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This e-newsletter gives you an overview of international corporate tax developments being reported globally by KPMG firms in the Asia Pacific region between 1 May and 31 May 2013.

Asia Pacific Hong Kong Japan Turkey
Australia India Korea Vietnam
Brunei Indonesia New Zealand  
China Israel Singapore  

For a full summary of global tax developments, visit kpmg.com/TaxNewsFlash.

To contact the Global International Corporate Tax Group email go-fmglobalict@kpmg.com.

  Tax area concerned Relevant date/case reference Description of measures and publication link
(Considerations in italic where necessary)
Asia Pacific
Other Transfer Pricing May 2013 Governments and tax authorities in some Asia Pacific countries have been more aggressive in focusing on transfer pricing activities and tax decisions by corporations. A brief report from KPMG’s Global Transfer Pricing Services practice in Australia looks at the status of transfer pricing changes and provides updates on recent transfer pricing developments in Australia, Japan, India, Korea, and Thailand.
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Australia
Tax legislation adopted and regulatory update Incentives 30 June 2013 Under the Australian government's research and development (R&D) tax incentive program, taxpayers conducting R&D activities overseas as part of their broader Australian R&D activities are potentially eligible to claim the R&D tax incentive in respect of their associated overseas R&D expenditures. A prerequisite to claiming such expenditures is a requirement to apply for an advanced finding within the first income year in which the overseas R&D activities are conducted. For companies with a June year-end, the “overseas finding” application must be filed with the Innovation Australia Board by 30 June 2013.
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Proposed legislation Budget May 2013 In advance of the delivery of Australia’s federal budget (on 14 May 2013), observers are considering what may be certain short-term and long-term objectives of the budget. In the short term, the budget will need to confront a significant decline in revenue projections that have come to the fore in the last six months and caused the government to abandon its promise of a surplus. The budget will also need to present a path for long-term fiscal sustainability, but in the context of the government’s desire to increase funding on education and disability care, the continued growth in health expenditure, and an ageing population. Furthermore, many believe significant long-term revenue challenges are emerging.
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May 2013 Australia’s 2013 Budget, delivered on 14 May 2013, includes plans for a number of revenue / tax expenditure changes intended to serve as a source of funding for various social reform programs.
The key budget themes are:
government expenditure priorities of education and disability reforms;
business taxation changes to protect and broaden the corporate tax base including changes to thin capitalization regime, interest deductibility rules, mining exploration expenditure measure, and tax consolidation rules;
other tax changes to strengthen the capital gains tax regime for non-residents, and defer future individual (personal) tax cuts and curtail certain welfare benefits;
retirement income changes to supplement last year’s paring back of superannuation concessions for high income earners by levying tax on earnings in excess of $100,000 on superannuation assets held during the pension phase.
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Brunei
Treaties Information exchange agreement May 2013 Representatives of the governments of Brunei and Canada signed a tax information exchange agreement. The agreement between Brunei and Canada provides for the mutual exchange of tax information by the tax authorities of the signatory countries. The agreement is based on the OECD standard on exchange of tax information.
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China
Tax legislation adopted and regulatory update Corporate income tax 19 April 2013 China’s State Administration of Taxation issued guidance concerning when the cross-border seconded of expatriate workers into China by foreign enterprises may give rise to a taxable presence in China.
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Treaties Withholding tax April 2013 China’s State Administration of Taxation issued guidance concerning how the tax authorities are to determine the beneficial ownership of dividends under the China-Hong Kong income tax agreement, for purposes of withholding tax relief.
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Hong Kong
Treaties DTT March 2013 Representatives of the governments of Hong Kong and Guernsey signed an income tax treaty. Under the treaty, dividends and interest would be taxable only in the jurisdiction where the recipient is resident. The withholding tax on royalties would be limited to 4% of the gross amount of the royalties.
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December 2012 An income tax treaty between Hong Kong and Malaysia entered into force in late December 2012, and the treaty provisions are effective in Hong Kong for years of assessment beginning on or after 1 April 2013.
