Treasury is now fairly confident that all TCJA guidance will be finalized by October 1st.
Treasury deputy assistant secretary for international tax affairs, Lafayette G. “Chip” Harter III, recently shared his ambitious agenda, including the following:
- Section 901(m) regulations, imminent
- Section 163(j) interest, OIRA received proposed regulations February 7th; final reg review is complete
- FDII regulations, spring; documentation requirements have been reworked
- GILTI regulations, summer
- Foreign tax credit regulations and others, in the pipeline
- Treaties with Chile, Hungary and Poland; may be reworked, as there are concerns that the BEAT violates Articles 23 (relief from double taxation) and 24 (nondiscrimination) of the U.S. model income tax treaty
Final Section 163(j) business interest deduction limitation regulations will be released with newly proposed regulations that will address issues not covered by the coming final regulations.
The proposed regulations under Section 163(j) have not been sent to the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) for review, which may delay the release of the final interest limitation regulations, already at OIRA.
The Tax Foundation has provided a useful reference to state law changes, as 35 states have major tax changes taking effect on 1/1/2020.
This is especially important as more states are still interpreting the Tax Act, and any impact for GILTI, Sec. 163(j) interest limitation, etc.
The reference provides a summary by state of the recent law changes and details.
Click to access State-Tax-Changes-as-of-January-1-20201.pdf
The Office of Information and Regulatory Affairs (OIRA, pronounced “oh-eye-ruh”) is a Federal office that Congress established in the 1980 Paperwork Reduction Act (44 U.S.C Chapter 35). OIRA is part of the Office of Management and Budget (OMB), which is an agency within the Executive Office of the President. In addition to reviewing government collections of information from the public under the Paperwork Reduction Act, OIRA reviews draft proposed and final regulations under Executive Order 12866 and develops and oversees the implementation of government-wide policies in the areas of information policy, privacy, and statistical policy. OIRA also oversees agency implementation of the Information Quality Act, including the peer review practices of agencies.
Current items, listed under Dept. of Treasury towards the bottom of the first referenced link, include a Final rule on Sec. 267A Hybrid payments, Proposed rule on Section 1502 guidance, and a Final rule on applying Sec. 163(j) interest limitation.
Regulatory actions include:
- Notice – These are documents that announce new programs (such as grant programs) or agency policies.
- Pre-rule (or advance notice of proposed rulemaking) – Agencies undertake this type of action to solicit public comment on whether or not, or how best, to initiate a rulemaking. Such actions occur prior to the proposed rule stage.
- Proposed rule – This is the rulemaking stage in which an agency proposes to add to or change its existing regulations and solicits public comment on this proposal.
- Final rule – This is the last step of the rulemaking process in which the agency responds to public comment on the proposed rule and makes appropriate revisions before publishing the final rule in the Federal Register to become effective.
- Interim Final Rule – These interim rules are typically issued in conformity with statutory provisions allowing agencies to publish a final rule that becomes effective soon after publication, without going through the proposed rule stage. The “good cause” exception in the Administrative Procedure Act allows agencies to bypass public notice and comment on a rule when it would be impracticable, unnecessary, or contrary to the public interest. This process typically allows for public comment after the rule is published so that the agency still has an opportunity to consider public input and revise the rule accordingly.
- Direct Final Rule – These rules are similar to interim final rules, except that there is no comment period after publication, on the ground that they are uncontroversial. Such rules are categorized simply as “final rules” for display purposes on the dashboard.
The U.S. Treasury Department and the IRS posted Sec. 863(b) proposed regulations re: foreign source income from sales of inventory/personal property and determining whether foreign source income is effectively connected with a trade or business in the U.S.
The proposed regulations are expected to be published in the Federal Register on December 30, 2019, thereby becoming applicable in Q4 for calendar-year taxpayers. The document is attached for reference.
Click to access 2019-27813.pdf
On December 20, 2019, Treasury released new Proposed Regulations re: Sec. 162(m), executive compensation. This set of Regs replaces prior interim Regs released in 2018, and should be reviewed for Q4 year-end compliance.
