News

FINAL DEBT/EQUITY RULES ON DISTRIBUTIONS: NO CHANGES; STILL CONCERNS

The IRS has had a long-standing concern about taxpayers who try to use debt rather than stock (especially for foreign-parent companies of US corporations) to gain a tax advantage: a deductible interest expense versus a non-deductible dividend distribution. This has resulted in various attempts (some abandoned after a period of time) to write regulations governing the rules for debt versus equity.

ARE YOU REQUIRED TO FILE A FATCA CERTIFICATION?

A FATCA certification consists of one or more series of questions that the Responsible Officers (RO) of certain Foreign Financial Institutions (FFIs) must answer and submit to the IRS to confirm the entities’ compliance with the requirements of FATCA.  There are two general types of certifications: 
  • one that relates to an entity’s preexisting accounts (COPA) and
  • another that relates to the entity’s compliance with various FATCA requirements (periodic certification). 

MANDATORY NON-TAX REPORTING OBLIGATIONS FOR INTERNATIONAL BUSINESSES

The US Bureau of Economic Analysis (‘BEA’), an agency of the US Department of Commerce, monitors inbound and outbound US investments as part of its regulatory mission of tracking international commerce.

To help fulfill this mission, the BEA conducts ‘benchmark’ surveys every five years.  A benchmark survey of interests abroad held by US persons is due by May 29, 2020.  The BEA imposes mandatory reporting obligations upon:
  1. US persons and businesses holding a (direct or indirect) 10% or greater interest in a foreign business enterprise; and
  2. US business enterprises that are themselves (directly or indirectly) 10% or more foreign owned.

NEGATIVE BASIS REPORTING FOR US PARTNERS OF FOREIGN PARTNERSHIP-FORM 8865

If you are a US person who has a direct ownership in a foreign partnership controlled by US persons (e.g., where the allocated income from the Form 8865 flows directly into your US tax return), then you are covered by the requirements of Notice 2019-20 and need to comply by sending the information to Ogden, UT for 2018 and must include the negative tax basis information on the Form 8865 for 2019.

TIMING OF REVENUE RECOGNITION: CHANGES UNDER THE TAX CUTS AND JOBS ACT (TCJA)

The IRS just released regulations related to two code section changes that were enacted under the TCJA.  The purpose was to accelerate (or at least not continue to allow deferral on) the recognition of income for tax purposes.
  1. For an accrual basis taxpayer, the all-events test for revenue recognition is met no later than when it is reported on an applicable financial statement (AFS).
  2. For taxpayers who receive advanced payments, the change basically codified prior IRS revenue procedures and provided more specific guidance.

FATCA: Revisions to Frequently Asked Questions on IRS Website

The IRS has FAQ sections on its Foreign Account Tax Compliance Act (FATCA) website that respond to issues a taxpayer might have in attempting to comply with the various requirements.  This includes a section that covers general issues as well as a section that covers issues faced by a Qualified Intermediary (QI), Withholding Foreign Partnership (WP) and Withholding Foreign Trusts (WT).  Some of these have been revised or updated recently and may have an impact on foreign taxpayers who deal with financial and non-financial transactions with US source payor.  The following are some of the pertinent changes:

Guidance on the US - Switzerland Protocol

In April 2019, 80 of the world’s largest and most powerful companies called on the Senate Foreign Relations Committee to expedite the approval of pending bilateral income tax treaties and protocols.  On 16 July 2019, the Senate approved the pending bipartisan protocol amending the US Tax Treaty Convention with Spain. The next day the Senate approved pending bilateral income tax treaties and protocols including the pending protocols with Switzerland, Japan, and Luxembourg.

Guidance on the PFIC Income and Asset Tests

After over 30 years from the issuance of Notice 88-22, promised guidance in the form of proposed regulations related to the Income and Asset Tests were finally issued.  It is interesting that this basic PFIC guidance on when a foreign corporation is a PFIC has taken over three decades since the PFIC law was enacted to be issued.  While there were no major surprises, there were a number of clarifying points contained in the proposed regulations.

IRS Finalizes FATCA Regulations on Requirements for Sponsoring Entities

The IRS recently issued final regulations regarding the Foreign Account Tax Compliance Act (FATCA). The final regulations provide compliance requirements and verification procedures for sponsoring entities of foreign financial institutions (FFIs) and certain nonfinancial foreign entities (NFFEs).  Sponsoring entities are normally FFIs themselves and perform the various FATCA compliance requirements for the sponsored entity.

Foreign Royalties and the New Foreign-Derived Intangible Income Deduction

Part of the TCJA of 2017 was an incentive for retaining intangibles in the US rather than transferring them overseas (or even for bringing them back).  There is a 37.5% deduction for a domestic corporation that has foreign-derived intangible income (FDII).  The deduction is based on the income derived from the sale of property or from services provided to a non-US person.  This provision is similar to the GILTI provisions that look at income in excess of a 10% return on qualified business asset investments (QBAI).

Finalized Transition Tax Regulations: An Overview

The IRS has issued highly anticipated final regulations under Internal Revenue Code Section 965, the Transition Tax (TT) provision added by the Tax Cuts and Jobs Act (TCJA). Sec. 965 generally requires U.S. shareholders to pay a “transition tax” on the untaxed foreign earnings of certain specified foreign corporations (SFC) as if those earnings had been repatriated to the United States.
  • 1
  • 2
  • Showing results 1 to 20 of 23