U.S. International Tax This Week for the Week Ending December 9

09 December 2016

Ernst & Young's U.S. International Tax This Week newsletter for the week ending December 9 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

Congress will end its lame duck session following the November election today (9 December) and convene again as the 115th Congress in early January. Although House Ways and Means Committee Chairman Kevin Brady (R-TX) and incoming committee ranking minority member Richard Neal (D-MA) introduced the bipartisan Tax Technical Corrections Act of 2016 (H.R. 6439, S. 3506) on 6 December, Congress is not expected to pass the bill before it adjourns.

In the meantime, Treasury and the IRS are releasing tax regulations at a rapid pace.

On 6 December, the government released regulations under Section 901(m) limiting the creditability of foreign income taxes following a covered asset acquisition (CAA). Section 901(m) was enacted in 2010 and limits the creditability of disqualified foreign income taxes following a CAA. The temporary and proposed regulations are generally consistent with prior guidance, except that they exclude withholding taxes from the category of disqualified foreign income taxes. This is because withholding taxes are gross basis taxes that are generally unaffected by changes in asset bases. The temporary regulations generally apply to CAAs occurring on or after 21 July 2014, but also have limited applicability to transactions occurring after 1 January 2011.

The proposed regulations provide comprehensive guidance under Section 901(m). They would also add three new categories of transactions to the current list of CAA transactions. The new categories consist of: (1) transactions treated as asset acquisitions for US income tax purposes and as acquisitions of an interest in a fiscally transparent entity for foreign income tax purposes; (2) transactions treated as partnership distributions for US income tax purposes, under which an asset's basis increases in the hands of either the distributee partner or the partnership; and (3) transactions treated as asset acquisitions for both US income tax purposes and foreign income tax purposes. The proposed regulations will be effective on the date they are published as final regulations in the Federal Register.

The IRS also issued final (T.D. 9794), temporary (T.D. 9795) and proposed regulations (REG-128276-12) under Section 987 this week. The long-awaited final regulations outline how corporate and individual owners of a qualified business unit (QBU) subject to Section 987 must determine the QBU's taxable income or loss, as well as the timing, amount, character, and source of any Section 987 gain or loss. The final regulations are largely unchanged from the 2006 proposed Section 987 regulations, and require taxpayers to compute Section 987 gain or loss based on the "foreign exchange exposure pool" or balance sheet method.

The temporary and proposed regulations, among other things, address the recognition and deferral of foreign currency gain or loss under Section 987 stemming from certain QBU terminations and certain other transactions involving partnerships.

Both the final and temporary regulations are generally effective for tax years beginning in 2018, but taxpayers may apply the new rules starting in 2017. The loss deferral rules apply to certain events that occur on or after 7 December 2016, if that event is undertaken with a principal purpose of recognizing a Section 987 loss.

ITS Alerts on both the Section 901(m) and Section 987 regulation packages are pending.

Finally, the IRS has posted a draft of Form 8975, Country-by-Country Report on the IRS website. The draft instructions have not been posted.

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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 second session of the 114th Congress that would affect international provisions of the Internal Revenue Code.

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Upcoming Webcasts

Gulf Cooperation Council: introduction of VAT
The current challenging environment driven by low oil prices has brought revenue diversification pressures on governments in the region. The Finance Ministers of the Gulf Cooperation Council (GCC) approved the introduction of value added tax (VAT) in GCC countries, beginning January 2018 to help alleviate some of this pressure. During this Thought Center Webcast, Ernst & Young professionals will discuss the VAT introduction and next steps in detail.

