close
Share with your friends
Global Tax Disputes Update

Global Tax Disputes Update

Global Tax Disputes Update

Global Tax Disputes Update - September 2018

With tax audit and dispute activity rising in almost every country, keeping up with trends and developments is more important than ever. In this edition, you’ll find briefings on key news, events and thought leadership submitted by Global Tax Dispute Resolution & Controversy professionals in KPMG member firms worldwide. Staying informed can be a crucial first line of defense as you manage your disputes around the globe.

Make sure to view our past issues of Global Tax Disputes Update.

Insights from around the world

Australia

ATO continued focus on identifying high-risk transfer pricing arrangements

The Australian Taxation Office (ATO) released the 2018 International Dealings Schedule stationery and instructions for 2018 tax years, with updates focused on identifying topical transfer pricing risks.

Read the article.

ATO ruling when foreign-incorporated entity is Australian tax resident

The Australian Taxation Office (ATO) released a much-anticipated Taxation Ruling on central management and control test of residency. The ruling covers the circumstances in which a foreign-incorporated entity may be an Australian tax resident.

Read the article.

Federal Court decision regarding interest on overpaid GST

The Federal Court ruled that in determining an entitlement to any delayed refund interest, the relevant date in calculating the interest owing was when the entitlement to a refund arose. This was a date earlier than when the taxpayer gave notice of the overpayment of goods and services tax (GST).

Read the article.

Austria

Court decisions on tax groups, loss recognition, VAT

The KPMG member firm in Austria has prepared summaries of the recent court or administrative actions on tax groups, loss recognition, value added tax (VAT) and other tax issues.

Read the article.
 

Belgium

Civil penalties for transfer pricing documentation compliance failures

A Royal Decree published in July 2018 establishes the civil penalties to be imposed for failures to comply with the transfer pricing documentation requirements.

Read the article.

Canada

Statistics from 2017 APA program; record number of APA cases

The CRA's 2017 Advance Pricing Arrangement (APA) Program Report shows that it closed a record number of APA cases in calendar year 2017. However, almost an equal number of cases remained under consideration for acceptance into the program by December 31, 2017.

Read the article.

Chile

Customs allows transfer pricing valuation, as established by APAs

An amendment to Chile’s customs rules allows the value of imported goods to be determined according to the valuation established by an advance pricing agreement (APA) as granted under the transfer pricing measures.

Read the article.

Czech Republic

What to expect in a transfer pricing inspection

The Czech tax authorities have heightened their focus on transfer pricing issues, turning their attention to corporations that generate losses or incur significant expenses for intra-group services.

Read the article.

Burden of proof, VAT exemption on cross-border supplies (Supreme Administrative Court decision)

The Supreme Administrative Court addressed the burden of proof in a matter in which the value added tax (VAT) exemption of a cross-border supply of goods was challenged by the tax administrator. The high court held that the supplier could not plead good faith when it was “passive” and did not make any efforts to verify information provided by the customers.

Read the article.
 

Denmark

Deductibility of losses from certain foreign permanent establishments (CJEU judgment)

The Court of Justice of the European Union (CJEU) rendered its decision in a case involving the compatibility with EU law of the Danish rules on the deductibility of losses from foreign permanent establishments.

Read the article.

Withholding tax on dividends paid to foreign investment funds (CJEU judgment)

The Court of Justice of the European Union (CJEU) rendered its decision a case concerning the compatibility with EU law of the Danish withholding tax on dividends distributed to non-resident investment funds. The CJEU concluded that the Danish legislation is contrary to the free movement of capital.

Read the article.

Losses from permanent establishment with non-Danish head office (CJEU judgment)

The Court of Justice of the European Union (CJEU) published its decision in a case concerning the compatibility with EU law of the Danish rules on the deductibility of losses from a Danish permanent establishment whose head office is not tax resident in Denmark.

Read the article.

European Union

Updates on EU tax developments, domestic and cross-border implications; summaries of CJEU judgments and implications for taxpayers

New editions of E-News from KPMG’s European Union (EU) Tax Centre feature updates on EU tax developments that can have both a domestic and a cross-border impact, as well as Court of Justice of the EU decisions and other proceedings that could have implications for your country.

Read the July 2018 edition.

Read the August 2018 edition.

