KPMG Week in Tax: 2 – 6 October 2023

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

• Mexico: A KPMG report discusses the implications of a decision of the Mexican Federal Tax Court that technical assistance payments did not qualify as business profits under the Mexico-Netherlands income tax treaty and that, when Mexico is the source jurisdiction, such payments are subject to 25% withholding tax under Mexican domestic law.
• Bermuda: The government of Bermuda released its second public consultation paper regarding the proposed introduction of a corporate income tax, building upon the general policy framework outlined in the first public consultation paper and providing further details regarding scope and the calculation of taxable income and the income tax.
• Canada: The employment insurance premium rate for employees will increase to CA$1.66 per $100 for 2024. The maximum insurable earnings for 2024 will increase to $63,200.
• Trinidad and Tobago: The 2024 budget includes tax-related proposals generally effective 1 January 2024.
• Bolivia: The expiration period for the registration and / or confirmation of tax documents in the "Registry of Purchases and Sales value added tax (VAT)"—of the fiscal period September 2023—for taxpayers whose NIT ends in digits 5, 6, 7, 8 and 9, has been extended to 10 October 2023.
• Bolivia: The tax authority issued guidance to provide the fixed quota per hectare of the Unified Agricultural Regime for 2022 management.
• Costa Rica: The Legislative Assembly voted to override a partial presidential veto of Bill No. 23.581 to reform the income taxation of passive income from foreign sources, and thereby address the exclusion of Costa Rica as a non-cooperating jurisdiction before the EU.

Read TaxNewsFlash-Americas

• India: The Central Board of Direct Taxes (CBDT) finalized the changes it proposed in May 2023 to the valuation rules under the “Angel Tax.”
• India: The Supreme Court held that a taxpayer was eligible under the India-Oman income tax treaty for a foreign tax credit in India relating to a dividend that would have been subject to tax in Oman but was exempt under certain Omani tax incentive provisions—known as a tax sparing credit.
  
• UAE: The federal tax authority released a general guide for its corporate tax regime which shall apply to tax periods commencing on or after 1 June 2023.
  
• Malaysia: The Inland Revenue Board of Malaysia issued an updated e-invoice guideline, e-invoice specific guideline, and e-invoice catalogue.
  
• Australia: A draft taxation ruling addresses the issue of whether an asset that is made up of a number of parts or components (i.e., a composite item) is itself a depreciating asset, or whether one or more of its components are separate depreciating assets.
  
• Australia: The Victorian government announced that it will be introducing legislation to extend the vacant residential land tax to unoccupied residential properties across the entire state, along with other tax-related amendments. The State Revenue Office Victoria released details of the proposed amendments in the bill.
  
• Australia: Treasury released for consultation exposure draft legislation that would enact changes relating to superannuation tax concessions announced in the 2023-2024 budget. Comments are due by 18 October 2023.
  
• Saudi Arabia: The Zakat, Tax, and Customs Authority (ZATCA) on 25 September 2023 published proposed amendments to the income tax law for public consultation. Comments are due 25 October 2023.
  

Read TaxNewsFlash-Asia Pacific

• Austria: The Ministry of Finance issued updated guidance on the application of the DAC6 reporting requirements for cross-border arrangements in Austria.
• Cyprus: The deadline for submitting value added tax (VAT) returns for the period from 1 January 2023 to 31 August 2023, has been extended to 16 October 2023.
• Ireland: The Department of Finance launched a public consultation regarding a roadmap for the introduction of (1) a participation exemption for foreign-sourced dividends, and (2) the next steps towards the planned introduction of a participation exemption for foreign branch profits.
• Romania: Draft legislation includes a proposed 1% minimum turnover tax for large companies and 1% supplementary tax for banks.
• Croatia: The Croatian Parliament passed the direct and indirect tax law amendments, generally effective 1 January 2024.
• Poland: The Supreme Administrative Court held that:
  
  • Property and cargo insurance services purchased from a nonresident were not similar to guarantee services and, consequently were not subject to lump-sum income tax
    
