TEI Detroit
Chapter
International
Topics
April 29, 2014
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
1
AGENDA
8:30 – 8:45 Welcome Comments General Overview
8:45 –9:45 Compliance and Reporting Update (Holland/Yuldasheva)
9:45 –10:45 Cross Border M&A Update (Bodoh/Feinberg)
10:45-11:00 BREAK
11:00—12:00 Breakout--FTC Refresher (Shein) OR E&P and Hovering Deficits
(Jackman/Stoffregen)
12:00—1:00 Lunch
1:00—1:45 Hot Topics (Wallace/Kohler)
1:45—2:30 Breakout --India/China (Tan/Shah) OR Mexico/Brazil (Ramirez/Mello)
2:30—2:45 BREAK
2:45—3:30 FATCA Common Issues with Implementation (Riccardi/Wallace)
3:30—4:30 BEPS—Recent Discussion Drafts and Public Consultations
(Corwin/Blessing)
Tax Executives Institute
International Tax Session:
Compliance and Reporting
Refresher and Update
Michigan State University
Management Education Center
Troy, Michigan
April 29, 2014
Tax Executives Institute
International Tax Session:
Compliance and Reporting
Refresher and Update
Michigan State University
Management Education Center
Troy, Michigan
April 29, 2014
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS
ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without
limitation, the tax treatment or tax structure, or both, of any transaction described in the associated
materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax
analyses contained in those materials.
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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Panelists
Douglas Holland
KPMG WNT
Washington, D.C.
International Tax
Senior Manager
(202) 533-5746
Aziza Yuldasheva
KPMG WNT
Washington, D.C.
International Tax
Senior Manager
(202) 533-4547
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Agenda
Tax-free transactions - common international compliance disclosures and elections
for outbound, inbound, and foreign-to-foreign:
Section 351 transfers
Section 368 reorganizations
Section 332 liquidations
“Current Events”
Changes to Form 5471
Section 1298(f) reporting
120 day response requirement for reasonable cause
Part I: U.S. Tax Reporting for
Cross-Border Restructurings
8
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Suggested Approach to International Restructurings
First step – What is Sub C characterization of transaction?
Section 351 Exchange
Property, stock, control
Section 368 Reorganization (asset or stock)
Statutory requirements (Section 368(a)(1)…)
Non-statutory requirements (COBE, COI, BP, Plan of Reorg.)
Section 332 Liquidation
Stock ownership, plan of liquidation
Section 355 Distribution
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Suggested Approach to International Restructurings
(Cont’d)
Step two – What category of transaction?
Outbound transfer
Inbound transfer
Foreign-to-foreign transfer
Step three – What are the relevant Section 367 provisions or regulations?
Step four – Any other relevant cross-border rules?
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Key Provisions of Section 367
Section 367(a)
Outbound transfers of tangible assets and stock or securities (Sections 351, 354,
and 361)
Section 367(b)
Foreign-to-foreign transactions (Sections 351, 354, and 361)
Inbound transactions (Sections 332, 354, 361, and 355)
Section 367(d)
Outbound transfers of intangibles (Sections 351 and 361)
Section 367(e)
Outbound* and foreign-to-foreign Section 332 liquidations and outbound* Section
355 distributions
(*These “outbound” transfers are really an “inbound” fact pattern: a U.S.
corporation making tax-free distribution to its foreign shareholders)
Part IA: Section 351
Transfers
12
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Sub
Section 351 Exchange
10b
100v
“property”
“control”
10b
100v
(358) “stock”
(and boot)
100%
No gain unless boot
(351(a), (b))
10b
100v
(362(a))
T
Parent Parent
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Section 351 Exchange – General Compliance
“Significant” Transferor
Reg. Sec. 1.351-3(a) Statement
Significant
5% or more (vote or value) of publicly traded Transferee stock
1% or more (vote or value) of non publicly traded Transferee stock
Each US Shareholder reports if Significant Transferor a CFC
Transferee Corporation
Reg. Sec. 1.351-3(b) Statement
Each US Shareholder reports if Transferee a CFC
Not required if -3(a) Statement filed in same tax return
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Section 351 Exchange – General Compliance (cont’d)
Substantiation information
Retain permanent records, including information regarding the amount, basis,
and FMV of distributed property, and relevant facts regarding any liabilities
assumed or extinguished
Proposed Sec. 1.362(e)-1 reg package [Sep. 2013] would require delineation
between:
I. Section 362(e)(1) “loss importation” property
II. Section 362(e)(2) “loss duplication” property
III. Property on which gain is recognized
IV. All other property
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Section 351 Exchange – General Compliance (cont’d)
Section 362(e)(2)(C) election
Irrevocable election to apply basis limitation to transferee stock
Secretary to prescribe procedures for election
Sep. 2013 Regulations (T.D. 9633)
Transferor files prescribed certification statement with tax return
Transferor a CFC or CFP – controlling U.S. shareholder(s) or partners file
Protective election allowed
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Section 351 Exchange – Section 362(e)(2) Comparison
US
FC
Asset
X Stock
X Y
100b
10v
US
FC
Asset
X Stock
X Y
100b
10v
Asset X 10b, 10v
100b
10v 10b
10v
Statutory Baseline With Election
Asset X 100b, 10v
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18
Outbound Section 351 Exchange – Section 367(a)
US
FC
Asset
X
Stock
X Y
Section 367(a) – general rule is gain, but not loss, recognized
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Outbound Section 351 Exchange – Section 367(a) (cont’d)
Exceptions to general rule gain recognition rule of Section 367(a)
Foreign active trade or business assets (FAT or B Assets)
Section 936(h)(3)(B) intangibles (subject to Section 367(d))
Stock or securities
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Reporting – General Rules
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation
Statement containing prescribed information
Reg. Sec. 1.6038B-1(c) and -1T(c)
Reg. Sec. 1.6038B-1T(c)(1) through (5)
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Reporting – Special Rules
Transfers by partnerships
Transfers of cash
Transfers of Section 936(h)(3)(B) Intangibles
Transfers of stocks or securities
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Transfers by Partnerships:
IRS Advice Memo 2008-006
US P/S 2
US P/S 1
Domestic
Corps
Foreign transfer
General rule: if transferor is a
partnership (domestic or foreign)
the US partners (corps or
individuals), not the partnership
itself, are subject to §§ 367(a)
Same look-through rule for
transfer of a partnership
interest
Carries over to § 6038B/Form
926 reporting
The US partner(s) is treated as
transferring his or her
proportionate share of the property
Partnership rules determine
proportionate share
S Corp
US Trust A
Individual A Individual B
US Trust B
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AM 2008-006: Results
Transfer by US P/S 2 to Foreign Corp is treated as pro-rata by its U.S.
partners
Individual A and US Trust A subject to §§ 367(a) and 6038B
S Corp: it’s a domestic corporation that is a US person and there’s nothing
affirmatively providing for look-through treatment in this case. Therefore, S
Corp is the transferor.
Section 1373 treats S Corps as partnerships for certain int’l tax
provisions (e.g., FTC and Subpart F rules) but not for § 367 purposes
Look-through rule for partnerships applies iteratively
US P/S 1 not transferor, but its domestic corp. partners are
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Transfers of Cash
Special rules for outbound transfers of cash (See Reg. Sec. 1.6038B-1(b)(3))
Must report if:
U.S. transferor owns directly or indirectly (modified Section 318 attribution rules)
at least 10% vote or value of transferee foreign corporation
U.S. transferor (or related person) transfers cash exceeding $100,000 during 12-
month period
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Transfers of Section 936(h)(3)(B) Intangibles
Transfers of Section 936(h)(3)(B) intangibles
Subject to Section 367(d), not Section 367(a)
Deemed annual royalty regime
Election to treat certain transfer of intangibles, including “operating intangibles,” as
sale (see Reg. Sec. 1.367(d)-1T(g)(2))
General reporting requirements plus additional statement under Reg. Sec. 1.6038B-
1T(d)
Tie-in to Form 926
Question 15: Transfer of goodwill and/or going concern value? If yes, what value?
TAM 200907024: Taxpayer separately valued a number of contracts with
foreign agents; reported 97% residual as attributable to goodwill/GCV instead of
to “network” or aggregate
Question 17: Transfer of 936(h)(3)(B) intangible?
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Transfers of Stocks or Securities
Specific rules to avoid gain under Section 367(a) for outbound transfer of domestic
stock and foreign stock (see Reg. Sec. 1.367(a)-3(c), -3(b), respectively)
Gain recognition agreements (GRA) apply to transfers of domestic and foreign
stock
Reporting: Form 926, Sec. 6038B coordination with GRA filing
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GRA Basics (Reg. Sec 1.367(a)-8)
GRA is U.S. Transferor’s agreement to recognize gain if transferee foreign
corporation (TFC) disposes of (or is deemed to dispose of) Transferred Property
during term of GRA
If GRA triggered?
Generally report gain on amended return for year of initial transfer
Election to report on return for year of triggering event (filed on return for year of
initial transfer)
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GRA Nomenclature
U.S.
Transferor
Transferred
Corporation
Transferree
Foreign
Corporation
U.S. Transferor=UST
Transferred Corporation=TFD
Transferee Foreign
Corporation=TFC
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GRA Procedural Matters
File statement with timely filed income tax return for year of initial transfer
containing specified information
Waiver of statute of limitations (end of eighth year following year of initial transfer)
on Form 8838
Annual certification that triggering disposition has not occurred
Limited situations where IRS may require posting of bond or security
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GRA Triggering Events
Generally, any type of disposition triggers GRA unless an exception applies
See Reg. Sec. 1.367(a)-8(j) for Triggering Events, -8(k) for Exceptions
Including:
TFC disposes of Transferred Property
TFD disposes of substantially all of its assets (deemed disposition of stock in
TFD)
U.S Transferor disposes of stock of TFC
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GRA Non-Triggering Events
If certain requirements satisfied, many non-recognition transactions not
triggering events
UST transfers stock of TFC in Section 351, 354, 361, or 721 exchange
TFC transfers stock in TFD in Section 351, 354, 361, or 721 exchange
TFD transfers all or portion of its assets in Section 332, 351, 354, 361, or 721
exchange
Special rules for tax-free liquidations of UST, TFC or TFD
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GRA Non-Triggering Events (cont’d)
Generally, original GRA terminates with no further effect
New GRA filed to replace original GRA
Multiple events with one taxable year can be combined into a single
replacement GRA
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GRAs: Further Compliance Aspects
Complying with GRA rules satisfies Section 6038B/Form 926 reporting obligation
for outbound stock transfer. (Reg. Sec. 1.6038B-1(b)(2)).
GRA document requires extensive information about transferred and foreign
transferee corporations, including adjusted U.S. tax basis and fair market value
of transferred stock interest.
Taxpayers may be unable or unwilling to spend resources to determine this
information
Long-running saga over “available on request”
IRS suggests in preamble to 2009 regs, field advice (FAA 20074901F, TAM
200919032) that it’s serious about expecting this data to view GRA as
complete
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GRA Directive
Issued July 26, 2010
Applies when taxpayer has timely filed either: (i) a proper GRA and then missed
later associated filings, or (ii) timely filed a document “purporting” to be a GRA
but which does not satisfy the regulatory standards in 1.367(a)-8.
“Available on request”
Does not apply if initial GRA (or purported GRA) filing was not timely—still
must seek reasonable cause
Can cure filings in these instances without having to demonstrate reasonable
cause by filing amended returns with proper GRA/associated filings and
indicating that they are submitted pursuant to directive
No clear expiration date; IRS officials publicly remind that it won’t last forever
[but it still hasn’t been pulled]
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Proposed Amendments to § 367(a) GRA Regs (January 2013)
Preamble notes that “the existing reasonable cause standard, given its
interpretation under the case law, may not be satisfied by U.S. transferors in
many common situations even though the failure was not intentional and not
due to willful neglect.”
New proposed framework: full gain recognition under § 367(a) only appropriate
where conduct willful, and that § 6038B penalty (generally, 10% of FMV up to
$100k) should suffice otherwise.
Willful for this purpose “is to be interpreted consistent with the meaning of that
term in the context of other civil penalties which would include a failure due to
gross negligence, reckless disregard, or willful neglect.” [See Prop. Reg. Sec.
1.367(a)-8(p)(1).]
Proposed regs would remove requirement that IRS make determination within
120 days of notifying taxpayer of receipt of GRA submission.
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Examples in Proposed GRA Regs
1. Not Willful (Gold Standard): Failure to file not willful when it’s due to accidental
and isolated oversight, taxpayer had prepared the GRA but it was not included
with return, and taxpayer had filed GRA’s in past years without ever failing to
timely file beforehand.
2. Willful (History of Bad Conduct): Taxpayer filed without a GRA, knew of
requirement, had not consistently and in a timely manner filed GRAs in past,
and also had an established history of failing to timely file other tax and
information returns for which it was subject to penalties. Taxpayer then failed to
file a GRA for another transfer to the same transferee foreign corp. At time of
second transfer, taxpayer was aware of past mistakes but had not implemented
any safeguards to ensure future GRA compliance. Taxpayer asserts that both
failures are isolated incidents.
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Examples in Proposed GRA Regs (cont.)
3. Willful (Not complete in all material respects): Taxpayer aware of GRA rules,
completes GRA except for stock value—which is “available on request.” Failure
to materially complete is failure to comply, and is willful because taxpayer knew
of need to report value. Taxpayer must recognize full amount of gain.
4. Willful (Using Hindsight): At time GRA filing was due, taxpayer intends to sell
Business A and recognize a capital loss, which could be carried back and offset
capital gain on outbound stock transfer. Taxpayer chooses to not file GRA and
to recognize gain Sale falls through for legal reasons. Willful because
knowingly chose not to file a GRA at the time return was filed.
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Transfer of Stock or Securities – Other Reporting
Transfer of domestic stock
US Target attaches notice under Reg. Sec. 1.367(a)-3(c)(6)
Form 8806, “Information Return for Acquisition of Control or Substantial
Change in Capital Structure” ($100M threshold)
Transfer of foreign stock - U.S. Transferor attaches notice under Reg. Sec.
1.367(b)-1(c) Notice
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Curing Defective Reporting –Outbound Transfers of Non-
Stock Assets
GRA Directive only applies to transfers of stock or securities.
What about other assets? Examples: file a Form 926 but later determine that
transferred assets had a higher value overall; or later determine that a higher
percentage of overall value should have been allocated to fixed and intangible
assets versus foreign goodwill/GCV.
IRS Offshore Disclosure Program (via FAQ #18) may offer streamlined “clean-up”
filings for delinquent information returns
– Not limited to individuals with undeclared bank accounts
– BUT, to use FAQ #18 taxpayers must: (1) have timely paid all tax due on
transfers, and (2) not be under audit for any year (even if unrelated to outbound
transfer).
– If change in value increases gain recognition (for example, because of OFL or
branch loss recapture), then taxpayer must demonstrate that failure was due to
reasonable cause
– See generally: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-
Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
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Inbound Section 351 Exchange
FP
USS
Asset
X Stock
X Y
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Inbound Section 351 Exchange – Compliance Issues
Section 362(e)(1) – limitation on importation of BIL
Sep. 2013 Proposed Regs
Form 5471 if FP transfers foreign stock
Section 897 if FP transfers USRPI
Section 884 branch profits tax if FP conducts and transfers U.S. branch operations
(Reg. Sec. 1.884-2T(d))
How does USS determine carryover Sec. 362(a) basis if FP had a non-USD
functional currency?
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Foreign-to-Foreign Section 351 Exchange
CFC1
Asset
X Stock
X Y
USP
CFC2
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Foreign-to-Foreign Section 351 Exchange – Compliance
Issues
Section 362(e)(2) election (election to apply basis limitation to transferor’s stock
basis in transferee corporation)
Reg. Sec. 1.367(b)-1(c) notice if CFC1 transfers foreign stock to CFC2
Form 5471 if CFC1 transfers foreign stock
Section 897 if CFC1 transfers USRPI
Section 884 branch profits tax if CFC1 conducts and transfers U.S. branch
operations
Part IB: Section 368
Reorganizations
44
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Section 368 Reorganizations
Section 368(a)(1) . . .
(A) state law merger
(B) stock-for-stock
(C) stock-for-assets
(D) controlled corporation
(E) recapitalization
(F) mere change in form
(G) bankruptcy
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Section 368 Reorganizations - Patterns
Two-Party asset acquisitions: (A), (C), (D)
Two-Party stock acquisitions: (B)
Three-Party acquisitions
Triangular (B), (C)
Forward triangular merger: (a)(2)(D)
Reverse triangular merger: (a)(2)(E)
Section 368(a)(2)(C) asset drops
Other reorganizations: (E), (F), (G)
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Two-Party Asset Reorganization Pattern
T Shs
T A
A stock
T assets &
liabilities
A stock
T stock
T Shs
No gain unless boot (354, 356)
Substituted basis in A stock (358)
Tacked HP in A stock (1223(1))
T
No gain, loss (361(a), (b))
No gain, loss on distribution of A stock (361(c)(2)(B)
Gain on distribution of any retained assets (361(c)(2)(A) A
No gain, loss (1032)
Transferred basis in T assets (362(b))
Tacked HP T assets (1223(2))
Succeeds to Section 381 attributes
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Stock Acquisition – Section 368(a)(1)(B)
A
A
Acquiring
Acquiring
T T
Section 368(c)
Control
Solely Voting
Stock
Old
Acquiring
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Section 368 Reorganizations - Compliance
Party to Reorganization
Reg. Sec. 1.368-3(a) Statement
US Shareholder reports if Party a CFC
One statement for each tax return for same reorganization
Significant Holder
Reg. Sec. 1.368-3(b) Statement
Significant Holder of stock
5% or more (vote or value) of publicly traded Target stock
1% or more (vote or value) of non publicly traded Target stock
Significant Holder of securities –basis at least $1M
Each US Shareholder reports if Significant Holder a CFC
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Section 368 Reorganizations – Compliance (cont’d)
Substantiation information
Retain permanent records, including information regarding the amount,
basis, and FMV of distributed property, and relevant facts regarding any
liabilities assumed or extinguished
See Reg. Secs. 1.368-3(d), 1.6001-1(e)
Sep. 2013 Sec. 362(e)(1) Prop. Regs. would require more detailed reporting
by asset class (similar to Prop. Reg. Sec. 1.351-3, above)
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Outbound Section 354 Exchange
US
SHs
Target FA
FA voting
stock
Target
stock
“B” Reorganization
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 52
Reporting
See discussion of outbound transfers of stock and securities (domestic or
foreign) in Section 351 exchange
GRAs
Reporting
Section 6038B, Form 926
Reg. Sec. 1.367(b)-1(c) notice if transfer of foreign stock
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 53
Outbound Section 361 Exchange
USS
USP
FA
FA
stock USS
stock
Assets &
liabilities
FA stock
Section 368 Asset Reorganization
(“A,” “C,” “D,” or “F”)
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Reporting
See discussion of outbound transfers in Section 351 exchange
FAT or B Assets
Section 936(h)(3)(B) intangibles
Stock or securities
Reg. Sec. 1.367(a)-7(c)(5) Statement (finalized March 2013):
Must identify assets and basis adjustments subject to Section 367(a)(5)
Agreement to recognize gain on later dispositions
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Inbound Section 361 Exchange
FT
USP
USCo
Acq
USCo
stock FT
stock
Assets &
liabilities
USCo stock
USSH
All E&P Amount
- Carryover tax attributes
(Reg. Sec. 1.367(b)-3(e) and
(F)), basis
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 56
Reporting
File notice under Reg. Sec. 1.367(b)-1(c)
Form 5471
Section 897 if foreign target owns and transfers USRPI
Section 884 branch profits tax if foreign target conducts and transfers U.S.
branch operations
Section 987 foreign currency gain/loss on branch termination
(F/X translation for carryover asset basis may be easier given past Form 5471
filings for FT)
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Foreign-to-Foreign Section 361 Exchange
FS2
FS1
FA
FA
stock FS2
stock
Assets &
liabilities
FA stock
Section 367(b) applies
USP
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Reporting and Other Rules
Filing of notice under Reg. Sec. 1.367(b)-1(c)
Section 381 tax attributes – Reg. Sec. 1.367(b)-7, -9 address manner in which
E&P and foreign income taxes of foreign target and foreign acquiring
corporation combined under Section 381
Section 897 if foreign target owns and transfers USRPI
Section 884 branch profits tax if foreign target conducts and transfers U.S. trade
or business
Part IC: Section 332
Reorganizations
59
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Section 332 Liquidation
General Tax Consequences
S
No gain or loss
(Section 337)
P
No gain or loss
(Section 332)
Carryover basis in assets (Section
334(b)(1))
Succeeds to US’s tax attributes
(Section 381)
S
P
assets &
liabilities in
liquidation
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Section 332 Liquidation – General Compliance Disclosures
Subsidiary (S)
Form 966, Corporate Dissolution or Liquidation
Section 6043
Within 30 days of adopting resolution or plan to dissolve
Not filed for deemed liquidations (Section 338 or CTB election)
Final federal income tax return
See Reg. Sec. 1.332-6T(b)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 62
Section 332 Liquidation – General Compliance Disclosures
(cont’d)
Parent (P)
Reg. Sec. 1.332-6T(a) statement for each year P receives distribution (s)
If P is CFC, filed by each U.S. Shareholder (Section 951(b))
Statement must include:
Representation that P of L adopted and the date
Representation that liquidation either
Completed on Date, or
Not completed and file Form 952, Consent to Extend the Time to Assess Tax
Under Section 332(b)
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Section 332 Liquidation – General Compliance Disclosures
(cont’d)
Substantiation information
Retain permanent records, including information regarding the amount, basis,
and FMV of distributed property, and relevant facts regarding any liabilities
assumed or extinguished
See Reg. Sections. 1.332-6T(d), 1.6001-1(e)
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Outbound Section 332 Liquidation – Section 367(e)(2)
USS
FP
assets &
liabilities in
liquidation
Reg. Sec. 1.367(e)-2(b)
USS
Generally recognizes gain and
loss
FP
General rules apply, with limited
exceptions (See Section 332(d))
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Three Exceptions to General Rule
Property used in U.S. trade or business
U.S. real property interest (USRPI)
Stock of 80-percent-owned domestic subsidiary
General policy for exceptions—distributed property remains within U.S. tax
jurisdiction and therefore no need to impose tax at time of liquidation
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U.S. Trade or Business Exception—
GRA Requirement
Agreement that gain (not loss) on qualifying property will be included in
amended return of domestic liquidating subsidiary for year of initial distribution if
“triggering event” within 10-year period
Contents of GRA in Reg. Sec. 1.367(e)-2(b)(2)(i)(C)
Signed by officer of USS and FP
File Form 8838, Consent to Extend the Time to Assess Tax Under Section 367 –
Gain Recognition Agreement
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 67
U.S. Trade or Business Exception—
GRA Requirement (cont’d)
Report certain “non triggering” events
Conversions or exchanges under Sections 1031 or 1032
Amendment to Master Property Description
Reg. Sec. 1.367(e)-2(b)(i)(E)(4)
Non-taxable transfer to Qualified Transferee
Qualified Transferee “steps into the shoes” of foreign transferee
Reg. Sec. 1.367(e)-2(b)(i)(E)(5)
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Stock of Domestic Subsidiary Exception
USS must file required statement under Reg. Sec. 1.367(e)-2(b)(2)(iii)(C)
Signed by officer of USS and FP
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Other Reporting
Form 926
Form 5471 if USS distributes stock of foreign corporation
Form 5472
Form 1120F
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 70
Inbound Section 332 Liquidation – Section 367(b)
FS
(CFC)
USP
assets &
liabilities in
liquidation
Reg. Sec. 1.367(b)-3
USP
“All E&P Amount” included in
income
Special rules regarding carryover
of tax attributes (e.g., loss
carryovers, E&P, asset basis)
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Other Reporting
File notice under Reg. Sec. 1.367(b)-1(c)
Form 5471
Section 897 if foreign target owns and transfers USRPI
Section 884 branch profits tax if foreign target conducts and transfers U.S. branch
operations
Section 987 foreign currency gain/loss on branch termination
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 72
Foreign-to-Foreign Section 332 Liquidation – Section 367(e)
FS
(CFC)
USP
assets &
liabilities in
liquidation
Reg. Sec. 1.367(e)-2(c)
FS
Generally no gain or loss
10-year GRA for USTB property
FP
(CFC)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 73
Foreign-to-Foreign Liquidations – Reporting and Other
Rules
Form 5471
Section 897 if foreign target owns and transfers USRPI
Section 987 foreign currency gain/loss on branch termination
Section 381 attributes – Reg. Sec. 1.367(b)-7
Part II: Recent Developments
74
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Form 5471 – (Former) Cat. 5 Constructive Ownership
Exception Glitch
USLP attributed 100% of CFC stock from USP
under sec. 318(a)(3)(A) partner-to-partnership
full downward attribution rule.
US LP does not directly (or indirectly) own any
stock in CFC.
Unrelated partner not attributed any CFC stock
under sec. 318(a)(5)(C) (no “down then back
up”).
