tei detroit chapter international topics outbound, inbound, and foreign-to-foreign: section 351...

TEI Detroit

Chapter

International

Topics

April 29, 2014

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

NDPPS 177853

1

AGENDA

8:30 – 8:45 Welcome Comments General Overview

8:45 –9:45 Compliance and Reporting Update (Holland/Yuldasheva)

9:45 –10:45 Cross Border M&A Update (Bodoh/Feinberg)

10:45-11:00 BREAK

11:00—12:00 Breakout--FTC Refresher (Shein) OR E&P and Hovering Deficits

(Jackman/Stoffregen)

12:00—1:00 Lunch

1:00—1:45 Hot Topics (Wallace/Kohler)

1:45—2:30 Breakout --India/China (Tan/Shah) OR Mexico/Brazil (Ramirez/Mello)

2:30—2:45 BREAK

2:45—3:30 FATCA Common Issues with Implementation (Riccardi/Wallace)

3:30—4:30 BEPS—Recent Discussion Drafts and Public Consultations

(Corwin/Blessing)

Tax Executives Institute

International Tax Session:

Compliance and Reporting

Refresher and Update

Michigan State University

Management Education Center

Troy, Michigan

April 29, 2014


International Tax Session:

Compliance and Reporting

Refresher and Update

Michigan State University

Management Education Center

Troy, Michigan

April 29, 2014


member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN

BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER

PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING

PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,

MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS

ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without

limitation, the tax treatment or tax structure, or both, of any transaction described in the associated

materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax

analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to

change. Applicability of the information to specific situations should be determined through

consultation with your tax adviser.



Panelists

Douglas Holland

KPMG WNT

Washington, D.C.

International Tax

Senior Manager

(202) 533-5746

[email protected]

Aziza Yuldasheva

KPMG WNT

Washington, D.C.

International Tax

Senior Manager

(202) 533-4547

[email protected]

mailto:[email protected]




Agenda

Tax-free transactions - common international compliance disclosures and elections

for outbound, inbound, and foreign-to-foreign:

Section 351 transfers

Section 368 reorganizations

Section 332 liquidations

“Current Events”

Changes to Form 5471

Section 1298(f) reporting

120 day response requirement for reasonable cause

Part I: U.S. Tax Reporting for

Cross-Border Restructurings

8



Suggested Approach to International Restructurings

First step – What is Sub C characterization of transaction?

Section 351 Exchange

Property, stock, control

Section 368 Reorganization (asset or stock)

Statutory requirements (Section 368(a)(1)…)

Non-statutory requirements (COBE, COI, BP, Plan of Reorg.)

Section 332 Liquidation

Stock ownership, plan of liquidation

Section 355 Distribution



Suggested Approach to International Restructurings

(Cont’d)

Step two – What category of transaction?

Outbound transfer

Inbound transfer

Foreign-to-foreign transfer

Step three – What are the relevant Section 367 provisions or regulations?

Step four – Any other relevant cross-border rules?



Key Provisions of Section 367

Section 367(a)

Outbound transfers of tangible assets and stock or securities (Sections 351, 354,

and 361)

Section 367(b)

Foreign-to-foreign transactions (Sections 351, 354, and 361)

Inbound transactions (Sections 332, 354, 361, and 355)

Section 367(d)

Outbound transfers of intangibles (Sections 351 and 361)

Section 367(e)

Outbound* and foreign-to-foreign Section 332 liquidations and outbound* Section

355 distributions

(*These “outbound” transfers are really an “inbound” fact pattern: a U.S.

corporation making tax-free distribution to its foreign shareholders)

Part IA: Section 351

Transfers

12



Sub

Section 351 Exchange

10b

100v

“property”

“control”

10b

100v

(358) “stock”

(and boot)

100%

No gain unless boot

(351(a), (b))

10b

100v

(362(a))

T

Parent Parent



Section 351 Exchange – General Compliance

“Significant” Transferor

Reg. Sec. 1.351-3(a) Statement

Significant

5% or more (vote or value) of publicly traded Transferee stock

1% or more (vote or value) of non publicly traded Transferee stock

Each US Shareholder reports if Significant Transferor a CFC

Transferee Corporation

Reg. Sec. 1.351-3(b) Statement

Each US Shareholder reports if Transferee a CFC

Not required if -3(a) Statement filed in same tax return



Section 351 Exchange – General Compliance (cont’d)

Substantiation information

Retain permanent records, including information regarding the amount, basis,

and FMV of distributed property, and relevant facts regarding any liabilities

assumed or extinguished

Proposed Sec. 1.362(e)-1 reg package [Sep. 2013] would require delineation

between:

I. Section 362(e)(1) “loss importation” property

II. Section 362(e)(2) “loss duplication” property

III. Property on which gain is recognized

IV. All other property



Section 351 Exchange – General Compliance (cont’d)

Section 362(e)(2)(C) election

Irrevocable election to apply basis limitation to transferee stock

Secretary to prescribe procedures for election

Sep. 2013 Regulations (T.D. 9633)

Transferor files prescribed certification statement with tax return

Transferor a CFC or CFP – controlling U.S. shareholder(s) or partners file

Protective election allowed



Section 351 Exchange – Section 362(e)(2) Comparison

US

FC

Asset

X Stock

X Y

100b

10v

US

FC

Asset

X Stock

X Y

100b

10v

Asset X 10b, 10v

100b

10v 10b

10v

Statutory Baseline With Election

Asset X 100b, 10v



Outbound Section 351 Exchange – Section 367(a)

