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May 5, 2023

Report on recent US international tax developments - 5 May 2023

Treasury and the IRS this week released long-expected proposed regulations under IRC Section 367(d) (REG-124064-19) addressing "repatriations" of intangible property (IP). The regulations apply when: (1) a US person had previously transferred IP to a related foreign corporation in a transaction that caused the US transferor to annually include in income deemed payments under IRC Section 367(d); and (2) the foreign corporation (or a successor) then "repatriates" the IP to a "qualified domestic person." The proposed regulations would terminate the application of IRC Section 367(d) to the US transferor.

By way of background, if a US person transfers IP to a foreign corporation in a nonrecognition transaction, the US transferor generally must annually include in income amounts that are (1) contingent upon productivity, use and disposition of the IP and (2) commensurate with the income that the transferee foreign corporation earns from the IP (Outbounded IP) during its useful life.

The proposed regulations would terminate these annual inclusions if the Outbounded IP is transferred to a "qualified domestic person." Depending on the nature of the transfer, the US transferor may or may not recognize gain. For example, if the foreign corporation (or a successor) transfers the Outbounded IP to a qualified domestic person in a transferred-basis transaction and the foreign corporation (or its successor) does not recognize any gain, the US transferor does not recognize gain. Conversely, if the foreign corporation (or its successor) transfers the Outbounded IP in a fully taxable, non-transferred-basis transaction, the US transferor recognizes gain in an amount equal to the fair market value of the IP on the date of the transaction less the US transferor's former adjusted basis in the property. The proposed regulations would apply only to subsequent transfers of Outbounded IP on or after the date on which the regulations are finalized.

A bipartisan group of US Senators on 5 May introduced the Taiwan Tax Agreement Act of 2023, authorizing the Biden Administration to begin negotiations with Taiwan to conclude a tax agreement. The bill was introduced by Senate Foreign Relations Committee Chairman Robert Menendez (D-NJ), ranking member James Risch (R-ID) and members Sens. Chris Van Hollen (D-MD) and Mitt Romney (R-UT). In March 2023, a bipartisan Senate resolution was introduced similarly urging the Administration to initiate negotiations with Taiwan over an income tax agreement.

The Norwegian government is reporting that it is in negotiations with the United States regarding a new income tax treaty. A new treaty would replace the existing 1971 convention, amended by a 1980 protocol.


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

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

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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