USLP is a Category 4&5 filer for CFC because
constructively in control of and a USSH of CFC
via attribution from USP.
USP’s filing 5471 for CFC exempts USLP from
Cat. 4 filing responsibilities.
What about Cat. 5 filing responsibilities (which in
any event are lesser than Cat. 4)—not
referenced in instructions?
USP
US
US LP US
CFC
Unrelated
Partner
100% 50% 50%
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Form 5471 – Updated Constructive Ownership Exception
As of December 2012 revision, Form 5471 instructions clarify/change application
of the constructive ownership exception.
Under the new instructions, a U.S. person described as a Category 5 filer (as
also with Category 3 and 4 filers) is no longer required to file Form 5471 if all
three conditions are satisfied:
The U.S. person does not own a direct interest in the foreign corporation.
The U.S. person is required to furnish the information requested solely
because of constructive ownership (as determined under Reg. section
1.6038-2(c) or 1.6046-1(i)) from another U.S. person.
The U.S. person through whom the indirect shareholder constructively owns
an interest in the foreign corporation files Form 5471 to report all of the
required information.
The new instructions also clarify that no statement is required to be attached to
tax returns for persons claiming the constructive ownership exception.
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 77
PFIC Reporting (Sec. 1298(f)) reg package
TD 9650 (December 2013)
Updates Secs. 6038 (Cats. 4 and 5) and 6046 (Cat. 3) to confirm no filing necessary for constructive ownership exceptions.
Catches regulations up to Form’s Instructions
Update Sec. 6046 regulations to reflect current statutory threshold (10% by vote or value) instead of older (5% by value) requirement
Technical correction needed to include voting power test
Section 1298(f): annual reporting for PFIC stock interests now required (for taxable years ending on or after 12/31/13)
Prior law: Form 8621 only required for elections or income events (sale, distribution, QEF or MTM inclusions, purging elections, etc.)
Regulations waive “catch-up” reporting that Notices 2010-34 and 2011-55 had indicated would be necessary
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Section 367(a)(5) reg package
TDs 9614 and 9615 (March 2013)
Make a procedural modification to “reasonable cause” exception for Form
926/Sec. 6038B reporting deficiencies: the IRS no longer is required to respond
within 120 days of notifying taxpayer that their request was received.
Some other cross-border compliance “reasonable cause” provisions (still)
have a 120-day response requirement, including:
FIRPTA (Rev. Proc. 2008-27)
Dual Consolidated Losses (Reg. Sec. 1.1503(d)-1(c))
Q&A
79
International Tax
Session:
Cross-Border M&A
Southeast Michigan TEI Chapter
April 29, 2014
Devon M. Bodoh
Principal, Washington National Tax
Aaron S. Feinberg
Managing Director, M&A Tax, Detroit
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Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG
TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY
FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED
HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without
limitation, the tax treatment or tax structure, or both, of any transaction described in the associated
materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax
analyses contained in those materials.
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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Dated Material
THE MATERIAL CONTAINED IN THESE COURSE
MATERIALS IS CURRENT AS OF THE DATE PRODUCED.
THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO INCORPORATE ANY
TECHNICAL CHANGES
TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS
TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE RESPONSIBLE
FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY TECHNICAL CHANGES
SINCE THE PRODUCTION DATE AND WHETHER OR NOT
THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR PRESENTATION TO
CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON NATIONAL TAX AND RISK
MANAGEMENT-TAX AS PART OF YOUR DUE DILIGENCE.
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Agenda
Topic
Overview of Post-Transaction Integration
Paradigm 1: U.S. Multinational Corporation Acquires Foreign Corporation
Paradigm 2: Foreign Corporation Acquires U.S. Corporation
Wrap-Up
Overview of
Post-Transaction Integration
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NDPPS 249466
Post Transaction Integration (PTI)
generally concerns the post-
acquisition integration of acquired
entities and business operations into
the acquiring company’s group
Tax Benefits of PTI Planning include:
Identification of tax efficiencies that
further a deal’s strategic objectives
(e.g., tax-efficient cash
repatriation/redeployment and global
ETR reduction through alignment of
existing and acquired business
operations)
Ensuring tax risks are accurately
captured and addressed in an
advantageous manner that is within
the company’s business objective
framework
Post-Transaction Integration: What Is It? General Overview
Creation/
use of tax
attributes (e.g.,
FTCs)
Debt
push-downs
Out-From-Under
planning
(for inbound
clients)
Cash
Repatriation and
Deployment
Efficient
integration of IP
and other VCM
strategies
Consolidation
of local country
affiliated groups
Common
PTI
Tax Planning
Strategies
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Assessing Post-Transaction Integration Opportunities Information Needed
Relevant org charts with U.S. tax classification for both buyer and
target
Current and projected financial statements / position
Global effective tax rate reconciliation, including EBT/tax by entity or
jurisdiction
Form 1118 / FTC limitation calculation workpapers
Intercompany loans schedule
Other key attribute schedules:
E&P pools
Tax pools
NOLs
Summary of key business flows
Summary of organic growth plans
Summary of acquisition / disposition plans
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Strategic Planning Areas of Focus
Foreign tax
credit planning
Cash
utilization/repatriation
Value Chain
Management
Local tax
planning
P
L
A
N
N
I
N
G
Accelerate FTCs
Small dividend/large
FTC
Use/creation of
deficits
Maximize FSI
Incrementally
increasing foreign
source income
Minimize FSE
Interest
R&D
G&A
Hybrid entity losses
Annual Cash Utilization
Stock options
Factoring
Cost sharing
“Deductible”
repatriation
Offshore working
capital
Specialized Cash
Utilization
Reorganizations
Return of basis
PTI
Defer E&P
Recirculate low taxed
cash/earnings
Value Chain
Reassessment
Principal
companies
Contract
manufacturing
Commissionaires
Limited risk
distributors
Procurement
companies
Permanent Local
Tax Savings
Credits
Step-ups
Consolidation
Loss utilization
Holidays and
incentives
Strategic Financing
Hybrids
Hybrid instruments
Dual residents
DRAFT – For Discussion Purposes Only
Paradigms
Paradigm 1:
U.S. Multinational Corporation Acquires Foreign Corporation
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Paradigm 1: Sample Transaction
A wholly-owned foreign corporation (“F Sub”) of a
U.S. multinational corporation (“U.S. MNC”)
acquires the stock of a foreign corporation
(“Foreign Target”) that may own a U.S. subsidiary
(“U.S. Sub”).
Assume a 100% acquisition for cash.
Public SHs
U.S. MNC
Foreign
Target
Foreign
Target
F Sub
U.S. Sub
U.S. MNC
$
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Paradigm 1: Acquisition Considerations Foreign Cash Utilization
€
Foreign Cash Utilization
If F Sub has E&P, this acquisition may
present a good opportunity to use trapped
foreign cash of F Sub (particularly
because ownership of Foreign Target by F
Sub may result in a more tax efficient
structure).
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92
Post-Transaction Integration
If U.S. MNC has a CFC located in the same country as Foreign Target,
moving Foreign Target under this CFC may result in operational
efficiency.
o Similarly, U.S. MNC may have a CFC holding company structure
and wish to move Foreign Target under this holding company
after the acquisition
Additional tax planning may also be necessary to integrate U.S. Sub
with U.S. MNC (and avoid an inefficient structure).
o One example of such tax planning - a Section 338 election - is
also discussed in the following slides.
Paradigm 1: Acquisition Considerations Post-Transaction Integration
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Paradigm 1: Acquisition Considerations Triangular B Reorganization
Triangular B Reorganization: Transaction Steps
Step 1: U.S. MNC acquires Foreign Target.
Step 2: CFC acquires U.S. Sub voting stock for cash or a note.
Conversely, US Sub may acquire Foreign Target and Foreign Target may acquire a CFC of U.S. MNC.
Steps 1 & 2
(1)
(2)
U.S. MNC
U.S. Sub
CFC
Foreign
Target
U.S. MNC
CFC
Foreign
Target
U.S. Sub (3)
Step 3
U.S. Sub
U.S. Sub
Step 3: CFC acquires all the stock of
Foreign Target from U.S. MNC in
exchange for the U.S. Sub stock
acquired in Step 2. This is intended to
qualify as a triangular B reorganization.
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Paradigm 1: Acquisition Considerations Triangular B Reorganization
Triangular B Reorganization: U.S. Tax Consequences
Until April 25, 2014, the so-called Killer B Regulations provided:
CFC is deemed to distribute cash to U.S. Sub in an amount equal to the amount of the
note or cash used to acquire the U.S. Sub stock, and
U.S. Sub is deemed to contribute cash (in the same amount deemed distributed by
CFC) to CFC. See Treas. Reg. Section 1.367(b)-10(a),(b).
However, to the extent CFC has little or no E&P, the deemed contribution may allow CFC
to repatriate the same amount twice without resulting in any additional tax cost.
Must consider Johnson basis recovery issues.
Recently issued Notice 2014-32 provides that regulations will be issued with an
effective date as of April 25, 2014 that:
Remove the fictional cash contribution and
Permit the E&P of Foreign Target to be taken into account for purposes of the
deemed distribution.
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F Sub takes a
fair market
value tax basis
in Foreign
Target.
Foreign Target
takes a fair
market value tax
basis in its assets
(including a U.S.
Sub owned by
Foreign Target).
E&P and tax history
of Foreign Target is
eliminated.
(Note: Election may
also be made with
respect to lower-tier
80% owned
subsidiaries.)
DRAFT – For Discussion Purposes Only
Results of a Section 338 Election
Section 338 election
A tax election may be available to treat the transaction as an acquisition of Foreign Target assets for U.S.
tax purposes which results in a fair market value tax basis in such assets (referred to as a “Section 338
election”).
If Foreign Target is not a U.S. taxpayer, this election is not expected to result in any additional U.S. tax cost.
Must consider FIRPTA implications with respect to U.S. Sub (including Section 1445).
Paradigm 1: Acquisition Considerations Section 338 Election
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Paradigm 1: Acquisition Considerations Post-Transaction Integration: Section 338 Election where Foreign Target owns U.S. Sub
Post Transaction Integration and Section 338 election
After the Section 338 election, the following steps would occur:
Step 1: Foreign Target distributes U.S. Sub to F Sub.
Neither Foreign Target nor F Sub recognize gain or loss in
the distribution (because of the fair market value tax basis
in Foreign Target and the elimination of Foreign Target’s
E&P).
Step 2: F Sub distributes U.S. Sub to U.S. MNC.
This may result in dividend income to U.S. MNC but F Sub
does not recognize any gain on the distribution (since it has
a fair market value tax basis in U.S. Sub).
U.S. Sub and U.S. MNC may file a consolidated return but
the distribution of U.S. Sub must occur within 6 months to
avoid certain consolidated return limitations on U.S. Sub’s
tax attributes (e.g., net operating losses).
Public
(1)
(2)
F Sub
U.S. MNC
Foreign
Target
U.S. Sub
U.S. Sub
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Paradigm 1: Ownership Considerations CFC Considerations
Subpart F Income
generally includes
passive income. See
Section 952-954.
Subpart F Income
If Foreign Target owns U.S.
property (e.g., stock or
debt in a “related” U.S.
corporation, or U.S. real
estate), such ownership
may constitute an
investment in “U.S.
property” that results in a
deemed dividend to U.S.
MNC under Subpart F.
See Section 956.
Section 956
Sales of operating assets
in certain instances may
avoid treatment as
Subpart F Income.
Sales of
Operating Assets
Generally, U.S. shareholders are not taxed on the undistributed earnings of a CFC.
However, U.S. shareholders of a CFC are immediately taxed on certain types of
undistributed income (“Subpart F Income”).
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NDPPS 249466
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Paradigm 1: Ownership Considerations Foreign Tax Credits
Two Types of FTCs FTC Limitations
Direct FTCs Generated by the payment of foreign income
taxes directly by a U.S. taxpayer (e.g.,
withholding taxes or net income taxes paid by
a branch or passthrough entity owned by a
U.S. corporation). Section 901.
Indirect FTCs Available when a foreign corporation owned
by a 10% U.S. corporate taxpayer pays
foreign income taxes. These indirect FTCs
are available when the foreign corporation
pays a dividend (or generates Subpart F
Income) to the U.S. shareholder. Sections
902 and 960.
Must ensure “voting power” requirement
is met.
Note that a Section 338 Election (described
earlier) may result in lower depreciation
deductions for foreign tax purposes (resulting
in higher foreign taxes paid) than as compared
to the U.S. tax treatment.
A special rule may limit the availability of FTCs
in this instance. Section 901(m).
DRAFT – For Discussion Purposes Only
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NDPPS 249466
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99
Overview of Section 901(m)
Section 901(m) disallows
FTCs for the disqualified
portion of foreign income tax
paid or accrued with respect
to income or gain attributable
to relevant foreign assets in a
covered asset acquisition.
Disqualified Taxes
Disqualified taxes
permanently disallowed as
credits, but deductible
If taxpayer cannot
substantiate foreign
income, must
reconstruct income by
dividing foreign tax
paid by highest
marginal rate.
Covered Asset Acquisition Defined
Qualified stock purchase
with Section 338(g) or
(h)(10) election.
Any transaction treated as
acquisition of assets for
U.S. tax purposes but as
stock acquisition (or
disregarded) for foreign
tax purposes.
Acquisition of a
partnership interest with
Section 754 election.
Any other similar
transaction provided by
the Secretary.
Paradigm 1: Ownership Considerations Foreign Tax Credits
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Paradigm 1: Ownership Considerations Foreign Tax Credits
Section 901(m) disqualified portion is computed using this formula:
Foreign Taxes x Basis Differences = Disallowed
Foreign Income Foreign Taxes
Basis differences
Adjusted U.S. tax basis immediately after CAA less adjusted
U.S. tax basis immediately before
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NDPPS 249466
101
Paradigm 1: Ownership Considerations Sandwich Considerations
– Absent post-transaction integration, Foreign Target’s ownership of U.S.
Sub may be an investment in U.S. property which may result in a deemed
dividend to U.S. MNC.
Consider Sections 956(b)(2) and (c)(2)(F).
U.S. Sub would also be “affiliated” with U.S. MNC under Section
864(e) and 904(i).
- In the Sandwich Structure, U.S. Sub and U.S. MNC cannot file a
consolidated return.
- In addition, income generated by U.S. Sub may be subject to a high
effective tax rate since it may be subject to multiple layers of tax in the
United States.
Post-Transaction Integration Considerations
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NDPPS 249466
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Section 1248
When U.S. MNC
disposes of
Foreign Target
stock, a portion
of U.S. MNC’s
gain may be
treated as
dividend income
instead of capital
gain.
Paradigm 1: Exit Considerations Section 1248
This deemed dividend under Section 1248 or 964(e) may result in indirect FTCs to U.S. MNC.
If Foreign Target is not held directly by a U.S. taxpayer (in this case U.S. MNC), there may be a
deemed dividend to the selling CFC under Section 964(e).
Specifically, gain with respect to Foreign Target stock is treated as a dividend to U.S. MNC to the
extent of Foreign Target’s E&P accumulated during U.S. MNC’s ownership of Foreign Target.
Paradigm 2:
Foreign Corporation
Acquires U.S. Corporation
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NDPPS 249466
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Paradigm 2: Sample Transaction
Step 1: A Foreign Acquirer forms a U.S.
Holdco.
Step 2: U.S. Holdco acquires all the stock
of a U.S. Target that has foreign assets (in
this case Target CFC).
Assume a 100% acquisition for cash.
(1)
(2) $
SHs Public
Foreign
Acquirer
Target CFC
Target CFC
U.S.
Target
U.S.
Target
U.S.
Holdco
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NDPPS 249466
105
Tax Treaty Planning
Holding Company
Considerations
Acquisition
Considerations
Paradigm 2: Acquisition Considerations Acquisition Form
Inversions
Debt Push-Downs
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NDPPS 249466
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U.S. withholding taxes
of 30% apply on
dividends and interest
payments from U.S.
Holdco to Foreign
Acquirer. Sections 871
and 881. However, the
withholding tax rate
may be reduced or
eliminated by the
application of an
income tax treaty.
Overview
If Foreign Acquirer is not
eligible for income tax
treaty benefits (or a more
advantageous income tax
treaty exists), an
intermediary foreign
company may be used to
access such benefits in
certain circumstances.
Intermediary
Foreign
Companies
However, certain criteria
(included in the
limitations on benefits
provisions in most U.S.
income tax treaties) must
be met by the
intermediate foreign
company to access the
desired treaty benefits.
Where the Foreign
Acquirer is not itself
eligible for treaty benefits,
the intermediate entity
typically will need to have
a substantial active
business in its country of
residence.
Limitation
on Benefits
DRAFT – For Discussion Purposes Only
Tax Treaty Planning
Paradigm 2: Acquisition Considerations Acquisition Form: Tax Treaty Planning
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NDPPS 249466
107
Paradigm 2: Acquisition Considerations Acquisition Form: U.S. Holding Companies
Use of a U.S. holding company
eliminates U.S. Target's historic E&P.
U.S. Target and the U.S.
holding company form a
consolidated group after the
acquisition.
Although the E&P of a
subsidiary of a consolidated
group generally tier up to the
common parent, under the
consolidated return rules, the
pre-acquisition E&P of U.S.
Target does not tier up. See
Treas. Reg. Section 1.1502-
33.
U.S. Holding Companies
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NDPPS 249466
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Paradigm 2: Acquisition Considerations Acquisition Form: Debt Push-Downs
Overview
It may be advantageous to “push down”
acquisition debt into U.S Holdco. However this
may result in limitations on U.S. Holdco’s ability
to claim interest deductions on the acquisition
debt in certain instances.
When dealing with a debt pushdown into the
United States, the terms of the debt must be
closely considered to ensure that the debt is
treated as debt and not equity of U.S. Holdco.
Treatment as equity eliminates any potential
interest deductions in the United States and
may result in payments being taxed as
dividends.
Many different factors (e.g., the term/maturity
date of the debt, capitalization of the debtor, the
inclusion of creditor protections, subordination)
are used to determine if an instrument is treated
as debt or equity.
Section 163(j)
Under Section 163(j), if U.S. Holdco owes debt
to Foreign Acquirer, or Foreign Acquirer
guarantees debt of U.S. Holdco, interest
deductions on such debt may be disallowed
when:
U.S. Holdco is undercapitalized (i.e., a
debt-to-equity ratio of 1.5 to 1 or greater),
U.S. Holdco’s interest expense exceeds
50% of its adjusted gross income, and
Such interest payments are not otherwise
subject to, or are subject to a reduced rate
of, U.S. withholding tax (e.g., through the
application of a treaty).
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NDPPS 249466
109
Generally, an inversion may provide a
significant tax benefit to the inverting
corporation if it can:
- Avoid or minimize Subpart F income,
and
- Reduce it’s exposure to tax on U.S.-
source income.
An inversion may occur pursuant to the acquisition
of stock or assets of the U.S. corporation by a
foreign corporation.
An inversion typically occurs when a U.S. corporation changes
its place of incorporation or corporate ownership to a foreign
jurisdiction with a more favorable tax system.
Inversion Planning
Considerations
Stock Acquisition
Versus
Asset Acquisitions
What is an
Inversion?
Paradigm 2: Acquisition Considerations Acquisition Form: Inversions
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NDPPS 249466
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Potential Inversion Costs
Section 367 Toll Charge
• Denies non-recognition treatment to certain transfers of property (including stock and intellectual property) by a U.S. person to a foreign corporation.
Section 7874 Toll Charge
• Certain penalties are imposed if a foreign corporation (the “Foreign Acquirer”) directly or indirectly acquires substantially all of the property of a U.S. corporation (“U.S. Target”) and the historic shareholders of U.S. Target own above a threshold percentage of stock of Foreign Acquirer. Further, in certain circumstances, the Foreign Acquirer may be treated as a U.S. corporation for U.S. Federal tax purposes.
Section 4985 Excise Tax Charges
• An excise tax is imposed on equity-based compensation of U.S Target’s officers and directors upon the occurrence of certain corporate inversion transactions.
Paradigm 2: Acquisition Considerations Acquisition Form: Inversions
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NDPPS 249466
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Section 367
Toll Charge Planning
Exceptions to the general rule
of tax on an outbound transfer
of property:
Rule does not apply to an
outbound transfer of
domestic corporation stock,
if:
Pursuant to the transfer, 50% or less of the
Foreign Acquirer stock is received, in the
aggregate, by transferors that are U.S.
persons;
Immediately after the transfer, 50% or less
of the Foreign Acquirer stock is owned by
U.S. persons that are officers or directors or
5% shareholders of the domestic
corporation;
U.S. transferors that own more than 5% of
the Foreign Acquirer enter into a gain
recognition agreement (a “GRA”) with the
IRS;
The Foreign Acquirer (or certain qualified
subsidiaries) is engaged in an active trade
or business outside the United States for
the 36 months immediately before the
transfer; and
The fair market value of the Foreign
Acquirer is at least equal to the fair market
value of the domestic corporation.
Paradigm 2: Acquisition Considerations Acquisition Form: Section 367
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NDPPS 249466
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Section 7874
Toll Charge Planning
Need to consider the “scope”
of section 7874.
Further, if at least 80% of the stock of
Foreign Acquirer is owned by the
domestic corporation’s historic
shareholders, Foreign Acquirer will be
taxed as if it were a U.S. corporation.
If after a corporate inversion transaction
i. At least 60% of the stock of Foreign
Acquirer is owned by U.S. Target’s
historic shareholders and
ii. Foreign Acquirer (taking into account
certain subsidiaries) does not have
“substantial business activities” in the
jurisdiction of incorporation,
Then U.S. Target is subject to tax on
inversion gain (i.e. gain on the inversion
transaction and certain sales of property)
for 10 years with limited offsets for
losses and credits.
Paradigm 2: Acquisition Considerations Acquisition Form: Inversions
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NDPPS 249466
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The Section 7874 Anti-Inversion Rule does
not apply if the Foreign Acquirer has
substantial business activities in its
jurisdiction of incorporation
Substantial Business Activities - at least
25% of employees, assets, and income of
the Foreign Acquirer located or derived in
the foreign jurisdiction.
IRS regulations preclude items,
employees, and assets transferred to a
foreign jurisdiction as part of a plan to
avoid the Section 7874 Anti-Inversion
Rule from being included in the
substantial business activities analysis.
Section 7874
Toll Charge Planning
Need to consider the scope of
section 7874.
Paradigm 2: Acquisition Considerations Acquisition Form: Inversions
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NDPPS 249466
114
A 15% excise tax is imposed on the value of
certain stock compensation of an “expatriated
corporation” that is held by officers, directors and
10% or greater owners.
An expatriated corporation is a U.S. Target that
undergoes an inversion transaction where between
60-80% of the stock of Foreign Acquirer is owned
by U.S. Target’s historic shareholders.
The stock compensation this excise tax applies to
is payment received as compensation from the
expatriated entity the value of which is determined
by reference to value of the stock of that
corporation, e.g., compensatory stock and
restricted stock grants, compensatory stock
options, and other forms of stock-based
compensation.
This excise tax applies only if any of the
expatriated corporation's shareholders recognize
gain on any stock in the corporation by reason of
the corporate inversion transaction that caused the
expatriation.
Section 4985
Toll Charge Planning
Excise tax considerations.
Paradigm 2: Acquisition Considerations Acquisition Form: Inversions
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NDPPS 249466
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Paradigm 2: Acquisition Considerations
Treatment of Foreign Acquirer:
If U.S. Target shareholders receive 60% or
more (but less than 80%) of the stock of
Foreign Acquirer, U.S. Target is taxed on
inversion gain for 10 years (with limited
losses/credits) unless the substantial
business activities exception applies.
If U.S. Target shareholders receive 80% or
more of the stock of Foreign Acquirer, Foreign
Acquirer is taxed as if it were a U.S.
corporation unless the substantial business
activities exception applies.
U.S. Target SHs
Foreign Acquirer
SHs
OR
U.S. Target SHs
Assets
U.S. Target Assets
OR
Foreign
Acquirer U.S.
Target
U.S.
Target
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NDPPS 249466
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Paradigm 2: Acquisition Considerations
Treatment of U.S. Target Shareholders:
If undertaken as a Stock Transfer, U.S.
Target Shareholders are taxed on the
outbound transfer of U.S. Target stock
unless an exception applies, e.g., U.S.
Target Shareholders receive less than 50%
of Foreign Acquirer.
If U.S. Target shareholders receive 60% or
more (but less than 80%) of the stock of
Foreign Acquirer and U.S. Target
shareholders are taxed on the transfer, an
excise tax may be imposed on the equity-
based compensation of certain U.S Target
officers, directors, and 10% shareholders.
U.S. Target SHs
Foreign Acquirer
SHs
OR
U.S. Target SHs
Assets
U.S. Target Assets
OR
U.S.
Target
U.S.
Target
Foreign
Acquirer
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NDPPS 249466
117
The Paradigm 2
acquisition transaction
creates a Sandwich
Structure with the U.S.
corporate tax rate (35%)
imposed on the income
of Target CFC (through
U.S. Target/U.S.
Holdco), subject to
potential FTC.
