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This e-newsletter gives you an overview of international corporate tax developments being reported globally by KPMG Asia Pacific region between 1 June and 30 June 2013.

Asia Pacific Cambodia Japan Thailand
Australia China Kazakhstan Vietnam
Bahrain India New Zealand
Burma/Myanmar Indonesia Pakistan

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
KPMG publications Taxation of private equity June 2013 A KPMG report provides summaries of developments in the Asia Pacific region with respect to the taxation of private equity.
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Australia
Tax legislation adopted and regulatory update Stamp duty/ mining activities June 2013 The Australian government announced measures to include the value of mining information in the principal asset test for capital gains tax purposes. On the stamp duty front, New South Wales introduced legislation that would impose stamp duty on mining information by requiring that the value of such information be added to the value of mining tenements (i.e., land).
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Transfer pricing June 2013 On releasing an issues paper on multinational profit shifting in May 2013, the Australian Assistant Treasurer expressed a view against the ability for multinational companies to use aggressive tax practices. However, notwithstanding this increased scrutiny, businesses remain under continuous pressure to restructure their value chain in order to maximize shareholder value and remain competitive.
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Insurance duties 2013-2014 Recent 2013-14 budgets in the Australian states of Australian Capital Territory (ACT) and Queensland highlight different approaches and revenue priorities. For example, while the ACT is committed to reducing the cost of insurance, Queensland is seeking to raise additional revenue by increasing its general insurance levy rates.
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Dispute resolution June 2013 An Australian Taxation Office (ATO) “position paper” on a tax matter in dispute is not formally part of the self-assessment system, but it is vital to it.
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GST June 2013 A key focus of the Australian Taxation Office (ATO) has been tax risk concerning a taxpayer’s “integrity of business systems” (IBS) with respect to goods and services tax. To identify taxpayers underpaying GST, the ATO continuously reviews data from a variety of sources that are both publicly available and also contained in income tax returns and taxpayer statements.
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R&D 2013 The new R&D tax incentive in Australia presents both challenges and opportunities for the mining industry. Challenges for the mining industry with respect the new R&D incentives concern:
eligibility criteria and dominant purpose test for supporting activities
new feedstock adjustments.
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Corporate income tax 2013 In Australia, the taxation of foreign exchange gains and losses in relation to tangible assets is governed by Division 775, which has complexities that present advantages and disadvantages that taxpayers may want to consider.
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Dividend taxation 30 June 2013 Pay-as-you-go (PAYG) installment quantum and timing can prevent a potential franking dividends deficit at year-end and a 30 percent reduction in offset penalty on the payment of franking deficits tax. Accordingly, companies may want to consider an upward variation of the quantum and timing of PAYG payments for the third quarter, or for the fourth quarter with a payment on or before 30 June.
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Superannuation funds June 2013 Australian superannuation funds are taxed savings vehicles, and their members' benefits are ultimately measured in after-tax terms. Fund investment decisions that do not consider certain attributes risk less-than-optimal returns for fund members.
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KPMG publications Dispute resolution June 2013 Australia’s tax dispute resolution systems are viewed as being among the world’s most advanced, but these systems are being put to the test as a confluence of fragile economic conditions, flagging tax revenues, and urgent revenue needs propels tax dispute levels to record heights.
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GST June 2013 Some contracts still fail to include adequate goods and services tax (GST) clauses that address the effect of GST—even though it has been almost 13 years since the GST regime was introduced in Australia.
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Bahrain
Treaties Information exchange agreement 4 June 2013 Representatives of the governments of Bahrain and Canada on 4 June 2013 signed a tax information exchange agreement. The agreement is based on the OECD standard on the exchange of information. The Bahrain-Canada tax information exchange agreement will enter into force on the date when the later of the two countries notifies the other that the ratification procedures for that country have been completed.
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Burma/Myanmar
KPMG publications Infrastructure sectors 2013 Myanmar is a country in the midst of a historic transformation, with the current administration indicating a commitment to reintegrating Myanmar into the global business community.
KPMG in Myanmar has prepared a brief overview of the infrastructure sectors in the country including listings of the relevant government ministries, agencies, and a summary of recent activity.
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Cambodia
Tax legislation adopted and regulatory update Investment incentives 2013 In Cambodia, the government can revoke the “qualified investment project” (QIP) status of companies that have not settled their tax liabilities. On revocation of QIP status, companies forfeit any incentives granted under the investment law.
