Strategizing International Tax Best Practices – by Keith Brockman

US int’l developments

The US legislative docket continues to be busy in the New Year.  Democrats have taken control of the House, with a Republican majority in the Senate, so tax cut legislation bills will be vigorously contested.

EY’s Global Tax Alert highlights the political scene re: tax legislation.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_4_January_2019/$FILE/2019G_012733-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%204%20Jan%202019.pdf

EC: Tax Policies in the EU

The European Commission has published a 2018 survey of tax policies.

The “Tax Policies in the EU survey” examines how Member States’ tax systems help to promote investment and employment, how they are working to reduce tax fraud, evasion and avoidance, and how tax systems help to address income inequalities and ensure social fairness.

It substantiates the priorities outlined in the Annual Growth Survey  in the area of taxation and presents in a clear and accessible fashion the most recent reforms in Member States and the main indicators used by the European Commission to analyse tax policies in the context of the European Semester . It also presents reform options to improve efficiency and fairness in tax systems.

New elements of this year’s edition include a summary of important business taxation reforms in third countries, an analysis on taxation as an environmental policy instrument, a focus on the implications of new forms of work for labour taxation, an analysis of the influence of the overall tax mix on progressivity, and an overview of recent EU tax initiatives.

Tables starting at page 111 include EU Member State summaries, including sections re: employer social security contributions, corporate / other income taxes, VAT, environmental related taxes, transaction taxes and other taxes.  The summaries also refer to the actual bill that was enacted for further reference. 

This publication is a valuable summary of tax policies, trends, and tax reforms in 2018.

https://ec.europa.eu/taxation_customs/sites/taxation/files/tax_policies_survey_2018.pdf

France: Happy New Year bill

The French bill has approved the Finance Bill for 2019, subject to constitutional review for enactment generally effective 1/1/19.  Some important provisions include:

  • Interest deductibility, 30% EBITDA/debt-to-equity, limitaitons
  • Favorable rate of 10%, vs. 15%, for patent related activities, aligning with the DEMPE/nexus provisions of BEPS Action Item 5.
  • Royalty deduction limitation for beneficiaries with less than a 25% effective tax rate and it is listed as a harmful tax regime by the OECD
  • For FYs beginning on or after 1 January 2019, a new anti-abuse provision will be applicable as a result of the transposition of article 6 of the ATAD.  The main purpose, or one of the main purposes, anti-abuse test re: the EU ATAD will be used to determine if the anti-abuse rule applies for corporate income tax
  • A new anti-abuse provision for all other taxes than CIT will allow the FTA to disregard acts which, by seeking to benefit from a literal application of provisions or decisions, against the initial objective sought by their authors, were driven by the main purpose of avoiding or reducing the tax burden which would have normally been borne by the taxpayers, due to their situation or their real activities, if those acts had not been entered into.  This provision is effective in 2020
  • French GAAR rule is retained (allowing flexibility to combat perceived abuse)
  • The Finance Bill for 2019 transposes into French domestic law the provisions of the Directive 2017/1852 dated 10 October 2017 as regards mechanisms to settle double taxation arising as a result of the application of double tax treaties concluded between EU Member States.
  • French tax consolidation group rules are modified

France is known for its proactivity in enacting anti-abuse legislation, and especially interesting is the royalty deduction limitation which  a two-prong test, whereas Germany is also considering a harsher test to combat the US FDII benefit.  

EY’s Global Tax Alert provides detailed summaries of the above provisions, among others.

https://www.ey.com/Publication/vwLUAssets/French_Parliament_approves_Finance_Bill_for_2019/$FILE/2018G_012550-18Gbl_French%20Parliament%20approves%20Finance%20Bill%20for%202019.pdfFranc

MLI: A New Year

As time for implementation of the Multilateral Instrument (“MLI”) draws near, it may be time to refresh the history and current status of this instrument.

Reference links are provided for The Multilateral Convention, Guidance for the Development of Synthesised Texts published by the OECD in November 2018,  and Status of the Parties to a MLI as of December 21, 2018.  An extract from the

An extract from the Synthesized Texts is provided as context:

This Guidance has been prepared to provide suggestions to Parties to the MLI for the development of documents they could produce to help users of the MLI to understand its effects on tax agreements it covers and modifies (the “Covered Tax Agreements”). The objective is to present in a single document and for each covered tax agreement: the text of a Covered Tax Agreement, including the text of relevant amending instruments; the elements of the MLI that have an effect on the Covered Tax Agreement as a result of the interaction of the MLI positions of its Contracting Jurisdictions; and information on the dates on which the provisions of the MLI have effect in each Contracting Jurisdiction for the Covered Tax Agreement. Such documents would be referred to as “synthesised texts”.

