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Spotlight

Both the US Senate and the House of Representatives continue their summer recess until Labor Day (5 September). In the meantime, this week was the Democrats turn to hold their National Convention in Philadelphia, where they nominated Hillary Clinton as their presidential candidate.

In IRS news, on 25 July, the Internal Revenue Service (IRS) posted a revised version of a chief counsel notice from 30 June, clarifying that any case in exam or litigation that contains an issue under Section 385, not only Section 385(c), must be coordinated with the Associate Chief Counsel offices. This requirement is similar to the extra coordination required in cases that raise economic substance doctrine issues. Even if the IRS did not explicitly require coordination for all Section 385 issues, coordination would likely be merited under the "generic significant issues" criteria. Those criteria include questions regarding the regulations' validity, issues of first interpretation, issues affecting numerous taxpayers or an industry, or issues that "attract congressional or public attention on a national level." This is the only change as compared to the 30 June release. However, as compared to the chief counsel notice published in 2014, the other changes to the list include requiring coordination on any:

— Repatriation transaction involving tax-free contribution under Section 351

— Section 355 spinoff transaction, specifically those that include device and business purpose concerns, involve planned post-spin stock sales, or involve securities-for-debt exchanges

— The Treas. Reg. Section 1.701-2 partnership anti-abuse rule

— Section 6306 contracting for collection services

— Section 7345 involving the revocation or denial of a passport as a result of serious tax delinquency

— Section 1402(a)(13) and whether a partner's income is not subject to self-employment tax

— Section 7811 authority to issue a taxpayer assistance order.

An EY Tax Alert regarding the July changes is forthcoming.

At a 28 July luncheon in Washington DC, Treasury Department (Treasury) and IRS officials discussed the final country-by-country reporting regulations and noted they are not more detailed by design in order to give taxpayers more flexibility and lower the risk of containing inconsistencies with Organisation for Economic Co-operation and Development (OECD) standards. Additionally, the current approach is also designed to limit administrative burdens. However, more guidance could be issued if experience indicates that it is necessary. Treasury and IRS officials also noted that they were cognizant of issuing regulations so that other countries receive reports that they expect, i.e., according to the OECD standards. IRS officials also stated that the IRS is currently working on Form 8975 for country-by-country reporting, and intends to make the form and instructions consistent with the OECD's model template, released in final form in October 2015.

Meanwhile, with respect to the OECD, on 23 July, at the high-level tax policy symposium held before the Group of 20 meeting, top officials noted that consistent implementation of the OECD's recommendations is key to reducing tax uncertainty, which is a significant impediment to investment. They also discussed the government's role in reducing tax uncertainty and encouraging economic growth. OECD Secretary General Angel Gurria stated that based on recent research, the most important factor to multinational enterprises is tax certainty. Treasury Secretary Jacob Lew noted that more research is needed, especially on the significant contributors to tax uncertainty and the effectiveness of policy tools. Separately, many officials also commented that allowing public country-by-country reports would be counterproductive. However, the European Union still advocates in favor of such reports.

Finally, the European Commission would like to see tougher standards for determining which territories should be on the tax haven blacklist. A European Commission official noted that the proposed measures put forth by the OECD do not go far enough, and other factors including corporate tax rates, anti-money laundering rules and the OECD's tax base erosion and profit shifting measures should also be taken into account. The disagreement between the European Commission and the OECD over criteria for the tax haven blacklist was the major reason that publication of the tax haven blacklist was delayed. The European Union's tax haven blacklist is scheduled to be finalized in 2017.