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KPMG’s Week in Tax: 10 - 14 August 2020

KPMG’s Week in Tax: 10 - 14 August 2020

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

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United States

  • President Trump signed a memorandum directing the Treasury Secretary to use his authority to defer certain payroll tax obligations for the period of 1 September 2020 through 31 December 2020. A KPMG report provides initial impressions about what could be possible implications of a deferral of these taxes, a deferral that would be intended to provide economic relief in response to the COVID-19 pandemic.
  • Updated FAQs under the Paycheck Protection Program (PPP) provide that: (1) payment (or nonpayment) of fees of an agent or third party is not material to Small Business Administration (SBA) guarantee of a PPP loan or SBA payment of fees to lenders; and (2) payment of required group health care benefits includes vision and dental benefits.
  • User fees relating to certain requests for letter rulings and determination letters submitted to the IRS office of Employee Plans Rulings and Agreements will increase in four categories, effective 4 January 2021.
  • The U.S. Court of Appeals for the Second Circuit affirmed a “reviewed opinion” of the U.S. Tax Court concluding that income that the taxpayers earned from selling gravel that was mined from Seneca Nation land was taxable income and was not excluded by treaty or by the General Allotment Act.
  • The IRS reminded taxpayer-owners of heavy highway vehicles of the 31 August 2020 deadline for filing Form 2290, “Heavy Highway Vehicle Use Tax Return” and paying the related federal excise tax.
  • Notice 2020-60 provides guidance regarding the election of alternative minimum funding standards for certain defined benefit pension plans of community newspapers.
  • KPMG reports this week:
    • Provide a detailed discussion of and observations about the final  “global intangible low-taxed income” (GILTI) high-tax exception as well as the proposed high-tax exception
    • Provide initial analysis of the proposed regulations under section 1061—the “carried interest” provision
    • Describe the complexity of deposits of federal employment taxes for equity-related transactions
    • Describe why there will be less time to deposit payroll taxes from stock options, restricted stock units and stock appreciation rights in the future
    • Address new rules on advance payments when payments for future mineral production are subject to tax

State and local tax

  • Tax authorities in California, South Carolina, and Tennessee released guidance to provide tax relief in response to the COVID-19 pandemic.
  • Arizona’s Supreme Court held that “trip fees” imposed by the City of Phoenix on providers of commercial ground transportation with regard to carrying passengers to and from the Phoenix airport did not violate a provision of the Arizona Constitution.
  • Maryland’s Tax Court held that an unauthorized insurance company subject to the Maryland premiums-receipt tax was exempt from corporate income tax on its non-premium income. Because the taxpayer did not earn any premiums during the tax years at issue, the exemption from all other state taxes was inapplicable.
  • The U.S. Court of Appeals for the Third Circuit reversed the U.S. Tax Court, and held that a company’s receipt of economic incentives from the state of New Jersey was taxable and was not excluded from the taxpayer’s gross income as contributions to capital [the tax years at issue were prior to enactment of the 2017 U.S. tax law that modified IRC section 118 to require certain government contributions to corporations be included in gross income].

Read TaxNewsFlash-United States

Africa

  • South Africa: The 2020 Draft Taxation Laws Amendment Bill proposes a change to the conditions for an income tax exemption for scholarships and bursaries granted to employees by employers.
  • South Africa: A proposal to address a perceived abuse of preference share funding structures for trusts by adding anti-avoidance rules would address the use of such preference share structures for purposes of circumventing certain tax provisions.
  • South Africa: The tax authority revised guidance on the useful life of software used in a taxpayer’s trade and recommended a write-off period for self-developed computer software from one year to five years.

Read TaxNewsFlash-Africa

Americas

  • Costa Rica: A new virtual system that aims to facilitate compliance with tax obligations was provided in response to the COVID-19 pandemic, and has an effective date of 18 August 2020.
  • Canada: The prescribed income tax interest rate for taxable benefits, overpaid taxes, and underpaid taxes will remain unchanged at 1% for the fourth quarter of 2020. It is estimated that the quarterly rate of interest used to determine the deemed interest income inclusion from a pertinent loan or indebtedness (PLOI) will decrease slightly to 4.18% for 1 October 2020 to 31 December 2020.
  • Canada: The corporate income tax payment deadline in Alberta was extended again—this time, until 30 September 2020. 

