KPMG’s Week in Tax: 8 - 12 August 2022
Recent tax developments from around the globe for the week of 8 - 12 August 2022
Recent tax developments from around the globe for the week of 8 - 12 August 2022
Tax developments or tax-related items reported this week include the following.
- The U.S. Senate passed budget reconciliation legislation (H.R. 5376) that includes significant tax law changes. The Joint Committee on Taxation (JCT) subsequently released revenue estimates and distributional analysis for H.R. 5376. The House is scheduled to consider the legislation on 12 August 2022. Read a KPMG report [PDF 1.3 MB] (70 pages) with initial analysis and observations about the tax law changes in the budget reconciliation bill.
- President Biden signed into law H.R. 4346, “The CHIPS and Science Act of 2022.” Division A (the division referred to as the “CHIPS Act”) includes a 25% advanced investment tax credit for certain investments in semiconductor manufacturing. A KPMG report provides an overview of this investment tax credit.
- The IRS announced that taxpayers affected by storms in Missouri now have until 15 November 2022 to file various individual and business tax returns and make tax payments.
State and Local Tax
- Alabama: The state’s tax tribunal held that a taxpayer was not required to add back interest paid to an Irish affiliate because it qualified for the subject-to-tax exception to the state’s related-party addback rules. The tax tribunal concluded that interest income that the foreign affiliate received from the taxpayer was considered subject to a tax even if no actual taxes were paid on such item of income in the taxing jurisdiction by reason of deductions or otherwise.
- Alaska: The state’s Supreme Court held that a lower court did not err when it upheld the constitutionality of a statute requiring certain foreign corporations doing business or incorporated in no or low tax jurisdictions to be included in the Alaska combined report. However, the high court determined that the lower court erred when it held that the statute requiring the inclusion of entities doing business or incorporated in low or no tax jurisdictions was void for vagueness.
- Colorado: The Department of Revenue issued additional “frequently asked questions” (FAQs) on the $0.27 retail delivery fee that retailers were required to begin collecting on 1 July 2022. The fee applies to every retail sale of taxable tangible personal property that is delivered by a motor vehicle to a purchaser in Colorado. The FAQs confirm that the fee is not included in the tax base at the state level; however, the fee may be subject to sales tax in self-collecting home rule jurisdictions. At least one city, Denver, is taking steps to revise its municipal code to exclude the retail delivery fee (and certain bag fees) from the city tax base.
- Idaho: The Tax Commission issued draft regulations addressing the state’s revised sourcing laws. The draft regulations generally incorporate the Multistate Tax Commission (MTC) model rules for sourcing service and intangible receipts, and also provide guidance on the annual election to use an evenly weighted three-factor formula that is available to electronical corporations, telephone corporations, communications companies, and taxpayers subject to a special industry apportionment rule.
- The tax law changes in the budget reconciliation legislation, as passed by the U.S. Senate, do not include provisions specifically focused on charities or charitable giving. However, there are measures throughout the bill that could in some ways affect exempt organizations.
- A “qualified disaster” declaration allows employer-sponsored charities to provide relief, following storms in Missouri.
- The budget reconciliation legislation passed by the U.S. Senate includes a new corporate alternative minimum tax (AMT), but a special rule for cooperatives allows section 1382(b) deductions for patronage dividends; per-unit retain allocations paid in money (PURPIMs); and per-unit retain allocations paid in certificates (PURPICs)—thereby substantially negating the possibility that the new AMT would affect most cooperatives. The legislation also provides two new tax credits for which agricultural cooperatives could be eligible.
Trade & Customs
- The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce issued an administrative charging letter against a Chinese company alleging violations of the Export Administration Regulations (EAR) for causing, aiding, and/or abetting violations of the EAR.
- Australia: A report examines thin capitalisation changes and an intangibles and royalties integrity measure proposed in a consultation paper.
- Italy: The tax authority issued guidance clarifying the criteria for selecting large multinational entity (MNE) taxpayers—companies with gross receipts of more than €100 million—for tax audits. The tax audits are to focus on certain issues or transactions, such as tax treaty relief applications and transfer pricing adjustments.
- Korea: Tax reform proposals for 2022 include a new requirement to maintain transfer pricing-related documents domestically and would introduce a global minimum tax rule (BEPS 2.0 Pillar Two).
- Philippines: Guidance items (Revenue regulations No. 10-2022 and No. 11-2022) address the guidelines and procedures for (1) taxpayers to request mutual agreement procedure (MAP) assistance to resolve disputes arising from application of an income tax treaty; and (2) the spontaneous exchange of certain taxpayer-specific rulings including cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax ruling covering transfer pricing or the application of transfer pricing principles, and cross-border rulings providing a unilateral downward adjustment to the taxpayer’s taxable profits in the country issuing the ruling.
