Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘TEI’

TCJA parking non-deductibility; TEI offers valuable insight/safe harbors

IRS Notice 2018-99, published on Christmas Eve, has created quite a controversy in its short history for creating non value-added work in extricating costs of a company’s (leased or owned) parking facilities for which a federal tax deduction would not be allowable.  The Notice and TEI’s letter are attached for reference.

TEI’s timely letter expresses the history of this provision, and most importantly the inordinate amount of work, legal fees, etc. that would be involved pursuant to the Notice.

Two safe harbor provisions are suggested for implementation; Owned facilities $100 per parking spot per directly attributable expenses, and leased facilities would use 5% of the rent as the deemed amount subject to disallowance.

It is hopeful that IRS will quickly respond to current controversy and adopt such harbor provisions, or similar provisions, to avoid significant costs involved in preparing the 2018 federal income tax returns.  

https://www.irs.gov/pub/irs-drop/n-18-99.pdf

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20on%20Notice%202018-99_FINAL_2.22.19.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.

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI-Comments-Proposed-BEAT-Regulations-FINAL-to-IRS-19Feb2019.pdf

GILTI Reg’s: TEI’s response

The Tax Executives Institute (TEI) provided insgihtful comments to the recently issued GILTI Proposed Regulations, addressing the following main points:

  • Proposed regulation section 1.951A-3(h)(1) (the “temporarily held property rule”) provides that temporarily held property acquired with “a principal purpose” of reducing a U.S. shareholder’s GILTI inclusion will be disregarded
  • Basis adjustment rule for tested losses
  • Only used tested losses should increase Subpart F E&P
  • Basis reductions should only apply to actual transfers of stock
  • Deemed Sec. 367(d) expense should reduce tested income
  • Prop. Reg. § 1.951A-2(c)(5) anti-abuse rule (and authority to issue such rule)

TEI’s comments are well reasoned and should be reviewed to further understand the complexities, and need for added clarification going forward.

 

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20-%20Proposed%20GILTI%20Regulations%20Section%20951A%20-%20FINAL%2026%20November%202018.pdf

OECD TP Guidelines: TEI’s comments

Tax Executives Institute (TEI) recently submitted a letter in response to requested comments by the OECD re: revisions to its transfer pricing guidelines.  The submission is well drafted and articulate, generally urging OECD to improve current practices rather than adopting new complex mechanisms.

An example of several suggestions is provided:

TEI suggests a number of elements should be included in future guidance to improve transfer pricing compliance practices. First, tax authorities should share their risk assessments with taxpayers so taxpayers can improve their compliance processes where appropriate, or engage in a discussion with tax authorities regarding their view of the taxpayer’s compliance risk. Second, to avoid transfer pricing disputes, Chapter IV should urge tax authorities to focus audit activity on transactions that are more likely to be tax motivated (i.e., between high and low tax jurisdictions), rather than simple intercompany transactions where the taxpayer makes reasonable efforts to price the transactions and where the possibility of a tax motivation is remote. For example, head office cost allocations between countries with relatively comparable tax rates should be viewed as low risk. Finally, the OECD should encourage countries to consider halting interest and penalties if dispute resolution takes longer than two years and if the country does not have a mandatory arbitration procedure.

 

TEI’s submission should be read in its entirety to further understand the direction of OECD and possible remedies in the complex world of transfer pricing.

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20-%20OECD%20TPG%20-%20Chapter%20IV%20and%20VII%20-%20FINAL%20to%20OECD%2019%20June%202018.pdf

TEI”s comments: accounting for BEAT/GILTI/FDII

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.  

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Letter%20re%20ASC%20740%20treatment%20of%20BEAT%20and%20GILTI.pdf

Offshore indirect transfers: TEI’s comments

On October 19, 2017, Tax Executives Institute (TEI) filed a letter with the Platform for Collaboration on Tax, a joint initiative of the World Bank, OECD, International Monetary Fund, and United Nations, regarding the Platform’s draft toolkit on the taxation of offshore indirect transfers.  TEI’s comments focused on the need for the Platform’s toolkit to educate and provide options to nations considering taxing offshore indirect transfers, rather than prescribing a preferred approach, among other things.

The Platform for Collaboration on Tax (the Platform), a joint initiative of the Organisation for Economic Co-Operation and Development, International Monetary Fund, United Nations, and World Bank, released a document entitled The Taxation of Offshore Indirect Transfers – A Toolkit (the Draft Toolkit or Toolkit) on 1 August 2017. The Draft Toolkit was designed to help developing countries address the complexities of taxing offshore indirect transfers of assets, which the Platform states is a practice by which some multinational corporations try to minimize their tax liability.

The toolkit and TEI’s submission paper are referenced herein for review

Highlights of TEI’s comments include the following points:

  • There should be symmetry and neutrality as compared to direct asset transfers
  • Status of toolkit is unclear, and is not a source of authoritative guidance
  • The goal of the draft toolkit is unclear
  • A capital gains tax can distort economic transactions
  • Gains and losses should be the subject of the toolkit
  • Most indirect transfers are made for economic, not tax, reasons
  • The general treaty definition of immovable property seems to have been abandoned with no reason

The toolkit can be applauded for launching a multi-organizational approach with some good ideas, although such ideas should be further challenged and developed prior to an overall vision and detailed rules promulgated

 

https://www.oecd.org/tax/discussion-draft-toolkit-taxation-of-offshore-indirect-transfers.pdf

 

https://www.tei.org/sites/default/files/advocacy_pdfs/TEI-Comments-Offshore-Indirect-Transfers-Oct192017.pdf

US Accounting Standards

The Tax Executives Institute (TEI) has provided comments to the FASB’s proposed changes to disclosure requirements for the reporting of income taxes.  As the increased transparency demands continue, the attached views exemplify the theoretical and practical considerations for new standards re: added benefits for the readers of financial statements.

As the world of tax increases in complexity, public disclosures should avoid subjective and forward looking projections, as well as avoiding any potential conflicts with strategic forecasts and confidential information.

TEI’s comments are well written and should be welcomed by the tax and financial community looking to increase the transparency and practicality of financial statement times without duplication or non value-added actions.

http://www.tei.org/Documents/Comment-Letter-on-Proposed-Updates-to-ASC-740-Disclosures-PostedJan122017.pdf

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