This creates an extra
layer of high-rate tax on
the income of Target
CFC that would not be
present if Foreign
Acquirer directly owned
Target CFC.
Out-From-Under Planning
“Out from under” planning has the economic effect of moving assets
out of the U.S. taxing jurisdiction without the full tax cost of such
movement.
Below are three broad categories of out from under planning. These
planning techniques are not exclusive and can be undertaken in
connection with each other:
Out
From
Under
Paradigm 2: Ownership Considerations Sandwich Structures
Freeze Structure
CFC Dilution
“Wither on the Vine” Planning
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NDPPS 249466
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Paradigm 2: Ownership Considerations Sandwich Structures
Freeze Structure (Simplified)
Purpose
The purpose is to freeze the value of high growth
assets moved out of the U.S. taxing jurisdiction so
any future appreciation is not taxed in the U.S.
Transaction Steps:
Step 1: Target CFC transfers high growth assets
to F Sub, a non-CFC subsidiary of Foreign
Acquirer, in exchange for voting preferred stock
with a market rate, which represents at least 10%
of F Sub’s voting stock (but less than 50% of
value).
10% ownership interest results in indirect
FTCs.
Step 2: Foreign Acquirer will transfer assets to F
Sub.
VP/S
Low Growth
High Growth
(1)
(2)
U.S.
Target
Foreign
Acquirer
Target CFC
F Sub
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NDPPS 249466
119
Paradigm 2: Ownership Considerations Sandwich Structures
CFC Dilution (Simplified)
Purpose
Under this structure, it is assumed that income
generated by Target CFCs would result in Subpart
F Income inclusions to U.S. Target.
However, the Subpart F rules only apply if the
Target CFCs are CFCs with more than 50% (vote
or value) ownership (direct or indirect) by U.S.
persons that own 10% or more (directly or
indirectly) of the voting power.
Thus, the purpose of this planning is to terminate
Target CFCs’ status as CFCs by diluting U.S.
Target’s direct or indirect ownership.
Assume no recapitalization of U.S. Target stock in
Target CFC Holdco.
Assets
Foreign
Acquirer
Target CFC
Holdco
Target CFC
OpCo
U.S.
Target
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NDPPS 249466
120
Paradigm 2: Ownership Considerations Sandwich Structures
CFC Dilution (Simplified) (Cont.)
Transaction Steps:
Step 1: Foreign Acquirer contributes a low
growth asset to Target CFC Holdco (which
has little or no E&P) in exchange for voting
preferred stock representing more than
90% of the voting power and more than
50% of the value of Target CFC Holdco.
As a result of this dilution of voting
power, Target CFC HoldCo is no longer a
CFC. Sections 951 and 957.
Step 2: Target CFC OpCo sells its assets
to Foreign Acquirer for a Note.
(1)
(2)
CFC OpCo
Assets
U.S.
Target
Target CFC
Holdco
Target CFC
OpCo
Foreign
Acquirer
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NDPPS 249466
121
Paradigm 2: Ownership Considerations Sandwich Structures
CFC Dilution (Simplified) (Cont.)
Anticipated U.S. Federal Income Tax Consequences:
Step 2 is intended to be a taxable sale, which may generate
additional E&P in Target CFC OpCo.
However, Target CFC HoldCo and Target CFC OpCo are no
longer subject to the subpart F regime because neither
company has a U.S. Shareholder.
To avoid cash accumulating in Target CFC OpCo with
respect to repayment of the Note, this cash can be lent to
other members of the Foreign Acquirer group.
Consider PFIC issues for Target CFC Holdco and Target
CFC OpCo going forward.
Consider accumulation of E&P in Target CFC Holdco as a
result of ownership of asset received from Foreign Acquirer
in Step 1.
Potential exit strategies may include inbound F
reorganization of Target CFC Holdco and Target CFC OpCo.
However, consider the potential application of Treas. Reg.
Section 1.367(b)-3 with respect to Target CFC Holdco.
(1)
(2)
CFC OpCo
Assets
Target CFC
OpCo
Target CFC
Holdco
Foreign
Acquirer
U.S.
Target
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NDPPS 249466
122
Paradigm 2: Ownership Considerations Sandwich Structures
Wither on the Vine
Purpose
Under this planning technique, operations related to
U.S. Target’s intangible property in the United States
are gradually wound up and recreated outside the
United States (i.e., by Foreign Acquirer or F Sub).
This may require:
Elimination of employees by U.S. Target (or
failure to replace departing employees)
New hires by Foreign Acquirer or F Sub
U.S. Target directs new opportunities to Foreign
Acquirer or F Sub and
New investments by Foreign Acquirer or F Sub.
Since this does not result in an actual distribution of
this intangible property, there is no tax cost from the
movement of the intangible out of the United States.
However, this structure can take years to complete.
U.S.
Target
Foreign
Acquirer
F Sub
Target CFC
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NDPPS 249466
123
Paradigm 2: Exit Considerations FIRPTA
FIRPTA
Under Section 897, the
disposition of U.S. Target
or U.S. Holdco stock by
Foreign Acquirer may
trigger a 10% withholding
tax on the gross sales
price, and full U.S.
taxation on any gain, if
either predominantly
owns, or has owned
during a 5-year period,
U.S. real estate.
Certain filing requirements
are necessary at the time
of sale to confirm no
withholding tax is due.
U.S. real estate??
Presenter Information
Devon M. Bodoh
Principal, Washington National Tax
Phone: 202-533-5681
Email: [email protected]
Aaron S. Feinberg
Managing Director, M&A Tax, Detroit
Phone: 313-230-3273
Email: [email protected]
© 2014 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. Printed in the U.S.A.
Tax Executives Institute
Foreign Tax Credit
Developments
Detroit
April 29, 2014
Caren Shein, Managing Director
KPMG LLP, Washington National Tax
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR
WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR
ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii)
PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY
MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction described in
the associated materials we provide to you, including, but not limited to, any tax opinions,
memoranda, or other tax analyses contained in those materials.
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.
126
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Agenda
Creditability of Foreign Taxes
Trending Issues
Credit versus Deduction – Interaction of § 6511(d)(2) and 6511(d)(3)
§ 901 Technical Taxpayer Regulations
§ 909 Splitter Temporary Regulations
Anti-Abuse Rules
§§ 901(k) and (l)
§ 901(m)
127
Trending Issues -
Creditability of
Foreign Taxes
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Requirements to be a Creditable Tax
Under § 901
A foreign levy is creditable under § 901 if:
It is a “tax,” defined as a compulsory payment pursuant to a foreign
country’s authority to levy taxes. Foreign country is defined to include any
political subdivision thereof, and US possessions
Its predominant character is that of an income tax in the
US sense, meaning that it is likely to reach net gain in the normal
circumstances in which it is applied. A tax is likely to reach net gain if it
meets each of a realization, gross receipts and net income requirement
It is not a soak up tax
§ 903 expands definition of a creditable tax under § 901 to include certain
taxes paid “in lieu of” and not in addition to an income tax. Generally applies to
withholding taxes on payments to nonresidents
129
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Creditability of Foreign Taxes – Is it a
Compulsory Payment?
An amount is not creditable to the extent it exceeds taxpayer’s liability for tax
under foreign law
Taxpayer has duty to contest excess taxes under reasonable interpretation of
foreign law
Must exhaust all effective and practical remedies
See CCA 200532044 (taxpayer must request competent authority
assistance)
Procter & Gamble v. United States, 106 AFTR2d 2010-5311 (S.D. Ohio
2010)
Electing to shift tax liability to current year does not make payment voluntary
130
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Creditability of Foreign Taxes – Is it a
Compulsory Payment?
Taxpayer is not required to alter its form of doing business. Not a lot of
authority on how a taxpayer may qualify for the “business conduct safe
harbor,” but there are several IRS rulings on what the IRS believes does not
qualify:
FSA 200049010: Election to defer tax payment and pay foreign
government additional amounts
CCA 200622044: Election to reduce the amount of an otherwise
creditable tax as opposed to an otherwise non-creditable tax
CCA 200920051: Election to form foreign corporations then make
foreign tax elections to shift foreign tax burden
131
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Specific Creditability Issues We’re Seeing PPL v. Commissioner, 133 S.Ct. 1897 (2013)
On May 20, 2013, the Supreme Court issued a unanimous decision reversing
the Third Circuit and holding in favor of the taxpayer that the 1997 UK “windfall
profits” tax (the “UK tax”) is a creditable tax under
§ 901.
The Court applied substance over form principles in holding that the UK tax is
a creditable tax, but the opinion is narrow and is unlikely to have larger
ramifications outside the FTC context.
132
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Specific Creditability Issues We’re Seeing
PPL v. Commissioner - Facts
During the 1980s and 1990s, the UK government privatized several dozen
government-owned utility companies.
Most of the companies were required to maintain the same rates for four years,
so only way to increase profits during this period was for the companies to
operate more efficiently. Most did, resulting in significantly more profit than the
government anticipated.
In 1997, the UK enacted a special tax designed to capture the “windfall profits”
that 32 companies earned during the years in which they were prohibited from
raising rates.
The tax is computed based on a formula that imposes a 23% tax on the
difference between a company’s actual flotation value (its market capitalization
value after sale) and what the government thinks its flotation value should have
been (determined by multiplying the company’s average annual profits during
the initial period by a price-to-earnings ratio of 9).
133
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Specific Creditability Issues We’re Seeing
PPL v. Commissioner - Analysis
Court began by noting that the predominant character rule in Reg.
§ 1.901-2(a) establishes several relevant principles:
First, the predominant character of a tax, or the “normal manner” in which a
tax applies, is controlling. The fact that a few taxpayers are affected
differently is not controlling
Second, foreign government’s characterization of the tax is not dispositive.
Instead, look to economic effect and whether the tax, if enacted in the
United States, would be an income, war profits, or excess profits tax under
US principles
Applying substance over form principles, the Court concluded that the UK tax
has the predominant character of an income tax in the U.S. sense because the
economic substance of the tax is that of a excess profits tax.
Despite the form of the formula for computing the tax, the Court found that
the tax is a tax on realized net income disguised as a tax on the difference
between two values.
134
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Specific Creditability Issues We’re Seeing
Foreign Taxes
Brazil – Capital Gains Tax, PIS, COFIN, IRPJ, SCL
France and China – Business Taxes
India and France – Dividend Distribution Taxes
China – Circular 698 Tax
135
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Specific Creditability Issues We’re Seeing
“FTC Generators”
IRS challenges to structured financing arrangements based on economic
substance doctrine (codified in 2010 as § 7701(o).
Under economic substance doctrine, a tax benefit may be disallowed even if
taxpayer complies with all code and regulatory requirements. At issue is
whether
The transaction changes in a meaningful way (apart from federal income
tax effects) the taxpayer’s economic position; and
The taxpayer has a substantial purpose (apart from federal income tax
effects) for entering into the transaction
IES Industries and Compaq – US borrowers pre tax profit/benefit is not
reduced by foreign tax costs
STARS cases – BONY, Salem Financial, Santander Holdings, AIG
136
Interaction of § 6511(d)(2)
and 6511(d)(3)
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Credit v. Deduction
Annual election to deduct or credit foreign taxes – § 164(a)
or § 901:
Credit generally more beneficial but deduction may be preferable, for
example, if taxpayer has NOL
Generally cannot claim deduction and credit in same year
Make election to claim FTC by filing Form 1118
§ 6511(d)(3)(A) provides extended statute of limitations “if the claim for credit
or refund relates to an overpayment attributable to a foreign tax credit carry
back”
Allows change from credit to deduction, deduction to credit, or change to
amount of foreign tax credit claimed
Change election by filing amended return within 10 years of original due date
(without extensions) of the return for year in which taxes actually paid or
accrued
138
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Interaction of § 6511(d)(2) and (d)(3)
§ 6511(d)(2) provides a special period of limitations for NOL carry backs – 3
year from the time prescribed by law (including extensions) for filing the return
for the year in which the NOL giving rise to the carry back arises
§ 6511(d)(3) provides a special period of limitations for overpayments relating to
foreign taxes – 10 years from the original due date (without extensions) of the
return for the year in which the taxes were actually paid or accrued
IRS has addressed interaction of these rules in several rulings, adopting an
“independent events” approach
139
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Interaction of § 6511(d)(2) and (d)(3)
CCA 201204008
FACTS: In year [8] taxpayer filed amended return for year [3] changing election
from FTC to deduction. Year [3] deduction created additional NOL which
taxpayer sought to carry back to year [1] . At issue was whether year [1]
amended return was timely.
§ 6511(d)(2) requires amended return within 3 years of extended due date
of year [3] return thus year [1] amended return not timely if (d)(2) applies to
year [1]
§ 6511(d)(3) allows 10 years to change from credit to deduction so year [3]
amendment timely; year [1] is also within 10 years and attributable to timely
year [3] change
IRS held that rules must be applied independently. Thus, change from credit
to deduction governed by and timely under § 6511(d)(3). But, NOL carryback
from year [3] to year [1] governed by § 6511(d)(2) and not timely.
140
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Interaction of § 6511(d)(2) and (d)(3)
CCA 201204008
IRS further took position that year [1] amended return also would not be timely
under an “attributable to” approach because § 6511(d)(3) applies only if the
claim for refund relates to an overpayment for a year for which a credit is
allowed under § 901. Once taxpayer changed to deduction for year [3], §
6511(d)(3) could not support allowance of NOL carry back.
See also ILM 201330031, reaching same conclusion
NOTE that only NOL carry backs are potentially disallowed. If taxpayer
changes from credit to deduction but cannot carry taxes back, then no
limitation on carry forward. But, if taxes could be carried back but for statutory
bar, it appears that taxpayer must reduce carry forward amount
May want to deduct taxes initially if not sure will be able to use credits, but
consider AMT impact
141
Technical Taxpayer Rules –
Regulation § 1.901-2(f)
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Creditability of Foreign Taxes – Who is Legally
Liable for the Tax?
Only the person legally liable for a tax under foreign law
(the “technical taxpayer”) may claim credits
Withholding agents not technical taxpayers; look to beneficial owner of
income
Contractual arrangements shifting liability not relevant
Foreign law controls, but US law also relevant
Issues regarding technical taxpayer often arise in context of hybrid entities and
foreign consolidation/group relief regimes
On February 9, 2012, the IRS issued final regulations under § 901 addressing
who is legally liable for foreign taxes (i.e., who is the “technical taxpayer”)
imposed on foreign combined income groups and hybrid entities
Generally effective for tax years beginning after February 14, 2012, but
taxpayers can elect to apply combined income rules retroactively to tax
years beginning after December 31, 2010
143
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§ 901 Final Regulations (2012)
Foreign Consolidated Groups
Final Reg. § 1.901-2(f)(3) provides that taxes imposed on a foreign combined
income group are apportioned among group members based on each person’s
“portion of the base of the tax”
― Foreign tax is imposed on combined income if it is computed on a
combined basis under foreign law and would otherwise be imposed on
each person’s separate taxable income
Combined income is calculated separately, and associated taxes are allocated
separately, if foreign law exempts from tax or provides a preferential tax rate for
certain types of income, and if certain expenses, deductions or credits are
taken into account only with respect to a “particular type of income”
Collateral consequences: US tax principles apply to determine the tax
consequences if one person remits tax “considered paid” by another
Rule does not apply to loss sharing regimes (e.g., UK group relief) or foreign
subpart F type regimes
144
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Taxes Imposed on Combined Income
Reg. § 1.901-2(f)(5), Example 2
145
B has sole legal liability for group tax under
Country X law. Country X does not provide
rules for mandatory allocation of losses
Combined income is 240u and tax is 72u
(30% rate)
24u of group tax allocated to B (and thus A’s
§ 901 credits) and 48u allocated to C:
― Dividends are ignored under Reg. §
1.901-2(f)(3)(iii)(B)
Application of collateral consequences rule
where B pays group tax and C reimburses it
for its share – taxpayers should re-examine
tax sharing agreements
What if D’s loss is capital and can only
offset capital gain under Country X law?
Assume B’s income is capital and C’s
income is ordinary
B
(Country X)
A
(U.S.)
C
(Country X)
D
(Country X)
100u
200u (60u)
100u Dividend
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§ 901 Final Regulations (2012)
Taxes Imposed on Income of Hybrid Entities
Final Reg. § 1.901-2(f)(4) addresses foreign taxes imposed at entity level
on:
― Partnerships – taxes are treated as partnership-level taxes that must be
allocated to partners applying principles of § 704(b)
― Disregarded entities (“DREs”) – taxes are treated as imposed on the owner of
the DRE
Final Reg. § 1.901-2(f)(4) also addresses changes in owners of
partnerships and DREs and certain partnership terminations in situations
where foreign tax year does not close:
― If partnership terminates, foreign tax for the year is allocated between the
partnership and its successor partnership, or a DRE if the partnership ceases
to have two owners, under the principles of Reg. § 1.1502-76(b)
― If there is a “change in the ownership” of a DRE, foreign tax is allocated
between the transferor and transferee based on respective portions of
taxable income determined under foreign law under principles of Reg.
§ 1.1502-76(b)
146
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Hybrid Entities – Example
147
Target is a DRE that is a calendar year
taxpayer for foreign tax purposes
Target’s income for the year is 100u
Target’s foreign income tax for the year is 30u,
accrued on 12/31
Under Reg. § 1.901-2(f)(4)(ii), the 30u of tax is
apportioned between X and Y under the
principles of Reg. § 1.1502-76(b):
― Closing of the books vs. ratable
allocation
Query whether rule applies if election is made
to treat Target as a corporation effective 9/30?
Y X
Target
9/30 transfer
Target
Temporary and Proposed
§ 909 Splitter Regulations
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§ 909 – Foreign Tax Credit Splitters
Background
§ 909 suspends foreign taxes if there is a FTC splitting event until the related
income and taxes are “reunited”
Applies to foreign taxes paid or accrued in taxable years beginning after
December 31, 2010, and also may apply retroactively to foreign income taxes
paid or accrued by a § 902 corporation in taxable years beginning before
January 1, 2011
Temporary and proposed regulations under § 909 provide an exclusive list of
splitter arrangements for tax years beginning on or after January 1, 2012:
Reverse hybrid Structures
Loss Sharing Regimes
Hybrid Instruments
Partnership Intra-Branch Payments (temporary provision as IRS also
amended § 704(b) regulations prospectively)
The regulations incorporate rules in Notice 2010-92 for pre-2011 years and also
generally incorporate the “mechanics” of Notice 2010-92
149
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§ 909 - Foreign Tax Credit Splitters What is not Covered
Although temporary regulations contain exclusive list of splitters, preamble
notes areas in which IRS and Treasury still have concerns over separation of
income and taxes:
Certain asset transfers;
Taxes imposed on distributions that are dividends under foreign law but
§ 305(a) distributions or disregarded for U.S. tax purposes (“base
differences”); and
Any future guidance identifying additional splitters will be effective
prospectively
Result of disposition of an entity with related income or suspended taxes not
addressed
Rules for computing and distributing related income not fully addressed
150
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Reverse Hybrid Splitter Arrangements
A reverse hybrid splitter arrangement arises when a payor pays or accrues
foreign income taxes with respect to income of a reverse hybrid:
Reverse hybrid is an entity that is treated as a corporation for U.S. tax
purposes but is fiscally transparent (or a branch) under foreign law
Rule applies even if the reverse hybrid has a loss for the year for U.S.
tax purposes (e.g., due to a timing difference or subsequent year loss)
Related income is the U.S. E&P of the reverse hybrid attributable to
activities of the reverse hybrid that gave rise to income included in
payor’s foreign tax base with respect to which foreign taxes were paid or
accrued
Foreign taxes paid or accrued with respect to reverse hybrid’s income
are “split taxes”
151
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Reverse Hybrid Splitter – Example
30 of taxes paid by USP are split taxes
DE’s earnings (or deficits) are not included in the
foreign tax base and its activities thus do not give rise
to related income
50 of tax on DE’s income treated as paid by RH
under Reg. § 1.901-2(f)(4)
Related income is the 100 of E&P in RH attributable to
activities that gave rise to the 30 of taxes
Related income increased/decreased by future
income or losses attributable to relevant activities
RH’s E&P is 300, and its tax pool is 50, but only 100 is
related income
Distribution sourced proportionally to related and
non-related income
152
USP
RH
DE
100 E&P
30 Tax
200 E&P
50 Tax
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Loss Sharing Splitter Arrangements
A foreign group relief or loss sharing regime is a splitter to the extent a
shared loss of a U.S. combined income group could have been used to offset
income of the group (usable shared loss) but is instead used to offset income
of another U.S. combined income group
A U.S. combined income group is a single individual or entity and all other
entities (including fiscally transparent entities) that for U.S. federal income tax
purposes combine any of their respective items of income deduction, gain or
loss with the income, deductions, gain or loss of such individual or
corporation
Fiscally transparent entity is an entity for this purpose
If a fiscally transparent entity is a member of more than one U.S.
combined group, taxable income is allocated between the groups; for a
partnership generally apply principles in § 704(b) regulations
No hybrid, no splitter
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Loss Sharing Splitter Arrangements Temp. Reg. § 1.909-2T(b)(2)(vii), Example 2
-0- income
-0- tax
(100)
loss
200 income
(reduced to 100 by
shared loss)
30 tax
HP1 belongs to both CFC3 and CFC2/DE
U.S. combined income groups
Positive income of CFC2 group is 200 (100
in CFC2 plus 50% of HP1’s 200 income)
and of CFC3 group is 100 (50% of HP1’s
200 income)
Shared loss is (100) all of which would be
usable by CFC2 combined income group
Income offset by shared loss is 100 of HP1’s
income of which 50 is allocable to CFC2 and
50 is allocable to CFC3
Splitter results because 50 of usable shared
loss of CFC2 group offset income of CFC3
group
15 of CFC2 taxes are split taxes, and related
income of CFC3 is 50
How would split taxes be released?
USP
CFC1
DE
CFC2 CFC3
B
B
100 income
30 tax
HP1
50% 50%
-0- income
-0- tax
(100)
Loss
B B
B B
* Income amounts are Country B taxable income amounts
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Group Relief – No Splitter
USP
UKP
UK1 UK2
Interest paid by UKP to FINCO intended to
qualify for § 954(c)(3)(A) or (c)(6) exceptions
– assume no withholding tax and minimal or
no taxes imposed on FINCO
UKP has E&P deficit attributable to interest
expense
UK1 has low-taxed E&P pool because it
benefits from loss surrender
UK2 has E&P and FTC pool at “regular” rate
No splitter because UKP loss not a usable
loss (e.g., because no DRE, branch or
partnership owned by UKP to which loss
could be surrendered)
§ 902 ETR benefit for dividends paid by UK2
to UKP because of UKP’s E&P deficit
Loss
Surrender
Loan
15
5
FINCO
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Hybrid Instrument Splitter Arrangements
U.S. Equity Splitter
A U.S. equity hybrid instrument is an instrument treated as equity for
U.S. tax purposes and debt for foreign tax purposes, or with respect to
which the issuer is entitled to a deduction for foreign tax purposes for
amounts paid or accrued
― May include notional interest deduction regimes
A U.S. equity hybrid instrument is a splitter if payments or accruals with
respect to the instrument (1) give rise to foreign income taxes paid or
accrued by the owner of the instrument, (2) are deductible by the issuer
under the laws of the issuer’s foreign jurisdiction, and (3) do not give rise
to income for U.S. tax purposes
Similar rule for US Debt Splitter
156
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U.S. Equity Hybrid Instrument
For foreign tax purposes, FP accrues interest
income and pays foreign tax; FS has an interest
deduction
For U.S. tax purposes, FP does not recognize
income and FS does not reduce its E&P because
instrument treated as equity and there is no
current payment
Split taxes are the 30 of tax paid by FP – the
amount that would not have been paid but for the
hybrid instrument
― Split taxes could include foreign withholding
taxes
Related income in FS is 100, the amount
deductible under foreign law, regardless of FS’s
actual E&P
157
100 deduction for
accrued interest
100 accrued
interest income
30 foreign tax
U.S. Equity/
Foreign Debt
FP
FS
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Brazil – Interest on Equity
Brazilian interest on equity (IOE) rules allow a Brazilian subsidiary to
create an interest payable owing to its shareholder at a government
approved interest rate; subsidiary can deduct accrued or actual
payments against corporate income tax liability
Tax appears to be a creditable withholding tax
Issue arises under § 909, however, as to whether IOE regime creates a
hybrid instrument splitter arrangement resulting in suspended taxes:
― If “interest” is actually paid, does not appear to be a splitter because although
(i) USP’s stock is a US equity hybrid instrument, (ii) amounts of IOE paid or
accrued give rise to a Brazilian deduction, and (iii) the payments are subject
to foreign tax, US shareholder actually receives income and the final required
for a hybrid instrument splitter (payments or accruals do not give rise to
income for US tax) is not satisfied.