US

FC

Asset

X

Stock

X Y

Section 367(a) – general rule is gain, but not loss, recognized



Outbound Section 351 Exchange – Section 367(a) (cont’d)

Exceptions to general rule gain recognition rule of Section 367(a)

Foreign active trade or business assets (FAT or B Assets)

Section 936(h)(3)(B) intangibles (subject to Section 367(d))

Stock or securities



Reporting – General Rules

Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation

Statement containing prescribed information

Reg. Sec. 1.6038B-1(c) and -1T(c)

Reg. Sec. 1.6038B-1T(c)(1) through (5)



Reporting – Special Rules

Transfers by partnerships

Transfers of cash

Transfers of Section 936(h)(3)(B) Intangibles

Transfers of stocks or securities



Transfers by Partnerships:

IRS Advice Memo 2008-006

US P/S 2

US P/S 1

Domestic

Corps

Foreign transfer

General rule: if transferor is a

partnership (domestic or foreign)

the US partners (corps or

individuals), not the partnership

itself, are subject to §§ 367(a)

Same look-through rule for

transfer of a partnership

interest

Carries over to § 6038B/Form

926 reporting

The US partner(s) is treated as

transferring his or her

proportionate share of the property

Partnership rules determine

proportionate share

S Corp

US Trust A

Individual A Individual B

US Trust B



AM 2008-006: Results

Transfer by US P/S 2 to Foreign Corp is treated as pro-rata by its U.S.

partners

Individual A and US Trust A subject to §§ 367(a) and 6038B

S Corp: it’s a domestic corporation that is a US person and there’s nothing

affirmatively providing for look-through treatment in this case. Therefore, S

Corp is the transferor.

Section 1373 treats S Corps as partnerships for certain int’l tax

provisions (e.g., FTC and Subpart F rules) but not for § 367 purposes

Look-through rule for partnerships applies iteratively

US P/S 1 not transferor, but its domestic corp. partners are



Transfers of Cash

Special rules for outbound transfers of cash (See Reg. Sec. 1.6038B-1(b)(3))

Must report if:

U.S. transferor owns directly or indirectly (modified Section 318 attribution rules)

at least 10% vote or value of transferee foreign corporation

U.S. transferor (or related person) transfers cash exceeding $100,000 during 12-

month period



Transfers of Section 936(h)(3)(B) Intangibles

Transfers of Section 936(h)(3)(B) intangibles

Subject to Section 367(d), not Section 367(a)

Deemed annual royalty regime

Election to treat certain transfer of intangibles, including “operating intangibles,” as

sale (see Reg. Sec. 1.367(d)-1T(g)(2))

General reporting requirements plus additional statement under Reg. Sec. 1.6038B-

1T(d)

Tie-in to Form 926

Question 15: Transfer of goodwill and/or going concern value? If yes, what value?

TAM 200907024: Taxpayer separately valued a number of contracts with

foreign agents; reported 97% residual as attributable to goodwill/GCV instead of

to “network” or aggregate

Question 17: Transfer of 936(h)(3)(B) intangible?



Transfers of Stocks or Securities

Specific rules to avoid gain under Section 367(a) for outbound transfer of domestic

stock and foreign stock (see Reg. Sec. 1.367(a)-3(c), -3(b), respectively)

Gain recognition agreements (GRA) apply to transfers of domestic and foreign

stock

Reporting: Form 926, Sec. 6038B coordination with GRA filing



GRA Basics (Reg. Sec 1.367(a)-8)

GRA is U.S. Transferor’s agreement to recognize gain if transferee foreign

corporation (TFC) disposes of (or is deemed to dispose of) Transferred Property

during term of GRA

If GRA triggered?

Generally report gain on amended return for year of initial transfer

Election to report on return for year of triggering event (filed on return for year of

initial transfer)



GRA Nomenclature

U.S.

Transferor

Transferred

Corporation

Transferree

Foreign

Corporation

U.S. Transferor=UST

Transferred Corporation=TFD

Transferee Foreign

Corporation=TFC



GRA Procedural Matters

File statement with timely filed income tax return for year of initial transfer

containing specified information

Waiver of statute of limitations (end of eighth year following year of initial transfer)

on Form 8838

Annual certification that triggering disposition has not occurred

Limited situations where IRS may require posting of bond or security



GRA Triggering Events

Generally, any type of disposition triggers GRA unless an exception applies

See Reg. Sec. 1.367(a)-8(j) for Triggering Events, -8(k) for Exceptions

Including:

TFC disposes of Transferred Property

TFD disposes of substantially all of its assets (deemed disposition of stock in

TFD)

U.S Transferor disposes of stock of TFC



GRA Non-Triggering Events

If certain requirements satisfied, many non-recognition transactions not

triggering events

UST transfers stock of TFC in Section 351, 354, 361, or 721 exchange

TFC transfers stock in TFD in Section 351, 354, 361, or 721 exchange

TFD transfers all or portion of its assets in Section 332, 351, 354, 361, or 721

exchange

Special rules for tax-free liquidations of UST, TFC or TFD



GRA Non-Triggering Events (cont’d)

Generally, original GRA terminates with no further effect

New GRA filed to replace original GRA

Multiple events with one taxable year can be combined into a single

replacement GRA



GRAs: Further Compliance Aspects

Complying with GRA rules satisfies Section 6038B/Form 926 reporting obligation

for outbound stock transfer. (Reg. Sec. 1.6038B-1(b)(2)).

