Strategizing International Tax Best Practices – by Keith Brockman

The European Commission has recently amended the definition of “exporter” for EU purposes.  The new definition allows greater flexibility, although still postulates that non-EU established companies may not act as an EU exporter.

Article 1(19) of the UCC DA now requires a company that wants to act as an “exporter,” to be a person established in the EU customs territory and:

  • Has the power to determine that the goods are to be brought outside the customs territory of the Union

     

    or

  • Is a party to the contract under which goods are to be taken out of that customs territory

In summary, the EU supply chains should be reviewed re: whom is acting as an exporter, as well as how the new rule may simplify such actions.

EY’s Global Tax Alert provides additional details for this important change:

 

https://www.ey.com/Publication/vwLUAssets/European_Commission_amends_definition_of_exporter_in_the_EU/$FILE/2018G_010770-18Gbl_Indirect_EC%20amends%20definition%20of%20exporter%20in%20the%20EU.pdf

Significant tax developments have recently transpired for US / international tax.

  • Section 965 Proposed Regulations have been issued, including discussion of potential stock basis elections that are critical to review (reference link).
  • Proposed Regulations issued for capital expensing provisions of US Tax Act (reference link)
  • IRS has published its statutory interpretation of their previously issued FAQ Q&A that 2017 overpayments of federal income tax are allocated solely to transitional tax liability in its entirety prior to allocating such amount to its 2018 federal income tax liability without transition tax.  In summary, the reasoning is that the transition tax is a 2017 liability, notwithstanding the ability to make an election to pay in installments. Considerable debate is currently ongoing re: this latest development, as it seemingly obviates the election methodology solely for one instance of overpayments, yet preserving the ability of deferred payments if a prior year overpayment is not present.
  • The Ninth Circuit Court of Appeals has reversed the Tax Court’s holding in Altera v. Commissioner, and upheld a 2003 regulation that requires participants in a cost sharing arrangement (CSA) to treat stock-based compensation costs (SBC costs) as compensable.  The Appellate Court concluded that the regulations were valid under general administrative law principles and that under current law, SBC costs should be treated as shared by participants in a CSA. It is important to note that the Tax Court’s taxpayer-favorable opinion is still precedent and authority for taxpayers located in geographical areas outside of the Ninth Circuit’s jurisdiction.

  • The IRS Foreign Account Tax Compliance Act (FATCA) certification portal is now live. The FATCA Registration System has been updated to allow for the completion and submission of the certification of pre-existing accounts and periodic certifications. The IRS is recommending that all FATCA registered entities should monitor their message board for notifications. The registration system allows for the establishment of an online account for financial institutions to register with the IRS, renew their agreement, and complete and submit FATCA certifications.

EY’s Global Tax Alert discusses some of the latest developments.

Technical and lengthy documentation re: the above highlights will need critical reading and review in the very near future for US / international tax professionals.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_3_August_2018/$FILE/2018G_010605-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%203%20August%202018.pdf

https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-16476.pdf

https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-16716.pdf

House Ways and Means Committee Chairman Kevin Brady (R-TX) released a listening session framework for “Tax Reform 2.0.” This framework launches the listening sessions that will occur with lawmakers and constituents back home as Ways and Means Republicans work to make our new pro-growth tax code even stronger for our families and Main Street businesses.

Upon releasing this framework, Chairman Brady said:

“Every day, businesses wake up and ask themselves ‘how do we become more competitive, innovative, and better?’ That practice has always been foreign to Washington—that ends now. With this framework, we are taking the first step to change the culture in Washington D.C. where tax reform only happens once a generation. We plan to work off this framework to build on the growing successes of the Tax Cuts and Jobs Act and ensure this energized economy continues moving forward.” 

The listening session framework is attached for reference:

https://waysandmeansforms.house.gov/uploadedfiles/tax_reform_2.0_house_gop_listening_session_framework_.pdf

US int’l developments

Tax changes are continuing, both from prior and proposed legislation on several fronts:

  • “Phase 2” tax reform bill to be released next week; House vote Sept, mid-term Nov elections may be an obstacle
  • Proposed regulations for Section 965 Tax Act guidance now in review, issuance this fall
  • Guidance for GILTI, FDII and BEAT to be issued this fall; a consolidated approach is likely for GILTI and BEAT
  • Country-by-Country (CbC) reports are being reviewed for risk profiles
  • States are continuing to issue prospective, and retroactive, guidance on Sec. 965 and  the new 2018 Tax Act provisions

The EY Global Tax Alert provides additional details of the above points for reference:

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_20_July_2018/$FILE/2018G_010372-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2020%20July%202018.pdf

The referenced link is a Best Practices portrayal of tax risk management and governance overview as published by the Australian Tax Office (ATO).

The outline summarizes:

  • Director’s Summary
  • Board-level responsibilities
  • Managerial level responsibilities
  • Tax control framework
  • Testing of controls
  • Self-assessment procedures

The outline is a valuable review of the tax processes and controls that demand a more formal approach, with the advent of subjective guidelines, anti-avoidance rules, etc.  

https://www.ato.gov.au/Business/Large-business/In-detail/Key-products-and-resources/Tax-risk-management-and-governance-review-guide/

 

Under the mandate of the Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”), Working Party No. 6 (“WP6”) has produced a non-consensus discussion draft on financial transactions.

Comments are due by September 7, 2018.  The treasury function, guarantees, intra-group loans, cash pooling transactions and captive insurance are the broad agendas discussed.

The guidance is not intended to prevent countries from implementing approaches to address capital structure and interest deductibility under domestic legislation, nor does it seek to mandate accurate delineation under Chapter I as the only approach for determining whether purported debt should be respected as debt.

As this guidance is critical for establishing if an instrument is true debt, as well as transfer pricing implications for financial relationships, this discussion draft is critical to review and provide relevant comments.

The OECD’s discussion draft is referenced herein for review.

 

http://www.oecd.org/tax/transfer-pricing/BEPS-actions-8-10-transfer-pricing-financial-transactions-discussion-draft-2018.pdf

The OECD published the final report on revised guidance to apply the transactional profit split method, as part of BEPS Action 10.  This guidance provides the final text, based on comments received.

Additionally, OECD published final guidance for tax administrations for determining the proper approach to apply for hard-to-value intangibles.  This text is included as an annex to Chapter VI of the Transfer Pricing Guidelines.  This approach should promote consistency and, hopefully, minimize double taxation.

The text of these reports are provided for reference, as they are a must read for transfer pricing professionals.

http://www.oecd.org/tax/transfer-pricing/revised-guidance-on-the-application-of-the-transactional-profit-split-method-beps-action-10.pdf

http://www.oecd.org/tax/transfer-pricing/guidance-for-tax-administrations-on-the-application-of-the-approach-to-hard-to-value-intangibles-BEPS-action-8.pdf

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