The Consolidated Appropriations Act, 2021 (CAA) and OIRA have advanced interesting developments for early 2021.
New Section 163(j) interest regulations have not yet been posted on the IRS website, thereby this fact is significant for calendar-year taxpayers as they will not have to diligently read, and strategize, such information for year-end 2020, dependent upon the approach to evaluation of new legislation and timing.
Additionally, the exceptions to related party payments for Section 954(c)(6) have been extended for 5 years in the CAA. This is a new, and welcome, certainty provision for multinationals. Most importantly, this provision may also add in scheduling future taxable income to evaluate positive and negative evidence for affixing a Valuation Allowance on deferred tax assets that will reverse in the future.
The Employee Retention Tax Credit has also been extended, and liberalized, for the first two quarters of 2021.
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
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.
The review of these regulations by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) review is progressing, with over 500 pages of proposed regulations to be released publicly this week.
Lafayette G. “Chip” Harter III, Treasury deputy assistance secretary for international tax affairs, provided comments on Nov. 9 at the Federal Tax Conference sponsored by the University of Chicago Law School.
The business interest expense limitation, currently applied by many at the individual CFC level, would be determined on a look-through method, with net external interest calculated at the CFC group level and allocated to CFC’s, with a tiering-up approach.
The proposed Reg’s will be very complex and long, with over 500 additional pages of BEAT, FTC, etc. also to be issued later this month.