Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Sec. 385’

US: Int’l update/FTC Reg’s

  • The Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) completed its review of final and temporary foreign tax credit (FTC) regulations on 29 October, including R&D expense allocation.  These rules are imminent.
  • Final Sec. 385 regulations were issued, removing the final documentation requirements
  • Sec. 385 Advance Notice of Proposed Rulemaking was issued re: Distribution Regulations
  • The Congressional Joint Committee on Taxation staff released the General Explanation of Certain Tax Legislation Enacted in the 115th Congress (JCS-2-19) on 31 October. Colloquially known as the Blue Book, the publication includes a description of all tax legislation enacted in the 115th Congress, with the exception of the 2017 Tax Cuts and Jobs Act (Public Law 115-97), which was covered in a separate General Explanation released in December 2018.
  • A Brexit extension was approved this week, with the UK’s Article 50 period (after which the UK will leave the EU) legally extended by the EU until 31 January 2020.

EY’s Global Tax Alert provides more details, with a reference link.

The FTC regulations, to be issued in final and proposed form, will be complex, long and will provide certainty, as well as more questions into this complex area.

Click to access 2019G_004918-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%201%20Nov%202019.pdf

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TJCA

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US Sec. 385: Final reg’s at last

The US Treasury and IRS issued the long-awaited Sec. 385 rules re: debt characterization, documentation and potential impact on a company’s international treasury system and related borrowings/distributions.

There are some exemptions everyone was wanting: foreign-to-foreign transactions, cash pooling (notwithstanding related documentation), in addition to relaxed timing for documentation matched to the timing for filing the US federal income tax return and a transition rule pre-2018.  However, there are strict documentation rules re: cash pools, including a trigger for substantially modifying terms of the agreement and other significant changes.

Note, the new rules are in addition to the subjective rules on debt characterization in IRC Sec. 385, further complicating characterization of debt instruments.

EY’s Global Tax Alert provides a comprehensive summary of this latest development, which all multinationals are studying to determine what impact it has for 2016, and future operations.

As treasury operations and tax strategies/planning are ineffective operating in silo fashion, it is also a good time to assess the organizational structure for tax and treasury operations to ensure they are operating as one strategic unit.  

Click to access 2016G_03341-161Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2014%20October%202016.pdf

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Transfer Pricing

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US: international developments

The US Treasury and IRS released the 2016-2017 Priority Guidance Plan, which highlights intended final regulations re: Sec. 956 for loans to foreign partnerships, and Sec. 367(d) transfers of intangible property to foreign corporations.

Treasury has stated its acknowledgment of concerns re: 385 rules, and intends to address them in rules still going forward for release in several weeks.  These rules are far-reaching (per the current proposed Regulations) and merit immediate attention by tax and treasury practitioners in all MNE’s.  Most importantly, the Sec. 385 rules re: loans/distributions are in addition to the current subjective debt/equity subjective rules and a long history of case law.  Accordingly the impact on documentation should be completed within the next 3 months by all MNE’s.

EY’s Global Tax Alert provides further details on the US international developments.

Click to access EY-are-you-ready-for-your-close-up.pdf

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Tax Risk Management

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US update: 385 rules still in play

The controversial final Section 385 regulations are still being debated, with Treasury focusing on earnings stripping issues, although seemingly has heard valuable comments as to its detrimental effect on physical or notional cash pooling.  Every MNE should have read the proposed Reg’s and educated their treasury and finance functions accordingly, which should be an immediate priority due to its expansive potential effect on treasury, legal and tax structures going forward.  

The US House is set to release its tax blueprint next week, which may become more important if a Republican president is elected with potential reforms again in play.

EY’s Global Tax Alert discusses these topics and some BEPS updates.

Click to access 2016G_01618-161Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20June%202016.pdf

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Tax Risk Management

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