KPMG Week in Tax: 26 – 30 June 2023

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

• Australia: The government announced a 12-month delay in the implementation of public country-by-country (CbC) reporting to 1 July 2024 (from the originally proposed 1 July 2023).
• Denmark: The Danish Ministry of Taxation launched a draft bill for public consultation to implement the EU minimum tax directive.
  
• France: An implementing ordinance and decree was published to transpose the EU public CbC reporting directive into domestic law.
  
• Germany: The entry into force of the Germany-U.S. agreement (signed 14 August 2020) on the automatic exchange of CbC reporting as of 4 April 2023 was announced in the Federal Law Gazette of 10 May 2023. However, the automatic exchange of information of the country-specific reports under the agreement will only begin once the agreement on the concrete design of the exchange of information, which has yet to be concluded by the competent authorities, has become effective.
  
• Germany: The German Federal Ministry of Finance (BMF) published updated transfer pricing administrative guidelines regarding application of the arm’s length principle and the transfer of functions.
  
• Lithuania: The EU public CbC reporting directive has been transposed into domestic law.
  
• Romania: The Ministry of Public Finance issued Order 1730/2023, amending the order that implemented EU Directive 2021/2101 on public CbC reporting.
  
• UK: HMRC published draft partial guidance for consultation in relation to the UK's implementation of the OECD's Pillar Two rules.
  
• UK: HMRC released a consultation document regarding the UK’s transfer pricing, permanent establishment (PE), and diverted profits tax (DPT) rules.
  
• UK: The Spring Finance Bill 2023, including Pillar Two global minimum tax rules, was substantively enacted following the completion of the report stage and third reading.
  
• KPMG reports published in TaxNewsFlash:
  • Collate a number of timely and topical transfer pricing articles covering a variety of global, European, country, and industry-specific issues
  • Explain asset management companies’ options for remunerating sub-advisers and the preferred structure’s effect on transfer pricing method selection

Read TaxNewsFlash-Transfer Pricing

• Germany: The federal central tax office (BZSt) issued updated versions of FATCA Technical Communication Manual Part 2 (v2.7) and Part 3 (v2.11) for transmission of data via the BZSt Online Portal (BOP) and Electronic Mass Data Interface (ELMA) for FATCA purposes.
• Israel: The tax authority released instructions for Israeli financial institutions providing guidance for reporting in the automatic exchange of information (AEOI) portal in accordance with the common reporting standard (CRS).
  
• Panama: The CRS reporting deadline has been extended to 15 August 2023.
  
• Taiwan: The Ministry of Finance issued a press release on issues found in the implementation of the CRS by financial institutions.
  
• UAE: The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) issued an updated version of the guidance and policy manual under the FATCA and CRS regimes.
  
• United States: FATCA International Data Exchange Service (IDES) testing period has been extended to Friday, 7 July 2023, at 5:00 PM (U.S. EDT) to accommodate late changes to programming.
  

Read TaxNewsFlash-FATCA / IGA / CRS

• Mauritius: The national electronic invoicing (e-invoicing) system will be implemented in a phased approach. 

Read TaxNewsFlash-Africa

• Canada: The 2023 federal budget bill—which implements certain outstanding business, individual (personal), and indirect tax measures—received Royal Assent.
• Canada: Online marketplace facilitators must collect and remit British Columbia’s provincial sales tax (PST) on certain additional services rendered to online marketplace sellers as of 1 July 2023.
• Bolivia: The tax authority issued guidance providing that certain taxpayers must adapt and implement their computer billing systems and as of 1 August 2023, must issue digital tax documents through the assigned online billing modality.
• Bolivia: The tax authority issued guidance confirming the categorization of taxpayers in the national taxpayer registry as large taxpayers, top contributors, and remaining taxpayers.
• OECD: A report from the OECD presents the latest progress achieved by 16 Latin American countries in tackling tax evasion and other illicit financial flows through transparency and exchange of information for tax purposes.

Read TaxNewsFlash-Americas

• Mongolia: Proposed amendments to the corporate income tax law would provide a tax credit of 90% until 31 December 2029 for income from manufacturing primary and auxiliary equipment or machinery that produces a 1.5 megawatt or more thermal power and/or 5 megawatt or more electric power
• India: The Ahmedabad Bench of the Income Tax Appellate Tribunal held that a tax residency certificate from the country of residence is an important document to be furnished for the claim of tax treaty benefits on the India tax return.
  
