OECD RELEASES “BEPS” ACTION PLAN – A SWEEPING INTERNATIONAL TAX EFFORT TO COMBAT BASE EROSION AND PROFIT SHIFTING
By Mike Patton and Paul Flignor
The OECD’s Committee on Fiscal Affairs has published its Action Plan to address Base Erosion and Profit Shifting. This sweeping international effort aims to combat a comprehensive range of international tax reduction techniques on a scale that is without precedent.
The Action Plan follows from the directive given the CFA by the G20 group of countries to better address global corporate taxation and builds upon the general concepts set forth in the OCED report on BEPS issued in January 2013. The Action Plan asserts: “The BEPS project marks a turning point in the history of international co-operation on taxation.”
The Action Plan will require coordinating OECD member (and non-member) countries to act individually, bilaterally and multilaterally as they find ways to address base erosion and profit shifting. Moreover, the scale of the Action Plan is vast. It has the support of the finance ministers of the G-20 – the world’s largest economies – and it includes the involvement of many emerging economies.
Find out more about the Action Plan and its import for your business »
THINK YOU KNOW YOUR PFIC STATUS? THINK AGAIN
APPLICATION OF THE LOOK-THROUGH RULES
By Michael Greenberg
The IRS has released Private Letter Ruling 201322009, which responds to a request for clarification on the proper application of certain “look-through” rules for purposes of determining whether a foreign corporation is a “passive foreign investment company” (PFIC) for US federal income tax purposes.
The PFIC rules aim to place US persons that own foreign investment companies and US persons that own US investment companies, such as regulated investment companies, on an equal footing by limiting the ability of US persons to defer US income tax on foreign investment income through the use of foreign companies, and by disposing of the equity of such companies, converting ordinary income to capital gain.
Generally, if a foreign corporation is a PFIC because it meets prescribed income or asset tests, then US equity holders are subject to a harsh tax regime, including the denial of any capital gain treatment.
In the Ruling, the IRS ruled that a foreign corporation did not look-through both its first-tier and its second-tier US subsidiaries for purposes of determining whether it was a PFIC; rather, it only looked-through its first-tier US subsidiary and counted the domestic stock owned by that subsidiary as an active asset for purposes of the PFIC tests.
The Ruling is important because it illustrates both how the IRS applies the special PFIC look-through rule for domestic stock of 25 percent-owned US subsidiaries and how the rule takes priority over the general PFIC look-through rules irrespective of the quantum of ownership of the domestic stock owned by a US subsidiary.
Find out more about these look-through rules, along with the specific facts and issues pertaining to the Ruling »
NYSBA REPORTS ON INCONSISTENCIES IN CURRENCY GAIN AND LOSS SUBPART F ISSUES
By Bahareh Samsami, Maureen Doran and Aaron Borenstein
The New York State Bar Association’s Tax Section has recently published a report highlighting that, in a variety of commonplace circumstances where a controlled foreign corporation (CFC) engages in certain routine treasury center and hedging activities, the application of existing subpart F rules can frequently lead to tax results that are inconsistent with the CFC’s economic position.
These inconsistencies stem from the treatment of currency gains as subpart F income. The report explores whether the relevant existing rules can be interpreted under current law to minimize unpredictable or adverse consequences or, alternatively, how the rules might be modified to reduce the likelihood of unpredictable or unreasonable tax consequences.
After analyzing tax and economic inconsistencies, the Report concludes by requesting that the Internal Revenue Service clarify the application of existing subpart F exceptions to currency gains.
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BELGIUM CONDUCTING IN-DEPTH TRANSFER PRICING AUDITS
By Ortwin Carron and Nicolas Couder
Since the start of 2013, Belgium’s transfer pricing audit cell has been increasingly busy.
A large number of multinational groups with operations in Belgium have received lengthy transfer pricing questionnaires, the first step in what typically becomes a detailed transfer pricing audit.
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ITALIAN TAX AUTHORITIES CHALLENGE FOREIGN BANK PERMANENT
ESTABLISHMENTS’ INTEREST EXPENSE DEDUCTIBILITY
By Antonio Tomassini and Carlotta Benigni
Italy’s tax authorities are taking a harder look at the deductibility of interest expenses by foreign banks operating as permanent establishments inside Italy.
The amount of free capital of an Italian PE should be tin line with the amount ordinarily.
Italian tax authorities are taking a harder look at Italian permanent establishments of foreign banks. They are particularly interested in the amount of free capital at the level of the Italian PE.
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