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Spotlight

Congress ended its short pre-election session this week, with both chambers adjourning until after the November election. Given the abbreviated timeframe and pre-election environment, Congress did not pass significant legislation other than a continuing resolution on government spending to keep the government in operation into December.

A Congressional lame-duck session after the elections is expected, at which point Congress may consider other 2016 tax extenders and a tax technical corrections package. Recall identical technical corrections bills were introduced in both Houses last April. Among other things, the Technical Corrections Act of 2016 (H.R. 4891, S. 2775) includes a provision that would provide an exception from FIRPTA for certain stock of REITs.

Tax reform will not occur until a new president and Congress are in power in 2017, although work is expected to continue on tax issues through the remainder of 2016.

Treasury Secretary Jack Lew this week announced that the US and Argentina will begin negotiations of a tax treaty that will include an exchange of information provision. There is currently neither a tax treaty nor a tax information exchange agreement in force between the two countries. Argentina reportedly is keen to receive tax information on its residents in the United States.

In PLR 201639014, the IRS ruled that an inbound asset reorganization in which a US Parent corporation acquired substantially all of the transferred corporation's assets terminated a gain recognition agreement (GRA) previously entered with respect to the outbound transfer of the transferred corporation. As a result, a subsequent sale of those assets by the Parent did not trigger gain recognition under the GRA.

This taxpayer-favorable PLR allows the termination of the GRA upon an inbound transfer of substantially all of the transferred corporation's assets, even though Reg. Section 1.367(a)-8(o)(5) only references inbound transfers of stock. The PLR is also welcome news in that the Service is considering ruling requests in this area, as the regulations themselves do not specifically allow taxpayers to request rulings.

An OECD official this week disclosed that the final report on BEPS Action 14, Make Dispute Resolutions Mechanisms More Effective, will be released soon. The official was quoted as saying the final report will establish minimum standards and best practices for the mutual agreement procedure (MAP) process. The final report will also include action items for the minimum standards, a methodology, and a statistics reporting framework as well operational documents.

The OECD also announced during a recent OECD webcast that agreement has been reached in principle on the Multilateral Instrument (MLI). The MLI is now being further refined to make sure it remains clear with its objectives and to maintain consistency. It will be translated into French and approved at the next meeting of the ad hoc group in November 2016. The document, to be titled Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, will have a flexible approach with opt-ins, alternatives and opt-outs (except for minimum standards).

The MLI will also contain an optional provision on mandatory binding mutual agreement procedure (MAP) arbitration, an accompanying explanatory statement, and a system of notifications to ensure clarity about interaction with existing treaty provisions. Details on how the opt-ins, alternatives, opt-outs and notifications will operate will be covered in the explanatory statement. The explanatory statement will also address the interaction between the MLI and bilateral tax treaties.