Treasury and IRS officials highlighted developments in international taxation at a D.C. Bar Association event on December 20. Government officials and practitioners discussed recent regulatory proposals, as well as regulations finalized in December. The event marked the second in a series of six events concerning “hot topics” in international taxation (TAXDAY, 2016/10/26, C.1).
Notice 2016-73 (TAXDAY, 2016/12/05, I.6) was of particular focus during the event. The notice details the IRS’s intention to issue regulations under Code Sec. 367 to modify the rules relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving one more foreign corporations, as well as potential consequences to those receiving such parent stock or securities.
“In 10 years, we [Treasury] have struggled with seeing an example to ever using property to purchase parent stock,” Brenda Zent, special advisor on international taxation, Treasury, said. “This is a proportionate response to end a 10-year saga.”
The forthcoming regulations will “target transactions purportedly designed to repatriate earnings and the basis of foreign corporations without incurring U.S. tax,” Ron Dabrowski, principal, KPMG, said. According to Dabrowski, the IRS has departed from the traditional purview of Code Sec. 367(b) in its application of the rules. “Is it necessary to tax all the gain on the outbound if the purpose is to avoid repatriation,” Dabrowski asked Treasury officials.
According to Zent, the Treasury has tried to be “cautious” in its application of authority, but the numbers the IRS has seen during audit are “staggering.” Thus, the Treasury is “coming to note that we need to be stronger and tougher,” she added.
Qualified Business Unit
The IRS on December 7 issued final regulations concerning the determination of taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to Code Sec. 987 (T.D. 9794; TAXDAY, 2016/12/08, I.1). The final regulations adopt the 2006 proposed regulations (NPRM REG-208270-86, I.R.B. 2006-42, 698) with some carve backs, according to Chris Trump, principal, Deloitte. Those carve backs, Trump said, have created complexity.
“Complexities arise as the computation requires adjustments to be made with respect to certain items included in taxable income that are related to historic assets and liabilities,” Trump noted. Additionally, “Just because you’re out of the rules, doesn’t mean you can ignore Code Sec. 987,” he said.
By Jessica Jeane, Wolters Kluwer News Staff