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This information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
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The KPMG name and logo are registered trademarks or trademarks of KPMG International
Tax Dispute Resolution Quarterly– Spring 2020 issue
Spring 2020
kpmg.com
Cost sharing agreement netting under BEAT regulations
There and back again: Downturns, NOLs, and Lewis v. Reynolds
Due process limitations on states’ power to tax after Wayfair and Kaestner
Transfer pricing’s brave new world
OECD’s unified proposal on pillar one poses challenges for dispute resolution
ALERT: This issue covers developments prior to March 1, 2020, before the onset of the COVID-19 situation. Check here for KPMG Coronavirus-related tax developments.
© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDP066232A-2A 1
Contents
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IRS practice and procedure
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By Mark Martin, Washington National Tax, and Thomas Bettge, Transfer Pricing Dispute Resolution Services
Treasury recently finalized regulations under the base erosion and anti-abuse tax (BEAT) that targets outbound deductible payments to related parties by certain large corporations. A key issue under BEAT is the extent to which payments received from related parties may be netted against deductible payments to related parties, reducing the extent to which the latter are subject to BEAT. Treasury did not clarify in the final regulations whether netting is permissible for cost sharing transaction payments between participants in qualified cost sharing arrangements. A column in the winter issue of International Tax Review discusses how other provisions may continue to permit netting in some cases. [email protected] [email protected]
Cost sharing agreement netting under BEAT regulations
The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) again extended the filing date for the “Report of Foreign Bank and Financial Accounts (FBAR)” for certain individuals who have only signature or other authority over certain foreign financial accounts to April 15, 2021. For background, see this 2019 KPMG article, FBAR Update: Officers and employees should remain vigilant pending regulatory reform.
FBAR filings: Deadline again extended for individuals with signature authority
KPMG LLP’s new TaxNewsFlash-Tax Dispute Resolution alert contains summaries of the latest tax dispute resolution news and developments being reported by KPMG firms from around the world.
To get started, please click here to subscribe now.
Tax News Flash—Tax Dispute Resolution
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Tax enforcement trends
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— KPMG joins amicus brief for review in section 482 stock-based compensation case
By Scott B. Weese, M&A Tax, and Lauren Roberts, Washington National Tax
This January Tax Notes Federal article discusses a relatively unknown tax principle to help mitigate one of the less headline-grabbing changes of the 2017 tax law — the elimination of net operating loss (NOL) carrybacks from section 172(b). Before the 2017 tax law, profitable companies that fell on hard times were able to use their prior year taxes as a source of emergency capital. The 2017 tax law eliminated the ability of taxpayers to carry back NOLs arising in tax years ending after 2017. This article outlines an approach based on longstanding authority originating with a landmark 1932 Supreme Court case that could, under appropriate circumstances, offer an alternative path for troubled companies to get a refund of taxes for capital needs based on previously unclaimed historical tax [email protected] [email protected]
There and back again: Downturns, NOLs, and Lewis v. Reynolds
In early January, the U.S. Tax Court issued two opinions concerning the requirement under section 6751(b)(1) for IRS supervisory approval before penalty assessments. Read a TaxNewsFlash summarizing them.
— Belair Woods, LLC v. Commissioner, 154 T.C. No. 1 (Jan. 6, 2020)
— Tribune Media Co. v. Commissioner, T.C. Memo 2020-2 (Jan. 6, 2020)
In mid-January, the Tax Court granted the taxpayer’s motion for summary judgment, finding that the IRS had not complied with the requirements under section 6751(b)(1) that written supervisory approval for imposing a section 6707A penalty must be obtained before the IRS’s first formal communication to the taxpayer of its determination to assess the penalty under section 6707A. Read TaxNewFlash.
Tax Court issues four opinions on IRS supervisory approval before penalty assessments
— Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 154 T.C. No. 4 (Jan. 16, 2020)
Later in January the Tax Court held that the trust fund recovery penalty under section 6672 is a “penalty” within the meaning of section 6751(b)(1) and thus requires written supervisory approval be obtained for the “initial determination of such assessment.” Read TaxNewsFlash.
— Chadwick v. Commissioner, 154 T.C. No. 5 (Jan. 21, 2020)
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State & local tax
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By Nikki Bossert, Marianne Evans, Shirley Sicilian, and Tracy Stone, Washington National Tax
After the U.S. Supreme Court’s decision in South Dakota v. Wayfair, some taxpayers may be concerned about the extent to which states will exert their taxing authority. However, the ruling in a case during the court’s most recent term, North Carolina v. Kimberly Rice Kaestner 1992 Family Trust, may reassure those taxpayers that the due process clause of the U.S. Constitution continues to limit states’ taxing authority so that a state may tax only those persons, property, or transactions with which the state has at least a minimum connection. This article in Bloomberg BNA’s Daily Tax Report reviews the due process nexus requirement as it currently exists, and addresses considerations for determining tax filing responsibilities, and potential challenges to some nexus assertions by states. [email protected] [email protected] [email protected] [email protected]
Due process limitations on states’ power to tax after Wayfair and Kaestner
By Jasmine Gandhi, Sarah McGahan, and Harley Duncan, Washington National Tax, and Oksana Jaffe, Gina Rodriquez, and James Kuhl, State and Local Tax practice in California
In this January 13 Tax Notes State article, the authors discuss potential happenings in 2020 that could shake up California’s tax system. The magnitude and extent of these changes remain to be seen, but consider this comprehensive outlook article your state tax early warning system. [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
What’s shaking in California for 2020?
