KPMG Week in Tax: 3 – 7 April 2023

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

• Bahamas: The Bahamas introduced economic substance legislation and guidance notes, applicable to certain geographically mobile income sectors.
• Bermuda: The House of Assembly enacted legislation that increases by 5% the taxes for services supplied by the Department of Marine and Ports.
• Bolivia: The tax authority issued guidance concerning the modernization of registration procedures and modification to national digital biometric taxpayer register.
• Jamaica: The 2023-2024 budget did not include any “new taxes,” but was focused on consolidating and enhancing existing enforcement measures and improving the Revenue Administration Information System (RAiS) to facilitate better taxpayer communication and more efficient taxpayer compliance through e-filing.
• Mexico: The tax administration reported that the issuance of electronic payroll receipts using the version 4.0 of electronic invoices (CFDI 4.0) will be mandatory as of 1 July 2023. The applicable mandatory effective date was previously scheduled to be 1 April 2023.
• Canada: The federal tax applicable to certain cross-border insurance premiums is due 30 April 2023.
• Canada: Alberta's Bill 10, which includes the framework for a new 12% non-refundable agri-processing investment tax credit, received Royal Assent.
• Canada: Ontario’s 2023 budget implementation bill includes proposed changes to phase out the small business deduction for certain corporations.
• Canada: Legislation is expected that may affect the deduction of interest and financing expenses (IFE) for Canadian corporations and trusts. The excessive interest and financing expenses limitation (EIFEL) rules would restrict the amount of IFE that corporations and trusts can deduct for Canadian income tax purposes.

Read TaxNewsFlash-Americas

• Saudi Arabia: The Zakat, Tax and Customs Authority (ZATCA) announced the third wave for implementing electronic invoicing (e-invoicing) from 1 October 2023. This wave will cover taxpayers whose sales subject to value added tax (VAT) exceeded SAR 250 million for the year 2021 or 2022.
• India: A tribunal held that payments by an Indian company to a UAE entity for hydropower plant design, drawings and related services were in the nature of FTS, and not royalties.
• India: A tribunal held that payment by an Indian company to a Malaysian entity for sponsorship rights of a cricket tournament were not taxable as royalties under the India-Malaysia income tax treaty because there was no transfer of a copyright or the right to use a copyright.
• India: The Delhi High Court held that a refund cannot be denied merely because taxpayer’s case is selected for scrutiny assessment or where an assessment notice has been issued.
• Hong Kong: The 2022-2023 profits tax filing season started off with the bulk issuance of the 2022-2023 profits tax returns on 3 April 2023. 
• Philippines: Guidance concerns the return processing system assessment notices arising from tax return information discrepancies, late filing of tax returns, or non-payment/underpayment of taxes.
• Australia: The government released draft legislation that would deny large multinational taxpayers deductions for payments relating to intangibles to related entities in low corporation tax jurisdictions (with a corporate income tax rate of less than 15%).
• Bahrain: Certain newly set up businesses have been penalized by the National Bureau for Revenue for charging VAT on supply of goods or services prior to obtaining VAT registration.
• Bahrain: Taxpayers will now be able to report sales and corresponding adjustments at 5% in the VAT return form.

Read TaxNewsFlash-Asia Pacific

• Switzerland: The deadline for any VAT refund claim remains 30 June 2023 and cannot be extended.
• Ireland: Finance Act 2022 introduced structural changes to the research and development (R&D) tax credit, as well as changes to the knowledge development box and the digital games tax credit, aimed at aligning the measures with international tax reform. A KPMG report discusses the changes in detail.
• Greece: The Ministry of Finance issued a decision for determining the main and auxiliary activities linked to maritime transport, and whose revenues are eligible to be covered by the tonnage tax regime.
• Estonia: The Tax and Customs board issued clarifications on the tax defensive measures relating to payments made and dividends received from companies in jurisdictions included on the EU list of non-cooperative jurisdictions.
• Finland: The president signed into law legislation on temporary profit taxation for the electricity and fossil fuels sector for tax year 2023.
• EU: The European Parliament’s Subcommittee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties, Justice and Home Affairs (LIBE) adopted positions on anti-money laundering measures.
• EU: The European Commission (EC) published updated State aid guiding templates to assist member states in designing measures that will be included in their national recovery and resilience plans in line with EU State aid rules.
• Poland: The Supreme Administrative Court held that interest on late payments may be treated as deductible costs. The court found that the exclusion from deductible costs of contractual penalties and damages for defective or late delivery of goods, works, and services must be interpreted narrowly.
• Poland: The Regional Administrative Court in Warsaw held that the cap on tax depreciation corresponding to the value of write-downs or write-offs made in accordance with accounting regulations applies only when real estate companies treat assets included in group 1 of Fixed Assets Classification as depreciable fixed assets.
• Poland: The CJEU issued judgments that a municipality that installed renewable energy systems on the immovable property of its inhabitants and implemented programs for the removal of asbestos from properties owned by residents did not act as a taxable person for VAT purposes, but as a public authority.
• Poland: The Minister of Finance explained that the WH-OSC statement must be submitted by tax remitters to a competent tax authority no later than the last day of the second month following the month in which the threshold of PLN 2 million was exceeded.
• Poland: The Regional Administrative Court in Lublin held that Brexit makes it impossible to assume that all conditions for using the withholding tax exemption under Articles 21 and 22 of the corporate income tax law have been met. Consequently, the tax authority was right to deny a clearance opinion.
• Denmark: The Minister of Taxation published draft legislation proposing additional reporting for taxpayers that have activities that are exempt from VAT under section 13 of the VAT Act.
• Italy: The Council of Ministers approved draft legislation directing the government to reform the tax system.
• UK: The Spring Finance Bill 2023 includes tax measures concerning individuals and employers, employee share plan changes, full expensing for plant and machinery expenditures, and the tonnage tax regime.
• UK: Mandatory disclosure rules (MDR) are now effective.

