Tax News Update    Email this document    Print this document  

October 25, 2020

U.S. International Tax This Week for October 23

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


In Revenue Procedure 2020-44, the Internal Revenue Service (IRS) has confirmed that certain fallback language modifying debt instruments, derivatives, and other financial contracts to cover the possible discontinuance of the London Interbank Offered Rate (LIBOR) will not result in a deemed taxable exchange for US federal income tax purposes. The confirmation also applies to other "interbank offered rates" (IBORs), such as the Euro Interbank Offered Rate (EURIBOR). In addition, the IRS confirmed that the modifications will not change the tax treatment of a "synthetic" debt instrument (i.e., an integrated debt instrument and hedge under Reg. Sections 1.988-5 or 1.1275-6).

Given the very large number of financial instruments referencing LIBOR and other IBORs, the demise of these indices will affect numerous taxpayers. The Revenue Procedure is, however, limited to only certain, specific modifications. Taxpayers (and their foreign entities) should evaluate all floating-rate debt instruments they hold or have issued, as well as derivative and other transactions into which they have entered, to determine if the Revenue Procedure may be relied upon to avoid the realization of gain or loss from contract modifications to include fallback language to account for the possible discontinuation of LIBOR.

The Revenue Procedure applies to contract modifications made on or after 9 October 2020, and before 1 January 2023, but can be relied on for contracts modified before 9 October 2020. For details, see EY Tax Alert 2020-2498.

The head of the IRS Advance Pricing and Mutual Agreement Program (APMA) this week was quoted as saying that the IRS will consider amending existing advance pricing agreements (APAs) because of the economic implications from the COVID-19 pandemic, but it will not be automatic. The official indicated that APMA will consider requests on a case-by-case basis for early termination of existing APAs that will run through 2020. He cautioned, however, that consideration of such requests does not mean the IRS will accept changes to the transfer pricing method absent compelling justification.

There reportedly also are no plans by APMA to release formal guidance in regard to APAs or mutual agreement procedures that address the effects of the COVID-19 pandemic. The APMA program expects to see a large number of requests for APA amendments due to the pandemic's economic fallout after 2020 financial results become available.

The US this week announced (Announcement 2020-40) that the 1989 US-Hong Kong shipping agreement will be terminated effective 1 January 2021, effective for tax years beginning on or after that date. Last summer, President Trump issued an Executive Order on Hong Kong Normalization, which, among other things, directed that notice be given to Hong Kong of the US's intent to terminate the shipping agreement.

Upcoming Webcasts

Taxation of the digitalized economy: What’s next (October 28)
During this Thought Center Webcast, Ernst & Young professionals will provide insight into the latest developments, including the interaction of BEPS 2.0 and country DSTs, the US presidential election, and the likely next steps for the many stakeholders involved in this global debate.

Recent Tax Alerts

United States

— Oct 19: Calendar year 2019 FBARs extended to October 31st (Tax Alert 2020-2505)

— Oct 16: USTR issues Statement asserting lack of legal basis in response to WTO Authorization of EU Countermeasures on US goods under Aircraft Dispute (Tax Alert 2020-2500)

— Oct 16: Additional final regulations provide foreign tax credit guidance (Tax Alert 2020-2497)


— Oct 22: Egypt introduces unified tax procedures law (Tax Alert 2020-2532)

— Oct 16: South Africa issues new regulations to implement the Common Reporting Standard (Tax Alert 2020-2493)


— Oct 22: Indian Court rules on interaction between tax treaty provisions and Indian dividend distribution tax (Tax Alert 2020-2533)

— Oct 22: Japan | Post COVID-19 tax audit trends (Tax Alert 2020-2527)

Canada & Latin America

— Oct 21: Argentina implements mandatory disclosure rules (Tax Alert 2020-2526)

— Oct 21: Uruguayan tax authority extends estimated tax payment deadlines due to COVID-19 (Tax Alert 2020-2523)

— Oct 20: Uruguay's tax authorities expand corporate income tax benefits for software providers (Tax Alert 2020-2511)


— Oct 22: Russian Supreme Court addresses withholding tax on lease payments and classification for tax treaty purposes (Tax Alert 2020-2534)

— Oct 22: Ireland issues Budget 2021 (Tax Alert 2020-2531)

— Oct 21: Spanish Supreme Court confirms case law on limits to dynamic interpretation of tax treaties (Tax Alert 2020-2522)

— Oct 21: Luxembourg Draft Budget Law 2021: Tax measures affecting individuals (Tax Alert 2020-2521)

— Oct 21: Italy's Tax Authority rules reinsurance fees for Claims Handling Services are subject to VAT (Tax Alert 2020-2520)

— Oct 20: EU responds to WTO authorization to impose countermeasures on US products (Tax Alert 2020-2516)

— Oct 16: Luxembourg Draft Budget Law 2021 – A look at the tax measures affecting companies (Tax Alert 2020-2501)

— Oct 16: Spanish Parliament approves Law on Financial Transaction Tax (Tax Alert 2020-2496)

— Oct 16: Spanish DST is enacted, effective 2021 (Tax Alert 2020-2495)

Middle East

— Oct 16: Israel's Tax Authority releases draft bill to significantly amend transfer pricing rules and regulations (Tax Alert 2020-2494)

— Oct 16: Oman introduces VAT law (Tax Alert 2020-2492)


— Oct 20: The latest on BEPS and Beyond for October 2020 (Tax Alert 2020-2513)

— Oct 20: OECD releases BEPS 2.0 Pillar Two Blueprint and invites public comments (Tax Alert 2020-2508)

— Oct 19: OECD releases BEPS 2.0 Pillar One Blueprint and invites public comments (Tax Alert 2020-2506)

IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2020-43Internal Revenue Bulletin of October 19, 2020

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.