KPMG Week in Tax: 8 – 12 May 2023

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

• South Africa: The South African Revenue Service (SARS) will be monitoring customs clearances over the next 30 days, after which non-compliant importers/exporters will be contacted and advised of steps to maintain compliance.
• Benin: A circular implementing value added tax (VAT) on cross-border provision of digital services provides that covered nonresidents are required to comply with the rules within six months from publication of the circular (14 April 2023).
• Kenya: The National Treasury tabled the Finance Bill, 2023 proposing a number of transfer pricing, direct, and indirect tax changes.

Read TaxNewsFlash-Africa

• Canada: The federal fuel charge will take effect in New Brunswick as of 1 July 2023.
• Canada: Newfoundland and Labrador filed regulations to implement the “All Spend Film and Video Production Tax Credit” that provides a refundable tax credit of 40% on eligible production costs, up to a maximum credit of $10 million annually per eligible production.
• Mexico: The government issued an update to the procedures for an employer to obtain an opinion from the Mexican Insurance Institute regarding its compliance with social security tax obligations.

Read TaxNewsFlash-Americas

• Australia: Australia’s 2023 federal budget includes various tax measures covering individuals and business tax, among other things. Following release of the budget, the Australian Taxation Office (ATO) released a series of updates that outline the planned changes in tax laws and treatments.
• Australia: The Northern Territory and Western Australia released their respective budgets for 2023-2024, with limited tax provisions.
  
• Hong Kong: The government launched a public consultation on a proposed regime for non-Hong Kong incorporated companies to re-domicile to Hong Kong. Under the proposed regime, a company incorporated outside Hong Kong could apply to change its place of incorporation to Hong Kong while maintaining its legal identity as a corporate body, subject to certain conditions.   
  
• Malaysia: A monthly summary of tax developments includes discussions of income tax, stamp duty (tax), and indirect tax.
  
• Philippines: The Department of Finance (DOF) issued guidance relating to the application of VAT to a registered export enterprise.
  
• India: A tribunal held that a UAE company was required to compute long-term capital gains on the sale of unlisted shares of an Indian company under section 112(1)(c)(iii) without giving the effect of foreign exchange fluctuation under the first provision of section 48.
  
• India: The Supreme Court recently dismissed a batch of revenue appeals in cases of nonresident taxpayers engaged in providing electronic global distribution services to airlines through the computerized reservation system. In these cases, the taxpayers constituted permanent establishments (PEs) in India and the debate was around how much profit would be attributed to the PE in India.
  
• India: A referral judge of the Division Bench of the Bombay High Court held that the provisions of the Integrated Goods and Services Tax Act, 2017 (IGST Act) stating that the place of supply for an intermediary service when the location of the supplier or location of the recipient is outside India is the location of the supplier of such services are constitutionally valid and intra-vires the IGST Act.
  
• Bahrain:  A report from the KPMG member firm in Bahrain describes (1) non-resident businesses making taxable supplies in Bahrain without obtaining VAT registration; and (2) VAT treatment for syndicated loans.

Read TaxNewsFlash-Asia Pacific

• Bulgaria: The CJEU held that no adjustment of input VAT deductions is made when goods are scrapped or destroyed and that any national law providing for such an adjustment is incompatible with EU law.
• Cyprus: The format of the tax identification number (TIN) assigned to new registrations in the tax department's registry has changed.
• Belgium: The proposal for the first phase of tax reform includes a measure that would reform the investment deduction by substantially increasing the deduction and creating a system of accelerated, double depreciation.
• Czech Republic: The Supreme Administrative Court held that a taxpayer was required to include a sale of land in calculating the reduction coefficient because even though the taxpayer accounted for the land as a fixed asset and engaged in some small-scale use of the land while it held it, the taxpayer’s main economic activity was development, and the taxpayer acquired the land with the intention of its subsequent sale.
• Czech Republic: The Supreme Administrative Court held that the reverse charge regime did not apply to supplies of certain moveable items when providing construction of assembly work in connection with modernizing a dairy.
• Lithuania: Legislation passed by the Lithuanian Parliament—the so-called “solidarity contribution” (windfall tax)—is aimed at Lithuanian and European Union (EU) credit institutions operating in Lithuania and would be payable on the surplus of interest received in 2023 and 2024 from Lithuanian residents’ loans.
• Denmark: The Danish tax agency issued a consultation proposal on charging interest (at an annual rate of 8.4%) on VAT and tax corrections from 1 July 2023.
• Malta: The tax authority is allowing a one-time concession on the imposition of administrative penalties with respect to recapitulative statements for VAT due to be filed by or before 15 September 2023 that are filed by that date.
• Switzerland: The Federal Supreme Court dismissed the tax authority’s appeal of a lower court’s decision holding that a taxpayer was entitled to offset real estate gains with losses from prior tax years.
• Poland: The Council of Ministers adopted the “National E-invoice System (KSeF)” draft law that, if adopted by the parliament, will require Polish taxpayers to issue electronic invoices (e-invoices) for business-to-business (B2B) transactions through the KSeF, effective 1 July 2024.
• Poland: The Supreme Administrative Court referred to the CJEU for a preliminary ruling regarding whether the tax exemption under Article 7(1)(1)(a) of the Act on Local Taxes and Duties for lands, buildings, and non-building structures forming part of railway infrastructure made available to licensed carriers is compatible with EU law, or whether it can be considered to distort or threaten to distort competition.
• Poland: A KPMG report summarizes indirect tax developments concerning (1) a loan between VAT payers subject to capital duty; (2) VAT on energy supplies; and (3) an EU directive on single-use plastics.
• Poland: The Minister of Health published a draft decree revoking the state of health emergency relating to the coronavirus (COVID-19) pandemic effective 16 May 2023. The decree will not become effective until promulgated, but it would affect tax scheme reporting, individual rulings, and residence certificate preferences.
• Italy: The tax authority published Ruling no. 314/2023, which states that the effects of UK VAT groups are not recognized for Italian VAT purposes beginning 1 January 2021.
• Netherlands: New guidance on the mandatory disclosure rules (DAC6) replaces an earlier version from 2020 and includes a number of substantive changes.

