KPMG Week in Tax: 18 – 22 December 2023

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

• Nigeria: The Federal High Court held that taxpayers cannot dispute the Nigerian Content Development and Monitoring Board's (NCDMB) authority to collect a 1% fee from all contracts in the oil and gas industry's upstream sector.
• Zambia: Proposed amendments to Zambia's value added tax (VAT) law include expanding its scope to cover cross-border electronic services provided by nonresidents, requiring nonresidents to appoint a tax agent in Zambia (with potential for exemption), and introducing a self-assessment regime for certain recipients of services (excluding those for cross-border electronic services).

Read TaxNewsFlash-Africa

• Bolivia: The tax authority issued guidance updating the rates of products subject to the specific consumption tax for 2024.
• Brazil: The Chamber of Deputies approved a constitutional amendment bill with the basic text of a tax reform involving federal, state, and municipal indirect taxes. Under the reform measure, Brazil will introduce a dual VAT regime.
• Canada: A KPMG report provides an overview of goods and services tax / harmonized sales tax, Quebec sales tax, provincial sales tax, and other indirect tax changes in 2023.
  
• Chile: From March 2024, Chilean digital service platform companies employing independent workers must issue electronic invoices for services provided to users, including specific details and a 17% withholding tax. These invoices must be submitted by the fifth day of each month for the previous month's services.
  
• Chile: The U.S. Treasury Department announced the entry into force of the income tax treaty with Chile. With respect to taxes withheld at source, the U.S.-Chile income tax treaty will have effect for amounts paid or credited on or after 1 February 2024. For all other taxes, the U.S.-Chile income tax treaty will have effect for taxable periods beginning on or after 1 January 2024.
  
• Mexico: A 100% income tax credit is granted to taxpayers affected by Hurricane Otis in specific municipalities for income from personal services performed in the affected areas during October 2023 to February 2024, provided they are registered with the Mexican Social Security Institute.

Read TaxNewsFlash-Americas

• Australia: The Australian Tax Office (ATO) issued alerts regarding certain arrangements that artificially inflate research and development (R&D) tax incentive claims. Concerns include R&D activities performed by associate entities that would not qualify for an offset if conducted for their own benefit, and inappropriate claims for overseas R&D activities due to lack of an Advance Finding or non-compliance with certain rules.
• Australia: The ATO has finalized its rulings on the classification of workers as employees or independent contractors, following two landmark decisions in 2022. The rulings, TR 2023/4 and PCG 2023/2, provide guidance on determining an individual’s employment status and outline the ATO's approach to compliance.
  
• Australia: The government introduced an additional minimum expenditure threshold for its “producer offset” tax rebate, which will benefit drama series that film significant numbers of hours per season but do not meet the per hour threshold. This new per season threshold, effective from 1 July 2024, will apply to drama series that spend at least $35 million per season in qualifying Australian production expenditure.
  
• Australia: The government’s 2023-2024 mid-year economic and fiscal outlook statement includes plans to remove deductibility for certain ATO charges from 1 July 2025.
  
• Australia: The Productivity Commission (PC) released a draft report proposing significant reforms to the current deductible gift recipient (DGR) system, which determines which charities can receive tax-deductible donations.
  
• Azerbaijan: New technical regulations implement VAT on the cross-border provision of digital services. The regime applies to a wide range of digital services, with no registration threshold. The customer's location can be determined by IP address or mobile number country code. The regime applies to both B2C and B2B sales, with e-invoices required for B2B sales. Taxpayers can confirm their customers' business status by verifying their tax identification numbers.
  
• Cambodia: The General Department of Taxation issued a notification regarding the effective date of notification letters or other notices from the tax authority.
  
• Hong Kong: Draft legislation includes proposed enhancements to the existing aircraft leasing preferential tax regime in Hong Kong.
  
• Hong Kong: Draft legislation would introduce a new tax deduction for spectrum utilization fees (SUFs) incurred by mobile network operators in connection with auctions on radio spectrum conducted on or after the effective date of the legislation.
  
• Hong Kong: Legislation to clarify the non-taxation of onshore equity disposal gains in Hong Kong was enacted into law. 
  
• India: The Delhi High Court held that fees received by a U.S. company for providing domain name registration services were not taxable as a royalty. The court reasoned that the U.S. company, acting merely as a registrar, did not possess any proprietary rights in the domain name and therefore could not grant or transfer usage rights to another person or entity.
  
