Strategizing International Tax Best Practices – by Keith Brockman

The Democratic House passed an extensive new CARES-19 bill, which is subject to Senate review and further amendments.  Most importantly, the effective dates are retroactive, thereby reversing / revising some provisions of the prior enacted CARES Act bill.

For multinationals, the NOL carry back period is restricted to years beginning 1/1/2018, thereby negating the positive rate arbitrage from 21% to 35% for 2016 and 2017.  Additionally, the Employee Retention Tax Credit provisions have been liberalized, from a change in the quarterly decline in gross receipts for year-over-year and increasing the amount of “qualified wages” eligible for the credit.

https://www.npr.org/2020/05/12/854707010/read-the-house-bill-calling-for-3-trillion-in-coronavirus-relief

In response to prior comments, including additional clarification, HMRC has issued draft guidance for which comments are to be received by May 15, 2020.

With regard to penalties, which are a significant concern re: implementation and reporting of DAC6 reportable arrangements, there will be a “reasonable excuse” guideline.  This guideline will be supporting by the governance and documentation principles established in the reporting process.

EY’s Alert provides additional details on this recent development.

https://www.ey.com/en_gl/tax-alerts/uk-hmrc-issues-draft-guidance-on-mandatory-disclosure-regime-regulations

In response to comments from countries, companies and tax advisors, the EU Commission has prepared a draft Council Directive to extend the DAC6 reporting deadlines by 3-months due to COVID-19 considerations.

The initial report, covering the period from June 25, 2018 to June 30, 2020 will be due by November 30, 2020 (currently August 31, 2020).  The 30-day reporting, currently commencing July 1, 2020, will be delayed until October 1, 2020, thereby the first 30-day report would include the period from July 1 to October 1, due 30 days thereafter.

The legal basis for this change is sourced from Articles 113 (indirect tax) and 115 (direct tax) of the Treaty on the Functioning of the European Union (TFEU).  Reportable cross-border arrangements may relate to both indirect and direct tax, thus both legal bases are relevant for the proposed rules.  As a result, a Directive is required to change the prior legislation.

Member States shall adopt and publish, by May 31, 2020, the laws and administrative provisions necessary to comply with the Directive, and communicate to the Commission accordingly.

The Directive will enter into force on the day following that of its publication in the Official Journal of the European Union. 

The extension will allow reporting parties additional time to collect supporting documentation for the initial reporting date, and develop sustainable processes for 30-day reporting thereafter.  

Click to access 08-05-2020-proposal_for_a_council_directive_amending_directive_201116eu.pdf

ERTC: IRS reversal

IRS has agreed to reverse its FAQ decision in which it denied the benefits of the Employee Retention Tax Credit for health care expenses of furloughed employees that were not receiving a salary for not working.

This is a welcome change, as it conforms to the intent of the Cares Act, Joint Committee on Taxation and Senate Finance Committee.

It is hopeful they will also revise their distinction of benefits for “essential” and “non-essential” businesses.

As a reminder, the FAQ’s do not have legislative authority and are at the lowest level of guidance, which begins with the Internal Revenue Code and Regulations.

https://www.finance.senate.gov/chairmans-news/following-bipartisan-request-treasury-modifies-employee-retention-tax-credit-eligibility-for-employers-providing-health-benefits-for-furloughed-employees

 

Effective July 1, 2020, regular payments subject to withholding, and fulfilling tax treaty requirements, will be subject to paying the withholding taxes and filing for a refund, which is estimated to be a 6-month lag.

Exceptions would be approval by the tax administration, also a 6-month process, or assertion by the board of directors that all requirements have been met which is subject to personal liability and therefore a personal deterrent.

As other countries generally follow such trends, will COVID-19 prompt such actions to preserve final cash flow?

EY’s Alert provides additional details on this development.

https://taxnews.ey.com/news/2020-1072-poland-to-impose-withholding-tax-on-cross-border-payments-as-of-1-july-2020

 

ERTC: IRS guidance

IRS has just published extensive Q and A guidance, including Form 7200 and instructions, with respect to the Employee Retention Tax Credit (ERTC).

The comprehensive guidance will be used as reference for claiming the credit, and attention to detail will be the key for documentation.  The interaction with deferral or employment taxes is included, as well as the definition of gross receipts for determining the quarterly reduction of gross receipts over the prior year corresponding quarter.

https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

DAC6: Penalty mitigation

Deloitte’s recent penalty mitigation survey summarizes the penalties and possible mitigation/appeal strategies to minimize such risks.

With COVID19, it will be more interesting as Member States will be looking for more monies to restore their fiscal growth.

Click to access DAC6%20country-specific%20penalties%20and%20penalty%20mitigation%20survey%20%28Deloitte%29.pdf

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