KPMG Week in Tax: 22 – 26 May 2023

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

• Nigeria: The Tax Appeal Tribunal Lagos Zone held that the Federal Inland Revenue Service is empowered by law to administer and collect withholding tax as an advance payment of income tax.
• Nigeria: A KPMG newsletter provides information on recent developments in the Nigerian mining sector.
• Egypt: The Ministry of Finance issued a decree providing for a change in the regulations concerning income tax, value added tax (VAT), and the unified law of tax procedures.

Read TaxNewsFlash-Africa

• Chile: The tax authority clarified that the VAT exemption applicable to workers who work alone is not applicable to the activity carried out by a sole proprietorship.
• Mexico: Taxpayers that submitted a tax opinion for the year 2022 before the tax administration are required to provide a copy of the tax opinion before the Institute of the National Workers' Housing Fund (Infonavit), as well as some annexes referring to contributions for employer contributions.
• Bolivia: The “fourth group of taxpayers” may now issue fiscal documents through the assigned online billing modality, as well as through the previously used SFV computerized or manual billing modality, until 31 July 2023. These taxpayers must issue fiscal documents only through the assigned online billing modality as of 1 August 2023.
• Costa Rica: Inactive legal entities must register in the single tax registry and provide summary information by 31 May.
• Costa Rica: The Executive Branch submitted to the Legislative Assembly a tax bill that proposes to repeal the current income tax law and replace it with a global income tax system.
• British Virgin Islands: An updated version of the rules on economic substance provides specific procedures for entities claiming to be outside of the scope of the BVI’s economic substance rules by virtue of being tax resident in either Jersey, Guernsey, or the Isle of Man.

Read TaxNewsFlash-Americas

• Singapore: The High Court held goods and services tax (GST) must be charged based on the actual price of the goods sold, after taking into account tiered discounts, rather than the open market value of the goods.
• Hong Kong: The Inland Revenue Department (IRD) has implemented voluntary e-filing of profits tax returns from 1 April 2023, to prepare for the mandatory e-filing for multinationals and, ultimately, all taxpayers in 2025 and 2030, respectively.
• Australia: The Tasmanian budget 2023-2024 was delivered on 25 May 2023 and includes housing and vehicle related tax measures.
• Australia: The Victorian government’s budget 2023-2024 includes direct and indirect tax measures.
• India: The Central Board of Direct Taxes (CBDT) announced that it proposes to change the valuation rules under the “Angel Tax.” 
• India: The Supreme Court held that a transaction in which a manufacturer issued a credit note to an auto parts dealer with respect to auto parts the dealer purchased from the manufacturer, but the dealer had to subsequently replace under a warranty using its own auto parts stock, constituted a sale subject to sales tax.
• India: The Karnataka High Court held that rummy is a game of skill and thus is not gambling, whether played online or offline, or with stakes or without stakes. Accordingly, a technology platform that allows users to play rummy against one another online was subject to GST at the 18% rate for online gaming services, rather than the 28% rate applicable to lottery, betting, and gambling.
• India:  The Hyderabad Bench of the Income-Tax Appellate Tribunal held that the receipt of shares of a closely-held company for inadequate consideration by an amalgamated closely-held company pursuant to an amalgamation was taxable as income from other sources under Section 56(2)(viia) of the Income-tax Act, 1961.
• Korea: The Tax Tribunal held that a software implementation fee paid by the taxpayer, a Korean company, to a Swiss corporation was royalty income subject to withholding tax under the Korea-Switzerland income tax treaty.
• New Zealand: The government has tabled two tax bills—one of which includes Pillar Two global minimum tax rules.

Read TaxNewsFlash-Asia Pacific

• Germany: The Federal Tax Court (BFH) held that expenses incurred by an event manager for the rental of movable assets (equipment) and immovable assets (in particular locations) for its customers may be subject to trade tax to the extent the event manager held those assets for a longer period of time, or repeatedly held similar assets for a short period of time, in order to be able to repeatedly organize new events with such assets.
• Germany: The BFH held that domestic companies may not deduct losses of permanent establishments (PEs) in other EU countries against profits generated in Germany if under the applicable income tax treaty there is no German right to tax the income of the PEs. This also applies if the losses abroad cannot be utilized under any circumstances and are thus “definitive.”
  
• EU: Proposed changes for a reform of the EU Union Customs Code (UCC)—if enacted—will have VAT implications, effective 2028. 
  
• EU: A KPMG report summarizes the most recent information on implementation of the new DAC7 rules into member states’ domestic legislation.
  
• Poland: Legislation that would introduce mandatory use of the “National e-Invoicing System” (KSeF) from 1 July 2024 was submitted to the lower house of the Polish Parliament (Sejm).
  
• Poland: The Court of Justice of the European Union (CJEU) held that Polish provisions precluding the reimbursement of excise duty on passenger cars exported from Poland (but previously registered in the Poland) are not contrary to EU principles, including the principle of proportionality and the principle that excise duty is a single-stage tax.
  
• Poland: Decisions of the Supreme Administrative Court relate to the application of the corporation income tax law.
  
