August 30, 2020
U.S. International Tax This Week for August 28
Ernst & Young's U.S. International Tax This Week newsletter for the week ending August 28 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.
The Treasury and IRS on 21 August released final regulations under IRC Section 245A (TD 9909) providing anti-abuse rules for "extraordinary dispositions" and "extraordinary reductions." These regulations finalize proposed regulations and replace temporary regulations that were issued in June 2019. The final regulations continue to deny the IRC Section 245A dividends received deduction for 50% of the dividends paid by a specified 10%-owned foreign corporation to the extent attributable to earnings and profits from extraordinary dispositions.
The final regulations are substantially similar to the proposed and temporary regulations, with a limited number of generally taxpayer-favorable changes at the margin. While the substantive rules did not change much, taxpayers should pay close attention to new examples illustrating anti-abuse rules. Several new examples illustrate the anti-abuse rules, and one of them would extend the application of the extraordinary-disposition rules beyond "dispositions."
The final regulations apply to tax periods ending on or after 14 June 2019, while Temp. Reg. IRC Section 1.245A-5T continues to apply to distributions made after 31 December 2017, to which the final regulations do not apply. Taxpayers may apply the final regulations retroactively, provided that they and all related parties apply them consistently.
At the same time, Treasury and the IRS released new proposed regulations (REG-124737-19) that would coordinate the final regulations with certain rules under IRC Section 951A that effectively deny deductions arising from "disqualified basis" that is generated during the so-called GILTI gap period.
The IRS in Announcement 2020-13 disclosed that the US and Swiss competent authorities entered into an agreement establishing a competent authority arrangement regarding implementation of the arbitration process in Article 25, paragraphs 6 and 7, of the US-Switzerland income tax treaty. According to the treaty, arbitration will be available where, pursuant to the Article 25 mutual agreement procedure, the competent authorities are unable to reach a complete agreement. In addition, an unresolved competent authority request that originated in a bilateral Advance Pricing Agreement request will be subject to arbitration procedures. Certain cases described in the competent authority arrangement are not eligible for arbitration.
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Recent Tax Alerts
— Aug 24: India introduces Transparent Taxation platform (Tax Alert 2020-2122)
Canada & Latin America
— Aug 26: Colombia issues regulations on indirect transfer regime (Tax Alert 2020-2127)
— Aug 21: Ecuador issues regulations implementing 2019 tax reform (Tax Alert 2020-2115)
— Aug 26: UK issues Brexit guidance on moving goods under the Northern Ireland Protocol (Tax Alert 2020-2128)
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.