― But, if interest is accrued, the withholding tax would be suspended
158
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Split Taxes on Deductible Disregarded Payments
Loan to DRE is disregarded for U.S. tax purposes, but gives rise to a 100 deduction for interest paid or accrued under foreign law
RH is fiscally transparent under foreign law and the 100 deduction thus offset’s 110 of RH income, resulting in 10 taxable income and 3 tax liability (30% rate) at DRE level under foreign law
The 3 of tax on DRE’s 10 of income is suspended at the USP level because the tax is paid as part of a reverse hybrid splitter arrangement
Reg. § 1.909-3T(b) also treats any foreign tax imposed on interest paid to USP as a split tax and thus suspended. Specifically, the rule treats taxes as split taxes to the extent they are paid with respect to the amount of a disregarded payment that is deductible by the payor of the disregarded payment under the foreign law of the jurisdiction in which the payor of the disregarded payment is subject to tax on income from a splitter arrangement:
What if RH’s income were 100 and no net tax liability at DRE?
What if DRE had two owners?
159
Loan
(100) Interest
Deduction
3 tax
110 Income
and E&P RH
USP
DRE
Anti-Abuse Rules
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Anti-Abuse Rules
§ 901(k)
Enacted in 1997, imposes minimum holding periods for stock before a
taxpayer can claim a FTC for withholding taxes or deemed paid taxes on
dividends:
For common stock must own for at least 16 days during the 31 day
period beginning 15 days before the date on which such shares become
ex-dividend
For preferred stock increase to 46 days during 91 day period
Taxpayer must not be under obligation to make offsetting payments with
respect to a position in substantially similar or related property
Taxpayer must bear risk of loss with respect to stock for entire holding
period
Exception for security dealers; regulatory authority to provide additional
exceptions not yet exercised
161
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Anti-Abuse Rules
§ 901(l)
Enacted in 2004; extends § 901(k) rules to apply to gain, interests, rents,
royalties. Credits are disallowed for gross basis withholding taxes under
§ 901(l)(1)(A) if the recipient has not held the property for 15 days during
a 31 day testing period, excluding periods when the recipient is protected
from risk of loss
§ 901(l)(1)(B) if the recipient is under an obligation to make offsetting
payments with respect to positions in substantially similar or related
property
Regulatory authority to limit application of the rule denying foreign tax credits
where denial is not necessary to achieve the purposes of § 901(l). Unlike
under § 901(k), the IRS has exercised its authority to limit the scope of §
901(l) in two notices, Notice 2005-90 and Notice 2010-65
162
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Notice 2005-90 Back-to-Back Computer Program Licensing Arrangement
In Notice 2005-90, the IRS
concluded that denying credits for
foreign withholding taxes imposed
on payments in a back-to-back
computer program licensing
arrangement in the ordinary course
of the licensor’s and licensee’s
respective trades or businesses is
not necessary to carry out the
purposes of the statute
Computer
Co. 1
Computer
Co. 2
CFCs
Software
License
Software
Sub-License
Royalty
Royalty Subject
To Foreign
Withholding
Tax
163
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Notice 2010-65 Back-to-Back Intellectual Property Licensing Arrangements
§ 901(l)(1)(B) shall not apply to back-to-back licensing arrangements
involving certain intellectual property or copyrighted articles entered into in
the ordinary course of business
Applies to intellectual property rights in or copies of film, television program
or recording, literary, musical or artistic composition, computer program,
right to publicity or
similar property
Intermediary company (licensee) may be a U.S. corporation or CFC, and
must be an “affiliate” of either owner of the property or sublicensee
Licensee and sublicensee must use rights in the property in a trade or
business
164
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Notice 2010-65
Retail Distribution Arrangements
§ 901(l)(1)(A) shall not apply to transfers of covered copyrighted articles by
owner of the copyright directly or indirectly through U.S. affiliates to foreign
retail customers in the ordinary course of business
Covered copyrighted articles include copies of film, television program or
recording, literary, musical or artistic composition, computer program, or
similar property
Note that exception is narrow, would not apply where U.S. corporation
transfers to foreign affiliate for sale to foreign
retail customers
165
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
§ 901(m) – Covered Asset Acquisitions
§ 901(m), effective for tax years beginning after 12/31/10, disallows FTCs for the
disqualified portion of foreign income tax paid or accrued with respect to income or gain
attributable to relevant foreign assets in a covered asset acquisition.
Disqualified taxes are permanently disallowed as credits, but are deductible.
Statute is aimed at transaction that result in basis step-up for US but not foreign purposes
and disallows foreign taxes imposed on additional foreign income (because no basis step
up and thus less depreciation) that the US does not recognize.
Applies only to specifically enumerated transactions, referred to as “covered asset
acquisitions” or CAAs:
Qualified stock purchase with § 338(g) or (h)(10) election;
Any transaction treated as the acquisition of assets for US tax purposes but as a
stock acquisition (or disregarded) for foreign tax purposes;
Acquisition of a partnership interest with § 754 election; and
Any other similar transaction provided by the Secretary.
IRS has not issued any guidance under § 901(m), and “similar transactions” to specifically
enumerated CAAs are not currently CAAs and are not subject to § 901(m).
166
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§ 901(m) - Mechanics
Step 1: Determine the Relevant Foreign Assets (RFAs)
Step 2: Determine the Basis Difference in Each RFA
Step 3: Allocate the Basis Difference to Taxable Years
Step 4: Determine the Income Attributable to the RFAs
Step 5: Determine the Amount of Foreign Income Taxes Paid on Income
Attributable to the RFAs
Step 6: Compute the Amount of Disallowed Foreign Taxes
167
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§ 901(m) - Mechanics
Relevant foreign asset (“RFA”) means any asset if income, deduction, gain or
loss attributable to such asset is taken into account in determining applicable
foreign income taxes
Basis differences determined by looking to adjusted US tax basis immediately
before and after CAA
Disqualified portion is computed using formula:
Foreign Taxes x Basis Differences = Disallowed
Foreign Income Foreign Taxes
Acceleration of basis difference on disposition (except as provided in
regulations)
In describing the disposition rule, the Joint Committee Explanation states that “it is intended that [§
901(m)(3)(B)(ii)] generally appl[ies] in circumstances in which there is a disposition of a relevant
foreign asset and the associated income or gain is taken into account for purposes of determining
foreign income tax in the relevant jurisdiction”
To the extent a transaction is a CAA, § 901(m) provides a specific computation with respect to the
relevant party, but neither the statute nor the Joint Committee Explanation include a notion of an
entity being a successor in interest to prior basis differences
168
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Covered Asset Acquisition
Sale with § 338 Election
169
Old
CFC
U.S.
Seller
U.S.
Buyer
New
CFC
Assets
Cash
New CFC
Stock
New
CFC
U.S. seller has 20 basis in Old CFC stock
Old CFC has 50 basis in assets
Sales price is 100
Old CFC sells assets with
basis = 50 to New CFC for 100.
New CFC takes 100 basis in the
assets for U.S. tax purposes, which
allows it to claim larger
depreciation/amortization
deductions for U.S. purposes
Foreign country sees stock sale with
no basis step up and less
depreciation/amortization
deductions. Result is more foreign
taxable income and foreign tax
liability than would be computed
under U.S. principles
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Covered Asset Acquisition
Sale of Disregarded Entity
170
USP
FS1 FS2
FS3 FS3
FS3 Stock
Cash
Transaction treated as a stock acquisition under foreign law and an asset
acquisition for U.S. purposes, resulting in basis step-up that can be amortized or
depreciated for U.S. tax purposes.
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Covered Asset Acquisition
§ 351 with Boot
171
Assets
USP
Common
and NQPS
CFC2
CFC1
The transaction is generally tax free under foreign
law but taxable under US law to extent of built-in gain
in the assets because NQPS is “boot” in a § 351
transaction.
Any gain recognized results in a basis step-up in the
contributed assets for US but not foreign tax
purposes.
Although similar to the transactions specifically
described as CAAs in § 901(m), this transaction is
not a CAA because it is not specifically listed and no
regulations have been issued adding additional
transactions.
Results in a basis step-up without FTC disallowance.
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Presenter
Caren Shein, Managing Director
202-533-4210
172
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Foreign Tax Credit Planning
With Losses
April 29, 2014
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
174
− ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
− You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the
tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to
you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those
materials.
− 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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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Speakers
Pat Jackman
Principal, Washington National Tax
KPMG LLP
2122-872-3255
Phil Stoffregen
Principal, Washington National Tax
KPMG LLP
313-230-3223
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
High Basis—Low Value
Stock
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Granite Trust Transaction
Facts
USP’s basis in the shares of CFC1 exceeds the FMV of CFC1. Thus, there is a $100 built-in-loss in the CFC1 shares.
USP transfers 25% of the CFC1 stock to CFC2 in exchange for NQPS.
CFC1 liquidates (actual or CTB liquidation).
Anticipated Results
USP realizes $25 capital loss on the transfer of the
CFC1 shares to CFC2 in exchange for NQPS. This
loss is deferred under §267(f). TD 9583
(4/20/2012).
USP realizes and recognizes a $75 capital loss on
the taxable liquidation of CFC1. See, e.g., Granite
Trust Co. v. U.S., 238 F.2d 670 (1st Cir. 1956)
(concluding that §332 is elective in nature).
25%
S1 Stock
Liquidation
FV: $100
AB: $200*
* Assumes each share has uniform basis.
177
USP
CFC2
CFC1
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Technical Considerations
178
Is the liquidation of CFC1 an upstream “C” reorganization into USP?
Does USP acquire “substantially all” of CFC1’s assets? Does the nature of the CFC1
assets transferred to CFC2 impact this analysis?
What ownership percentage in CFC1 does USP need to transfer to CFC2 in order to
ensure the substantially all requirement is not satisfied? The greater amount of stock
transferred results in more loss being deferred under §267(f).
If CFC1 is a holding company owning stock in more than one controlled subsidiary, can
§355 apply to disallow the loss (tax-free split-up)?
Does the nature of USP’s divesture of the CFC1 shares to bust the §332 control
requirement impact the analysis?
If CFC uses cash, does the application of §304 matter (NQPS avoids the application of
§304)?
Can the economic substance doctrine apply to disallow the loss?
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Stock Loss Transactions:
Foreign Owner
Facts
Same basic facts as the previous example except that the transferor is also a CFC.
Expected Results
Loss is recognized for E&P purposes.
Loss may reduce current year E&P or otherwise result in an overall E&P deficit that can be used in later years (see, e.g., deficit planning opportunities in later slides).
− Watch for §952(c) recapture potential.
− E&P in CFC1 is eliminated because the liquidation is not described in §381.
25%
S1 Stock
Liquidation
FV: $100
AB: $200*
Granite Trust Transaction
* Assumes each share has uniform basis.
179
CFC-P
CFC2
CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
E&P Deficit Planning
for CFCs
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The E&P deficit planning addressed herein is focused on the following
two common scenarios:
1. A CFC with an accumulated E&P deficit begins to generate positive E&P
This may happen because the CFC’s business has become profitable or because
U.S. E&P deductions (e.g., amortization or interest deductions) have expired
Foreign taxes paid on the CFC’s earnings are “trapped” because Post-86
Undistributed Earnings are negative
Distributions by the CFC could give rise to taxable dividends (i.e., a nimble dividend)
with no foreign tax credit offset
Deficit planning could allow “trapped” taxes to become accessible
2. A CFC has an accumulated E&P deficit with no current expectation the E&P deficit will
reverse in the future
The CFC’s E&P deficit may be available to offset earnings generated in related
companies, optimizing the overall FTC position of the group
181
Affirmative Use of CFC E&P Deficits
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
A hovering deficit arises when two foreign corporations engage in a transaction in which
E&P and taxes carry over under §381 and either corporation has a deficit in Post-86
Undistributed Earnings in one or more FTC baskets
The deficit and associated taxes hover and can only be offset by earnings
“accumulated” after the §381 transaction in the same basket; taxes are released
proportionately as the deficit is earned out
There may be a hovering deficit in a basket even if overall E&P available for
distribution under §316 is positive
Earnings are treated as being “accumulated” if the earnings are not distributed or
deemed distributed (e.g., under subpart F) during the taxable year earned
Hovering deficit rules apply even if both corporations have a deficit in the same FTC
basket
Certain exceptions for qualified deficits and chain deficits under §952(c)
182
Hovering Deficit Rules
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
CFC1 is expected to generate $20 of U.S. E&P
each year
Due to the pre-existing accumulated E&P deficit, it will take
6-years to earn out of the accumulated deficit
CFC1’s earnings are subject to foreign tax (e.g., the prior
E&P deficit resulted from deductions for U.S. E&P purposes
only)
Expected Results
In 2013, a distribution from CFC1 would result in a taxable
dividend to the extent of current year E&P (i.e., a nimble
dividend)
Post-86 Undistributed Earnings has a deficit balance
(($100)). As such, distributions by CFC1 will not carry
foreign taxes
Based on the assumed earnings of $20 each year, USP
could not access foreign tax credits in CFC1 until 2019 (or
later, if current E&P is distributed)
183
Nimble Dividends and Trapped Taxes
As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40
As of 12/31/13
AEP $200
CEP $100
Post-86 E&P $300
Post-86 Taxes $0
All E&P is assumed to be general limitation earnings.
USP
CFC2
CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
CFC2 has Post-86 Undistributed Earnings of $300, which is
equal to its E&P available for distribution under §316
CFC2 incurs no foreign taxes on its earnings
CFC2 distributes $110 to CFC1. This distribution does not
result in subpart F income (e.g., §954(c)(6)
Expected Results
The $110 distribution from CFC2 increases CFC1’s current
year E&P to $130
Likewise, the current year E&P of $130 offsets the deficit in
Post-86 Undistributed Earnings, resulting in a positive
balance of $10
CFC1 can make a distribution of $10, equal to the amount of its
Post-86 Undistributed Earnings, which will carry all $40 of
Post-86 Taxes
Going forward, because CFC1 no longer has a deficit in Post-
86 Undistributed Earnings, CFC1 can make annual distributions
that carry foreign taxes
Planning is more difficult if CFC2 is not directly held by CFC1
(e.g., step transaction risks)
184
Nimble Dividends and Trapped Taxes – Movement of E&P
into CFC1
As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40
As of 12/31/13
AEP $200
CEP $100
Post-86 E&P $300
Post-86 Taxes $0
$110
All E&P is assumed to be general limitation earnings.
USP
CFC2
CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
Over the next 5-years, CFC1 expects to earn $20 of E&P and
pay $5 of foreign taxes annually
On January 1, 2014, for valid business reasons, CFC2 merges
into CFC1 in a transaction that qualifies as a reorganization
under §368(a)
Expected Results
As of January 1, 2014, CFC1 has an accumulated E&P deficit
of ($100) and a deficit in Post-86 Undistributed Earnings of
($100)
CFC1’s ($100) deficit in Post-86 Undistributed Earnings hovers
and is excluded from Post-86 Undistributed Earnings and §316
E&P. CFC1’s $40 of Post-86 Taxes also hover and is released
proportionally as the ($100) deficit is earned out
The reorganization results in a “fresh start” for CFC1’s Post-86
Undistributed Earnings, allowing CFC1 to make post-merger
distributions that carry foreign taxes
The hovering deficit only solves for taxes incurred post-merger
that would otherwise have been trapped due to a deficit in
Post-86 Undistributed Earnings. The $40 of historic taxes
remain trapped until the hovering deficit is earned out
185
Nimble Dividends and Trapped Taxes – Creation of Hovering Deficit
Merger
As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40
As of 12/31/13
AEP $10
CEP $5
Post-86 E&P $15
Post-86 Taxes $0
All E&P is assumed to be general limitation earnings.
USP
CFC2 CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
CFC2 has Post-86 Undistributed Earnings of $250, which is
equal to its E&P available for distribution under §316
CFC2’s E&P has an ETR of approximately 23%
CFC1 has an E&P deficit of ($200) and it is not expected to earn
out of the deficit
CFC2 distributes $250 to CFC1. This distribution does not result
in subpart F income (e.g., §954(c)(6)
Expected Results
The $250 distribution from CFC2 increases CFC1’s current year
E&P to $250
Likewise, the current year E&P of $250 offsets the deficit in Post-
86 Undistributed Earnings, resulting in a positive balance of $50
CFC1 can make a distribution of $50, equal to the amount of its
Post-86 Undistributed Earnings, which will carry all $75 of Post-
86 Taxes (which moved from CFC2 to CFC1)
A $50 distribution from CFC1 will carry foreign taxes with an ETR
of approximately 60%
Planning is more difficult if CFC2 is not directly held by CFC1
(e.g., step transaction risks)
186
E&P Deficit Offset
As of 12/31/13
AEP ($200)
CEP $0
Post-86 E&P ($200)
Post-86 Taxes $0
As of 12/31/13
AEP $200
CEP $50
Post-86 E&P $250
Post-86 Taxes $75
$250
All E&P is assumed to be general limitation earnings.
USP
CFC2
CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Hovering Deficit Traps
for the Unwary
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
On December 31, 2013, for valid business reasons, CFC1
merges into CFC2 in a transaction that qualifies as a
reorganization under §368(a)
Prior to the merger, the maximum dividend USP could
receive, from both CFC1 and CFC2, is $200, equal to the
$200 of §316 E&P in CFC1
Expected Results
Under §381, there would be no hovering deficit created
because neither CFC1 nor CFC2 has a deficit in §316
E&P. Generally, CFC1’s $200 of E&P would be
inherited by CFC2
However, under Reg. §1.367(b)-7, the hovering deficit
rules are applied by basket. Because CFC1 has a ($100)
deficit in the general basket, this amount becomes a
hovering deficit and is removed from Post-86
Undistributed Earnings and §316 E&P
CFC2 inherits $300 of E&P from CFC1 (all in the passive
basket), causing $100 of “springing” E&P because of the
removal of the general basket deficit from E&P
The total E&P available for distribution becomes $300
188
Springing E&P
Merger
As of 12/31/13
AEP $200
CEP $0
Post-86 General E&P ($100)
Post-86 General Taxes $40
Post-86 Passive E&P $300
As of 12/31/13
AEP $0
CEP $0
Post-86 E&P $0
Post-86 Taxes $0
USP
CFC2 CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
On December 31, 2013, for valid business reasons, CFC1
merges into CFC2 in a transaction that qualifies as a
reorganization under §368(a)
Expected Results
If CFC1 distributed $200 to USP prior to the merger, the
($100) deficit in its passive basket would offset the positive
balance in the general basket, leaving a balance of $200.
See Reg. §1.960-1(i)(4)
Because the $200 dividend is sourced entirely from the
general basket E&P, the distribution carries all $60 of taxes
The ($100) passive deficit would carry over, as a passive
deficit, to the next taxable year
As a result of the merger, the passive basket deficit becomes
a hovering deficit and is removed from Post-86 Undistributed
Earnings and §316 E&P, leaving CFC with §316 E&P of $300
In order to access all $60 of Post-86 Taxes, CFC2 would
need to distribute $300. This is because the ($100) passive
deficit is not available to “offset” the general basket E&P
under Reg. 1.960-1(i)(4)
189
Reg. §1.960-1(i)(4) Offset
Merger
As of 12/31/13
AEP $200
CEP $0
Post-86 General E&P $300
Post-86 General Taxes $60
Post-86 Passive E&P ($100)
As of 12/31/13
AEP $0
CEP $0
Post-86 E&P $0
Post-86 Taxes $0
USP
CFC2 CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Facts
CFC2 liquidates into CFC1 on 6/30/13. CFC2’s
($500) E&P deficit hovers and can only be offset by
earnings accumulated after the liquidation
CFC3 distributes $500 to CFC1 on 9/30/13, which
brings up $200 of §902 taxes. Assume the
distribution is CFC1’s only current year income and is
not subpart F income
Expected Results
Under Reg. §1.367(b)-7(f)(5)(i), earnings in the year
of the §381 transaction are deemed to accumulate
ratably over the entire year
Thus, although the $500 dividend is received after
the §332 liquidation on 6/30/13, only 50% (because
the liquidation was mid-way through the year) of the
earnings are treated as accumulated after the §381
transaction and available to be offset by the hovering
deficit
As of the beginning of 2014, CFC1 has a ($250)
hovering deficit (in the general basket) and $50 of
hovering taxes
190
Proration Rule for CEP in Year of §381 Transaction
$500 Dividend
9/30/13
Liquidation
6/30/13
As of 6/30/13
AEP ($500)
CEP $0
Post-86 General E&P ($500)
Post-86 General Taxes $100
As of 12/31/13
AEP $1,000
CEP $0
Post-86 General E&P $1,000
Post-86 General Taxes $400
As of 1/1/13
AEP $0
CEP $0
Post-86 General E&P $0
Post-86 General Taxes $0
CFC3 CFC2
CFC1
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Thank you
International Tax
Hot Topics
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 194
Recent International Tax Rulings and Guidance
Foreign Base Company Sales Income
Interest Expense Apportionment
Section 267(a)(3)
Foreign Tax Credit
Tax Extenders Update
Camp Tax Reform Proposal
Participation Exemption
Subpart F
Foreign Tax Credit
Interest Deduction Limits
Obama Administration 2015 Budget Tax Proposals
Expanded FBCSI
Limiting Subpart F Exceptions
Restricting Use of Certain Hybrid Arrangements
Restrict Excessive Interest Deductions
International Tax Hot Topics
Discussion Topics
Recent International Tax
Rulings and Guidance
Guidance on
Foreign Base
Company Sales
Income (FBCSI)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 197
Tangible
Personal
Property
Tangible
Personal
Property
Income from property where CFC buys
property from or sells property to a
related person (or on behalf of a related
person), and both:
Property is manufactured or produced
outside CFC country of incorporation
Sold for use, consumption, or
disposition outside CFC country of
incorporation
Related Party—More than 50% control
Concern
Income of selling subsidiary separated
from manufacturing activities of
related corporation to obtain lower
rate of tax for sales income
Foreign Base Company Sales Income
In General
USP
F Sub
(X)
Unrelated
Customer
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 198
Foreign base company sales income does not include:
Unrelated party purchase and sale
Goods manufactured in CFC’s country of incorporation (no matter who the
manufacturer is) (same country mandatory rule)
Goods sold for use, consumption or disposition in CFC’s country of incorporation
CFC manufactures property sold (“manufacturing exception”)
Foreign Base Company Sales Income
Exceptions
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 199
Facts
USP and certain of its foreign subsidiaries
purchase products from unrelated foreign
manufacturers ("Vendors").
Taxpayer, its foreign affiliates, and FDE
have entered into a buying agency
agreement under which FDE performs
various procurement related activities.
Taxpayer and its foreign affiliates pay
FDE a commission for the procurement
related activities FDE performs.
FDE performs these procurement related
activities in Country X.
Issue
Whether income from the payments received
by FDE for the performance of procurement
related activities in connection with Products is
excluded from FBCSI pursuant to Treas. Reg.
§ 1.954-3(a)(4)(i).
USP
F Sub
(X)
FDE
(X)
Foreign
Affiliates
Procurement
Activities
Vendor
Commissions
Products
Foreign Base Company Sales Income
PLR 201332007 – Procurement Activities
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Facts
Branch operates as a principal and, through
the activities of its employees, provides
overall support to the manufacture,
marketing and sale of products sold by a
related CFC.
Branch is compensated by the CFC at a
percentage of the proceeds from the sale of
the products.
Although Branch is significantly involved in
the manufacturing, marketing, and selling
activities with respect to products, it never
takes legal title to the raw materials, work in
process or the finished goods for such
products sold.
Issue
Whether Branch made a substantial contribution
to the manufacture of the products sold, within
the meaning of Treas. Reg. Section 1.954-
3(a)(4)(iv), even though the Branch did not hold
or pass legal title to the products sold.
USP
CFCs
P’ship
Branch
CFCs
Percentage
of Sales
CFCs
Foreign Base Company Sales Income
PLR 201325005 – Branch Does Not Hold Title
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Facts
Pursuant to agreement, Corp X and its affiliates
perform physical manufacturing activities of
products.
Corp X manufactures several critical
component parts incorporated in Products
exclusively in Country X.
Corp X and its affiliates perform finishing
manufacturing activities outside of Country X.
CFC X purchases finished products from Corp X
and resells to related distribution center affiliates.
Issue
Whether the income earned by CFC X with respect to
the sale of products to a related person is not foreign
base company sales income because the income
qualifies for the same country manufacturing
exception under section 954(d)(1)(A).
USP
CFC X
(X) Distribution
Centers
Corp X
(X)
Affiliates
Foreign Base Company Sales Income
PLR 201206003 – Same Country Manufacturing Exception
Guidance on
Interest Expense
Apportionment
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In the case of interest expense, allocations and apportionments must be made on the
basis of assets rather than gross income. Under the asset method, Taxpayer should
apportion interest expense to the various statutory groupings of income based on the
average total value of assets within each grouping, value is determined using either tax
book value or the fair market value of its assets.
As a general rule, interest expense allocation and apportionment rules are based on a
principal that interest is a fungible expense with limited exceptions.
Temporary Treas. Reg. section 1.861-12T(f) provides a special rule for adjusting the value
of assets funded by disallowed interest. In the case of any asset in connection with which
interest expense accruing at the end of the taxable year is capitalized, deferred, or
disallowed under any provision of the Code, the adjusted basis or fair market value
(depending on the taxpayer's choice of apportionment methods) of such an asset is
reduced by the principal amount of indebtedness the interest on which is so capitalized,
deferred, or disallowed.
