September 3, 2020
U.S. International Tax This Week for September 3
Ernst & Young's U.S. International Tax This Week newsletter for the week ending September 3 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.
Treasury and the Internal Revenue Service (IRS) on 1 September released final regulations (T.D. 9910; Final Regulations) on the Base Erosion and Anti-abuse Tax (BEAT) under IRC Section 59A. The Final Regulations generally follow the proposed regulations issued in December 2019, as expected, with certain revisions.
Among the highlights, the final regulations:
- Retain the rule about changes in the composition of a taxpayer's aggregate group and clarify the timing of the deemed tax year-end of a member joining or leaving the group (now treated as occurring at the end of the day of the transaction)
- Detail when members of a taxpayer's aggregate group have different tax years, including rules that apply in certain instances to annualize a member's gross receipts, base erosion tax benefits, and deductions for determining the gross receipts and base erosion percentage of the taxpayer's aggregate group
- Limit favorably the anti-abuse rule in certain circumstances for transactions that increase the basis of property acquired by a taxpayer in a non-recognition transaction
- Retain the definition of "allowed deduction," which includes all deductions that may properly be claimed (whether deducted or not) for the tax year, while also retaining the election to waive deductions so that waived deductions are not treated as base erosion tax benefits (e.g., when determining base erosion percentage or modified taxable income)
- Include, as part of the BEAT waiver election, a provision for the waiver of any premium or other consideration paid or accrued by a life or non-life insurance company for any reinsurance payments that would be a base erosion tax benefit
The final regulations also:
- Allow a partner, but not the partnership itself, to make a BEAT waiver election for allocated deductions from the partnership
- Conform the treatment of a partner's BEAT waiver election with IRC Section 163(j) so that an increase in the partner's income from waiving a deduction taken into account by the partnership to reduce the partnership's adjusted taxable income is treated as a partner-basis item for the partner, not the partnership, for purposes of IRC Section 163(j)
- Adopt the proposed rule treating an income allocation to the contributing partner in lieu of a deduction allocation to the non-contributing partner as a base erosion tax benefit under IRC Section 59A
The IRS on 1 September announced in Notice 2020-69 its intent to issue regulations addressing the application of IRC Sections 951 and 951A to certain S corporations with accumulated earnings and profits. For S corporations electing this treatment, Global Intangible Low-taxed Income (GILTI) inclusions would create an accumulated adjustment account.
The notice also announces that Treasury and the IRS intend to issue regulations addressing the treatment of qualified improvement property (QIP) under the alternative depreciation system of IRC Section 168(g) for calculating the qualified business asset investment (QBAI), for purposes of the Foreign Derived Intangible Income (FDII) and GILTI provisions. When issued, these rules would implement recent clarifications enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. All of these provisions were originally part of the Tax Cuts and Jobs Act.
In a notice published this week in the Federal Register, the IRS requested comments on Revenue Procedure 2015-40 with respect to competent authority assistance. The IRS is seeking comments on the collection of information in regard to the procedures for requesting competent authority assistance under tax treaties. The public comment period lasts 60 days from the date of publication in the Federal Register.
The Office of Management and Budget Office of Information and Regulatory Affairs (OIRA) on 31 August received from Treasury the final and proposed foreign tax credit regulations for review in regard to provisions enacted by the Tax Cuts and Jobs Act. The final regulations follow proposed regulations that were issued in December 2019 that would, among other things, require research and experimental expenditures to be allocated to the taxpayer's gross intangible income, which does not include dividends, subpart F income, or GILTI inclusions, under a new gross-receipts based method. The proposed rules also provided detailed guidance for allocating and apportioning current-year foreign taxes to separate IRC Section 904(d) categories of income.
The new proposed rules now at OIRA are described as guidance related to the foreign tax credit and clarification of FDII.
EY Guides, Surveys, and Reports
EY's 2019-20 Worldwide Transfer Pricing Guide now available
The EY Worldwide Transfer Pricing Reference Guide 2019-20 is a publication designed to help international tax executives identify transfer pricing rules, practices and approaches. These must be understood for a company to carry out both transfer pricing compliance and planning activities in the base erosion and profit shifting (BEPS) era. The information included in the EY Worldwide Transfer Pricing Global Reference Guide 2019-20 covers 134 jurisdictions. It is meant to provide an overview for the covered jurisdictions regarding their transfer pricing tax laws, regulations and rulings; Organisation for Economic Co-operation and Development (OECD) Guidelines treatment; documentation requirements; transfer pricing returns and related-party disclosures; transfer pricing documentation and disclosure timelines; BEPS Action 13 requirements; transfer pricing methods; benchmarking requirements; transfer pricing penalties and relief from penalties; statutes of limitations on transfer pricing assessments; likelihood of transfer pricing scrutiny and related audits by the tax authorities; and opportunities for advance pricing agreements (APAs).
Key fiscal and tax incentives in ASEAN and India (September 8)
During this Thought Center Webcast, Ernst & Young professionals will discuss: (i) The key fiscal and tax incentives in ASEAN and India; (ii) ASEAN/ India – the post COVID-19 world; and (iii) The recent relaxations, incentives and sector focus for new activities in ASEAN (including Malaysia, Singapore, Thailand and Vietnam) and India
The evolving world of site selection | Corporate location in today’s rapidly changing environment (September 9)
During this Thought Center Webcast, Ernst & Young professionals will explore current trends in site selection domestically and abroad, how these trends are expected to change, and issues economic developers should consider..
Tax in the time of COVID-19 (September 11)
During this Thought Center Webcast, Ernst & Young professionals will provide updates on: (i) the US legislative and economic landscape; (ii) breaking developments – federal and state; and (iii) what’s happening at the IRS.
International tax talk quarterly series with the EY Global Tax Desk Network (September 15)
In an environment defined by continuous global change and shifting paradigms, multinationals are having to evaluate their global supply chains. COVID-19 supply interruptions, trade policy uncertainty, the evolving geopolitical landscape, and increasing customer and consumer demands are creating new risks. During this Thought Center Webcast, Ernst & Young professionals will discuss how organizations can address these business challenges and manage their global tax profile amid disruption, with a focus on ASEAN and India.
Recent Tax Alerts
— Aug 31: Kenya revises list of dutiable goods that may be warehoused in a bonded facility (Tax Alert 2020-2153)
— Aug 28: Tanzania Revenue Authority introduces e-system for tax return filings (Tax Alert 2020-2144)
— Aug 28: Cyprus amends VAT law to improve tax collection and address VAT fraud (Tax Alert 2020-2143)
— Sep 01: Japan's immigration information as of September 1 provided (Tax Alert 2020-2162)
Canada & Latin America
— Aug 31: Colombian Government issues regulations on the mega-investment special tax regime (Tax Alert 2020-2154)
— Aug 31: Canada announces transition plan from the Canada Emergency Response Benefit (CERB) (Tax Alert 2020-2151)
— Sep 02: French Tax Authorities release new guidelines on dividend withholding tax exemption for foreign collective investment vehicles (Tax Alert 2020-2167)
— Aug 31: Dutch State Secretary of Finance publishes Decree on Brazilian "Interest on Net Equity" qualification (Tax Alert 2020-2156)
Highlights of this edition include:
Treasury and IRS news
- Treasury and IRS finalize DRD anti-abuse regulations with few changes
- Treasury and the IRS propose complex, taxpayer-favorable regulations to reduce possibility of double taxation caused by anti-abuse rules on GILTI gap period
Tax treaty news
- US, Swiss competent authorities reach agreement on treaty arbitration process
- UN tax committee issues proposal for taxing digital services income
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of August 31, 2020
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.