The Sec. 954(c)(6) CFC look-through rules were extended one year to the end of 2020, awaiting the President’s signature
Final Sec. 163(j) Regs were sent to OIRA
Final Sec 267(A) hybrid mismatch Regs were sent to OIRA
EY’s Global Tax Alert highlights these, and other, developments in the referenced link
Click to access 2019G_005869-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2020%20Dec%202019.pdf
The US developments are centered around the new regulations for BEAT and Foreign Tax Credit (FTC).
The new BEAT regulations include:
- Excludes non-recognition transactions re: Sec. 332, 351, 355, and 368
- Allows foregoing a deduction, albeit it will be for all US federal tax purposes
- Clarifies anti-abuse rules
The final FTC regulations include:
- Reducing previously taxed E&P baskets to 10, from 16
- Gross tested income is tiered up for purposes of allocating interest expense
- Foreign tax redeterminations are addressed
- Foreign branch rules are detailed
Additionally, Section 987 regulations are deferred by another year.
EY’s Global Tax Alert details the latest developments.
Click to access 2019G_005410-19Gbl_German%20Federal%20Council%20approves%20Research%20Allowance%20Act.pdf
Pending developments this year are focused on the Tax Cuts and Jobs Act (TCJA).
This week expectations – Final FTC Regs, final and proposed BEAT Regs
This year (maybe) – Final and proposed Sec. 163(j) Regs (currently at 550 pages)
This year/January 2020 – Sec 267A final and proposed Regs, Sec 863(b) sourcing proposed Regs
by June 30, 2020 – Final FDII regulations, GILTI high-tax exclusion, Sec 250 participation exemption
EY’s Global Tax Alert provides further details, including OECD developments reported on previously
Click to access 2019G_005186-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2015%20Nov%202019.pdf
- The Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) completed its review of final and temporary foreign tax credit (FTC) regulations on 29 October, including R&D expense allocation. These rules are imminent.
- Final Sec. 385 regulations were issued, removing the final documentation requirements
- Sec. 385 Advance Notice of Proposed Rulemaking was issued re: Distribution Regulations
- The Congressional Joint Committee on Taxation staff released the General Explanation of Certain Tax Legislation Enacted in the 115th Congress (JCS-2-19) on 31 October. Colloquially known as the Blue Book, the publication includes a description of all tax legislation enacted in the 115th Congress, with the exception of the 2017 Tax Cuts and Jobs Act (Public Law 115-97), which was covered in a separate General Explanation released in December 2018.
- A Brexit extension was approved this week, with the UK’s Article 50 period (after which the UK will leave the EU) legally extended by the EU until 31 January 2020.
EY’s Global Tax Alert provides more details, with a reference link.
The FTC regulations, to be issued in final and proposed form, will be complex, long and will provide certainty, as well as more questions into this complex area.
Click to access 2019G_004918-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%201%20Nov%202019.pdf
Final and proposed Foreign Tax Credit (FTC) regulations are in review by OMB’s Office of Information and Regulatory Affairs.
These regulations join the pending BEAT regulations in OIRA.
We should expect both sets of regulations in the very near future.
As news of final Base Erosion and Anti-abuse Tax (BEAT) regulations are to be released by OIRA and issued, there are also new proposed BEAT regulations to accompany them.
So, the BEAT goes on, while everyone is still awaiting final foreign tax credit regulations.
As we are approaching the end of the third quarter, this may be a significant development to digest for material changes to the proposed regulations, in addition to some unknowns and uncertainties.
Click to access 2019G_004223-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2020%20Sept%202019.pdf
As 2019 year-end is quickly approaching, there are important items of legislation still pending, including the following:
- US Tax Act (TCJA) technical corrections, including the ability to apply transition tax overpayments (several Republicans and Democrats have already agreed to sponsor a relevant bill), and CFC downward attribution rules
- Tax extenders, including the important look-through rules for CFC’s, which expires at the end of this year
- Additional tax treaties will be reviewed, following the recent ratification of Spain and Japan treaties with the US
- Final BEAT regulations, with new proposed regulations in some areas
- Section 163(j) rules for application to CFC’s
- GILTI high-tax exclusions
- Final foreign tax credit regulations
- Section 245A dividends received deduction regulations
- FDII and anti-hybrid regulations
The above items are important as stand-alone items, and represent a significant amount of regulations to absorb prior to year-end if they can be issued this year.
