U.S. International Tax This Week for February 8

10 February 2019

Ernst & Young's U.S. International Tax This Week newsletter for the week ending February 8 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.

—————————————————————————
Spotlight

A US Treasury official has offered the Government's position on the ongoing digital debate following the Organisation for Economic Co-operation (OECD)'s 29 January release of a Policy Note on its work on Addressing the Tax Challenges of the Digitalisation of the Economy. As reported in the tax press last week, the official said the US is engaged in the OECD process "out of the very deep concern that the longstanding international consensus around the allocation of taxing jurisdiction is breaking down." He pointed to the increasing trend of unilateral actions by various countries over the past five years, including:

Various diverted profits taxes, some of which were enacted only weeks after the Base Erosion and Profit Shifting (BEPS) consensus was secured
Certain advances by the European Commission in State aid cases
Section 59A (BEAT), enacted as part of the 2017 US tax reform legislation, which departs from the arm's-length standard and denies deductions for "very real" payments and "very real" economic functions
Proposals around both European Union-wide and unilateral Digital Services Taxes (DST) that are to be levied on gross revenues, and that have the potential to create double taxation

According to press reports, the official acknowledged there is broad political dissatisfaction around the world with the tax planning outcomes that are possible under existing international rules, adding that the unilateral measures in response are highly politicized. Consequently, he said, the process is no longer a purely technical exercise, and that the US hopes that with increased involvement, a broad political consensus can be reached at the OECD level as to how taxing jurisdiction can be allocated between different countries with different taxation models.

The Treasury official was also quoted as saying that the US would not sign-on to any consensus in the digital sphere that narrowly defines digital platforms. Rather, the US position continues to be that a common solution must look "far beyond how to tax search engines and social media." The official said he was optimistic that the OECD's effort to achieve consensus will be successful: "If this effort fails," he reportedly said, "the world risks an accelerating trend towards unilateral actions that would jeopardize the coherence of the international tax system."

In Internal Revenue Service (IRS) news, an official this week said there are no plans to ease restrictions included in the final anti-corporate inversion regulations released in July 2018. The official was quoted as saying that Congress could have rolled back the inversion rules when it enacted the Tax Cuts and Jobs Act, but declined to do so. The official suggested there remains strong policy concerns regarding corporate inversions.

The IRS this week also published the final Section 965 transition tax regulations in the Federal Register. The final regulations clarify that Form 965-A or 965-B must only be filed with a transfer agreement if the eligible Section 965(h) transferor or eligible Section 965(i) transferor was required to file the form. Because guidance is lacking, in regard to the due date for transfer agreements to be filed, the transition rules have been updated to provide that if a triggering or acceleration event occurs on or before 5 February, the transfer agreement must be filed by 7 March in order to be considered timely filed.

—————————————————————————
Upcoming Webcasts

Global tax policy and controversy in 2019 (February 11)
The global tax environment in 2019 continues to be uncertain, with controversy on the rise. Disruptions abound and the tax landscape is changing as technological advances bring taxpayers and tax administrations new ways of doing business. Trade policy also continues to disrupt the business landscape. During this Thought Center Webcast, Ernst & Young professionals will talk through the most significant trends and discuss some leading practices for responding.

International tax talk quarterly series with the EY Global Tax Desk Network (February 12)
During this Thought Center Webcast, Ernst & Young professionals will provide you with information on major tax law changes in the countries and jurisdictions covered by our US-based Global Tax Desk Network.

Global oil and gas transactions review 2019 (February 14)
With positivity in the transactions market and a focus on portfolio restructuring, observers expected 2018 to be a busy year for deals. But as the year played out, oil price volatility, geopolitical tension and questions around oversupply likely disrupted some deal completions. Expectations for 2019 include an increase in private equity investment and cross-sector M&A, driven by technology and digital. But will oil and gas companies continue to look closer to home for their deals? During this Thought Center Webcast, Ernst & Young professionals will discuss these issues.

Transparency transformation and its business implications (February 14)
During this Thought Center Webcast, Ernst & Young professionals will cover the changes to the transparency environment and how these changes subsequently impact the controversy environment and taxpayers at an operational level.

In M&A, what about the people: Cutting edge tools and methods to transform as you transact (February 27)
During this Thought Center Webcast, Ernst & Young professionals will explain the right way to transact to drive deal success, including aligning leadership and beginning culture integration from day one.

—————————————————————————
Recent Tax Alerts

United States

— Feb 05: The latest on BEPS — 2018 in review (Tax Alert 2019-0302)

— Feb 01: US Treasury official's remarks outline scope of US involvement and input into the OECD discussion on international taxation beyond digital (Tax Alert 2019-0288)

Africa

— Feb 06: Kenya adjusts excise duty rates (Tax Alert 2019-0317)

Asia

— Feb 01: Hong Kong requires taxpayers to disclose transfer pricing information in income tax return (Tax Alert 2019-0286)

— Feb 01: India’s 2019-20 Interim Budget proposals discussed (Tax Alert 2019-0281)

Canada & Latin America

— Feb 07: Northwest Territories budget 2019-20 discussed (Tax Alert 2019-0326)

— Feb 07: EY Canada's Tax Matters @ EY for Feburary 2019 (Tax Alert 2019-0324)

— Feb 06: Panama issues regulations on Panama-Pacifico regime (Tax Alert 2019-0315)

— Feb 06: Panama enacts legislation amending the multinational headquarters regime (Tax Alert 2019-0314)

— Feb 05: Chilean IRS modifies annual transfer pricing form (Tax Alert 2019-0308)

— Feb 05: Hyperinflation in Argentina has tax implications for RICs that invest in certain Argentine debt and financial products (Tax Alert 2019-0307)

— Feb 01: Amendments to Mexico's Miscellaneous Tax Regulations for overpayments and tax incentives for the northern border region are effective (Tax Alert 2019-0283)

Europe

— Feb 04: Italian Supreme Court denies withholding tax exemption under EU Parent-Subsidiary Directive in absence of actual dividend taxation at EU parent company level (Tax Alert 2019-0298)

— Feb 04: Spain sends bill on Financial Transaction Tax to Parliament (Tax Alert 2019-0297)

— Feb 04: Switzerland to hold public referendum on Swiss tax and social security reform (Tax Alert 2019-0296)

— Feb 01: Hungary's tax system offers benefits for migration of hybrid entities, including advance rulings (Tax Alert 2019-0287)

— Feb 01: Germany's Renewable Energy Tax Credit requires action by 31 March 2019 (Tax Alert 2019-0285)

— Feb 01: Denmark's Supreme Court finds marketing activities performed in Denmark did not constitute compensable benefit to non-Danish group company (Tax Alert 2019-0284)

Oceania

— Feb 06: New Zealand considering draft legislation to modernize individuals’ income tax (Tax Alert 2019-0318)

—————————————————————————
Recent Newsletters

Washington Dispatch
Highlights of this edition include:

Legislation

— Tax agenda uncertain in new Congress

Treasury and IRS news

— Final Section 965 regulations largely follow proposed regulations, but include significant changes

Capital Markets

— Argentine inflation results in US tax considerations for taxpayers and QBUs using the Argentine peso as their functional currency, and certain Argentine peso-denominated transactions

OECD Developments

— OECD releases policy note addressing tax challenges of digitalization

— OECD issues 2018 progress report on preferential regimes

— OECD BIAC issues tax principles for digital economy

—————————————————————————
IRS Weekly Wrap-Up

Internal Revenue Bulletin

2019-07

Internal Revenue Bulletin of February 11, 2019

—————————————————————————
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: 2019-0331