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Spotlight

Treasury Department officials this week indicated they are on track to release proposed regulations on the majority of the international tax provisions enacted by the Tax Cuts and Jobs Act (TCJA) by the end of the year. The government specifically plans to release before the Thanksgiving holiday proposed regulations on foreign tax credits, the Section 250 deduction, the Foreign Derived Intangible Income (FDII) rules, the Base Erosion and Anti-abuse Tax (BEAT) and the remainder of the proposed Global Intangible Low-taxed Income (GILTI) regulations. Another senior Treasury official included the Section 163(j) interest limitation and Section 267A anti-hybrid rules to the list of proposed regulations expected to be released in the next six weeks. Pointing to the ambitious deadlines, the official tamped down expectations by saying the proposed regulations would be neither perfect nor comprehensive.

Treasury indicated that they plan to finalize most of the proposed regulations covering the TCJA international provisions by June 2019. A Treasury official was also quoted as saying the government aims to finalize the Section 965 transition regulations by year-end.

The finalized GILTI regulations will see clarification of the scope and time-frame of the pro-rata allocation anti-abuse rule in Proposed Reg. Section 1.951-1(e)(6), the official said, acknowledging taxpayer uncertainty in the area. Commenting on the measure, a senior IRS official said the anti-abuse rule was purposefully drafted to provide the Service with flexibility to target transactions or structures that the IRS has had the inability to thwart. Treasury is also reportedly continuing to study issues associated with the anti-abuse rule in Proposed Reg. Section 1.951A-3(h)2).

An IRS official this week was quoted as saying the Service will step up action in regard to its withholding tax campaigns in the new year, a number of which were announced in the spring. The IRS Large Business and International Division official said that foreign financial institutions in particular should expect more letters asking about data collection in regard to compliance with the Foreign Account Tax Compliance Act (FATCA). The official added that the IRS is also interested in learning what kinds of systems are being used by the withholding industry to check for errors, and that it is possible that users of reliable systems could eventually receive preferential treatment by the government.

The OECD Forum on Harmful Tax Practices will review the TCJA's FDII provision later this month to determine whether it constitutes a harmful tax practice. A Treasury official this week said the US will argue that FDII, combined with GILTI, creates tax neutrality and therefore is not a harmful tax practice. The OECD will not make a determination this year, with further Forum meetings expected.

A US official this week also said the OECD is making good progress in terms of developing a long-term digital tax package. The official was quoted as saying that a comprehensive solution would include a minimum tax regime coupled with inbound anti-base erosion rules that broadly apply across industries, without the need to target specific digital business models. The official also reiterated US opposition to the recent EU digital tax proposals from last spring, saying they unfairly target US multinationals.