KPMG Week in Tax: 13 – 17 November 2023

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

• Proposed regulations concern the statutory disallowance rule enacted by the SECURE 2.0 Act of 2022 to disallow a federal income tax deduction for a qualified conservation contribution made by a partnership or an S corporation after December 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis.
• Proposed regulations would amend existing regulations under section 48 relating to the energy credit for the tax year in which eligible energy property is placed in service.
• The U.S. Tax Court upheld the IRS’s determination that a fund was engaged in a U.S. trade or business and sustained additions to tax.
• The IRS published an updated 2023 Draft Form 4626, Alternative Minimum Tax – Corporations, for the new corporate alternative minimum tax (CAMT) created by the “Inflation Reduction Act” (IRA).
• An interim final rule amends the definition of “obligation” set forth in Treasury’s regulations with respect to the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund to provide additional flexibility to recipients, and in particular to provide clarification regarding the application of the obligation deadline to subrecipients and guidance regarding the amendment and replacement of contracts and subawards.
• Proposed regulations provide guidance on various issues under the Affordable Care Act (ACA).
• The petitioners filed their reply brief with the U.S. Supreme Court in Moore v. United States—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.
• The Financial Crimes Enforcement Network (FinCEN) updated its beneficial ownership information (BOI) reporting “frequently asked questions” (FAQs).
• A KPMG report analyzes the IRS’s authority to adjust a partnership-related item for a tax year for which the period under section 6235 has expired.
• A KPMG report provides initial observations and analysis on proposed regulations relating to the determination under section 987 of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit (QBU).

State and local tax

• Delaware: The state of Delaware sent out numerous notices requesting “verified reports” of unclaimed property pursuant to 12 Del. C. § 1170(a). The notices give companies 30 days to respond to the correspondence. However, FAQs indicate that companies must acknowledge receipt of the notices within 30 days and provide the requested information as soon as possible or within 180 days.
• Maine: The Maine Supreme Judicial Court addressed whether a pharmacy benefit management company was entitled to apportion its service receipts based on the location the insurance companies that were its direct clients. The court held that the receipts at issue resulted from the performance of claims processing services for members’ prescription drug claims processed at retail pharmacies in Maine.
  
• Missouri: The Missouri Supreme Court affirmed an Administrative Hearing Commission decision concluding that a taxpayer was not prohibited from claiming a use tax resale exemption for purchases of information technology (IT) equipment.
  
• Ohio: The Board of Tax Appeals concluded that a food and hospitality services company that provided various managed services to businesses and government institutions was not entitled to an agency exclusion from the commercial activities tax (CAT) base.
  
• Texas: The Comptroller issued guidance on changes to the franchise (margin) tax exemption and the exemption file a “No Tax Due Report.”
  

Read TaxNewsFlash-United States

Legislative Updates

• U.S. Senate Finance Committee Chairman Ron Wyden (D-OR), along with Senators Sheldon Whitehouse (D-RI) and Angus King (I-ME), re-introduced legislation that would address the treatment of carried interests, and require fund managers to recognize a deemed compensation amount annually, taxed at ordinary rates and subject to self-employment taxes.

Read TaxNewsFlash-Legislative Updates

• Czech Republic: Proposed tax changes concern public country-by-country (CbC) and sustainability reports.
• Bermuda: The government released its third public consultation paper regarding the introduction of a corporate income tax. The Bermuda income tax rules are intended to align as closely as possible to the global anti-base erosion (GloBE) rules and would apply to each Bermuda tax resident entity and Bermuda permanent establishment (PE) that is a constituent entity of a multinational entity (MNE) group that has consolidated revenue of at least €750 million in at least two of the four preceding fiscal years.
• Poland: A draft regulation from the Minister of Finance would extend the deadlines for submitting individual (personal) and corporate income tax transfer pricing information (TPR-P and TPR-C forms).
• Germany: The lower house of the German Parliament passed the law to implement Council Directive (EU) 2022/2523 to ensure global minimum taxation (Pillar Two).
• OECD: The latest mutual agreement procedure (MAP) statistics cover 133 jurisdictions and practically all MAP cases worldwide.
• Barbados: The Prime Minister delivered a statement outlining proposed rules to implement the OECD’s GloBE minimum tax rules (Pillar Two).
• Brazil: The Ministry of Finance published a modification of the multiple-year data table, providing new transfer pricing rules under Law Nº 14,596/23, which aligned Brazilian’s transfer pricing law with the 2022 OECD Guidelines.

Read TaxNewsFlash-Transfer Pricing

• OECD: A public consultation document concerns proposed changes to the commentary on Article 5 of the OECD Model Tax Convention—dealing with the definition of permanent establishment—and its application to extractible natural resources:

Read TaxNewsFlash-BEPS

• South Africa: Proposed legislation would provide for a temporary enhanced allowance for new and unused renewable energy assets currently included in section 12B of the Income Tax Act, brought into use on or after 1 March 2023 and before 28 February 2025. 
• South Africa: Proposed legislation would require non-resident employers to withhold employees’ tax, but only if such non-resident employers conduct business through a PE in South Africa. 

