KPMG’s Week in Tax: 8 – 12 April 2019 - KPMG Luxembourg
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KPMG’s Week in Tax: 8 – 12 April 2019

KPMG’s Week in Tax: 8 – 12 April 2019

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

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BEPS and Transfer Pricing

  • Luxembourg: The multilateral instrument (MLI) ratification notice was deposited with the OECD.
  • United States: The chairmen and ranking members of the tax-writing committees of the U.S. Congress released a statement expressing their support for the United States’ participation in ongoing OECD negotiations with regard to digital services taxes.
  • India: Indian constituent entities of U.S. parent companies that have filed a country-by-country (CbC) report in the United States will also be required to file a CbC report in India by 30 April 2019.

FATCA / IGA / CRS

  • Channel Islands (Jersey): A compliance notice addresses situations when certain third-party “reporters”—including trusts and company service providers—have incorrectly reported that individuals or entities may be holding accounts directly in that third party.
  • Taiwan: An updated version of “frequently asked questions” (FAQs) relates to the common reporting standard (CRS) implementation and due diligence procedures.
  • Hong Kong: The Inland Revenue Department updated guidance under the CRS, adding a section on “controlling persons.”
  • UK: Updated guidance concerns the automatic exchange of information (AEOI) registration process.
  • United States: Updated FAQs from the IRS provide guidance for applying the independence standard for an external reviewer of a qualified intermediary / withholding foreign partnership / withholding foreign trust (QI/WP/WT) entity for periodic review years prior to 2019.

Africa

  • South Africa: It is expected that the South Africa Revenue Service (SARS) may make greater use of its information gathering authority under the “inquiry” process of Section 50 of the Tax Administration Act.
  • South Africa: A formula error was identified on the return (MPR3) used to report the mineral and petroleum resources royalty tax.
  • South Africa: Changes to the foreign remuneration exemption, effective 1 March 2020, will affect South Africans working temporarily abroad. Remuneration earned for foreign services will no longer be completely exempt from South African income tax (assuming that the taxpayer satisfies all the requirements for the exemption).

Americas

  • Canada: Financial institutions need to consider taking action now, with regard to their annual goods and services tax / harmonized sales tax (GST/HST) returns.
  • Canada: The 2019 federal budget bill #1 received the first reading. There are corporate income tax proposals from the Fall Economic Update as well as individual (personal) tax measures included in the bill.
  • Canada: A bill in British Columbia that would provide a new tax credit for liquid natural gas (LNG) received the third reading.
  • Canada: A reminder that the federal tax of 10% on cross-border insurance premiums is due by 30 April 2019.
  • Canada: Bills in Nova Scotia that include all of the income tax measures announced in the province's 2019 budget received the first reading.
  • Mexico: The tax administration announced various tax-related measures—including an extension of value added tax (VAT) incentives in the “northern border region.”

Asia Pacific

  • China: Concerning requirements of customs declaration, dutiable royalties must be declared to China Customs within 30 days after payment.
  • New Zealand: The pros and cons of the capital gains tax proposals are considered.

Europe

  • Czech Republic: Corporate income tax measures—including thin capitalization, controlled foreign corporation (CFC), and hybrid mismatch rules and the exit tax—were enacted in the 2019 tax package and generally have an effective date of 1 April 2019.
  • Czech Republic: Value added tax (VAT) measures included in the 2019 tax package generally have an effective date of 1 April 2019.
  • Italy: Representatives of the governments of Italy and China signed a new income tax treaty that would reduce the withholding tax rates on dividends, interest, and royalty payments among other measures.
  • Netherlands: Legislation has been introduced to require persons and other legal entities to register their ultimate beneficial owners (UBOs).
  • Netherlands: The conditions that must be satisfied to qualify as a “special investment fund” within the meaning of a VAT exemption were announced. 