  • Transformers and distribution board equipment, including 220V batteries, situated in stations are elements of a power grid treated as structures
  • An individual taxpayer did not qualify for application of the preferential 5% tax rate to income from the copyright to a computer program because the taxpayer had not kept sufficient records
• Poland: The Ministry of Finance announced public consultations on draft clarifications of the beneficial owner clause for purposes of withholding tax, and tax relief commonly referred to as expansion or pro-growth relief.
• Belgium: Mandatory e-invoicing will be introduced for business-to-business (B2B) taxable persons effective 1 January 2026.
  
• Switzerland: The Zug Cantonal Council in early July 2023 adopted the eighth partial revision of the cantonal tax law after two readings. The focus of the proposal is tax relief for individuals.
  
• EU: KPMG member firms in the EU submitted a response to the European Commission’s (EC) public consultation on the “Faster and Safer Relief of Excess Withholding Taxes (FASTER)” initiative.
  
• EU: Effective 1 January 2025, the EU will allow member states to exempt small businesses established somewhere in the EU with annual gross receipts up to €85,000 from being required to charge VAT. While these changes are aimed at small businesses in the EU, these changes may also affect nonresident and EU businesses servicing or purchasing from such small enterprises.
  
• Germany: The Federal Ministry of Finance in January 2023 published new regulations on entrepreneurial status and input VAT deductions for research institutions.
  
• Germany: The Federal Ministry of Finance published a draft bill that includes a large number of amendments in various areas of the tax law.
  
• North Macedonia: The parliament adopted the amendments to the corporate income tax law and the VAT law, as well as the law on the temporary solidarity (windfall profits) tax, submitted by the government to the parliament in July.
  
• Sweden: The government responded to a formal notice from the EC that Swedish rules that became effective in 2021, under which principals that pay for work in Sweden performed by contractors from other EU member states or European Economic Area (EEA) countries must withhold 30% preliminary tax from the total compensation if the contractor is not approved for F-tax by the Swedish Tax Agency, violate EU law (i.e., the freedom to provide services).

Read TaxNewsFlash-Europe

• Bermuda: The government of Bermuda released its second public consultation paper regarding the proposed introduction of a corporate income tax, building upon the general policy framework outlined in the first public consultation paper and providing further details regarding scope and the calculation of taxable income and the income tax.
• Cyprus: The Ministry of Finance released a harmonisation bill to provide a minimum level of taxation of multinational enterprise groups and large domestic groups in the EU (also known as Pillar Two).
• Bulgaria: The Ministry of Finance launched a public consultation on a draft bill to implement the OECD’s Pillar Two Model Rules as set out under the EU minimum tax directive.
• France: The French government submitted to parliament the 2024 Finance Bill including a proposal to implement the OECD’s Pillar Two Model Rules as set out under the EU minimum tax directive.
• Latvia: The bill implementing the public country-by-country (CbC) reporting directive in Latvia was published in the official journal. The public disclosure rules will apply to financial years starting on or after 22 June 2024.
• Austria: The Ministry of Finance published draft legislation for implementation of the Pillar Two global minimum tax.
• Brazil: Federal Revenue published new transfer pricing rules under the recent legislation that aligned Brazilian’s transfer pricing law with the 2022 OECD Guidelines.
• OECD: The new multilateral convention to facilitate the implementation of the Pillar Two subject to tax rule is open for signature and jurisdictions interested in signing it are invited to contact the OECD Secretariat.
• Japan: The tax authority released guidance relating to the income inclusion rule (IIR), which was introduced as part of the 2023 tax reform measures to implement the Pillar Two global minimum tax. The guidance addresses the de minimis exclusion and the transitional CbC report safe harbor.