Read TaxNewsFlash-Europe

• Brazil: The Senate unanimously passed legislation that would enact significant changes to the Brazilian transfer pricing system—shifting from Brazil’s historical, formula-based transfer pricing rules to an arm’s length standard consistent with the OECD Guidelines. The president needs to sign the legislation into law, which is expected soon.
• UAE: The Ministry of Finance published Ministerial Decision No. 97 of 2023 on the requirements for maintaining transfer pricing documentation under the UAE corporate tax law.
  
• OECD: Two toolkits to support developing countries in addressing base erosion and profit shifting (BEPS) risks when pricing minerals were released for public consultation. Comments on both toolkits are requested by 14 July 2023.
  
• United States: A KPMG report analyzes the IRS 2022 advance pricing agreement (APA) statistics and discusses the state of the IRS Advance Pricing and Mutual Agreement (APMA) program.
  
• Kenya: The Finance Bill, 2023 includes transfer pricing changes to the definitions of “related person” and “ultimate parent entity” for purposes of country-by-country (CbC) reporting.
  
• KPMG report: For disputes between the United States and most of its large treaty partners, mutual agreement procedure (MAP) now delivers consistently favorable outcomes—a significant improvement over the state of affairs before the OECD base erosion and profit-shifting (BEPS) action 14. Yet recent experience with MAP shows more progress is needed.

Read TaxNewsFlash-Transfer Pricing

• Germany: The production environment for the transmission of FATCA is now available for submission for the 2022 reporting period. Data for the 2022 reporting period must be submitted in full by 31 July 2023.
• UK: An update to the International Exchange of Information Manual in relation to the common reporting standard (CRS) removes Kenya, Moldova, and Uganda from the reportable jurisdiction list—meaning that financial accounts held by tax residents of these countries need not be included in the reports sent to HMRC by 31 May 2023.
• United States: The FATCA International Data Exchange Service (IDES) platform will be open for testing from 5 June 2023 and continue to 30 June 2023. 

Read TaxNewsFlash-FATCA / IGA / CRS

• The United States Trade Representative announced that 77 of 81 COVID-related exclusions in the China Section 301 investigation have been extended through 30 September 2023.
• The Australian Ministry of Trade and Tourism issued a release announcing that the Australia-United Kingdom free trade agreement is expected to enter into force 31 May 2023, following the expected completion of UK domestic processes.

Read TradeNewsFlash-Trade & Customs

• Notice 2023-38 describes certain rules that the Treasury Department and IRS intend to include in forthcoming proposed regulations regarding the domestic content bonus credit requirements under sections 45, 45Y, 48, and 48E, including related recordkeeping and certification requirements. The notice also describes a safe harbor regarding the classification of certain components in representative types of qualified facilities, energy projects, or energy storage technologies.
• The U.S. Tax Court released a memorandum opinion denying the government’s motion for summary judgment based on an argument that the taxpayers’ construction designs failed to meet the definition of “business components” that constitutes one of four threshold tests for “qualified research” under section 41.
• Notice 2023-39 describes proposed regulations under section 148 that the Treasury Department and IRS intend to issue regarding an exception to the arbitrage investment restrictions under section 148 applicable to bonds the interest on which is excludable from gross income under section 103(a).
• The Maryland Supreme Court issued an order holding that the Circuit Court for Anne Arundel County lacked jurisdiction over a lawsuit alleging the state’s digital advertising gross revenues tax was unconstitutional and/or violated the Internet Tax Freedom Act.
• Proposed regulations provide guidance on the application of the transfer for valuable consideration rules and associated information reporting requirements for reportable policy sales of interests in life insurance contracts to exchanges of life insurance contracts qualifying for nonrecognition of gain or loss under section 1035, as well as to certain acquisitions of interests in life insurance contracts in transactions that qualify as corporate reorganizations.
• The U.S. Treasury Department and IRS released the third quarter update to the 2022-2023 Priority Guidance Plan.

State and local tax

• Minnesota: Proposed measures to adopt mandatory worldwide combined reporting effective for tax years beginning after 31 December 2023 were included in omnibus tax bills introduced in both the Minnesota House and Senate.
• New York: Legislation implementing New York’s fiscal plan for the coming year, which was signed into law, includes a three-year extension of the additional 0.75% tax on entire net income if the taxpayer’s business income base, as apportioned, exceeds $5 million. The legislation also extends the state’s business capital tax, which was previously scheduled to be phased out at the end of 2023, as well as numerous other tax changes.
• Pennsylvania: The Department of Revenue announced in a bulletin that it will treat electricity as tangible personal property for purposes of apportioning income under the state’s corporate net income tax, effective for all open tax periods.

Read TaxNewsFlash-United States

Legislative updates

• The staff of the Joint Committee on Taxation (JCT) released an annual overview of the four main elements of the federal tax system.
• The staff of the JCT released a document that describes legal and economic background on U.S. taxation of U.S. multinational corporations and their cross-border activities.

Read TaxNewsFlash-Legislative Updates

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)