These changes may significantly impact the annual ETR of multinationals in the fourth quarter, as well as introduce new TCJA concepts into treaties and complex Limitation of Benefit (LOB) clauses therein.
The TCJA complexities, and interpretations thereto, continue this year and next, posing compliance and planning uncertainties going forward.
EY’s Global Tax Alert provided additional details, as referenced.
Click to access 2019G_001146-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2013%20Sept%202019.pdf
IRS and Treasury released, on June 14th, a set of proposed and final Regulations on GILT, in addition to Temporary and Proposed Regulations on Section 245A that relate, partly, to GILTI. A copy of the proposals are provided for reference, with some highlights to date:
- REG 106282-18 is a Notice of proposed rule making with temporary regulations that limit the dividends received deduction available for certain dividends received from current or former controlled foreign corporations (CFCs). Per the Notice, “only small U.S. taxpayers with fiscal year CFCs that transfer assets in related party transactions during the gap period, or U.S. taxpayers that transfer more than 10 percent of their stock of a CFC in a taxable year or U.S. taxpayers that reduce their ownership of stock of a CFC by more than 10 percent, have the potential to be affected by these regulations.”
- REG 101828-19, Notice of proposed rule making re: domestic partnership treatment ( adopting an aggregate approach), and proposed GILTI regulations for gross income subject to a high rate of foreign tax. Note the GILTI final regulations adopt the GILTI high tax exclusions of the original proposed regulations without change, however the proposed regulations would allow an expanded election whereby the high-tax determination is made at the QBU level. An election made with respect to a CFC applies with respect to each high-taxed QBU of the CFC, and a U.S. shareholder must make the same election with respect to each of its CFCs. This high-tax change would apply to taxable years of foreign corporations beginning on or after the date that final regulations are published in the Federal Register.
- TD9865, Final temporary regulations under Section 245A
- TD9866, Final and temporary regulations re: GILTI guidance, pro-rata shares of Subpart F income and certain foreign tax credit provisions. Note that future guidance is reserved re: allocation and apportionment of expenses for the foreign tax credit limitation under Section 904.
- Future guidance is expected to clarify that Sec. 250 does not apply to CFCs as an allocable deduction
- Final regulations retain the current GILTI high tax exclusion, noting that the rules prescribed by a separate notice of proposed rule making for an expanded exclusion cannot be used until the relevant regulations are effective.
- De minimis and full inclusion rules are clarified
- The effect of a qualified deficit or a chain deficit in determining gross tested income is disregarded, and the final regulations are revised accordingly
- Final regulations retain the tested loss QBAI exclusion, although there is a reduction to tested interest expense of a CFC for a “tested loss QBAI amount”
- Final regulations retain the netting approach for determining specified interest expense, with certain modifications
- Final regulations define “interest expense” and “interest income” by reference to Section 163(j)
- Rules for basis adjustment of tested loss CFCs will be a separate project
The regulations/notice of proposed rule making are extensive, complex and represent over 500 pages of guidance, although certain provisions and clarifications represent favorable rules based on comments received.
The rules clarify current law, comments received and explanations why they were, or were not, considered. Thus, a detailed review refreshes such insights into the long history of the international tax provisions.
Click to access 2019-12436.pdf
Click to access 2019-12442.pdf
Click to access 2019-12437.pdf
Click to access 2019-12441.pdf
Final Section 956 Reg’s have been issued, reducing the Section 956 inclusion by an equivalent amount that would have been eligible for the Section 245 dividends received deduction.
Final GILTI Regulations will be issued by June 22, thereby providing retroactivity to the effective date of the TCJA.
Final BEAT Regulations will also be issued by the end of summer, although not soon enough for retroactive effect.
EY’s Global Tax Alert provides additional details, for reference.
Click to access 2019G_002538-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2023%20May%202019.pdf
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