07 April 2019

U.S. International Tax This Week for April 5

Ernst & Young's U.S. International Tax This Week newsletter for the week ending April 5 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

Republican House Ways and Means Committee members on 3 April wrote to President Trump to voice their concerns about France’s proposed digital services tax (DST), which is intended to apply from 1 January 2019. The 16 committee members characterized the French proposal as “designed and explicitly intended to target US companies.” The letter, which also refers to the United Kingdom’s (UK) proposed DST, argues that such taxes act as “a ‘de facto’ tariff on US exports” and threaten the US tax base. The group urged the Administration to “engage forcefully on these issues, including addressing them as a trade barrier.”

US government officials this week said future final Section 250 regulations will include certain clarifications addressing both Foreign Derived Intangible Income (FDII) documentation and FDII intangible property manufacturing end-users. (Proposed Section 250 regulations were released in early March 2019.) In terms of documentation, a Treasury official was quoted as saying the rules would be expanded in the final regulations and that generally, the US wants to require documentation through “normal business records.” The official added that the US is interested in hearing from taxpayers, noting he expects the final rules will include multiple documentation options.

In terms of foreign use of intangible property used in manufacturing based on the location of the end-user, an IRS official was quoted as saying the final regulations will provide more guidance on who an end-user is under various circumstances. The official said the IRS is requesting comments on “where to draw the line.” A Treasury official added that existing sourcing rules may not be used to determine end-users, and that the FDII regulations may have their own set of rules to generate answers.

The IRS may use the new Advance Pricing and Mutual Agreement Program (APMA) Functional Cost Diagnostic Model released last February in examinations in appropriate cases, according to an IRS official this week. The IRS earlier had indicated that the excel-based financial model was developed for use when reviewing certain Advance Pricing Agreement (APA) requests and was not intended as an examination tool. The official noted, however, that there is no link between the APMA diagnostic tool and recent IRS interim guidance requiring transfer pricing issue teams to consult with APMA before making adjustments involving a related party in a treaty country.

The Government Accountability Office (GAO) this week released a critical report on implementation of the Foreign Account Tax Compliance Act (FATCA), concluding that FATCA data limitations and a lack of a comprehensive strategy have hampered IRS efforts to increase compliance. The GAO recommended specific actions that should be taken to enhance compliance efforts, eliminate overlapping requirements, and mitigate the burdens on US persons abroad. Among its recommendations, the GAO urged the IRS to develop a “comprehensive plan for managing efforts to leverage FATCA data in agency compliance efforts.” The IRS responded that the resources needed to develop such a plan “would be better spent on enforcement activities.”

The Organisation for Economic Co-operation and Development’s Forum on Tax Administration (FTA) announced a second pilot of the International Compliance Assurance Program (ICAP 2.0). A new handbook that will guide the second pilot was also endorsed and published by the FTA. ICAP is a voluntary risk assessment and assurance program designed to facilitate open and cooperative multilateral engagement between multinational enterprise (MNE) groups willing to engage actively and transparently and tax administrations in jurisdictions where the MNEs have business activities. The first ICAP pilot program was launched in January 2018, with the participation of eight FTA member jurisdictions (Australia, Canada, Italy, Japan, the Netherlands, Spain, the UK and the US). ICAP 2.0 includes nine additional participating tax administrations: Austria, Belgium, Denmark, Finland, Germany, Ireland, Luxembourg, Norway, and Poland. EY Tax Alert 2019-0696 has details.

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Upcoming Webcasts

The nexus debate and profit allocation rules and its business impact (April 18)
During this Thought Center Webcast, Ernst & Young professionals will discuss the OECD's proposed changes to the nexus and profit allocation rules and how these changes, if implemented, will affect where and how profits derived from global business operations will be taxed, and likely repercussions for the business operations of taxpayers.

Are your clients digitally savvy? Join EY’s People Advisory Services America’s Signature Webcast to help them transform HR (April 23)
During this Thought Center Webcast, Ernst & Young professionals will demonstrate how companies from different industries have transformed their HR functions – and their reputations — as critical leaders in the organization.

Key insights on India’s M&A environment with EY M&A and Tax professionals (May 2)
During this Thought Center Webcast, Ernst & Young professionals will discuss the following topics: (i) Overview of India’s transaction and corporate M&A landscape; (ii) Recent transaction trends in India; (iii) Typical characteristics associated with M&A activity in India; and (iv) Key tax and structuring considerations for M&A activity in India.

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Recent Tax Alerts

Africa

Asia

Canada & Latin America

Europe

Middle East

Oceania

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Recent Newsletters

Washington Dispatch

Highlights of this edition include:

OECD developments

— OECD holds consultation on tax challenges of digitalization with aggressive 2020 timeline for consensus

Treasury and IRS news

— IRS issues proposed Section 250 regulations on calculating FDII and GILTI deduction

— Final GILTI regulations coming by summer, proposed PTI regs late summer / early fall

— IRS releases final FATCA regulations covering compliance and verification procedures

— EU comments on Section 59A BEAT provision

Transfer pricing news

— IRS APMA releases Functional Cost Diagnostic Model to be used in certain APAs

— IRS requiring transfer pricing teams to consult with APMA in certain cases

— IRS releases 2018 APA results

Puerto Rico update

— Puerto Rico’s Treasury Department issues guidance for mandatory electronic filing of CIT returns for 2018 tax year

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

2019-15  Internal Revenue Bulletin of April 08, 2019

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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: 2019-0703