Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

US int’l tax developmentsUS

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

US Tax Reform 2.0: Listening framework

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

ATO: Tax Risk Governance

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/

 

OECD TP Guidelines: TEI’s comments

Tax Executives Institute (TEI) recently submitted a letter in response to requested comments by the OECD re: revisions to its transfer pricing guidelines.  The submission is well drafted and articulate, generally urging OECD to improve current practices rather than adopting new complex mechanisms.

An example of several suggestions is provided:

TEI suggests a number of elements should be included in future guidance to improve transfer pricing compliance practices. First, tax authorities should share their risk assessments with taxpayers so taxpayers can improve their compliance processes where appropriate, or engage in a discussion with tax authorities regarding their view of the taxpayer’s compliance risk. Second, to avoid transfer pricing disputes, Chapter IV should urge tax authorities to focus audit activity on transactions that are more likely to be tax motivated (i.e., between high and low tax jurisdictions), rather than simple intercompany transactions where the taxpayer makes reasonable efforts to price the transactions and where the possibility of a tax motivation is remote. For example, head office cost allocations between countries with relatively comparable tax rates should be viewed as low risk. Finally, the OECD should encourage countries to consider halting interest and penalties if dispute resolution takes longer than two years and if the country does not have a mandatory arbitration procedure.

 

TEI’s submission should be read in its entirety to further understand the direction of OECD and possible remedies in the complex world of transfer pricing.

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20-%20OECD%20TPG%20-%20Chapter%20IV%20and%20VII%20-%20FINAL%20to%20OECD%2019%20June%202018.pdf

US Sales & Use tax: Foundations crumble

The Supreme Court has held in the Mayfair case decided June 21, 2018, that physical presence is no longer required for a state to collect sales and use tax from an out-of-state seller.  Both out-of-state and foreign sellers will be affected by this ruling that overrules decades of sales and tax foundations upon which constitutional law was based.

Under National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, and Quill Corp. v. North Dakota, 504 U. S. 298, South Dakota may not require a business that has no physical presence in the State to collect its sales tax.

The referenced Supreme Court decision and EY’s Global Tax Alert highlight this major development.

Multinationals will need to review all sales into every state to determine their domestic law, irrespective of prior Constitutional limitations for physical nexus.  

 

https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_22_June_2018/$FILE/2018G_010006-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2022%20June%202018.pdf

US tariffs: update

On 15 June 2018, the President of the United States (US) announced that the US will move forward and implement a 25% tariff on US$34 billion of goods from China that contain industrially significant technologies.

The proposed list of April 3 has been updated to the latest list as of June 15.

The deadline for submitting comments for the latest set of proposed items is 20 July 2018, while the deadline for filing requests to appear at the public hearing is 29 June 2018.

EY’s Global Tax Alert includes details on this latest listing, and also provides the following Best Practices on this topic:

  • Mapping the complete, end-to-end supply chain to fully understand the extent of products impacted, potential costs, alternative sourcing options, and to assess any opportunities to mitigate impact.
  • Identifying strategies to defer, eliminate, or recover the excess duties such as bonded warehouses, Foreign Trade Zones, or substitution drawback and their equivalent under China customs regulations.
  • Exploring strategies to minimize the customs value of imported products subject to the additional duties, re-evaluating current transfer pricing approaches, and for US imports, considering US customs strategies, such as First Sale for Export.

As this this latest round of tariff battles ensue, transfer pricing and other aspects of international tax are directly and indirectly impacted.  Thus, it is imperative to monitor the latest developments while developing possible plans of action.

https://www.ey.com/Publication/vwLUAssets/US_imposes_first_set_of_tariffs_on_China_origin_products_-_publishes_list_of_34_billion_in_goods_subject_to_additional_25_percent_duty_effective_6_July_2018/$FILE/2018G_03201-181Gbl_Indirect_US%20imposes%20first%20set%20of%20tariffs%20on%20China%20origin%20products.pdfUS

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