tax dispute resolution quarterly · 2020-02-27 · canned software conundrum: inconsistent state...
TRANSCRIPT
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Tax Dispute Resolution Quarterly
Summer 2017
kpmg.com
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
ContentsEffects of multilateral instrument implementing BEPS in tax treaties
Future state of income tax treaties: Primer on OECD’s multilateral instrument
IRS practice and procedure
IRS focuses on sec. 199 for cable, satellite, and broadcast TV
Truck fleets: Federal excise tax review for heavy vehicles tax
Enforcement trends
Foreign partners: Tax Court rejects 1991 IRS ruling
Excise tax: Improper documentation leads to taxpayer losses
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Global tax disputes
Global Indirect Tax Outlook – 2017 and beyond
The European mini one-stop shop: A model for future indirect tax compliance?
EU tax dispute resolution mechanism directive proposed
Border-adjusted tax from international trade perspective
APAs in the U.S. and Canada: Guidance and practice since 1990
How Trek Leather and the False Claims Act may re-shape the importing environment
OECD & BEPS
BEPS ripple effect: Multinationals reevaluate ways to do business
BEPS Action 13: Latest country implementation update
Ten questions on OECD’s DEMPE concept and its role in valuing intangibles
BEPS Action 10 discussion draft revised guidance on profit splits
State & local tax
Potential double taxation for passthrough owners after Wynne
Uptick in gross receipts tax legislation – Why now?
Canned software conundrum: Inconsistent state corporate income tax treatment
Illinois could be first state to specifically target carried interest
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Spotlight on multilateral instrumentsEffects of multilateral instrument implementing BEPS in tax treatiesKPMG released a report in early June following the Organisation for Economic Co-operation and Development ceremony for the signing of a multilateral convention to implement measures (Read more)
Future state of income tax treaties: Primer on OECD’s multilateral instrumentAction 15 of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) project called for the development of a (Read more)
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Multilateral instrument signing – Who’s in, who’s out, and what does it all mean?Watch a replay of the June 13 webcast that provides an overview of outcomes of the June 7 MLI signing ceremony. Manal Corwin and a group of KPMG International partners make observations on key provisions, European trends, Asia Pacific, Latin America, Canada, the United States, Africa, and the Middle East.
Future state of income tax treaties: Primer on OECD’s multilateral instrumentBy Jesse Eggert, Michael Plowgian, and Logan Kincheloe – Washington National Tax
Action 15 of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) project called for the development of a multilateral instrument (MLI) to implement the tax-treaty-related measures produced through work on the project’s other actions. The work was carried out through an ad hoc group of more than 100 jurisdictions, including the United States and all other members of the OECD and G20. The MLI allows jurisdictions to modify bilateral tax treaties with other signatories to the MLI to incorporate the treaty-related provisions of the BEPS actions.
Even though most jurisdictions have not yet disclosed which MLI provisions they will incorporate into their treaties, multinational enterprises that rely on treaty benefits for cross-border payments should begin analyzing their structures and payments to determine how various components of the MLI may affect their tax exposure. This May 26 article summarizes how the MLI will modify the application of bilateral treaties and affect multinational enterprises.
KPMG released a report in early June following the Organisation for Economic Co-operation and Development ceremony for the signing of a multilateral convention to implement tax-treaty-related measures to prevent base erosion and profit shifting (BEPS). Tax professionals from KPMG member firms around the globe continue to evaluate possible effects or implications of the multilateral instrument.
The June 2017 report continues to be updated with reports from regions and countries, including Asia Pacific, Australia, Canada, China, Czech Republic, European Union, France, India, Japan, Luxembourg, Netherlands, Poland, Singapore, and Switzerland.
