KPMG’s Week in Tax: 25 February – 1 March 2019 - KPMG Luxembourg
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KPMG’s Week in Tax: 25 February – 1 March 2019

KPMG’s Week in Tax: 25 February – 1 March 2019

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

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Transfer Pricing

  • United States: The IRS issued reminders to multinational enterprises (MNEs) with respect to filing their country-by-country (CbC) reports on Form 8975, Country-by-Country Report.
  • Brazil: An update to an earlier regulation aligns Brazil’s mutual agreement procedure (MAP) rules with the OECD’s base erosion and profit shifting (BEPS) Action 14 recommendations.

Read TaxNewsFlash-Transfer Pricing

FATCA / IGA / CRS

  • British Virgin Islands: The tax authority issued an updated version of guidance notes concerning the common reporting standard (CRS) regime and CRS implementing legislation.
  • Guernsey: The income tax authority of Guernsey issued a bulletin reporting that under the FATCA and CRS regimes, there were record-level errors with regard to information transmitted to the United States and reportable jurisdictions by 30 September 2018.
  • Russia: The deadline for individual declarants to voluntarily declare their foreign assets and accounts was 28 February 2019.
  • India: The tax authority updated a form under the FATCA and CRS regimes, allowing users to generate and validate XML files for submission to the income tax authority.
  • India: A case from the Calcutta High Court addresses whether a taxpayer determined to be a “resident” or an “ordinary resident” in India, and holding assets (a bank account) located outside India, must provide details about the account on the taxpayer’s individual income tax returns.
  • Costa Rica: The due date for submitting information to the ultimate beneficiary registry was extended to 1 September 2019 (from March 2019).

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • China: Proposals for promoting comprehensive bonded zones (CBZs) aim at developing CBZs into globally advanced centres for five types of operations: (1) processing and manufacturing, (2) research and development (R&D) and design, (3) logistics and distribution, (4) inspection and maintenance, and (5) sales and services.
  • United States: The U.S. Commerce Department announced an affirmative preliminary determination in the antidumping duty (AD) investigation of imports of steel racks from China, and new AD and countervailing duty (CVD) investigations to determine whether fabricated structural steel imported from Canada, China, and Mexico is being sold in the United States at less than fair value and whether producers in Canada, China, and Mexico are receiving unfair subsidies.
  • United States: The U.S. Commerce Department announced affirmative final determinations in the AD and CVD investigations of imports of cast iron soil pipe from China.

Read TaxNewsFlash-Trade & Customs

Africa

  • South Africa: Tax incentives proposed for businesses in the 2019 budget include: (1) industrialisation incentive allocations, (2) extension of a “young workers” incentive program, (3) special economic zone incentives, and (4) extension of an energy efficiency savings tax incentive.
  • South Africa: A carbon tax will be implemented 1 June 2019, and will apply for businesses and households with respect to greenhouse gas emissions.

