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KPMG’s Week in Tax: 28 January - 1 February 2019

KPMG’s Week in Tax: 28 January - 1 February 2019

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

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Transfer Pricing and BEPS

  • Peru: There has been a commitment from Peru to send country-by-country (CbC) reports to 44 countries. However, Peru has received a commitment from only one country—Portugal—that it will transmit its CbC reports to Peru.
  • Hong Kong: The CbC notification is due by 31 March 2019 and the CbC return filing due date is 31 December 2019 for the year ending 31 December 2018.
  • OECD: A “policy note” concerning the digital economy—approved by the entire Inclusive Framework—was released by the OECD. The proposed rules would apply in place of current international tax rules—from physical presence permanent establishment to the traditional transfer pricing arm’s length principle—for in-scope enterprises. 
  • OECD: A progress report looks at certain jurisdictions and their commitments to comply with the standard on harmful tax practices, under the implementation of Action 5 of the base erosion and profit shifting (BEPS) project.
  • United States: A pending decision from the U.S. Court of Appeals for the Ninth Circuit could affect taxpayers with cost-sharing agreements. Taxpayers that have not been sharing the costs of stock-based compensation may be exposed to penalties—particularly the transfer pricing net adjustment penalty. 

Read TaxNewsFlash-Transfer Pricing

FATCA / IGA / CRS

  • Germany: Information from the tax authorities to financial institutions and foreign service providers concerns the common reporting standard (CRS) regime.
  • Switzerland: The federal tax administration issued: (1) an updated version of guidance for the automatic exchange of financial account information (AEOI) under the CRS regime; and (2) an updated version of the AEOI “questions and answers” (Q&As).
  • China-Switzerland: The first exchange of information under the AEOI between China and Switzerland will take place in September 2019 regarding the year 2018.
  • India: There is an updated form that, under the FATCA and CRS regimes, allows users to generate and validate XML files to be submitted to the income tax authority.
  • United States: The IRS issued a release reporting there is “a significant number of expired digital certificates” currently in the IDES (International Exchange Data Service) enrollment service, and that many more certificates are set to expire in the next 90 days.

Read TaxNewsFlash-FATCA / IGA / CRS

Trade & Customs

  • United States: Any U.S. business importing products from China needs to consider if Section 301 granted exclusions apply and whether there may be refund opportunities for the additional Section 301 tariffs paid thus far.
  • China: A report produced by KPMG examines the complexities of import, export, and customs management in China.

Read TaxNewsFlash-Trade & Customs

Africa

  • Nigeria: The Lagos State tax administration extended the statutory deadline for employers to file their annual pay-as-you-earn (PAYE) tax returns to 8 February 2019.
  • Nigeria: The Federal High Court sitting in Abuja issued a judgment that an assessment of companies income tax was not allowed on the value of the company’s property when the company had no taxable income.
  • South Africa: The Supreme Court of Appeal overturned an earlier Tax Court decision and rejected the taxpayer franchisee’s claim for a section 24C allowance relating to a franchise agreement that required the franchisee to incur certain refurbishment expenditures. The franchisee had sought to apply those costs as a section 24C allowance against the income it earned from its sales to customers.

Read TaxNewsFlash-Africa

Americas

  • Brazil: Guidance published in the official gazette provides for an adjustment to the amounts relating to social security in Brazil. 
  • Costa Rica: The amount of the base salary for penalty calculation purposes has been updated to ₡446,200 (approximately U.S. $760) for the year 2019.

Read TaxNewsFlash-Americas

Asia Pacific

  • Australia: The status of the worldwide gearing ratio under Australia’s thin capitalisation rules would affect taxpayers depending on their “classification” for thin capitalisation—a certain type of worldwide gearing test would apply depending whether the taxpayer is classified as an Australian outbound-only entity, or as both an inbound and outbound Australian entity.
  • Australia: Guidance was released on the operation of hybrid rules.
  • China: The government announced plans to promote the “comprehensive bonded zone” (CBZ) regime.

Read TaxNewsFlash-Asia Pacific

Europe

  • Italy: A package of tax measures enacted in 2018 includes certain “tax amnesty” programs to settle tax audits, notices of assessment, and pending tax disputes, among others.
  • Russia: New value added tax (VAT) requirements apply for foreign providers of electronic services for business customers in Russia. Foreign businesses must apply for VAT registration with the Russian tax authorities by 15 February 2019 (for services rendered as of 1 January 2019) or within 30 days (for services commenced in 2019).
  • France: The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning the VAT recovery of costs incurred by a fixed establishment when the costs are also applied with respect to the turnover of a foreign head office.
  • Italy: Tax authorities have clarified certain issues relating to the mandatory “e-invoicing” rules that were effective beginning in 2019.
  • UK: New payslip requirements are effective 6 April 2019 and extend the right to receive a payslip to all “workers” (not just employees).
  • UK: Proposed changes to the employment law have possible tax implications.

Read TaxNewsFlash-Europe

United States

  • The IRS replaced a version of the final regulations under section 965. and the new version delays the effective date for the section 965(h) election relating to “transfer agreements” until 30 days after the date when the final regulations are published in the Federal Register (rather than on 31 January 2019 as originally set forth in the 15 January 2019 version of the final regulations).
  • The IRS posted a statement following the end of the government shutdown about the status of IRS operations.
  • The IRS Large Business and International (LB&I) division released a “focus guide” for 2019 that briefly sets out its strategic goals.
  • Public hearings are scheduled relating to proposed regulations under the “global intangible low-taxed income” (GILTI) provisions of section 951A and concerning the proposed regulations under section 1400Z-2 (the “opportunity zone” regulations) and the provisions concerning capital gains invested in qualified opportunity funds.
  • The IRS released three “practice units” that address topics about permanent establishments and the now expired energy efficient commercial buildings deduction. 
  • The IRS announced the opening of the 2019 tax filing season for individual taxpayers on 28 January 2019, and that it has started accepting and processing federal income tax returns for tax year 2018.
  • More states—Hawaii, Iowa, Massachusetts, North Dakota, Oklahoma, Rhode Island, and Wisconsin—responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales).
  • The New Jersey Division of Taxation issued guidance as an initial step in implementing the state’s combined reporting regime (that is effective for tax years ending on or after 31 July 2019).
  • A tax appeals tribunal in New York City held that the city’s general corporation tax applied to capital gain realized from the sale of a minority interest in an LLC. The corporate taxpayer conducted no business activities in the city, and owned an 88.91% interest in a limited partnership, and the limited partnership also conducted no business activities in the city and in turn owned a 9.99% interest in an LLC that had business activity in the city for certain tax years.
  • The Utah Tax Commission determined that sales of custom storage solutions (typically for residential customers) constituted the sale of tangible personal property and were subject to the state’s sales and use tax, but that separately stated installation charges relating to the storage units were not subject to sales and use tax.

Read TaxNewsFlash-United States

Indirect Tax

  • Russia: New VAT requirements apply for foreign providers of electronic services for business customers in Russia. 
  • United States: More states have responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (state sales tax implications of remote or online sales).
  • United States: The Utah Tax Commission found custom storage solutions (typically for residential customers) were subject to the state’s sales and use tax, but separately stated installation charges relating to the storage units were not subject to sales and use tax.

Read TaxNewsFlash-Indirect Tax

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