Effects of multilateral instrument implementing BEPS in tax treaties
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
IRS practice and procedure
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
IRS focuses on sec. 199 for cable, satellite, and broadcast TV
Truck fleets: Federal excise tax review for heavy vehicles tax
By James Atkinson – Washington National Tax
Among the first wave of examination “campaigns” announced by the IRS’s Large Business and International (LB&I) Division is the application of the section 199 domestic production activities deduction to “multichannel video programming distributors” (such as cable and satellite TV providers) and TV broadcasters. In a related technical advice memorandum, the IRS National Office has adopted a previously rejected LB&I interpretation of “qualified films,” raising potential red flags for some members of the media industry. This June 1 article in the AICPA’s The Tax Adviser looks at the potential effects of these developments on the media industry.
By Deborah Gordon and Taylor Cortright – Washington National Tax
Companies may be overpaying federal excise tax on purchases and long-term leases of heavy vehicles such as highway trucks, trailers, or tractors. These companies often require customized vehicles that contain specialized jobsite equipment and other nontaxable articles for use in business operations. The supplier may include on the purchase invoice an amount equal to the excise tax calculated on the full sale price of the vehicle without taking into account the allowable reductions under the federal excise tax rules. A May 2017 KPMG report explains how the burden of this tax gets passed on to the purchaser, typically because the purchaser is unaware of the applicable rules that would reduce the seller’s tax calculation.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Enforcement trends
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Foreign partners: Tax Court rejects 1991 IRS ruling
Excise tax: Improper documentation leads to taxpayer losses
By Guy Bracuti, Seth Green, Sarah Staudenraus, and Sean Austin – Washington National Tax
A recent U.S. Tax Court case rejects the IRS’s position in Revenue Ruling 91-32 that a foreign partner’s capital gain from the sale of an interest in a partnership that is engaged in a U.S. trade or business is treated as gain that is effectively connected to a U.S. trade or business and, therefore, subject to U.S. federal income tax.
In Grecian Magnesite Mining, Co. v. Commissioner, the Tax Court held that a foreign corporation was not subject to U.S. federal income tax on the gain that it realized upon the redemption of its interest in a U.S. domestic entity (limited liability company) treated as a partnership that was engaged in the conduct of a U.S. mining business (except to the extent that gain was attributable to the U.S. real property interests held by the LLC).
This July 2017 KPMG report explains how the case marks the first time that a court has addressed directly the IRS’s controversial position in Revenue Ruling 91-32—that gain realized by a foreign person with respect to a disposition of a partnership interest is to be treated as effectively connected income to the extent that partnership assets are used or held for use in a U.S. trade or business.
By Deborah Gordon and Taylor Cortright – Washington National Tax
An article in the June 1 edition of the AICPA’s The Tax Adviser addresses the consistent theme of proper documentation in federal excise tax compliance. This past year, numerous federal excise tax cases have hinged on this issue. In some cases, lack of documentation has led to the disallowance of claims for refunds. In other cases, transactions that would otherwise have been tax-free were held to be taxable. Moreover, no remediation or self-help after the fact was allowed by the courts or the IRS. Accordingly, taxpayers engaging in transactions involving federal excise taxes should be mindful of the documentation requirements, including timing requirements, and confirm compliance before engaging in the transaction.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
State & local tax
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Potential double taxation for passthrough owners after Wynne
Uptick in gross receipts tax legislation – Why now?
By Dan De Jong and Alec Mullee – Washington National Tax
The U.S. Supreme Court in Comptroller of the Treasury v. Wynne has confirmed that the U.S. Constitution places some limits on the ability of states to tax income earned by individuals across state lines. Nevertheless, double taxation by states may still exist without violating those limitations. This article in the July 10, 2017 issue of State Tax Notes covers the continuing potential for double taxation after Wynne, the potential affect on equity holders in private equity funds and other passthrough entities, and provides examples to assist in identifying situations in which multiple taxation of partnership income could occur.
