Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘BEAT’

TCJA guidance

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

US Int’l developments

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

US Regs: BEAT overview

KPMG’s initial observations of the final and proposed BEAT regulations are attached for reference:

Click to access 19569.pdf

US BEAT/FTC Reg’s

Final and proposed Regulations were issued with respect to the Foreign Tax Credit and BEAT.  Noting this regulation package collectively amounts to over 650 pages, it will require time and attention to webcasts, etc. to fully understand the breadth of these rules, especially as they may pertain to 2018 and/or 2019.

Click to access td-9882.pdf

Click to access reg-105495-19.pdf

Click to access 2019-25744.pdf

Click to access 2019-25745.pdf

US: TCJA Reg chronology

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

US: FTC Reg’s on the way

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.

https://home.kpmg/us/en/home/insights/2019/10/tnf-regulations-pending-oira-review-foreign-tax-credit-guidance.html

US: The BEAT goes on

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

US int’l developments

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

US update: 956/GILTI/BEAT Reg’s

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

BEAT: TEI’s comments

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.

Click to access TEI-Comments-Proposed-BEAT-Regulations-FINAL-to-IRS-19Feb2019.pdf

US: The BEAT goes on

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.

Highlights:

  • 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.

Click to access 2018G_012449-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2014%20Dec%202018.pdf

Click to access n-19-01.pdf

Click to access reg-104259-18.pdf

https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

US Sec. 163(j): Guidance/complexity

The IRS recently released Proposed Regulations on Section 163(j): an interest limitation that is applicable for the calculation of Global Intangible Low-Taxed Income (“GILTI”) under the US Tax Act (“TCJA”).  A copy of the Proposed Regulations are provided for reference, highlighting some areas of clarity/surprise.  Comments are due within 60 days of publication in the Federal Register, with a public hearing set for Feb. 25, 2019.

  • Former Proposed Regulations for Sec. 163(j), never finalized, are withdrawn
  • Proposed Regulations may be elected for 2018
  • General rule-Same as C corp; election (alternative method) for a CFC group
  • One limit for a consolidated group (affiliated, non-cons. group, or partnership n/a)
  • Adjusted Taxable Income (“ATI”) requires an adjustment for:
    • Capitalizable Sec. 263A costs re: inventory/sales  
    • sales/dispositions of certain property
    • Sec. 78 gross-up, Sec. 951(a) Subpart F, Sec. 951A GILTI, Sec. 250(a)(1)(B) deduction, without regard to Sec. 250(a)(2) limitation, related to GILTI
  • Upper tier CFC members include “excess interest” of lower tier CFC’s
  • Further guidance re: ordering of Code provisions, including BEAT, will be issued
  • A “new” definition of interest is provided, including:
    • Sec. 1275(a) and Reg. Sec. 1.1275-1(d) instruments
    • Factoring income
    • OID
    • Accrued market discount
    • Guaranteed payments of Sec. 702(c)
    • Income/loss re: hedges of interest-bearing assets/liabilities
    • Swaps, separated into a loan and payment swap (collateralized swap n/a)
    • Commitment fees
    • Debt issuance costs
  • Anti-avoidance rule
  • Sec. 382 attribution for pre/post-change periods
  • Sec. 381 includes the attribute for disallowed interest expense carryovers
  • No effect on E&P
  • Sec. 163(j) limit at partnership level
  • Intercompany CFC debt is included as interest income and expense, thus resulting in a net -0-; other debt will be a net adjustment to be allocated to separate CFC’s
  • New Form 8990 will be required

The most contentious items, as noted in recent days, are the adjustment of Sec. 263A depreciation (thus a factory does not add back depreciation in EBITDA), add back of Sec. 78, Sec. 951(a), Sec. 951A as reduced by the relevant Sec. 250 amount, complexity including excess ATI adjustments, and the new definition of interest, which includes interest equivalent instruments/transactions that will be included as a potential limitation.

The 439 pages require several readings for a general comprehension, aided by webinars and summaries from various advisory firms.

Click to access REG-106089-18-NPRM.pdf

US guidance: Ready, set, go!

Alot of guidance is virtually rolling off the press!

  • PTI guidance for year-end financial statements
  • Foreign tax credits, including application of GILTI
  • Section 163(j) interest guidance
  • Proposed regulations on PTI application
  • BEAT
  • Section 250 guidance

The guidance will be complex and lengthy, and it represents only one step towards achieving more certainty into the complex nuances of the US Tax Act.  EY’s Global Tax Alert provides a summary for reference.

Click to access 2018G_011433-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2019%20Oct%202018.pdf

US int’l tax update

The latest US tax updates are summarized in EY’s Global Tax Alert, with a referenced link

  • Tax Reform 2.0: House is moving forward with three separate bills, hoping at least one will pass, although Senate will not review prior to Nov. midterm elections
  • GILTI: Additional rules re: interaction of Foreign Tax Credit and GILTI by Dec. 31, 2018  (It is hoped that the calculation of Sec. 163(j) interest limitations will be addressed re: application on a separate CFC basis, consolidated basis, or other method)
  • GILTI: Final regulations June 2019
  • IRS plans to establish separate webpages for the major international tax provisions enacted by the 2017 tax reform to provide informal taxpayer guidance. The webpages will follow a similar format that was adopted by the IRS to offer informal information regarding the TCJA’s transition tax.
  • IRS: Restructuring the Advance Pricing and Mutual Agreement program (APMA) to consolidate resources and improve internal processes, including economists.

There is still significant uncertainty re: Sec. 965 repatriation tax, GILTI, FDII and BEAT provisions by taxpayers.  It is hopeful that meaningful guidance will be issued shortly.      

Click to access 2018G_011226-18Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2028%20Sept%202018.pdf

US int’l developments

EY’s Global Tax Alert provides the latest US updates, noting the following:

  • Regarding the TCJA’s foreign derived intangible income (FDII) provision, a Treasury official was quoted as saying the Government is actively looking at how to apply the disqualification for related-party services that are substantially similar to services provided by the related party to US taxpayers.
  • A senior IRS official said the legislative history and the purpose of the provision strongly suggests that the Internal Revenue Code Section 78 GILTI gross-up should be placed in the GILTI basket. The official conceded that that interpretation is not in the statute, however.
  • Reflecting on the base erosion anti-abuse tax (BEAT), the official said Treasury is presently undecided if including a markup disqualifies the entire charge or just the amount of the markup for related-party services, that otherwise qualifies for the services cost method exception.

    The noted highlights are very critical in estimating the impact on financial statements, as well as compliance and planning opportunities.  To the extent timely guidance is not provided this year, there will be additional uncertainties in how to measure the effects of the complex Tax Act provisions.  

     

     

 

Click to access 2018G_02505-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2027%20April%202018.pdf

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