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
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.
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.
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.
Tax Executives Institute, Inc. (TEI) recently provided comments to the proposed BEAT regulations, including the following:
- Use of services cost methodology should be clarified
- A payee’s Subpart F income should be excluded (i.e. avoid double taxation)
- Nonrecognition transactions should be excluded
- A payor’s recognized loss transaction should not also have BEAT implications
- No blended rates
- Anti-abuse rule should be clarified
- A recomputation approach should be available for NOL taxpayers
The thoughtful comments provide additional context of the intent for the BEAT provisions, and suggestions to carry out the intent of legislation without extending into other transactions that would have been initially thought as not within the BEAT purview.
Complex new guidance continually is rolling off the press for scrutiny, especially for year-end compliance. EY’s Global Tax Alert provides a summary of recent developments, references to IRS Notice 2019-01, IRS FAQ’s, and Proposed Regulations for BEAT are provided for reference.
- Proposed BEAT Regulations provide certainty re: Service Cost Method payments and the mark-up component that would be includable. BEAT is not limited to cash payments, and would also include amounts paid or accrued using any other form of consideration including property, stock or the assumption of a liability.
- Notice 2019-01 was issued to address the rules for repatriations, generally arising from Sec. 959(c)(1), (2) and (3) in that order based on a LIFO approach. Compliance complexity has expanded significantly, demanding more time from multinational tax departments that will require added resources, technology demands and external advisor costs.
- A new House Ways and Means tax package was introduced Dec. 10th, preserving the (correct) notion that tax year 2017 overpayments would not exclusively be attributed to the deemed repatriation tax without offset to 2018 regular tax liability. The package would also provide technical guidance for downward attribution rules.
- IRS FAQ’s have been updated, attached for reference.
- The IRS on 13 December issued proposed regulations (REG-132881-17) under Code Sections 1471–1474 (FATCA) and Sections 1441–1461.
- The Organisation for Economic Co-operation and Development (OECD) will release a major update on its work on the taxation of the digital economy at the end of January 2019, according to Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy and Administration.