By Shirley Sicilian – Washington National Tax
While the strongest tremors rattling the state tax world have originated at the federal level over the past few years, a handful of states are looking at making fairly dramatic changes of their own. Over the last three years, at least five states have considered adding a new gross receipts tax: Nevada (2015), Oregon (2016 and 2017), Louisiana (2017), Oklahoma (2017), and West Virginia (2017). An article in the August issue of the Journal of Multistate Taxation and Incentives discusses possible reasons for the interest in gross receipts tax and why we may see more states seriously considering gross receipts tax legislation in future sessions.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Canned software conundrum: Inconsistent state corporate income tax treatment
Illinois could be first state to specifically target carried interest
By Lauren Biyiasas – State and Local Tax and Caralee Hall – Washington National Tax
Taxpayers and state tax practitioners alike often scratch their heads at why there is so much established guidance on the treatment of prewritten (“canned” or noncustom) software for sales and use tax purposes but so little when it comes to state corporate income tax treatment. This June 1 article in the AICPA’s The Tax Adviser discusses the interplay between Public Law 86-272 (15 U.S.C. §§381–384) and the federal treatment of computer software, as well as two states’ approaches to the corporate income tax treatment of canned software, and how—despite similar characterization of software for sales tax purposes—these states arrive at disparate corporate income tax jurisdictional and apportionment results.
By Dan De Jong – Washington National Tax
A column in the June 21 issue of Bloomberg BNA’s Daily State Tax Report discusses recent legislation in Illinois that would tax carried interest at the partnership level.
Potential effect of tax reform on state and local tax regimesThe prospects, details, and potential effects of federal tax reform have consumed the attention of tax professionals since the 2016 election. Less attention, however, has focused on profound effects that significant federal tax reform could have on state tax structures and state governments and, thus, on the state tax obligations of corporations and other businesses.
Watch a replay of a June 1 webcast during which KPMG state tax professionals explore the implications of various reform proposals for state tax structures and state governments, as well as the potential effect of federal reform on economic development across the United States.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Global tax disputes
The European mini one-stop shop: A model for future indirect tax compliance?The European Union started a small revolution in 2015 by introducing the first-of-its-kind, region-wide value-added tax (VAT) registration mechanism, the mini one-stop (Read more)
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Global Indirect Tax Outlook – 2017 and beyond
The European mini one-stop shop: A model for future indirect tax compliance?
By Global Indirect Tax Services
Businesses well-versed in dealing with indirect taxes such as value-added tax (VAT) and goods and services tax (GST) face new challenges as economic, political, and technological forces drive rapid changes in indirect tax regimes around the world.
This April 2017 article looks ahead to the remainder of 2017 and beyond, when the pace of global indirect tax reform is expected to continue in light of impending and prospective VAT/GST reforms, the potential effect of customs and trade developments, and the influence of technology on both indirect tax policy and compliance.
By Juan Vazquez, Harley Duncan, and Philippe Stephanny – Washington National Tax
The European Union started a small revolution in 2015 by introducing the first-of-its-kind, region-wide value-added tax (VAT) registration mechanism, the mini one-stop shop (MOSS). MOSS was created to ease compliance with changes in the sourcing rules for business-to-consumer sales of telecommunications, broadcasting, and electronically supplied services, which are now taxable where the consumer is located, regardless of the vendor’s place of establishment. MOSS replaced a previous simplified registration mechanism applicable only to non-EU vendors of e-services, which was almost never used in practice. After two years of experience with MOSS, the European Commission has laid out a proposal to modernize VAT for cross-border e-commerce. Before addressing the proposed changes, this June 1 article in the AICPA’s The Tax Adviser covers how MOSS operates and explains why certain provisions need to be amended.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Global Tax Dispute Resolution & Controversy Network Webcast – Audit, investigation and inquiry – Managing broad information requestsIn today’s world of government shortfalls and deficits, corporate taxpayers in a number of jurisdictions are experiencing significantly more requests for information from local tax authorities. As a result, organizations need to think differently to mitigate any potential information-gathering issues and the potential difficulties that may arise during an audit with their local tax authority.