This report, prepared by KPMG’s State and Local Tax practice, provides a summary of state and local tax developments for 2019 in table format.
Year-end summary of state, local tax changes for 2019
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Global tax disputes
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By Brian Cody, Sean Foley, and Paul Glunt, Global Transfer Pricing Services
This article in Tax Notes International, January 27, 2020, provides a practical guide summarizing important recent developments in the transfer pricing world.
DEMPE (development, enhancement, maintenance, protection, and exploitation) is a relatively new concept that emerged from the 2015 BEPS project and refers to the “substance” an entity must have to be entitled to returns from assuming risk or owning intangibles. An entity is entitled to extraordinary returns from economically significant risks and intangibles only if it performs DEMPE functions.
This article
— Summarizes practical considerations for multinational enterprises (MNEs) reviewing components of their end-to-end value chains to provide confidence for group members that returns related to intangible ownership or risk assumption have sufficient DEMPE functions
[email protected] [email protected] [email protected]
Transfer pricing’s brave new world
— Considers headquarters service charges and examines whether transfer pricing policies associated with some types of 21st century services, such as cybersecurity and software development, need to be analyzed separately from routine and benchmarkable headquarters services such as accounting, tax, and human resources
— Addresses tax and transfer pricing controversies resulting from unprecedented transparency; shows how thinking about managing upcoming tax conflicts must become a daily exercise; and offers practical steps to help MNEs cope with increasing transfer pricing turbulence
— Discusses the efficacy of advance pricing agreements (APAs) as a tool to manage transfer pricing controversy and how several recent developments have made APAs both more and less compelling
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OECD & BEPS
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By Mark Martin, Washington National Tax, and Thomas Bettge, Economic Valuation Services
In October 2019, the OECD Secretariat released a public consultation document proposing a unified approach under pillar one of its work on taxing the digital economy. The proposal lays out a system for allocating profits and taxing rights among jurisdictions. While the proposal aims to provide a high-level outline for future agreement, it is not too early to consider some of the issues that the proposed unified approach raises, particularly in regard to dispute resolution. The authors of this December 2019 International Tax Review article highlight both areas in which the potential for double taxation may exist and the need to modify dispute resolution mechanisms to best address the challenges raised by the unified proposal. [email protected] [email protected]
OECD’s unified proposal on pillar one poses challenges for dispute resolution
As the OECD works to revise the profit allocation and nexus rules, and with businesses becoming increasingly digitalized, current transfer pricing arrangements could experience great change moving forward. This article outlines the need for policy makers to develop new transfer pricing principles that will stand the test of time in the digital age.
Transfer pricing and digital taxation
The challenge of how to tax the digital economy was identified in the OECD’s BEPS initiative as Action 1: Addressing the Tax Challenges of the Digital Economy. While intergovernmental groups, including the OECD, are trying to build a consensus around taxation of the digital economy, some countries are taking unilateral actions, such as imposing digital services taxes. As the digitization tax debate continues, multinational companies will need to stay abreast of both short-and long-term developments to navigate and prepare successfully for the resulting changes to the global tax landscape.
This website contains insights from KPMG about the potential impact of proposed reforms on the taxation of the digital economy.
In particular, check out the Taxation of the Digitalized Economy Country Developments Summary and Map, which provides an overview of how countries around the world are responding to the tax challenges arising from the digitalized economy.
Tax challenges of digitization
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Updated frequently, this summary report in table format offers a snapshot of implementation of country-by-country (CbC) reporting and Master file/Local file documentation requirements around the world.
BEPS Action 13: Latest country implementation update
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This information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDP066232A-2A
The KPMG name and logo are registered trademarks or trademarks of KPMG International
KPMG LLP’s Tax Dispute Resolution ServicesKPMG’s Tax Dispute Resolution Services network helps companies prevent, prepare for, and respond to challenges by the varying tax authorities. The network is a national team of tax professionals, who assist companies in identifying, managing, and mitigating potential tax risks and exposures.
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
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Sharon Katz-Pearlman is the National Principal-in-Charge of KPMG LLP's Tax Dispute Resolution practice in the U.S., as well as the Global Head of KPMG International's Tax Dispute Resolution & Controversy practice, overseeing a network of dispute resolution specialists from KPMG's member firms around the world. Sharon's client work at KPMG is focused primarily on representation before the IRS of multinational corporate clients and financial institutions, both domestic and international. She spends much of her time dealing with transfer pricing issues and cross-border disputes. Prior to joining KPMG, Sharon was a Special Litigation Attorney with the IRS Office of Chief Counsel, U.S. Department of the Treasury. Sharon is an Adjunct Professor of Law at the New York University School of Law, where she teaches Civil Tax Controversies & Litigation, in the LLM (Tax) program. She also serves on the U.N. Committee of Experts on International Cooperation in Tax Matters - Subcommittee on the Mutual Agreement Process, Dispute Avoidance and Resolution. Sharon is a frequent speaker at tax conferences in the U.S. and abroad, and is listed in the International Tax Review's Tax Controversy Leaders, The Comprehensive Guide to the World's Leading Tax Controversy Advisors, ITR's Women in Tax Leaders Guide, and the Expert Guide, Women in Business Law.
Sharon Katz-PearlmanGlobal Head of Dispute Resolution & Controversy KPMG in the U.S.T: +1 212-872-6084E: [email protected]