Read TaxNewsFlash-Africa

Asia Pacific

  • Australia: The full bench of the Federal Court of Australia published a decision concerning the taxpayer’s “permanent place of abode” outside Australia. The taxpayer was found to be a non-resident of Australia by virtue of having established a permanent place of abode in Bahrain.
  • India: The Larger Bench of the Supreme Court allowed the taxpayer’s claim for a 100% deduction for a “fresh” five-year period after completion of a “substantial expansion.” The taxpayer had claimed a 100% deduction for the first five-year period, and then following a substantial expansion, in the sixth year, the taxpayer claimed a second 100% deduction for the next five-year period (instead of a 25% deduction as otherwise warranted). The court allowed the “fresh” 100% deduction but subject to a total period for the 100% deduction not to exceed 10 years.
  • India: The Department for Promotion of Industry and Internal Trade issued guidelines concerning the definition of a “startup” and relaxed rules relating to an exemption from “angel tax” in an effort to make capital available for startups.
  • India: The Bombay High Court—in addressing whether a transaction was a mere transfer of shares or a transfer of an undertaking of the company by means of a “slump sale” (subject to short-term capital gains taxation)—found that the sale of shares was not tantamount to a sale of the company’s assets.
  • India: The Authority for Advance Ruling, West Bengal, denied a request for an input tax credit with respect to “inward supplies” used in the construction of a pre-fabricated warehouse structure. The pre-fabricated warehouse structure was determined to be immovable property, and thus ineligible for an input tax credit.
  • India: The Maharashtra state government approved an amnesty program for taxpayers to settle their state tax disputes arising before the goods and services tax (GST) measures were in effect.
  • India: The value added tax (VAT) department of the Maharashtra state government withdrew prior guidance that had restricted the issuance of “Form C.” Previously, Form C was issued with respect to products that were used by the taxpayer in the manufacture of its eligible goods. The change in procedure reflects the holding of a high court decision, in which the tax authorities were directed by the court to issue Form C to a taxpayer involved in the manufacture of goods specified in the central state tax (CST) registration certificate.
  • India: The Bombay High Court held that the term “crossing the customs frontiers of India” means a bill of entry for domestic consumption or for warehousing indicates that the imported goods have been cleared for customs purposes and, accordingly, have crossed the customs frontiers. In the instant case, because an agreement for the sale of the goods was executed before the goods were cleared for domestic consumption—but after the filing of a bill of entry for warehousing the goods—the sale was a “local sale” and thus was subject to sales tax.

Read TaxNewsFlash-Asia Pacific

Europe

  • Italy: The government released guidance to clarify application of the rules relating to VAT imposed on e-commerce (remote) sales of electronics.
  • Germany: The Court of Justice of the European Union (CJEU) rendered a decision in a case concerning the derogation from the prohibition on restrictions to the free movement of capital with non-EU countries (also referred to as the “Standstill Clause”), and its application to the German controlled foreign company (CFC) rules.
  • Denmark: The CJEU rendered two decisions on the interpretation of the “beneficial owner” concept in situations when the EU Interest and Royalties Directive and the Parent-Subsidiary Directive apply. The Danish company requested an exemption from the Danish withholding tax levied on the payments made to an EU company, based on the two directives. The Danish tax authorities denied the exemption, asserting that the company receiving the income was a conduit structure and could not be considered the beneficial owner of the payment. The CJEU concluded that the referring courts must assess whether the arrangements under review constituted an abuse under EU law, taking into account in particular the existence of conduit companies.
  • Netherlands: A Dutch governmental agency has issued a report that examines possible near-term implications of the UK’s departure from the European Union—Brexit. The report provides analysis of the near-term implications on companies.
  • Germany: The German Federal Tax Court (BFH) concluded that for purposes of VAT, a “co-ownership by defined shares” is not a “VAT trader.” Instead, the BFH held that co-owners provide the supplies—that are subject to VAT—proportionately as individual traders.
  • Ireland: The Irish government released a bill in an effort to address uncertainty regarding “Brexit” and specifically if there is a “no deal” Brexit. It is intended that the legislative measures would be enacted in advance of the Brexit date of 29 March 2019.
  • San Marino: There have been reforms in corporate and tax law, along with an ever-increasing number of tax information exchange agreements and income tax treaties.
  • Spain: The General Court of the CJEU released a judgment that rejected the EC’s decision to classify a tax regime applicable to four Spanish professional football clubs as “state aid.”

