Overview
IRS and Treasury Release Proposed BEAT Regulations: The IRS and Treasury released proposed regulations under section 59A, section 6038A, and related sections that provide guidance regarding the tax on base erosion payments of taxpayers with substantial gross receipts and reporting requirements thereunder. Section 59A, enacted by the Tax Cuts and Jobs Act (TCJA), Pub. L. 115-97, imposes on each applicable taxpayer a tax equal to the base erosion minimum tax amount for the taxable year (the base erosion and anti-abuse tax or BEAT). The TCJA also added reporting obligations regarding this tax for 25-percent foreign-owned corporations subject to section 6038A and foreign corporations subject to section 6038C and addressed other issues for which information reporting under those sections is important to tax administration. The preamble notes that the position set out in Notice 2018-28, 2018-16 I.R.B. 492, that business interest carried forward from a taxable year beginning before January 1, 2018, will be treated in the same manner as interest paid or accrued in a taxable year beginning after December 31, 2017, for purposes of section 59A.
The Treasury Department and the IRS have determined that the approach described in Notice 2018-28 is not consistent with the general effective date provision in section 14401(e) of the Act because the language in section 163(j)(2) deeming a recurring “payment or accrual” is primarily to implement the carryforward mechanism in section 163(j), rather than to treat interest that is carried forward to a subsequent taxable year as paid or accrued for all tax purposes in that subsequent taxable year. Accordingly, the proposed regulations do not follow the approach described in Notice 2018-28. Instead, the proposed regulations provide that any disallowed disqualified interest under section 163(j) that resulted from a payment or accrual to a foreign related party and that is carried forward from a taxable year beginning before January 1, 2018, is not a base erosion payment. The proposed regulations also clarify that any disallowed business interest carryforward under section 163(j) that resulted from a payment or accrual to a foreign related party is treated as a base erosion payment in the year that the interest was paid or accrued even though the interest may be deemed to be paid or accrued again in the year in which it is actually deducted.
The proposed regulations state that:
Under section 7805(b)(2), and consistent with the applicability date of section 59A, these regulations (other than the proposed reporting requirements for QDPs in proposed §1.6038A-2(b)(7)) are proposed to apply to taxable years beginning after December 31, 2017. Until finalization, a taxpayer may rely on these proposed regulations for taxable years beginning after December 31, 2017, provided the taxpayer and all related parties of the taxpayer (as defined in proposed §1.59A-1(b)(17)) consistently apply the proposed regulations for all those taxable years that end before the finalization date. With respect to the reporting requirements for QDPs, proposed §1.6038A-2(b)(7)(ix) applies to taxable years beginning one year after final regulations are published in the Federal Register, although simplified QDP reporting requirements provided in §1.6038A-2(g) are also proposed to apply to taxable years beginning after December 31, 2017.
IRS and Treasury Issue Proposed FATCA Regulations and Additional Guidance: The IRS and Department of Treasury issued proposed regulations under the Foreign Account Tax Compliance Act (FATCA) and Chapter 3 of the Internal Revenue Code. The proposed rules, which are intended to reduce taxpayer burden with respect to certain requirements under FATCA and Chapter 3, would eliminate withholding on payments of gross proceeds, defer withholding on foreign passthru payments, clarify the definition of investment entity, and eliminate withholding on certain insurance premiums. In particular, the proposed regulations provide that premiums for insurance contracts that do not have cash value are excluded nonfinancial payments and, therefore, are not withholdable payments. The notice of proposed rulemaking also includes guidance concerning certain due diligence requirements of withholding agents and guidance on refunds and credits of amounts withheld.
The proposed regulations state that:
Under section 7805(b)(1)(C), taxpayers may rely on the proposed regulations until final regulations are issued, except as otherwise provided in this paragraph. With respect to the elimination of withholding on non-cash value insurance premiums under proposed §1.1473-1(a)(3)(iii), the clarification of the definition of a ‘managed by’ investment entity under proposed §1.1471-5(e)(4)(i)(B), and the revised allowance for a permanent residence address subject to a hold mail instruction under proposed §§1.1441-1(c)(38) and 1.1471-1(b)(99), taxpayers may apply the modifications in these proposed regulations for all open tax years until final regulations are issued. For the revisions included in these proposed regulations that relate to credits and refunds of withheld tax, taxpayers may not rely on these proposed regulations until Form 1042 and Form 1042-S are updated for the 2019 calendar year.
In addition, the IRS released a FATCA News & Information bulletin with additional guidance and a reminder that, for the certification period ending December 31, 2017, FATCA certifications generally are due no later than December 15, 2018.
Finance Committee Unanimously Advances Courtney Dunbar Jones Nomination to Tax Court: Senate Finance Committee Chairman Orrin Hatch (R-UT) announced that the nomination of Courtney Dunbar Jones to be a Judge on the US Tax Court unanimously advanced out of the Committee.
European Parliament Agrees on New Rules to Tax Revenue of Digital Companies: The European Parliament announced that it adopted two opinions on the proposals for Council directives on the corporate taxation of a significant digital presence and a Digital Services Tax.
OECD Releases Report on Exchange of Information on Tax Rulings: The OECD released a report titled Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings. The report, as part of the Inclusive Framework on Base Erosion and Profits Shifting (BEPS), assesses 92 individual jurisdictions’ progress in spontaneously exchanging information on tax rulings, in accordance with Action 5 of the BEPS action plan.
Miscellaneous Guidance Released:
Revenue Procedure 2019-10 modifies Revenue Procedure 2018-31 to provide procedures for an insurance company to obtain automatic consent of the IRS Commissioner to change its method of accounting to comply with section 807(f), as amended by section 13513 of the TCJA. This revenue procedure also modifies Revenue Ruling 94-74 and Revenue Ruling 2002-6.