Alot of guidance is virtually rolling off the press!
The guidance will be complex and lengthy, and it represents only one step towards achieving more certainty into the complex nuances of the US Tax Act. EY’s Global Tax Alert provides a summary for reference.
The Tax Executives Institute (TEI) has provided numerous comments re: Sec 965 positions as written in the law, supplemented by additional guidance.
Summary of comments:
The letter provides background and examples related to the comment areas, and should be reviewed to gain a further understanding of the complex dynamics that will hopefully be mitigated via the suggestions.
Click to access TEI-Comments-Proposed-Section-965-Regulations-9%20October-2018.pdf
The latest US tax updates are summarized in EY’s Global Tax Alert, with a referenced link
There is still significant uncertainty re: Sec. 965 repatriation tax, GILTI, FDII and BEAT provisions by taxpayers. It is hopeful that meaningful guidance will be issued shortly.
OECD has updated guidelines for several aspects of Country-by-Country (CbC) reporting, including:
As the 2017 CbC report is almost due for US calendar-year taxpayers, it is imperative to review the OECD guidelines to ensure year-to-year consistency, with relevant statements attached for transparency.
A link to the guidelines is attached for reference.
Click to access guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf
The proposed Reg’s provide some answers, such as calculating GILT on a consolidated approach, but has punted (subject to later guidance) on GILTI foreign tax credits, the Sec. 250 deduction which also is applicable for the FDII provision, definitive guidance on a separate GILTI basket (although noting its expectation) and application of Sec. 163j re: interest expense.
Complex rules are set forth to determine a particular US shareholder’s portion of GILTI. These rules were necessary as the separate shareholder approach was further clarified as a consolidated calculation which does alleviate unnecessary planning to accomplish that result.
Additionally, anti-abuse provisions were included to combat perceived abuse, some of which have already sparked heated controversy. As an example, a CFC’s tested loss does not represent a loss carryover against future year’s tested income. “Donut hole” planning initiated by many taxpayers has also been reversed by this guidance.
The guidance further confirms that each controlled foreign corporation (CFC)’s income calculation is to be based on the concept of a US tax return and principles approach. Additionally, ADS depreciation is to be used regardless of the acquisition date of the foreign tangible property.
Practitioners will be absorbing this new complexity to change their calculations for Q3 Annual ETR calculations, while also finalizing the SAB 118 one-year period to finalize the Sec. 965 deemed repatriation tax provisions effective in Q4 2017 for a calendar-year taxpayer.
Technical/practical articles and webinars have already started in earnest, as everyone is learning about these new rules simultaneously.
A reference to the proposed Regulations are included for reference.
Click to access reg-104390-18.pdf
France has adopted transfer pricing “clarification” requirements, effective for 2018 tax years, that expand beyond OECD’s guidance (i.e. OECD+).
It is important to note that these additional requirements pose a significant burden to multinationals trying to achieve consistency in preparing transfer pricing reports for all countries simultaneously. Thus, additional requirements will require additional processes, cost and compliance demands.
Summary of new items for Master File:
Summary of items for Local File:
Some of the above items will prove to be controversial, especially if they would infer any information that would be confidential and strategic in nature. Hopefully, such concepts will not be a “copy and paste” exercise for transfer pricing requirements in other countries.
PwC’s Tax Insights link provides additional context of this significant development.
The Organisation for Economic Co-operation and Development (OECD) on 30 August released a fourth round of stage 1 Base Erosion and Profit Shifting (BEPS) Action 14 peer reports on improving tax dispute resolution mechanisms. The reports assess each country’s efforts to implement the Action 14 minimum standard.
Valuable insights from these reports can be gained, especially if a taxpayer is under audit where some of these questions/uncertainties may arise. The peer reports are performed on a desk audit basis, with other parties comments considered by OECD.
Some insights are APA rollbacks, granting of MAP in all/certain transfer pricing cases, etc. Reference links are provided.
Reports covering Australia, Ireland, Israel, Japan, Malta, Mexico, New Zealand and Portugalwere published.
The US Tax Act GILTI regulations are under review, and should be released before the end of Q3, that will require review and incorporation into the annual ETR. The regulations are expected to address a consolidated, vs. separate shareholder, approach for the calculation as well as some guidance re: US expense allocation. EY’s Global Tax Alert summarizes the status of this guidance.
Additionally, guidance was recently released on Sec. 162(m) compensation, also necessitating review for Q3 reporting.
The proposed regulations that were released for Sec. 965, deemed repatriation tax, are expected to be followed up by final regulations by June 2019. The third quarter 2018 marks the end of the SAB 118 period to finalize such amounts, notwithstanding additional guidance in the future. Note, these regulations should provide definitive guidance on some pending items (inclusion of PTI for a E&P deficit foreign corporation; calculation of Sec. 986 gain for Sec. 965b E&P) that may require amending 2017 corporate income tax returns.
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:
or
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:
Significant tax developments have recently transpired for US / international tax.
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.
Click to access 2018-16476.pdf
Click to access 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:
Click to access tax_reform_2.0_house_gop_listening_session_framework_.pdf
Tax changes are continuing, both from prior and proposed legislation on several fronts:
The EY Global Tax Alert provides additional details of the above points for reference:
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:
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.
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.
Click to access 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.
Strategizing Multinational Tax Risks 
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