November 22, 2020
U.S. International Tax This Week for November 20
Ernst & Young's U.S. International Tax This Week newsletter for the week ending November 20 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.
A senior Internal Revenue Service (IRS) official this week said the US hopes to release a revenue procedure by the end of the year on the interaction of the Global Intangible Low-taxed Income (GILTI) provision and a controlled foreign corporation's (CFC) change of accounting method. The Treasury and the IRS had indicated in the final GILTI regulations (issued in June 2019) that they planned to issue a revenue procedure "further expanding the availability of automatic consent for depreciation changes and updating the terms and conditions in … Revenue Procedure 2015-13 (related to the source, separate limitation classification, and character of IRC Section 481(a) adjustments) to take into account IRC Section 951A." Another IRS official was quoted as saying the future revenue procedure would also clarify that an IRC Section 481(a) adjustment is an increase or decrease to tested income since it is an increase or decrease to CFC income.
The official also said final regulations on the aggregate treatment of partnerships for subpart f purposes are on the horizon, and that the final rules could be accompanied by proposed rules on related passive foreign investment company issues. The IRS is also reportedly working on an IRC Section 367(d) project that would address issues regarding intangible property that previously was transferred overseas and now brought back to the US. A new international tax project on IRC Section 864(f) on the election to allocate interest on a worldwide basis is also part of the IRS's 2021 priority guidance plan that was released this week.
The IRS and Mexico's Tax Administration Service (SAT) have agreed to renew the Qualified Maquiladora Approach Agreement (QMA), a coordination arrangement most recently agreed to between the US and Mexican competent authorities in 2016. The QMA allows a US taxpayer to avoid double taxation on the contract manufacturing and assembly functions performed by its maquiladora if the Mexican taxpayer enters into a unilateral Advance Pricing Agreement (APA) with the SAT's Large Taxpayer Division under terms negotiated in advance between the competent authorities. Mexican maquiladoras usually operate as contract manufacturers of foreign multinationals.
Over 700 US taxpayers with maquiladoras potentially qualify for the application of this agreement. In addition to providing certainty for tax years through 2019, the 2016 QMA also committed the competent authorities to commence work on another renewal of the QMA to cover tax year 2020 and beyond, and to take into account in those discussions the impact of current economic, commercial, and public health conditions affecting taxpayers and workstreams within the Organisation for Economic Co-operation and Development's (OECD) Working Party No. 6 and the Forum on Tax Administration. EY Tax Alert 2020-2731 has details.
A senior IRS official this week was quoted as saying that it is working on new guidance related to stock-based compensation in relation to cost sharing arrangements that will address the Altera v. Commissioner decision. The guidance reportedly will cover the effects of sharing stock-based compensation on the calculation of the buy-in payment or platform contribution transaction, entity-level effects, the timing of an inclusion, and the impact of the Tax Cut and Jobs Act's IRC Section 965 transition tax and GILTI provisions. The official indicated the guidance is a high priority and said that "hopefully we're able to get something out at some point relatively soon."
Although Altera is only effective in areas within the Ninth Circuit's purview, IRS officials believe the "case will help the Service and the government and availing in other circuits," with one goal being to avoid a split in the circuits.
An IRS official this week was quoted as saying that there is no overall policy against issuing private letter rulings in regard to the tax treatment of virtual currency transactions, noting that the IRS addresses issues on a case-by-case basis. The official added that while summary statistics for 2019 are not yet in, the US has seen a "steady increase in income and gain reported for taxpayers' virtual currency transactions" for tax years 2013 through 2018.
The OECD on 18 November issued a consultation document on BEPS Action 14, Making Dispute Resolution More Effective, seeking stakeholder input on proposals for the 2020 review of the Action 14 minimum standard. Among the proposals to strengthen Action 14 is to increase the use of bilateral APAs and numerous suggestions surrounding the Mutual Agreement Procedure process. A public consultation meeting on the 2020 review of BEPS Action 14 will be held virtually in early 2021.
EY Guides and Publications
How US executives are reshaping their corporate strategy post-election
The US election has added another variable into how executives are rethinking their strategy. Executives are responding to uncertainty from the potential changes in and the regulatory and policy environment after the US election by rethinking their corporate strategies in the US and abroad, according to the Ernst & Young LLP (EY) Election Pulse Survey. Learn more in this recent EY article.
Navigating recent TCJA regulations and US election impacts for life sciences (December 2)
During this Thought Center Webcast, Ernst & Young professionals will discuss the potential impacts of the election and what that could mean for life sciences companies, as well as insights and opportunities based on what we’re seeing across the sector.
Recent Tax Alerts
— Nov 19: US and Mexico renew competent authority agreement on unilateral APAs for maquiladoras (Tax Alert 2020-2731)
— Nov 17: UK proposes to amend hybrid and other mismatches regime – implications for US multinationals (Tax Alert 2020-2712)
— Nov 16: EU publishes list of US products subject to additional duties following WTO authorization (Tax Alert 2020-2706)
— Nov 13: Kenya's Court of Appeals rules that withholding tax is due on payments to card companies and interchange fees (Tax Alert 2020-2696)
— Nov 13: Ghana announces extension of time for provision of relief packages in response to COVID-19 (Tax Alert 2020-2695)
Canada & Latin America
— Nov 19: Costa Rica's President and Minister of Finance published a regulation updating the criteria for selecting people and items subject to customs control (Tax Alert 2020-2733)
— Nov 16: Quebec Bill 42 receives Royal Assent; Mandatory disclosure requirements for nominee agreements come into effect (Tax Alert 2020-2704)
— Nov 13: Mexico introduces bill to amend labor and tax laws to prohibit outsourcing (Tax Alert 2020-2697)
— Nov 13: What's next for tax policy in Latin America (Tax Alert 2020-2691)
— Nov 18: Germany's new entry registration and quarantine requirements discussed (Tax Alert 2020-2724)
— Nov 17: The latest on BEPS and Beyond for November 2020 (Tax Alert 2020-2710)
— Nov 16: UK Government issues details of new Plastics Packaging Tax effective 1 April 2022 (Tax Alert 2020-2707)
— Oct 14: Australia enacts 2020-21 Federal Budget measures (Tax Alert 2020-2716)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2020-47||Internal Revenue Bulletin of November 16, 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.