To ensure clarity and transparency for the application of the MLI, Parties that intend to develop documents setting out the impact of the MLI on their Covered Tax Agreements should be as consistent as possible. This Guidance sets out a suggested approach for the development of synthesised texts. The Guidance also suggests sample language that could be included in the synthesised texts. At this stage, the sample language includes: a sample general disclaimer on the synthesised texts; a sample disclaimer on the entry into effect of the provisions of the MLI; for each MLI Article, “sample boxes” of the provisions of the MLI that could modify the covered tax agreements; and sample footnote texts on the entry into effect of the provisions of the MLI.

As the New Year draws near from a personal perspective, it is also a New Year for birth of the MLI and its impact on worldwide tax treaties.

 

http://www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf

http://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf

http://www.oecd.org/tax/treaties/beps-mli-guidance-for-the-development-of-synthesised-texts.pdf

Finland: Mr Scrooge

The Finnish Tax Administration (FTA) recently issued a reminder notice stating that the common practice of hiring Santa Claus to give presents are required to be reported         (> EUR 1,500 this year).

Let’s not forget: Santa Claus must report the value of gifts distributed on his tax return, this year and next, less travel expenses!  Does this mean he should keep his list, checking it twice?

Merry Christmas & Happy Holidays to all!  

 

 

US: The BEAT goes on

Complex new guidance continually is rolling off the press for scrutiny, especially for year-end compliance.  EY’s Global Tax Alert provides a summary of recent developments,  references to IRS Notice 2019-01, IRS FAQ’s, and Proposed Regulations for BEAT are provided for reference.

Highlights:

  • Proposed BEAT Regulations provide certainty re: Service Cost Method payments and the mark-up component that would be includable. BEAT is not limited to cash payments, and would also include amounts paid or accrued using any other form of consideration including property, stock or the assumption of a liability.
  • Notice 2019-01 was issued to address the rules for repatriations, generally arising from Sec. 959(c)(1), (2) and (3) in that order based on a LIFO approach.  Compliance complexity has expanded significantly, demanding more time from multinational tax departments that will require added resources, technology demands and external advisor costs.
  • A new House Ways and Means tax package was introduced Dec. 10th, preserving the (correct) notion that tax year 2017 overpayments would not exclusively be attributed to the deemed repatriation tax without offset to 2018 regular tax liability.    The package would also provide technical guidance for downward attribution rules.
  • IRS FAQ’s have been updated, attached for reference.
  • The IRS on 13 December issued proposed regulations (REG-132881-17) under Code Sections 1471–1474 (FATCA) and Sections 1441–1461.
  • The Organisation for Economic Co-operation and Development (OECD) will release a major update on its work on the taxation of the digital economy at the end of January 2019, according to Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_14_December_2018/$FILE/2018G_012449-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2014%20Dec%202018.pdf

https://www.irs.gov/pub/irs-drop/n-19-01.pdf

https://www.irs.gov/pub/irs-drop/reg-104259-18.pdf

https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

The Tax Executives Institute (TEI) provided insgihtful comments to the recently issued GILTI Proposed Regulations, addressing the following main points:

  • Proposed regulation section 1.951A-3(h)(1) (the “temporarily held property rule”) provides that temporarily held property acquired with “a principal purpose” of reducing a U.S. shareholder’s GILTI inclusion will be disregarded
  • Basis adjustment rule for tested losses
  • Only used tested losses should increase Subpart F E&P
  • Basis reductions should only apply to actual transfers of stock
  • Deemed Sec. 367(d) expense should reduce tested income
  • Prop. Reg. § 1.951A-2(c)(5) anti-abuse rule (and authority to issue such rule)

TEI’s comments are well reasoned and should be reviewed to further understand the complexities, and need for added clarification going forward.

 

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20-%20Proposed%20GILTI%20Regulations%20Section%20951A%20-%20FINAL%2026%20November%202018.pdf

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