• Spain: A bill implementing DAC7—which would introduce new reporting requirements for digital platform operators effective 1 January 2023—was approved by the Lower House of the Spanish Parliament.
  
• Czech Republic: The government announced proposed direct and indirect tax changes expected to apply beginning 1 January 2024. The changes concern corporate and individual income tax, tax on gambling, real estate tax, VAT, and excise taxes.

Read TaxNewsFlash-Europe

• KPMG LLP tax professionals have surveyed KPMG member firms from around the world regarding how local tax authorities are approaching the concepts of control of risk and development, enhancement, maintenance, protection, and exploitation (DEMPE) and prepared an article focused on findings from the survey of the KPMG member firms in the United States and the UK.
• New Zealand: The government tabled a tax bill that includes Pillar Two global minimum tax rules.

Read TaxNewsFlash-Transfer Pricing

• India: The Central Board of Direct Taxes (CBDT) clarified the applicability of “frequently asked questions” (FAQs) issued by the U.S. tax agency (IRS) for FATCA reportable accounts.
• Saint Kitts and Nevis: The tax authority issued the “AEOI 200 Deregistration Form” for the deregistration of financial institutions for FATCA and common reporting standard (CRS) purposes.
• Spain: A bill approved by the Lower House of the Spanish Parliament includes modifications to FATCA, CRS, and DAC6 reporting obligations.

Read TaxNewsFlash-FATCA / IGA / CRS

• House Ways and Means Committee Chairman Jason Smith (R-MO), along with every Ways and Means Committee Republican, introduced the “Defending American Jobs and Investment Act,” which would impose an additional 5% tax rate each year for four years, on the U.S income of individuals and entities located in foreign jurisdictions that impose an undertaxed payments rule (UTPR). After the four years, the cumulative 20% additional tax would be imposed each year as long as the UTPR remained in effect in the relevant foreign jurisdiction.
• The chairmen and ranking members of the tax-writing committees of the U.S. Congress yesterday wrote a letter to the Treasury Secretary and IRS Commissioner regarding technical corrections to various sections of the SECURE Act 2.0.  

Read TaxNewsFlash-Legislative Updates

• Notice 2023-43 provides guidance on section 305 of the SECURE Act 2.0 regarding the expansion of the Employee Plans Compliance Resolution System (EPCRS).
• The IRS announced that—beginning 1 June 2023—the IRS is expanding the determination letter program to include certain section 403(b) plans.
• The U.S. Tax Court released a memorandum opinion granting the taxpayer’s motion for summary judgment because the IRS failed to assess gift tax within three years from the date the taxpayer filed a gift tax return and thus the period of limitations for assessment of gift tax had run.
• The IRS publicly released a legal advice memorandum (from the Office of the Chief Counsel) regarding the application of exception under section 897(c)(3) to stock held by partnerships.
• Rev. Rul. 2023-11 provides the rates of interest with regard to tax underpayments and tax overpayments for the calendar quarter beginning 1 July 2023. The rates of interest will remain the same for the third calendar quarter of 2023.
• Taxpayers affected by Typhoon Mawar in Guam and the Commonwealth of the Northern Mariana Islands now have until 2 October 2023 to file various individual and business tax returns and make tax payments.
• KPMG reports published this week:
  • Discuss the importance of considering all facts and circumstances for each individual captive arrangement to determine if that captive should be taxed as an insurance company
  • Discuss the domestic content bonus credit guidance under Notice 2023-38
  • Provide analysis and observations of the proposed regulations that would terminate the application of section 367(d) arising from an outbound transfer of intangible property described in section 367(d)(4) when such IP is subsequently repatriated to certain U.S. persons

State and local tax

• Minnesota: The governor signed House File 1938, a comprehensive Minnesota tax package, into law. The bill enacts numerous tax changes, including individual income tax relief for low to middle income individuals, revisions to the state’s credits and incentives, and changes to the elective passthrough entity tax. The bill also updates the state’s conformity to the Internal Revenue Code (IRC) to adopt the Code as of 1 May 2023 and includes certain revenues raisers.
• Montana: A corporate income tax proposal would repeal the requirement to include tax haven entities in the water’s-edge combined group. Legislation pending signature would repeal this requirement effective for tax years beginning after 31 December 2022.
• Tennessee: The Tennessee Works Tax Act, which makes comprehensive changes to Tennessee’s tax laws, was signed into law by the governor. The changes include phasing in single-sales factor apportionment, conforming to federal bonus depreciation, a new three-month food sales tax holiday, and new excise and franchise tax exemptions. The bill also makes numerous business tax changes.

Read TaxNewsFlash-United States

• The U.S. Department of Justice has appealed the decision of a federal district court that a taxpayer was entitled to an $11.5 million refund of unrelated business income tax (UBIT) because during the tax years at issue, the taxpayer was organized and operated exclusively for educational purposes and had no noneducational purpose that was substantial in the relevant sense.

Read TaxNewsFlash-Exempt Organizations

• Korea: The Incheon District Court held that a taxpayer did not manipulate the prices of imported and exported goods for the unfair purpose of benefiting third parties.
• A KPMG report summarizes certain global tax-related developments that are relevant for companies involved in shipping and related industries. 

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