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
The Tax Executives Institute, Inc. (TEI) previously issued excellent comments regarding divergent views of the Big 4 accounting firms for US GAAP tax accounting issues for the new US Tax Act aspects.
These views are still divergent today as we approach the end of March, and further issues continue to develop that impact the cash tax and tax reporting aspects for the US Tax Act. Accordingly, the same facts may provide a different repatriation tax liability and tax accounting for different multinational companies, certainly a difficult variable for comparison by tax experts and, most importantly, by investors.
As these positions may continue to diverge, position papers and discussions with the audit firm, Audit Committee of the Board of Directors and the company should be scheduled to ensure there are no surprises as earning release dates are emerging.
Click to access TEI%20Letter%20re%20ASC%20740%20treatment%20of%20BEAT%20and%20GILTI.pdf
The latest US / OECD developments are detailed in the referenced EY Global Tax Alert, highlighting a potential second tax bill (apart from technical corrections), status on the “Blue Book: by the Congressional Joint Committee on Taxation, Q&A IRS release re: Section 965 including how to pay the first estimate and report on the US federal income tax return, anti-corporate inversion regulations, and OECD’s Interim Report of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), titled “Tax Challenges Arising from Digitalisation.” Additionally, OECD released the third batch of peer reports – Certainly an exciting and challenging time!
There are still many areas of debate and room for reasonable interpretation on major aspects of the US Tax Act, especially as the 2018 provisions of BEAT, FDII and GILTI are not encased within the one-year measurement period of SAB 118. For companies subject to Q1 reporting, these uncertainties should be aligned with the auditor to avoid last-minute debates for material items.
Click to access 2018G_01558-181Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2016%20March%202018.pdf