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May 2013 Representatives of the governments of Hong Kong and Qatar signed an income tax treaty. The treaty will enter into force once both jurisdictions have completed their respective ratification procedures. In Hong Kong, the income tax treaty provisions will be effective for any year of assessment beginning on or after 1 April in the calendar year following the year in which the treaty enters into force.
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India
Administrative and case law Withholding tax CMS (India) Operations & Maintenance Co. Pvt. Ltd. The Chennai Bench of the Income-tax Appellate Tribunal held that tax is not required to be withheld (i.e., “deducted”) on reimbursements of salary paid to employees of a foreign company when seconded to work for the taxpayer company in India. The seconded employees were not employees of the taxpayer; hence, the taxpayer was not required to withhold tax at source under section 192 of the Income-tax Act, 1961 on such payments.
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Transfer pricing Cheil Communications India Private Ltd. The Delhi High Court held that reassessment proceedings merely to determine the arm’s length price of international transactions reported on Form 3CEB were invalid and that no additional assessments relating to a transfer pricing issue were to be made.
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Rabo India Finance Ltd. The Bombay High Court upheld the reopening of assessment based on “tangible material” obtained during assessment proceedings of a subsequent year. The taxpayer was a wholly owned subsidiary of a Scottish bank that allegedly paid business support changes, guarantee fees, and other service changes to its holding company. The Bombay High Court allowed the reopening of the prior assessment year so that the tax authorities (including the Transfer Pricing Officer) could examine the facts concerning payment of the support fees to the related entity because this issue had not been considered in the original assessment proceedings.
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Kodak India Pvt. Ltd. v. ACT (ITA No. 7349/Mum/2012) The Mumbai Bench of the Income-tax Appellate Tribunal held that for a transaction to be subject to India’s transfer pricing rules as a “deemed international transaction,” the transaction must in fact be an international transaction—that is, one or both of the parties to the transaction must be non-residents. The tribunal also held that the Transfer Pricing Officer cannot apply any method other than a prescribed method in the statute for purposes of determining the arm’s length price of the transaction. In a second issue, the tribunal rejected a proposed transfer pricing adjustment because the adjustment was within the 5% safe harbor.
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Corporate income tax Dhoomketu Builders & Development Private Ltd. The Delhi High Court affirmed a decision of the Delhi Bench of Income-tax Appellate Tribunal that there is a distinction between the “setting up” of a business and the commencement of that business in a case concerning real estate developers.
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Crescent Export Syndicates and Sikandarkhan N Tunvar. The Calcutta High Court and the Gujarat High Court held in two separate cases that section 40(a)(ia) of the Income-tax Act (which concerns whether a taxpayer’s claim for amounts not withheld may be claimed as expenses) applies not only with respect to the non-withholding on amounts that were payable to residents as of 31 March, but also to amounts that were payable to the residents at any time during the year.
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Ashoka Infraways Pvt. Ltd. The Pune Bench of the Income-tax Appellate Tribunal held that a “right to collect toll” is an intangible asset. Hence, the cost incurred for the development and construction of the infrastructure facility on a “build, operate, and transfer” basis and that is capitalized under the heading “license to collect toll” is subject to depreciation / amortization under section 32 of the Income-tax Act, 1961.
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Windermere Properties Pvt. Ltd. The Mumbai Bench of Income-tax Appellate Tribunal held that prepayment charge amounts paid for early closure of a loan are allowed as a deduction under the Income-tax Act, 1961.
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Clifford Chance The Special Bench of the Mumbai Income-tax Appellate Tribunal held that services provided by the taxpayer outside India were not taxable in India, in applying provisions under the India-United Kingdom income tax treaty.
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Carnival Investments Ltd. The Kolkata Bench of the Income-tax Appellate Tribunal held that a payment received by the taxpayer to exercise voting rights in a subsidiary company, for not allowing subsidiary to compete with joint venture partner for certain products, is a windfall receipt and is not a taxable income under the Income-tax Act, 1961.
