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December 6, 2020

U.S. International Tax This Week for December 4

Ernst & Young's U.S. Tax This Week newsletter for the week ending December 4 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 Organisation for Economic Co-operation and Development (OECD) will hold a two-day virtual public consultation on the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar One and Pillar Two Blueprints on 14-15 January 2021, according to Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration. The OECD Director was quoted as saying that while the overall architecture of the Pillars has been agreed upon, certain aspects may be overly complicated and the public consultation may be an opportunity to simplify some of that complexity.

Public comments on the blueprints are due by 14 December. The Inclusive Framework on BEPS reportedly will meet at the end of January 2021 to move the project forward, although Saint-Amans said further progress may not be possible if the new US delegation is not in place. The plan remains for agreement on the two pillars to be reached by mid-2021.

On the US-tax front, the Internal Revenue Service (IRS) on 4 December released final (TD 9936) and proposed (REG-111950-20) passive foreign investment company (PFIC) regulations that follow proposed regulations that were issued in July and October 2019.

The final regulations under IRC Sections 1291, 1297 and 1298 provide guidance on PFICs and clarify certain longstanding PFIC issues, including those of particular interest to the insurance industry. The final regulations retain the basic approach and structure of the proposed regulations, but with certain revisions. The final regulations, at over 250 pages, are effective upon filing in the Federal Register.

The proposed regulations address PFICs and the treatment of qualified improvement property under the Alternative Depreciation System for IRC Sections 250(b) and 951A(d) purposes.

The Treasury and the IRS on 20 November issued final regulations (TD 9934) under IRC Sections 245A and 951A that coordinate two independent sets of anti-abuse rules that apply to extraordinary dispositions and disqualified transfers (together, EDs). Both rules apply to certain transactions of a controlled foreign corporation (CFC) occurring during the so-called Global Intangible Low-taxed Income (GILTI) gap period. Absent the final regulations, gain recognized in an ED effectively could be taxed twice. The final regulations, which come three months after the release of the proposed regulations in August 2020, are effective 12 January 2021. The final regulations are substantially similar to the proposed regulations.

The final regulations can be applied retroactively, at the taxpayer's option. As a result, taxpayers may wish to file amended returns to mitigate negative consequences caused by the application of both sets of anti-abuse rules. In addition, taxpayers should evaluate whether the final regulations create opportunities to manage their overall tax liability, taking into account potential legislative and regulatory changes in the coming years, the taxpayer's attribute profile (including foreign tax credits), and projections for future income and taxes. Taxpayers may also want to consider repatriation strategies, mergers and acquisitions, and numerous other unique considerations.

The IRS Large Business and International (LB&I) Division on 17 November released a memorandum (LB&I-04-1120–0020) providing interim guidance for revenue agents and examiners regarding examinations with IRC Section 965 transition tax issues. In particular, the memorandum provides guidance on the IRC Section 965(k) six-year statute of limitations on assessment for returns with an IRC Section 965 transition tax. The guidance does not cover returns that are subject to the centralized partnership audit regime under the Bipartisan Budget Act of 2015 or to TEFRA partnerships, which will be the subject of separate guidance.

Upcoming Webcasts

International tax: The 2020 year in review (December 11)
During this Thought Center Webcast, Ernst & Young thought leaders will review selected 2020 US international tax developments and discuss potential changes to US and global tax policy.

Recent Tax Alerts


— Dec 03: Egypt updates its customs laws (Tax Alert 2020-2798)

— Dec 01: Kenyan Tax Appeals Tribunal holds claim of input VAT must be supported by evidence of an underlying transaction (Tax Alert 2020-2778)


— Nov 30: Insights provided from Hong Kong's 2020 Annual Meeting between Inland Revenue Department and Institute of Certified Public Accountants (Tax Alert 2020-2768)

— Nov 23: Taiwan ceases use of Computer Uniform Invoices from 1 January 2021 (Tax Alert 2020-2757)

Canada & Latin America

— Dec 03: Canada announces specified GST/HST regime for e-commerce supplies (Tax Alert 2020-2793)

— Dec 02: Chile deposits Multilateral Convention to Implement Tax Treaty Related Measures to prevent BEPS (Tax Alert 2020-2786)

— Dec 02: Income tax measures from Canada's 2020 federal Fall Economic Statement discussed (Tax Alert 2020-2783)

— Dec 01: Mexico's tax administration publishes regulations on reporting under mandatory disclosure rules (Tax Alert 2020-2774)

— Dec 01: Canada's Federal Fall Economic Statement 2020 discussed (Tax Alert 2020-2772)


— Dec 03: Luxembourg Tax Authorities clarify application of EU Parent-Subsidiary Directive with respect to Gibraltar companies (Tax Alert 2020-2797)

— Dec 03: Denmark enacts new rules on international taxation (Tax Alert 2020-2795)

— Dec 02: Spain releases draft Bill implementing ATAD 2 for public consultation (Tax Alert 2020-2790)

— Dec 02: France publishes final guidance on Mandatory Disclosure Rules (Tax Alert 2020-2789)

— Dec 02: Belgium implements EU plastics tax measures (Tax Alert 2020-2788)

— Dec 02: Italy issues new transfer pricing documentation requirements and proposes changes to APA procedure (Tax Alert 2020-2782)

— Dec 01: Poland implements significant changes to corporate income tax law – final bill published in Journal of Laws (Tax Alert 2020-2779)

— Dec 01: Austria to enact new interest limitation rule in accordance with EU ATAD as of 2021 (Tax Alert 2020-2777)

— Dec 01: Belarus joins BEPS Inclusive Framework and Global Forum on Transparency and Exchange of Information for Tax Purposes (Tax Alert 2020-2775)

— Nov 30: UK to implement domestic reverse charge on construction services as of 1 March 2021 (Tax Alert 2020-2770)

— Nov 30: The economic employer concept is coming to Sweden (Tax Alert 2020-2767)

— Nov 24: Italian Government proposes changes to tax on plastic items (Tax Alert 2020-2763)

— Nov 23: Gibraltar's Mandatory Disclosure Regime discussed (Tax Alert 2020-2755)

Middle East

— Nov 23: Turkey enacts law on restructuring certain receivables and amends certain tax laws (Tax Alert 2020-2756)


— Dec 01: New Zealand introduces new tax guidance for cryptoassets (Tax Alert 2020-2776)


— Dec 03: OECD holds second Tax Certainty Day (Tax Alert 2020-2796)

— Dec 02: OECD releases 2020 update on peer review of preferential tax regimes and no or only nominal tax jurisdictions (Tax Alert 2020-2781)

— Nov 24: OECD releases 2019 mutual agreement procedure statistics and 2019 mutual agreement procedure awards (Tax Alert 2020-2764)

— Nov 23: OECD releases Consultation Document on 2020 review of BEPS Action 14 (Tax Alert 2020-2761)

IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2020-48Internal Revenue Bulletin of November 23, 2020
 2020-49Internal Revenue Bulletin of November 30, 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.