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This week in tax: Malawi seeks $310bn in unpaid taxes from US mining company

Ruby gemstone

The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.

The Malawian government has said it is owed almost $310 billion in unpaid taxes by US gemstone miner Columbia Gem House, according to Agence France Presse yesterday, August 4.

The claims were contained in a letter that was sent on July 26 by the east African country’s attorney general (AG), Thabo Chakaka Nyirenda.

It alleged that the US mining firm had failed to pay sufficient tax on the sale of rubies and sapphires dating back to 2008.

Columbia Gem House, through its subsidiary Nyala Mines, is said to have paid only $600 in tax from its Chimwadzulu mine in the central region of Ntcheu on estimated revenues of $24 billion.

Nyirenda said that the mining company should pay $309.6 billion in back taxes for failure to declare its income, trade mispricing and transfer pricing breaches, according to the letter seen by AFP.

"Nyala Mines Limited and Columbia Gem House breached (the law) when they failed to disclose all income realised from the investment and when they engaged in trade mispricing and improper transfer pricing techniques," noted the letter.

The allegations also concern tax evasion and withholding royalties and income from the sale of rubies and sapphires.

The government has demanded the $309.6 billion tax bill be paid within 30 days, plus interest from the date when the taxes and royalties were due to have been paid.

AG Nyirenda has threatened legal action to enforce payment of the taxes against Columbia Gem House, Nyala Mines and its directors and officers.

Prosecution would also include anyone who has been involved in the alleged malpractices.

Columbia Gem House has denied any involvement with Nyala Mines, being a party to any lease agreement with the Malawian government or receiving a letter from Nyirenda, according to the AFP.

Amgen consolidates $10.7bn IRS tax court battles

Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service, the Wall Street Journal reported on Monday, August 1.

The petition for Amgen & Subsidiaries v Commissioner of Internal Revenue was first filed at the US Tax Court in July, but the case was updated on August 1 to include the rest of the IRS’s back tax claims too.

The IRS claimed that Amgen underreported its US taxable income by nearly $24 billion from 2010 to 2015 by allocating profit, including important assets, to its manufacturing subsidiary in Puerto Rico.

First in dispute is an IRS bill for $3.6 billion in back taxes plus interest from 2010 to 2012. Second is the latest IRS bill from April that costs $5.1 billion in back taxes and $2 billion in penalties from 2013 to 2015.

Amgen’s full tax bill amounts to about $10.7 billion.

Amgen disclosed to investors that the case could take several years to resolve. The company’s dispute is the latest example of heightened government scrutiny of pharmaceutical companies’ tax practices.

The dispute could present a long-term risk to the company because its tax rate would increase significantly if the IRS prevailed.

However, Amgen’s representatives said that both IRS adjustments to its full tax bill are without merit.

“Amgen will vigorously contest the adjustments and penalties proposed by the IRS for the 2010 to 2015 period,” according to the company’s quarterly report to investors.

“Amgen is confident in its position in the dispute,” according to the report.

The company has one of the lowest tax rates in the pharmaceutical industry with a median 12.5% effective rate compared to the 18% across the 10 largest US drug companies, based on FactSet data.

The dispute comes at a time when the US Senate is scrutinising the tax affairs of several other pharmaceutical companies too.

US chipmakers ready for windfall tax credits in August

In other news, ITR reported this week that Congress passed legislation with $52 billion in tax credits and other incentives on July 28 to boost production at US semiconductor companies.

In-house teams said they are modelling possible outcomes under the latest Congress-backed R&D tax credit for advanced semiconductor manufacturing processes after the legislation passed and will go to President Joe Biden this week to sign into law.

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, which includes $52 billion in financing options, is important because several technology companies are waiting for the final legal text to make important business decisions amid a global shortage in computer chips.

For example, Samsung plans to use the bill’s financing to build a $17 billion chip plant in Texas. Intel is also waiting on the final details on advanced investment R&D tax credits to create a $20 billion factory in Ohio.

The law could be finalised as early as mid-August, with tax credits and other financing options starting on January 1 2023.

Read the full article here

HMRC to impose automated VAT checks on foreign sellers

As ITR reported this week, business advisers have welcomed HM Revenue and Customs’ decision to impose automated assessments on online sellers that try to commit fraud by submitting inaccurate VAT returns.

It follows communication, seen by ITR, that was sent to businesses and trade agents to inform them of the measures, which take effect on September 1.

The latest regulation is part of the tax authority’s drive to tackle VAT fraud and non-payment by overseas sellers of goods to UK customers.

Under the measures, HMRC will be able to impose automated assessments on non-resident traders that provide inaccurate or insufficient information on their VAT returns.

This includes situations where there is uncertainty about whether sellers were providing goods to UK customers before their VAT registration.

The tax authority will also have powers to inform online marketplaces of VAT non-compliance by traders and to have their accounts blocked.

HMRC will be able to conduct retroactive assessments on sellers for the preceding four-year period to December 2022.

Read the full article here

Other ITR headlines this week include:

Carelessness will be costly under UK’s new TP regime: sources

Companies advised to fix Canadian tax insurance policies

HMRC to impose automated VAT checks on foreign sellers

Taxpayers must get ‘back to basics’ after UK BlackRock ruling

Hong Kong regime change could appease EU but hurt tax appeal

US chipmakers ready for windfall tax credits in August

Next week in ITR

The ITR team will publish an explainer on why President Joe Biden’s corporate alternative minimum tax proposal does not align with the OECD’s global minimum tax.

We will also report that although Google and Meta agreed to Indonesia's regulations to tax digital sales and regulate content in July, the long-term tax ramifications under the agreement are uncertain.

Elsewhere, ITR will be speaking to multinationals about how they are responding to the security challenges of handling, storing and making use of data across their global operations.

We will also look at how technology is changing tax functions and how professionals are being forced to adapt by finding new approaches to adding value to businesses.

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