• Korea: The Seoul Administrative Court applied substance over form principles to disregard intermediate third-party suppliers’ status as exporters of record and then relied on transfer pricing principles to find that the customs duties were not arm’s-length.
  
• Korea: The Supreme Court held that fees paid by the taxpayer, a Korean credit card company, to a U.S.-based credit card company under a license for use of the U.S. company’s trademark on credit cards issued in Korea constituted a royalty/service fee subject to VAT to the extent the fees were paid in connection with Korea-based transactions. However, fees paid under the license in connection with foreign transactions must be treated as business income not subject to tax in Korea under the Korea-U.S. income tax treaty.
  
• Philippines: The Bureau of Internal Revenue (BIR) has temporarily halted all field audits and related operations from 16 December 2023 to 7 January 2024.
  
• Saudi Arabia: The Zakat, Tax, and Customs Authority (ZATCA) has issued guidelines on the Zakat treatment of transactions between related parties and also specified thresholds for maintaining transfer pricing documentation for Zakat payers.
  
• Singapore: The Inland Revenue Authority of Singapore published an e-Tax Guide on the tax treatment of gains or losses from the sale of foreign assets.
  
• Sri Lanka: The Department of Inland Revenue issued a notice detailing exemptions for certain goods and services under the VAT law, effective from 1 January 2024.

Read TaxNewsFlash-Asia Pacific

• Belgium: Parliament is considering new legislation that would limit the scope of two existing tax anti-abuse provisions.
• Belgium: The Ghent Court of Appeal referred a case to the Court of Justice of the European Union (CJEU) in July 2023 concerning the compatibility of the Belgian “fairness tax” with the freedom of establishment. The Ghent Court of Appeal asked the CJEU to determine whether the difference in treatment between foreign companies with Belgian permanent establishments and foreign companies with Belgian subsidiaries represented a restriction on the freedom of establishment.
• Belgium: The KPMG member firm in Belgium prepared an overview of key VAT developments—not only focusing on the legislative changes that took effect during 2023, but also anticipating those that will become effective in 2024 and later years.
  
• Cyprus: The deadline to submit (or re-submit) details of ultimate beneficial owners through the “final solution system” is extended to 29 February 2024 (from 31 December 2023).
  
• Cyprus: The deadline to submit VAT returns and corresponding payment of the VAT due has been extended to 15 January 2024, for the VAT period 1 September 2023 through 30 November 2023.
  
• Czech Republic: The president in November 2023 signed the “consolidation package” incorporating the European Corporate Sustainability Reporting Directive (CSRD) into Czech law. The directive mandates companies to prepare a sustainability report, providing transparency about their environmental impact and the influence of sustainability on their growth, performance, and financial position.
  
• Estonia: The Tallinn Circuit Court in Estonia (1) ordered a company's board member to pay a tax debt due to undeclared taxes and suspicious transactions, but it did not uphold all claims by the tax authority, citing insufficient assessment of evidence; and (2) dismissed a Finnish company's challenge against the Estonian tax authority's recovery orders for a tax debt owed in Finland, stating that disputes must be filed with Finnish authorities.
  
• EU: A KPMG report highlights the most important tax developments recorded during 2023 and includes some 2024 initiatives of note.
  
• EU: Members of the European Parliament adopted a resolution on further reform of corporate taxation rules. The resolution proposes measures to enhance the competitiveness of European companies, particularly small- and medium-sized enterprises (SMEs).
  
• France: The Administrative Court of Appeal of Paris in October 2023 issued a decision in a case involving claims for a foreign tax credit related to dividends received under the 95% participation-exemption regime. The court rejected the claim, stating that the plaintiff failed to provide sufficient evidence to justify the amount of expenses incurred for acquiring or maintaining the dividend income.
  
• Luxembourg: A KPMG report provides an overview of the main tax measures that could be of importance for 2024 and what is in the pipeline for the years to come.
  
• Netherlands: Default penalties will be waived until 1 June 2024 for (non-Dutch) taxpayers who are non-compliant with the One Stop Shop (OSS) mechanisms of the EU VAT e-commerce package, effective from 1 July 2021.
  
• Netherlands: The Upper House of Parliament adopted 16 out of 17 tax bills, including the “2024 Tax Plan package,” the Minimum Tax Act 2024, and the Tax Miscellaneous Provisions Act 2024. The Upper House also adopted 15 motions related to these measures.
  
