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Fascinating reading

Kitty Miv, Editor
20 June, 2019

This week our focus is on the United States, which gets an honorable mention for its various tax reform accomplishments, while the IMF does likewise... well, just for being so busy (or should that be such a busy-body?)

Speaking with regard to Norwegian tax policy, the International Monetary Fund praised the government for "continuing to shift taxation away from direct taxes toward less-distortionary indirect taxes."

It went on to welcome efforts by the Norwegian authorities to make the tax system more efficient, in particular, lowering tax incentives on housing and broadening the VAT base, in response to "spending pressures from worsening demographics together with slower growth of the sovereign wealth fund [which] would reduce space under the fiscal rule in the medium term, requiring expenditure savings or new sources of revenue to accommodate new policy initiatives. Fascinating reading, no?

With regard to the Irish report, the conclusions reached by the Fund were slightly more dynamic, focusing on the potential upside for Ireland of Brexit – if, and only if – it is fully and accurately implemented as the EU as a 27 country bloc requires.

The document also commented on the impact of international corporate reforms on the republic,

It argued that: "While the effects of the recent U.S. CIT reform have been limited so far, significant changes in tax planning strategies of U.S. MNEs, which play an important role in the Irish economy and contribute significantly to CIT revenue, would reduce investment and tax revenues. In addition, full implementation of the G-20/OECD Base Erosion Macroeconomic Projections, 2017–24... and Profit Shifting (BEPS) initiative, including the EU Anti-Tax Avoidance Directives (ATAD), and unilateral introduction of digital taxes in more EU member countries may somewhat reduce corporate profits taxed in Ireland. Mitigation policies would include tax-base broadening in a growth-friendly manner."

Which brings us to the matter of US reforms, and more specifically reforms to the country's tax authority's policies.

While the international tax policy reforms have been grabbing the headlines recently, for obvious reasons, reforms to the IRS are, if not quite as important, then still necessary.

On June 13, 2019, the US Senate approved the Taxpayer First Act, which is intended to overhaul the Internal Revenue Service and strengthen taxpayer rights.

According to a statement issued by Senate Finance Committee Chairman Chuck Grassley (R-IA), the Taxpayer First Act, which was approved by the House of Representatives on June 10, 2019, will:

  • Establish an independent office of appeals within the IRS;
  • Require the IRS to submit to Congress plans to redesign the structure of the agency to improve efficiency, modernize technology systems, enhance cyber security, and better meet taxpayer needs;
  • Include a number of provisions to help protect taxpayers from tax ID theft and improve taxpayer interaction with the IRS should they become a victim of this crime;
  • Expand to all taxpayers an IRS program that currently only allows victims of tax ID theft to obtain a personalized PIN that better secures their identity;
  • Put in place new safeguards to protect taxpayers against recent IRS enforcement abuses of so-called "structuring laws";
  • Improve the IRS whistleblower program by:
    • authorizing the IRS to communicate with whistleblowers during the processing of their claims, while also protecting taxpayer privacy; and
    • extending anti-retaliation provisions to IRS whistleblowers that are presently afforded to whistleblowers under other whistleblower laws;
  • Modify the private debt collection program to ensure lower-income Americans are not targeted, while also strengthening the long-term viability of the program; and
  • Codify the successful Volunteer Income Tax Assistance (VITA) program, allowing the IRS up to USD30m for matching grants to qualifying tax preparation sites.

The legislation must be approved by the President before becoming law.

The IRS then subsequently on June 14, 2019, the US Internal Revenue Service announced that it was looking for new applicants for the Compliance Assurance Process (CAP), a cooperative compliance program aimed at publicly traded corporate taxpayers.

Launched in 2005, the CAP is designed to improve federal tax compliance by resolving issues prior to the filing of a tax return through interactions between the IRS and taxpayers. New applicants to CAP have not been accepted since 2015.

The CAP requires a contemporaneous exchange of information related to a taxpayer's proposed return positions and its completed events and transactions that may affect federal tax liability. According to the IRS, successful conclusion of the CAP allows the IRS to achieve an acceptable level of assurance regarding the accuracy of the taxpayer's filed tax return and to substantially shorten the length of the post filing examination.

To be eligible for CAP, applicants must:

  • Have assets of USD10m or more;
  • Be a US publicly-traded C-Corporation with a legal requirement to prepare and submit Forms 10-K, 10-Q, and 8-K to the Securities and Exchange Commission;
  • Not be under investigation by, or in litigation with, the IRS or another government agency that would limit the IRS's access to current corporate tax records; and
  • If currently under examination, must not have more than one open filed return and one open unfiled return on the first day of the applicant's CAP year, unless an exception applies.

Last but not least on June 14, 2019, and reflecting reforms made to international tax policy, the US Treasury Department and the Internal Revenue Service (IRS) issued final regulations concerning the global intangible low-taxed income (GILTI) regime under Section 951A, as well as final and proposed regulations concerning foreign tax credits, domestic partnerships, and subpart F income, and the treatment of certain controlled foreign corporation (CFC) income.

According to the IRS, the final GILTI regulations provide guidance to determine the amount of global intangible low-taxed income included in the gross income of certain US shareholders of foreign corporations, including US shareholders who are members of a consolidated group.

The final GILTI regulations retain, with certain modifications, the anti-abuse provisions that were included in the proposed regulations and revise the domestic partnership provisions to adopt an aggregate approach for purposes of determining the amount of global intangible low-taxed income included in the gross income of a partnership's partners under Section 951A with respect to CFCs owned by the partnership.

The final regulations also provide guidance relating to the determination of a US shareholder's pro rata share of a CFC's subpart F income and global intangible low-taxed income included in the United States shareholder's gross income, as well as certain reporting requirements relating to inclusions of subpart F income and global intangible low-taxed income.

In addition, the Treasury Department and the IRS issued final regulations under sections 78, 861 and 965 relating to certain foreign tax credit aspects of the transition to an exemption system for income earned through foreign corporations.

The Treasury Department and the IRS also issued proposed regulations regarding the treatment of domestic partnerships for purposes of determining amounts included in the gross income of their partners under section 951 with respect to CFCs owned by the partnership and the treatment of income of a CFC that is subject to a high rate of foreign tax under Section 951A.

The Treasury Department and the IRS have requested comments on these proposed rules.

And I think that's quite enough to be getting on with for this week, so I will leave you here!

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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