August 28, 2022
U.S. International Tax This Week for August 26
Ernst & Young's U.S. International Tax This Week newsletter for the week ending August 26 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.
The Internal Revenue Service (IRS) this week announced plans to delay the effective date for aspects of the IRC Section 871(m) regulations and further extend transition relief. More specifically, the IRS in Notice 2022-37 indicated that it plans to delay the effective/applicability date for certain rules in final regulations under IRC Section 871(m) and to extend for two more years the phase-in period provided in Notice 2020-2 for certain provisions of the regulations.
In December 2019, the IRS issued final regulations (TD 9887) under IRC Section 871(m) with guidance for entities that hold certain US equities and financial products referencing US-source dividends. Notice 2020-2 was issued concurrently with the 2019 final regulations. It announced that the IRS was extending the transition relief provided in Notice 2018-72 for two additional years and that it planned to amend the IRC Section 871(m) regulations to reflect the delayed effective/applicability dates. These final IRC Section 871(m) regulations are relevant for entities making payments to non-US entities on derivatives and other financial instruments referencing US equity securities.
The further extension of the phase-in period for certain provisions of the IRC Section 871(m) regulations provide financial industry participants yet more time to implement the complex systems and processes necessary to comply with the rules of the IRC Section 871(m) regulations.
In welcome news, the IRS this week issued Notice 2022-36, automatically extending until 30 September, deadlines for most individual and business taxpayers that did not file tax returns for tax years 2019 and 2020. The Notice also provides penalty relief to taxpayers for certain failure-to-file penalties for tax returns for 2019 and 2020. The Notice applies to certain information return penalties for: (i) tax year 2019 returns filed on or before 1 August 2020; and (2) tax year 2020 returns filed on or before 1 August 2021.
The Tax Court on 18 August issued its second opinion in Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner (Medtronic III). In this opinion, the Tax Court rejected the principal transfer pricing analysis of both the IRS and Medtronic Inc. (Medtronic US), instead applying an unspecified method proposed in the alternative by Medtronic to determine the royalty rate for license agreements between Medtronic US and its Puerto Rican subsidiary. Using this method, the Tax Court increased the wholesale royalty rate to 48.8% for devices and leads for years 2005 and 2006.
This decision comes after the Eighth Circuit Court of Appeals vacated the Tax Court's first opinion in Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner (Medtronic I). The Eighth Circuit, in Medtronic II, had concluded that the Tax Court failed to provide sufficient factual findings to enable the appeals court to evaluate the Tax Court's determination of the best transfer pricing method. As a result, the Eighth Circuit remanded the case to the Tax Court to make those findings. EY Tax Alert 2022-1288 has details.
Breakdown of CHIPS and Science Act of 2022: what companies can do now (August 31)
During this EY Webcast, Ernst & Young professionals will share the issues and opportunities related to both the incentives and loans and the Advanced Manufacturing Investment Credit provisions included in the Act.
International tax talk quarterly series with the EY Global Tax Desk Network (September 13)
During this EY Webcast, Ernst & Young professionals will address significant tax developments in the APAC region.
BEPS 2.0 developments: What to watch out for in country implementation (September 15)
During this EY Webcast, Ernst & Young professionals will discuss the recent activities in the global negotiations and the emerging implementation activities in countries. The panelists will also share updates on latest developments and outlook for country implementation and discuss the current status and outlook for Pillar One and Two.
Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (September 16)
During this EY Webcast, Ernst & Young professionals will discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change. Panelists will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS.
Recent Tax Alerts
— Aug 24: The East African Community updates its Common External Tariff 2022 to align with the World Customs Organization (Tax Alert 2022-1284)
— Aug 22: Ethiopia issues new investment incentives regulation (Tax Alert 2022-1275)
— Aug 25: China Mainland border reopens for APEC Business Travel Card holders and foreign students (Tax Alert 2022-1291)
Canada & Latin America
— Aug 25: Peru enacts law establishing a tax on online gaming and sports betting (Tax Alert 2022-1290)
— Aug 24: Canada's Department of Finance releases draft income tax technical amendments (Tax Alert 2022-1283)
— Aug 24: Canada's luxury tax takes effect September 1 (Tax Alert 2022-1282)
— Aug 25: Belgium limits R&D tax credit (Tax Alert 2022-1287)
— Aug 22: German Ministry of Finance issues official guidance on withholding tax for software development services (Tax Alert 2022-1276)
— Aug 22: UK launches new Scale-Up (Work) Visa Route (Tax Alert 2022-1273)
— Aug 19: Portugal issues clarifications and further details on the contribution on single-use packaging made of plastic or multi-material with plastic in Portugal (Tax Alert 2022-1269)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2022-35||Internal Revenue Bulletin of August 29, 2022|
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:
— 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.