• India: The Finance Act, 2023 amended provisions of section 206C(1G) whereby the rate of tax withheld at source was increased from 5% to 20% for the remittance under the liberalised remittance scheme (LRS) as well as for the purchase of overseas tour program package. Further, the threshold of INR 7 lakh for triggering tax withheld at source on LRS was removed. These amendments were to take effect from 1 July 2023. The Ministry of Finance also clarified various aspects of tax withheld at source applicability on LRS and overseas tour program package.
• India: The Central Board of Direct Taxes (CBDT) issued a notification amending the new default tax regime and introduced a new Form 10-IEA to be filed by taxpayers with business income opting for or withdrawing from the old tax regime.
  
• Pakistan: The Finance Act 2023—including direct and indirect tax measures—was enacted following passage by the National Assembly and assent of the president.
  
• Philippines: The International Tax Affairs Division of the Bureau of Internal Revenue (ITAD-BIR) ruled that cash distributions on Philippine Depository Receipts (PDRs) issued by a domestic corporation to a non-resident foreign corporation were not considered dividends subject to a 15% tax rate under Section 28 B)(5)(b) of the Tax Code, but were interest subject to a 30% tax rate under Section 28(B) of the Tax Code.
  
• Australia: The Australian Capital Territory (ACT) government released its 2023-2024 budget focused on housing affordability and related tax reform.
  
• Australia: Recently passed legislation introduces tax measures that were announced in the 2023-2024 Victorian budget.
  
• Australia: The Australian Taxation Office (ATO) released two draft taxation determinations regarding the interaction of the non-arm’s length income and capital gains provisions and whether an entity “controls” another entity, as well as a draft update to the practice compliance guideline for the central management and control test of residency.
  
• Australia: The Federal Court held that acquisitions in the form of commissions paid to a third-party with respect to a distribution and administration agreement related wholly to input supplies of life insurance policies in Australia subject to goods and services tax (GST) (rather than GST-free “acquisition-supplies” of reinsurance to a foreign parent company) and thus were not entitled to input tax credits, but that overhead costs related indifferently to all enterprise activities and thus were entitled to input tax credits to the extent apportioned to GST-free supplies. The court also found that the taxpayer’s method of apportionment for that purpose was fair and reasonable.
  
• Australia: The ATO registered a legislative instrument that replaces the default annual reporting period for electronic distribution platform operators with semiannual reporting periods. The new semiannual reporting periods will be from 1 January to 30 June, and 1 July to 31 December, in each calendar year.
  

Read TaxNewsFlash-Asia Pacific

• Austria: Recent direct and indirect tax developments are summarized in a KPMG report prepared by the member firm in Austria.
• Belgium: The Court of Justice of the European Union (CJEU) held that a toll manufacturer in Belgium did not constitute a VAT “fixed establishment” for its affiliated Swiss principal.
  
• Belgium-Netherlands: Officials from Belgium and the Netherlands signed a new income tax treaty that contains several simplifications for doing business and working across borders.
  
• Cyprus: The amending VAT Law (Ν.42(I)/2023)—which was passed by the House of Representatives and published in the Government Gazette—introduced important changes to the application of the reduced VAT rate on the supply or construction of a dwelling to be used as the main and permanent place of residence.
  
• EU: The European Commission (EC) published non-binding questions and answers (Q&As) concerning the application of the EU regulation on foreign subsidies distorting the internal markets (foreign subsidies regulation).
  
• Greece: Decision Α.1089/2023 of the Independent Authority for Public Revenues (AADE) amends the procedure and required documentation for legal entities owning Greek real estate to be exempt from the special real estate tax (SRET)—an annual 15% tax on the value of Greek real estate.
  
• Lithuania: The Parliament signed amendments to the excise duty law.
  
• Luxembourg: Clarifications on the application of the reverse hybrid mismatch rules provide explanations on the tax status of a hybrid entity in Luxembourg, the calculation of taxable result, and the tax compliance obligations.
  
• Netherlands: The Minister of Finance announced amendments to the draft bill to repeal the property transfer tax concurrence exemption for share transactions.
  
• OECD: The OECD published the 2023 edition of Guidelines for Multinational Enterprises (MNEs) providing updated recommendations for responsible business conduct across key areas, such as climate change, biodiversity, technology, business integrity and supply chain due diligence.
  
• Poland: A clearance opinion issued by the Head of the National Revenue Administration concluded that a reduction in depreciation rates on selected fixed assets throughout the period of using State aid did not constitute tax evasion.
  
• Poland: The Ministry of Finance launched consultations on clarifications to shifted profit tax and amendments to tax procedures.
  
