U.S. International Tax This Week for the Week Ending January 8

08 January 2016

Ernst & Young's U.S. International Tax This Week newsletter for the week ending January 8 is now available. Prepared by Ernst & Young's International Tax Services group, this weekly update summarizes important news, cases, and other developments in international taxation.

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Spotlight

The House returned to Washington this week to begin the second session of the 114th Congress, with the Senate scheduled to convene on 11 January. Although Congress generally is not expected to attempt comprehensive tax reform in 2016, there is speculation Congress may address international tax reform this year.

The tax press is now reporting that House Ways and Means Committee Chairman Kevin Brady (R-TX) is having active discussions with Speaker Paul Ryan (R-WI) about whether or not to move forward with international tax reform in 2016.

Chairman Brady was quoted as saying: "It's clear that 2016 is going to be a critical year to lay the foundation for tax reform, and there may be an opportunity for significant international tax reform as well." International tax reform also reportedly will be a topic of discussion at two pending House Republican retreats later this month, one for all House Republican members and another retreat for Ways and Means Republicans.

The Tax Court on 31 December entered a stipulated decision in Ingersoll-Rand Co. v. Commissioner, under which the multinational reportedly will owe $86 million in withholding tax, plus interest. The case concerned Section 1441 withholding tax with respect to intercompany loans made through affiliates in Luxembourg, Hungary and Barbados; the government objected to the use of certain tax treaties.

The settlement reportedly is part of a larger agreement with the IRS related to an intercompany financing structure for the period 2002-2006. The tax press is reporting that the company agreed to pay approximately $230 million in taxes plus $145 million in net interest for the 2002-2006 tax years. No further taxes would be owed for intercompany financing arrangements covering the 2007-2011 period.

In another decision, the Sixth Circuit has reversed and remanded the Tax Court's decision in Terry L. Wright, et ux. v. Commissioner, concluding that a foreign currency option can qualify as a foreign currency contract. A couple had challenged the Service's disallowance of a loss deduction stemming from their marking to market certain derivatives by treating them as having been sold at fair market value on the last day of the tax year. "While the Tax Court's disallowance of the Wrights' claimed tax loss makes sense as a matter of tax policy," the appeals court stated, "the plain language of the statute clearly provides that a foreign currency option can be a 'foreign currency contract.' It is therefore necessary to reverse and remand."

The decision of the Sixth Circuit is not yet final, and the IRS may petition for an en banc review of the opinion. In the interim, taxpayers who trade over-the-counter FX options and who have not yet established a method of accounting with respect to such derivatives may wish to consider whether such options (and potentially others) should be marked-to-market. That is especially true for those taxpayers who reside in the Sixth Circuit.

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Tax Insights

Current status of legislation relating to US international tax rules (BNA)
This article, published in Tax Management International Journal, reports on significant bills introduced in the first session of the 114th Congress that would affect international provisions of the Internal Revenue Code. Bills are listed in chronological order, based on date of introduction. New material is indicated in bold italics, and this column is current as of December 14, 2015.

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Upcoming Webcasts

EY Quarterly Transfer Pricing Update
In recent months, a high degree of change has been occurring in transfer pricing rules at both a global and local country level. During this Thought Center Webcast, Ernst & Young professionals will take stock of some of these changes, and update you on their key details and impacts on your transfer pricing framework.

Americas Tax legislative update: Recent trends and outlook for 2016
Tax reform, leadership shifts and BEPS-driven legislative changes are happening throughout the Americas, adding complexity to an already challenging tax environment. During this Thought Center Webcast, Ernst & Young professionals will discuss these and other topics of interest, including: (i) What the recent elections and tax changes across Latin America and Canada could mean for multinationals; (ii) The US tax legislative outlook; and (iii) How the shift toward digitization will affect your tax operations.