United States

  • Rev. Proc. 2019-18 provides a safe harbor for a professional sports team to treat certain personnel contracts and rights to draft players as having a zero value for determining gain or loss to be recognized for federal income tax purposes on the trade of a personnel contract or a draft pick. Both parties to the trade, however, must apply the safe harbor.
  • Final regulations concern the arbitrage investment restrictions under section 148 that apply with regard to tax-exempt bonds and other tax-advantaged bonds issued by state and local governments.
  • Corrections to final regulations regarding the transition tax under section 965 were released.
  • The IRS posted a list of FAQs concerning “negative tax basis” capital account reporting requirements on Form 1065. The FAQs provide answers to questions regarding partnership reporting of negative tax basis capital, and include responses and examples, plus a safe harbor approach for calculating partners’ tax basis capital accounts.
  • The IRS updated a FAQ to provide guidance for applying the independence standard for an external reviewer of a QI / WP / WT entity for periodic review years prior to 2019.
  • The U.S. Tax Court concluded that a “captive” was not an insurance company, invalided the company’s election under section 831(b), and held premiums received must be recognized as income and premiums paid were not deductible. 
  • The IRS Large Business and International (LB&I) division publicly released three “practice units” as examiner guidance under the following topics: (1) interest capitalization for self-constructed assets; (2) proper method of accounting for land developers and subcontractors; and (3) tax home for purposes of section 911.
  • Comprehensive tax reform legislation enacted in New Mexico includes corporate income tax amendments and gross receipts tax changes.
  • More states—Hawaii, Nebraska, New Mexico, Rhode Island, Utah, and West Virginia—acted in response to state sales tax implications of remote or online sales. In certain states, there are tax collection obligations regarding marketplace facilitators or marketplace providers.
  • The Georgia Department of Revenue issued a letter ruling concluding that while a Canadian company had no U.S. federal income tax (because it was exempt from tax under the income tax treaty between Canada and the United States), the company nevertheless could still be subject to Georgia corporate income tax by reason of having positive taxable net income (as a result of any additional modifications required under Georgia law).
  • Legislation in Idaho was recently enacted that retroactively revises the state’s treatment of IRC section 965 income and “global intangible low-taxed income” (GILTI) and that also conforms to the “foreign-derived intangible income” (FDII) measures.
  • In New York, pending legislation includes corporate income tax measures and measures that would extend the top individual income tax rate of 8.82% through 2024.
  • The Oregon Tax Court held that wholesalers accepting returns “on behalf of” the taxpayer were not protected from Oregon taxation pursuant to Pub. L. No. 86-272.

 

  • The U.S. House of Representatives passed H.R. 1957, the Taxpayer First Act of 2019. The U.S. Senate would need to pass the bill; and if or when the Senate would consider the bill is uncertain.

Exempt Organizations

  • Final regulations were released concerning the arbitrage investment restrictions under section 148 that apply with regard to tax-exempt bonds and other tax-advantaged bonds issued by state and local governments.

Trade & Customs

  • The Office of the United States Trade Representative (USTR) announced that it has begun its process under Section 301 of the Trade Act of 1974 to identify products of the European Union (EU) to which additional duties may be applied until the EU removes aircraft-related subsidies that, according to the World Trade Organization (WTO), have adversely affected the aircraft industry in the United States.
  • The U.S. Court of Appeals for the Federal Circuit affirmed the holding of the U.S. Court of International Trade with regard to the tariff classification of imported hand tools as “pliers.”
  • The U.S. International Trade Commission (ITC) determined that a U.S. industry is materially injured by reason of imports of rubber bands from Thailand being sold in the United States at less than fair value.
  • The WTO found in favor of the United States in a dispute involving the use of “zeroing” in calculating antidumping duties.
  • The U.S. Commerce Department announced affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of laminated woven sacks from Vietnam.

Indirect Tax

  • Canada: Financial institutions need to consider taking action regarding their annual GST/HST returns.
  • United States: New Mexico’s governor signed into law comprehensive tax reform legislation that includes gross receipts tax amendments.
  • Czech Republic: VAT measures included in the 2019 tax package generally have an effective date of 1 April 2019.
  • Mexico: The tax administration announced various tax-related measures—including an extension of VAT incentives in the “northern border region.”
  • Netherlands: A policy statement concerns a VAT exemption for certain investment funds.
  • United States: More states responded with legislation or administration action to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales). In addition, certain states are imposing the tax collection obligation on what they are terming marketplace facilitators or marketplace providers.

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