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KPMG’s Week in Tax: 9 - 13 November 2020

KPMG’s Week in Tax: 9 - 13 November 2020

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

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United States

  • U.S. election results may have implications for tax legislation in 2021.
  • Notice 2020-75 announces the Treasury Department and IRS intend to issue proposed regulations to clarify that state and local income taxes imposed on and paid by a partnership or an S corporation in the partnership or S corporation income are allowed as a deduction by the partnership or S corporation in computing its non-separately stated taxable income or loss for the tax year of payment.
  • KPMG reports concern (1) guidance on LIBOR-related* contract modifications adopting fallback language, and (2) proposed regulations on the average income test.

*LIBOR = London Interbank Offered Rate

State and local tax

  • Tax measures were approved (and some were rejected) by voters in Arizona, California, Colorado, Illinois, and Portland, Oregon.
    • In San Francisco, voters approved three ballot measures that may affect business taxpayers. The measures overhaul the city’s gross receipts tax regime, double the realty transfer tax rate for properties valued at over $10 million, and adopt an additional gross receipts tax
  • In Louisiana, a one-time state sales tax holiday is intended to provide relief for the first $2,500 of any consumer purchases made on 20 and 21 November 2020.
  • The Tennessee Department of Revenue concluded that a foreign corporation with no effectively connected income was not subject to Tennessee’s franchise tax.
  • A Washington State tax revenue officer concluded that a taxpayer making sales through a facilitator had Washington business and occupation (B&O) tax nexus because it had inventory in the state.

Read TaxNewsFlash-United States

Transfer Pricing

  • South Africa: The South African Revenue Service (SARS) released a discussion paper on advance pricing agreements (APAs), with comments due 18 December 2020. Currently, APAs are not available in South Africa as a solution to address transfer pricing issues.
  • Zambia: The Supreme Court of Zambia upheld a transfer pricing adjustment of the Zambian Revenue Authority—in one of the first large transfer pricing cases.
  • Australia: According to updated guidance, the Australian Taxation Office (ATO) will assess the effect of the JobKeeper payment on transfer pricing arrangements.
  • Australia: Minor amendments were made to the guidance concerning the arm’s length debt test.
  • China: The APA annual report for 2019 recapitulates information about the APA program in China, and highlights a determination by the State Taxation Administration to promote the APA program and to improve the quality of services provided by the tax authorities to taxpayers.

Read TaxNewsFlash-Transfer Pricing

FATCA / IGA / CRS

  • Bermuda: There is an updated user guide for the information reporting portal under the common reporting standard (CRS) regime.
  • Netherlands: The Dutch Ministry of Finance issued updated FATCA and CRS guidance.
  • South Africa: Implementation of the automatic exchange of information (AEOI) system has an effective date of 1 January 2021.
  • United States: Any qualified intermediary (QI) (including a qualified derivatives dealer (QDD)), withholding foreign partnership (WP), and withholding foreign trust (WT) must submit applications for the 2020 year by 24 November 2020.

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • United States: A KPMG report provides year-end tariff mitigation and customs valuation compliance strategies.
  • EU: An agreement was reached by the European Parliament and the EU Council on a proposal for modernization of EU export controls on sensitive dual-use goods and technologies.
  • EU: A European Commission regulation imposes increased tariffs on U.S. exports into the European Union (EU) having a value of $4 billion, as countermeasures in the large civilian aircraft dispute.
  • UAE: The customs authority in Dubai issued guidance distinguishing between goods that are consumed in “free zones” and those sold within the UAE domestic market and elaborating on how customs duties apply to each.

Read TaxNewsFlash-Trade & Customs

Europe

  • Spain: The tax on certain digital services was finalized with an effective date of 16 January 2021. The rate of the digital services tax is 3%.
  • Spain: The budget bill for 2021 proposes certain tax increases in order to raise tax revenue to fund an increase in public spending.
  • Czech Republic: Relief in response to economic challenges of the COVID-19 pandemic includes (1) tax relief for those operating in the retail and services sectors; (2) a rent relief program as support for certain lease expenses; and (3) a measure intended to help investors.
  • Czech Republic: An amendment to the Czech Republic’s VAT law—effective 1 September 2020—implements long-awaited changes to the intra-Community supply of goods (referred to as the “quick fixes”).
  • Poland: A bill to amend Poland’s VAT law would transpose into Polish law certain measures from EU directives—referred to as the “VAT e-commerce package”—that are intended to revise the VAT collection system and tighten tax collection for cross-border electronic trade between companies and consumers (business-to-consumer or B2C).

Read TaxNewsFlash-Europe

Africa

  • Nigeria: A retirement savings account transfer system is scheduled to launch 16 November 2020 and will allow retirement savings account holders to transfer their accounts from one pension fund administrator to another.
  • Nigeria: The Federal Inland Revenue Service announced an additional period of relief from penalties and interest in response to the COVID-19 pandemic. To take advantage of the relief, taxpayers must settle their outstanding tax debts in full by 31 December 2020.
  • South Africa: A proposal to revise the VAT treatment of cross-border leases of ships, aircraft, and rolling stock would change the definition of “enterprise” as used in the VAT law, and would address and alleviate the necessity for multiple tax ruling applications.
  • South Africa: The tax authority issued guidance concerning the extent to which vendors that make “mixed supplies” (taxable and non-taxable or exempt supplies) need to apportion their input tax claims in respect of the VAT incurred on such mixed-use acquisitions of goods or services.

Read TaxNewsFlash-Africa

Americas

  • Canada: Businesses, eligible charities, and non-profits that experience a decrease in revenue may be eligible to receive a new Canada emergency rent subsidy—available on a sliding scale up to a maximum of 65% of eligible expenses—for the period from 27 September 2020 until June 2021.
  • Argentina: The Argentine tax authority (AFIP) issued guidance implementing a regime for reporting tax planning information (both domestically and internationally) and the requirements, terms, and conditions that taxpayers must satisfy for these purposes.
  • Mexico: The Mexican Chamber of Deputies approved modifications and additions to the income tax and VAT laws regarding the taxation of digital services in Mexico. The measures are intended to be effective 1 January 2021. 
  • Panama: An executive decree addresses the substance requirements for companies with a multinational company headquarters (SEM) license that may be eligible for a 5% income tax rate.  

Read TaxNewsFlash-Americas

Asia Pacific

  • Malaysia: Tax measures included in the 2021 budget concern tax incentives, income taxes, and import customs duty and excise taxes.
  • Australia: An updated version of the research and development (R&D) tax incentive guidance is intended to simplify the rules and includes diagrams and examples and is aligned with recent Federal Court and Administrative Appeals Tribunal decisions.
  • Myanmar: Guidance clarifies that the period of the country’s “lockdown” in response to the coronavirus (COVID-19) pandemic will not be counted for purposes of determining the period of residence for directors in companies. This relief was provided for company directors who have not been able to comply with the requirements that they must be “ordinarily resident” in Myanmar for a specific period of time.

Read TaxNewsFlash-Asia Pacific

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