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21 September 2018 Report on recent US international tax developments – 21 September 2018 The United States (US) Government on 21 September issued proposed regulations removing the Internal Revenue Code1 Section 385 debt/equity documentation regulations of Reg. Section 1.385-2 and making conforming modifications. Taxpayers may rely on the proposed regulations until the regulations are finalized. The proposed rules state that Treasury and the Internal Revenue Service (IRS) will continue to study the issues related to the documentation regulations. When that study is complete, the Government indicated it may propose a modified version of the documentation regulations. The Government notes, however, that any such future documentation regulations would be "substantially streamlined to reduce the burden on U.S. corporations" but provide enough information necessary for tax administration. Any such future proposed regulations would have a prospective effective date to provide corporations with sufficient lead time. Treasury and the IRS in October 2016 published final and temporary regulations under Section 385 that, among other things, established documentation requirements. Those regulations were made applicable in regard to interests issued or deemed issued on or after 1 January 2018. The Government subsequently issued Notice 2017-36, delaying the applicability of the final regulations for interests issued on or after 1 January 2019. Treasury and the IRS recently released a draft of Form 8991, Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts.2 The draft form provides some insight into the calculation flow and data required to meet the reporting requirements for the Base Erosion and Anti-Abuse Tax (BEAT) under new Section 59A. Refinements to the draft Form 8991 are expected in light of proposed regulations under Section 59A that are scheduled for release in late October or November 2018. Draft Form 8991 generally provides a helpful way for taxpayers to readily identify the specific steps in the BEAT process that may be problematic, including insufficient current guidance or data availability. Comments on draft Form 8991 may be submitted here. The IRS in Notice 2018-72 this week announced its intention to amend the Section 871(m) regulations to delay the effective/applicability date of certain rules affecting the treatment of dividend equivalent payments by two years. Specifically, the Government intends to revise the effective/applicability date for Reg. Section 1.871-15(d)(2) and (e) to provide that these rules will not apply to any payment made with respect to any non-delta-one transaction issued before 1 January 2021. The amendments would also extend the phase-in period provided in Notices 2017-42 and 2018-5 for certain provisions of the Section 871(m) regulations and permit withholding agents to apply the transition rules from Notice 2010-46 in 2020. Notice 2018-72 was released on 20 September. US House Ways and Means Committee Chairman Kevin Brady has urged the IRS to issue virtual currency guidance that would clarify taxpayers' obligations when using virtual currencies. In March 2016, the IRS issued Notice 2014-21, In a letter to Acting IRS Commissioner Dave Kautter this week, Chairman Brady wrote: "Despite the issuance of only preliminary guidance on this issue, the IRS has made enforcement of this guidance a priority, undertaking robust enforcement actions on a number of fronts." In July 2018, the IRS Large Business and International division announced five new compliance campaigns, including one focused on non-compliance in the area of virtual currencies. On 13 September 2018, the Organisation for Economic Co-operation and Development (OECD) released additional guidance to give greater certainty to tax administrations and multinational enterprise groups on the implementation and operation of Base Erosion and Profit Shifting (BEPS) Action 13 Country-by-Country (CbC) Reporting (CBCR).3 Accordingly, the existing guidance on the implementation of CbCR has been updated (the Guidance) to address the following issues: (i) the treatment of dividends for purposes of "Profit (loss) before Income Tax," "Income Tax accrued (current year)" and "Income Tax paid (on cash basis)"; (ii) the use of shortened amounts in Table 1 of CbC reports; and (iii) the number of employees to be reported where the financial data of a Constituent Entity is reported on a pro-rata basis. The Guidance also includes a summary table of the existing interpretative guidance relating to mergers, demergers and acquisitions. The OECD also published additional exchange relationships that have been activated under the Multilateral Competent Authority Agreement on the exchange of CbC reports with respect to Bermuda, Curaçao, Hong Kong and Liechtenstein. The additional exchange relationships are a positive development as they will reduce the need for local filing for MNE groups located in these jurisdictions. Since the OECD released the BEPS Action 13 final report, there has been increasing activity around CbCR requirements. The Guidance marks the eighth release by the OECD regarding practical questions that have arisen concerning the implementation and operation of CbCR. Taxpayers are urged to closely monitor new or amended reporting requirements and how countries implement or react to the new Guidance. 1 All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder. 2 See EY Global Tax Alert, US Treasury and IRS release draft Form 8991, Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts, dated 20 September 2018. 3 See EY Global Tax Alert, OECD releases additional guidance on Country-by-Country Reporting and updated exchange relationships, dated 14 September 2018. Document ID: 2018-6108 |