Interest Expense Apportionment
In General
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Facts
US1 holds intergroup loan receivable from US2.
US2 contributed borrowed funds to FLP to fund
purchase of certain foreign assets.
Payments of interest are made in U.S. dollars or, at the
option of US2, in limited partnership units of FLP.
Interest deductions on the loan are disallowed under
section 163(l) because USCorp2 has the option to
pay the interest with limited partnership units of FLP.
Corresponding interest income accruing to US1 is
tax exempt interest under the intercompany
transaction rules in Treas. Reg. § 1.1502-13.
Issue
For purposes of determining Taxpayer’s interest expense
allocation and apportionment for foreign tax credit
purposes, should the adjusted basis of shares in FLP be
reduced by the principal amount of the loan pursuant to
Temp. Reg. § 1.861-12T(f).
USP
FDE
US2 US1
FLP
Loan
Interest Expense Apportionment
CCA 201336018 – Disallowed Interest under Section 163(l)
Guidance on
Section 267(a)
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Section 267(a)(1) denies a deduction for any loss from the sale or exchange of property
(directly or indirectly) between related persons.
Section 267 does not apply to complete liquidations but may apply to section 302
distributions.
Section 267(a)(2) potentially defers a deduction for transactions with related parties by
applying a matching concept (mandatory cash-basis) for interest and expense deductions.
– Deductions are allowed when the item is included in income of the related payee.
Section 267(a)(3) expands matching principle to payments to foreign persons.
Notwithstanding this rule, for payments made to a CFC or PFIC a deduction is allowed
for any taxable year to the extent such item is includible (without regard to deductions
or deficits allowed) to a US person who is an owner under section 958(a).
General rule — payments by a U.S. person to related foreign persons put on cash
method for deductibility.
Applies to payments of income described in sections 871(a)(1)(A), (B) or (D), and
sections 881(a)(1), (2) or (4) (generally gains from the sale of intangibles and FDAP
(other than OID)).
“Related” is defined in section 267(b).
Amount treated as paid is determined under the withholding tax rules.
Section 267(a)
In General
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Facts
USCo maintained a general account into which it
deposited amounts derived from all sources, including
advances from its foreign parent.
USCo claims to have made, out of this account, payments
of interest to FP on certain advances.
Funds sufficient to cover these payments were obtained
shortly before or after a claimed payment of interest,
either through additional loans from FP or pursuant to its
line of credit with FP.
These New Loans were documented by New Notes, with
the principal amount of each New Note due only at
maturity after several years. These New Notes were
subordinated to existing and future senior debt.
During the tax years at issue Taxpayer’s borrowing from
FP substantially increased.
Issue
Whether Taxpayer’s payment of interest to FP are deductible
per section 267(a)(3).
FP
USCo
Advances
General
Account
Interest
Section 267(a)
CCA 201334037 – Paying Interest with Issuer’s Own Note
Guidance on
Foreign Tax Credits &
Transfer Pricing
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Among other requirements, a foreign levy is creditable under § 901 if it is a compulsory
payment pursuant to a foreign country’s authority to levy taxes.
An amount is not creditable to the extent it exceeds taxpayer’s liability for tax under foreign
law.
Taxpayer has duty to contest excess taxes under reasonable interpretation of foreign
law
Must exhaust all effective and practical remedies
Creditability of Foreign Taxes
In General
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DE
USP
Overview
Transactions that are generally disregarded for U.S. tax purposes because they occur between entities that are disregarded as separate entities from one another may nevertheless impact foreign taxes.
Primary concern is that through the use of a non-arm’s length transfer price an U.S. taxpayer operating through a foreign branch, or its DE, may report too much income to the foreign country or countries in which it operates, resulting in an overpayment of foreign income tax.
The legal basis for disallowing credit for overpayments of foreign income taxes attributable to non-arm’s length transfer prices is the noncompulsory payment rule of Treas. Reg. section 1.901-2(e)(5).
Example 1
US makes service payment to DE, an entity incorporated under the law of the UK but is treated as fiscally transparent for US tax purposes.
From a UK perspective the DE is a separately regarded, related entity, and transactions between DE and US are respected transactions for UK tax purposes.
If DE fails to use an arm’s length transfer price to compute the income reported on its UK tax return it may have overstated its profits subject to foreign tax and made a noncompulsory payment that is not eligible for a U.S. foreign tax credit.
Service
Fee
Creditability of Foreign Taxes
CCA 201349015 – Application of Section 482 to Disregarded Income
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CFC
Example 2
DE, a German incorporated entity, is fiscally transparent from
CFC for U.S. tax purposes.
Transfer pricing principles will not affect the service fee DE
makes to CFC in terms of computing CFC’s earnings and profits
for U.S. tax purposes.
However, the noncompulsory payment rules apply to the same
extent to taxes paid or accrued by foreign corporations that may
be deemed paid by their U.S. shareholders.
Burden falls on the taxpayer to establish that claims based upon
deemed paid credits include only foreign taxes that were
properly accrued and paid within the meaning of the regulations.
Indirect or deemed paid credits are calculated based upon multi-
year pools of foreign corporation’s earnings and taxes
accumulated in post-1986 taxable years. Because the U.S.
shareholder is not eligible to credit the taxes until a distribution or
income inclusion from the foreign corporation, the credit must be
substantiated in the year the credit is claimed rather than the
year or years the foreign taxes were paid or accrued by the
foreign corporation.
Service
Fee
USP
DE
Creditability of Foreign Taxes
CCA 201349015 – Application of Section 482 to Disregarded Income
“Tax Extenders” Update
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On April 3, the Senate Finance Committee approved legislation to extend
expired tax preferences—the “tax extenders” legislation—for two years, through
2015.
The House Ways and Means Committee has scheduled for Tuesday, April 29, a
markup of a package of legislation that would permanently extend several
expired provisions—including the subpart F exemption for active financing and
CFC look-through rule.
Tax Extenders Update
Current State
Camp International Tax
Reform Proposals
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Implementation of Participation Exemption
Changes to the Subpart F Rules
New Category of Subpart F
Changes to Current Subpart F Rules
Changes to the Foreign Tax Credit System
Interest Limitation Rules
Miscellaneous Provisions
Camp International Tax Reform Proposals
Discussion Topics
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DRE
New section 245A provides a 95% DRD for
the foreign source portion of dividends
received from a “specified 10-percent owned
foreign corporation” by a domestic
corporation that is a USSH under section
951(b) (i.e., 10% corporate shareholders)
A specified 10% owned foreign corporation is
any foreign corporation in which a domestic
corporation directly, or indirectly under section
958(a), owns 10% or more of the voting stock
Six-month (180-day) holding period
requirement during the 361-day period
beginning 180 days before the ex-dividend
date
Foreign branches of domestic corporations
continue to be taxed under current rules
Camp International Tax Reform Proposals
Participation Exemption – Overview
USP
Foreign
Sub
95%
Exempt
100%
Taxable
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No FTC (or deduction) is allowed for any foreign taxes paid or accrued with respect
to any dividend for which the 95% DRD is allowed
A credit/deduction is disallowed for all of the foreign taxes (including withholding taxes)
related to the entire foreign source portion of the dividend; disallowance not limited to
the foreign taxes related to the portion of the dividend for which a DRD is allowed
For purposes of calculating a domestic corporation’s section 904(a) limitation, the entire
foreign source portion of the dividend is excluded from foreign source income
Limitation on losses with respect to specified 10% owned foreign corporations
For purposes of determining a 10% U.S. corporate shareholder’s loss on the sale or
exchange of stock of a specified foreign corporation, the shareholder’s basis in the
foreign corporation stock is reduced by the portion of any dividend for which the 95%
DRD was allowed
If a U.S. corporation transfers substantially all of the assets of a foreign branch to a
foreign subsidiary, the U.S. corporation generally would be required (pursuant to
complex recapture rules) to include in income the amount of any post-2014 losses that
previously were incurred by the branch to the extent the U.S. corporation receives
section 245A DRDs on dividends from any of its foreign subsidiaries
Camp International Tax Reform Proposals
Participation Exemption – Offsets
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The Proposal amends section 965 to subject any USSH that owns 10% of a foreign corporation to a deemed repatriation of the corporation’s undistributed and untaxed foreign earnings (“deferred E&P”) for the last tax year of the foreign corporation ending before the participation exemption system begins
Section 965 would create a deemed repatriation by increasing the foreign corporation’s subpart F income by the amount of the deferred E&P, thus resulting in a pro rata subpart F inclusion for all 10% USSHs
A 10% USSH is allowed a deduction against its pro rata share of the deferred E&P inclusion by reference to the portion of the deferred E&P held in cash/liquid assets vs. other assets
Effective 8.75% rate on accumulated E&P to the extent of the cash and cash equivalents held by the foreign corporations.
Effective 3.5% rate on the balance of the E&P.
For purposes of determining a USSH’s subpart F inclusion, a noncontrolled 10/50 company is treated as a CFC
A USSH’s income inclusion under the transition rule would be reduced by the USSH’s share of E&P deficits of other foreign corporations that it owns
A foreign tax credit is permitted for taxes paid on the taxable portion of these earnings.
A 10% USSH may elect to pay the U.S. tax on the repatriated earnings in up to 8 installments, subject to certain accelerating events
Camp International Tax Reform Proposals
Participation Exemption – Transition Rules
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Proposal generally preserves subpart F regime and section 960 FTC with several changes
New category for foreign base company intangible income (FBCII) (discussed later)
Mandatory High-Tax Kickout
Subpart F income does not include any item of CFC income subject to an effective foreign tax
rate equal to or greater than the maximum U.S. corporate rate (i.e., 25%)
FBCI does not include FBCSI subject to an effective foreign tax rate equal to or greater than
50% of the maximum U.S. corporate rate (i.e., 12.5%)
FBCI does not include FBCII subject to an effective foreign tax rate equal to or greater than 60%
of the maximum U.S. corporate rate (Proposal provides phase-in to 60% rate)
FBCSI Exclusions
Excludes from FBCI 50% of low-taxed FBCSI (i.e., income subject to an effective foreign tax
rate below 12.5%)
Section 960 credits remain available for foreign taxes related to excluded low-taxed FBCSI
Excludes 100% of FBCSI if CFC is eligible for benefits as a qualified resident under a
“comprehensive” income tax treaty with the United States (i.e., treaties with “robust” LOB
provisions)
Camp International Tax Reform Proposals
Changes to Current Subpart F Rules (1/2)
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Makes permanent section 954(c)(6)
Extension of Active Financing/Insurance Rules
Extends for 5 years the active financing/insurance rules in sections 954(h) and (i)
Excludes from FPHCI qualified banking or financing income (determined under section
954(h)) and qualifying insurance income (determined under section 954(i)) subject to an
effective foreign tax rate of at least 50% of the maximum U.S. corporate rate (i.e., 12.5%)
Excludes from FPHCI 50% of low-taxed qualified banking, financing, or insurance income
(i.e., income subject to an effective foreign tax rate below 12.5%)
Section 960 credits remain available for foreign taxes related to excluded low-taxed
banking/financing/insurance income
Amends the de minimis rule in section 954(b)(3)(A) to index the $1M exception for
inflation
Repeals section 955
Camp International Tax Reform Proposals
Changes to Current Subpart F Rules (2/2)
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The Proposal adds foreign base company intangible income (“FBCII”) as a new
category of subpart F income for intangible income derived by CFCs and provides a
phased-in deduction for domestic corporations for income from the foreign
exploitation of intangibles.
When fully phased-in, the deduction intended to result in a 15% tax rate for income from
the foreign exploitation of IP.
Broadly consistent with the base erosion Option C contained in the 2011 Draft, which
focused on the current taxation of CFC income attributable to intangible property.
CFC intangible income that is attributable to U.S.-destined goods and services would be
subject to full, current U.S. taxation.
Other CFC intangible income would be subject to current U.S. taxation at a 15% rate.
Domestic corporations likewise would enjoy a reduced 15 percent rate on intangible income
attributable to their foreign sales, thus placing domestic corporations on an equal footing
with foreign affiliates.
In determining whether sales or services are U.S.-destined, related party sales would be
disregarded, and if the seller or service provider knows or has reason to know that the good
or service will ultimately be consumed in the United States, then the sale or service is
treated as U.S.-destined even if sold or provided in the first instance outside the United
States.
Camp International Tax Reform Proposals
New Category of Subpart F Income – FBCII
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Under the new proposal “intangible income” is the excess of a CFC’s gross income over 10 percent of the basis of its tangible property.
In essence, the proposal, rather than being a tax on “intangible income,” is a tax on “excess returns,” with “routine returns” measured — in some sense — as a return on assets.
Other categories of Subpart F income take priority — either wholly or in part — over FBCII.
Expressed algebraically, FBCII = AGI – (10% x adjusted basis of QBAI) – (((AGI – (10% x adjusted basis of QBAI))/AGI) x relevant subpart F income).
Example of calculation of FBCII from JCT Report:
Assume that CFC that manufactures and sells widgets has AGI of $50, which includes $10 of FPHCI, and an aggregate basis of $300 in its QBAI.
FBCII = $50 AGI – (10% x $300 QBAI) = $20 - ((($50 AGI – (10% x $300 QBAI))/$50 AGI) x $10 relevant FPHCI) = $16
As noted earlier, the $16 of FBCII will be subpart F income only to the extent it is subject to an effective foreign tax rate below 60% of the maximum U.S. corporate tax rate.
Camp International Tax Reform Proposals
Calculation of FBCII
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Proposal completely repeals section 902 indirect FTC regime
Maintains section 960 deemed paid credits for subpart F inclusions, subject to modifications
Section 960 credits based on current year taxes rather than section 902 pooling approach
IRS and Treasury directed to provide rules for allocating taxes to subpart F inclusions. The JCT report anticipates that those rules would be similar to the rules in current Reg. section 1.904-6 for allocating taxes to separate section 904(d) categories of income. For example, if income treated as subpart F income for U.S. purposes is not subject to foreign tax, no taxes would be attributable and deemed paid with respect to a subpart F inclusion
To the extent foreign taxes attributable to a subpart F inclusion are not claimed as credits in the year of the subpart F inclusion (e.g., because they arise on a distribution of PTI from a lower-tier to an upper-tier CFC), these foreign taxes would be allowed as credits under section 960 in the year the PTI is distributed
Consistent with current law, the section 960 credit would be computed separately for each separate category of income under section 904(d)
Maintains two FTC categories for section 904 purposes, but renames passive category income as “mobile” income
Mobile income is similar to current law passive category income but is expanded to include FBCSI, FBCII, and financial services income
Camp International Tax Reform Proposals
Changes to Foreign Tax Credit System – Overview
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New section 904(b)(3) provides that for purposes of computing the FTC limitation, only
directly allocable deductions would be subtracted from foreign source gross income to
arrive at foreign source taxable income
Directly allocable expenses include salaries of sales personnel, supplies, and shipping
expenses directly related to producing foreign source income. Examples of expenses not
directly related to producing foreign source income include general and administrative
expenses, stewardship expenses and interest expense
Modifies the sourcing rules in current section 863(b) for income from sales of
inventory property produced in one jurisdiction and sold in another jurisdiction
Under the new rule, income from sales of inventory property would be sourced entirely
based on the place of production
Camp International Tax Reform Proposals
Changes to Foreign Tax Credit System – Sourcing
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U.S.-parented multinational groups
Reduced by the lesser of:
the indebtedness of the U.S. parent (including other members of the U.S. consolidated
group) exceeds 110% of the combined indebtedness of the worldwide affiliated group
(including both related domestic and related foreign entities); or
net interest expense exceeds 40% of the adjusted taxable income of the U.S. parent
Any disallowed interest expense could be carried forward to a subsequent tax year
Proposal is intended to (1) reduce the incentive for U.S. corporations to maintain excessive
leverage, and (2) prevent U.S. corporations from generating excessive interest deductions
and incurring disproportionate amounts of debt to produce exempt foreign income under
the proposed dividend-exemption system
Foreign-parented multinational
Amends section 163(j) to change 50% threshold for excess interest expense to 40%.
Note originally included in 2011 discussion draft.
Camp International Tax Reform Proposals
Interest Limitation Rules
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Limitation of treaty benefits for certain deductible payments made by a U.S. person to
a related foreign person
The treaty override provision would apply if the payor and payee are indirectly commonly
controlled by a foreign common parent corporation that is not itself eligible for treaty
benefits
Restrict insurance business exception to PFIC rules
Disallow deduction for non-taxed reinsurance premiums paid to foreign affiliates
Exclude CFC dividends from personal holding company income
Camp International Tax Reform Proposals
Miscellaneous Proposals
Administration FY 2015
International Budget
Proposals
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Prevent the Avoidance of FBCSI Through Manufacturing Services Arrangements
Limit the application of exceptions under Subpart F for certain transactions that use
reverse hybrids to create “stateless income”
Restrict the use of hybrid arrangements that create stateless income
Restrict deductions for excessive interest of members of financial reporting groups
Miscellaneous Items
Obama Administration 2015 Budget Proposals
Discussion Topics
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The proposal would expand the category of
foreign base company sales income (FBCSI)
to include income of a CFC from the sale of
property manufactured on behalf of the CFC
by a related person. The existing exceptions
to foreign base company sales income
would continue to apply.
The proposal would be effective for tax years
beginning after December 31, 2014.
The provision is expected to result in a
reduction in deficit in the amount of $24.608
billion for 2015-2024.
Obama Administration 2015 Budget Proposals
Expansion of FBCSI Rules – Overview
Unrelated
Supplier
Title
USP
Sales Co
Unrelated
Customer
Contract
Manufacturer
Title
Finished
Goods
Raw
Parts
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The administration’s FY15 proposal
includes a provision that makes sections
954(c)(3) (the so called same-country
exception) and 954(c)(6) (the controlled
foreign corporation look-through rules)
inapplicable to payments made to a foreign
reverse hybrid held directly by a US owner
when such amounts are treated as
deductible payments received from foreign
related persons.
This proposal would be effective for tax
years beginning after December 31, 2014.
USP
Foreign
OpCos
Debt
Dutch
CV
LLC
Dutch
BV
Debt
Obama Administration 2015 Budget Proposals
Limitation of Applicability Subpart F Exceptions
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The administration’s FY15 proposal includes restrictions on the use of hybrid arrangements that give rise to income that is not taxed in any jurisdiction (stateless income). The Secretary would be granted authority to issue Treasury regulations to carry out the stated purpose of this proposal. These regulations would include rules that:
Deny deductions from certain conduit arrangements that involve hybrid arrangements between at least two of the parties to the arrangement;
Deny interest and royalties deductions arising from certain hybrid arrangements involving unrelated parties in appropriate circumstances, for example structured transactions; and
Deny all or a portion of a deduction claimed with respect to an interest or royalty payment that, as a result of the hybrid arrangement is subject to inclusion in the recipient’s jurisdiction pursuant to a preferential regime that has the effect of reducing the generally applicable statutory rate by at least 25%.
This proposal, as an example, is intended to deny a deduction to a US taxpayer upon an interest or royalty payment to a related party and either: 1) under a hybrid arrangement there is no corresponding income inclusion for the recipient in the foreign jurisdiction or 2) a hybrid arrangement would permit a taxpayer to claim an additional deduction for the same payment in another jurisdiction.
This proposal would be effective for tax years beginning after December 31, 2014
Obama Administration 2015 Budget Proposals
Restriction on Use of Certain Hybrid Arrangements
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In its FY 2015 budget, the administration proposes a new rule to limit the deductibility of interest expense in the U.S. when a multinational group’s U.S. operations are over-leveraged relative to the group’s worldwide operations.
Under the FY 2015 proposal, the U.S. interest expense deduction of any member of a group that prepares consolidated financial statements in accordance with U.S. GAAP, IFRS, or other method authorized by the Secretary under regulations (“financial reporting group”) would be limited to the member’s interest income plus the member’s proportionate share of the financial reporting group’s net interest expense computed under U.S. income tax principles (based on the member’s proportionate share of the group’s earnings as reflected in the group’s financial statements). U.S. subgroups would be treated as a single member of a financial reporting group for purposes of applying the proposal, and the proposal would apply before the proposal that defers the deduction of interest expense allocable to deferred foreign earnings.
If a member fails to substantiate its proportionate share of the group’s net interest expense, or a member so elects, the member’s interest deduction would be limited to 10 percent of the member’s adjusted taxable income (as defined under section 163(j)). Any disallowed interest would be carried forward indefinitely and any excess limitation for a tax year would be carried forward to the three subsequent tax years. A member of a financial reporting group that is subject to the proposal would be exempt from the application of section 163(j).
The proposal would not apply to financial services entities, and such entities would be excluded from the financial reporting group for purposes of applying the proposal to other members of the financial reporting group. The proposal also would not apply to financial reporting groups that would otherwise report less than $5 million of net interest expense, in the aggregate, on one or more U.S. income tax returns for a tax year. Entities that are exempt from this proposal would remain subject to section 163(j).
The proposal would be effective for tax years beginning after December 31, 2014.
Obama Administration 2015 Budget Proposals
Reforming the Earnings Stripping Rules
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 233
FATCA implementation – allow for greater information exchange with foreign
jurisdictions regarding financial account information of foreign nationals in the
United States
Expand anti-inversion rules – broaden the definition of an inversion transaction
by reducing the 80% test to a greater-than-50% test and eliminating the 60% test.
Tax gain from the sale of a partnership interest on a look-through basis – a
foreign partner’s gain or loss from the disposition of an interest in a partnership
engaged in a U.S. trade or business would be ECI gain or loss to the extent
attributable to ECI property of the partnership (codifies current IRS position).
Extenders – the FY2015 Budget does not expressly propose to extend expiring
provisions such as section 954(c)(6) and section 954(h) (CFC look-thru and active
financing exceptions, respectively).
Obama Administration 2015 Budget Proposals
Miscellaneous Items
India Tax & Regulatory update
Jilesh Shah
Senior Manager, International Tax
India Center of Excellence
2 © 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Notices
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON
OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED
ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO
ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax
treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including,
but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.
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.
3 © 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Evolving Fiscal Regime
New Indian Companies Act, 2013 (replaces earlier Act of 1956)
Focus on governance & accountability
Mandatory Audit Rotation
Corporate Social Responsibility
Direct Taxes Code (DTC)
Currently, Indian Income-tax Act, 1961
Continuous changes; complexity
Goods & Services Tax (GST); to replace current structure
Unified indirect tax regime
Dual structure; Federal and state government
4 © 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Recent developments
Limited Liability Partnerships (LLP)
Relatively new structure; evolving
Considerable flexibility; tax savings
Developments vis-à-vis foreign direct investment structuring
Issue of securities containing an optionality clause is now specifically permissible, subject
to conditions
Pre-emptive rights / call / put options now permitted; subject to conditions
Proposal to withdraw pricing guidelines
5 © 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Withholding tax on payments received from India
Software payments / website hosting / transponder payments – ‘Royalty’
Wide definition under Indian domestic tax law
Definition under India – USA tax treaty
Withholding tax; onerous obligation on Indian companies
Generally, Indian companies insist on
Tax Residency Certificate from US IRS
Form 10F (as prescribed by Indian Revenue)
Undertaking from US company that it does not have a PE in India
Tax Identification Number (PAN) from Indian Revenue.
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International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Transfer Pricing
Highly litigious tax regime; relief at higher level
Significant adjustments: Cost plus mark-up, Contract R&D, Profit split method, etc
Steps to reduce disputes: Advance Pricing Agreement (APA) and Safe Harbor rules
Advance Pricing Agreements (APA)
Launched in July 2012; first set of rulings delivered in March 2014
Unilateral v/s bilateral / multilateral
Valid for maximum 5 years (renewable for another five years)
Pre-filing consultation available; anonymous pre-filing possible
Evolving Regime: applications filed, orders awaited
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International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Vodafone: Supreme Court ruling in favor of
tax payer
Finance Act 2012: Retroactive amendment /
clarification
Indirect transfer of shares / interest of a
foreign company which derives its value
substantially from assets located in India;
subject to tax in India
Buyer required to withhold taxes, irrespective
of presence in India
Expert Committee Recommendations
Direct Taxes Code, 2013 (Draft)
US Co
Sale of shares of US Co /
Intermediary Holding Co
Recent controversies – Indirect transfer of shares
US Co.
India Japan Japan
Buyer
US Co /
Intermediary
Holding company
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International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
Shell India: Transfer pricing adjustment on valuation of shares
Nokia India: WHT Tax demands on payments to parent company
Impact on Microsoft – Nokia deal
Steps taken by Indian Government
Transfer Pricing: Advance Pricing Agreement (APA) and Safe Harbor Rules
o APA launched in July 2012; first set of rulings delivered in March 2014
Expert Committee set-up for various issues such as indirect transfer, IT sector
Tax Administration Reform Commission
Recent controversies and steps taken to address them
China Update
Wayne Tan
Senior Manager, International Tax
China Center of Excellence
29 April, 2014
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Agenda
Secondment and Permanent Establishment
China VAT Reform
Secondment and
Permanent
Establishment
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Typical Secondment Arrangement
Secondment contract
Wages & Salaries
Assign duties
Report Duties
Overseas
PRC
Home Entity:
Enters into secondment contract with the
Secondees
Requests the Secondees to report duties to
the business line leader of Home Entity
Pays part or all of the remuneration to the
Secondees
Charges the part or all of the remuneration
cost to the Host Entity
Host Entity:
Assigns duties for the Secondees
Makes reimbursement payment to the Home
Entity
Bears part or all the remuneration cost of the
Secondees
US Co.
