulation concerns the use of book value for the transfer and acquisition of assets in the context of mergers, consolidations, expansions or acquisitions involving corporate taxpayers.
  • Japan: Tax reform 2017 includes measures that amend the scope of the inheritance tax (or gift tax) on transfers involving property located outside Japan and involving foreign persons living in or having lived temporarily in Japan. In general, such inheritances (or gifts) will not be subject to Japanese inheritance tax (or gift tax). The tax reform provisions also revise the rules for Japanese persons seeking to avoid inheritance tax (or gift tax) by relocating outside Japan.

Read TaxNewsFlash-Asia Pacific

Europe

  • EU: The European Commission (EC) announced a proposal to require intermediaries (e.g., in-house counsel, tax advisers, accountants, attorneys) to disclose potentially aggressive cross-border tax planning arrangements and for tax administrations to exchange this information.
  • EU: The International Accounting Standards Board (IASB) issued IFRIC Interpretation 23, to clarify how to apply the recognition and measurement requirements in IAS 12.
  • France: An ordinance transposes and implements an EU anti-money laundering directive into French domestic law, and requires the registration of certain “ultimate beneficial owners” by 1 August 2017.
  • Sweden: The government proposed corporate tax cuts and new interest deduction limitation rules. The measures are proposed to be effective 1 July 2018.

Read TaxNewsFlash-Europe

United States

  • The IRS issued a reminder that renewal applications for expiring individual taxpayer identification numbers (ITINs) are due at the end of 2017. Any ITIN not used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return as of 1 January 2018.
  • An IRS “practice unit” (guidance for IRS personnel) addresses what the term "substantially complete" means with reference to international information return penalties. 
  • The U.S. Tax Court issued an opinion concluding that it had jurisdiction to review an IRS notice of determination in a “collection due process” case when the sole issue was an accuracy-related penalty that flowed from an adjustment of a partnership item that was excluded from deficiency procedures.
  • Publicly traded companies in Connecticut must file Form CT-DTLD, Statement of Net Deferred Tax Liability Deduction, on or before 3 July 2017 to preserve the right to take the net deferred tax liability deduction.
  • The Michigan tax tribunal found that a passive holding company formed to hold an investment was not subject to the City of Detroit income tax.
  • Pennsylvania legislation currently pending in the General Assembly would address the constitutionality of Pennsylvania’s flat dollar cap on net operating losses (NOLs). Both House Bill 1537 and Senate Bill 515 would limit the NOL deduction to 44% of “taxable income.”
  • A Pennsylvania commonwealth court upheld the validity of Philadelphia’s tax on sodas, effective 1 January 2017. 

Read TaxNewsFlash-United States

 

  • The Senate Budget Committee released a “discussion draft” of the Senate Republicans’ healthcare bill. The legislation would repeal and replace provisions of the Affordable Care Act (also referred to as “Obamacare”).
  • The U.S. House of Representatives passed, under a “suspension of the rules” procedure that requires the support of at least two-thirds of the voting members, two tax-related bills concerning: (1) the nuclear power tax credit; and (2) mobile workforce bills.
  • U.S. House Speaker Paul Ryan (R-WI) addressed a number of proposals in what was described as his “first major speech on tax reform.” 

Read TaxNewsFlash-Legislative Updates

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