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China
Tax legislation adopted and regulatory update Foreign debt registration rules and foreign currency settlements 28 April 2013 China’s State Administration of Foreign Exchange issued guidance (Circular 19 (28 April 2013) intended to simplify the foreign debt registration procedures. The new registration rules remove certain previous approval requirements. With the new guidance, except for registering foreign debt contracts, actions such as opening foreign debt accounts and foreign currency settlements and repayments can now be handled directly by designated foreign exchange banks.
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Taxation of non-resident enterprises 2013 Foreign enterprises with secondment arrangements in China need to be aware of the Chinese tax regime for taxing non-residents with a taxable presence in China on an assessment basis.
A recent tax circular provides guidance that may clarify and assist foreign enterprises manage their Chinese taxable presence exposures from secondment arrangements.
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Incentives 31 December 2018 Under guidance issued by China’s Office of the State Council, tax incentives are extended for the outsourcing service sector until 31 December 2018. This opportunity provides existing advanced technology service enterprises an opportunity to assess whether they continue to qualify for the tax incentives and to act accordingly.
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VAT 1 August 2013 China’s Ministry of Finance and State Administration of Taxation jointly issued a circular (Caishui [2013] 37 (24 May 2013) providing guidance for implementing the nationwide expansion of China’s VAT pilot program on 1 August 2013.
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Proposed legislation Non-resident individuals 1 July 2013 The legislative affairs office of China’s State Council of the People’s Republic of China posted on its website an “exposure draft” for amendments to the rules for the entry and exit of foreigners in China.
The exposure draft sets out:
new visa types and requirements
a detailed definition of illegal employment
changes to the residence permit application process
It is possible that the changes could be effective 1 July 2013.
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VAT First quarter of 2014 As of June 2013, no formal announcement has been made regarding the VAT rate, or the transition date, for the telecommunications sector to join the VAT reforms. However, it has been widely speculated that the telecommunications sector will be subject to an 11 percent VAT rate when the sector joins the VAT reforms—most likely in the first quarter of 2014.
Recently, there has been speculation that the VAT rate for “value-added” telecommunications may be 6 percent—presumably in recognition of their relatively lower investments in fixed assets.
Ultimately, the decision regarding the applicable VAT rate and the commencement date for joining the VAT pilot program will be made by China’s State Council.
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Treaties Beneficial ownership April 2013 New guidance (Circular 165 (April 2013)) could improve access to reduced withholding tax rates under China’s network of income tax treaties—specifically, the income tax treaty with Hong Kong—when dividends are distributed to non-resident entities.
A “beneficial ownership” requirement is usually included in the dividend article of China’s income tax treaties. However, the term “beneficial ownership” is not uniformly defined, and the Chinese approach has been widely recognized as demanding and difficult to satisfy.
The clarifications contained in the April 2013 circular potentially make Hong Kong a jurisdiction of choice for establishing holding structures for investment into China and may prompt foreign enterprises to consider restructuring their holding arrangements in China.
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DTT 31 May 2013 Representatives of the governments of the Netherlands and China on 31 May 2013 signed a new income tax treaty, which, once ratified, would replace the existing income tax treaty (1987).
The new treaty would update a number of issues, including:
allowing participation dividends to be distributed to a parent company resident in the other country at a reduced rate of 5 percent.
focusing on the prevention of tax avoidance, under anti-abuse provisions and a new provision on the exchange of information between China and the Netherlands.
The treaty will apply to income received on or after 1 January of the year following the year in which all the ratification formalities between China and the Netherlands have been finalized. It is expected that the effective date of the treaty will be 1 January 2015 at the earliest.
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KPMG publications Banking, insurance and trust sectors April-May 2013 A summary of laws and regulations recently issued in China and governing the banking, insurance, securities and futures, mutual fund, private equity, guarantee and trust sectors is provided by the KPMG member firm in China.
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Foreign investments First quarter of 2013 KPMG in China has prepared a report that examines foreign investments in China for the first quarter of 2013.
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India
Tax legislation adopted and regulatory update Transfer pricing 10 June 2013 India’s Central Board of Direct Taxes this week issued guidance (Notification No. 41/2013/F. No. 142/42/2012) that expands the transfer pricing reporting requirements to require the reporting of the aggregate value of certain international transactions and certain “specified domestic transactions”.