(Home Entity)
Secondees
China related
Co.
(Host Entity)
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
China Tax Implications
Substance
Corporate Income
Tax (CIT)?
Business Tax (BT)
/Value Added Tax
(VAT)?
Local surcharges?
Individual Income
Tax (IIT)?
√
√
√
√
X
X
X
√
1. The discussion is in treaty context
2. CIT may be creditable while others generally cannot
Secondment
Employment Service Provision /
Permanent Establishment
14 © 2014 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.
What’s New in Announcement 19?
Responsibilities
and risks
Job performance
appraisal
Fundamental criterion
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
What’s New in Announcement 19?
Reference factors
1. Any
service fees
2. Reimbursement
payment > Remuneration
payment
3. Retain part
of payments
4. IIT not paid
on full amount
5. Number,
qualification, salary, working
location of secondees
Salary
Social security contribution
Other related expenses
China VAT Reform
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Expansion of China VAT Reform
Beijing
Tib
et
Jian
gxi Fuji
an
Tianjin
Anhui
Shanghai
Zhejiang
Fujian
Guangdong
Hubei
Jiangsu
1 Oct
2012
Jiangsu and Anhui
Beijing Sept. 1 2012
Shanghai Jan. 1 2012
Nov. 1, 2012 Fujian and Guangdong
Dec. 1, 2012
2013 and
after
Tianjin, Zhejiang and Hubei
Oct. 1, 2012
The remaining cities and
provinces in China Aug. 1, 2013
Expansion
by scope
Financial
services &
insurance
( 2015)
Real estate &
Construction
(2015)
Other services,
entertainment
(2015)
Radio, Films & TV
(1 Aug 2013)
Post &
Railways
(1 Jan 2014)
Telecoms
(Mid of 2014)
18 © 2014 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.
Scope of VAT Pilot Program
Industry VAT Rate
Leasing of tangible movable property
17%
Transportation services including railway
11%
Postal services 11%
Research and development (R&D) and technical services
6%
Information technology (IT) services
6%
Cultural and creative services
6%
Logistics and ancillary services
6%
Certification and consulting services, translation, bookkeeping
6%
Radio, film, TV 6%
Small scale VAT taxpayers
3%
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firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Key VAT implications for cross-border service transactions
Location of supplier Location of recipient /
place of consumption
VAT treatment
In China*
Outside China* Zero-rated or exempt
Outside China In China Recipient may claim input VAT credit
Outside China Outside China** Not subject to VAT
* Provided the services are not related to goods or real estate located within China
** Services wholly consumed outside of China and Leased goods used entirely outside China
Output VAT Creditable input VAT
Zero–rated No Yes
Exempt No No
20 © 2014 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.
Impact of VAT Reforms on Profitability
BT Regime VAT Regime
Sales Revenue ($) 100 ?
BT payable @ 5% 5 N/A
VAT – output ($) N/A ?
Costs of Sales($) 80 ?
VAT - input($) N/A ?
Profit($) 15
Ensure cost savings of
suppliers is passed on
Tip 1: Try to pass on VAT
costs to customers
Seek to pass on VAT to
customers
Maximise input VAT credits
15
Brazil and Mexico
Update Southeast Michigan TEI Chapter
April 29, 2014
Murilo Rodrigues de Mello
Partner
KPMG Brazil
Jose Manuel Ramirez
Partner
KPMG Mexico
© 2014 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.
NDPPS 249466
1
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS
ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction described in
the associated materials we provide to you, including, but not limited to, any tax opinions,
memoranda, or other tax analyses contained in those materials.
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.
© 2014 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.
NDPPS 249466
2
Dated Material
THE MATERIAL CONTAINED IN THESE COURSE
MATERIALS IS CURRENT AS OF THE DATE PRODUCED.
THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO
INCORPORATE ANY TECHNICAL CHANGES
TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS
TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE
RESPONSIBLE FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY
TECHNICAL CHANGES SINCE THE PRODUCTION DATE AND WHETHER OR
NOT
THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR
PRESENTATION TO CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON
NATIONAL TAX AND RISK MANAGEMENT-TAX AS PART OF YOUR DUE
DILIGENCE.
© 2014 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.
NDPPS 249466
3
Agenda
Topic Presenters
Overview
Murilo Rodrigues de Mello
Brazil Tax Update
Murilo Rodrigues de Mello
Mexico Tax Reform
Jose Manuel Ramirez
Wrap-Up
Jose Manuel Ramirez
Brazil Tax Update
Corporate
income tax
© 2014 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.
NDPPS 249466
6
Quarterly or annual basis (pre-payments on annual
regime)
Taxable income: Company’s profit adjusted
Utilization of tax attributes (NOLs, amortization of
premium, etc.)
PIS and COFINS – Non-cumulative system (9.25%)
Requires more support documentation
Quarterly basis
Taxable income: “deemed profit margin on gross
sales (8%, 12%, 32%)
No tax attributes
PIS and COFINS – Cumulative system (3.65%)
To be eligible revenue requirements must be met
(e.g. maximum annual revenues of R$ 78 million)
What to “Tax Watch” FY2014?
IFRS conversion issues, e.g. separate book entries, dividends taxation, gross revenue
“new” concept.
New electronic tax compliance “environment”
Actual Profit Presumed Profit
Corporate Income taxes
Tax regimes
© 2014 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.
NDPPS 249466
7
Extinguishes
the RTT and
aligns tax
computation
with IFRS.
Law
11,941
Provisional
Measure
627
2007 2009 2013
New
accounting
criteria and
methods
(IFRS)
RTT
(Transitory Tax
Regime) was
introduced to
neutralize
accounting
effects for tax
purposes
Changes in the
implementation
of the RTT
Law
11,638
Normative
Instruction
1,397
Opinion
(“Parecer”)
PGFN 202
Profit
based on
the RTT for
the
exemption
on dividend
distribution
2013 2013
IFRS conversion
Provisional Measure (“MP”) 627/2013
© 2014 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.
NDPPS 249466
8
IFRS conversion
Provisional Measure (“MP”) 627/2013
Summary of some significant changes:
Termination of the Transitory Tax regime (“RTT”). IFRS conversion will
become effective on January 1st, 2015, however, there is the option to
adopt (irrevocably) its provisions as of January 1st, 2014
Repatriation aspects: Potential discussions regarding withholding taxation
on dividends. Interest on net equity (INE) benefit remains as a good source
of repatriation
Goodwill Tax Amortization: tax benefits preserved following IFRS allocation
methods (e.g., PPA). New requirements and restrictions are introduced:
fillings for PPA report, “in-house” goodwill forbidden on intra-group
transactions and exchange of shares could not create goodwill. Important:
former rules may still be applicable for mergers occurred until December
31st, 2015, whose corporate participation was acquired until December
31st, 2014
Brazilian CFC rules: new rules and concepts introduced (e.g., “passive
income” tests, tax deferrals)
© 2014 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.
NDPPS 249466
9
Abroad
Brazil
Company
Abroad
Brazilian
Company
Dividends
Potential differences (Book profits x Tax profits)
distributable as dividend could trigger WHT:
Brazilian resident individuals (7.5% - 27.5%)
Brazilian resident legal entities (34% or 40%,
financial services)
Non-residents (15% or 25%, low tax jurisdictions)
Interest on Net Equity (INE)
15%-25% WHT
Net equity basis
IFRS conversion
Provisional Measure (“MP”) 627/2013
Brazilian
Company
Tax Structuring
© 2014 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.
NDPPS 249466
11
Tax structuring Tax efficient strategies
Still available potential opportunities in domestic
acquisitions through stock deals:
“Step-up” assets and goodwill tax amortizable –
deducted for tax purposes
“Substance over form” – no final precedent and
issues for implementation
Funding
Certain notes-debentures could offer WHT tax
exemption
Debt / Equity alternatives
Thin cap rules
Foreign
Investor
Company
Holding
Abroad
Brazil
© 2014 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.
NDPPS 249466
12
Tax structuring Shareholder control issues
“Two tier” foreign shareholder structure
Direct control tax determination: potential tax
benefits deriving from participation
exemption regimes and repatriation
alternatives (INE and dividends)
Utilization of previous “tested” jurisdictions
Favorable double tax treaty provisions
Non-resident capital gains
Recent changes on cost basis determination
Indirect transfer of shares and “substance”
issues
US investor
Company
Foreign
Holding
Brazil
© 2014 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.
NDPPS 249466
13
How to structure your investment in Brazil? FIP structure
FIP structure
Income and capital gains
exempted at FIP’s level
No WHT on disposal or
amortization of FIP quotas
Premium opportunity when
having a Brazilian company
owned by the FIP to acquire
Target (when there is genuine
business purpose)
IOF tax (zero percent on the
inflow of funds and on capital
repatriation)
A B C
FIP
Target Co.
Just corporations (S/A)
Abroad
Brazil
Participation
must be less
than 40% of
shares and up
to 40% of
proceeds
Investors Investors Investors
Holding
© 2014 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.
NDPPS 249466
14
Funding and Repatriation Alternatives
No WHT on
dividends
IOF zero-rated
No tax deduction in
Brazil
Potential trapped
cash – no
repatriation until
sufficient earnings
to pay dividends
± Recent issue:
Potential WHT
taxation on
distributions (IFRS
vs. Tax accounting)
Tax deduction in
Brazil
IOF zero-rated
WHT of 15% or
25% (low tax
jurisdiction)
Potential trapped
cash/ limitation:
50% of current
profits / profits
reserve (and TJLP
on net equity)
± Treatment on
beneficiary country
FIP
Disposal of Brazilian
company: No WHT
Withdrawal of FIP
quotas: No WHT (if
requirements are
met)
Direct investment
Taxable non-resident
capital gains (15% or
25%, low tax
jurisdiction)
Brazilian Holding
Disposal of Brazilian
company: 34% of CIT
Tax deduction
(subject to transfer
pricing, thin-cap
rules and relation
with the activity of
the company)
WHT of 15% or
25% (low tax
jurisdiction)
Foreign Exchange
impacts
Dividends Interest on loan INE Exit
© 2014 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.
NDPPS 249466
15
Abroad
Brazil
Company
Abroad
Brazilian
Company
IFRS conversion Cost reimbursement arrangement
Possible tax efficient repatriation alternative
Important recent administrative precedent recognized
cost reimbursement
Challenges for cost reimbursement implementation:
Not risk free transaction: lack of specific tax
provisions and existence of contradictory
precedents (services?)
Transfer pricing and other compliance issues (e.g.
Central Bank, SISCOSERV, etc.)
Treatment of cross border taxes (PIS, COFINS,
CIDE, ISS)
Supporting documentation and determination of
“reasonable criteria” based on facts and
circumstances
Necessity of feasibility analysis prior to implementation
© 2014 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.
NDPPS 249466
16
Technical services
New Brazilian Federal Revenue position (“PN PGFN
2,363/2013”): WHT exemption under certain
conditions:
Cross border payments involving the payment of
technical services (without the transference of
technology)
Payment to beneficiaries in countries with treaty
signed with Brazil
Treaty provisions could enable the treatment of
services as “business profits” (Article 7)
Unfortunately no Double Tax Treaty with US (only a
treaty to exchange information)
Analysis on a case by case basis
IFRS conversion New administrative position (“PN PGFN 2,362/2013”)
Abroad
Brazil
Company
Abroad
Brazilian
Company
Indirect taxes
© 2014 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.
NDPPS 249466
18
Intra state transaction and tax incentives:
ICMS intra state transaction: different tax rates, e.g. 12%, 7%, 4%
ICMS tax incentives x CONFAZ regulations
Tax litigation involving ICMS tax incentives
Main takeaways:
Impacts on supply chain
Necessity to assess tax incentives and tax planning
Indirect taxes up-dates
ICMS Tax Competition
1988 Federal Constitution
States regulation (“RICMS”)
27 states
© 2014 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.
NDPPS 249466
19
Import
BR Seller
(SP) Resale
BR Buyer
(Other State)
Potential tax credit
accumulation eliminated
Credit
18%
Debt
4% ~14% credit
Foreign
Supplier
Indirect taxes up-dates ICMS accumulated credits
ICMS
18%
ICMS
4%
The company must present a tax model study on ICMS credit
position - Portaria CAT 108/2014
The application must comply with other rules, e.g. clearance
certificate and may attract tax inspection
19
© 2014 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.
NDPPS 249466
20
ISS
Potential new regulations regarding cloud computing services (PLS
386/12). Draft legislation still pending.
No major tax reform is expected
However “per taxes” reforms or changes should be expected
FY2014-15 there might have important judicial precedents ruled by Supreme
Courts
IFRS conversion: potential impacts for PIS-COFINS computation
Increasingly electronic tax compliance
20
Indirect taxes up-dates
Other topics
Other topics
© 2014 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.
NDPPS 249466
22
Tax incentives - R&D Technological innovation
In general lines, technological innovation incentives may grant for the
taxpayer the following tax benefits:
• Special deductions and tax reductions on the income tax computation in connection to expenses incurred during technological research
• 50% tax reduction of the IPI levied on machines, equipments or spare parts and tools in connection to technological research
• Full depreciation in the year of acquisition of new fixed assets in connection to technological research
• Accelerated amortization for intangible assets acquired in connection to technological research
• WHT zero-rated on remittances abroad related to trademarks, patents and cultivars
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
23
ECF—The new corporate income tax filing
What is ECF?
A new tax filing obligation that will require all information concerning the
corporate income tax (IRPJ) and social contribution on net profit (CSLL)
calculation base as well as all accounting records that support the tax
computation
The ECF will replace the current corporate income tax return (known as DIPJ)
When does it become mandatory?
It is mandatory for the 2014 tax year and must be filed by mid-2015
Penalties for late filing or errors
Heavy penalties can be enforced:
0.025% of the company’s gross revenue per month of delay (limited to 1%) in
case of late filing
5% of the value of the information omitted or provided with error
Note: Legislation is being discussed in the Brazilian Congress that may reduce
these penalties
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
24
eSocial
What is eSocial?
eSocial is one of the modules of the SPED program and it aims to unify the tax,
labor, and social security obligations which will be required to be submitted
electronically
When does it become mandatory?
For companies on the actual profit system (any company with annual gross
revenues higher than US $32 million):October, 2014 (date still to be ratified by
the tax authorities)
For companies subject to other tax regimes: under discussion
Labor events (e.g. admissions, rescission of employment contracts, salary
changes, function changes, etc.) must also be provided immediately. In other
words, labor events recorded in eSocial will be validated at the time submitted.
© 2014 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.
NDPPS 249466
25
eSocial
Information to be provided
Technical layout: eSocial has 44 types of files containing approximately
1,760 fields.
Much of the required information is not in existing payroll systems and needs
to be collected in another systemic platform.
■ Labor Events
■ Labor Changes
■ Payroll
■ Taxes and
Contributions
on Payroll
■ Payment of
Taxes and
Contributions
■ Payment for
Services
Rendered
■ Cash Receipts
for Services
Rendered
■ Accounting
Data
■ Interfaces
■ Information
Extraction
■ Information
Security
■ Health and
Workplace
Safety
Information
(Professional
Profile for
Social Security,
etc.)
■ Labor Claims
■ Judicial
Deposits
Financial /
Accounting
Human
Resources IT
Labor
safety Legal
© 2014 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.
NDPPS 249466
26
ECF—The new corporate income tax filing
What is ECF?
A new tax filing obligation that will require all information concerning the corporate
income tax (IRPJ) and social contribution on net profit (CSLL) calculation base as
well as all accounting records that support the tax computation
The ECF will replace the current corporate income tax return (known as DIPJ)
When does it become mandatory?
It is mandatory for the 2014 tax year and must be filed by mid-2015
Penalties for late filing or errors
Heavy penalties can be enforced:
0.025% of the company’s gross revenue per month of delay (limited to 1%) in case
of late filing
5% of the value of the information omitted or provided with error
Note: Legislation is being discussed in the Brazilian Congress that may reduce
these penalties
Mexican Tax Reform
© 2014 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.
NDPPS 249466
28
Mexican tax reform 2014 – Background and overview
Global pressure to increase tax collection and reduce special regimes
On October 31, 2013, the Senate approved the 2014 economic package, together with a tax
reform.
Among the most outstanding of the tax reform are:
Issuing a new Income Tax Law (simplification + fiscal symmetry):
o Elimination of certain special tax regimes
o Elimination of certain deductions
o Elimination of certain tax incentives
Imposing special excise tax of 8% to the so-called junk foods
Repeal the IETU (the single rate business tax, transitory rules to be analyzed)
Repeal the IDE (the tax on cash deposits)
Imposing Green Taxes
Contrary to expectations, there are no proposals to impose value added tax (VAT) on food
and medicine; however, several other exemptions are being repealed.
© 2014 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.
NDPPS 249466
29
Income tax law
Corporate Tax
Impose a corporate income tax rate of 30%
Repeal the current phase-down of the corporate income tax rate
29% for FY 2014 and 28% for FY 2015 onwards
Tax Consolidation is repealed a new integration regime is incorporated
Proposals to Repeal or Limit Deductions
Immediate and/or accelerated depreciation of investment would no longer be applicable.
Contributions to pension and retirement funds would only be deductible for an amount
equal to 47% or 53% of the contributions made to pension funds, pensions and seniority
premiums it fulfilling the requirements established in the Law.
“Exempt remunerations” paid to workers would only be deductible for an amount equal to
47% or 53% (reason?) of the payment.
i.e., social security, saving funds, annual gratuity, and overtime
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
30
Income tax law & international aspects
Withholding Tax on interest – 4.9%
Application of Tax Treaties’ benefits
Transactions between related parties,
The foreign resident to prove the existence of “legal” double taxation through a
statement, made under oath and signed by the taxpayer’s legal representative.
Tax on Dividends
Corporate income tax withholding of 10% on profits and dividends paid to Mexican
individuals and foreign residents.
Dividends paid to other Mexican legal entities are exempt.
Apply benefits given by the double tax treaties.
Permanent establishment – self-assessment of the tax
© 2014 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.
NDPPS 249466
31
Income tax law & international aspects (continued)
Proposals to Repeal or Limit Deductions the BEPS influence…
Payments of expenses to persons, legal entities, trusts, partnerships, investment funds, as
well as any other legal vehicle whose income is subject to preferential tax treatment, would
not be deductible unless the taxpayer demonstrates that the price or the amount of the
consideration is equal to the price/amount that would have been agreed to in comparable
transactions between independent parties.
Payments made by a Mexican tax resident when also deducted by a related party either
resident in Mexico or abroad, would not be deductible, unless the income is taxable by the
related party.
Payments made to a foreign entity that controls or is controlled by the taxpayer, with
respect to payments of interest or royalties or payments for technical assistance, and that
fall under any of the following circumstances, would not be deductible:
The entity receiving the payment is transparent (exceptions)
The payment is considered as non existent (SRL)
The foreign entity does not consider the payment as taxable income in accordance with
applicable tax provisions (hybrid instruments)
© 2014 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.
NDPPS 249466
32
Income tax law & international aspects (continued)
Changes Affecting Foreign Pension Funds
The threshold to take advantage of a capital
gains exemption would be increased:
The real estate would have to be leased for a
period of at least four years (instead of one,
as currently required).
The capital gain could not be derived from a
trade of business conducted by the foreign
pension fund.
Computation of 90% threshold
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
33
Income tax law & international aspects (continued)
Foreign Tax Credit
Several adjustments are being proposed to
Mexico’s foreign tax credit regime.
Changes would provide guidance for
determining the limits of creditability.
Controlling the foreign tax paid on a
country basis
Limiting the potential blending between
low and high tax foreign income
Capital Gains in Stock Market
The current exemption with respect to gains realized on the alienation of shares via
a stock exchange transaction would be repealed for Mexican individuals and
foreign residents. (Treaty countries residents may still be exempt)
All gains would be subject to tax at a rate of 10%.
© 2014 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.
NDPPS 249466
34
Maquiladora and IMMEX
They must perform a maquila operation; They must usually process in the country goods or merchandise maintained therein by the
nonresident or by a third party having a commercial relationship with the maquiladoras’ customer. The goods or merchandise supplied must be subject to a transforming or repair process and must be temporarily imported into Mexico in order to be subsequently exported, including through virtual transactions. If, in said process, national or foreign merchandise not temporarily imported were used, these must be exported jointly with that merchandise that was indeed temporarily imported;
They must use assets provided, directly or indirectly, by the nonresident or any related
company. The assets (machinery and equipment / M&E) used in the transformation or repair process may not have been owned by the company performing the maquila operation or by a related party residing in Mexico. Additionally, at least 30% of the machinery and equipment used in the maquila operation must be provided by the nonresident. Maquiladoras that were operating as such and complied with transfer pricing rules applicable to maquiladoras before January 1, 2010 and that do not comply with this requirement would have a two years period to reach the minimum of 30% of M&E to be provided by its Principal resident abroad (Grandfathering Clause included in the Decree with tax benefits)
The nonresident must reside in a country that has signed a treaty to avoid double taxation with Mexico;
© 2014 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.
NDPPS 249466
35
Maquiladora and IMMEX
The maquiladora must comply with the provisions regarding transfer pricing. For these purposes the maquiladoras may use the scheme known as “Safe Harbor” in both modalities: 6.5% over the total maquila costs and expenses or 6.9% of total assets used in the maquila operation, whichever is greater, or request an Advance Pricing Agreement (Acuerdo Anticipado de Precios) to the Mexican tax authorities. The other options regarding economic studies are eliminated;
The total income derived from their productive activities must exclusively result from
their maquila operations; for these purposes, it is understood that maquiladoras cannot sell in Mexico the goods that were manufactured by themselves; however, they can carry our other activities such as: shared services, centralized treasury, etc., as long as they maintain a clear separation between the different business activities. For those maquiladoras that as of the date this new requirement started to be in force do not comply with the same in connection with the sales in Mexico will have until July 1, 2014 to comply with the same (to stop selling directly in Mexico).
With regard to maquiladoras under a shelter program, the regime presently contained in
the Federal Revenue Law (Ley de Ingresos de la Federación) is incorporated into the law, limiting the time during which the nonresident may operate under said modality to 4 years;
© 2014 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.
NDPPS 249466
36
Current Regime New Regime
Applicable corporate tax rate Combined of 17.5% Corporate income tax rate of 30% Tax benefits (income tax exemption and flat tax credit) were repealed.
Transfer pricing compliance Three methodologies are allowed: Economic study with 1% of foreign assets Safe harbor (6.5% over costs and 6.9%
over assets) Economic study under return of assets
scheme Possibility to request an APA
Options allowed would be: Safe harbor Possibility to request an APA
Definition of maquila operation – restriction to carry out different business activities
None Maquiladoras cannot sell directly in the Mexican market – transition up to July 1, 2014
Value added tax – temporary imports and transfers of goods
Currently exempted Taxable with three options available to handle this tax: o Obtain a certification as to be a
taxpayer in compliance – a tax credit equal to VAT triggered is granted
o Submit a bond as guarantee of the VAT triggered
o Pay the VAT an ask for the refund
Maquiladora
Changes (continued)
Maquiladora – Comparative Example of Benefits
© 2014 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.
NDPPS 249466
37
Current Regime New Regime
Value Added Tax – Sale of goods by foreign residents to IMMEX entities
Currently exempted Taxable. o The possibility of an immediate credit
of the VAT against the VAT withholding to be made to the foreign resident (Tax Decree)
Combined effects of changes above mentioned
Higher corporate rate and taxable
base Need to obtain a Certification for VAT
purposes to avoid additional financial costs related with obtaining the refund of the same.
Possible double taxation
Maquiladora
Changes (continued)
Maquiladora – Comparative Example of Benefits
© 2014 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.
NDPPS 249466
38
Special Tax on Production and Services (IEPS)
Flavoring drinks, concentrates, powders, syrups,
essences or flavors extracts, containing any type of
added sugar (soft drinks, canned milkshakes,
yogurts, etc.)
Including energizing beverages
Subject to USD $0.08 per liter
No changes would be made to the taxation of
alcoholic beverages; thus, the current rates would
continue with a possible rate reduction in future
years.
This tax does not levy the commercial chain, but
applies only to the importer and the manufacturer or
producer.
Exchange rate used is MXN $13 = USD $1.
Special tax on production and services
© 2014 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.
NDPPS 249466
39
Special Tax on Production and Services (IEPS)
Also, for health protection reasons, a new tax of 8%
to some foods with a caloric density of 275 kcal or
more per 100 grams is introduced.
Foods subject to this tax are: snacks, confections,
chocolates and other cocoa products, custards,
puddings, fruit and vegetables sweets, peanut and
hazelnut cream, milk sweets, prepared foods from
cereals, ice cream and popsicles.
