KPMG Week in Tax: 12 - 16 December 2022
Recent tax developments from around the globe for the week of 12 - 16 December 2022
Recent tax developments from around the globe for the week of 12 - 16 December 2022
Tax developments or tax-related items reported this week include the following.
- Canada: Quebec Bill 6, which contains corporate income tax and harmonization measures previously announced in Quebec's 2022 budget, received first reading.
- Canada: Ontario Bill 36, which includes certain proposed tax measures in the fall economic update, received Royal Assent.
- Canada: The Canada Border Services Agency (CBSA) is asking for trade chain partners to provide feedback on the draft CBSA Assessment and Revenue Management (CARM) regulations by 10 January 2023.
- Canada: Bill C-32, which includes certain outstanding tax measures announced in the 2022 and 2021 federal budgets, passed third reading. The bill includes the enhanced trust reporting rules, the one-time Canada recovery dividend and the additional 1.5% tax on banks and life insurer groups, among other measures.
- Mexico: The Ministry of Labor and Social Welfare published an agreement that establishes the criteria to be considered for compliance and verification of employer obligations in the hotel industry.
- Mexico: The First Chamber of the Supreme Court held that the limitation on the deductibility of net interest in excess of 30% of tax profit does not violate the principles of equity, proportionality, tax legality and legal certainty.
- Costa Rica: The General Directorate of Taxation launched a public consultation regarding the imposition of value added tax (VAT)—effective 1 January 2023—on the purchase and sale within Costa Rica of certain products.
- Trinidad and Tobago: The Finance Act, 2022 includes (1) an increase in the VAT registration threshold, and (2) tax amnesty on penalties and interest from 14 November 2022 to 17 February 2023.
- Malaysia: The Royal Malaysian Customs Department (RMCD) announced a postponement of the implementation of sales tax on “low value goods” to 1 April 2023 (initially proposed to be effective 1 January 2023). The RMCD also issued an updated Sales Tax Policy 1/2022 regarding the sales tax exemption on pallets.
- Saudi Arabia: The Zakat, Tax and Customs Authority (ZATCA) again extended the amnesty initiative that waives penalties on all taxes, including income tax, withholding tax, VAT, excise tax and real estate transaction tax, until the end of May 2023 (previously set to close 30 November 2022).
- Singapore: The Inland Revenue Authority of Singapore (IRAS) issued new e-Tax Guides concerning (1) taxation of insurers arising from adoption of FRS 117–insurance contracts, and (2) tax framework for transfer of business by insurers.
- Korea: The Council of Customs Valuation & Classification Institute ruled that liquidated damages paid by a buyer for non-fulfillment of the annual minimum purchase quantity under a contract are included in the price actually paid for the imported goods.
- India: A tribunal held that a taxpayer was entitled to set-off of current and prior year losses against foreign dividend income, which is taxed at a concessionary 15% rate. Further, the taxpayer was eligible for deduction under Section 80G. The court determined that the starting point of the applicability of Section 115BBD is the determination of “total income.”
- India: The Supreme Court held that the revaluation of assets credited to the capital accounts of partners resulted in taxable capital gain from the transfer of a capital asset at the partnership level. The court found that the credit of the assets’ revaluation amount to the capital accounts of the partners is, in effect, a distribution of the assets to the partners.
- India: A tribunal held that the Singaporean subsidiary company of an Indian company had a fixed place permanent establishment in India since the premises of its Indian holding company were at the disposal of the Singaporean company. The Singaporean company also had an agency PE in India since the Indian holding company acted as an agent of such Singaporean company for Indian customers.
- Bangladesh: A KPMG report provides an overview of provisions of the Income Tax Ordinance 1984 as amended up to the Finance Act 2022, and also reflects changes under the Finance Act 2022 in respect of the VAT and Supplementary Duty Act 2012 and Rules 2016.
- UAE: The UAE Ministry of Finance released a law on the taxation of corporations and businesses and updated related “frequently asked questions” (FAQs).
- Hong Kong: The government published draft legislation implementing the profits tax exemption regime for family-owned investment holding vehicles (FIHVs) managed by a single-family office (SFO) in Hong Kong.
- Serbia: Parliament adopted amendments to the “fiscal law” effective 20 December 2022.
- Netherlands: The Court of Appeals in ‘s-Hertogenbosch issued an opinion referring to the Court of Justice of the European Union (CJEU) the issue of whether the CJEU’s judgment in the Société Générale case applies to all cases when a non-resident receives dividend income from another member state.
- EU: Negotiators of the EU Council and EU Parliament reached a provisional agreement on the carbon border adjustment mechanism.
- EU: The European Commission (EC) issued a proposal for an extension of the Directive on Administrative Cooperation (DAC) to cover the exchange of information on cryptoassets, as well as tax rulings for individuals (DAC8).
- EU: The EC issued a release reporting the VAT gap statistics for 2020. In nominal terms, the VAT gap decreased by more than €31 billion to €93 billion in 2020.
- Czech Republic: The EC’s VAT committee issued a working paper on the application of VAT to fuel cards that does not entirely conform to the usual administrative practice (i.e., for the standard buy/sell model it can be argued that the fuel card issuer does not at any moment acquire the right to dispose of the fuel as the owner).
- Czech Republic: The Supreme Administrative Court (SAC) held that a taxpayer was entitled to deduct VAT on a supply provided within a fraudulent chain of transactions.
