6 September 2013
Americas Tax Center Weekly Roundup
Latest news — Americas
Mexican Tax Authority increases focus on auditing supply chain structures
Recent developments within the Mexican Tax Administration Services (SAT) demonstrate an increased focus on auditing supply chain restructurings. This increased focus appears to be a consequence of personnel changes within Mexico’s Treasury Department, including the SAT. Specifically, the SAT has announced an audit program initiative that is intended to challenge companies that have been engaged in what the SAT considers "aggressive tax planning," whereby profit shifting has been identified. In addition, SAT has notified taxpayers about its tax audit strategy focusing on supply chain structures. An EY Global Tax Alert provides details.
Argentina proposes significant changes to taxation of dividends and capital gains
On 27 August 2013, the Argentine Executive Power submitted a tax reform bill to Congress proposing significant changes to the income tax law regarding the taxation of dividends and capital gains. The described changes to the capital gains tax treatment and the new dividend withholding tax are aimed at partially offsetting the decrease in tax revenues resulting from the reduction of individual income taxes. The changes would apply to taxable events occurring after the entry into force of the law. The bill needs to be approved by both Chambers of Congress, then promulgated by the President and finally published in the Official Gazette. A Tax Alert describes the main characteristics of the bill.
Mexican Supreme Court rules certain financial institutions must pay profit sharing on all profits
The Mexican Supreme Court recently ruled, through a binding judicial decision, that a financial institution that is not engaged solely in lending activities must pay profit sharing (PTU by its Spanish acronym) on all of its profits rather than a limited distribution of one month’s salary. The decision resolves a split between circuit courts on the interpretation of the statutory limitation on the mandatory PTU distributions for certain types of businesses. As a binding decision, the ruling should be followed by lower courts in the future. A Tax Alert has details.
US disallows interest deduction for payment funded by borrowing from foreign parent
The Office of Chief Counsel of the US Internal Revenue Service has concluded that certain interest expense deductions relating to payments made by a US corporation to its foreign parent should be disallowed under Internal Revenue Code Section 267(a)(3), because the US corporation borrowed funds from its foreign parent to make the requisite interest payments. The conclusion may have significance for foreign-owned US corporations, as well other US corporations and controlled foreign corporations making interest payments to foreign affiliates. A Tax Alert has details.
OECD publishes 2012 mutual agreement procedure statistics
The OECD has published its annual statistics on the mutual agreement procedure (MAP) caseloads of its member countries and partner economies — including Argentina, Canada, Chile, Mexico and the US. The statistics give an indication of the timeliness and processing of MAP cases in these countries. This is the seventh year for which the OECD has published such information. Access the MAP statistics here.
Canada: the new emerging market — EY retail publication
The first edition of a new EY publication, Americas retail quarterly report, explores the state of US retailer expansion into Canada. The publication proposes that the mature market of Canada may actually be seen as a new emerging market for foreign retailers because of the significant growth opportunities. It builds on insights from EY professionals, as well as a recent Canadian retail survey.
This week's tax treaty news in the Americas
- Aruba, Curaçao, St. Maarten, BES Islands and OECD: protocol to multilateral Convention on Mutual Administrative Assistance in Tax Matters enters into force for Aruba, Curaçao, St. Maarten, and the BES Islands (Bonaire, St. Eustatius and Saba)
- Belize and OECD: multilateral Convention on Mutual Administrative Assistance in Tax Matters enters into force for Belize
- Ecuador and Qatar: second round of negotiations on tax treaty
- Guatemala and Costa Rica, El Salvador, Honduras, Mexico, Nicaragua: multilateral free trade agreement enters into force for Guatemala
- Panama and European Free Trade Association (EFTA): Panama approves free trade agreement with EFTA states (Iceland, Liechtenstein, Norway and Switzerland)
- Uruguay and Luxembourg: tax treaty initialed
- US and Switzerland: joint statement signed to end tax dispute between Swiss banks and US
This week’s Global Tax Alerts
- Dutch government proposes partitioning legislation for participation exemption (5 September 2013)
- EU Commission approves enhancements to Madeira International Business Center Tax Regime (3 September 2013)
- Mexican Supreme Court rules certain financial institutions must pay profit sharing on all profits (3 September 2013)
- Korea announces 2013 tax reform proposals (3 September 2013)
- IRS and Treasury issue guidance on federal tax treatment of legally married, same-sex couples (2 September 2013)
- Germany issues draft regulation for the profit attribution to permanent establishments for public discussion (29 August 2013)
- Kenya Revenue Authority invokes force of attraction rule with respect to permanent establishments (29 August 2013)
- US IRS disallows under Section 267(a)(3) interest deduction for payment funded by borrowing from foreign parent (29 August 2013)
- Argentine tax reform submitted to Congress - Significant changes to taxation of dividends and capital gains (29 August 2013)
- French Government updates blacklist of non cooperative countries (29 August 2013)
- International Tax Talk quarterly series to discuss interest deductibility and related issues (10 September)
The deductibility of interest on borrowings has recently come under greater scrutiny in many countries and is seen as a cornerstone issue in the current base erosion and profit shifting (BEPS) debate. In this quarter’s International Tax Talk webcast, our Global Tax Desk team focuses on thin capitalization and the related debt/equity characterization issues that may arise under select foreign tax regimes in relation to related and non-related-party borrowings. The countries/regions to be discussed include: Germany, Benelux, India and China. Register here.
- Managing risk in the US and Canada – EY’s 2013 global transfer pricing survey (12 September)
EY’s 2013 global transfer pricing survey reveals companies are placing a higher priority on managing risk associated with transfer pricing in reaction to heightened scrutiny by tax authorities. In an upcoming webcast, an experienced panel of former government officials will discuss the survey results with a focus on the US and Canadian implications of: (1) the increased taxpayer focus on risk management, (2) how taxpayers implement and document their transfer pricing policies, (3) key trends in controversy concerns and (4) taxpayers’ experiences in resolving transfer pricing disputes. Register here.
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