KPMG Week in Tax: 6 – 10 November 2023

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

• EU: Member states approved an EU Council statement as well as an accompanying statement from the European Commission (EC) reconfirming political support for Pillar One and Pillar Two.
• Ireland: The Advocate General of the CJEU issued an opinion proposing that a judgment of the General Court regarding tax rulings issued by Ireland to a multinational entity (MNE) group be set aside.
• Cyprus: The government announced its consent to the Pillar Two global minimum tax rules
• Estonia: The government published draft amendments to the income tax law to implement the Pillar Two global minimum tax rules.
• Finland: The government announced reservations in relation to the proposed BEFIT (Business in Europe: Framework for Income Taxation), transfer pricing, and head office tax system directives.
• Greece: The Ministry of Development and Investments launched a public consultation to collect feedback on a draft bill to implement the public country-by-country (CbC) reporting directive into local legislation.
• Sweden: The government issued an assessment with reservations of the transfer pricing directive proposal.
• United States: The U.S. Tax Court released a memorandum opinion holding that Treas. Reg. § 1.482-1(h)(2) prevented a Brazilian legal restriction from being taken into account in determining the arm’s-length transfer price for intangible property (IP) licensed by the taxpayer to its Brazilian manufacturing affiliates.
• Australia: The Australian Tax Office (ATO) issued an updated practice compliance guideline on simplified transfer pricing record-keeping options, which provides the safe harbor interest rate for the 2023–2024 income year in respect of inbound and outbound loan options. The new interest rate for both options during the 2023–2024 income year will be 5.81%.
• OECD: The Organisation for Economic Cooperation and Development (OECD) and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) released for public consultation an additional toolkit to support developing countries in addressing base erosion and profit shifting (BEPS) risks when pricing minerals. Comments on the draft toolkit are due by 2 February 2024.

Read TaxNewsFlash-Transfer Pricing

• Albania: A KPMG report examines changes to the deductibility of interest expense for corporate income tax purposes in the new income tax law.
• Belgium: The EC referred Belgium to the Court of Justice of the European Union (CJEU) for failing to correctly transpose the controlled foreign company (CFC) rules of the anti-tax avoidance directive (ATAD).
  
• Bulgaria: A new electronic service of the tax authority has been available since the beginning of October 2023 through which suppliers can obtain information about the exercised right of value added tax (VAT) credit by the recipient, which will help suppliers determine whether a VAT reduction/recovery may be claimed in connection with uncollectible receivables.
  
• Cyprus: The Department of Taxation has sent a notice of tax liability of the central equal weight sharing body fee (KFIKB) to persons who, during the period 22 February 2023 to 18 November 2022, proceeded to transfer immovable property following a sale. The notice grants a period until 31 December 2023 for payment of the financial transaction tax without the imposition of penalties and interest.
• Czech Republic: The Supreme Administrative Court held that the distribution of pharmaceuticals and the provision of marketing services were separate supplies for VAT purposes, and only the distribution services were subject to VAT.
• EU: Member states approved an EC Council statement as well as an accompanying statement from the EC reconfirming political support for Pillar One and Pillar Two.
• EU: The European Parliament's Committee on Economic and Monetary Affairs (ECON) adopted two resolutions regarding (1) a report on the role of tax policy in times of crisis, and (2) a report on further reform of corporate taxation rules.
  
• EU: The list of national portals of all EU member states for reporting to the EU’s new central electronic system of payment information (CESOP) will be used for complying with the information reporting requirements for payment services providers, effective 1 January 2024.
  
• Finland: The government announced reservations in relation to the proposed BEFIT, transfer pricing, and head office tax system directives.
  
• Greece: Guidelines on tax residency of individuals in Greece clarify the definition of tax residence, along with the criteria for acquiring it, in line with international standards and guidelines.
  
• Germany: The German Federal Tax Court (BFH) held that the taxpayer was not entitled to input VAT deductions for import VAT paid with respect to goods that the taxpayer never actually received.
  
• Iceland: A new income tax treaty with Australia, the first between Australia and Iceland, is now in force.
  
• Ireland: A Tax Appeal Commission (TAC) determination dismissed a taxpayer’s appeal that sought to treat the purchase and resale of second-hand cars, as coming under the VAT margin scheme.
  
