U.S. International Tax This Week for May 23

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May 23, 2019
2019-0985

Ernst & Young's U.S. International Tax This Week newsletter for the week ending May 23 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

Treasury and the Internal Revenue Service (IRS) on 22 May issued final regulations under Section 956 that generally would reduce an inclusion determined under Section 956 to corporate US shareholders of certain controlled foreign corporations (CFCs). The proposed regulations were issued on 31 October 2018.

The final regulations, consistent with the proposed regulations, reduce a corporate US shareholder’s Section 956 amount to maintain symmetry between the taxation of actual repatriations and the taxation of effective repatriations of earnings of a CFC eligible for the Section 245A dividends received deduction (DRD). This is achieved by providing that the amount otherwise determined under Section 956 with respect to a corporate US shareholder for a tax year of a CFC is reduced to the extent the US shareholder would be allowed a Section 245A DRD if the US shareholder had received a hypothetical distribution from the CFC in an amount equal to the tentative Section 956 amount. Importantly, the final regulations modify the hypothetical distribution rule in a favorable manner to reduce the Section 956 amount in certain instances that would not have been the case under the proposed regulations. The final regulations apply to tax years of a CFC beginning on or after 60 days after the final regulations are published in the Federal Register. However, consistent with the proposed regulations, taxpayers may apply the final regulations for tax years of a CFC beginning after 31 December 2017, provided that the taxpayer and its related US persons consistently apply the final regulations to all of their CFCs.

A senior Treasury official this week confirmed that final Global Intangible Low-taxed Income (GILTI) regulations would be released by 22 June to ensure they are retroactive to the date of the provision’s enactment by the Tax Cuts and Jobs Act. He also said final Base Erosion and Anti-Abuse (BEAT) regulations should be released by mid-to-late summer.

The Council of the European Union (the Council) on 17 May held a meeting where they discussed digital taxation and also updated the European Union (EU) list of non-cooperative jurisdictions for tax purposes. In relation to digital taxation, the Council discussed current international tax reforms with a view to preparing for the upcoming Organisation for Economic Co-operation and Development (OECD) and G20 leaders’ meetings. The Council also clarified that if, by the end of 2020, it appears that OECD-level agreement is expected to take additional time, the Council could revert to discussing a possible EU approach to digital taxation. EU consensus on a community-wide approach to digital taxation has proved elusive.

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Upcoming Webcasts

Global trade disruption escalates to new heights (May 23)
During this Thought Center Webcast, Ernst & Young professionals will discuss ongoing trade disruption actions and bring you up to date on the most recent trade developments.

Domestic tax quarterly webcast series: A focus on state tax matters (May 29)
During this Thought Center Webcast, Ernst & Young professionals will provide you with information on major tax law changes in the 50 states and District of Columbia, as well as current state and local tax topics of interest.

BorderCrossings . . .With EY transfer pricing and tax professionals (May 30)
During this Thought Center Webcast, Ernst & Young professionals will help you stay informed and able to adopt a more proactive stance in developing and defending your transfer pricing policies and practices.

Global payroll challenges for US employers - Hosted by Ernst & Young LLP and Bloomberg Tax (June 25)
During this Thought Center Webcast, Ernst & Young professionals will discuss the international trends that are influencing payroll and HR systems and policies with a specific focus on the governing rules and how they are applied.

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Recent Tax Alerts

United States

— May 22: Huawei and affiliates added to the Bureau of Industry and Security's Entity List effectively barring US exports to the company (Tax Alert 2019-0979)

— May 20: Canada and US agree to remove tariffs and retaliatory surtaxes on steel and aluminum imports (Tax Alert 2019-0963)

— May 20: US takes certain actions on Section 232 Automotive and Metals tariffs; Permanently removes Turkey from GSP eligibility (Tax Alert 2019-0961)

— May 17: QUEST Trade Policy Brief examines possible economic effects of imposing additional US tariffs on EU goods (Tax Alert 2019-0952)

Africa

— May 17: Nigeria's Court of Appeal orders re-trial of case regarding applicability of certain taxes and levies to Nigerian Liquefied Natural Gas Limited (Tax Alert 2019-0955)

Asia

— May 23: Korea issues tax ruling clarifying interest withholding tax exemption on foreign currency denominated bonds (Tax Alert 2019-0984)

— May 23: Indonesia issues new guidance on Mutual Agreement Procedure (Tax Alert 2019-0982)

— May 21: Thailand issues guidance regarding International Business Center regime (Tax Alert 2019-0968)

Canada & Latin America

— May 22: Canada imposes final safeguard measures on imports of heavy steel plate and stainless-steel wire (Tax Alert 2019-0975)

Europe

— May 22: Greece transposes certain EU ATAD provisions into domestic tax legislation (Tax Alert 2019-0978)

— May 21: ECOFIN discusses digital taxation, publishes updated list of non-cooperative jurisdictions for tax purposes (Tax Alert 2019-0967)

— May 20: Switzerland approves tax reform (Tax Alert 2019-0960)

— May 20: Italian Parliament introduces urgent measures for economic growth (Tax Alert 2019-0959)

— May 20: The latest on BEPS as of May 20 (Tax Alert 2019-0958)

— May 17: Romanian tax authorities revise position on whether a toll manufacturer creates fixed establishment for VAT purposes (Tax Alert 2019-0954)

Middle East

— May 23: Saudi Arabia announces excise tax changes (Tax Alert 2019-0983)

Oceania

— May 23: Australia re-elects Federal Coalition Government: Impact on tax policies (Tax Alert 2019-0980)

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

2019-21

Internal Revenue Bulletin of May 20, 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.