France

Withholding tax on dividends paid to non-resident loss-making companies, not compatible with EU law (CJEU Advocate General opinion)

An Advocate General of the Court of Justice of the European Union (CJEU) rendered an opinion in a case concerning the compatibility with EU law of the French withholding tax levied on dividends paid by French companies to non-resident loss-making companies.

Read the article.

Germany

Transfer pricing adjustments, involving non-resident related company relationships not at arm’s length

The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning the German tax law rules on income of a German taxpayer resulting from its business relationships with non-resident related companies.

Read the article.

CFC rules, interaction with “Standstill Clause” (CJEU Advocate General opinion)

An Advocate General of the Court of Justice of the European Union (CJEU) ruled in a case concerning the derogation from the prohibition on restrictions to the free movement of capital with non-EU countries (i.e. the ‘Standstill Clause’), and its application to the German controlled foreign company (CFC) rules.

Read the article.

Input VAT deduction, court decision on timing of supply

The German Federal Tax Court (BFH) issued a judgment in a case concerning the input value added tax (VAT) deduction when the invoice did not provide specific details about the time of the supply.

Read the article.

Tax loss carryforward allowed companies in financial difficulties (CJEU judgment holds not state aid)

The Court of Justice of the European Union (CJEU) rendered its decision in a case regarding the compatibility with EU state aid rules of German legislation that may allow a company in financial difficulties to carry forward tax losses despite changes in its shareholder structure.

Read the article.

India

“Substantive revision” of bilateral APA with UK

The Central Board of Direct Taxes agreed to a “substantive revision” of an India-UK bilateral advance pricing agreement (APA) due to certain changes in the way a particular transaction was being conducted.

Read the article.
 

Luxembourg

First steps in process to transpose EU ATAD 1, ratify MLI

The Luxembourg government’s council approved bills for the transposition of the EU Anti-Tax Avoidance Directive (ATAD 1) into domestic tax law and for the ratification of the multilateral instrument (MLI).

Read the article.

EC finds illegal tax benefits granted in tax rulings

The European Commission(EC) issued a release stating that Luxembourg allowed two group companies to avoid paying taxes on almost all their profits for about a decade. This was found to be “illegal” under EU state aid rules because the rulings provided an undue advantage. Luxembourg must now recover about 120 million euros (EUR) in unpaid tax.

Read the article.

Mexico

Burden of proof, economic substance of transactions

A Mexican tax measure on the burden of proof for certain transactions gives taxpayers 30 days to demonstrate the economic reality or substance of a transaction.

Read the article.

Tax considerations for corporate management in second half 2018

The Bank of Mexico projects the rate of inflation for 2018 could be between 4.5 percent and 5 percent, and the gross domestic product could increase 2.5 percent. Corporate management of Mexican entities may want to consider the implications of these projections on their tax situations.

Read the article.

New authority for taxpayer on-site visits, presumptive determinations of income

Changes to Mexico’s tax law grant new authority to the tax administration to make on-site inspections of taxpayers to verify information. With information obtained from these on-site visits, the tax administration may presumptively determine a taxpayer’s gross income.

Read the article.

Netherlands

Standard securitization transactions, advance tax rulings no longer available

The Financial Institutions Department (FID) of the Amsterdam tax office historically has provided advance certainty for a “standard” securitization transaction intended to finance the originator. Going forward, however, the FID will no longer provide advance certainty for the corporate income tax aspects of these transactions.

Read the article.

Implications of Dutch transfer pricing decree on OECD discussion draft on transfer pricing of financial transactions

The Organisation for Economic Cooperation and Development (OECD) published a discussion draft on the transfer pricing of financial transactions. A Dutch transfer pricing decree (2018) may have served as a source of inspiration for some parts of the discussion draft.

Read the article.

Nigeria

Tax Appeal Tribunal is reorganized

Nigeria’s Tax Appeal Tribunal has been reorganized to reflect the six geopolitical zones in Nigeria. Taxpayers seeking review of rulings by any tax authority in Nigeria now have an option to seek judicial review by the tribunal.

Read the article.

OECD

Guidance on hard-to-value intangibles, transactional profit split method (BEPS Actions 8 and 10)

The Organisation for Economic Co-operation and Development (OECD) released new guidance on the application of the approach to hard-to-value intangibles and the transactional profit split method under Action 8 and Action 10, respectively, of the base erosion and profit shifting (BEPS) project.

Read the article.

