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KPMG’s Week in Tax: 16 - 20 November 2020

KPMG’s Week in Tax: 16 - 20 November 2020

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

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Transfer Pricing

  • United States: The U.S. Tax Court upheld the IRS’s findings of deficiencies stemming from transfer pricing adjustments when substantial amounts of income (approximately $9 billion) were reallocated to the taxpayer from its foreign manufacturing affiliates.
  • OECD: Mutual agreement procedure (MAP) statistics for 2019 show an increase in the number of MAP cases initiated, of MAP cases closed, and in concluded transfer pricing cases.
  • South Africa: The country-by-country (CbC) reporting electronic filing (e-filing) system will be switched-off from 4 December 2020 to 31 January 2021 for scheduled testing and system changes. There are also new deadlines for CbC report filing for reporting fiscal years beginning before 1 March 2020.
  • Thailand: A new transfer pricing regulation requires tax officers to assess or adjust income and expenses between related parties in order to put them at arm’s length using the following two methods: (1) an internal comparable approach; or (2) an external comparable approach.

Read TaxNewsFlash-Transfer Pricing

Europe

  • Belgium: Businesses economically affected by the coronavirus (COVID-19) pandemic may qualify for property tax reductions for assets during “unproductive” periods.
  • Belgium: Possible changes for the periodic value added tax (VAT) return are being considered in light of the VAT package in 2010.
  • Italy: The draft budget law 2021 includes a proposal that would apply the same tax treatment for dividends distributed to and capital gains realized by certain foreign investment funds (foreign collective investment undertakings established in an EU or EEA Member State).
  • Russia: A tax law change allows individuals who are controlling persons of foreign companies (CFCs) to pay individual income tax not based on the actual profit of each CFC, but based on a fixed amount of profit of all CFCs.
  • Luxembourg: A Protocol to amend the income tax treaty between Luxembourg and Russia was signed and, once ratified and with its entry into force, will amend the withholding tax measures applicable for dividends and interest.
  • Portugal: The Court of Justice of the European Union (CJEU) held that VAT may be deducted on purchased services in the event of a proposed but unrealized share acquisition. The CJEU further held that the “setting aside” of capital in the form of an interest-bearing loan limits the VAT deduction of the associated costs.
  • UK: Implementation of the requirement for large businesses to notify HM Revenue & Customs (HMRC) of uncertain tax positions is to be delayed until April 2022, and the temporary increase in annual investment allowance to £1 million would be extended until 31 December 2021.
  • Spain: Certain actions or elections regarding VAT need to be made by 30 November 2020 in order to be effective 1 January 2021.

Read TaxNewsFlash-Europe

Africa

  • Egypt: The KPMG member firm in Egypt prepared a report that provides a summary of 2020 tax decrees and laws.

Read TaxNewsFlash-Africa

Americas

  • Canada: A subsidy program for innovative businesses (the “innovation assistance program”) was extended through 19 December 2020.
  • Canada: There are no corporate or individual income tax rate changes in Quebec’s 2020 economic and fiscal update.
  • Mexico: Payments made with regard to the subcontracting of personnel would not be deductible or creditable for tax purposes under a proposed tax reform measure.

Read TaxNewsFlash-Americas

Asia Pacific

  • Sri Lanka: The 2021 budget proposes tax concessions for certain qualifying investments and multinational entities, and includes proposals concerning direct taxes and indirect taxes.
  • Thailand: An amendment to the rules for revenue and expense recognition for businesses in the banking, finance, securities, and credit sectors provides that the businesses must recognize interest income and expense under an accrual basis by using the effective interest rate (EIR) method pursuant to generally accepted accounting methods.
  • UAE: The tax authority issued guidance informing owners associations and management entities in Dubai of their obligations under the VAT law, and reflects changes in Dubai real estate legislation.
  • Australia: Tax proposals in the New South Wales budget for 2020-2021 would reform the stamp duty and land tax regimes and permanently increase the payroll tax threshold to AUD $1.2 million and would make permanent a temporary (2020-2022) reduction in the payroll tax rate by 0.6 of a percentage point.

