October 11, 2020
U.S. International Tax This Week for October 9
Ernst & Young's U.S. Tax This Week newsletter for the week ending September 9 is now available. Prepared by Ernst & Young's National Tax Department in Washington, D.C., this weekly update summarizes important news, cases, and other developments in U.S. taxation.
The Treasury and the Internal Revenue Service (IRS) on 7 October published final partnership withholding regulations (TD 9926) under IRC Section 1446 with regard to dispositions of certain partnerships engaged in a US trade or business. IRC Section 1446(f), enacted by the Tax Cuts and Jobs Act, imposes a new withholding tax on transfers by non-US persons of interests in partnerships that are engaged in a US trade or business. IRC Section 1446(f) is an enforcement mechanism for the substantive tax imposed by IRC Section 864(c)(8), which imposes tax on non-US partners that sell interests in such partnerships to the extent the gain is allocable to the partnership's US business assets.
The final regulations retain the basic approach and structure of the proposed regulations (REG-105476-18) issued in May 2019, with certain revisions. They retain the general rule in proposed Treas. Reg. Section 1.1446(f)-2(a) that requires withholding on the transfer of a partnership interest unless an exception or adjustment to withholding applies. The final regulations add a rule, however, that provides that any person that is required to withhold under IRC Section 1446(f) is not liable for failure to withhold if it can establish that the transferor had no gain under IRC Section 864(c)(8) that is subject to tax on the transfer. The final rules also add a withholding exception if the partnership certifies to the transferee that it is not engaged in a US trade or business. The same exception is added for a publicly traded partnership that is not engaged in a US trade or business.
The final regulations are effective upon publication in the Federal Register.
The IRS Large Business and International Division (LB&I) has announced a new compliance campaign that takes aim at nonresident aliens that fail to report rental income from US property. According to the IRS's 5 October announcement, this campaign will address noncompliance through examinations, education, and outreach.
Angel Gurría, OECD Secretary-General, launched a meeting of the Inclusive Framework on BEPS, on 8-9 October, to discuss final blueprints for Pillar 1 and Pillar 2 of the BEPS 2.0 project, telling members, "key political decisions remain, and some further technical issues need to be resolved." The OECD reportedly will publish final blueprints for Pillar 1 and Pillar 2, along with an impact assessment, on 12 October, according to an earlier statement by Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. The blueprints are expected to be delivered to the G-20 finance ministers for their 14 October meeting. Public consultations on the pillar drafts are planned to begin in mid-October, according to the OECD tax director, with comments due before 25 December.
In other OECD news, the organization reportedly plans to release practical guidance in the transfer pricing area this year that addresses issues specifically related to the COVID-19 pandemic. The guidance will be in response to a recent consultation that took place following a questionnaire that was issued to multinationals last summer, requesting information on pressing transfer pricing issues.
An OECD official this week was quoted as saying that the most important issue cited by both multinationals and governments is the allocation of government support that has taken place as a result of the pandemic. Governments are concerned that the aid they have provided not be transferred abroad through transfer pricing arrangements. Other issues that are likely to be covered in the coming guidance include benchmarking 2020 financial results, loss allocation to limited risk entities, and the effects of the COVID-19 pandemic on advance pricing agreements.
Latin America ‘nearshoring’ webcast series: Panama session (October 21)
As companies evaluate their global supply chains in light of recent disruptions, there is heightened interest in the concept of “nearshoring,” i.e., the transferring of a business operation to a nearby country from a more distant one. During this Thought Center Webcast, Ernst & Young is sponsoring a series of webcasts featuring our local country professionals. We will kick off the series with a session on Panama.
Recent Tax Alerts
— Oct 08: US initiates Section 301 investigation into Vietnam currency policy; files WTO appeal on Canada lumber finding (Tax Alert 2020-2431)
— Oct 05: Zambian Government issues 2021 Budget (Tax Alert 2020-2400)
— Oct 08: Philippines amends fair market value definition for unlisted shares of stock (Tax Alert 2020-2421)
— Oct 06: Singapore provides transfer pricing guidance related to impact of COVID-19 (Tax Alert 2020-2407)
— Oct 05: Japan's immigration information as of October 5 provided (Tax Alert 2020-2403)
Canada & Latin America
— Oct 08: EY publication highlights 2020 Q3 tax policy developments across the Americas (Tax Alert 2020-2432)
— Oct 08: EY Canada's Tax Matters @ EY for October 2020 (Tax Alert 2020-2423)
— Oct 07: British Columbia Land Owner Transparency Act takes effect (Tax Alert 2020-2409)
— Oct 02: Peru-Japan double tax treaty is sent to Peruvian Congress for approval (Tax Alert 2020-2386)
— Oct 02: Chile's tax authorities amend reporting obligations for indirect transfers (Tax Alert 2020-2385)
— Oct 02: Peru's tax authority postpones filing of CbC report for 2019 tax year (Tax Alert 2020-2384)
— Oct 02: Canada's Distributed Investment Plans required to request certain investor information by October 15 (Tax Alert 2020-2380)
— Oct 08: Dutch Government publishes further details on job-related investment tax credit (Tax Alert 2020-2422)
— Oct 07: ECOFIN publishes revised list of non-cooperative jurisdictions for tax purposes (Tax Alert 2020-2415)
— Oct 07: Swiss Federal Supreme Court issues decision on withholding tax reclaims on derivatives and beneficial ownership (Tax Alert 2020-2414)
— Oct 02: Danish Tax Board rules Danish data center does not create a permanent establishment for nonresident company (Tax Alert 2020-2390)
— Oct 08: Saudi Arabia introduces real estate transaction tax (Tax Alert 2020-2433)
— Oct 05: Turkey extends application of temporary and high rate of Additional Customs Duties through 31 December 2020 (Tax Alert 2020-2399)
— Oct 07: Australia issues 2020-21 Federal Budget (Tax Alert 2020-2416)
— Oct 08: PE Watch | Latest developments and trends, October 2020 (Tax Alert 2020-2430)
Highlights of this edition include:
Treasury and IRS news
- Final BEAT regulations adopt proposed BEAT guidance with some changes
- Treasury releases final and newly proposed foreign tax credit regulations
- Treasury issues final sourcing regulations on sales of personal property (including inventory)
- IRS releases final and proposed regulations related to the repeal of Section 958(b)(4)
- IRS issues final regulations on characterization of foreign persons’ gain or loss from sale / exchange of interests in partnerships engaged in a US trade or business
- IRS delays certain Section 987 foreign currency regulations for additional year
- Notice 2020-69 provides rules on entity treatment election for certain S corporations for purposes of GILTI in AAA inclusions
- Final BEPS 2.0 Pillar 1 and 2 blueprints will be published on 12 October
- OECD releases outcomes of third phase of peer reviews on BEPS Action 13
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2020-41||Internal Revenue Bulletin of October 5, 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.