GRA document requires extensive information about transferred and foreign

transferee corporations, including adjusted U.S. tax basis and fair market value

of transferred stock interest.

Taxpayers may be unable or unwilling to spend resources to determine this

information

Long-running saga over “available on request”

IRS suggests in preamble to 2009 regs, field advice (FAA 20074901F, TAM

200919032) that it’s serious about expecting this data to view GRA as

complete



GRA Directive

Issued July 26, 2010

Applies when taxpayer has timely filed either: (i) a proper GRA and then missed

later associated filings, or (ii) timely filed a document “purporting” to be a GRA

but which does not satisfy the regulatory standards in 1.367(a)-8.

“Available on request”

Does not apply if initial GRA (or purported GRA) filing was not timely—still

must seek reasonable cause

Can cure filings in these instances without having to demonstrate reasonable

cause by filing amended returns with proper GRA/associated filings and

indicating that they are submitted pursuant to directive

No clear expiration date; IRS officials publicly remind that it won’t last forever

[but it still hasn’t been pulled]



Proposed Amendments to § 367(a) GRA Regs (January 2013)

Preamble notes that “the existing reasonable cause standard, given its

interpretation under the case law, may not be satisfied by U.S. transferors in

many common situations even though the failure was not intentional and not

due to willful neglect.”

New proposed framework: full gain recognition under § 367(a) only appropriate

where conduct willful, and that § 6038B penalty (generally, 10% of FMV up to

$100k) should suffice otherwise.

Willful for this purpose “is to be interpreted consistent with the meaning of that

term in the context of other civil penalties which would include a failure due to

gross negligence, reckless disregard, or willful neglect.” [See Prop. Reg. Sec.

1.367(a)-8(p)(1).]

Proposed regs would remove requirement that IRS make determination within

120 days of notifying taxpayer of receipt of GRA submission.



Examples in Proposed GRA Regs

1. Not Willful (Gold Standard): Failure to file not willful when it’s due to accidental

and isolated oversight, taxpayer had prepared the GRA but it was not included

with return, and taxpayer had filed GRA’s in past years without ever failing to

timely file beforehand.

2. Willful (History of Bad Conduct): Taxpayer filed without a GRA, knew of

requirement, had not consistently and in a timely manner filed GRAs in past,

and also had an established history of failing to timely file other tax and

information returns for which it was subject to penalties. Taxpayer then failed to

file a GRA for another transfer to the same transferee foreign corp. At time of

second transfer, taxpayer was aware of past mistakes but had not implemented

any safeguards to ensure future GRA compliance. Taxpayer asserts that both

failures are isolated incidents.



Examples in Proposed GRA Regs (cont.)

3. Willful (Not complete in all material respects): Taxpayer aware of GRA rules,

completes GRA except for stock value—which is “available on request.” Failure

to materially complete is failure to comply, and is willful because taxpayer knew

of need to report value. Taxpayer must recognize full amount of gain.

4. Willful (Using Hindsight): At time GRA filing was due, taxpayer intends to sell

Business A and recognize a capital loss, which could be carried back and offset

capital gain on outbound stock transfer. Taxpayer chooses to not file GRA and

to recognize gain Sale falls through for legal reasons. Willful because

knowingly chose not to file a GRA at the time return was filed.



Transfer of Stock or Securities – Other Reporting

Transfer of domestic stock

US Target attaches notice under Reg. Sec. 1.367(a)-3(c)(6)

Form 8806, “Information Return for Acquisition of Control or Substantial

Change in Capital Structure” ($100M threshold)

Transfer of foreign stock - U.S. Transferor attaches notice under Reg. Sec.

1.367(b)-1(c) Notice



Curing Defective Reporting –Outbound Transfers of Non-

Stock Assets

GRA Directive only applies to transfers of stock or securities.

What about other assets? Examples: file a Form 926 but later determine that

transferred assets had a higher value overall; or later determine that a higher

percentage of overall value should have been allocated to fixed and intangible

assets versus foreign goodwill/GCV.

IRS Offshore Disclosure Program (via FAQ #18) may offer streamlined “clean-up”

filings for delinquent information returns

– Not limited to individuals with undeclared bank accounts

– BUT, to use FAQ #18 taxpayers must: (1) have timely paid all tax due on

transfers, and (2) not be under audit for any year (even if unrelated to outbound

transfer).

– If change in value increases gain recognition (for example, because of OFL or

branch loss recapture), then taxpayer must demonstrate that failure was due to

reasonable cause

– See generally: http://www.irs.gov/Individuals/International-Taxpayers/Offshore-

Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers





















Inbound Section 351 Exchange

FP

USS

Asset

X Stock

X Y



Inbound Section 351 Exchange – Compliance Issues

Section 362(e)(1) – limitation on importation of BIL

Sep. 2013 Proposed Regs

Form 5471 if FP transfers foreign stock

Section 897 if FP transfers USRPI

Section 884 branch profits tax if FP conducts and transfers U.S. branch operations

(Reg. Sec. 1.884-2T(d))

How does USS determine carryover Sec. 362(a) basis if FP had a non-USD

functional currency?



