EY’s Global Tax Alert highlights the heightened uncertainty around the proposed Business Activity Tax (BAT) by the House and interested parties.
The BAT is a revenue raising proposal, thus the revenues from this plan would help to move a bill towards passage via the political complexities and processes required. It is very important to monitor, as the death of this proposal would mean deriving that lost revenue from another initiative (i.e. raising the tax rate, etc.).
With the (unexpected) victory for President-elect Trump, coupled with a majority in both the House and Senate, it is highly likely US tax reform is near. There is a close correlation with Trump’s Plan and the Republican’s Blueprint tax reform initiative, although transitional details (Foreign Tax Credits, Earnings & Profits, etc.) still need to be completed. The US tax rate may no longer be one of the highest in the world, and the tax economics of moving business initiatives, and repatriating cash, to the US are welcome thoughts for US based multinationals. However, attention needs to be focused on the details, including Q4 2016 actions that may provide more efficiencies for the expected 2017 US tax reform.
EY’s Global Tax Alert, and the Blueprint are included for reference.
The IRS has indicated its willingness to share unilateral Advance Pricing Agreement (APA) information to align with BEPS Action 5 re: transparency and substance.
As other jurisdictions have provided taxpayers to submit summary information that will be shared in such exchange, the IRS has not yet indicated such procedures. Thus, it is advised that any multinational with such rulings attempt to obtain a copy of the information to be shared, prior to the automatic sharing process, to ensure its accuracy.
The EY Global Alert provides additional details of this new development.
Most importantly, any taxpayer with tax rulings should already be looking at the information that could be shared to address potential questions/issues by other tax authorities, especially if there are different transfer pricing arrangements in place.
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.
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.
The drive for additional transparency, among efforts by countries to implement anti-avoidance rules that trump tax treaties, continues with the latest round of BEPS updates, as EY’s Global Tax Alert provides added insight:
- Australian Tax Office (ATO) release of 4 tax alerts for issues of concern, a Diverted Profits Tax (DPT) is to be implemented, hybrid mismatch arrangements will be addressed in legislation, and the effective date for the new/revised OECD’s arms-length principle standards will move forward to 1 July, 2016.
- Ecuador: the most recently version, as of 1/1 of a taxpayer’s year, of the OECD’s Guidelines will be used as transfer pricing reference absent domestic rules.
- Hungary: A “modified nexus” IP approach will come into force.
- Netherlands: The innovation box rules will be amended to comply with OECD’s Action 5 guidelines.
- New Zealand: Domestic anti-avoidance rules will trump double treaty arrangements.
- Taiwan: CFC rules will be promulgated.
- Turkey: An “electronic place of business” draft legislation would empower taxation.
- Ukraine: A working group is forming anti-BEPS measures for consideration.
- US: Treasury is trying to extricate itself from its 1-year lag in obligatory country-by-country (CbC) reporting, although global acceptance is not expected.
The impact of BEPS is still accelerating, although the efforts by countries to avoid treaty provisions will provoke additional disputes and double taxation. Accordingly, the veil of anti-BEPS legislative efforts overshadows mutual transparency and collecting a fair share of tax while avoiding double taxation. Thus, all multinationals should be extra vigilant in the new era of international tax for additional documentation and support for significant transactions with low-tax countries.