Tax Advisers - Deloitte

United States
Foreign tax credit
Following an adverse decision of the Court of Federal Claims in the Guardian
Industries case, the IRS issued proposed regulations clarifying and amending the
technical taxpayer rule, which determines who the taxpayer is with respect to foreign
income taxes and, therefore, which person is entitled to claim credits for such taxes
under US tax law. The proposed regulations would apply, in particular, to foreign
consolidated groups, hybrid entities and reverse hybrids.
Killer B transactions
The IRS announced its intent to issue regulations that target perceived abuses of
certain triangular reorganizations involving one or more foreign corporations. Known
as Killer B transactions, such reorganizations allow CFCs or US subsidiaries of foreign
parent companies to repatriate earnings free from US tax to the parent company. The
regulations would put an end to Killer B transactions.
Allocation of foreign tax
Final regulations provide rules for properly allocating partnership expenditures for
foreign taxes. The regulations generally adopt a safe harbour, under which partnership
allocations of foreign tax expenditures will be respected if they match the partnership’s
allocation of underlying income. However, they also add many details and specific and
complex rules.
Portfolio interest
Proposed regulations were issued on the exclusion from gross income of portfolio
interest paid to a non-resident foreign corporation or alien individual, clarifying how
the 10% shareholder test in the portfolio interest rules applies.
Tax shelters
The IRS issued proposed amendments to the tax shelter disclosure regulations,
including the creation of a new transactions of interest category of reportable
transactions. Current rules impose significant penalties on taxpayers and advisers who
fail to disclose reportable transactions.
While none of the year’s developments could be described as radically altering the US
international tax landscape, taken as a whole, they undeniably add to its complexity
and mean that multinationals will need to modify certain international tax planning
strategies. It is hard to envisage this complexity decreasing in the foreseeable future,
when it is actually compounded by measures that purport to have the intent of
reducing the compliance burden.
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