Database of comparable tax revenue data

The Organisation for Economic Co-operation and Development (OECD) launched a new database providing detailed and comparable tax revenue information for 80 countries around the world.

Read the article.

KPMG report: Initial impressions of OECD discussion draft on transfer pricing for financial transactions

The Organisation for Economic Co-operation and Development (OECD) released a public discussion draft on transfer pricing for financial transactions. Given the complexity and difference in views surrounding financial transactions, the draft was released as a non-consensus document.

Read the article.

BEPS Action 14 peer review reports, tax dispute resolution

The Organisation for Economic Co-operation and Development (OECD) published the fourth round of stage one peer review reports under the base erosion and profit shifting (BEPS) project. These reports cover Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand and Portugal.

Read the article.

South Africa

SARS’ authority to gather information on taxpayers, transactions

A high court decision concerns the ability of the South African Revenue Service (SARS) to gather information from taxpayers. In this case, the taxpayer had undertaken complex transactions, and the court held that SARS hadsatisfied the jurisdictional requirements for enforcing requests for information.

Read the article.

Tax and empowerment transactions or arrangements

A memorandum of understanding between the South African Revenue Service and the Broad-Based Black Economic Empowerment (B-BBEE) Commission has implications from B-BBEE and tax compliance perspectives during its applicable period of 3 years.

Read the article.

Spain

Tax lease system, maritime shipping (CJEU judgment)

The Court of Justice of the European Union (CJEU) set aside a decision of the General Court concerning the Spanish tax lease system. The General Court had annulled a determination by the European Commission that the system as applied to ships constructed in Spanish shipyards constituted state aid.

Read the article.

United Kingdom

Liability for stamp duty land tax despite claims of alternative financing arrangements

The Supreme Court has allowed HM Revenue & Customs’ appeal in this decision on the stamp duty land tax due on a Sharia-financed land purchase.

Read the article.

Company must withhold tax on interest paid to non-resident entity (Court of Appeal)

The Court of Appeal found in favor of HM Revenue & Customs in a case regarding whether a source of interest arose within the UK and whether a company was obliged to withhold income tax on payments of interest.

Read the article.

HMRC international manual, updated CFC section and finance company exemptions

HM Revenue & Customs (HMRC) are updating the controlled foreign companies (CFCs) section of their international manual. The changes relate to the finance company exemptions, which exclude from the CFC regime certain profits of a CFC from its ‘qualifying loan relationships’.

Read the article.

HMRC guidance; VAT digital records and returns using functional compatible software

HM Revenue & Customs (HMRC) issued guidance on the requirements for businesses to keep digital records for va;ue added tax (VAT) purposes and submit returns using functional compatible software.

Read the article.

Tax on overseas portfolio dividends and compound interest (Supreme Court case)

The Supreme Court’s latest decision in the test case of CFC and Dividend GLO was released on 25 July 2018, concerning tax on overseas portfolio dividends and compound interest.

Read the article.

HMRC report on transfer pricing and DPT statistics for 2017-2018

HM Revenue & Customs (HMRC) published the most recent transfer pricing and diverted profits tax (DPT) statistics, which provide useful insight into HMRC’s compliance and dispute resolution work in this critical area of large business taxation.

Read the article.

United Nations

Model double tax agreement updated

The United Nations (UN) continued its efforts to eliminate double taxation with its release of a newly revised UN Model Double Taxation Convention between Developed and Developing Countries.

Read the article.

United States

IRS again updates FAQs, transition tax under Code section 965; penalty relief and filing information

The Internal Revenue Service (IRS) has again updated a list of frequently asked questions (FAQs) about return filing and tax payment obligations relating to the transition tax under new section 965 of the Internal Revenue Code.

Read the article.

Third Circuit: No capital gains treatment, taxpayer retained technology rights

The US Court of Appeals for the Third Circuit affirmed a US Tax Court decision that had determined that, because the taxpayer had not transferred “all substantial rights” to certain pharmaceutical technology, the royalties received by the taxpayer constituted ordinary income.

Read the article.

Insurance: Tax Court sides with IRS, rejects captive’s insurance company status

The US Tax Court found that a corporation was not a captive insurance company, but rather a foreign corporation subject to the 30% withholding tax on its “fixed or determinable annual or periodical” income.

Read the article.