Read TaxNewsFlash-Africa

• Bermuda: The government released its third public consultation paper regarding the introduction of a corporate income tax.
• Mexico: The tax administration published a list of the 198 foreign providers of digital services that are registered for tax purposes in Mexico as of 31 October 2023.
  
• Mexico: Tax relief measures have been granted to taxpayers affected by Hurricane Otis with tax domicile in the municipalities of Acapulco de Juárez and Coyuca de Benítez.
  
• Brazil: The Federal Senate approved its version of a constitutional amendment bill with the basic text of a tax reform involving federal, state, and municipal indirect taxes.
• Brazil: A KPMG report examines developments concerning the tax on industrialized products (IPI) and state sales tax (ICMS).

Read TaxNewsFlash-Americas

• Australia: Legislation concerning off-market share buy-backs and franking credits passed the Senate with amendments. The legislation will now return to the House of Representatives for the Senate’s amendments to be considered.
• Hong Kong: For Hong Kong stock transfers executed on or after 17 November 2023, the stamp duty payable by both the buyer and seller will be 0.1% (i.e., the rate prior to 1 August 2021) of the consideration or the market value (whichever is the higher) of the stock transferred.
• Sri Lanka: The Cabinet of Ministers granted approval to increase the value added tax (VAT) rate to 18%, effective 1 January 2024.
• Sri Lanka: Budget proposals for 2024 include tax measures relating to direct tax, VAT, and tax administration. In particular, it is proposed that both the VAT rate and base would be increased, effective 1 January 2024.
• Malaysia: A monthly summary of tax developments covers sales tax on low-value goods, Finance (No.2) Bill 2023, and updates on indirect tax legislation, and updated guidelines on electronic invoicing (e-invoicing).
• Australia: The Australian Taxation Office (ATO) issued a guide on changes in the reporting requirements for not-for-profits.
• Australia: The government announced a public consultation paper seeking to review carbon leakage risks in Australia and various policy mechanisms to address carbon leakage. The consultation is open until 12 December 2023.
• Australia: The ATO released guidance that clarifies the Commissioner’s discretion on “control” of a connected entity when it comes to determining a taxpayer’s aggregated turnover and connected entities.
• Australia: Following the passing of the New South Wales’ (NSW) Treasury and Revenue Legislation Amendment Act 2023, Revenue NSW released a guide that provides key information relating to the amendments and how they affect duties transactions.
• UAE: The federal tax authority released a guide concerning corporate tax and the taxation of foreign source income.

Read TaxNewsFlash-Asia Pacific

• Switzerland: The Swiss Federal Council has launched a consultation on draft amendments to the Swiss anti-money laundering (AML) law. The consultation closes 29 November 2023.
• Czech Republic: Proposed tax changes include corporate income tax and accounting, individual income tax, and indirect tax.
• Poland: The Regional Administrative Court in Warsaw held that supplies of electricity to foreign partners were not subject to VAT; and held that the taxpayer was entitled to deduct 50% of its costs incurred in promoting the taxpayer’s logo under sponsorship that were allocated to capital gains.
• Czech Republic: Proposed amendments to the Income Tax Act include the simplification of proving research and development (R&D) allowances and changes in taxation of employee stock option plans.
• Italy: Legislative Decree no. 153 adopted new reporting obligations for payment service providers within the framework of the new centralized European system for collecting and exchanging payment information—the Central Electronic System of Payment Information (CESOP) aimed at detecting and combatting VAT fraud in cross-border internet sales of goods and services.

Read TaxNewsFlash-Europe

• Finland: The tax administration issued updated “frequently asked questions” (FAQs) concerning its FATCA and common reporting standard (CRS) regimes.

Read TaxNewsFlash-FATCA / IGA / CRS

• Proposed regulations under section 4966 concern excise taxes on taxable distributions made by sponsoring organizations from donor advised funds (DAFs), and the agreement of certain fund managers to the making of such distributions.

Read TaxNewsFlash-Exempt Organizations

• Two final rules amended the Export Administration Regulations (EAR) by adding and removing entities on the entity list.
• The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) imposed sanctions on three entities and identified as blocked property three vessels that used Price Cap Coalition service providers while carrying Russian crude oil above the Coalition-agreed price cap.
• OFAC imposed a third round of sanctions targeting Hamas-affiliated individuals and entities.
• OFAC published sanctions compliance guidance for the provision of humanitarian assistance to the Palestinian people.
• The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce released an order renewing the temporary denial of export privileges of a Russian airline for one year.
• The KPMG member firm in Brazil prepared a report covering updates in the field of foreign trade.

Read TradeNewsFlash-Trade & Customs

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

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