Foreign-to-Foreign Section 351 Exchange

CFC1

Asset

X Stock

X Y

USP

CFC2



Foreign-to-Foreign Section 351 Exchange – Compliance

Issues

Section 362(e)(2) election (election to apply basis limitation to transferor’s stock

basis in transferee corporation)

Reg. Sec. 1.367(b)-1(c) notice if CFC1 transfers foreign stock to CFC2

Form 5471 if CFC1 transfers foreign stock

Section 897 if CFC1 transfers USRPI

Section 884 branch profits tax if CFC1 conducts and transfers U.S. branch

operations

Part IB: Section 368

Reorganizations

44



Section 368 Reorganizations

Section 368(a)(1) . . .

(A) state law merger

(B) stock-for-stock

(C) stock-for-assets

(D) controlled corporation

(E) recapitalization

(F) mere change in form

(G) bankruptcy



Section 368 Reorganizations - Patterns

Two-Party asset acquisitions: (A), (C), (D)

Two-Party stock acquisitions: (B)

Three-Party acquisitions

Triangular (B), (C)

Forward triangular merger: (a)(2)(D)

Reverse triangular merger: (a)(2)(E)

Section 368(a)(2)(C) asset drops

Other reorganizations: (E), (F), (G)



Two-Party Asset Reorganization Pattern

T Shs

T A

A stock

T assets &

liabilities

A stock

T stock

T Shs

No gain unless boot (354, 356)

Substituted basis in A stock (358)

Tacked HP in A stock (1223(1))

T

No gain, loss (361(a), (b))

No gain, loss on distribution of A stock (361(c)(2)(B)

Gain on distribution of any retained assets (361(c)(2)(A) A

No gain, loss (1032)

Transferred basis in T assets (362(b))

Tacked HP T assets (1223(2))

Succeeds to Section 381 attributes



Stock Acquisition – Section 368(a)(1)(B)

A

A

Acquiring

Acquiring

T T

Section 368(c)

Control

Solely Voting

Stock

Old

Acquiring



Section 368 Reorganizations - Compliance

Party to Reorganization

Reg. Sec. 1.368-3(a) Statement

US Shareholder reports if Party a CFC

One statement for each tax return for same reorganization

Significant Holder

Reg. Sec. 1.368-3(b) Statement

Significant Holder of stock

5% or more (vote or value) of publicly traded Target stock

1% or more (vote or value) of non publicly traded Target stock

Significant Holder of securities –basis at least $1M

Each US Shareholder reports if Significant Holder a CFC



Section 368 Reorganizations – Compliance (cont’d)


Retain permanent records, including information regarding the amount,

basis, and FMV of distributed property, and relevant facts regarding any

liabilities assumed or extinguished

See Reg. Secs. 1.368-3(d), 1.6001-1(e)

Sep. 2013 Sec. 362(e)(1) Prop. Regs. would require more detailed reporting

by asset class (similar to Prop. Reg. Sec. 1.351-3, above)



Outbound Section 354 Exchange

US

SHs

Target FA

FA voting

stock

Target

stock

“B” Reorganization



Reporting

See discussion of outbound transfers of stock and securities (domestic or

foreign) in Section 351 exchange

GRAs

Reporting

Section 6038B, Form 926

Reg. Sec. 1.367(b)-1(c) notice if transfer of foreign stock



Outbound Section 361 Exchange

USS

USP

FA

FA

stock USS

stock

Assets &

liabilities

FA stock

Section 368 Asset Reorganization

(“A,” “C,” “D,” or “F”)



Reporting

See discussion of outbound transfers in Section 351 exchange

FAT or B Assets

Section 936(h)(3)(B) intangibles

Stock or securities

Reg. Sec. 1.367(a)-7(c)(5) Statement (finalized March 2013):

Must identify assets and basis adjustments subject to Section 367(a)(5)

Agreement to recognize gain on later dispositions



Inbound Section 361 Exchange

FT

USP

USCo

Acq

USCo

stock FT

stock

Assets &

liabilities

USCo stock

USSH

All E&P Amount

- Carryover tax attributes

(Reg. Sec. 1.367(b)-3(e) and

(F)), basis



Reporting

File notice under Reg. Sec. 1.367(b)-1(c)

Form 5471

Section 897 if foreign target owns and transfers USRPI

Section 884 branch profits tax if foreign target conducts and transfers U.S.

branch operations

Section 987 foreign currency gain/loss on branch termination

(F/X translation for carryover asset basis may be easier given past Form 5471

filings for FT)



Foreign-to-Foreign Section 361 Exchange

FS2

FS1

FA

FA

stock FS2

stock

Assets &

liabilities

FA stock

Section 367(b) applies

USP



Reporting and Other Rules

Filing of notice under Reg. Sec. 1.367(b)-1(c)

Section 381 tax attributes – Reg. Sec. 1.367(b)-7, -9 address manner in which

E&P and foreign income taxes of foreign target and foreign acquiring

corporation combined under Section 381


Section 884 branch profits tax if foreign target conducts and transfers U.S. trade

or business

Part IC: Section 332

Reorganizations

59



Section 332 Liquidation

General Tax Consequences

S

No gain or loss

(Section 337)