US Supreme Court: Decision issued in Wayfair case concerning state tax treatment of remote sellers

The US Supreme Court found in favor of the state in South Dakota v. Wayfair, Inc. – a sweeping decision in which the court concluded that the physical presence sales and use tax nexus rule last articulated by the US Supreme Court in Quill is “unsound and incorrect.”

Read:
— Text of the Supreme Court’s decision

— “Initial impressions” analysis from KPMG LLP in the US

Compilation of state tax authorities’ responses to the decision


US Supreme Court: Employee stock options not taxable “compensation” under RRTA

The US Supreme Court issued a decision (five to four) holding that employee stock options are not taxable “compensation” under the Railroad Retirement Tax Act (RRTA) because they are not “money remuneration.”

Read the article.

Final regulations: Corporate inversions and related transactions (text of regulations)

The US Treasury Department and Internal Revenue Service released final and temporary regulations concerning transactions that “are structured to avoid the purposes of sections 7874 and 367” and certain post-inversion tax avoidance transactions.

Read the article.

Transfer pricing in the age of tax reform

A report from KPMG LLP in the US considers how multinational entities (especially small to midsized ones) can take a fresh look at their transfer pricing policies to avail themselves of some of the new planning opportunities arising from US tax reform.

Read the article.

IRS practice unit: Treatment of transaction costs of business transactions

The Internal Revenue Service’s (IRS) Large Business and International (LB&I) division released a “practice unit” providing insights into the IRS position on the tax treatment of legal fees, accounting fees, consulting fees, investment advisory service fees, and other transaction or facilitation costs when a taxpayer executes a business transaction.

Read the article.

IRS updates CbC reporting guidance, information

The Internal Revenue Service (IRS) issued a release with new content on country-by-country (CbC) reporting in the United States, as well as new guidance and resources.

Read the article.

D.C. Circuit: Exclusions from gross income of foreign corporations; regulations (2003) held invalid

The US Court of Appeals for the D.C. Circuit reversed a decision of the US Tax Court that upheld the then-applicable Treasury regulations as valid. The D.C. Circuit reversed finding that the regulations “unreasonably interpreted” the US tax law.

Read the article.

Final regulations: Information returns, extension of time

The US Treasury Department and Internal Revenue Service released final regulations concerning automatic and non-automatic extensions of time to file certain information returns.

Read the article.

U.S. Tax Court: Repatriation allowed using plan of intercompany debt with return-of-capital distribution

The U.S. Tax Court released a memorandum opinion finding for the taxpayer for its repatriation of 356.8 million US dollars (USD) from its European affiliates by using a plan that combined intercompany debt with a return-of-capital distribution.

Read the article.

Ninth Circuit withdraws decision in cost-sharing arrangements case, new panel to consider appeal

The US Court of Appeals for the Ninth Circuit withdrew a July 2018 decision in a case concerning the validity of the US Treasury regulations on employee stock compensation and cost-sharing arrangements “to allow time for the reconstituted panel to confer on this appeal.”

Read the article.

Second Circuit: Special 10-year limitations period applies for credit, not deduction, of foreign taxes paid

The US Court of Appeals for the Second Circuit affirmed the judgment of a federal district court that the special 10-year statute of limitations for refunds claimed under section 6511(d)(3)(A) applies only to credits, and not deductions, relating to the foreign taxes paid.

Read the article.

Eighth Circuit vacates Tax Court’s determination of transfer pricing method

The U.S. Court of Appeals for the Eighth Circuit vacated an opinion of the US Tax Court concerning the transfer pricing method for determining income from intercompany licenses for intangible property required to manufacture certain medical devices and leads. The case was remanded to the Tax Court for further development of the findings.

Read the article.

U.S. Federal Circuit: Customs classification of compression hosiery upheld

The US Court of Appeals for the Federal Circuit today affirmed the holding of the US Court of International Trade that the subject merchandise (compression hosiery) did not qualify for duty-free treatment.

Read the article.

Combined reporting upheld; different treatment of interstate, intrastate businesses

The California Court of Appeal, Fourth District, held that California’s differential treatment of interstate and intrastate businesses (i.e. requiring interstate unitary businesses to file combined, but allowing intrastate unitary businesses to elect to file separately or combined) does not violate the Commerce Clause.

Read the article.

These articles represent the views of the authors only, and do not necessarily represent the views or professional advice of any KPMG International member firm.The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

1000