Hearing Guaranty – closure of games and raffles
Carved Tobacco
Cigarettes – Security codes
Printing
Exchange rate used is MXN $13 = USD $1.
Special tax on production and services (continued)
© 2014 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.
NDPPS 249466
40
Special tax on production and services (continued)
Special Tax on Production and Services (IEPS) – Green Taxes
New taxes would be imposed, under an “ecological purpose” regime, for the
following reasons:
Gradual reduction of carbon dioxide emissions, greenhouse gases, and
Gradually reducing the use of pesticides that indirectly cause damage to
health and the environment.
It is proposed to set specific quotas by fuel type, considering the tons of carbon
dioxide per unit volume, to the import and sale of fossil fuels.
US$5.70 carbon ton
Table
In the case of pesticides, the import and sale would be taxed at rates that range
from 6% to 9%, depending on the level of toxicity. Transition rates during 2014.
© 2014 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.
NDPPS 249466
41
Federal tax code
Tax Mailbox
Communication with Tax Authorities – Taxpayers
Notice– Promotions– Devolutions– Advisory
Notice confirmation
Electronic review – pre liquidation
Motion for reconsideration
Digital Tax Invoices
Applicable to all transactions
Withholdings
Rules
Suppliers authorities reversal
Assumption regarding non existent operations
© 2014 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.
NDPPS 249466
42
Federal tax code (continued)
Conclusive Agreements
Participation of the PRODECON
The agreements will be mandatory and not appealable
100% Fine remission
Similar to the “Settlement” structure in different countries.
Joint Responsibilities
Partners or stockholders
Participation percentage increased
Effective control is restricted
Executor
Presenter Information
Murilo Rodrigues de Mello
Partner
KPMG Brazil
Jose Manuel Ramirez
Partner
KPMG Mexico
FATCA for
Nonfinancial
Companies—
Common
Implementation
Issues
April 22, 2014
© 2014 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.
NDPPS 177853
1
NOTICE & DISCLAIMER
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation,
the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide
to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those
materials.
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.
© 2014 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.
NDPPS 177853
2
FATCA: What is it?
FATCA is not a tax.
It’s an information reporting regime with a “tax”
imposed as a noncompliance penalty.
© 2014 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.
NDPPS 177853
3
FATCA: What is it?
In the fallout of various U.S. tax evasion scandals, Congress passed
the Foreign Account Tax Compliance Act (FATCA), IRS sections 1471
through 1474
Aimed at identifying U.S. tax evaders, FATCA requires foreign payees to
disclose their involvement with significant U.S. investors (i.e., substantial US
accountholders and owners)
Foreign payees who fail to comply suffer a 30 percent charge on their own
cross-border payments
Withholding agents are required administer the new rules, and take secondary
liability mistakes
© 2014 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.
NDPPS 177853
4
FATCA backstops investor self-reporting with foreign payee and
withholding agent disclosures.
Withholding
agent
Foreign
Payee
Owners
IRS
Accountholders
Substantial US
investor information
$$$ subject to a 30%
penalty for
noncompliance
Documentation
showing compliance
Returns that may not fully
disclose investment
information
FATCA: What is it?
Instead of one, unreliable stream of information, the IRS now has several streams.
© 2014 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.
NDPPS 177853
5
Withholding
agent
Qualifying payment
triggers application
Foreign
Foreign payee
1441 targets
visibility at
payee level
FATCA
targets
visibility at
investor
level
???
Responsible for
collecting the required
information or the 30
percent tax, and has
secondary liability for
mistakes
Has primary liability for
tax on the payment,
unless valid
documentation is
provided
FATCA: What is it?
FATCA uses the same operating mechanisms as §1441 withholding
But – FATCA targets a different problem than current §1441 U.S.
withholding regime
© 2014 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.
NDPPS 177853
6
Overview of Issues
Parent
U.S.
Group
U.S. Sub U.S. Sub
Foreign
HoldCo
Foreign
Sub
Foreign
Sub
On the Payment
Side
Payors as Withholding
Agents (often US
entities):
What payments are in
scope?
What documentation do I
need to collect?
What are my reporting
obligations?
What payments must I
withhold upon?
Exposures if Non-
Compliant:
Secondary liability,
penalties and interest
Penalties for reporting
failures
Strain on vendor
relationships
On the Payee
Side
Classification
and documentation
responsibilities:
What is my
classification?
What do I need to do to
avoid being withheld
on?
Exposures if Non-
Compliant:
30% withholding
Foreign bank account,
brokerage, or custody
account termination
Payment Side
© 2014 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.
NDPPS 177853
8
Withholding
Agent Foreign
Payee
Qualifying payment
triggers
application
FATCA targets visibility
at investor level
Foreign
1441 targets visibility at
payee level
???
Responsible for collecting the
required information or the
30% tax, and has secondary
liability for mistakes
The Payment Side of FATCA
Suffers tax on the payment
unless valid documentation
is provided
© 2014 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.
NDPPS 177853
9
Since FATCA piggybacks off §1441, it’s easiest to talk about FATCA
in comparison to the §1441 rules
Operating mechanism: Generally the same –
Withholding agent collects tax forms and information from payees,
determines the applicable withholding, and remits any tax to the government
30% default withholding applies unless valid documentation is provided
The withholding agent is also responsible for annual information reporting on
payments, related tax and payees
Stakes for withholding agents: Generally the same –
Secondary liability for failed withholding, plus interest and penalties
Penalties also apply for information reporting failures
The Payment Side of FATCA
© 2014 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.
NDPPS 177853
10
Scope of payments: Different – FATCA is both broader and narrower than
§1441 withholding.
FATCA applies to US source FDAP
Plus gross proceeds from the disposition of property that gives rise to US
source dividends and interest (e.g., positions in U.S. securities)
BUT there are two major exceptions from withholding:
1. Payments on grandfathered (pre-July 1, 2014) obligations
Need to have an “obligation”
The obligation cannot be “materially modified” (and treated as a brand
new obligation) after July 1, 2014, or it loses its grandfathered status
The Payment Side of FATCA
© 2014 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.
NDPPS 177853
11
2. Low risk, nonfinancial payments (“excluded nonfinancial payments”)
The exception covers payments for services and the use of property, and a
few additional items (e.g., prizes and awards, gambling winnings)
Also includes interest on accounts payable arising from the acquisition of
goods and services
Explicitly excludes certain financial services-type payments, such as
payments on financial instruments, insurance premiums, broker or custodian
fees, dividends, and other types of interest
The Payment Side of FATCA
© 2014 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.
NDPPS 177853
12
US Parent
Corporation
Foreign
IP Co
US source
royalties
FATCA reporting applies to all kinds of “typical” payments, although some
may be eligible for exceptions from withholding:
US
OpCo
Foreign 3P
Vendor
Interest on
product-
related A/P
Foreign
Bank
US source
interest
US source
dividends
and (post-
2016) stock
redemption
proceeds
Foreign 3P
Law Firm
Foreign
Shipper
US source
services
fees US risk-
related
premiums
public
Chapter 4 Reportable Amounts
Foreign
Insurer
International
shipping fees
© 2014 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.
NDPPS 177853
13
Two Paths to Withholding Exception?
Challenges • Payor must classify payments
• Systems/ Processes needed to classify
• Ongoing review of contracts (material
modification)
• Counterparties provide W-8 information
• Systems and Process to collect and compile W-8 information
Incremental
efforts
• For financial payments need to collect
W-8 forms
• For non-responsive payees, need to determine payment
exceptions
Reporting • 1042-S reflecting exemption codes • 1042-S reflecting payee status
Risk • Misclassification risk generally on payor • Misclassification risk generally on payee
• Non-Financial
or
Grandfathered
Obligation
• Payor to
Classify
• FATCA
Classification
• Payee
provides W-8
Payment Exception Payee Exception
Solution: Most often a combination of the two approaches, depending on company involved
© 2014 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.
NDPPS 177853
14
Reporting will include additional information your systems are not currently capturing, for
example:
9 new exemption
codes
34 new status
codes
New Form
W-8 BEN-E
Required Reporting
© 2014 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.
NDPPS 177853
15
Penalties Example
1 This could arise, e.g., if the parties’ agreement specifies that the withholding agent will pay the foreign payee net of withholding.
2 Note, there is some slight offset of these two penalties, so that the maximum combined penalty for the failure to file and failure to pay is $203,571.
3 For each withholding agent, the failure to file information reporting return penalty for a calendar year cannot exceed the specified amount as applied to
each missing form (e.g., A Co could be liable for intentional disregard failure to file with the IRS and also for failure to furnish to the payee, for penalties up
to 10% of the $1,428,251 payment for each of the Form 1042-S related to an unreported payment). This penalty will apply for reportable payments, even
if no withholding is due.
Penalty Calculation Maximum Due
Failure to File $428,571 x 5%/month 25% = $107,1432
Failure to Pay $428,571 x .5%/month 25% = $107,1432
Failure to Deposit $428,571 x 10% $42,857
Failure to File Information Reporting Return 23 x $100 $200
Total Penalty Calculation $246,628
Intentional Disregard $1,428,571 x 10% x 23 $285,714
Total Potential Liability $960,713
Consequence Calculation Maximum Due
Withholding Agent’s Liability 30% x $1,000,000 $300,000
Gross Up or Pyramid Effect1 $1,000,000/.7 = $1,428,571
Total Liability with Gross Up 30% x $1,428,571 $428,571
A Co is a domestic corporation that, in 2014, pays a foreign vendor (“FC”) $1 million of US source
interest. FC is a foreign entity. A Co fails to obtain a form W-8BEN-E from FC, fails to withhold on
its interest payments, and fails to file its related forms 1042 and 1042-S. A Co is liable for
withholding and penalties as follows. In addition, interest will run on the $428,571 withholding
payment and any accuracy-related or failure to file penalties due starting on March 15, 2015, the
due date for A Co’s Form 1042.
Payee Side
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NDPPS 177853
17
FATCA addresses TWO types of foreign payees / basic mechanisms
for evading U.S. tax
Undisclosed
interests in
foreign
entities
U.S.
persons
Unreported
foreign
assets in
financial
accounts
Foreign financial institutions
(FFIs) are required to identify their
substantial U.S. accounts, obtain
U.S. accountholder tax
information, and report to the IRS
Non-financial foreign entities
(NFFEs) are required to report
their substantial U.S. owners, or
to certify that they are eligible for
excepted, “low-risk” status
Foreign payees need to certify to the withholding agent that they are complying with
their FATCA requirements, or suffer 30% withholding on their own qualifying
payments.
The Payee Side of FATCA
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NDPPS 177853
18
The Payee Side of FATCA
Foreign payees must be classified and their status reported on new Forms W-8BEN-E
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NDPPS 177853
19
Identify FFIs and NFFEs
Foreign Financial
Institutions
(FFI)
Accepts
deposits
Holds financial
assets for others
Conducts
investment
activities for a
customer (or
managed by the
same)
Investment
Entities &
Pension Funds
Custodians
Banks
Foreign Financial Institution Nonfinancial Foreign Entity
An NFFE is any foreign
entity that is not an FFI.
Once the determination of NFFE
status is made, an entity may either:
1. Disclose substantial US owners to
the withholding agent or directly to
the IRS
2. Assert Excepted NFFE status
– Publicly traded corporation or
Subsidiary of foreign publicly
traded corporation
– Active: 50 & 50 test
Conducts group
financing or
hedging
activities
Certain Treasury
Centers and
HoldCos
Issues Cash
Value Insurance
or Annuity
Contracts
Specified
Insurance
Companies
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NDPPS 177853
20
Classification Characteristics
Bank (Depository) • Accepts deposits and performs banking activities (e.g.,
makes loans) in the ordinary course of business
Custodian • Holds, as a substantial percentage of business, financial
assets for the benefit of one or more persons
• Substantial Percentage: ≥ 20% of gross income during 3
year testing period
Investment Entity • Primarily conducts one of the following on behalf of its
customers:
• Trading, Money Market, Currency, Securities,
• Portfolio Management; or,
• Investing, administrating funds or financial assets.
• Primarily conducts: ≥ 50% of gross income over 3 years
Insurance Company or
Holding Co
• EAG has insurance company or insurance holdco issuing
cash value policies or annuities
Holding Co or Treasury
Center
• EAG includes bank, custodian, insurance company,
investment entity or is used for investment activities
Types of Financial Institutions
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NDPPS 177853
21
Potential Relief for Nonfinancial Groups
Possible movement from FFI to NFFE if:
A. Group qualifies as “nonfinancial”
1. ≤5 % of the group’s gross income is derived by FFI affiliates;
2. ≤25% of the group’s gross income in preceding 3 yrs consists of passive income; and
3. ≤25% of group’s assets (FMV) hare held for production of passive income
Must review group entities to make determination
AND
B. Entity is one of the below:
1. Holding Company: Primary activity consists of holding the stock of expanded affiliated group
2. Treasury Center: Primary activity is to enter into investment hedging and financing transactions with
or for members of expanded affiliated group for managing certain financial risks or acting as
financing vehicle
3. Captive Finance Company: Primary activity is to enter into financing or leasing transactions with or
for suppliers, distributors, dealers or customers of such entity or any member of the expanded
affiliated group
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
22
Intergovernmental Agreements
What is an IGA?
Foreign law may restrict an FFI’s ability to comply with the FATCA regulations. The Treasury
and IRS have developed an alternative approach to FATCA compliance that takes these
restrictions into account – Intergovernmental Agreements (IGAs)
Under an IGA, the foreign jurisdiction agrees to create rules that will either allows its financial
institutions to report directly to the IRS or report to the foreign jurisdiction (which in turn will
report information to the IRS)
Under the Model 1 IGA, the financial institutions in the foreign jurisdiction are required to
register with the IRS as participating FFIs, but still have due diligence and reporting
responsibilities to the foreign jurisdiction
Under the Model 2 IGA, the covered financial institutions are required to register with the
IRS as participating FFIs and report to the IRS
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NDPPS 177853
23
Intergovernmental Agreements
Why do multinationals care?
IGAs (and their local implementing regulations) contain their own definitions of “FFIs”
IGAs apply to resident entities as well as local branches, so the analysis may be more
complicated than expected
What rules apply to determine FFI/NFFE status?
(For now) regulations, taking U.K. and Swiss income
and activities into account
(If any) maybe U.S.-China IGA, applied only to
China HoldCo’s income and activities
U.S. – U.K. IGA, applied only to U.K. DE’s income
and activities
U.S. – Switzerland IGA, applied only to Swiss DE’s
income and activities
U.S. Co
China
HoldCo
U.K. DE Swiss DE
If you have foreign affiliates that need to determine their FATCA status, you will have to do
the analysis early – and possibly often.
FATCA: Common
Implementation Issues
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NDPPS 177853
25
Challenges faced by Clients:
Gaps in Chapter 3 Reporting
New Challenges with FATCA reporting—Payor Side
Payee Classification Issues and Uncertainty
Pensions Challenges
W-8BEN Validation
Common Implementation Issues
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NDPPS 177853
26
Gaps in Chapter 3 Reporting
Payments to related parties not reported on Form 1042/Form 5472
Lack of good system for maintenance of W-8BENs
Missing W-8BENs for related party payments
Not properly validated
Capturing payments for US source services income
Engineering, Installation, Legal Services
Communications between A/P, Treasury, and Tax
Changes to treaties or domestic rules not updated
Common Implementation Issues (cont.)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
27
FATCA Chapter 4—Payor Side:
Determining who is going to own the process (Hot Potato)
Decentralized A/P departments (by plant or because of acquisitions)
Different vendor systems for product related A/P and non-product A/P
Systems issues
Inability to track different types of payments to vendors (services)
Practical issues with grandfathering
Ability to stop payments in a PO-based system
Challenges with validation and storage of W-8BEN-Es
Wire payments
Inability to get detail on what payments relate to
Payments often made outside A/P process
How to collect information in useable format for reporting (SAP/Oracle)
Common Implementation Issues (cont.)
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NDPPS 177853
28
Payee Classification:
Lack of instructions for the Form W-8BEN-E
Constantly changing landscape with IGAs
No implementation regulations in most IGA countries
Physical branches
Overlap challenges
(IGA Countries) Dutch Co (Model 1) with Swiss Finance Branch (Model 2)
(IGA Country with non-IGA) IGA Holdco with China subsidiary
Determining proper registering entity in branch scenario
Availability of data/complexity determining applicability of non-financial group
exception
Common Implementation Issues
© 2014 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.
NDPPS 177853
29
Pensions Classification:
Control of the pensions often outside the tax and treasury function
Getting to the right person can be challenging
Often outsourced making it expensive to get access to required data
Very specific rules based on type of plan
Need someone in the local country to attest to the type of plan
Is your plan akin to a section 401 plan? Difficult to determine without an IRS
determination letter or opinion
Technical determination of treaty benefits time consuming if not already
completed
Common Implementation Issues
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NDPPS 177853
30
W-8BEN Common Issues
The contracting party does not match the name on the W-8BEN
More than one beneficial owner is named
The form is not signed and legible (no Chinese characters)
Form dated more than 90 days prior to receipt
They do not provide a physical address or the address is US address or c/o address
Claim a treaty benefit for a country with no treaty or the treaty country does not match the
address
Entity type is incorrect or inconsistent. Is this the right form?
Does the person signing have capacity to sign? Certification is crossed out
Claiming treaty benefits but do not complete required sections
Claiming treaty benefits with no TIN (on new form foreign TIN) provided
W-8BEN Validation
Questions?
Contact:
Kortney Wallace
313.230.3056
Chris Riccardi 404.979.2305
Tax Executives
Institute
KPMG Speaker Bios
April 29, 2014
© 2014 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.
Peter H. Blessing Managing Director
Background
Peter is head, Cross-Border Transactions, in the International Corporate Services group of KPMG LLP’s
Washington National Tax practice. Prior to joining KPMG he was a partner at Shearman & Sterling LLP for over 25
years.
Professional and Industry Experience
Over this career, Peter has developed a reputation as one of the leading international tax advisors, with broad
experience in the major areas of cross-border taxation. His advice is sought by both industrial and financial clients,
including in the following areas:
Cross-border acquisitions, corporate inversions, restructurings and financings
Tax-optimized structuring for flows of goods and services and IP ownership
Private equity investments
Treaty planning and ruling practice
Recognition by Clients and Peers
Best Lawyers of America 2012 (New York Area “Tax Lawyer of the Year”), Chambers USA (Tax, Tier 1),
Chambers Global, Euromoney’s Best of the Best USA, International Tax Review (World Tax), Tax Directors’
Hand Book, Who’s Who of Corporate Tax Lawyers, PLC Which Lawyer?, The Legal 500, Super Lawyers, etc.
Publications and Speaking Engagements
Editor and a co-author of Tax Planning for International Mergers, Acquisitions, Joint Ventures and Restructurings
(Kluwer). Authored a treatise, Income Tax Treaties of the United States (Warren Gorham & Lamont).
Peter is a frequent lecturer on various aspects of taxation and cross-border taxation at seminars sponsored by
IFA, IBA, ABA, ALI-ABA, NYSBA, CTF, NYU, PLI, GW-IRS, California State Bar, USC Tax institute, and others.
Professional Associations
American Bar Association Tax Section - Vice -Chair Government Relations and Vice-Chair Transfer Pricing
Committee and chair Foreign Activities of US Taxpayers Committee 2004-06
New York State Bar Association Tax Section - Executive Committee member and Chair 2010
International Fiscal Association - Executive Vice President, USA Branch
International Bar Association Taxes Committee – Chair 2011
International Tax Institute - Board member and President 2003-05
Columbia Law School - Adjunct Professor, JD program, 2008-11
Fellow, American College of Tax Counsel
Admitted to practice before the United States Tax Court
Peter H. Blessing Managing Director
KPMG LLP
345 Park Avenue
New York, NY 10154
Tel 212-954-2660 (New York)
Tel 203-406-8052 (Stamford)
Fax 203-286-1926
Cell 917-238-4055
Function and Specialization Peter specializes in cross-border M&A, financing transactions and international and treaty planning
Education, Licenses & Certifications LL.M in Taxation, New York University School of
Law
JD, Columbia University Law School
BA, Princeton University
© 2014 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.
Devon M. Bodoh
Principal
Professional and Industry Experience
Devon M. Bodoh is the co-leader of KPMG’s Washington National Tax International M&A Initiative and a
principal in Washington National Tax. In addition, Mr. Bodoh is the Principal in Charge for the firm’s US-
Brazil High Growth Market Practice and leads the Inbound Tax Team for Brazil.
Mr. Bodoh advises clients on international and domestic mergers, acquisitions, spin-offs, other divisive
strategies, restructurings, bankruptcy and non-bankruptcy workouts, the use of net operating losses and
other tax attributes, and consolidated return matters.
Prior to joining KPMG, Mr. Bodoh was a partner in the international law firm of Dewey & LeBoeuf LLP.
Publications and Speaking Engagements
Mr. Bodoh is a frequent speaker on subjects in his practice area for various groups, including the Tax
Executives Institute, the American Bar Association, the American Law Institute/American Bar Association,
BNA/Center for International Tax Education and the Law Education Institute.
Mr. Bodoh is a former chairperson and vice-chairperson of the American Bar Association's Committee on
Affiliated and Related Corporations and is an officer of the American Bar Association's Corporate Tax
Committee.
Mr. Bodoh is an adjunct professor at George Mason University School of Law. In addition, Mr. Bodoh is a
member of the Dean's Advisory Board for the University of Detroit School of Law.
Representative Clients
AT&T, Inc., Bank of America Corporation, General Electric Company, General Motors Company, Grupo EBX,
HCA Holdings, Inc., Iochpe Maxion SA, Itau Unibanco, NCR Corporation, Odebrecht SA, Pfizer Inc., the
Walt Disney Company and Viacom
DEVON M. BODOH
Principal
Washington National Tax
KPMG LLP
1801 K Street, NW
Washington, DC 20006
Tel 202-533-5681
Fax 202-609-8969
Cell 646-752-9444
Function and Specialization
Mergers, acquisitions, spin-offs, divestitures,
liquidating and nonliquidating corporate distributions,
corporate reorganization, and consolidated returns
Education, Licenses & Certifications
• LLM, Taxation, New York University of Law
• JD, University of Detroit Mercy School of Law
School
• BBA, University of Michigan Stephen M. Ross
School of Business
© 2014 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.
Background
Mike is a principal in the International Corporate Services group of the Washington National Tax practice. He
began practicing in the federal income tax field in 1984 with an emphasis in international tax issues since
1988. Mike specializes in complex international corporate tax issues including international corporate
restructuring and supply chain structuring. Specific areas of substantive expertise include subpart F planning,
cross border transactional planning and structuring, mergers and acquisitions (domestic and international),
joint venture structuring, entity classification, check the box planning, intangible property planning, and
electronic commerce issues.
Professional and Industry Experience
In addition to working for other Big 4 accounting firms and major law firms, he was the Special Counsel to the
Associate Chief Counsel (International) in the Chief Counsel’s Office at the Internal Revenue Service. As
Special Counsel, he reviewed and assisted in developing positions for PLRs, FSAs, TAMs and controversy
matters on numerous issues. In addition, he was involved in several guidance projects including extensive
involvement in the final regulations under Section 367(a), Section 367(b) and Subpart F. During the course of
his career, Mr. Cornett also has handled negotiations with the IRS on various international tax matters
including cost sharing arrangements and Competent Authority matters.
Representative Experience
• Developed and implemented Swiss principal structure for a major clothing retailer that involved the
opening of company owned stores in several countries and the procurement of product from third party
suppliers. The project also included the transfer of intangible property through a cost sharing
arrangement and the negotiation of a bi-lateral Advance Pricing Agreement.
• Developed and implemented a plan for the acquisition and integration of several companies in Europe
and Russia into an existing Swiss principal structure for a Fortune 100 company in consumer products.
• Developed and implemented world wide tax structure based in Switzerland for a major Internet Service
Provider.
• Assisted chemical company in structuring foreign operations to maximize utilization of foreign tax credits
and tax efficient movement of cash between affiliates.
• Lead associate in Bausch & Lomb v. Commissioner, a U.S. Tax Court case that dealt with the issue of
what constitutes manufacturing for purposes of Subpart F.
J. Michael Cornett
Principal
KPMG LLP
1801 K Street, N.W.
Washington, D.C. 20006
Tel 202 533 5202
Cell 202 412 0783
Fax 202 330 5065
Education, Licenses & Certifications
• L.L.M., Georgetown University Law Center
• J.D., University of North Carolina, Chapel Hill
• BS in Accounting, University of Notre Dame
• CPA License in Ohio
• Bar Admission in District of Columbia and
Pennsylvania.
Professional Associations
• Members of American Bar Association and
Chairman of Pass Through Committee for
FAUST
• Members of American Institute of Certified
Public Accountants
J. Michael Cornett
Principal
© 2014 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.