- UK: The Upper Tribunal issued a decision holding for HM Revenue & Customs (HMRC) in a case that examined the deductibility of interest costs incurred on an intragroup loan used to fund a third-party acquisition in 2009. The Upper Tribunal accepted the HMRC position and held that the interest costs were to be disallowed under both the UK’s transfer pricing rules and the “unallowable purpose” rule.
FATCA / IGA / CRS
- British Virgin Islands: The tax authority issued amendments to the FATCA and common reporting standard (CRS) legislation.
- Panama: The deadline for taxpayers to update their information in the taxpayer registry has been extended, and updates are now due no later than 31 August 2022. Previously, the deadline was set for 31 July 2022.
- Brazil: Recent tax developments that may affect companies in the financial, insurance, and real estate sectors concern: (1) the tax treatment applicable to losses incurred in the receipt of credits from financial institutions; (2) rules for tax on financial transactions regarding foreign exchange transactions; and (3) the deadline for submitting the Electronic Form - FORMPD regarding the reporting of tax benefits by companies engaged in research and development (R&D) activities.
- Australia: A draft update on the goods and service tax (GST) treatment of financial supplies reflects changes in the GST law—for instance changes to the GST rules applicable to cross-border supplies and in relation to digital currency.
- Korea: Tax reform proposals for 2022 include: (1) measures that would aim to reorganize the Korean tax systems in line with certain global standards, and (2) legislative proposals to adopt global minimum tax regimes aligned with the global minimum tax rule (Pillar Two) of the Organisation for Economic Cooperation and Development (OECD).
- Hong Kong: The Court of Final Appeal held that directors of the taxpayer company were not liable for the additional taxes assessed for filing incorrect tax returns.
- Hong Kong: When the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS” (MLI) enters into effect in Hong Kong, a number of existing income tax treaties will be modified by the MLI to incorporate the tax treaty-related BEPS measures as recommended by the OECD under BEPS Action 6 (preventing tax treaty abuse) and Action 14 (making dispute resolution more effective).
- Hong Kong: The Court of Appeal held that income in respect of shares granted to the taxpayer-employee accrued to him at the time when the shares were awarded, even though the shares were still subject to forfeiture. The decision concludes that the shares were not income from the taxpayer’s Hong Kong employment because they were awarded in relation to the taxpayer’s performance while employed in the UK. The Court of Appeal also concluded that dividends received from the shares were non-taxable because they were income from the shares, not from employment.
- Middle East and South Asia: A KPMG a tax guide provides information about direct and indirect taxes in countries across the region.
- Italy: The tax authority issued guidance clarifying the criteria for selecting large multinational entity (MNE) taxpayers—companies with gross receipts of more than €100 million—for tax audits.
- Czech Republic: A new list of “questions and answers” (Q&As) details the obligation to report cross-border arrangements of DAC6—that is, the reporting required under the mandatory disclosure rules in relation to cross-border arrangements.
- Poland: The Minister of Finance—responding to a parliamentary inquiry on improved access of the tax authority to certain taxpayers’ banking information—stressed that the new authority to demand access to bank account information cannot be applied without justified cause and without being related to the “committed acts” that are the subject of the ongoing proceedings.
- UK: The Upper Tribunal held that a commercial sales transaction that had been structured so as to permit part of the sale consideration, which would otherwise have been taxable, to ultimately be received in a tax-exempt manner, did not result in the overall arrangements having a “main purpose” of tax avoidance.
- UK: The First-tier Tribunal upheld the right of HM Revenue & Customs to “claw back” coronavirus job retention scheme (CJRS) grants when a “clear bright line” requirement of the CJRS rules was not met.
- UK: The tax positions of both candidates for Conservative Party leadership (prime minister) include proposals for tax cuts, but the policies differ in terms of scale and timing.
- Nigeria: The Federal High Court (Abuja) held that the Federal Inland Revenue Service cannot retroactively apply legislative provisions unless a retroactive effective date is expressly stated in the legislation.
- Nigeria: A KPMG newsletter focuses on recent developments and how they could affect growth of the Nigerian oil and gas sector and the economy at large.
The items described above are also reported as editions of TaxNewsFlash:
- Indirect Tax
- Taxation of the Digitalized Economy
- Tax Dispute Resolution
- Tax Developments Relating to Coronavirus (COVID-19)
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