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13 July 2018 Report on recent US international tax developments – 13 July 2018 US House Speaker Paul Ryan said on 12 July that an international-focused tax technical corrections bill can be expected following the November mid-term elections, and made clear that the legislation would be separate from a Tax Reform 2.0 bill. The Speaker said the delay until after the elections was necessary to get Democrats' support. "There is no way they [Democrats] are going to do anything to help us with this prior to the election," he said. The Speaker also confirmed that Republicans want to roll out a separate Tax Reform 2.0 bill. Earlier, House Ways and Means Committee Chairman Kevin Brady said during a cable television interview that Republican tax writers are receiving comments regarding the international tax provisions in the Tax Cuts and Jobs Act (TCJA) and "we're going to be making those changes, fine-tuning the international side to make sure it hits the mark." The Chairman also said that changes to the TCJA's international provisions could come in the proposed phase 2 tax reform bill currently being vetted. The Internal Revenue Service (IRS) issued final anti-inversion regulations under Internal Revenue Code1 Section 7874 on 11 July, which finalized proposed and temporary regulations published on 8 April 2016 (the 2016 Proposed and Temporary Regulations). The 2016 Proposed and Temporary Regulations contained numerous provisions, including the passive assets rule, the serial acquisition rule, the third-country rule and the non-ordinary course distributions rule and many others. The final regulations "refine and clarify certain aspects of the proposed and temporary regulations published in 2016." According to the regulations' preamble, the changes made are meant to ensure that the final rules "do not impact mergers that provide market benefits independent of tax avoidance." The final regulations make a number of changes to the 2016 Proposed and Temporary Regulations including changes to the passive assets rule, the serial acquisition rule, and the third-country rule. The final regulations generally maintain the same applicability dates as the 2016 Proposed and Temporary Regulations, which in many circumstances were the dates that such regulations were filed with the Federal Register or, in the cases where the regulations were implementing rules included in prior IRS Notices, the date such Notices were published. In particular, certain rules correspond to the issuance of Notice 2014-52 (issued on 22 September 2014), or Notice 2015-79 (issued on 19 November 2015). As a result, the final regulations are in many circumstances applicable to transactions completed on or after 4 April 2016, and in other circumstances applicable to transactions completed on or after certain earlier dates. Conversely, new rules and changes to the rules in the 2016 Proposed and Temporary Regulations are generally applicable on a prospective basis, although taxpayers may elect to apply such rules consistently on a retrospective basis. The IRS Large Business and International (LB&I) Division announced five new compliance campaigns on 2 July, including two addressing the repatriation of foreign earnings. Those two new campaigns will focus on repatriation via foreign triangular reorganizations and the Section 965 transition tax. The stated goal of the former campaign is to "identify and challenge these transactions by educating and assisting examination teams in audits of these repatriations." A third, virtual currency compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams, including outreach and examinations. The IRS LB&I also issued several memoranda worth noting. The first memorandum announced that the IRS Treaty and Transfer Pricing Operations has released the Transfer Pricing Examination Process (TPEP) for use in transfer pricing examinations. The TPEP (Publication 5300) is a guide to best practices and processes that is meant to assist with the planning, execution and resolution of transfer pricing examinations consistent with the LB&I examination process. A second LB&I memorandum provides guidance on the record-keeping requirements and procedures relating to the traditional automatic exchange of information program. The Treasury Inspector General for Tax Administration (TIGTA) released a report on the Foreign Account Tax Compliance Act (FATCA) on 9 July. The report stated that "despite spending nearly $380 million, the IRS has taken limited or no action on a majority of the planned activities outlined in the FATCA Compliance Roadmap." According to the TIGTA, reports filed by foreign financial institutions (FFIs) did not include (or included invalid) Taxpayer Identification Numbers. This made IRS efforts to match FFI and individual taxpayer data unsuccessful, which in turn affected the IRS's ability to identify and enforce FATCA requirements for individual taxpayers. The IRS has agreed with four of the TIGTA's six recommendations, including the following: (1) establishing follow-up procedures and initiating action on error notices with the FFIs; (2) continuing efforts to systemically match Form 8966 and Form 8938 data to identify non-filers and underreporting related to US holders of foreign accounts and to the FFIs; (3) informing taxpayers how to obtain global intermediary numbers; and (4) strengthening overall compliance efforts directed toward improving the accuracy of reporting by Form 1042-S filers. The OECD2 on 3 July issued a non-consensus discussion draft on financial transactions under BEPS3 Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation). The first part of the discussion draft provides guidance on the application of certain principles contained in the 2017 Transfer Pricing Guidelines to financial transactions. The second part of the draft addresses specific issues related to the pricing of financial transactions, such as treasury function, intra-group loans, cash pooling, hedging, guarantees and captive insurance. Comments are requested by the 7 September 2018. 1 All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.
Document ID: 2018-5858 |
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