January 6, 2023
Report on recent US international tax developments – 6 January 2023
The United States (US) Internal Revenue Service (IRS) issued interim guidance (Notice 2023-7) on 27 December addressing the application of the corporate alternative minimum tax (CAMT), enacted under the Inflation Reduction Act of 2022. Notice 2023-7 describes rules that the IRS intends to include in proposed regulations pertaining to: certain issues regarding Internal Code Revenue (IRC) subchapters C and K; "troubled corporations"; groups of corporations that file consolidated returns; depreciation of IRC1 Section 168 property; and the treatment of certain federal income tax credits under the CAMT. Taxpayers may rely on the interim guidance pending the release of the proposed regulations.
Notice 2023-7 also provides a safe harbor method for determining applicable corporation status and notes that further interim guidance may be forthcoming and may be oriented toward particular industries encountering unintended adverse consequences under the CAMT.
The IRS also issued interim guidance (Notice 2023-2) that addresses the 1% excise tax on certain corporate stock repurchases under new Section 4501. While the excise tax under the statute applies primarily to repurchases by publicly-traded domestic corporations and foreign corporations that inverted on or after 20 September 2021, the Notice includes a broad (and unexpected) anti-abuse rule that could subject certain repurchases made by any publicly-traded foreign corporation to the excise tax if the repurchase was “funded” by a domestic affiliate. Affected foreign corporations should consider the application of this rule to their cash pooling and other intercompany funding arrangements.
The excise tax applies to repurchases after 31 December 2022. Notice 2023-2 provides interim guidance until proposed regs are issued. On 28 December, the IRS published Draft Form 7208, Excise Tax on Repurchase of Corporate Stock, which when finalized will be used to report stock repurchases for calculating the 1% stock buyback excise tax.
Taken together, Notice 2023-2 and draft Form 7208 will affect many, if not most, covered corporations, including those that do not have ongoing stock repurchase programs.
The IRS further issued final regulations (TD 9971) on 29 December under Section 897(l) regarding the exception from the Foreign Investment in Real Property Tax Act (FIRPTA) tax available to qualified foreign pension funds and qualified controlled entities. The final regulations also include rules for certifying that a qualified foreign pension fund is not subject to withholding on certain dispositions of, and distributions with respect to, certain interests in US real property. The new rules retain the general approach of the proposed regulations, with certain modifications including definitional clarifications and transition rules (for background, see Tax Alert 2019--1075), and affect certain holders of interests in US real property and withholding agents.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC