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

08 July 2016

Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 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 proposed Section 385 debt/equity regulations continue to roil tax legislators in Congress. Treasury officials, including Secretary Jacob Lew, trekked to Capitol Hill this week to brief members on the proposed regulations. The Secretary met with Senate Finance Committee members and staff on 7 July, after which Committee member Benjamin Cardin (D-MD) was quoted as saying he did not think Treasury would delay finalizing the regulations.

Other Treasury officials came to Capitol Hill on 6 July to discuss the proposed Section 385 regulations with a group of bipartisan House and Senate tax leaders and officials from the Joint Committee on Taxation. Following the closed door meeting, Senate Finance Committee Chairman Orrin Hatch (R-UT) was also quoted as saying he thought it unlikely that Treasury would delay finalization of the regulations. Published reports on the latter meeting indicated Treasury officials are planning to ease restrictions on cash pooling in the final regulations, however.

A hearing on the proposed Section 385 regulations remains set for 14 July. Comments were due by 7 July.

The IRS on 1 July released the long-awaited proposed Qualified Intermediary (QI) Agreement in Notice 2016-42. This new QI Agreement, when it is finalized later this year, will be effective 1 January 2017. As expected, the proposed QI Agreement contains revised compliance review and certification procedures and provides requirements to allow non-US broker/dealers to become Qualified Derivative Dealers (QDDs) under Section 871(m).

The IRS has requested comments on the proposed QI Agreement by 31 August. There are many views on how best to align the QDD requirements with the QI regime. Taking into account the time needed for the government to consider comments, there will not be much time for qualified intermediaries to implement the final version of the rules by 1 January 2017. An ITS Alert reviews the proposed QI Agreement and discusses some of the key issues.

In OECD news, the organization on 4 July released several documents for public input. As part of follow-up work on Action 7, a discussion draft was issued on the attribution of profits to permanent establishments (PEs). The draft seeks further guidance regarding two fact-patterns: dependent agent PEs (including those created through commissionaire and similar arrangements) and warehouses as PEs.

A discussion draft on BEPS Actions 8-10, dealing with the clarification and strengthening of guidance on the transactional profit split method was also released. And, the OECD issued conforming changes to Chapter IX of the OECD Transfer Pricing Guidelines for public comment.

Please note that EY's next BorderCrossings webcast on 14 July will discuss the IRS final regulations on country-by-country (CbC) reporting released on 29 June. Register for this Thought Center Webcast.

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Upcoming Webcasts

EU Referendum — Brexit tax implications for US multinationals
The outcome of the EU referendum has been declared, and the UK has voted to leave the European Union. This is a historic decision, and one that will eventually bring with it significant change across the globe. During this Thought Center Webcast, Ernst & Young professionals will discuss key business issues that have tax consequences for US multinationals.

BorderCrossings … With EY's transfer pricing and tax professionals
Changes are coming for US-based multinationals with the new country-by-country (CbC) reporting rules, which the IRS and Treasury are expected to finalize by June 30. For the first time, US-based multinationals will have to provide tax authorities with a breakdown of how they allocate profits on a global basis, the amount of taxes paid on those profits, and certain other economic indicators, potentially leading to an increased number of cross-border transfer pricing disputes. The increased transparency triggered by CbC reporting could significantly affect global companies that must complete the reports, protect the confidentiality of important business data, and prepare for potential questions from multiple tax authorities. During this Thought Center Webcast, Ernst & Young professionals will discuss the finalized regulations for CbC reporting.

Brexit: Tax implications for alternative asset managers
During this Thought Center Webcast, Ernst & Young professionals will discuss possible tax consequences for alternative asset managers.

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Recent Tax Alerts

Africa

— Jul 5: Nigerian Ministry of Finance approves increase of WHT to 5% on building, construction, and related activities (Tax Alert 2016-1163)

Asia

— Jul 7: Guidelines issued by India's Provident Fund Authorities for conducting employer inquiry proceedings (Tax Alert 2016-1175)

Canada & Latin America

— Jul 7: Argentine Congress approves bill eliminating 10% dividend withholding tax and establishing voluntary disclosure regime and new tax settlement plan (Tax Alert 2016-1176)

— Jul 6: Dominican Republic signs Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Tax Alert 2016-1170)

— Jul 5: Prince Edward Island to raise HST by 1%: transitional rules (Tax Alert 2016-1162)

— Jun 30: Mexican Supreme Court postponed ruling on the constitutionality of the electronic accounting obligations (Tax Alert 2016-1156)

Europe

— Jul 7: Russia's President signs new Protocol to Double Taxation Treaty with Singapore (Tax Alert 2016-1177)

— Jul 6: Cyprus and India negotiate new double tax treaty (Tax Alert 2016-1169)

— Jul 6: Russian Tax Brief for June 2016 (Tax Alert 2016-1168)

— Jul 6: The latest on BEPS as of July 5 (Tax Alert 2016-1167)

— Jul 5: Gibraltar announces 2016 budget (Tax Alert 2016-1164)

— Jul 5: Spanish Supreme Court confirms broad interpretation of PE concept in line with BEPS Action 7 (Tax Alert 2016-1160)

Middle East

— Jul 5: Saudi Arabia delays implementation of third phase of Nitaqat "Saudization" program (Tax Alert 2016-1159)

Multinational

— Jul 5: BEPS associates increased to 82 countries (Tax Alert 2016-1161)

— Jun 30: OECD releases additional guidance on implementation of country-by-country reporting (Tax Alert 2016-1157)

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

2016-27

Internal Revenue Bulletin of July 5, 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: 2016-1184