Manal S. Corwin National Leader, International Tax, KPMG LLP
and Principal-in-Charge of International Tax Policy, Washington National Tax
Background
Manal Corwin is KPMG LLP’s National Service Line Leader for International Tax as well as Principal-in-Charge
of Washington National Tax—International Tax Policy. She recently rejoined the firm following completion of her
tenure as Deputy Assistant Secretary of Tax Policy for International Affairs in the Treasury Department.
Professional and Industry Experience
During her tenure at the U.S. Treasury Department, Manal helped shape the Administration’s views and policies
in all areas of international taxation and worked closely with the IRS, members of Congress, and key tax
regulators globally. In this regard, Manal worked on the international tax provisions of several of the
Administration’s budget proposals as well as the development of the Administration’s framework for tax reform.
Manal also served a as the U.S. delegate and Vice Chair to the OECD’s Committee on Fiscal Affairs and was
actively engaged in the initiation and development of the OECD BEPS initiative. In addition, Manal served as
the U.S. delegate to the Global Forum on Tax and Transparency. Significantly, she was responsible for leading
the development and implementation of the intergovernmental approach to the Foreign Account Tax Compliance
Act (FATCA) which has recently been endorsed as the foundation for a global standard for automatic exchange
of information. Manal also was head of the delegations responsible for negotiating income tax treaties with
Japan, Spain, Chile, and the United Kingdom.
Prior to joining the Treasury Department (first as International Tax Counsel in the Office of Tax Policy and then
as Deputy Assistant Secretary for International Tax Affairs), Manal was a principal in KPMG’s Washington
National Tax practice from 2001 to 2009, where she advised multinational corporations on the U.S. international
tax aspects of their operations and transactions and represented clients in tax controversies before the IRS.
Earlier in her career, Manal served as the Deputy and then Acting International Tax Counsel in the Office of Tax
Policy at the U.S. Treasury Department. Prior to that, Manal practiced as an attorney specializing in international
taxation at the law firm of Covington & Burling in Washington, D.C. Manal also served as a judicial clerk for then
Chief Judge Levin Campbell on the U.S. Court of Appeals for the First Circuit.
Other Activities/Honors
Manal is a member of the Board of Directors of the National Foreign Trade Council and is a frequent speaker
and commentator on international tax policy.
Manal served as Editor-in-Chief of the Boston University Law Review 1990-1991; she received the Ordronaux
Prize, 1991; Edward Hennessey Distinguished Scholar, 1990-1991; Paul J. Liacos Scholar, 1989-90; G. Joseph
Tauro Distinguished Scholar, 1988-89.
MANAL S. CORWIN National Leader, International Tax and
Principal-in-Charge of International Tax Policy
Washington
National Tax
KPMG LLP
Suite 1200
1800 K Street NW
Washington, D.C. 20006
Tel 202-533-3127
Function and Specialization Manal S. Corwin leads KPMG LLP’s international tax
practice . She advises multinational corporations on
U.S. international tax aspects of their structures,
operations and transactions. She specializes in
consulting and advising on issues relating to
international tax policy, expense allocation, the source
of income rules, foreign tax credits, subpart F, U.S.
taxation of international transportation income and
certain special tax benefit provisions.
Professional Associations Member of the Massachusetts Bar Association
Member of the District of Columbia Bar Association
Education, Licenses & Certifications J.D. magna cum laude, from the Boston University,
School of Law, May 1991
A.B. in Psychology, cum laude, from Harvard
University, June 1986
© 2014 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.
Aaron Feinberg
Managing Director
Background
Aaron is a Managing Director in the Mergers & Acquisitions Tax practice. He has significant
experience representing clients in U.S. federal tax aspects of business acquisitions and
dispositions and representing financially troubled companies.
Professional and Industry Experience
Aaron’s experience includes assisting various forms of business entities on U.S. tax matters
critical to mergers and acquisitions, internal restructurings and financially distressed
companies. His background includes the provision of tax advice relating to transaction and
financing structures, due diligence, debt modifications and the preservation of net operating
losses and other tax attributes.
Aaron has experience in a broad category of transactions and industries, including the
following:
• Advising several multinational Fortune 500 companies in connection with internal, cross-
border restructurings.
•Representation of several Fortune 500 debtor corporations in connection with tax issues
arising from their Chapter 11 bankruptcy filings, including issues arising from the cancellation
of existing indebtedness, the post-emergence preservation of tax attributes and tax planning
for bankruptcy emergence transactions.
• Advising U.S. and foreign business entities and private equity funds on the U.S. tax aspects
of structuring acquisitions of U.S. and non-U.S. businesses, including tax-free reorganizations
of publicly-traded target companies.
AARON FEINBERG
Managing Director-Tax
KPMG LLP
150 West Jefferson
Suite 1200
Detroit, Michigan 48226
Tel 313-230-3273
Fax 313-447-2430
Cell 617-835-2793
Function and Specialization
Aaron specializes in the U.S. tax aspects of
business acquisitions and dispositions and U.S. tax
issues relating to financially distressed companies.
Education, Licenses & Certifications
• LL.M. in Taxation, Georgetown University Law
Center
• J.D., Boston University School of Law
• B.A., Michigan State University
© 2014 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.
Douglas G. Holland Senior Manager
Professional and Industry Experience
Doug is a senior manager in the International Tax group of KPMG’s Washington National Tax
office. He provides advice on a wide range of international tax issues including cross-border
acquisitions and restructuring, the dual consolidated loss rules, earnings-stripping limitations,
application of the branch tax and FIRPTA rules to inbound investments, treaty qualification, anti-
deferral rules, international shipping and air transport income, and foreign charitable organizations,
as well as the associated information reporting and compliance aspects. Doug has worked with a
variety multinational and private equity companies and has substantial experience in the oil and
gas industry.
Doug is the author or co-author of a number of articles on topics such as the permanent
establishment implications of commissionaire structures, the IRS LMSB’s series of section 965
directives and international tax aspects of the “check-the-box” rules. He is a frequent presenter at
internal and external events, and is also a member of the International Fiscal Association.
Prior to joining KPMG, Doug served as an attorney-advisor to the Hon. Joseph H. Gale of the
United States Tax Court.
DOUGLAS G. HOLLAND Senior Manager
KPMG LLP
1801 K Street, NW
Suite 12000
Washington, D.C. 20006
Tel 202-533-5746
Fax 202-403-3988
Function and Specialization Doug specializes in the taxation and reporting of cross-
border transactions and investments.
Education, Licenses & Certifications • LL.M. in taxation, University of Florida
• JD, magna cum laude, Duke University School of Law
• BA, University of Michigan
© 2014 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.
Patrick Jackman Principal
7
Professional and Industry Experience
Patrick is an International Tax Partner in KPMG’s Washington National Tax Practice, based in New York, where
he advises clients on cross-border transactions, both taxable and tax-free, including public and private
reorganizations/mergers, spin-offs, and partnerships. In connection therewith, he assists clients in developing
structures that provide for tax-efficient repatriation, foreign tax credit planning, acquisition financing and post-
acquisition integration of acquired operations.
Prior to joining KPMG, Pat was a partner with Weil, Gotshal and Manges LLP in New York, where he focused
principally on international transactions for multinationals, including corporate acquisitions and mergers, internal
restructurings, business formations and joint ventures. Prior to Weil Gotshal, Pat was Managing Director, Head
of International Tax, for Merrill Lynch. There he focused on optimizing tax-efficiency of Merrill Lynch’s foreign
and cross-border operations, investments and funding, with specific focus on strategic M&A support and
optimization, business unit/product support and oversight.
Publications/Speeches
■ Co-author (with Kevin Dolan et al) of the leading International M&A tax treatise, “U.S. Taxation of
International Mergers, Acquisitions, and Joint Ventures”; articles written for Journal of International Tax,
International Tax Journal, and Tax Notes International
■ Speeches given at GWU/IRS Conference on International Taxation, Canadian Tax Foundation, IFA, TEI,
International Tax Institute, Atlas, and CITE.
Additional Information
■ Member of the District of Columbia, Colorado (inactive), and Maryland (inactive) Bars; member of
International Fiscal Association, Wall Street Tax Association, and the ABA Section of Taxation
Representative Clients
■ General Electric, Bank of America, AIG, and Sanofi Aventis
Patrick Jackman
Principal
KPMG LLP
345 Park Avenue
New York, NY 10154
Tel 212 872 3255
Fax 212 937 2087
Cell 917 549 7802
Function and Specialization
Cross Border Mergers & Acquisitions; FTC and
Subpart F Planning
Education, Licenses &
Certifications
■ University of Virginia Law School, J.D.
■ Haverford College, B.A., Economics,
National Merit Finalist Scholarship
© 2014 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.
Charlie Kohler Senior Manager
8
Position in Firm
Charlie is a senior manager in the International Corporate Services (“ICS”) practice in Detroit. He assists
large and mid-sized multinational clients with international tax planning and compliance matters.
Relevant Experience
Charlie has experience in cross-border restructurings, repatriation strategies, foreign tax credit planning,
subpart F planning, cash/tax management, global effective rate planning, acquisitions and divestitures
and related financing arrangements, tax deferral, and international tax compliance.
His experiences include planning and implementing a global restructuring for a large multinational
manufacturer, completing an overall foreign loss study for a tier one automobile supplier, and assisting in
the seller side due diligence for a large international manufacturer.
Charlie has previously served as in-house tax counsel for a foreign-owned manufacturing company with
over $25 billion in worldwide sales. In this position, Charlie assisted with out-from-under planning, dual
consolidated loss planning, cross-border debt restructuring, and repatriation planning. Charlie also
managed the international portion of the organization’s US tax compliance, including the filing of Forms
5471, 8858, 8865, 1120-F and 5472.
In addition, Charlie undertook an earnings and profits and stock basis study that covered over 150 US
entities, 10 consolidated groups, 50 years, and 100 mergers, transfers, or liquidations, including multiple
deconsolidations and group structure changes.
Professional and Industry Experience
Charlie has advised multinational manufacturers, global software companies, and international financial
entities.
CHARLIE KOHLER
Senior Manager,
International Corporate Tax
KPMG LLP
150 West Jefferson Avenue
Detroit, Michigan 48082
Tel 313-230-3035
Cell 586-214-5918
Fax 313-447-2404
Function and Specialization
Charlie is a Sr. Manager in KPMG’s Detroit office,
where he focuses on U.S. income tax issues
affecting multinational corporations.
Representative Clients •Benteler Automotive
•Ford Motor Company
•Key Safety Systems
•Magna International
Professional Associations
•International Fiscal Association
Education, Licenses & Certifications
•LL.M. in Taxation – Northwestern University School
of Law
•J.D. – Valparaiso University School of Law
•B.A. – Wayne State University
•Member, Michigan Bar.
© 2014 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.
Murilo Mello Partner
Professional and Industry Experience
Murilo Mello is a Partner at the International Corporate Tax & Transfer Pricing department, with experience
with tax structuring in large projects M&A deals. Murilo is also dedicated to Indirect Taxes and Trade &
Customs practice, involved in supply chain projects and general tax consulting.
Since 1996, Murilo has been working with tax audit, advisory services, tax planning and corporate
restructuring. He is currently working with domestic and foreign clients, as well as assisting other KPMG’s
offices, providing advice to multinational corporations on cross-border transactions, tax strategies and indirect
tax minimization projects.
Murilo has a Law Degree from Universidade Mackenzie – São Paulo and a post-graduate degree in Tax Law
from Universidade de São Paulo (USP). He also has a Master’s degree in Law in International Tax Law
(LLM) from the University of London (Queen Mary). He is a member of the Brazilian Bar Association (OAB).
Publications and Speaking Engagements
Mr. Mello is a frequent speaker on subjects in Brazilian tax matters for a variety of groups, in Brazil or abroad
such as the Brazilian Bar Association, AICPA, FDC.
Mr. Mello is an invited professor at Brazilian Institute of Tax Law studies (Instituto Brasileiro de Direito
Tributario – IBDT).
MURILO MELLO
Brazilian Tax Partner
KPMG LLP
200 South Biscayne Blvd.
Suite 2000
Miami, FL 33131
Tel: +1 (305) 913-2781
Fax: +1 (305) 418-7378
Email: [email protected]
Function and Specialization
• Cross border mergers, acquisitions, corporate
reorganization, indirect taxes and TP
Education, Licenses & Certifications
• LLM, Taxation, University of London
• Law Degree, University Mackenzie, Sao Paulo –
Brazil
© 2014 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.
Jose Manuel Ramirez
Principal
Professional and Industry Experience
Jose Manuel Ramirez is the Partner in charge of the International Taxes practice with KPMG Cardenas
Dosal S.C., the Mexican member firm of KPMG International. He is seconded to KPMG LLP (U.S.), where
he heads the International Tax Team - Mexico in New York, a role he assumed in February 2006.
Jose Manuel joined KPMG in Mexico in 1993 and has more than 20 years of experience in providing tax
services to large multinational companies. His background encompasses domestic and international tax
planning, consolidation for tax purposes, corporate restructuring (liquidation/spin-offs), cross-border
transactions, M&A, indirect and excise duties, principal structure, site location, captive insurance, shared
services centers and tax incentives projects (including national filming projects), BEPS.
He has provided services to clients across a wide range of industries, including: energy, logistics,
transportation, distribution, manufacturing / Maquiladoras, food, tourism,
construction, telecommunications, wines and spirits, pharmaceutical, broadcasting and media, mining,
retail, private equity investors and banking.
Currently Jose Manuel is advising multinationals investing in the LATAM region as well as Mexican
Multinationals investing around the world, amongst others on the design of efficient supply chain
structures, being in charge of coordinate the KPMG network teams on the region.
Jose Manuel is a CPA in Mexico, and a member of the College of Public Accountants of Mexico, the
Mexican Institute of Public Accountants, and the International Fiscal Association Mexican Branch. He holds
a Tax Law Master’s degree from the Superior School of Legal Sciences.
Jose Manuel Ramirez
Partner
KPMG Mexico
345 Park Avenue, 13 Fl
New York, N.Y., 10154-0102
Tel 212-872-6541
Fax 718-228-9237
Cell 917-664-8607
Function and Specialization
Jose Manuel specializes in domestic and cross-
border tax planning, focusing on foreign
investments in the LATAM region as well as
LATAM entrepreneurs investing Worldwide.
.
Education, Licenses & Certifications
• Mexican CPA
• Tax Law Master from the Superior School of
Legal Sciences
• Member of the College of Public Accountants of
Mexico, Mexican Institute of Public Accountants
• Member of the International Fiscal Association
Mexican Branch
© 2014 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.
Jilesh Shah Senior Manager
Background
Jilesh is a Senior Manager from KPMG India, on long term rotation to USA, based out of the New York
Office
He has over 9 years of professional experience in advising multinational companies on entry strategy,
business entity structuring, cross border tax & regulatory matters, and tax controversy issues
Professional and Industry Experience
Over the years, Jilesh has advised multinational clients on entry strategy, JV structuring etc from an
international tax, Indian domestic tax and regulatory perspective
Jilesh has also advised on corporate mergers and acquisition, due diligence reviews, internal
reorganizations, buy-back of securities, minority buy-out, etc
He has been involved in tax litigation matters at various forums including Courts and have represented
clients before the Indian Revenue authorities
He has been involved in making representations to the Ministry of Finance and Corporate Affairs for
tax and regulatory matters
Jilesh has worked with clients from a cross section / diverse industry segments such as technology,
service, manufacturing, infrastructure, healthcare, consumer markets, pharmaceuticals, financial
services etc
Jilesh speaks regularly at various seminars and workshops organized in US and India
Jilesh Shah
Tel +1 1212 954 2707
Mobile +1 973 906 4448
Function and Specialization Jilesh is a member of the International tax practice,
providing corporate tax advice on international tax
issues, acquisitions and restructurings
Education, Licenses & Certifications • Chartered Accountant (Fellow of the Institute of
Chartered Accountants of India)
• Graduate in Commerce (Bachelor of Commerce
from H R College of Commerce, Mumbai
University
Languages English, Hindi, Gujarati
11
© 2014 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.
Caren S. Shein
Managing Director
Professional and Industry Experience
Ms. Shein advises clients on outbound and inbound international tax planning and compliance issues,
including foreign tax credit, subpart F, expense allocation, and permanent establishment. Her particular
area of expertise is the foreign tax credit, and she regularly writes, speaks and teaches in this area.
Caren is the author or co-author of numerous articles, including “Emergency Economic Stabilization Act
of 2008 – Throwing a Rope to the Ailing Financial Industry Tightens the Noose on Big Oil,” Tax
Management International Journal (February 2009), “Temporary Regulations Deny Foreign Tax Credits
for Amounts Paid Pursuant to “Structured Passive Investment Arrangements”, Tax Management
International Journal (October 2008), “New Temporary Regulations Under Section 905(c): A Big
Improvement but Puzzling Issues Still Remain,” Tax Management Journal (May 2008), “The IRS
Proposes a New Approach to Determine the Technical Taxpayer – Will it Work?,” Journal of Taxation of
Global Transactions (Fall 2006), “Section 905(c) – The Missing Piece of the Foreign Tax Credit Puzzle”,
Tax Management International Journal (January 2002), and “A Fresh View of Overall Foreign Losses and
Consolidated Returns”, Tax Management International Journal (May 1999).
Prior to joining KPMG, Ms. Shein was an attorney advisor at the Internal Revenue Service, Office of
Associate Chief Counsel (International). There she worked on rulings, regulations and litigation, primarily
relating to foreign tax credits. Ms. Shein began her career as a law clerk to the Honorable B. John
Williams, Jr., of the United States Tax Court.
CAREN S. SHEIN
Managing Director
KPMG LLP
2001 M Street, N.W.
Washington, D.C. 20036
Tel 202-533-4210
Fax 202-315-3164
Function and Specialization
Caren Shein is a managing director in the
International Corporate Services group of the
Washington National Tax Practice.
Education, Licenses & Certifications
• L.L.M., Georgetown University Law Center
• J.D., The American University, Washington
College
of Law, cum laude
• B.A., Yale University
© 2014 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.
Philip A. Stoffregen Principal
Background
Philip Stoffregen is an International Tax principal with KPMG’s Washington National Tax group.
Professional and Industry Experience
Phil has advised some of the largest corporations in the United States on a broad range of
international tax matters, including out-bound transfers of fixed assets and intellectual property, tax-
free restructurings of foreign subsidiaries, tax-free and taxable international acquisitions and
dispositions, cash repatriation and foreign tax credit utilization planning, subpart F and passive
foreign investment company issues, and planning to utilize foreign losses.
He has assisted in structuring international joint ventures in many jurisdictions, including Canada,
Mexico, the U.K., Germany, Japan, China, France, the Czech Republic, Australia, Brazil, and
Venezuela. Phil has advised on the U.S./International tax aspects of two major public company spin
off transactions. He also has substantial experience in tax controversy matters at both the audit and
appeals levels, and, as a partner at Kirkland & Ellis and Jenner & Block, represented clients at both
Federal District Court and Tax Court.
Publications and Speaking Engagements
Phil has numerous publications on various tax subjects, is a frequent lecturer on international tax
topics, and has served as an adjunct professor in the DePaul Law School and Chicago-Kent Law
School LLM programs.
Philip A. Stoffregen International Tax Principal
KPMG LLP
150 West Jefferson
Suite 1200
Detroit, MI 48226-4429
Tel 313-230-3223
Cell 313-377-2797
Fax 313-668-6260
Function and Specialization Phil is a member of the Washington National Tax International Corporate Services practice, specializing in U.S. income tax issues affecting U.S. based multinationals. Professional Associations Admitted Member, International Fiscal Association
Education, Licenses & Certifications BA, Earlham College
PhD and JD, University of Chicago
© 2014 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.
Wayne Tan Senior Manager
Background
Wayne is a Certified Tax Agent in China with more than nine years of experience in providing advisory
on China tax, foreign exchange, customs and business regulatory. He is currently on a long-term
secondment in the U.S. to assist U.S. companies’ investment and business in China.
Professional and Industry Experience
Wayne has extensive experience in providing advisory services to multinational conglomerates for their
investment in China. He has helped various multinational companies for their entry strategy into China,
holding structure, financing, incentive policy application, supply chain planning, group restructuring and
investment exit strategy etc. In addition, he has assisted in numerous tax due diligence and tax health
check review engagements.
In 2009, Wayne has worked in KPMG Dublin for a period of time participating in advisory to Irish
investors for their investment and business in China.
Publications and speaking engagements
Wayne has presented at various internal and external events for China tax matters.
Wayne Tan Senior Manager, Tax
International Corporate Service
China Center of Excellence
KPMG LLP
3975 Freedom Circle Drive, Mission Tower 1, Suite
100
Santa Clara, CA95054
Tel 408-367-1574
Fax 408-516-8914
Cell 650-279-8697
Function and Specialization China tax, business regulatory, foreign exchange advisory for market entry strategy, operation, M&A and restructuring.
Education, Licenses & Certifications Master degree of engineering
China Certified Tax Agent
© 2014 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.
Kortney Wallace
Managing Director
Background Kortney is a Managing Director leading the international tax team in the Mid-America region which includes
Michigan, Ohio, Indiana, and Kentucky. Kortney has over 14 years of experience advising multi-national
corporations on their international activities. Kortney spent over 8 years as part of KPMG’s Washington
National Tax practice.
Professional and Industry Experience
Kortney has advised multinational corporations on a broad range of international tax matters including both
inbound and outbound tax issues such as international mergers and acquisitions, out-bound property
transfers, taxable and tax-free group restructuring of foreign subsidiaries, repatriation and debt servicing,
foreign tax credit utilization planning, subpart F and contract manufacturing, cross-border financing, and
planning to utilize foreign losses.
Kortney has advised on many transactions and provided both tax due diligence and tax structuring advice in
several industries. For example:
Provided inbound tax planning advice for foreign corporations on exposure to U.S. taxation stemming
from investments in the U.S. and recommended various tax-efficient structures.
Examined U.S. and foreign tax implications of a large multinational converting to a limited liability
structure and helped to navigate the effects for on withholding tax under a number of income tax treaties.
Advised numerous foreign corporations in the U.S. on maximizing administrative efficiency and
minimizing tax exposure by establishing client-specific corporate structures, including establishing
controlled corporations in foreign countries.
Assisted a major retailer with restructuring of its off-shore procurement functions to avoid subpart F and
achieve state tax benefits.
Worked with several companies on IP migration issues.
KORTNEY WALLACE
Managing Director
KPMG LLP
150 West Jefferson
Suite 1900
Detroit, Michigan 48226
Tel 313-230-3056
Fax 313-447-2377
Cell 248-761-9175
Function and Specialization
Kortney is a Managing Director leading the
International Tax practice in Mid-America. She
spent 8 years as a member of KPMG’s
Washington National Tax practice specializing in
U.S. income tax issues affecting multinational
corporations.
Representative Clients
General Motors Company
Steelcase Inc.
Macy’s Inc.
Delphi LLP
Visteon
BorgWarner, Inc
Education, Licenses & Certifications
BA degree, University of Michigan
LLM degree in taxation, Georgetown University
JD degree, The Thomas M. Cooley Law
School, cum laude
© 2014 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.
Aziza Yuldasheva Senior Manager
Background
■ Aziza is a senior manager in the International Tax group of KPMG’s Washington National Tax practice. She
joined KPMG LLP in Detroit in 2007 after practicing law at a law firm; she transferred to WNT in 2010.
Professional and Industry Experience
■ Aziza consults regarding U.S. taxation of multinational companies, their outbound and inbound operations,
restructuring, M&A, refinancing, and other transactions.
■ Most recently, Aziza played an integral role in several components of a multi-million dollar engagement with
the largest publicly traded company in its industry sector, from planning and opinions to implementation and
reporting (tax and financial). The engagement involved internal restructuring, utilization of operational as well
as shareholder and creditor losses, cash repatriation, foreign tax credit utilization, migration of intellectual
property, refinancing of intra-consolidated group debt, and leveraged partnership structuring.
■ Other recent projects on which Aziza worked include: a feasibility analysis of a merger and redomestication
transaction (including section 7874 modeling, and shareholder gain and excise tax mitigation);
reorganization of a multinational manufacturing group; financing of a foreign target acquisition; and supply
chain restructuring projects.
■ In addition, Aziza frequently fields questions regarding cost-sharing agreements and other issues under
section 482, IC-DISCs, PFICs, subpart F branch rules, foreign currency, and complex post-transaction tax
reporting.
■ Aziza contributes to publications (including updates to a PLI publication on cross-border reorganizations and
section 367) and presents on various technical subjects both internally (including at firm-wide training) and
externally (e.g., at BNA CITE and, in the past, to a Fortune 10 company’s tax group).
AZIZA YULDASHEVA
Senior Manager
KPMG LLP
Suite 1200
1800 K Street, NW
Washington, D.C. 20006
Tel: 202-533-4547
Function and Specialization
■ International Tax
Professional Associations
■ Member, State Bar of Michigan
Education, Licenses & Certifications
■ LLM, Georgetown University Law
Center
■ JD, Wayne State University Law
School (Cum Laude; Law Review)
■ BBA (International Business: Finance
& French), Eastern Michigan University
(Magna Cum Laude)
© 2014 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.
The KPMG name, logo and “cutting through
complexity” are registered trademarks or trademarks
of KPMG International.