Daily Tax Update - February 23, 2016: Reps. Levin and Van Hollen Introduce 'Earnings Stripping' Bill to Further Deter Corporate Inversions

Join us!  We cordially invite you to attend Steptoe’s cocktail reception during the 2016 Tax Executives Institute Midyear Conference on Monday, March 14 from 6 – 8:00 p.m. at the Grand Hyatt Hotel in Washington, DC.  The reception will be held in the Declaration AB room.  Please RSVP to events@steptoe.com if you plan to attend.

Reps. Levin and Van Hollen Introduce ‘Earnings Stripping’ Bill to Further Deter Corporate Inversions:  Today, Ways and Means Committee Ranking Member Sander Levin (D-MI) and Budget Committee Ranking Member Chris Van Hollen (D-MD) introduced the Stop Corporate Earnings Stripping Act of 2016 (H.R. 4581).  In the case of any US corporation that inverts on or after May 8, 2014, the legislation would further limit the foreign-controlled inverted group’s ability to “strip” its US tax base.  The bill would: (1) repeal the debt-to-equity ratio threshold; (2) reduce the permitted net interest expense threshold to no more than 25% of the entity’s adjusted taxable income; (3) repeal the excess limitation carryforward; and (4) permit disallowed interest expense to be carried forward only for five years (rather than indefinitely under present law).  The limitations would apply if historical shareholders of the US entity own more than 50% (but less than 80%) of the new foreign parent entity following an inversion.  (Under current law, if the continuing ownership of historical shareholders of the domestic corporation in the foreign acquiring corporation is 80% or more (by vote or value), the new foreign parent corporation is treated as a domestic corporation for all US tax purposes.)  A summary of the bill is available here.

OECD Agrees to New Framework Allowing All Interested Countries to Participate in Implementation of BEPS Measures:  Today, as part of the Base Erosion and Profit Shifting (BEPS) project, the Organization for Economic Cooperation and Development (OECD) agreed to a new framework that would allow all interested   countries and jurisdictions to participate as BEPS Associates in an extension of the OECD’s Committee on Fiscal Affairs (CFA).  According to a press release, as BEPS Associates, such countries and jurisdictions would be able to “work on an equal footing with the OECD and G20 members” in implementing the final recommendations under the OECD/G20 BEPS project.  The proposal for broadening participation in the BEPS project will be presented to G20 Finance Ministers at their next meeting on February 26 and 27 in Shanghai, China.  

Miscellaneous Guidance:
Today, Treasury and the IRS released corrections to proposed regulations (REG-109822-15) issued in December 2015.  The proposed regulations would require annual country-by-country reporting by United States persons that are the ultimate parent entity of a multinational enterprise group.

Revenue Procedure 2016-15 sets forth, for purposes of Treas. Reg. § 1.142-5T(c)(2)(iii)(B), the minimum number of low-income units in a low-income housing project for which a state or local housing credit agency must conduct physical inspections and low-income certification reviews.