- Czech Republic: An amendment to the Energy Act recently passed introducing a “windfall profits tax” on surplus market revenues for most electricity producers and implementing part of EU Council Regulation 2022/1854 on an emergency intervention to address high energy prices. It also includes a mechanism to introduce caps on energy purchase prices for large businesses.
- Poland: The Anti-Tax Avoidance Council published its first opinion holding that Article 119a of the Polish tax law (the tax avoidance clause) did not apply.
- Poland: The Council of the EU authorized Poland to continue to apply the 50% restriction on the right to deduct input VAT on certain vehicles until 31 December 2025.
- Hungary: The Ministry of Finance issued a draft transfer pricing decree providing details on a new transfer pricing reporting obligation, as well as describing the information that must be provided in the corporate income tax return.
- EU: The EU Council announced that EU member states reached political agreement to implement the minimum tax component (Pillar Two) of the OECD’s global international tax reform initiative.
- United States: The IRS released a generic legal advice memorandum (GLAM) that concludes that tax consequences that would result from a transaction subject to adjustment under section 482 or requiring income inclusions under section 367(d) may need to be considered to determine an arm’s length result (or appropriate charge) pursuant to the section 482 and 367(d) regulations.
- United States: A KPMG report explores the aspects of administrative law that may be most useful to transfer pricing practitioners by examining the leading cases, Administrative Procedure Act (APA) requirements, and avenues for regulatory challenges.
- Czech Republic: The SAC held that a taxpayer could not claim a tax loss from transfer pricing adjustments abroad.
- Poland: The Minister of Finance published draft decrees amending the decrees on transfer pricing reporting related to corporate income tax and individual income tax. The key goal of the amendments is to revise the existing regulations to reflect the repeal of the provision on disclosure of information on so-called indirect haven transactions.
- UAE: The Ministry of Finance released the Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses and updated related FAQs section.
- Final regulations provide that “minimum essential coverage”—as that term is used in health insurance-related tax laws—does not include Medicaid coverage that is limited to COVID-19 testing and diagnostic services provided under the “Families First Coronavirus Response Act.”
- Rev. Proc. 2022-42 sets out key procedures for manufacturers and sellers of clean vehicles to follow for vehicles to be eligible for one or more clean vehicle tax incentives as enacted or amended under the “Inflation Reduction Act of 2022,” including tax credits for new and previously owned clean vehicles, as well as for commercial clean vehicles.
- Rev. Proc. 2022-43 sets forth the final qualified intermediary (QI) withholding agreement described in Treas. Reg. section 1.1441-1(e)(5) that applies beginning 1 January 2023.
- Rev. Proc. 2023-8 provides procedures to obtain automatic consent to change methods of accounting for specified research or experimental (R&E) expenditures to comply with section 174, as amended by the “Tax Cuts and Jobs Act.”
- KPMG reports issued this week:
- Address some of the issues raised in determining whether certain entities are subject to the corporate alternative minimum tax (CAMT) regime, which requires partnerships to calculate extensive information to corporate partners
- Discusses the basics of periodic and nonperiodic withholding certificates, the reason for new forms, and steps that businesses can be taking now so that they are compliant in the new year
State and local tax
- California: The Office of Tax Appeals (OTA) ruled that initial franchise fees paid under a franchise agreement were subject to sales and use tax.
- Louisiana: The Department of Revenue determined that the sale of electricity at an electric vehicle charging station was a taxable retail sale of tangible personal property.
- Michigan: Senate Bill 195, which has passed both chambers of the legislature, would revise how the IRC section 163(j) limitation is computed for Michigan corporate income tax purposes retroactively for tax years beginning on and after 1 January 2022.
- Michigan: The Michigan Department of Treasury released Revenue Administrative Bulletin 2022-23 addressing the calculation of pro-forma federal taxable income for a unitary business group.
- Missouri: The Department of Revenue ruled that an out-of-state vendor that drop shipped a manufacturer’s products from the manufacturer to customers within Missouri was required to collect and remit Missouri sales tax on its drop shipment transactions.
- Missouri: The Department of Revenue issued FAQs on the state’s economic nexus law that becomes effective shortly. Specifically, effective 1 January 2023, a remote seller or a marketplace facilitator with gross receipts from taxable sales of tangible personal property exceeding $100,000 in the previous or current calendar year is required to register and collect vendor’s use tax.
Trade & Customs
- The Bureau of Industry and Security (BIS) of the U.S. Commerce Department released a final rule amending the Export Administration Regulations (EAR) by adding 36 entities to the entity list under the destinations of China and Japan.
- BIS released a final rule amending the EAR by removing nine persons from the “unverified list” (UVL) and adding them to the entity list, all under the destination of Russia. BIS also amended the EAR by removing 27 persons from the UVL, one under the destination of Pakistan and 26 under the destination of China.
- BIS issued a release announcing a temporary denial order immediately suspending export privileges of three persons and two companies for 180 days for the unauthorized export of sensitive items subject to EAR to Russia.
- The U.S. Department of State released a proposed rule to add two new entries to the International Traffic in Arms Regulations (ITAR) to expand the definition of “activities that are not exports, reexports, retransfers, or temporary imports.”
- The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued three Russia-related general licenses and two FAQs.
- The Office of the U.S. Trade Representative (USTR) released a “request for comments” and notice of public hearing regarding the “special 301” review for 2023 and concerning the adequacy and effectiveness of the protection of intellectual property (IP) rights by trading partners of the United States. The general deadline for comments is 30 January 2023.
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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