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19 January 2018 Report on recent US international tax developments – 19 January 2018 US Treasury Secretary Steven Mnuchin recently told a Washington audience that although a technical tax corrections bill is possible this year, the Government has not yet found any major problems in the tax reform legislation requiring a legislative fix. "The good news is there's nothing that we've identified so far that we think is particularly problematic that we think we'd need a technical correction," the Secretary said. "Technical issues requiring corrections may well arise," the Secretary said, noting there about 80 provisions in the new law that will require Treasury to issue regulations. Douglas O'Donnell, Commissioner, Internal Revenue Service (IRS) Large Business and International (LB&I) Division, has issued a series of important transfer pricing policy directives to LB&I employees. Among the policy changes announced 12 January was the injunction for IRS employees to stop opening issues related to stock-based compensation included in cost sharing arrangement intangible development costs, pending the Ninth Circuit Court of Appeals' decision in Altera Corp. v. Commissioner. In Altera, the Tax Court invalidated Treasury's final cost sharing regulations (T.D. 9088), which require taxpayers to include stock-based compensation when determining operating expenses under a qualified cost sharing arrangement. No new examinations of cost sharing arrangement stock-based compensation issues will be started while Altera is on appeal. In addition, the IRS has told examiners to stop developing adjustments to cost sharing arrangements based on changing the taxpayer's multiple reasonably anticipated benefits (RAB) shares to a single RAB share, when subsequent platform contribution transactions are added to an existing cost sharing arrangement. Examiners were told to cease taking action until a Service-wide position is finalized. Another new policy directs LB&I examiners not to change a taxpayer's selection of the "best method" as supported in their contemporaneous transfer pricing documentation or Advance Pricing Agreement submission. Rather, examiners should begin their review with a taxpayer's choice of the best method, and "thoroughly analyze the taxpayer's application of their selected method." When an examination team analyzes the selected method and finds that changes to the application of that method are warranted, the directive states "these changes should be thoroughly developed and documented as early as possible in the examination." Treaties and Transfer Pricing Operations Transfer Pricing Review Panel approval is now required before an examiner may change the taxpayer's selection of its chosen best method. Other new IRS transfer pricing policy directives provide instructions to LB&I examiners with respect to the assertion of penalties in certain transfer pricing examinations and elimination of the requirement for the mandatory transfer pricing Information Document Request in some cases. An IRS official this week was quoted as saying that taxpayers may rely on the Internal Revenue Code1 Section 988 proposed regulations' election to use a mark-to-market method of accounting for foreign currency gain or loss attributable to Section 988 transactions. On 18 December, the IRS issued proposed regulations that address the treatment of foreign currency gains and losses of a controlled foreign corporation under the business needs exclusion from foreign personal holding company income under Section 954(c)(1)(D). The proposed regulations also included the market-to market election. The official was quoted as saying that taxpayers can rely on the mark-to-market election for years ending on or after 19 December 2017, adding that calendar-year taxpayers can make the election for their 2017 return. 1 All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder. Document ID: 2018-5165 |