P

No gain or loss

(Section 332)

Carryover basis in assets (Section

334(b)(1))

Succeeds to US’s tax attributes

(Section 381)

S

P

assets &

liabilities in

liquidation



Section 332 Liquidation – General Compliance Disclosures

Subsidiary (S)

Form 966, Corporate Dissolution or Liquidation

Section 6043

Within 30 days of adopting resolution or plan to dissolve

Not filed for deemed liquidations (Section 338 or CTB election)

Final federal income tax return

See Reg. Sec. 1.332-6T(b)




(cont’d)

Parent (P)

Reg. Sec. 1.332-6T(a) statement for each year P receives distribution (s)

If P is CFC, filed by each U.S. Shareholder (Section 951(b))

Statement must include:

Representation that P of L adopted and the date

Representation that liquidation either

Completed on Date, or

Not completed and file Form 952, Consent to Extend the Time to Assess Tax

Under Section 332(b)




(cont’d)


Retain permanent records, including information regarding the amount, basis,

and FMV of distributed property, and relevant facts regarding any liabilities

assumed or extinguished

See Reg. Sections. 1.332-6T(d), 1.6001-1(e)



Outbound Section 332 Liquidation – Section 367(e)(2)

USS

FP

assets &

liabilities in

liquidation

Reg. Sec. 1.367(e)-2(b)

USS

Generally recognizes gain and

loss

FP

General rules apply, with limited

exceptions (See Section 332(d))



Three Exceptions to General Rule

Property used in U.S. trade or business

U.S. real property interest (USRPI)

Stock of 80-percent-owned domestic subsidiary

General policy for exceptions—distributed property remains within U.S. tax

jurisdiction and therefore no need to impose tax at time of liquidation



U.S. Trade or Business Exception—

GRA Requirement

Agreement that gain (not loss) on qualifying property will be included in

amended return of domestic liquidating subsidiary for year of initial distribution if

“triggering event” within 10-year period

Contents of GRA in Reg. Sec. 1.367(e)-2(b)(2)(i)(C)

Signed by officer of USS and FP

File Form 8838, Consent to Extend the Time to Assess Tax Under Section 367 –

Gain Recognition Agreement



U.S. Trade or Business Exception—

GRA Requirement (cont’d)

Report certain “non triggering” events

Conversions or exchanges under Sections 1031 or 1032

Amendment to Master Property Description

Reg. Sec. 1.367(e)-2(b)(i)(E)(4)

Non-taxable transfer to Qualified Transferee

Qualified Transferee “steps into the shoes” of foreign transferee

Reg. Sec. 1.367(e)-2(b)(i)(E)(5)



Stock of Domestic Subsidiary Exception

USS must file required statement under Reg. Sec. 1.367(e)-2(b)(2)(iii)(C)

Signed by officer of USS and FP



Other Reporting

Form 926

Form 5471 if USS distributes stock of foreign corporation

Form 5472

Form 1120F



Inbound Section 332 Liquidation – Section 367(b)

FS

(CFC)

USP

assets &

liabilities in

liquidation

Reg. Sec. 1.367(b)-3

USP

“All E&P Amount” included in

income

Special rules regarding carryover

of tax attributes (e.g., loss

carryovers, E&P, asset basis)



Other Reporting

File notice under Reg. Sec. 1.367(b)-1(c)

Form 5471


Section 884 branch profits tax if foreign target conducts and transfers U.S. branch

operations




Foreign-to-Foreign Section 332 Liquidation – Section 367(e)

FS

(CFC)

USP

assets &

liabilities in

liquidation

Reg. Sec. 1.367(e)-2(c)

FS

Generally no gain or loss

10-year GRA for USTB property

FP

(CFC)



Foreign-to-Foreign Liquidations – Reporting and Other

Rules

Form 5471



Section 381 attributes – Reg. Sec. 1.367(b)-7

Part II: Recent Developments

74



Form 5471 – (Former) Cat. 5 Constructive Ownership

Exception Glitch

USLP attributed 100% of CFC stock from USP

under sec. 318(a)(3)(A) partner-to-partnership

full downward attribution rule.

US LP does not directly (or indirectly) own any

stock in CFC.

Unrelated partner not attributed any CFC stock

under sec. 318(a)(5)(C) (no “down then back

up”).

USLP is a Category 4&5 filer for CFC because

constructively in control of and a USSH of CFC

via attribution from USP.

USP’s filing 5471 for CFC exempts USLP from

Cat. 4 filing responsibilities.

What about Cat. 5 filing responsibilities (which in

any event are lesser than Cat. 4)—not

referenced in instructions?

USP

US

US LP US

CFC

Unrelated

Partner

100% 50% 50%



Form 5471 – Updated Constructive Ownership Exception

As of December 2012 revision, Form 5471 instructions clarify/change application

of the constructive ownership exception.

Under the new instructions, a U.S. person described as a Category 5 filer (as

also with Category 3 and 4 filers) is no longer required to file Form 5471 if all

three conditions are satisfied:

The U.S. person does not own a direct interest in the foreign corporation.

The U.S. person is required to furnish the information requested solely

because of constructive ownership (as determined under Reg. section

1.6038-2(c) or 1.6046-1(i)) from another U.S. person.