• Poland: The Supreme Administrative Court held that VAT invoices issued earlier than 30 days before the customer makes a late advance payment are not fictitious.
  
• Switzerland: The VAT rates in Switzerland will increase as of 1 January 2024.
  
• UK: HMRC published draft partial guidance for consultation in relation to the UK's implementation of the OECD's Pillar Two rules.
  
• UK: HMRC published new guidance setting out a more restrictive approach on when they will use their powers to appoint a reporting company.
• UK: HMRC released a consultation document regarding the UK’s transfer pricing, PE, and DPT rules.
• UK: The First-tier Tribunal’s (FTT) denied the deduction for payments on related-party indebtedness.
• UK: The Spring Finance Bill 2023, including Pillar Two global minimum tax rules, was substantively enacted following the completion of the report stage and third reading.
• UK: Updated HMRC avoidance guidance may indicate what to expect following the Spring Budget anti-abuse rules announcement.

Read TaxNewsFlash-Europe

• The U.S. Supreme Court granted a taxpayer’s petition for a writ of certiorari in an appeal from a 2022 decision of the U.S. Court of Appeals for the Ninth Circuit upholding the constitutionality of the mandatory repatriation tax under section 965.
• Final regulations provide additional guidance on the transition away from the use of “interbank offered rates” (IBOR) to other reference rates.
  
• Announcement 2023-18 confirms that no taxpayer is required to report the new 1% excise tax under section 4501 on repurchases of corporate stock on any returns filed with the IRS, or to make any payments of such tax, before the time specified in forthcoming regulations.
• The IRS Large Business and International (LB&I) division today publicly released a “practice unit” titled Foreign Tax Credit - Categorization of Income and Taxes Into Proper Basket
• A KPMG report on the direct pay and transferable credit proposed regulations provides a summary of the operative rules, as well as observations and practical implications.

State and local tax

• A report, prepared by the KPMG State and Local Tax practice, provides a summary of state and local tax developments for the second quarter of 2023 in table format.
• Under Alabama law, businesses with an average monthly state sales tax liability of $5,000 or greater in the preceding calendar year are required to make estimated payments to the Department of Revenue each month. Recently signed House Bill 77 increases this threshold amount to an average monthly state sales tax liability of $20,000. Also, House Bill 479 reduces the sales and use tax rate applied to food from 4% to 3% on 1 September 2023. The rate will drop down to 2% on 1 September 2024, if certain fiscal conditions are met.
• The Michigan Court of Appeals held that a memo to an auditor asserting that a subsidiary be included in the unitary business group was not specific enough to constitute an explicit demand or request for a tax refund upon which interest started to accrue.
• Texas Senate Bill 379 adopts new sales and use tax exemptions for certain “family care” items, including wound care dressings, adult or children's diapers, baby wipes, baby bottles, feminine hygiene products, and maternity clothing— effective 1 September 2023
• The Washington State Department of Revenue’s Administrative Review and Hearings Division concluded that a taxpayer was selling credit bureau services subject to retail sales and use tax and retailing business and occupation (B&O) tax, rather than non-taxable data processing services.

Read TaxNewsFlash-United States

• The IRS publicly released a private letter ruling that responds to a request from a rural telephone cooperative for a ruling that its subsidiaries’ distributive shares of partnership income from a sale of substantially all the partnership’s assets constituted patronage-sourced income. The IRS concluded that the portion of the cooperative’s income that is allocable to the cooperative’s patrons’ use of the subsidiaries’ networks is directly related to securing cellular service for the taxpayer’s patrons and is patronage sourced income.

Read TaxNewsFlash-Cooperatives

• The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce released a final rule to amend the Chemical Weapons Convention Regulations (CWCR) to reduce the concentration threshold level above which mixtures containing a Schedule 2A chemical are subject to the declaration requirements that apply to Schedule 2A chemical production, processing, and consumption under the Chemical Weapons Convention (CWC).
• BIS issued a release announcing that the “Five Eye” partners—Australia, Canada, New Zealand, the United Kingdom, and the United States—have committed to formally coordinate on export control enforcement.
  
• The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and His Majesty’s Treasury’s Office of Financial Sanctions Implementation (OFSI) published a joint humanitarian assistance and food security fact sheet to provide additional clarity on United States and UK Russia-related sanctions and the relevant authorizations, exceptions, and public guidance. 
  
• Lithuanian customs will strengthen export and transit controls due to a noticeable increase in “illogical” routes of goods transportation, which raise reasonable suspicions that the ultimate destination of the goods is Russia and choosing such a route is an attempt to bypass the sanctions.

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