Read TaxNewsFlash-Europe

United States

  • A public hearing relating to the proposed foreign tax credit regulations is scheduled for 14 March 2019. The proposed regulations were released in late 2018 pursuant to the U.S. tax law changes enacted in late 2017.
  • Final regulations concern the utility allowance rules relating to the low-income housing credit under section 42.
  • The IRS issued reminders to MNEs with respect to filing their CbC reports on Form 8975.
  • An IRS “practice unit” addresses when an individual partner’s distributive share of income is subject to self-employment tax.
  • The U.S. Court of Appeals for the Ninth Circuit affirmed a district court order quashing an IRS summons seeking documents, concluding that the government’s Publication 1 did not provide reasonable advance notice to the taxpayer of the third-party contact.
  • The U.S. Court of Appeals for the Tenth Circuit affirmed a decision of the U.S. Tax Court that section 280E prohibits deductions claimed by the taxpayers as shareholders in a company engaged in selling medical marijuana.
  • The U.S. Tax Court issued a “reviewed opinion” in which the majority concluded that the earnings and profits of upper-tier controlled foreign corporation partners of a U.S. domestic partnership must be increased as a result of the partnership’s section 951(a) income inclusions.
  • The U.S. Senate confirmed Michael J. Desmond to be the IRS Chief Counsel.
  • An updated version of the return used to report firearms and ammunition excise tax—Federal Firearms and Ammunition Quarterly Excise Tax Return (TTB F 5300.26)—clarifies certain data fields and form instructions.
  • The tax law enacted in late 2017 changed the tax rules for parking expenses for taxable and tax-exempt entities. A report from KPMG examines these changes and the new rules.
  • More states responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales) with legislation or with administrative guidance.
  • The Florida Department of Revenue issued a “technical assistance advisement” that addresses how a service provider is to source its receipts to Florida. The department concluded that the taxpayer’s receipts from services provided to customers located in Florida must be included in both the numerator and denominator of the Florida sales factor.
  • A North Carolina state court in addressing whether a taxpayer was required to reduce its net economic losses (NELs) to account for non-taxable dividends, concluded that because the dividends were income on which the state did not levy a tax, the dividends were “income not taxable” under the relevant statute and must reduce the taxpayer’s NELs in the year to which they were carried forward. 
  • The U.S. Court of Appeals for the Fourth Circuit held that a stormwater utility charge imposed by a municipality in Virginia was a fee—not a tax—and thus did not violate the prohibition against states and localities from imposing any “tax that discriminates against a rail carrier” pursuant to the Railroad Revitalization and Regulatory Reform Act of 1976. 

Read TaxNewsFlash-United States

Exempt Organizations

  • U.S. Senate Finance Committee Chairman Grassley (R-IA) wrote to the Commissioner of the IRS seeking information about tax-exempt hospitals and their standards for serving communities and low-income patients.
  • A KPMG report examines the tax rule changes with respect to parking expenses for tax-exempt entities.

Read TaxNewsFlash-Exempt Organizations

Indirect Tax

  • Italy: Releases aim to clarify application of VAT on e-commerce (remote) sales of electronics.
  • China: A draft version of “opinions” was published for promoting CBZs.
  • Germany: The BFH concluded that for purposes of VAT, a “co-ownership by defined shares” is not a “VAT trader.” Instead, the BFH held that co-owners provide the supplies—that are subject to VAT—proportionately as individual traders.
  • Ireland: A bill addresses VAT rules if there is a “no deal” Brexit.
  • India: A request for an input tax credit with respect to “inward supplies” used in the construction of a pre-fabricated warehouse structure was denied. The ruling concludes that the pre-fabricated warehouse structure was immovable property, and thus ineligible for an input tax credit.
  • India: The Maharashtra state government approved an amnesty program for taxpayers to settle their state tax disputes arising before the GST measures were in effect.
  • India: The VAT department of the Maharashtra state government withdrew prior guidance that had restricted the issuance of “Form C.”
  • India: The Bombay High Court held that the term “crossing the customs frontiers of India” means presenting a bill of entry for domestic consumption or for warehousing indicates that the imported goods have been cleared for customs purposes.  
  • United States: The return used to report firearms and ammunition excise tax was updated.
  • United States: More states responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales) with legislation or with administrative guidance.
  • United States: The Florida Department of Revenue concluded that the taxpayer’s receipts from services provided to customers located in Florida must be included in both the numerator and denominator of the Florida sales factor.
  • South Africa: A carbon tax will be implemented 1 June 2019.

Read TaxNewsFlash-Indirect Tax

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