The U.S. person through whom the indirect shareholder constructively owns

an interest in the foreign corporation files Form 5471 to report all of the

required information.

The new instructions also clarify that no statement is required to be attached to

tax returns for persons claiming the constructive ownership exception.



PFIC Reporting (Sec. 1298(f)) reg package

TD 9650 (December 2013)

Updates Secs. 6038 (Cats. 4 and 5) and 6046 (Cat. 3) to confirm no filing necessary for constructive ownership exceptions.

Catches regulations up to Form’s Instructions

Update Sec. 6046 regulations to reflect current statutory threshold (10% by vote or value) instead of older (5% by value) requirement

Technical correction needed to include voting power test

Section 1298(f): annual reporting for PFIC stock interests now required (for taxable years ending on or after 12/31/13)

Prior law: Form 8621 only required for elections or income events (sale, distribution, QEF or MTM inclusions, purging elections, etc.)

Regulations waive “catch-up” reporting that Notices 2010-34 and 2011-55 had indicated would be necessary



Section 367(a)(5) reg package

TDs 9614 and 9615 (March 2013)

Make a procedural modification to “reasonable cause” exception for Form

926/Sec. 6038B reporting deficiencies: the IRS no longer is required to respond

within 120 days of notifying taxpayer that their request was received.

Some other cross-border compliance “reasonable cause” provisions (still)

have a 120-day response requirement, including:

FIRPTA (Rev. Proc. 2008-27)

Dual Consolidated Losses (Reg. Sec. 1.1503(d)-1(c))

Q&A

79

International Tax

Session:

Cross-Border M&A

Southeast Michigan TEI Chapter

April 29, 2014

Devon M. Bodoh

Principal, Washington National Tax

Aaron S. Feinberg

Managing Director, M&A Tax, Detroit



NDPPS 249466

81

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG

TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY

FOR THE PURPOSE OF (i) AVOIDING


MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED

HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without

limitation, the tax treatment or tax structure, or both, of any transaction described in the associated

materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax

analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to

change. Applicability of the information to specific situations should be determined through

consultation with your tax adviser.



NDPPS 249466

82

Dated Material

THE MATERIAL CONTAINED IN THESE COURSE

MATERIALS IS CURRENT AS OF THE DATE PRODUCED.

THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO INCORPORATE ANY

TECHNICAL CHANGES

TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS

TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE RESPONSIBLE

FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY TECHNICAL CHANGES

SINCE THE PRODUCTION DATE AND WHETHER OR NOT

THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR PRESENTATION TO

CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON NATIONAL TAX AND RISK

MANAGEMENT-TAX AS PART OF YOUR DUE DILIGENCE.



NDPPS 249466

83

Agenda

Topic

Overview of Post-Transaction Integration

Paradigm 1: U.S. Multinational Corporation Acquires Foreign Corporation

Paradigm 2: Foreign Corporation Acquires U.S. Corporation

Wrap-Up

Overview of

Post-Transaction Integration

85 © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent


NDPPS 249466

Post Transaction Integration (PTI)

generally concerns the post-

acquisition integration of acquired

entities and business operations into

the acquiring company’s group

Tax Benefits of PTI Planning include:

Identification of tax efficiencies that

further a deal’s strategic objectives

(e.g., tax-efficient cash

repatriation/redeployment and global

ETR reduction through alignment of

existing and acquired business

operations)

Ensuring tax risks are accurately

captured and addressed in an

advantageous manner that is within

the company’s business objective

framework

Post-Transaction Integration: What Is It? General Overview

Creation/

use of tax

attributes (e.g.,

FTCs)

Debt

push-downs

Out-From-Under

planning

(for inbound

clients)

Cash

Repatriation and

Deployment

Efficient

integration of IP

and other VCM

strategies

Consolidation

of local country

affiliated groups

Common

PTI

Tax Planning

Strategies



NDPPS 249466

86

Assessing Post-Transaction Integration Opportunities Information Needed

Relevant org charts with U.S. tax classification for both buyer and

target

Current and projected financial statements / position

Global effective tax rate reconciliation, including EBT/tax by entity or

jurisdiction

Form 1118 / FTC limitation calculation workpapers

Intercompany loans schedule

Other key attribute schedules:

E&P pools

Tax pools

NOLs

Summary of key business flows

Summary of organic growth plans

Summary of acquisition / disposition plans



NDPPS 249466

87

Strategic Planning Areas of Focus

Foreign tax

credit planning

Cash

utilization/repatriation

Value Chain

Management

Local tax

planning

P

L

A

N

N

I

N

G

Accelerate FTCs

Small dividend/large

FTC

Use/creation of

deficits

Maximize FSI

Incrementally

increasing foreign

source income

Minimize FSE

Interest

R&D

G&A

Hybrid entity losses

Annual Cash Utilization

Stock options

Factoring

Cost sharing

“Deductible”

repatriation

Offshore working

capital

Specialized Cash

Utilization

Reorganizations

Return of basis

PTI

Defer E&P

Recirculate low taxed

cash/earnings

Value Chain

Reassessment

Principal

companies

Contract

manufacturing

Commissionaires

Limited risk

distributors

Procurement

companies

Permanent Local

Tax Savings

Credits

Step-ups

Consolidation

Loss utilization

Holidays and

incentives

Strategic Financing

Hybrids

Hybrid instruments

Dual residents

DRAFT – For Discussion Purposes Only

Paradigms

Paradigm 1:

U.S. Multinational Corporation Acquires Foreign Corporation



NDPPS 249466

90

Paradigm 1: Sample Transaction

A wholly-owned foreign corporation (“F Sub”) of a

U.S. multinational corporation (“U.S. MNC”)

acquires the stock of a foreign corporation

(“Foreign Target”) that may own a U.S. subsidiary

(“U.S. Sub”).