• Ireland: Finance (No.2) Bill 2023—published on 19 October 2023—included a broad range of proposed amendments to Irish tax legislation. A KPMG report includes key aspects that are relevant to the funds and asset management industry in Ireland.
  
• Ireland: The Advocate General of the CJEU issued an opinion proposing that a judgment of the General Court regarding tax rulings issued by Ireland to an MNE group be set aside.
  
• Poland: The Supreme Administrative Court issued decisions concerning real estate tax on cableways; enforcement fees as public levies; and the basis of fixed assets for minimum tax purposes.
  
• Portugal: Tax measures in the draft 2024 budget law were submitted to Parliament.
• Serbia: Parliament adopted amendments to the law on electronic invoicing (e-invoicing).
  
• Serbia: Tax law amendments concern property tax, individual (personal) income tax and mandatory social insurance contributions, and a lump sum tax on entrepreneurs.
  
• Spain: The VAT rules require certain actions be taken by 30 November 2023 in order for the measures to be effective beginning 1 January 2024.
• Switzerland: The Federal Administrative Court held that a taxpayer providing validation/verification activities in blockchain networks carried out two independent services for VAT purposes.
• UK: The Autumn statement is scheduled for 22 November 2023.
• UK: A Supreme Court decision provides clarity for companies on the application of the deeming provision when considering employment-related securities.
• UK: The Court of Appeal held that the inclusion of redeemable preference shares (in addition to ordinary shares) as part of the consideration in a commercial share for share exchange on the sale of a company, with a view to claiming the substantial shareholding exemption (SSE) on redemption of those preference shares in 12 months’ time, did not mean that the exchange formed part of “arrangements,” one of the main purposes of which was the avoidance of tax.
• UK: An Upper Tribunal decision concerned capital allowances for surveys and studies.

Read TaxNewsFlash-Europe

• South Africa: Draft legislation would introduce a new section 11G allowing for a limited deduction of expenses incurred in the production of interest income when the taxpayer is not trading. Due to a number of concerns with the proposed narrow provisions of the new section 11G, changes have been made in the bill now before the Parliament.
• Nigeria: The Tax Appeal Tribunal Lagos Zone held that interest and penalties do not apply to additional assessments of VAT that a nonresident taxpayer validly objected to within the stipulated statutory period.
  

Read TaxNewsFlash-Africa

• Canada: Quebec’s 2023 fall economic update introduces measures to extend and enhance the investment and innovation tax credit (C3i) and eliminate the additional capital cost allowance of 30% currently available for investments in certain assets. The update also confirms that the individual income tax system and social assistance will be indexed at 5.08% as of 1 January 2024.
• Canada: The Canada Revenue Agency (CRA) announced the pension plan contribution limits for 2024.
• Canada: The CRA issued a new list of officially designated “notifiable transactions” under the expanded new mandatory disclosure rules.
• Canada: The prescribed interest rates for income tax and for pertinent loan or indebtedness (PLOI) purposes for the first quarter of 2024 reflect (1) an increase of 1% to the prescribed income tax interest rate for taxable benefits, overpaid taxes, and underpaid taxes; and (2) an estimated increase of 0.17% to the prescribed interest quarterly rate that is used to determine the deemed interest income inclusion from a PLOI.
• Mexico: The state congress in Coahuila approved an increase of the payroll tax rate to 3% by 2024 (from 2%).

Read TaxNewsFlash-Americas

• Australia: A new income tax treaty with Iceland, the first between Australia and Iceland, is now in force.
• Australia: The ATO released for consultation a draft law companion ruling on the corporate collective investment vehicle (CCIV) regime. The consultation is open until 15 December 2023.
• Australia: The Commissioner of Taxation released an updated practice statement on the collection and recovery of disputed tax debts.
• Hong Kong: The Board of Review held that sums received by a property developer, representing interest income on amounts placed in stakeholder accounts in respect of pre-sale of uncompleted residential units, did not qualify for the profits tax exemption for bank interest income.
• Malaysia: Finance (No. 2) Bill 2023 includes further details on some of the announcements made in the 2024 budget, as well as some additional proposals.
• Malaysia: The Royal Malaysian Customs Department (RMCD) announced on its website that the sales tax on low value goods, which had been deferred previously, will be effective from 1 January 2024.
• UAE: The federal tax authority issued a guide on the interaction of accounting standards with corporate tax. It provides a general overview as well as examples of certain adjustments.
• UAE: The Ministry of Finance (MoF) has released decisions on determining qualifying income and on qualifying activities and excluded activities, for purposes of the corporate tax exemption for free zones. Both decisions are retroactively effective from 1 June 2023 and replace previous decisions providing guidance on free zones.

