On January 4, 2022, the IRS and US Treasury issued final regulations regarding whether a foreign tax is eligible to claim as a foreign tax credit applying to tax years beginning on or after December 28, 2021. These regulations greatly complicated the rules governing claiming a foreign tax credit.
On April 25, 2023, the IRS published an interim guidance memorandum for agents and other employees of their Treaty and Transfer pricing operations practice.
In a landmark decision, the U.S. Tax Court ruled in favor of Medtronic, Inc. in a dispute over transfer pricing. The Court held that the Internal Revenue Service (IRS) had failed to prove that Medtronic had underpaid its taxes by using an arm’s-length price for its intercompany transactions.
Since its inception in 1971 and subsequent modifications, the IC-DISC has had its benefits surge and diminish following the variation of tax rates.
In this webinar presented by Jason Rauhe and Jerry Hammel, we’ll break down the myths and complexities of transfer pricing. We’ll review required compliance forms as well as the economics behind international transactions. Attendees will learn how to leverage a transfer pricing study as a genuine planning tool that can result in the reduction of a company’s global effective tax rate rather than a mere compliance obligation.
Recently, the IRS published their list of countries that require participation in doing international business with a boycotting country per Internal Revenue Code Section 999(a)(3).
The Sixth Circuit Court of Appeals in Eaton Corp. v. Commissioner has resolved a longstanding dispute over the cancellation of two advance pricing agreements (APAs) by the IRS.
The Sixth Circuit Court of Appeals in Eaton Corp. v. Commissioner has resolved a longstanding dispute over the cancellation of two advance pricing agreements (APAs) by the IRS.
On April 3, the IRS released Notice 2023-31, detailing that when proposed regulations under Section 903 are codified, the IRS and the U.S. Treasury Department intend to extend the transition period for the single-country exceptions documentation requirement.
On April 3, 2023, the U.S. Tax Court ruled in favor of Mr. Alon Farhy against the IRS.
New 2022 Regulations - Foreign Tax Credits
On January 4, 2022, the IRS and US Treasury issued final regulations regarding whether a foreign tax is eligible to claim as a foreign tax credit applying to tax years beginning on or after December 28, 2021. These regulations greatly complicated the rules governing claiming a foreign tax credit.
Under Section 901, US persons and corporations are entitled to a foreign tax credit for “the amount of any income, war profits, and excess profits taxes paid or accrued during the tax year to any foreign country or any possession of the United States.” Prior to December 28, 2021, a payment of a foreign tax was creditable for US tax purposes if:
- it was a compulsory payment pursuant to the authority of a foreign government to levy taxes,
- the predominant character of the foreign tax was an income tax in the US sense, and
- a two-part test was completed to satisfy the “predominant character test.”
In 2020, the IRS and Treasury issued proposed regulations that added a Jurisdictional Nexus Requirement to the above requirements in order to claim a credit for a foreign tax. Under the Jurisdictional Nexus Requirement, a foreign tax will be creditable for US tax purposes only if the foreign country imposing the tax has sufficient nexus to a US taxpayer’s business activities, investment of capital, or other assets that gave rise to the foreign income and foreign tax.
For a nonresident taxpayer assessed a foreign tax by a foreign country, sufficient nexus would be satisfied if one of three nexus tests was met. This included an activities-based nexus, source-based nexus, and property-based nexus. Under these three tests, a US taxpayer assessed a foreign tax was creditable for US tax purposes if any allocation of income, gain, deduction, or loss between a resident taxpayer and a related or controlled entity under the foreign country’s transfer pricing rules would follow arm’s-length principles.
The finalized 2022 regulations generally carry over much of the verbiage of the 2020 proposed regulations. However, the 2022 final regulations change the name of the “Jurisdictional Nexus Requirement” to “Attribution Requirement.” The final regulations also require US taxpayers to understand how a transaction is characterized or sourced under foreign law and compare such analysis to the Internal Revenue Code to determine whether such tax is “reasonable.”
The IRS and Treasury recently released a final set of regulations governing the ability of taxpayers to claim foreign tax credits, which add increased complexity and require further analysis to confirm eligibility.
Please reach out to McGuire Sponsel’s Global Business Services team to discuss any situations in more detail.
Greg Lambrecht, CPA, is a Shareholder in the firm’s Global Business Services practice and advises clients on international tax matters including understanding the consequences and opportunities associated with global tax planning decisions. He also assists clients in managing increasingly complex compliance requirements of companies with international operations.
Lambrecht joins McGuire Sponsel from the Big Four with over a decade of experience leading complex international tax projects for Fortune 150 clients and over 20 years of total experience in international tax.
Recent Resources
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blogGlobal Business ServicesJune 2, 2023IRS Internal Guidance; a Focus on Advanced Pricing Agreements
by Greg Lambrecht, CPAOn April 25, 2023, the IRS published an interim guidance memorandum for agents and other employees of their Treaty and...
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blogGlobal Business ServicesMay 26, 2023
Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner of Internal Revenue
by John Bodur, MBAIn a landmark decision, the U.S. Tax Court ruled in favor of Medtronic, Inc. in a dispute over transfer pricing....
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blogGlobal Business ServicesMay 19, 2023
IC-DISCs: Still A Valuable Tax Savings Vehicle For Certain Export Companies
by Josh RikerSince its inception in 1971 and subsequent modifications, the IC-DISC has had its benefits surge and diminish following the variation...
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blogGlobal Business ServicesMay 12, 2023
U.S. Treasury Releases List of Countries Requiring Cooperation with an International Boycott; No Changes
by Greg Lambrecht, CPARecently, the IRS published their list of countries that require participation in doing international business with a boycotting country per...