Watch a July 26 webcast replay for the latest developments on how best to prepare for broad information requests from global tax authorities.
Planning for a territorial tax systemOn April 6, 2017, KPMG hosted a webcast on a critical aspect of U.S. tax reform — the proposed migration from a worldwide system of taxation to a territorial tax system.
KPMG professionals examined the potential impact of this conversion, the complex planning challenges and opportunities presented, and what multinational companies may want to consider now as they plan for potential tax reform.
EU tax dispute resolution mechanism directive proposedAt a May 23 meeting, the Economic and Financial Affairs Council of the European Union approved a council directive on double taxation dispute resolution mechanisms in the EU. The meeting also included a policy debate on the European Commission’s proposals for a council directive on a common corporate tax base. Read KPMG’s summary of May 23rd meeting.
Border-adjusted tax from international trade perspectiveBy Luis Abad – Washington National Tax
A key component of the Republican blueprint for tax reform calls for border adjustments exempting exports and taxing imports. The proposed system of taxing imports purports not to be “through the addition of a new tax but within the context of the transformed business tax system.”
If the border-adjusted tax (BAT), a feature of the blueprint’s destination-based cash flow tax is indeed not a new tax, then the international trade implications must be weighed. Specifically, the prospects of successfully implementing the blueprint must be assessed in light of the World Trade Organization’s long-standing provisions prohibiting the exemption of “direct taxes” related to exports but allowing border adjustments upon exports with respect to consumption-based taxes (i.e., “indirect taxes”). In addition, the effect of the indirect tax and trade commitments made by the United States under existing free trade agreements on the BAT’s design must be considered, as should the BAT’s potential impact on other laws related to the assessment of duties and taxes upon imports or the customs laws.
This article in the May 10 issue of Bloomberg BNA’s Daily Tax Report discusses the BAT proposal for the importation of physical goods through an international trade and U.S. customs lens.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
APAs in the U.S. and Canada: Guidance and practice since 1990By Sean Foley, Francois Vincent, Steven Wrappe, Cameron Taheri, David Francescucci, and Anne Curry – Global Transfer Pricing Services
Advance pricing agreements (APAs) are essentially extensions of the mutual agreement procedure (MAP) under treaties. From the start, bilateral APAs involved the implication of competent authorities acting via the MAP. Unlike normal MAP cases, however, APAs are generally not based on actual double taxation but, rather, on the potential for future double taxation. Thus, some countries have argued that they are with the purview of competent authorities under the MAP.
In a May 4 article in Bloomberg BNA’s Transfer Pricing Report, the authors examine the history of APAs in the United States and Canada from the first test case, involving Apple, in 1990 to the present.
How Trek Leather and the False Claims Act may re-shape the importing environmentBy Amie J. Ahanchian and Elizabeth S. Shingler – Tax, Trade & Customs
Companies engaging in U.S. import and export activity should understand that, to manage risk effectively, trade activity carries with it certain compliance responsibilities. This article in the May 2017 issue of Bloomberg BNA’s Tax Planning International Indirect Taxes considers how the decision in United States v. Trek Leather, coupled with recent actions under the False Claims Act, potentially expands liability for individuals and companies involved in the importation process into the United States.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
OECD & BEPS
Ten questions on OECD’s DEMPE concept and its role in valuing intangiblesThe Organisation for Economic Co-operation and Development first referred to the ‘‘development, enhancement, (Read more)
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
BEPS ripple effect: Multinationals reevaluate ways to do business
BEPS Action 13: Latest country implementation update
By Brett Weaver and Jerry Thompson – International Tax
The global initiative to address base erosion and profit shifting (BEPS) focuses on taxes. Tax authorities around the world are trying to prevent multinational entities from structuring their affairs in a manner that results in “stateless income” subject to very little tax.