Assume a 100% acquisition for cash.

Public SHs

U.S. MNC

Foreign

Target

Foreign

Target

F Sub

U.S. Sub

U.S. MNC

$



NDPPS 249466

91

Paradigm 1: Acquisition Considerations Foreign Cash Utilization

€

Foreign Cash Utilization

If F Sub has E&P, this acquisition may

present a good opportunity to use trapped

foreign cash of F Sub (particularly

because ownership of Foreign Target by F

Sub may result in a more tax efficient

structure).



NDPPS 249466

92

92

Post-Transaction Integration

If U.S. MNC has a CFC located in the same country as Foreign Target,

moving Foreign Target under this CFC may result in operational

efficiency.

o Similarly, U.S. MNC may have a CFC holding company structure

and wish to move Foreign Target under this holding company

after the acquisition

Additional tax planning may also be necessary to integrate U.S. Sub

with U.S. MNC (and avoid an inefficient structure).

o One example of such tax planning - a Section 338 election - is

also discussed in the following slides.

Paradigm 1: Acquisition Considerations Post-Transaction Integration



NDPPS 249466

93

Paradigm 1: Acquisition Considerations Triangular B Reorganization

Triangular B Reorganization: Transaction Steps

Step 1: U.S. MNC acquires Foreign Target.

Step 2: CFC acquires U.S. Sub voting stock for cash or a note.

Conversely, US Sub may acquire Foreign Target and Foreign Target may acquire a CFC of U.S. MNC.

Steps 1 & 2

(1)

(2)

U.S. MNC

U.S. Sub

CFC

Foreign

Target

U.S. MNC

CFC

Foreign

Target

U.S. Sub (3)

Step 3

U.S. Sub

U.S. Sub

Step 3: CFC acquires all the stock of

Foreign Target from U.S. MNC in

exchange for the U.S. Sub stock

acquired in Step 2. This is intended to

qualify as a triangular B reorganization.



NDPPS 249466

94

Paradigm 1: Acquisition Considerations Triangular B Reorganization

Triangular B Reorganization: U.S. Tax Consequences

Until April 25, 2014, the so-called Killer B Regulations provided:

CFC is deemed to distribute cash to U.S. Sub in an amount equal to the amount of the

note or cash used to acquire the U.S. Sub stock, and

U.S. Sub is deemed to contribute cash (in the same amount deemed distributed by

CFC) to CFC. See Treas. Reg. Section 1.367(b)-10(a),(b).

However, to the extent CFC has little or no E&P, the deemed contribution may allow CFC

to repatriate the same amount twice without resulting in any additional tax cost.

Must consider Johnson basis recovery issues.

Recently issued Notice 2014-32 provides that regulations will be issued with an

effective date as of April 25, 2014 that:

Remove the fictional cash contribution and

Permit the E&P of Foreign Target to be taken into account for purposes of the

deemed distribution.



NDPPS 249466

95

F Sub takes a

fair market

value tax basis

in Foreign

Target.

Foreign Target

takes a fair

market value tax

basis in its assets

(including a U.S.

Sub owned by

Foreign Target).

E&P and tax history

of Foreign Target is

eliminated.

(Note: Election may

also be made with

respect to lower-tier

80% owned

subsidiaries.)


Results of a Section 338 Election

Section 338 election

A tax election may be available to treat the transaction as an acquisition of Foreign Target assets for U.S.

tax purposes which results in a fair market value tax basis in such assets (referred to as a “Section 338

election”).

If Foreign Target is not a U.S. taxpayer, this election is not expected to result in any additional U.S. tax cost.

Must consider FIRPTA implications with respect to U.S. Sub (including Section 1445).

Paradigm 1: Acquisition Considerations Section 338 Election



NDPPS 249466

96

Paradigm 1: Acquisition Considerations Post-Transaction Integration: Section 338 Election where Foreign Target owns U.S. Sub

Post Transaction Integration and Section 338 election

After the Section 338 election, the following steps would occur:

Step 1: Foreign Target distributes U.S. Sub to F Sub.

Neither Foreign Target nor F Sub recognize gain or loss in

the distribution (because of the fair market value tax basis

in Foreign Target and the elimination of Foreign Target’s

E&P).

Step 2: F Sub distributes U.S. Sub to U.S. MNC.

This may result in dividend income to U.S. MNC but F Sub

does not recognize any gain on the distribution (since it has

a fair market value tax basis in U.S. Sub).

U.S. Sub and U.S. MNC may file a consolidated return but

the distribution of U.S. Sub must occur within 6 months to

avoid certain consolidated return limitations on U.S. Sub’s

tax attributes (e.g., net operating losses).