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Convergys Customer Management Group Inc. The Delhi Bench of the Income-tax Appellate Tribunal—in a case concerning several issues arising out of the taxability of the income of a foreign company engaged in providing customer management services (including advanced information systems, human resource management, and industry experience)—found a permanent establishment in India and attributed 15% of profits to tax in India.
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UM Cables Ltd. The Bombay High Court held that a claim for a refund of excise tax cannot be denied merely because the taxpayer failed to produce the original and duplicate copies of the ARE-1 forms, as long as the taxpayer otherwise satisfied that the conditions for a refund.
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Sh. Om Parkash Gupta The Chandigarh Bench of the Income-tax Appellate Tribunal held that the amount received by the taxpayer under a leave travel concession is not exempt from income tax because the taxpayer travelled to a foreign destination.
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Tax legislation adopted and regulatory update Pensions May 2013 Changes made to India’s Employees’ Provident Funds Scheme, 1952 (EPFS) and Employees’ Pension Scheme, 1995 (EPS) in 2008 added international workers within the Indian social security regime. Recently, India’s Employees’ Provident Funds Organisation issued a circular directing its field officers to determine full compliance in respect of all international workers.
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Transfer pricing May 2013 India's tax authorities released guidance that includes frequently asked questions (FAQs) concerning India’s advance pricing agreement (APA) program. India’s APA Guidance Booklet with FAQs addresses the procedures to be followed by taxpayers and the tax authorities before a taxpayer can enter into an APA.
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Administrative requirements May 2013 India’s Central Board of Direct Tax expanded the scope and procedural and administrative requirements for corporate income tax returns and individual tax returns required to be filed electronically, in issuing CBDT Notification No. 34/2013[1].
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Corporate income tax 31 December 2013 The Securities Exchange Board of India issued a circular clarifying the revised ESOP guidelines. (i.e., January 2013 amendments) that prohibit a company from buying/selling its own securities in the secondary market for ESOP purposes. A deadline of 30 June 2013 has been extended to 31 December 2013.
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Local body tax May 2013 “Local body tax” (LBT) is imposed by various municipal corporations in Maharashtra. LBT is a tax on entry of goods within municipal limits. LBT has been introduced in place of Octroi.
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Proposed legislation Budget May 2013 India’s Finance Minister, in the Union Budget 2013, proposed a Voluntary Compliance Encouragement Scheme with respect to unremitted services tax, by waiving interest and penalties and offering immunity for the non-payment of tax during a specified period. India’s government in May 2013 issued guidance setting forth the rules under this voluntary compliance plan.
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Budget 30 April 2013 Amendments to the Finance Bill, 2013 (as originally introduced 28 February 2013) were tabled on 30 April 2013 in the Lok Sabha (the lower house of India’s Parliament) and include measures:
to clarify information that must be provided in the submission of a tax residency certificate;
to encourage foreign investment by providing that, from 1 June 2013 to 31 May 2015, interest payments made to foreign institutional investors and qualified foreign investors from investments in government securities and government corporate bonds would be subject to a lower tax rate of 5% (instead of 20%) and would also subject to withholding;
to provide that trading in commodity derivates would not be treated as speculative, when conducted via a recognized association;
to provide that foreign companies would be exempt from tax on income from the sale of any goods or services, in addition to income from the sale of crude oil, if approved via a notice from the central government;
these proposed amendments are subject to approval by Parliament and then only become law if the bill receives the assent of the president.
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KPMG India prepared, in this respect, a report in which the amendments to the Finance Bill, 2013, are clarified.
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Indonesia
Other Tax audit revenue 2013 Indonesia’s national tax audit revenue target for 2013 reflects a significant increase over the revenue target that was set for 2012. The 2013 revenue target has been allocated to all nationwide tax offices, along with the specific business lines to be audited.
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Israel
Tax legislation adopted and regulatory update National tax revenues 2 June 2013 Effective 2 June, an order established that the rate of VAT will increase to 18%. The new VAT rate will apply with respect to trade and import transactions as per the billing date of the transaction. The change does not affect the rate of VAT applicable for financial institutions, which is 17%.