• Poland: The Constitutional Tribunal ruled that the suspension of the statute of limitations for tax liability during a complaint to the Administrative Court aligns with the Polish Constitution. The Supreme Administrative Court clarified that for maximum tax rates to apply to residential buildings used for business, the actual occupation for business activities must be proven. It also ruled that a company can deduct the input tax from rent payments for accommodations provided to its employees, as it is directly linked to the company's VAT-liable activities.
  
• Poland: The president has signed an act to implement mandatory electronic deliveries between 30 March 2024 and 1 January 2025. Additionally, the Minister of Finance extended reduced VAT rates on basic food and certain medicinal and agricultural products, and the Council of Ministers extended tax exemptions for regional investment aid and various other sectors until 31 December 2026.
  
• Spain: Certain notifications for a number of excise taxes are required during the first few months of 2024.
  
• Spain: Royal Decree 1007/2023 outlines the requirements for billing systems and standardization of billing record formats for taxpayers not currently obligated to report records under Spain’s immediate electronic reporting system for VAT (SII). These requirements must be implemented by 1 July 2025. The decree also enforces new requirements for billing software introduced by Law 11/2021, effective within nine months of publication or from 1 July 2025 for multi-year contracts.
  

Read TaxNewsFlash-Europe

• EU: A KPMG report summarizes the “state of play” of the Pillar Two local implementation process.
• EU: The European Commission (EC) today published “frequently asked questions” on the interpretation and/or transposition of the EU minimum tax directive.
• Hong Kong: The Deputy Commissioner of Inland Revenue provided an update on implementation of the Pillar Two global minimum tax in Hong Kong.
• Ireland: The president signed the Finance (No. 2) Bill 2023, which includes legislation regarding the implementation of Pillar Two. The income inclusion rule (IIR) and qualified domestic minimum top-up tax (QDMTT) provisions will apply for fiscal years beginning on or after 31 December 2023. The undertaxed profits rule (UTPR) will apply for fiscal years beginning on or after 31 December 2024.
• Luxembourg: The Parliament passed the law implementing the Pillar Two global minimum tax. The new rules will apply for fiscal years starting on or after 31 December 2023.
• Netherlands: The Senate approved legislation implementing the public country-by-country (CbC) reporting directive. The law allows companies to temporarily omit information that could cause significant disadvantage, requires in-scope companies to publish reports on their website, and mandates EU-based branches of multinational enterprises with a net turnover of €12 million or more to publish a group-wide report.
• Netherlands: The Upper House of Parliament adopted the law implementing the Pillar Two global minimum tax.
• OECD: The OECD released further administrative guidance to assist governments with implementation of the global minimum tax under Pillar Two and a statement on the timeline of the multilateral convention (MLC) under Pillar One. A KPMG report provides initial observations and analysis of the new Pillar Two guidance.
• Saudi Arabia: The Zakat, Tax, and Customs Authority (ZATCA) issued guidelines on the Zakat treatment of transactions between related parties and also specified thresholds for maintaining transfer pricing documentation for Zakat payers.

Read TaxNewsFlash-Transfer Pricing

• Barbados: Guidance provides clarification to reporting financial institutions regarding entities self-certifying as financial institutions during account opening.  The common reporting standard (CRS) mandates that reporting financial institutions acquire self-certifications for new entity accounts in order to make a determination of the account holders’ tax residence(s).

Read TaxNewsFlash-FATCA / IGA / CRS

• The staff of the Joint Committee on Taxation (JCT) released a report—the “Bluebook”—explaining tax legislation enacted by the 117th Congress.