Read TaxNewsFlash-Asia Pacific

• Australia: The ATO updated its automatic exchange of information (AEOI) guidance to provide additional guidance on the foreign financial institutions list published by the U.S. tax agency (IRS).
• Panama: The tax authority announced the decision of the Financial Action Task Force (FATF) to remove Panama from its anti-money laundering (AML) “grey list.”
  

Read TaxNewsFlash-FATCA / IGA / CRS

• Proposed regulations relate 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). Treasury and the IRS are also reopening the comment period for 2016 proposed regulations relating to the determination and recognition of taxable income or loss and foreign currency gain or loss with respect to a QBU.
• Rev. Proc. 2023-34 provides the annual inflation adjustments for more than 60 tax provisions to be used by individual taxpayers on their 2024 returns (that is, the returns that are generally filed in 2025).
  
• The U.S. Tax Court released a memorandum opinion holding that Treas. Reg. § 1.482-1(h)(2) prevented a Brazilian legal restriction from being taken into account in determining the arm’s-length transfer price for IP licensed by the taxpayer to its Brazilian manufacturing affiliates.
  
• The U.S. Tax Court held that section 904(f)(3)(A) did not apply to prevent the taxpayer’s recognition of approximately $2.8 billion in gain (the amount of its gain in excess of its overall foreign loss (OFL) account) upon its sale of CFC stock or to recharacterize such gain as foreign source income such that the taxpayer could claim more than $240 million in foreign tax credits.
  
• A KPMG report provides an overview of section 451(b) and specified fees.

State and local tax

• New Jersey: The state Division of Taxation issued several new and revised Technical Bulletins addressing various aspects of the legislation enacted in July that made substantial changes to the corporation business tax. The latest is Technical Bulletin-113, which addresses the inclusion of certain captive entities in the New Jersey combined group and the exception for captives owned by small banks and savings and loans. Importantly, the Bulletin sets forth rules for determining the value of assets for purposes of the exception and provides guidance on aligning the captive’s income reporting period with the combined group privilege period.
• New York: Assembly Bill 8179 would, if enacted, impose a new tax in addition to the normal corporate franchise tax under N.Y. Tax Law § 209 on certain businesses when employees of the company are displaced from their employment due to the deployment of certain technologies.
• Texas: The state Comptroller confirmed that the use of data processing services to facilitate the provision of certain employee health benefits and retirement administration services does not cause said services to become taxable data processing services for sales and use tax purposes. 

Read TaxNewsFlash-United States

• The staff of the Joint Committee on Taxation (JCT) released a document that describes empirical information, legal background, and policy considerations related to the income taxation of high income and high wealth taxpayers, ahead of a Senate Committee on Finance public hearing entitled “Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies.”

Read TaxNewsFlash-Legislative Updates

• The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce issued a temporary denial order (TDO) suspending the export privileges of seven persons and three companies that are alleged to be part of a global procurement scheme that unlawfully sourced and purchased millions of dollars in dual-use electronics for end-users in Russia, including companies affiliated with the Russian military.
• BIS and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a joint notice highlighting a new suspicious activity report (SAR) key term for financial institutions to reference when reporting potential efforts by individuals or entities seeking to evade U.S. export controls not related to Russia’s invasion of Ukraine.
• The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that a U.S.-based company that manages prepaid reward card programs has agreed to remit over $206,000 to settle its potential civil liability for apparent violations of sanctions on Crimea, Iran, Syria, and Cuba.
• The General Department of Customs in Vietnam specified the conditions for inspection and supervision of the export processing enterprise (EPE).

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
• BEPS