Daily Tax Update - April 14, 2016: WTO Issues Decision in Panama/Argentina Defensive Tax Measures Dispute

WTO Issues Decision in Panama/Argentina Defensive Tax Measures Dispute:  The World Trade Organization (WTO) Appellate Body issued a decision today rejecting claims by Panama that a set of defensive tax measures maintained by Argentina are inconsistent with the obligations of most-favored nation and national treatment under the General Agreement on Trade in Services (GATS).  The ruling effectively ensures that WTO members may continue to maintain laws and regulations that protect national tax revenues against the consequences of taxpayers engaging in transactions with non-transparent jurisdictions.  Steptoe represented the Government of Argentina in this dispute.  

IRS Withdraws Portion of Proposed Nondiscrimination Regulations:  Today, the IRS released Announcement 2016-16 withdrawing certain provisions of proposed regulations published on January 29 (81 FR 4976) relating to nondiscrimination requirements applicable to qualified retirement plans under section 401(a)(4).  The IRS stated that further consideration was needed for the withdrawn provisions.

Ways and Means Holds Hearing on the Tax Treatment of Healthcare:  Today, the House Ways and Means Committee held a hearing on the tax treatment of healthcare and discussed possible ways to reform the tax exclusion for employer sponsored coverage. 

The witnesses were:

  • Joseph Antos, Wilson H. Taylor Scholar, American Enterprise Institute
    Testimony
  • Avik Roy, Senior Fellow, Manhattan Institute
    Testimony
  • Steven Kreisberg, Director of Research and Collective Bargaining Services, AFSCME
    Testimony 

DTU IN DEPTH

Treasury, IRS Issue Expansive Proposed Regulations Impacting Related-Party Financing:  On April 4, Treasury and the IRS issued proposed regulations under section 385 (REG-108060-15) that would greatly expand the IRS’s ability to recast related-party debt as equity.  Although issued in conjunction with a separate regulations package addressing inversion transactions and described by Treasury and the IRS as “motivated in part by enhanced incentives for related parties to engage in transactions that result in excessive indebtedness in a cross-border context,” the proposed rules apply more broadly to related-party indebtedness without regard to whether the parties are domestic or foreign or inverted companies.  (The proposed regulations do not, however, apply to issuances of debt among members of a consolidated group on the theory that the policy concerns driving the regulations are not present when interest income and interest expense offset in consolidation.)  The regulations propose to: (i) allow the IRS to bifurcate debt instruments into part debt and part equity; (ii) establish documentation requirements that must be satisfied in order for certain related-party debt to be respected as debt; and (iii) automatically recharacterize certain related-party debt as equity.  Click here for more in depth coverage.

Inversion Regulations Implement Prior Notices and Add New Provisions:  On April 4, Treasury and the IRS issued final and temporary (T.D. 9761) and proposed regulations (REG-135734-14) under sections 7874 and 367 to address certain inversion transactions and certain-post inversion “tax avoidance” transactions.  The temporary regulations implement (with some modifications) anti-inversion rules that were issued in two notices in 2014 and 2015.  The regulations also implement new rules not previously included in the prior notices, including a rule to address so-called “serial inversions” where a foreign corporation combines with a series of US corporations and where section 7874 would otherwise have applied if the acquisitions had been made at the same time or pursuant to a plan (or series of related transactions).  The new rules have already halted at least one major planned combination.  For more in depth coverage, click here