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29 June 2013 India’s income tax authorities on 29 June 2013 announced the withdrawal of Circular 2 (concerning  the Profit Split Method (PSM) as the preferred method for computing tax liability), and the modification of Circular 3 relating to the taxation of software development and other R&D centers.
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Special economic zones 11 June 2013 The Reserve Bank of India issued guidance providing that units operating in special economic zones (SEZs), that previously were permitted to realize and repatriate to India the full value of goods or software without any time limit, must now realize and repatriate the full value of goods, software, and services to India within a period of 12 months measured from the date of export.
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Proposed legislation GST June 2013 A committee of India’s state finance ministers issued a discussion paper concerning state-level GST proposals. Comments from the public are requested.
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Administrative and case law Transfer pricing Redington (India) Ltd. v. ACIT (ITA No. 2164/Mds/2010) The Chennai Bench of the Income-tax Appellate Tribunal held that the list price on a manufacture’s website is only an “indicative price” and that the list price alone cannot be used under the Comparable Uncontrolled Price (CUP) method to determine the arm’s length price of manufactured goods in international transactions.
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NDS Services Pay-TV Technology, Pvt. Ltd. v. ACIT [IT(TP)A No. 1089/Bang/2011 (AY 2007-08)] The Bangalore Bench of the Income-tax Appellate—in addressing the comparability aspects of companies selected by the Transfer Pricing Officer with respect to software R&D services and pre-sales and marketing-support services rendered by the taxpayer to its related parties in international transactions—rejected certain companies proposed as comparables based on the comparables’ size and turnover ranges.
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Logica Private Ltd. v. ACIT (IT(TP)A No. 1129/Bang/2011, 28 February 2013) The Bangalore Bench of the Income-tax Appellate addressed the comparability aspects of companies selected by the Transfer Pricing Officer with respect to software development services and market-support services rendered by the taxpayer to its related parties in international transactions.
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NDS Services Pay-TV Technology, Pvt. Ltd. v. ACIT [IT(TP)A No. 1089/Bang/2011 (AY 2007-08)] The Bangalore Bench of the Income-tax Appellate—in addressing the comparability aspects of companies selected by the Transfer Pricing Officer with respect to software research and development (R&D) services and pre-sales and marketing-support services rendered by the taxpayer to its related parties in international transactions—rejected certain companies proposed as comparables based on the comparables’ size and turnover ranges.
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Hinduja Global Solutions Ltd. v. ACIT (ITA No. 254/Mum/2013) The Mumbai Bench of the Income-tax Appellate Tribunal held that, with respect to a loan made by the taxpayer to a foreign related party, the LIBOR (London Interbank Offered Rate) can be considered to be an arm’s length rate of interest. Thus, because the taxpayer charged interest on the related-party loan at a rate greater than LIBOR, no transfer pricing adjustment was warranted.
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Diageo India Private Ltd v. DCIT Mumbai [ITA No. 7932/Mum./2011] The Mumbai Bench of the Income-tax Appellate Tribunal held that the transactional net margin method (TNMM) does not require a similarity of products and that internal TNMM analysis is acceptable for determining the arm’s length price and is given priority over external TNMM proposed by the tax authorities.
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Ford India Private Ltd. v. DCIT (ITA No. 2089/Mds/2011) The Chennai Bench of the Income-tax Appellate Tribunal applied a “bright-line test” with respect to the taxpayer’s “excessive” advertising, marketing, and brand promotion expenditure to uphold the transfer pricing adjustment, but concluded that companies using a foreign brand could not be considered comparable companies for purposes of applying the “bright-line test.”
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Corporate income tax Dr. Reddy’s Laboratories Ltd The Hyderabad Bench of Income Tax Appellate Tribunal held that payments for bio-equivalent studies are not taxable under income tax treaties with United States and/or Canada.
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Treaties/ personal income tax June 2013 Case law has been published with respect to the following subjects:
tax treaty rate not available for interest received on tax refund
status of employer contributions to employee funds that are deposited late, but before the income tax return filling date
tax holidays benefits not denied merely because workers employed in manufacturing process were listed on employments rolls of sister concern.
