Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘TCJA’

US states: status at 1/1/2020

The Tax Foundation has provided a useful reference to state law changes, as 35 states have major tax changes taking effect on 1/1/2020.

This is especially important as more states are still interpreting the Tax Act, and any impact for GILTI, Sec. 163(j) interest limitation, etc.

The reference provides a summary by state of the recent law changes and details.

https://files.taxfoundation.org/20200102161647/State-Tax-Changes-as-of-January-1-20201.pdf

US Regs: BEAT overview

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

https://assets.kpmg/content/dam/kpmg/us/pdf/2019/12/19569.pdf

US FTC Regs: Overview

KPMG has provided a quick turnaround on the final and proposed Foreign Tax Credit regulations, linked for reference.

https://home.kpmg/content/dam/kpmg/us/pdf/2019/12/tnf-ftc-initial-impressions-dec3-2019.pdf

 

Critical Audit Matters (CAM)

US and international accounting standards have introduced the CAM process into the audit process, some of which include income tax accounts as a selected disclosure due to their materiality and the nature of being especially complex, challenging, subjective or complex auditor judgment (which is increasingly the norm for international tax rules)

For each CAM communicated in the auditor’s report, the auditor must:

Identify the CAM, describe the principal considerations that led the auditor to determine that the matter is a CAM,

Describe how the CAM was addressed in the audit, and

Refer to the relevant financial accounts/disclosures that relate to the CAM

As income taxes become more complex and subjective, including the effect of the Tax Cuts and Jobs Act (TCJA), MLI amendments to double tax treaties including permanent establishment (PE), OECD guidance and tax audit issues, a tax CAM may become more significant going forward, as it is an annual determination.

To the extent income tax is a CAM, there will be specific disclosures, preceded by more diligent review of the tax accounts, subjective determinations, etc. as part of the normal tax provision process.

PCAOB summary guidance and the relevant guidance links are referenced.

 

https://pcaobus.org/Standards/Documents/Implementation-of-Critical-Audit-Matters-The-Basics.pdf

https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx

 

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

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_15_November_2019/$FILE/2019G_005186-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%2015%20Nov%202019.pdf

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.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_1_November_2019/$FILE/2019G_004918-19Gbl_Report%20on%20recent%20US%20intl%20tax%20developments%20-%201%20Nov%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.

https://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_13_September_2019/$FILE/2019G_001146-19Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2013%20Sept%202019.pdf

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