Read TaxNewsFlash-Transfer Pricing

• Bahamas: The automatic exchange of information (AEOI) portal for registration, submissions, and reporting of FATCA / common reporting standard (CRS) will open from 10 October 2023 and close on 6 December 2023.
• Australia: The Australian Taxation Office (ATO) noted that financial institutions may need to take into account the results of the OECD’s analysis of residence/citizenship by investment (RBI/CBI) schemes as part of CRS due diligence responsibilities.
• UAE: The Ministry of Finance issued updates to the CRS guidance to include a new section providing details around anti-avoidance rules with respect to CRS obligations.
  
• United States: The IRS will replace the existing public key for FATCA filing on 13 October 2023.
  
• United States: A KPMG report discusses issues that persons charged with compliance are facing when deregistering “dead” FATCA and CRS entities.

Read TaxNewsFlash-FATCA / IGA / CRS

• The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce released a final rule amending the Export Administration Regulations (EAR) by adding 49 entities under 52 entries to the “entity list.”
• Officials from Pakistan and the Gulf Cooperation Council (GCC) signed a free trade agreement.

Read TradeNewsFlash-Trade & Customs

• The U.S. Treasury Department and IRS released proposed regulations, a revenue procedure, and “frequently asked questions” (FAQs) as guidance regarding the transfer of clean vehicle credits under sections 25E and 30D.
• Proposed regulations provide guidance under section 367(b) relating to certain triangular reorganizations and inbound nonrecognition transactions.
• The U.S. Treasury Department and IRS—along with the Department of Labor (DOL) and the Department of Health and Human Services (HHS)—released a request for information on the application of the preventive services requirements under section 2713 of the Public Health Service Act (PHS Act) to over-the-counter (OTC) preventive items and services available without a prescription by a health care provider (in particular, oral contraceptives).
• The IRS Large Business and International (LB&I) division published an updated practice unit: Foreign Tax Credit - Categorization of Income and Taxes Into Proper Basket.
• A federal district court recently granted the plaintiff’s summary judgment motion in a dispute concerning whether the plaintiff was the “importer” of tires it purchased from Chinese manufacturers and thus liable for excise tax under section 4071.  

State and local tax

• Washington State: The Department of Revenue continues to impose penalties as high as 29% on taxpayers that did not file an Annual Reconciliation of Apportionable Income Form (ARAI). All businesses that reported apportionable income on timely filed Washington Combined Excise Tax Returns (CETR) in 2022 are encouraged to file the ARAI by 31 October 2023 even when the reconciliation results in a “no change” return.
• Iowa: The tax authority announced that the top two Iowa corporate income tax rates will be reduced to 7.1% (from 8.4%) for tax years beginning on or after 1 January 2024.
• Massachusetts: The House and Senate agreed to a tax compromise plan that includes components of earlier tax proposals. While many of the tax law changes are aimed at individuals, there are also corporate excise tax changes in the bill.
  
• Oregon: The Portland City Council approved a new incentive for businesses that are located within certain boundaries of the downtown Portland, Oregon area. The new Downtown Business Incentive credit program is designed to reward owners of property in the qualifying districts and to incentivize commercial lease signings and lease renewals in such areas.
• Texas: The Comptroller updated a policy memo reiterating that the purchase of electronic games, subscriptions, and membership fees for electronic games and game communities are taxable as amusement services for sales and use tax purposes. The updated guidance also makes clear that purchases of associated content for electronic games and purchases of virtual currencies used in games are taxable as amusement services.

Read TaxNewsFlash-United States

Legislative Updates

• The Joint Committee on Taxation (JCT) released a description of H.R. 5863 (the “Federal Disaster Tax Relief Act of 2023”) ahead of a Ways and Means Committee markup.
• Legislation to extend government funding through 17 November 2023 contains a Federal Aviation Administration (FAA) extension, which includes an extension of fuel and ticket taxes funding the airport and airway trust fund through 31 December 2023.

Read TaxNewsFlash-Legislative Updates

Exempt Organizations

• The IRS Tax Exempt and Government Entities (TE/GE) division released a fiscal year 2024 “program letter” that sets out the TE/GE priorities for the fiscal year.

Read TaxNewsFlash-Exempt Organizations

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

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