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Beneficial ownership Dhimant Mehta Computing Solutions Private Ltd The Mumbai Bench of Income-tax Appellate Tribunal in a case concerning depreciation of a motor car held that beneficial ownership, not legal (titular) ownership, is the determinative factor for who can claim the depreciation allowance with respect to a car purchased in the name of the employee.
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Corporate income tax/ treaties June 2013 Case law has been published with respect to the following subjects:
U.S. company profits not taxable income of its Hong Kong subsidiary in India
payments for sponsorship rights not royalty under tax treaty with Singapore.
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Corporate income tax GKN Sinter Metal Pvt. Ltd. The Pune Bench of the Income-tax Appellate Tribunal held that a deduction claimed for debt assignment pursuant to a share-sale agreement is a “colourable device” and therefore not allowed as business expense or as bad debt.
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June 2013 Case law has been published with respect to the following subjects:
subsidies have nexus to profits of industrial undertakings and, thus, are eligible for deduction under section 80-IB or 80-IC
future losses, accounted for as incomplete construction contracts, are allowable business expenses.
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Corporate income tax/assessments June 2013 Case law has been published with respect to the following subjects:
activities of liaison office in India, limited to the purchase of goods for export, are not taxable
assessment not invalid for a delay in service of the assessment order.
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June 2013 Case law has been published with respect to the following subjects:
income from betting on live telecasts of races not royalty income
assessment order allowing a deduction not erroneous despite subsequent legislative changes explaining the statutory provision
sale of shares of company holding only land not taxable as a transfer of the land itself
rental income from commercial property declared as income from house property does not render the property “residential property”.
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Indonesia
Tax legislation adopted and regulatory update VAT/ Tax refund procedures February 2013 In Indonesia, recent tax regulations (issued in February 2013) concern (1) VAT and certain characteristics of taxable goods, and (2) refunds of “undue tax” (tax overpayments).
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Transfer pricing 1 July 2013 Updated guidelines for tax auditors to follow in conducting transfer pricing examinations in Indonesia are effective 1 July 2013. The guidelines provide detailed action steps that tax auditors are to apply in conducting tax audits specific to transfer pricing. The guidelines are to be applied for current and future tax audits.
The new guidelines are largely, but not fully, in line with the Indonesian transfer pricing regulations for taxpayers, the OECD Transfer Pricing Guidelines, and the practical manual on transfer pricing issued by the United Nations.
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Japan
Tax legislation adopted and regulatory update FATCA June 2013 The representatives of the governments of Japan and the United States signed a statement of mutual cooperation and understanding with respect to implementation of the U.S. FATCA legislation.
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Kazakhstan
Tax legislation adopted and regulatory update Financial services and banking sectors Beginning of 2013 Among the changes effective at the beginning of 2013 in Kazakhstan are measures concerning the financial services and banking sectors. The legislative changes clarified the concept of financial services performed outside Kazakhstan and also recognized as Kazakh-source income that of a non-resident company conducting activities without a permanent establishment. The tax law changes relating to taxation of financial institutions and derivatives concern certain tax deductions.
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New Zealand
Proposed legislation Taxation of assets and non-cash benefits June 2013 A tax bill has been reported back by the Finance and Expenditure Committee (FEC) after considering the legislation. This tax bill originally consisted of two parts:
the original September 2012 bill, which contained new deductibility rules for property used both privately and to derive income (i.e., mixed-use assets)
a December 2012 proposal to impose tax on certain employer-provided parking benefits and other non-cash benefits provided as salary trade-offs, as well as to provide new rules for taxing certain lease-related payments.
The reported-back tax bill contains a number of changes to both parts. Read more

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Pakistan
Tax legislation adopted and regulatory update Budget 1 July 2013 Tax provisions in Pakistan’s Finance Bill 2013 generally are effective 1 July 2013.
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Thailand
KPMG publications Conducting business in Thailand 2013 KPMG in Thailand has prepared a brief report providing an overview for foreign entities considering doing business in Thailand, of the financial, accounting, and tax compliance rules.
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Vietnam
Tax legislation adopted and regulatory update Corporate income tax 2012 The Vietnam tax authorities issued an official letter providing guidance on depreciation of warehouses and offices located on leased land for corporate income tax purposes.
The guidance states that the conditions and procedures stipulated in Circular 123/2013/TT-BTC apply when determining 2012 corporate tax liability for land lease contracts signed prior to the effective date of that circular. The circular provides more favorable compliance requirements than under a previous circular.
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