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Japan
Tax legislation adopted and regulatory update Customs 1 April 2013 Changes to Japan’s customs law provide that non-resident importers are not able to use the transaction value method as the customs value for their imports. The customs law changes also reflect an increased focus on documentation to support the customs value calculation and declaration. The effective date for these changes is 1 April 2013.
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Korea
Administrative and case law Corporate income tax May 2013 Korea’s high court issued a judgment finding that a foreign fund investment realizing a loss of principal may nevertheless be subject to tax for its foreign exchange profit. The decision concludes that a taxpayer receiving an amount less than the principal investment on the sale of the fund only means that there has been a loss on investment, but that it could not be concluded that there had been no gain on the invested trust which, under Korea’s individual income tax law, would be classified as dividend income. The high court further added that if the loss from the stock price fluctuation (that is not subject to tax) exceeds the foreign exchange profit (that is subject to tax), then the dividend income may be taxed despite the loss on the investment.
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New Zealand
Tax legislation adopted and regulatory update Goods and service tax May 2013 New Zealand’s more than 20,000 “body corporates” could be affected by Inland Revenue’s position as to whether a “body corporate” is able to register for goods and service tax (GST). Inland Revenue’s preliminary view, announced in an Issues Paper, is that a body corporate makes taxable supplies (services) to its members, and the members provide consideration for those supplies (body corporate fees).
Accordingly, a body corporate carries on a taxable activity and must register for GST if its supplies exceed $60,000* per annum. Body corporates that make supplies of less than $60,000 may voluntarily register for GST. However, the Issues Paper notes that this position is not without doubt, and provides some practical guidance for taxpayers in the interim until the matter is finalized (i.e. no body corporate will be required to GST register, but can do so voluntarily).
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Proposed legislation Budget May 2013 New Zealand’s Budget 2013 was presented 16 May 2013. From a tax perspective, there are few major announcements.
The key tax changes for businesses are refunds for R&D tax losses for small start-ups and clarification of “black hole” deductibility, along with confirmation that the thin capitalisation rules will change.
Also, businesses that are “R&D heavy” (as well as those with operations in the tourism sector or in residential or commercial construction in Auckland or Christchurch) may find some “good news” in the budgetary proposals.
For other businesses, a reduction in ‘Accident Compensation Corporation or worker compensation fund’ levies is really the only material change.
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The New Zealand government introduced a tax bill that would provide new rules concerning the tax treatment of New Zealanders’ foreign superannuation (pension) interests. The bill would revise how foreign superannuation interests (i.e., amounts in foreign superannuation funds built up when the individual is working overseas or prior to settling in New Zealand) are taxed.
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Singapore
Administrative and case law Corporate income tax Comptroller of Income Tax v. BBO, (2013) MSTC ¶70-202. Singapore’s High Court affirmed a finding of the Income Tax Board of Review that gain arising from the taxpayer’s disposal of “core shares” in three companies was not subject to corporate income tax because the gain was capital in nature.
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Property tax Chief Assessor v. Glengary Pte Ltd., (2013) MSTC ¶70-021 Singapore’s Court of Appeal reversed a decision of the High Court, and held that that the annual value of vacant land for tax assessment purposes is to be assessed at current market value based on the land’s full development potential, and that pre-sold unit need not be taken into consideration.
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Turkey
Proposed legislation Petroleum tax May 2013 A draft law accepted by Turkey’s commission with authority over energy and natural resources is intended to allow for expedient, continuous, and effective exploration, development, and production of Turkey’s petroleum resources. The procedures proposed would regulate petroleum exploration and production activities in Turkey, by updating the now 60-year old law. The measures are currently in draft form, and therefore are subject to change during the legislative process.
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Vietnam
Tax legislation adopted and regulatory update Corporate income tax /  VAT May 2013 Recent tax guidance items in Vietnam include or concern:
new regulations on the management, usage, and depreciation of fixed assets;
corporate income tax incentives for scientific and technological enterprises;
tax declaration and payment requirements for “other income” from a production sharing contract;
VAT for exporting services.
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