Asia Pacific

  • Philippines: Proposed legislation would subject certain digital services to a 12% value added tax (VAT). Separate guidance was released for digital entities to register with the Bureau of Internal Revenue (BIR).
  • Australia: The tax authority outlined its compliance approach in circumstances when a trustee may experience liquidity issues and that may affect the trustee’s ability to satisfy a beneficiary's entitlement because of the COVID-19 pandemic.
  • Australia: High levels of equity market volatility and sharp movements in foreign exchange rates because of COVID-19 may mean that many funds that were previously on track for a positive year-end performance may experience a substantial decline—and this may create a number of potential tax issues not only for managed funds but also their investors.
  • Myanmar: Payments of corporate income tax and commercial tax are to be made electronically effective 1 October 2020.
  • Myanmar: The tax authority shared publicly its tax audit process.
  • Oman: The rate of the excise tax on alcoholic beverages is increased from 50% to 100% effective from 1 July 2020, and an excise tax on sugar sweetened beverages is effective 1 October 2020.

Europe

  • Czech Republic: The Supreme Administrative Court held that the rate of interest payable to taxpayers on retained amounts of excess VAT is 14% plus the “repo rate.”
  • Belgium: The rate of a one-time “bonus” deduction for eligible investments made by small companies, self-employed persons or individuals in certain professions is temporarily increased to 25% for the period between 12 March 2020 and 31 December 2020—a response to the COVID-19 pandemic.
  • Bulgaria: The deadline for filing information regarding reportable cross-border tax arrangements, pursuant to an EU directive on mandatory disclosure of cross-border arrangements (known as “DAC6”), has been deferred by six months. Also, the deadline for providing financial information for fiscal year 2019 by reporting financial institutions is deferred.

Transfer Pricing

  • Australia: The tax authority released guidance regarding transfer pricing risk of outbound interest-free debt lent by Australian taxpayers to international related parties and the thin capitalisation arm’s length debt test.
  • Philippines: Guidance aims to clarify issues regarding BIR Form No. 1709, “Information Return on Transactions with Related Party”—that is, the related-party transaction form that covers foreign and domestic related-party transactions and that is to be filed with the taxpayer’s income tax return.

FATCA / IGA / CRS

  • India: The tax department issued a clarification concerning due diligence procedures for determining the “controlling person” under the FATCA and common reporting standard (CRS) regimes.

Trade & Customs

  • U.S. Customs and Border Protection (CBP) announced that effective 11 August 2020, it will detain imported merchandise containing garments produced by certain Chinese entities “based on information that reasonably indicated the use of prison labor in the production of those garments.”
  • CBP released guidance concerning new marking rules for goods made in Hong Kong.
  • The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued updated guidance and “frequently asked questions” (FAQs) concerning Sudanese sanctions.
  • The Office of the U.S. Trade Representative (USTR) released three notices concerning exclusions from the additional duties imposed on goods imported from China under the Section 301 investigation.
  • Canada’s Department of Finance announced its intention to impose a 10% surtax on certain imports from the United States—as countermeasures against the United States in response to the U.S. tariffs to be imposed on certain Canadian aluminum products.

Indirect Tax

  • Czech Republic: The Supreme Administrative Court held that the rate of interest payable to taxpayers on retained excess VAT is 15% plus the “repo rate.”
  • Philippines: Proposed legislation would subject certain digital services to a 12% VAT. Separate guidance was released as a reminder to entities doing business via digital means to register with the Bureau of Internal Revenue (BIR).
  • Oman: Regulations concern the excise tax imposed on alcoholic beverages, carbonated drinks, energy drinks, pork and pork products, and tobacco and tobacco products.
  • United States: Arizona’s Supreme Court held that “trip fees” imposed by the City of Phoenix on providers of commercial ground transportation for carrying passengers to and from the Phoenix airport did not violate a provision of the Arizona Constitution.
  • United States: Maryland’s Tax Court held that an unauthorized insurance company subject to the state’s premiums-receipt tax was exempt from corporate income tax on its non-premium income. Because the taxpayer did not earn any premiums during the tax years at issue, the exemption from all other state taxes was inapplicable.

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