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September 30, 2022
2022-5931

Report on recent US international tax developments 30 September 2022

The United States (US) Congress passed a continuing resolution (CR) to extend federal government funding beyond 30 September and into December, hours before the fiscal year deadline. Both the House and Senate will adjourn and will not return to session until after the November midterm elections.

After the midterm elections, and before the December expiration of the just-passed CR, Congress is expected to try to assemble a year-end bill that could address tax and possibly retirement issues, in addition to government funding that could extend through the remainder of the fiscal year.

EY has commented to Treasury on the Inflation Reduction Act’s enactment of the corporate alternative minimum tax (CAMT) in a 15 September 2022 letter. EY writes that it has become clear that “book income (i.e., income or gain reflected on a corporation’s US GAAP financial statements) resulting from transactions intended to qualify for tax-free treatment under Internal Revenue Code[i] sections 355 and 361 (i.e., Section 355 Separations) should be excluded from the calculation of adjusted financial statement income (AFSI) for purposes of the CAMT.” The firm writes that this position is consistent with the purpose underlying Section 355, the correct implementation of the new CAMT, and “how book income from extraordinary transactions such as Section 355 Separations are generally viewed and treated in the marketplace.”

EY notes “there is clear regulatory authority for achieving this outcome and allowing corporations to continue traditional transactional planning that is critical to achieving optimal business success.” Therefore immediate guidance is needed that “excludes book income from Section 355 Separations (as well as other acquisitive and restructuring transactions that Congress intended to treat as tax-free) from AFSI, while the broader issues raised by the CAMT continue to be studied and addressed over time.”

Treasury’s Financial Crimes Enforcement Network (FinCEN) on 29 September issued a final rule requiring certain entities to file reports with FinCEN that identify two categories of individuals – (1) beneficial owners of an entity, and (2) individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. The new regulations implement Section 6403 of the Corporate Transparency Act (CTA), enacted in 2021.

The Organisation for Economic Co-operation and Development Forum on Tax Administration (FTA) on 28 September released a 92-page bilateral advance pricing arrangement manual that is intended to serve as a guide to streamline the advance pricing agreement process for both taxpayers and tax administrations. It includes 29 best practices, but does not mandate binding rules. The best practices are meant to show how to mitigate delays, avoid information asymmetries, increase transparency and ensure that there are realistic expectations.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

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Endnotes

  1. All “Section” references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.
 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

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"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

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