Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘Tax Risk Management’ Category

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

US Repatriation Tax; IRS clarity(?)

IRS recently updated its previously published Q and A’s re: application of Sec. 965 deemed repatriation tax instructions re: estimated tax payments for 2018.  The prior version still has a debatable Question 14 that applied a 2017 overpayment to the entire amount of deemed repatriation tax (not just the first installment) prior to application for the first estimated payment of federal income tax generally due April 15th.

As Question 14 was issued literally just prior to the first installment date, corporations may have missed this point and thereby would be subject to interest and penalty for late payment.

The latest update obviates such penalties if the second estimated payment is a cumulative catch-up amount for both the first and second estimates.  

However, what was not fixed is the apparent ability by IRS to apply the overpayment solely to deemed repatriation tax in its entirety prior to applying it to estimated federal income tax liability due.  This is still a question in the minds of many.  

EY’s Global Tax Alert highlights this development.

https://www.ey.com/Publication/vwLUAssets/US_IRS_updates_Section_965_transition_tax_FAQs_to_include_late-payment_penalty_and_filing_relief_-_action_may_be_needed_by_15_June_2018/$FILE/2018G_03498-181Gbl_US%20IRS%20updates%20Section%20965%20transition%20tax%20FAQs.pdf

US/EU/OECD tax developments

EY’s Global Tax Alert details several important global developments worth watching:

  • Phase 2 US tax reform – individual taxes, what else?
  • OECD’s first peer review reporting on BEPS Action 13: TP Documentation and County-by-Country (CbC) reporting (attached herein for reference)
  • EU Directive on cross-border reportable arrangements, reporting to commence in 2020 although effective date will be June/July 2018.  

The reportable arrangements are a must read for international tax colleagues to understand the impact of arrangements planned for currently that may become a transparent arrangement to be reported in the EU.

The OECD CbC report is also helpful to understand the trend that CbC reports will generate ongoing, and the viewpoint of the countries that administer this process.

The OECD BEPS Actions, including CbC reporting, significantly impact international tax compliance burdens and challenges going forward.  Additionally, US tax reform still has experts deliberating their practical application, notwithstanding future legislation.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_1_June_2018/$FILE/2018G_03277-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%201%20June%202018.pdf

https://read.oecd-ilibrary.org/taxation/country-by-country-reporting-compilation-of-peer-review-reports-phase-1_9789264300057-en#page1

UAE’s ownership/visa changes

The UAE has made significant changes to the rules re: ownership of foreign companies and visas.  A foreign investor may now own 100% of a company established in the UAE, regardless of economic zones, while certain individuals will be able to obtain a 10-year visa.

Both developments are significant for companies operating in the UAE, as it provides operational certainties as well as individual plans by professional expatriates living in the UAE.  Companies operating under the former rules may review the impact of these changes going forward.

EY’s Global Tax Alert provides details herein.

https://www.ey.com/Publication/vwLUAssets/UAE_announces_significant_changes_to_foreign_ownership_and_visa_rules/$FILE/2018G_03096-181Gbl_UAE%20to%20change%20foreign%20ownership%20and%20visa%20rules.pdf

Dutch TP decree

The Dutch Finance Secretary published a new transfer pricing (TP) decree, generally in alignment with OECD’s 2017 guidelines, with some caveats.

Observations:

  • The 2017 OECD changes were clarifying in nature, thus the guidelines apply to prior years
  • Aligned with OECD concept of (non) recognition of controlled transactions
  • The OECD Guidelines refer to the development, enhancement, maintenance, protection and exploitation (DEMPE) functions, although the development and enhancement functions will receive a higher rating
  • New guidance on a purchase of shares, followed by a restructuring
  • Public database results for economic analyses will be subject to further review
  • Simplified approach of cost + 5% is adopted for intra-group services

As some of the above concepts will be reviewed, and adopted, by other countries the new decree is a must read for TP professionals.

EY’s referenced Global Tax Alert provides additional details.

https://www.ey.com/Publication/vwLUAssets/Dutch_Finance_Secretary_publishes_new_Decree_on_application_of_the_arms-length_principle_and_OECD_Guidelines/$FILE/2018G_02953-181Gbl_TP_Netherlands%20arms-length%20principle%20and%20OECD%20guidelines.pdf

US Int’l developments

The IRS is pursuing many avenues of guidance this year and next, including:

  • Proposed rules for US Tax Act Sec. 965 in August 2018, which should be just in time for the 1-year SAB 118 period that ends Q3 for calendar-year taxpayers.
  • Proposed rules for Foreign Tax Credit of the US Tax Act in August 2018
  • Proposed rules for GILTI in Sept. 2018 (hopefully this will allow consolidated calculation vs. separate shareholder chain rule currently written in the law)
  • Proposed rules for BEAT in October 2018
  • Other rules should follow in 2019

This guidance will hopefully clarify the above provisions to allow relevant tax planning, based on the certainty of the US Tax Act provisions.

EY’s Global Alert highlights these developments

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_11_May_2018/$FILE/2018G_02785-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2011%20May%202018.pdf

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