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Spotlight

The Treasury and the Office of Management and Budget (OMB) on 12 April released a Memorandum of Agreement (MOA) creating a new framework for the review of tax regulations that is intended to increase the economic analysis and review of tax rules, while preserving timely tax guidance for taxpayers. Treasury Secretary Steven Mnuchin hailed the cost/benefit analysis approach of the agreement, saying "This updated review framework will increase scrutiny of regulations most likely to impose new costs, while preserving Treasury's ability to ensure taxpayers receive timely, clear rules."

The announcement follows calls in recent months to undo an agreement that exempted certain IRS regulations from oversight by the OMB Office of Information and Regulatory Affairs (OIRA), including by some members of Congress. As a Treasury press release noted, an agreement adopted in 1983 and reaffirmed in 1993 subjected some Treasury regulations to a review process different from other regulations issued by most executive agencies, and was interpreted to exempt essentially all tax regulations. "The MOA announced today [12 April] replaces the 1983 agreement with a new review process tailored to tax regulations — it focuses on reducing regulatory burdens while providing timely guidance to taxpayers," the press release stated. "Under the MOA, OIRA will review a subset of tax regulatory actions and provide expedited review for these actions."

In April 2017, President Trump directed Treasury and OMB to "review and, if appropriate, reconsider the scope and implementation of the existing exemption for certain tax regulations from the review process set forth in Executive Order 12866."

A senior IRS official this week was quoted as saying that guidance on applying the base erosion anti-abuse tax (BEAT) enacted by the Tax Cuts and Jobs Act is a major priority for the agency. The official said the Government is particularly interested in providing guidance related to the BEAT aggregation rule as applied to controlled groups. The official added that the aggregation rule for purposes of gross receipts and the base erosion percentage is either unclear or provides anomalous results.

The BEAT applies to corporations (other than Regulated Investment Companies, Real Estate Investment Trusts, or S-corporations) that are subject to US net income tax with average annual gross receipts of at least US$500 million and that have made related-party deductible payments totaling 3% (2% for banks and certain security dealers) or more of the corporation's total deductions for the year. The "base erosion percentage" for any tax year is generally the aggregate amount of base erosion tax benefits for the year divided by the aggregate deductions allowable under Chapter 1 for the year including base erosion payments.

The IRS this week issued Publication 5292, "How to Calculate Section 965 Amounts and Elections Available to Taxpayers," for use in 2017. The publication explains who may be required to report Internal Revenue Code Section 965 amounts, how to report and calculate those amounts, and what related elections can be made.

The Service also issued a FBAR (Foreign Bank Account Reporting) fact sheet (FS-2018-7) that describes the reporting obligations of US individuals and domestic corporations and partnerships that have foreign bank and financial accounts, even if the accounts do not generate any taxable income.

The tax press this week quoted a senior Organisation for Economic Co-operation and Development (OECD) official as saying that Working Party 6 has made substantial progress in reaching agreement on final profit-split guidance, as well as a new draft on hard-to-value intangibles (HTVIs), with agreement on the former coming as early as this month. Final profit spilt guidance could be published in several months, the official said. The OECD issued draft implementation guidance on HTVI in connection with BEPS Action 8 in May 2017. There have been stronger headwinds in terms of a new draft chapter in the OECD transfer pricing guidelines on financial transactions, the official said.

The next two years reportedly will see the OECD focusing on updates to the OECD transfer pricing guidelines chapters relating to services and administration.