The reforms proposed to address BEPS, however, affect far more than a company’s tax situation. They are causing multinationals to reevaluate their entire operating model, including where they are going to operate, whom they will do business with, and how they will run the business.
A May KPMG report provides insights to help businesses:
— Understand the potential ripple effects of BEPS reforms beyond tax issues
— Take steps to respond to and cope with the new BEPS-driven global landscape.
Updated weekly, this summary report in table format offers a snapshot of implementation of country-by-country reporting and master file/local file documentation requirements around the world.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Initial impressions of OECD’s hard-to-value intangibles discussion draft The Organisation for Economic Co-operation and Development released a discussion draft in May for implementation guidance on hard-to-value intangibles under the base erosion and profit shifting (BEPS) Action 8.
This May 31 KPMG report provides an overview of the discussion draft and makes preliminary observations.
Ten questions on OECD’s DEMPE concept and its role in valuing intangibles By Prita Subramanian – Washington National Tax
The Organisation for Economic Co-operation and Development first referred to the ‘‘development, enhancement, maintenance, protection, and exploitation’’ of intangibles in guidance developed under Action 8 of its action plan on base erosion and profit shifting. The acronym DEMPE has become part of the global transfer pricing lexicon. An article in the June 1 issue of Bloomberg BNA’s Transfer Pricing Report explores the concept of DEMPE and its context in the overall transfer pricing analysis through 10 questions.
BEPS Action 10 discussion draft revised guidance on profit splits
The Organisation for Economic Co-operation and Development released in June a discussion draft on the revised guidance on profit splits related to the base erosion and profit shifting (BEPS) Action 10. This June KPMG report provides an overview of the new discussion draft that has been significantly revised from the 2016 discussion draft.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
WashingtonNational Tax,
Practice, Procedureand Administration
EmploymentTax/Independent
ContractorReviewServices
KPMG Tax Dispute Resolution (TDR) Network
TaxControversy
Services
State and LocalControversy
Services
ComplexInterestServices
InternationalTax Controversy
Services
TransferPricing Dispute
ResolutionServices
• Research Credit and Section 199 Defense Assistance• Valuation Defense Assistance• Global Tax Controversy and Dispute Resolution• Global Mobility Services• Post Transaction Integration Assistance• Trade & Customs• Tax Transparency Services
E-Data Analysisand DocumentManagement
Services
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 697982
Contacts
KPMG LLP’s Tax Dispute Resolution ServicesKPMG’s Tax Dispute Resolution Services network helps companies prevent, prepare for, and respond to challenges by the varying tax authorities. The network is a national team of tax professionals, who assist companies in identifying, managing, and mitigating potential tax risks and exposures.
Tax Dispute Resolution – National LeaderSharon D. Katz-Pearlman [email protected]
Business Unit Leaders EastMid-South and Chesapeake Michael P. Dolan [email protected]
New England Thomas D. Greenway [email protected]
New York Metro/Short Hills Sharon D. Katz-Pearlman [email protected]
Pennsylvania Justin Donatello [email protected]
Short Hills Miri Forster [email protected]
Business Unit Leaders WestGateway West/North Heartland Jeffrey S. Luechtefeld [email protected]
Chicago Metro/Mid-America Kathleen C. Schlenzig [email protected]
Dallas/Denver Victoria J. Sherlock [email protected]
Pacific Northwest Erin M. Collins [email protected]
David R. Unger [email protected]
Bay Area Paul Webb [email protected]
ContributorsLuis Abad [email protected]
James [email protected]
Sean [email protected]
Lauren [email protected]
Taylor [email protected]
Dan De [email protected]
Harley [email protected]
Sean [email protected]
David [email protected]
Deborah [email protected]
Seth [email protected]
Caralee [email protected]
Alec [email protected]
Shirley [email protected]
Sarah [email protected]
Philippe [email protected]
Prita [email protected]
Cameron [email protected]
Jerry [email protected]
François [email protected]
Brett [email protected]
Steven [email protected]