Read TaxNewsFlash-Asia Pacific

FATCA / IGA / CRS

  • Switzerland: The Swiss federal tax administration approved guidance concerning the international automatic exchange of information (AEOI) in tax matters.
  • Cayman Islands: There are updates to the common reporting standard (CRS) guidance including information about key dates and annual deadlines related to CRS compliance form filings.

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • The Regional Comprehensive Economic Partnership (RCEP) agreement was signed by 15 countries including Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Republic of Korea, Singapore, Thailand, and Vietnam.
  • The Bureau of Industry and Security (BIS) of the U.S. Commerce Department released a final rule amending the Export Administration Regulations (EAR) to reflect enforcement authorities and to update certain EAR provisions to make them consistent with the Export Control Reform Act of 2018.
  • The European Commission announced the launch of a new complaints system for reporting market-access barriers and breaches of trade and sustainable development commitments in the EU's trade agreements and under the generalized scheme of preferences.

Read TaxNewsFlash-Trade & Customs

United States

  • The U.S. Tax Court issued its opinion in a case upholding the IRS’s findings of deficiencies stemming from transfer pricing adjustments and by which the IRS reallocated substantial amounts of income (approximately $9 billion) to the taxpayer from its foreign manufacturing affiliates.
  • Final regulations provide guidance regarding tax-advantaged “achieving a better life experience” (ABLE) accounts.
  • OMB’s Office of Information and Regulatory Affairs (OIRA):
    • Completed its review of final regulations concerning like-kind exchanges
    • Received for review final regulations regarding the timing of inclusion in gross income under section 451(b)
  • An updated a set of “frequently asked questions” (FAQs) about the employee retention credit (ERC) to address the interaction of the ERC with other credit and relief provisions, in particular with regard to the paycheck protection program (PPP) in acquisitions.
  • A safe harbor allowing a taxpayer that received PPP loans to claim a deduction in the taxpayer’s tax year beginning or ending in 2020 for certain otherwise deductible eligible expenses if certain conditions are met (Rev. Proc. 2020-51).
  • A taxpayer computing taxable income on the basis of a calendar tax year may not deduct eligible expenses in its 2020 tax year if, at the end of the 2020 tax year, the taxpayer has a reasonable expectation of reimbursement in the form of PPP loan forgiveness on the basis of the eligible expenses it paid or accrued during the subject period (Rul. 2020-27).
  • A contribution to a single-employer defined benefit pension plan with an extended due date of 1 January 2021 will be treated as timely if it is made no later than 4 January 2021 (which is the first business day after 1 January 2021) (Notice 2020-82).
  • A KPMG report examines the implications of HM Revenue & Customs (HMRC) guidance that could resolve many issues confronting U.S. multinationals operating in the United Kingdom in flow-through structures.


State and local tax

  • A KPMG report provides a summary of states that have mandatory or elective passthrough entity tax regimes in light of IRS Notice 2020-75 (proposed regulations to be issued on the deductibility of state and local tax payments made by passthrough entities).
  • The New York State Department of Taxation and Finance issued an advisory opinion concluding that receipts from digital advertisements produced by the taxpayer’s prewritten computer software were subject to sales and use tax.   
  • In Texas, proposed revisions to the regulation addressing apportionment of margin include changes relating to the rules for sourcing service receipts.
  • The Virginia Commissioner of Revenue ruled that a company that prepared meals in airport kitchens and worked with airlines to create meals that were particular to the airline’s requirements was not entitled to the sales and use tax exemption applicable to industrial manufacturing.

Read TaxNewsFlash-United States

Exempt Organizations

  • Final regulations were issued as rules concerning separately computed unrelated business taxable income (UBTI) for exempt organizations.
  • The IRS priority guidance plan for 2020-2021 includes projects affecting exempt organizations, charitable giving, and tax-exempt bonds.

Read TaxNewsFlash-Exempt Organizations

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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