On December 16, 2016, the IRS released the final regulations under Section 367 that address the tax consequences of outbound asset transfers. The impact of these regulations could change how businesses plan for foreign entity restructurings and check-the-box elections. The final regulations are effective for transfers occurring before September 14, 2015, and for transfers taking place on or after September 14, 2015, for which a check-the-box election is filed on or after September 14, 2015.

The final regulations impose the following:

  • Goodwill and going concern value will be subject to the deemed sale rules.
  • When the useful life of the transferred property is expected to exceed 20 years, the taxpayer may choose to limit income inclusions to a 20-year period if the income recognized during that period reasonably reflects what would be required over the useful life of the property.
  • The scope of property eligible for the active trade or business exception has been limited to primarily tangible property.

These final regulations impact entity selection planning as well as planning for acquisitions and restructurings of foreign entities. Previously non-taxable restructuring of foreign entities and branches now bring with them a tax burden that should be considered, as demonstrated in the example below.

Temporary Regulations

Final Regulations

 

Asset Balance

US Tax Cost*

 

Balance

US Tax Cost*

Cash

100,000

0

Cash

100,000

0

Fixed Assets (NBV)

250,000

0

Fixed Assets (NBV)

250,000

0

Goodwill (zero basis)

350,000

0

Goodwill (zero basis)

350,000

122,500

 

700,000


0

 

700,000


122,500

* Assumes tax rate of 35%

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Foreign Corrupt Policies Act: Are you in compliance?

by AJ Iafrate on January 16, 2017

The Foreign Corrupt Policies Act (FCPA) prohibits companies from bribing foreign officials. While it’s been in place since 1977, the Securities and Exchange Commission and the Department of Justice have accelerated the pursuit of companies in violation. Consider the recent Biomet case that resulted in a $30 million penalty — and they’re not the only company under the microscope. At the close of 2016, there were 81 companies subject to ongoing and unresolved FCPA-related investigations. This begs the question, is your company in compliance?

Although avoiding bribes may seem like a common-sense measure, as U.S. companies increase their worldly influence, the U.S. government has expanded the definition of what can be considered bribery. In addition to obvious violations, companies can be penalized for activities like filling prestigious positions with unqualified candidates who are related to government officials or purposefully doing business with known prohibited foreign companies.

With a lot of room for interpretation, if your company has middle-market operations abroad, it’s important that you make FCPA monitoring a high priority. At minimum, companies should have a written FCPA policy that’s shared and explained to employees. This is particularly important in countries with state-owned enterprises that acquire private businesses. FCPA compliance has also become a concern in M&A due diligence, since legal liability for violations will be inherited by the buyer.

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What does Ford’s announcement mean for internationally minded businesses?

January 3, 2017

Just yesterday, Ford announced that it’s cancelling plans to build a new plant in Mexico, instead opting to invest $700 million in Michigan, creating 700 new jobs. As CNN Money points out, this is surprising—“a major U-turn for Ford.” While it is a “vote of confidence” in president-elect Donald Trump as CEO Mark Fields states, […]

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Final Section 987 regulations provide guidance to certain qualified business units

December 28, 2016

On December 7, 2016, the IRS and Treasury Department released final and temporary regulations to Section 987, which provides guidance on taxable income of a qualified business unit (QBU) operating in a functional currency other than the U.S Dollar. Following are the highlights: Final Regulations The final regulations closely resemble proposed regulations issued in 2006, […]

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Have you been waiting for a Tax Repatriation Holiday?

December 28, 2016

While President-elect Trump’s tax plan is expected to lower the top corporate tax rate from 35 percent to 15 percent, the plan also calls for a repatriation of foreign corporate profits at a reduced rate –– providing a onetime tax rate of 10 percent on corporate profits abroad. While specific details of this plan are […]

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New information fields for Mexican payroll CFDI (electronic invoices) required

December 14, 2016

The Mexican Tax Administration Service (“SAT” per its Spanish acronym) recently published new standards for CFDI Payroll information requirements, which will be mandatory for all employers effective Jan.1, 2017. The new Payroll CFDI information requirements are as follows: Individual: Must include their CURP (personal identification number) Corporation: Must include their RFC (Federal Taxpayer ID) For […]

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China releases the Common Reporting Standard (“CRS”)

December 6, 2016

On January 01, 2017, China Mainland and Hong Kong will adopt Common Reporting Standards (CRS) –– a new method used by governments around the world to create transparency on cross-border information. CRS was introduced by the Organization for Economic Co-Operation and Development in 2014 as part of the standard for Automatic Exchange of Financial Account […]

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The Mexican tax authority (“SAT”) and the Internal Revenue Service (“IRS”) have announced a joint agreement to expedite the Advanced Pricing Agreement process for maquiladora operations in Mexico

October 25, 2016

After two years of negotiations, the SAT and the IRS have announced a new transfer pricing methodology intended to expedite open Advanced Pricing Agreement (“APA”) applications for maquiladora operations. In an attempt to apply fair tax methodologies and avoid double taxation for US companies with subsidiaries located in Mexico operating under the maquiladora structure, the […]

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Mexican court ruling may have significant impact on certain tax structures

September 15, 2016

A recent Mexican court ruling may have significant impact on certain operating structures A Mexican court has recently issued a ruling intended to clarify the rules surrounding certain personal services structures commonly used in Mexico (e.g. outsourcing, insourcing, and subcontracting services). Companies that utilize a dual Mexican entity structure or a third party outsourcing company […]

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Apple ruling spells uncertainty for European cross-border tax planning

September 9, 2016

In a tax ruling handed down by the European Union, Ireland must recover unpaid taxes from Apple equivalent to 14.6 billion U.S. dollars. The European Commission’s ruling finds fault with the company’s perceived diversion of profits to two Irish home office “shell” companies, which paid little or no taxes under the specific provisions granted by […]

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