Read TaxNewsFlash-Europe

• Ireland: The Department of Finance published a feedback statement, including draft legislation, regarding the implementation of the OECD’s Pillar Two model rules that closely follows the OECD model rules.
• Poland: Guidance on how the resale price method (RPM) should be applied for transfer pricing purposes includes the criteria for comparability of transactions and entities, possible difficulties and errors in using the RPM, and a comparison with other transfer pricing methods.
• UK: The Spring Finance Bill included legislation governing the UK’s implementation of “top-up” taxes—the OECD/G20 agreed Pillar Two imposing minimum taxation for large multinational groups.

Read TaxNewsFlash-Transfer Pricing

• Honduras: The FATCA deadline for the 2022 reporting period was extended to 30 April 2023 (from 31 March 2023).
• Spain: Updated FATCA “frequently asked questions” (FAQs) provide guidance for foreign financial institutions that are unable to obtain and report U.S. TINs of pre-existing U.S. reportable accounts.
  

Read TaxNewsFlash-FATCA / IGA / CRS

• The IRS released its strategic operating plan to make fundamental changes following funding from H.R. 5376 (commonly called the “Inflation Reduction Act of 2022” (IRA)).
• Notice 2023-29 describes certain rules that the IRS intends to include in forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits.
• Notice 2023-31 announces that when proposed regulations under section 903 are finalized, Treasury and the IRS intend to extend the transition period for the single-country exception’s documentation requirement from 17 May 2023, to 180 days after the date the proposed regulations are finalized.
• The U.S. Tax Court held that the IRS did not have statutory authority to assess penalties under section 6038(b) against a taxpayer who willfully failed to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, for his 2003–2010 tax years. As a result, the IRS could not proceed with collection of such penalties from the taxpayer via the proposed levy.
• A federal district court held that a U.S. corporation subject to tax on the accumulated undistributed earnings of its foreign subsidiaries under section 965(a) may credit foreign taxes paid on such earnings even though such earnings are offset by losses of other foreign subsidiaries under section 965(b). As a result, the taxpayer may be entitled to a refund of more than $89 million.
• The IRS revised Form 3115, Application for Change in Accounting Method, and its instructions.
• The latest quarterly list of countries that require (or may require) participation in, or cooperation with, an international boycott contains the same list of countries as provided under the prior list—no new countries were added, and no countries were removed.
• Taxpayers in Arkansas affected by tornadoes and severe storms that occurred on 31 March 2023 now have until 31 July 2023 to file various individual and business tax returns and make tax payments.

State and local tax

• Kentucky: Recently enacted House Bill 360 makes various changes to the statutes that imposed sales and use tax on various new services, including revising the definition of “telemarketing services” to also include services provided via text messages or various forms of social media.
• Mississippi: House Bill 1733 and Senate Bill 2449 were enacted.
  • House Bill 1733 provides that a taxpayer may elect to immediately deduct research or experimental (R&E) expenditures in the year incurred, or may depreciate such R&E expenditures as provided in IRC section 174.
  • Senate Bill 2449 clarifies the Mississippi sales tax treatment of computer software and numerous other services provided over the internet.
• Washington State: The Washington State Supreme Court concluded that the state’s capital gains tax is not a tax imposed on income that is impermissible under the state constitution. 

Read TaxNewsFlash-United States

• Form 8940, Request for Miscellaneous Determination, must be submitted electronically after a 90-day grace period ends.

Read TaxNewsFlash-Exempt Organizations

• The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce and the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed civil penalties totaling over $3 million against a U.S. multinational technology company for apparent violations of export controls and sanctions laws.
• BIS released orders to renew the temporary denial of export privileges of two Russian airlines.
• An update from the KPMG member firm in the Netherlands covers various worldwide updates form a tax perspective within the shipping and offshore industry.

Read TradeNewsFlash-Trade & Customs

The items described above are also reported as editions of TaxNewsFlash:

• Indirect Tax
• Taxation of the Digitalized Economy
• Tax Dispute Resolution