November 1, 2020
U.S. International Tax This Week for October 30
Ernst & Young's U.S. Tax This Week newsletter for the week ending October 30 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 Internal Revenue Service (IRS) this week announced that it is amending the parameters of the Advance Pricing and Mutual Agreement (APMA) program in regard to mutual agreement procedure (MAP) and advance pricing agreement (APA) cases that are negotiated under US tax treaties. The change is meant to promote compliance with provisions enacted by the Tax Cuts and Jobs Act (TCJA) by limiting so-called "telescoping" of the case results to current tax years. According to the announcement, the "IRS anticipates that in many cases spanning TCJA implementation years, changing the U.S. taxpayer's taxable income pursuant to a competent authority resolution is likely to impact the substantive calculation of tax." The IRS states that there are hundreds of US competent authority cases involving tax years that began before 1 January 2018. The IRS therefore is generally requiring that those taxpayers amend their tax returns to implement competent authority resolutions rather than reflect the changes to taxable income in current tax years.
When a competent authority agreement is completed, the US taxpayer will be told the tax year(s) in which the resolution should be reflected in the taxpayer's US taxable income and will be asked to amend their federal tax return for those years. For cases involving multiple years that begin before 1 January 2018 and that do not cross over the TCJA enactment date, the US taxpayer may request "telescoping," that is to change the taxable income for each year of the case so that income may be aggregated, netted, and reflected in the last of those tax years. EY Tax Alert 2020-2585 provides details.
A senior IRS official this week said that as the agency moves away from TCJA regulatory efforts, it is now beginning to focus more of its attention on enforcement priorities, including partnership reporting that includes international aspects. According to the official, the IRS has also resumed enforcement in the area of stock-based compensation and cost-sharing arrangements, following the US Supreme Court's denial of certiorari in the Altera case.
In a recent IRS Office of Chief Counsel Memorandum (FAA 20204201F), the IRS has advised that the IRC Section 704(c) anti-abuse rule applies to contributions that a US corporate taxpayer made of high-value, low-basis assets to a partnership formed with a related foreign entity. The partnership used the "traditional method," with curative allocations limited to gain on the disposition of the contributed property, for making allocations with respect to the built-in gain for purposes of IRC Section 704(c). The IRS determined that it may exercise its authority to apply a "curative method" that would cure the distortion.
The FAA is significant for a few reasons. First, it provides insight on the IRS's view of the application of the IRC Section 704(c) anti-abuse rule. Second, the FAA raises questions concerning the IRS's interpretation of the "with a view to" requirement in the IRC Section 704(c) anti-abuse rule; more specifically, the FAA suggests that the IRS may seek to apply the IRC Section 704(c) anti-abuse rule even to partnership contributions that were partially motivated by valid non-tax business purposes. Third, it confirms that the IRS cannot apply the remedial allocation method to remedy an adoption of an IRC Section 704(c) method that violates the IRC Section 704(c) anti-abuse rule. EY Tax Alert 2020-2556 provides details.
Recent Tax Alerts
— Oct 29: South Africa issues 2020 Medium Term Budget Policy Statement: Tax highlights (Tax Alert 2020-2583)
— Oct 28: Kenya gazettes VAT regulations on electronic tax invoices (Tax Alert 2020-2570)
— Oct 26: Kenya gazettes VAT regulations on digital marketplace supply (Tax Alert 2020-2553)
— Oct 29: Philippines clarifies certain issues related to filing of transfer pricing information return (Tax Alert 2020-2580)
Canada & Latin America
— Oct 29: Argentina amends promotional tax system for the knowledge-based economy (Tax Alert 2020-2576)
— Oct 27: Peruvian tax authorities announce exchange of tax and financial information with more than 130 countries in 2021 (Tax Alert 2020-2564)
— Oct 29: Spain releases 2021 State Budget Bill (Tax Alert 2020-2584)
— Oct 29: UK issues guidance on accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021 (Tax Alert 2020-2582)
— Oct 29: Portugal postpones certified invoicing system for entities registered solely for VAT purposes (Tax Alert 2020-2581)
— Oct 28: Ireland publishes Finance Bill 2020: A review of international tax provisions (Tax Alert 2020-2572)
— Oct 28: Spain sends anti-tax evasion Bill to Parliament for approval (Tax Alert 2020-2571)
— Oct 28: BREXIT | Status of UK citizens in Germany from January 1, 2021 discussed (Tax Alert 2020-2569)
— Oct 27: Poland implements new charge on certain beverages from 1 January 2021 (Tax Alert 2020-2563)
— Oct 23: Luxembourg Tax Authorities publish XML schema and User Guide on submitting MDR reports (Tax Alert 2020-2545)
— Oct 26: OECD releases third batch of Stage 2 peer review reports on dispute resolution (Tax Alert 2020-2552)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2020-44||Internal Revenue Bulletin of October 26, 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.