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Recent Tax Alerts

Africa

— Jan 7: South Africa Revenue Service releases Draft Notice on additional recordkeeping for transfer pricing transactions (Tax Alert 2016-0027)

Asia

— Jan 7: Malaysia enacts 2016 budget proposals (Tax Alert 2016-0026)

— Jan 6: China takes important steps to boost international cooperation, signs OECD Multilateral Competent Authority and other agreements (Tax Alert 2016-0017)

Canada & Latin America

— Jan 8: Argentina - Belgium Social Security Totalization Agreement discussed (Tax Alert 2016-0050)

— Jan 8: Argentina issues measures to relax controls on the foreign exchange market and foreign trade (Tax Alert 2016-0041)

— Jan 7: Venezuela publishes treaty with Saudi Arabia (Tax Alert 2016-0025)

— Jan 7: Chile creates new sworn statement linked to BEPS actions (Tax Alert 2016-0028)

— Jan 7: Uruguay issues decree on inclusion of fiscal inflation adjustments in calculating CIT (Tax Alert 2016-0031)

— Jan 6: EY Canada's Quarterly Tax Developments for December 2015 (Tax Alert 2016-0015)

Europe

— Jan 8: Luxembourg - Singapore revised Income Tax Treaty and Protocol enter into force (Tax Alert 2016-0042)

— Jan 8: Cyprus issues CRS decree (Tax Alert 2016-0047)

— Jan 6: The Netherlands passes bill on supplementary transfer pricing documentation requirements in line with BEPS Action 13 (Tax Alert 2016-0016)

— Jan 6: Russia introduces draft law on new indirect tax rules for electronic services (Tax Alert 2016-0018)

— Jan 5: The latest on BEPS as of January 4 (Tax Alert 2016-0009)

— Jan 5: Cyprus announces plans to amend Intellectual Property Regime (Tax Alert 2016-0010)

— Jan 4: Italian Parliament issues budget law for 2016 including Country by Country Reporting and other important tax measures (Tax Alert 2016-0002)

— Jan 4: Portugal publishes draft law incorporating EU Council Directive 2015/121 to include specific anti-abuse provision for participation exemption regime (Tax Alert 2016-0003)

— Jan 4: Turkey extends application of temporary Article 67 on taxation of income and gains derived from marketable securities until December 31, 2020 (Tax Alert 2016-0005)

Middle East

— Jan 8: Israel reduces tax rates starting 2016 (Tax Alert 2016-0043)

— Jan 8: Israeli District Court rules on treatment of stock based compensation costs under a cost plus arrangement (Tax Alert 2016-0044)

— Jan 8: Kuwait issues amendments to Executive Regulations to corporate tax and Zakat laws (Tax Alert 2016-0046)

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Recent Newsletters

Washington Dispatch
Highlights of this edition include:

Legislation

— Congress makes permanent certain international tax extenders in major tax legislation
— House, Senate committees hold hearings on BEPS, EU state aid and inversions

IRS news

— US government issues proposed regulations on country-by-country reporting
— International tax guidance on the horizon
— Treasury grants yet another extension of time for reporting signature authority (FBAR, Form 114) over certain foreign financial accounts
— IRS announces Section 4371(3) excise tax will not apply to foreign-to-foreign reinsurers

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

	2015-51	Internal Revenue Bulletin of December 21, 2015
	2015-52	Internal Revenue Bulletin of December 28, 2015
	2016-01	Internal Revenue Bulletin of January 4, 2016
	2016-02	Internal Revenue Bulletin of January 11, 2016

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Additional Resources

Ernst & Young Client Portal, the leading source for news, analysis, and reference materials for corporate tax professionals, has a variety of content of interest to international tax practitioners, including:

— International Tax Online Reference Service. Key information about, and important tax developments from, 56 foreign jurisdictions, including information on tax rates, interest rates and penalties, withholding, and filing dates.

— EY/Passport. EY/Passport is your guide to planning ventures in the global economy, offering a wealth of tax and business knowledge on more than 150 countries.

Because the matters covered herein are complicated, U.S. International Tax This Week should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.

Document ID: 2016-0040