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Spotlight

President-elect Donald Trump this week named Steven Mnuchin to be the next US Treasury Secretary. Mnuchin, a Wall Street banker, lost no time in announcing that tax reform would be the incoming Administration's number one priority and pledged it would be the country's biggest tax overhaul since the 1986 Tax Reform Act. Mnuchin was quoted as saying he supported reducing the US corporate tax rate to 15%.

In a speech on 1 December, House Ways and Means Committee Chairman Kevin Brady (R-TX) provided some details on what to expect in the development of a tax reform package. He said while budget reconciliation may ultimately be the only option for advancing tax reform, House Republicans would offer a new approach by inviting Democrats in the House to bring forward their ideas for tax reform. The Chairman also said the Committee will continue to receive feedback on the House Tax Reform Blueprint through the end of the year in anticipation of introducing the proposal early in 2017. He said it remains to be seen where tax reform fits in terms of the "first 100 days" agenda of the incoming Administration. Chairman Brady also continued to outline the benefits of the Blueprint, including adoption of border adjustability and a dramatically simplified international tax code.

The IRS today (2 December) released two international notices.

Notice 2016-73 announces additional changes to be made to the regulations under Section 367(b) that apply to cross-border triangular reorganizations where a subsidiary purchases its parent's stock for property and then uses that stock to acquire a target corporation (the so-called "Tri-B Regulations"). This is the latest in a series of modifications to these regulations (mostly recently by Notice 2014-52) taken out of concern that these transactions could result in inappropriate repatriation. The Notice provides generally that the various exceptions in the existing regulations will be modified to require immediate gain recognition to the exchanging shareholders and/or to increase the amount of an "all E&P inclusion" if a foreign parent corporation subsequently domesticates up to the adjusted basis of the inbounded assets (e.g., through an inbound liquidation or reorganization).

The modified regulations will apply to transactions completed on or after 2 December 2016, and to any inbound transactions treated as completed before 2 December 2016 as a result of a check-the-box election that is filed on or after 2 December 2016. A detailed Tax Alert will follow.

The IRS today also released Notice 2016-76, providing for the phased-in application of the Section 871(m) dividend equivalent regulations that were finalized in September 2015. The notice provides that the Section 871(m) regulations: (1) only apply to delta-one transactions (such as transactions that replicate direct ownership, e.g., a total return swap) in calendar year 2017, and (2) will apply to non-delta-one transactions beginning in calendar year 2018.

In other news, the Indian Tax Authority announced that India and the United States have reached agreement on the terms and conditions for the first bilateral advance pricing agreement (APA) between the two countries. The IRS had only begun accepting bilateral APA requests in February 2016, after making significant progress with India on competent authority Mutual Agreement Procedure cases. A written agreement should be finalized in the next two months. Companies from various industries, including financial services, software, semiconductor, insurance, the auto industry, consumer products and healthcare, have already submitted or are close to submitting their bilateral APA requests to the IRS Advance Pricing and Mutual Agreement program. An ITS Alert provides details.

The OECD released the text of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting under BEPS Action 15. The text and the related explanatory statement were formally adopted by approximately 100 countries following the conclusion of the negotiations in late November. The text of the multilateral instrument and explanatory notes are available on the OECD website.

The multilateral instrument under BEPS Action 15 is a key part of the OECD's effort toward implementation of the tax treaty-related BEPS measures into existing bilateral or regional tax treaties as quickly and consistently as possible. It is expected that the multilateral instrument will be open for signature as of 31 December 2016, and a first high-level signing ceremony will take place in June 2017.

There are currently more than 3000 bilateral or regional tax treaties in force. Bilateral renegotiations of these treaties would potentially take decades, and would therefore hamper the swift implementation of the treaty-related BEPS measures. The multilateral instrument could potentially lead to the amendment of at least 2000 of these treaties in the coming years. A Global Tax Alert provides details.