This Week in Taxes: DST Drama, COVID-19, and Tax Awards

This week began with a series of weekend readings when the US Treasury Department released a package of final and proposed regulations on August 21, which was posted on the Federal Register.

The final rules, which go into effect August 27, limit the deductions U.S. shareholders can receive on dividends paid by foreign corporations under Section 245A of the Internal Revenue Code (IRC) and confirm the income see-through exemption under Subpart F under Section 954 (c.). ) (6) for certain dividends received by controlled foreign corporations.

In addition, the proposed rules are designed to address concerns among taxpayers that applying the restrictions under Sections 245A and 951A of the IRC would cause them to overpay in taxes.

The Proposals state that the amendments will “amend the extraordinary disposition rule under Section 245A of the [IRC] with the disqualified basic rule according to Section 951A “. Interested parties have until October 26, 2020 to comment on the proposals.

Meanwhile, The Mail on Sunday in the UK published an exclusive report on Aug. 23 claiming that the UK would be giving up its digital services tax (DST) to aid trade negotiations with the US.

However, within 24 hours the UK Treasury Department denied the claims, saying it was standing by its temporary tax on tech companies until a global solution was found.

While the UK, like many other countries, has no choice but to keep its daylight saving time to appease voters and fill its £ 337 billion financial deficit caused by COVID-19, some tax experts suggest looking at tax trends over the past decade to to work out what will happen in the coming year.

Brian Peccarelli, Chief Operating Officer at Thomson Reuters, suggested in an article for ITR that small increases in total income tax rates, corporate tax and sales tax are all possible options for the government, as reducing tax breaks will not be enough.

This week in ITR

ITR hosted its two day virtual Asia Tax Forum and announced the winners of this year’s Asia Tax Awards.

Keynote speaker Matt Andrew, head of tax treaties, TP and financial transactions at the OECD, told event delegates that the Paris-based organization plans to internally submit draft TP guidelines on COVID-related matters by September or October. It can be made available to the public until November, but this depends on the consent of the members of the Tax Administration Forum and Working Group 6.

Andrew also suggested that setting up segments and levels of enterprise within a group of companies might answer some of the questions the OECD is addressing about the size of Amount A and Amount B under the first pillar. He explained the questions the organization is currently working on, but the comments suggest that managing and meeting the requirements for Amount A will be far from easy.

To stick with TP, taxpayers also said they see more questions from tax authorities about their Pre-Price Agreements (APAs) in their master files as the review of country-specific reports goes up a gear.

Taxpayers told event attendees that they are expected to explain their APAs and tax outcomes, although these questions do not seem to be a trend towards more audits just yet.

In the Arabian Gulf, taxpayers report that CbCR has helped them understand business operations better through better data management.

However, in all African countries, TP is still a significant problem due to the knowledge gap in conducting tax audits.

“In Central and West Africa, less so in East Africa, where expertise is still growing, many audits and countries have started to understand the transactions and functions of local subsidiaries, but they still don’t have the right expertise,” said an Africa-based tax chief of a retail group.

Businesses around the world are concerned about how the COVID-19 crisis is fueling an increase in digital exams that penalize taxpayers.

“Here in Brazil, it is almost impossible to develop a relationship with the tax authorities as audits are becoming more and more digital. We usually receive an email with inquiries and have to upload the responses directly to the RFB website without contacting the tax inspector, ”said Angela Filipovith Simoes, Direct Tax Manager at IBM Brazil.

This is a widespread and growing problem, although some companies are still facing historical losses while many are trying to free up cash flow for their business.

This week, Facebook settled its tax dispute with the French tax authorities, reportedly paying 106 million euros ($ 126 million) in back taxes and fines for the years 2009 to 2018 for allegedly postponing profits to lower the effective tax rate in France.

For other large companies, the exit tax proposals in the Netherlands are worrying companies like Unilever and Royal Dutch Shell. Some suggest that the matter will go to the EU courts as it restricts the free movement of capital in the EU.

In other major developments:

• Airlines for Europe called for a more stable tax environment;
• The UAE has issued guidance on place of delivery and VAT collection rules for e-commerce sales and electronic services;
• Thailand has agreed to keep its VAT rate at 7% for another year, while Poland plans to postpone a VAT rate cut and change some of its indirect tax rules; and
• Singapore has published an e-tax guide on the tax framework for companies with variable capital.

Next week in ITR

Next week in ITR, we will provide you with detailed coverage of what happened at the Asia Tax Forum in a series of articles, as well as the following:

• Tax directors complain about the “mountain of work” to support the A-amount;
• MNEs need to review Singapore’s reverse charge position; and
• The tax authorities’ review of TP agreements drives OTP innovation.

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