Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘US’

US Tax Bill

The House Ways and Means Committee published the initial draft of their bill on Nov. 2, 2017, a far-reaching document that had a few surprises.

Apart from the expected provisions, albeit different tax rates for the transition tax to a (quasi) territorial system than was expected, the double dip corporate interest provisions (worst of either rule) added a base erosion principle for most large multinationals in addition to a 30% tax based limitation.  This new limitation was based on the premise that debt was being used in the US, receiving a tax benefit therefrom, while such proceeds have been transferred offshore resulting in a non-symmetrical base erosion assumption.

Additionally, a new 20% excise tax on payments to foreign affiliates from the US that are deductible, includable in cost of goods sold/inventory or as fixed assets are subject to a non-deductible 20% excise tax.  This provision raises $155 billion.  Most importantly, this does not have an export offset that was present in the now extinct Business Activities Tax provision, and is not limited to US headquartered multinationals.  Knowing this provision would be challenging for most organizations to react quickly thereto, the effective date is 2019 whereas most of the provisions have an effective date of 2018.

Both of these “surprise” provisions already have many decrying the present draft, while the House Ways and Means Subcommittee is already in process of revising this document.

Aside from the formal bill, the House comments of each section should be reviewed, as it underscores the intent of the writers for such provision.

For the political process, this bill will be changed by the House Ways and Means prior to a vote by the House, another version will be produced by the Senate and a final reconciliation bill will need to be passed by both the House and Senate prior to forwarding to President Trump for signature.

The effective enactment date is being pushed for the end of this year, although it may easily drift into the first quarter of 2018.

A link to the bill is provided, which should serve as a baseline followed by legislative changes as it flows through the process, potentially becoming the largest tax code change since the 1986 provisions.

https://waysandmeans.house.gov/tax-cuts-jobs-act-resources/

US Tax Framework in print

The US Tax Framework was published Sept. 27, a notable date as this date is also used to mark the timeframe for expensing investments.

The main corporate tax points, and subtleties, include:

  • 20% corporate tax rate, but the tax rate and differential for one-time foreign earnings/cash is not specified.
  • Minimum tax on foreign profits to “level the playing field”
  • Territoriality system, exempting 100% of dividends (although the KPMG linked notes include the point that this is not equivalent to “distributions” thus a complicated Earnings and Profits tracking system may still apply)
  • Interest expense will be “limited” (EBITDA/other?)
  • R&D credit remains, although Sec. 199 US manufacturing incentive deduction is lost
  • Pass-through structures tax rate of 25%
  • Corporate AMT is gone.

The President has formally and forcefully announced his continued message for tax reform, as both the House and Senate Committees are now drafting language that will hopefully result in legislation enacted late 2017 or early 2018 with the political complexities / process.

Upon enactment, the US GAAP tax accounting will be complex and required results for public companies in the quarter of enactment.  Additionally, the timing for state enactment is also a separate complex issue that will need analysis.

The US Framework is repeatedly attempting to “level the playing field,” now the politicians, journalists, advisors and tax practitioners will all work with a little bit of fact to create a cocoon of fiction by which the impending tax reform can be measured.  

http://www.ey.com/Publication/vwLUAssets/US_tax_reform_framework_calls_for_reduced_tax_rates_a_territorial_system_and_level_international_playing_field/$FILE/2017G_05589-171Gbl_US%20tax%20reform%20-%20corporate%20and%20international%20provisions.pdf

https://www.treasury.gov/press-center/press-releases/Documents/Tax-Framework.pdf

US developments: BAT still alive?

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.).  

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_25_May_2017/$FILE/2017G_03417-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2025%20May%202017.pdf

US int’l developments: CbC exchange

EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.

US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.

Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security.  With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security.  However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data?  This should be a forethought, rather than an afterthought, to the process.

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_17_March_2017/$FILE/2017G_01247-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20March%202017.pdf

US update: Tax reform is near

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.

http://www.ey.com/gl/en/services/tax/international-tax/alert–us-election-2016-and-the-tax-landscape

https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Tax-PolicyPaper.pdf

US: BEPS Action 5 sharing

 

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.

http://www.ey.com/Publication/vwLUAssets/US_IRS_will_follow_BEPS_Action_5_recommendation_by_exchanging_summaries_of_unilateral_APAs_V2/$FILE/2016US_03632-161US_TP_US%20IRS%20will%20follow%20BEPS%20Action%205%20rec%20by%20exchanging%20summs%20of%20unilateral%20APAs.pdf

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.

http://www.ey.com/Publication/vwLUAssets/EY-are-you-ready-for-your-close-up/$FILE/EY-are-you-ready-for-your-close-up.pdf

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