Strategizing International Tax Best Practices – by Keith Brockman

OIRA: Primer / TCJA status

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.

https://www.reginfo.gov/public/do/eoReviewSearch

https://www.reginfo.gov/public/

Royal Dutch Shell PLC has published their 2018 tax contribution report, including country-by-country (CbC) statistics.

Public transparency of CbC reports has been in the vision of the EU (Dec. 6, 2019 blog), although it has not yet passed.

Shell’s report reflects a proactive effort to promote global transparency, and is an exemplary model to follow.

https://reports.shell.com/tax-contribution-report/2018/servicepages/downloads/files/shell_tax_contribution_report_2018.pdf

 

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.

https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-27813.pdf

Sec 162(m) Prop Regs

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.

https://www.federalregister.gov/documents/2019/12/20/2019-26116/certain-employee-remuneration-in-excess-of-1000000-under-internal-revenue-code-section-162m

US int’l developments

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

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_20_December_2019/$FILE/2019G_005869-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2020%20Dec%202019.pdf

EU Code of Conduct

The Council of the EU published its latest report, summarized and referenced herein:

  • The US complies with all the EU Member States re: Automatic Exchange of Information (AEOI) due to its double tax treaty network, FATCA, etc.
  • Guidance on notional interest deductions who wish to adopt a similar method, as not harmful by the Group (no safe harbor; general criteria)
  • Delisting certain non-cooperative jurisdictions
  • Monitoring implementation of commitments by jurisdictions
  • Identification of new preferential regimes
  • Further defensive measures for non-cooperative jurisdictions
  • Treatment of partnerships re: substance
  • The way forward; future monitoring, etc.

This is important guidance, as it provides transparency into the tax measures adopted, or not adopted, by various jurisdictions.  It also provides potential measures to incentivize non-cooperative jurisdictions.

https://www.ey.com/Publication/vwLUAssets/EU_Code_of_Conduct_Group_issues_update_report,_including_new_guidance/$FILE/2019G_005707-19Gbl_EU%20Code%20of%20Conduct%20Group%20issues%20update%20report%20-%20new%20guidance.pdf

https://data.consilium.europa.eu/doc/document/ST-14114-2019-INIT/en/pdf

http://data.consilium.europa.eu/doc/document/ST-12284-2019-REV-1/en/pdf

2019 BDO Board Survey

BDO’s 2019 Board of Directors survey is attached.

The 2019 BDO Board Survey, conducted by Market Measurement, Inc., an independent market research consulting firm on behalf of the Corporate Governance Practice of BDO USA, examined the opinions of 180 corporate directors of public company boards.

Respondents represent a distribution of organizations across industries and market value, from less than $200M to more than $10B.

Re: impact of the Tax Cuts and Jobs Act (TCJA), approx. 47% of the respondents were affected by the reduced Federal tax rate, although less than 20% were impacted by tax losses, foreign earnings impact or interest expense limitations.  This is very surprising with the TCJA GILTI provisions.

Almost two-thirds of directors (65%) report a high or moderate understanding of their company’s total tax liability.

Page 7 of the report is interesting, as it illustrates actions pursued as a result of tax reform.  These actions include MA&A, stock buy-backs, increased dividends and repatriation of cash to the US.

https://www.bdo.com/getattachment/9a99015e-cd22-4d93-94b2-68cc0d243e1f/attachment.aspx?2019_BDO-Board-Survey_web.pdf

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