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Recent Tax Alerts

Africa

— Dec 6: Revised procedures for South Africa visa applications in Zimbabwe discussed (Tax Alert 2016-2066)

Asia

— Dec 9: India signs revised tax treaty with Cyprus (Tax Alert 2016-2095)

Canada & Latin America

— Dec 8: New compliance rules for outsourcing relationships will go into effect in Mexico in January 2017 (Tax Alert 2016-2081)

— Dec 8: Brazil publishes a Normative Instruction on the mutual agreement procedure under treaties for the avoidance double taxation (Tax Alert 2016-2082)

— Dec 7: EY Canada's Tax Matters @ EY for December 2016 (Tax Alert 2016-2074)

— Dec 7: Proposed amendments to Canada's Excise Tax Act discussed (Tax Alert 2016-2079)

— Dec 5: Brazil issues proposed CbC reporting rules (Tax Alert 2016-2055)

Europe

— Dec 9: European Council achieves broad consensus on draft directive aimed at closing down hybrid mismatches with third country tax systems (Tax Alert 2016-2093)

— Dec 9: Belgium announces broader innovation deduction to replace patent income deduction (Tax Alert 2016-2094)

— Dec 9: Finland proposes changes to taxation procedure and VAT as of January 2017 (Tax Alert 2016-2096)

— Dec 8: Spain introduces new measures to increase tax revenues, including significant changes to corporate income tax (Tax Alert 2016-2088)

— Dec 7: UK publishes draft Finance Bill 2017 clauses (Tax Alert 2016-2078)

— Dec 7: UK publishes Finance Bill 2017 clauses and other material (Tax Alert 2016-2069)

— Dec 6: Belgian Government issues forms and filing instructions for final implementation of transfer pricing documentation requirements (Tax Alert 2016-2065)

— Dec 5: The latest on BEPS as of December 5 (Tax Alert 2016-2062)

— Dec 2: French Government issues decree potentially restricting time to file a tax case before French administrative courts (Tax Alert 2016-2045)

— Dec 2: European Commission issues proposals aimed at modernizing VAT for cross border e-commerce (Tax Alert 2016-2046)

Middle East

— Dec 8: Saudi Arabia Tax Authority issues new requirements regarding tax and zakat returns of Saudi listed companies (Tax Alert 2016-2087)

— Dec 6: Saudi Arabia's CPA organization amends its accounting standard on zakat (Tax Alert 2016-2063)

— Dec 6: Iraqi Kurdistan Regional Government Tax Authority discusses proposed tax reform (Tax Alert 2016-2064)

Oceania

— Dec 8: Australia's "putting local workers first" debate: Not the last (Tax Alert 2016-2089)

— Dec 2: Australia's proposed Diverted Profits Tax to affect many multinational businesses (Tax Alert 2016-2052)

Multinational

— Dec 8: OECD provides updates on tax activities in Tax Talk webcast (Tax Alert 2016-2085)

— Dec 8: OECD releases 2015 Mutual Agreement Procedure statistics (Tax Alert 2016-2086)

— Dec 7: OECD's release of multilateral instrument to implement treaty-related BEPS measures has implications for Sovereign Wealth, Pension and Private Equity Funds (Tax Alert 2016-2068)

— Dec 5: OECD releases multilateral instrument to implement treaty related BEPS measures on hybrid mismatch arrangements, treaty abuse, permanent establishment status and dispute resolution (Tax Alert 2016-2056)

— Dec 5: Mandatory Binding Treaty Arbitration under OECD's Multilateral Instrument (Tax Alert 2016-2057)

— Dec 5: OECD updates guidance on Country-by-Country Reporting and launches new site on country-specific implementation (Tax Alert 2016-2061)

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Recent Newsletters

Washington Dispatch
Highlights of this edition include:

Legislation

— Republican Donald Trump wins US presidency, improved chances for tax reform in 2017
— Congress returns for limited lame duck session following November elections

IRS news

— IRS issues final Subpart F regulations
— FATCA withholding and reporting regulations to be released soon
— Obama Administration committed to issuing pending tax regulations

Transfer pricing news

— IRS will follow OECD BEPS Action 5 recommendation by exchanging summaries of unilateral APAs
— US, India reach first bilateral advance pricing agreement

OECD BEPS developments

— OECD releases multilateral instrument to modify bilateral tax treaties under BEPS Action 15
— OECD releases schedule of Action 14 peer reviews

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

2016-49

Internal Revenue Bulletin of December 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: 2016-2091