Read TaxNewsFlash-Legislative Updates

• Final regulations issued this week:
  • Implement statutory safe harbor rules that treat information returns and payee statements with erroneous dollar amounts as correct returns or statements for certain penalty purposes if the errors are de minimis in dollar amount
  • Concern the fees established by the No Surprises Act for the federal independent dispute resolution (IDR) process
• Proposed regulations concern the credit for production of clean hydrogen under section 45V and the associated energy credit under section 48(a)(15).
• The IRS released modified guidance on the application of section 174.
  •  Notice 2024-12 clarifies and modifies Notice 2023-63 in which the Treasury Department and IRS announced that they intend to issue proposed regulations addressing research or experimental (SRE) expenditures under section 174.
  • Rev. Proc. 2024-9 modifies sections 7 and 19 of Rev. Proc. 2023-24 to provide procedures under section 446 and Treas. Reg. § 1.446-1(e) for obtaining automatic consent of the IRS Commissioner to change methods of accounting for expenditures paid or incurred in tax years beginning after 31 December 2021, in reliance on interim guidance under sections 174 and 460 provided in Notice 2023-63, as modified by Notice 2024-12.
• Notices released this week provide:
  • The percentage increase—indexing factor—to be used by group health plan and health insurance issuers to calculate the “qualifying payment amount” for items and services provided during 2024 for purposes of certain provisions of the “No Surprises Act”
  • Guidance on certain provisions of the SECURE Act 2.0
  • The “2023 cumulative list” of changes in plan qualification requirements for defined contribution qualified pre-approved plans
  • A safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2024 for purposes of the new credit for qualified commercial clean vehicles under section 45W
  • Automatic relief to “eligible taxpayers” from additions to tax under sections 6651(a)(2) and 6651(a)(3) for the failure to pay with respect to certain income tax returns for 2020 and 2021
• Rev. Proc. 2023-36 updates the list of jurisdictions with which the United States has in effect a relevant information exchange agreement such that the reporting requirement of Treas. Reg. §§ 1.6049-4(b)(5) and 1.6049-8(a) may apply with respect to certain deposit interest paid to residents of such jurisdictions (Section 3), as well as the list of jurisdictions with which the Treasury Department and IRS have determined it is appropriate to have an automatic exchange relationship with respect to such information (Section 4).
• Rev. Rul. 2024-1 provides tables of covered compensation under section 401(l)(5)(E) for the 2024 plan year.
  
• Qualifying businesses, tax-exempt organizations, or entities can register using the new IRA/CHIPS Pre-Filing Registration Tool to take advantage of the elective payment or transfer of certain manufacturing investment, clean energy investment, and production tax credits under provisions of the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors Act (CHIPS).
  
• The IRS announced a new voluntary disclosure program for taxpayers to resolve refunds or credits for questionable employee retention credit (ERC) claims.
  
• The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice extending the filing date for the “Report of Foreign Bank and Financial Accounts (FBAR)” for certain U.S. individuals who have only signature or other authority over certain foreign financial accounts to 15 April 2025.
  
• The U.S. Treasury Department announced the entry into force of the income tax treaty with Chile. With respect to taxes withheld at source, the Chile tax treaty will have effect for amounts paid or credited on or after 1 February 2024. For all other taxes, the Chile tax treaty will have effect for taxable periods beginning on or after 1 January 2024.
  
• Taxpayers in Tennessee affected by tornadoes and severe storms now have until 17 June 2024 to file various individual and business tax returns and make tax payments.
  
• KPMG reports released this week discuss:
  • Foreign tax credits for multinationals
  • Proposed regulations on advanced manufacturing production credit under section 45X
  • Preparing for the new excise tax under section 5000D on sales of specified drugs
  • Accounting standards update includes improvements to income tax disclosures
  • IRS enforcement on high-income and high-wealth individuals
  • State, local tax changes (year-end checklist and fourth quarter 2023)

Read TaxNewsFlash-United States

• The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced that a U.S. insurance organization has agreed to pay over $466,000 to settle its potential civil liability for 39 apparent violations of OFAC's Ukraine-/Russia-Related sanctions.
• OFAC is increasing enforcement of the price cap on Russian oil, targeting shipowners and vessels involved in transporting Russian crude oil above the cap. OFAC also updated price cap-related guidance.
• The Bureau of Industry and Security (BIS) of the U.S. Commerce Department released a final rule amending the Export Administration Regulations (EAR) by adding 13 persons, all under the destination of China, to the “unverified list” (UVL).
• The European Council approved a 12th package of sanctions against Russia, which focuses on additional import and export bans, measures to combat sanctions evasion, and closing of loopholes.
• The European Union (EU) announced its decision to extend the suspension of its rebalancing tariffs on U.S. products until 31 March 2025. The EU rebalancing tariffs on U.S. exports were initially in response to the U.S. “Section 232” tariffs on steel and aluminum.
• Brazil’s federal government announced that the operational capacity of the single portal for purchases abroad, which is currently 60% in terms of value, will increase to 70%.  

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