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26 January 2018 Report on recent US international tax developments – 26 January 2018 More repatriation transition guidance came out on 19 January. The United States (US) Treasury and the Internal Revenue Service (IRS) released a second notice (Notice 2018-13) describing additional regulations to be issued for computing a US shareholder's transition tax with respect to the untaxed foreign earnings of its controlled foreign corporations (CFCs) under Internal Revenue Code1 Section 965. Notice 2018-13 also addresses the Tax Cuts and Jobs Act's (TCJA's) repeal of Section 958(b)(4) and provides relief from "unintended regulatory and reporting consequences" resulting from the repeal of Section 958(b)(4)'s limitation of attributing stock owned by a foreign shareholder to a domestic subsidiary. The latest Notice further modifies Notice 2018-7, which announced forthcoming rules on determining the amount of cash and cash equivalents for purposes of applying the 15.5% rate and the amount of foreign earnings subject to the transition tax. A Treasury official was also quoted this week as saying that the Government is focused on issuing guidance on various international provisions in the TCJA, including the base erosion anti-abuse tax, the global intangible low-taxed income and foreign derived intangibles income provisions, and limitations on net interest expense deductions under amended Section 163(j). Treasury also reportedly is close to determining the fate of the Section 385 debt/equity regulations, according to a Treasury official. Government officials last fall indicated that, depending on what was included in a final tax reform package, there may not be a further need for the debt/equity regulations. The official now was quoted as saying that Treasury specifically is reviewing the Reg. Section 1.385-3 distribution rules and the Reg. Section 1.385-4 treatment of consolidated groups. The TCJA includes both anti-interest stripping and anti-base erosion provisions, but it is unclear whether the Government will consider them sufficient to address perceived abuses and corporate inversions. The tax press is reporting that Treasury Secretary Steven Mnuchin recently sent a letter to five European Union (EU) finance ministers in an attempt to ease European concerns regarding certain international provisions in the recently enacted US tax reform legislation. The letter is in response to a joint letter sent to Secretary Mnuchin on 11 December, in which finance ministers from the five largest EU economies warned that certain proposed provisions in the tax reform bills could violate US tax treaties and trade rules. A European Commission spokesperson later was quoted as saying — after the TCJA was enacted — that there is particular concern that the base erosion and anti-abuse tax and global intangible low-taxed income tax are potentially discriminatory. 1 All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder. Document ID: 2018-5198 |