Public

(1)

(2)

F Sub

U.S. MNC

Foreign

Target

U.S. Sub

U.S. Sub



NDPPS 249466

97

Paradigm 1: Ownership Considerations CFC Considerations

Subpart F Income

generally includes

passive income. See

Section 952-954.

Subpart F Income

If Foreign Target owns U.S.

property (e.g., stock or

debt in a “related” U.S.

corporation, or U.S. real

estate), such ownership

may constitute an

investment in “U.S.

property” that results in a

deemed dividend to U.S.

MNC under Subpart F.

See Section 956.

Section 956

Sales of operating assets

in certain instances may

avoid treatment as

Subpart F Income.

Sales of

Operating Assets

Generally, U.S. shareholders are not taxed on the undistributed earnings of a CFC.

However, U.S. shareholders of a CFC are immediately taxed on certain types of

undistributed income (“Subpart F Income”).



NDPPS 249466

98

Paradigm 1: Ownership Considerations Foreign Tax Credits

Two Types of FTCs FTC Limitations

Direct FTCs Generated by the payment of foreign income

taxes directly by a U.S. taxpayer (e.g.,

withholding taxes or net income taxes paid by

a branch or passthrough entity owned by a

U.S. corporation). Section 901.

Indirect FTCs Available when a foreign corporation owned

by a 10% U.S. corporate taxpayer pays

foreign income taxes. These indirect FTCs

are available when the foreign corporation

pays a dividend (or generates Subpart F

Income) to the U.S. shareholder. Sections

902 and 960.

Must ensure “voting power” requirement

is met.

Note that a Section 338 Election (described

earlier) may result in lower depreciation

deductions for foreign tax purposes (resulting

in higher foreign taxes paid) than as compared

to the U.S. tax treatment.

A special rule may limit the availability of FTCs

in this instance. Section 901(m).




NDPPS 249466

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99

Overview of Section 901(m)

Section 901(m) disallows

FTCs for the disqualified

portion of foreign income tax

paid or accrued with respect

to income or gain attributable

to relevant foreign assets in a

covered asset acquisition.

Disqualified Taxes

Disqualified taxes

permanently disallowed as

credits, but deductible

If taxpayer cannot

substantiate foreign

income, must

reconstruct income by

dividing foreign tax

paid by highest

marginal rate.

Covered Asset Acquisition Defined

Qualified stock purchase

with Section 338(g) or

(h)(10) election.

Any transaction treated as

acquisition of assets for

U.S. tax purposes but as

stock acquisition (or

disregarded) for foreign

tax purposes.

Acquisition of a

partnership interest with

Section 754 election.

Any other similar

transaction provided by

the Secretary.


100 © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent



Section 901(m) disqualified portion is computed using this formula:

Foreign Taxes x Basis Differences = Disallowed

Foreign Income Foreign Taxes

Basis differences

Adjusted U.S. tax basis immediately after CAA less adjusted

U.S. tax basis immediately before



NDPPS 249466

101

Paradigm 1: Ownership Considerations Sandwich Considerations

– Absent post-transaction integration, Foreign Target’s ownership of U.S.

Sub may be an investment in U.S. property which may result in a deemed

dividend to U.S. MNC.

Consider Sections 956(b)(2) and (c)(2)(F).

U.S. Sub would also be “affiliated” with U.S. MNC under Section

864(e) and 904(i).

- In the Sandwich Structure, U.S. Sub and U.S. MNC cannot file a

consolidated return.

- In addition, income generated by U.S. Sub may be subject to a high

effective tax rate since it may be subject to multiple layers of tax in the

United States.

Post-Transaction Integration Considerations



NDPPS 249466

102

Section 1248

When U.S. MNC

disposes of

Foreign Target

stock, a portion

of U.S. MNC’s

gain may be

treated as

dividend income

instead of capital

gain.

Paradigm 1: Exit Considerations Section 1248

This deemed dividend under Section 1248 or 964(e) may result in indirect FTCs to U.S. MNC.

If Foreign Target is not held directly by a U.S. taxpayer (in this case U.S. MNC), there may be a

deemed dividend to the selling CFC under Section 964(e).

Specifically, gain with respect to Foreign Target stock is treated as a dividend to U.S. MNC to the

extent of Foreign Target’s E&P accumulated during U.S. MNC’s ownership of Foreign Target.

Paradigm 2:

Foreign Corporation

Acquires U.S. Corporation



NDPPS 249466

104

Paradigm 2: Sample Transaction

Step 1: A Foreign Acquirer forms a U.S.

Holdco.

Step 2: U.S. Holdco acquires all the stock

of a U.S. Target that has foreign assets (in

this case Target CFC).

Assume a 100% acquisition for cash.

(1)

(2) $

SHs Public

Foreign

Acquirer

Target CFC

Target CFC

U.S.

Target

U.S.

Target

U.S.

Holdco



NDPPS 249466

105

Tax Treaty Planning

Holding Company

Considerations

Acquisition

Considerations

Paradigm 2: Acquisition Considerations Acquisition Form

Inversions

Debt Push-Downs



NDPPS 249466

106

U.S. withholding taxes

of 30% apply on

dividends and interest

payments from U.S.

Holdco to Foreign

Acquirer. Sections 871

and 881. However, the

withholding tax rate

may be reduced or

eliminated by the

application of an

income tax treaty.

Overview

If Foreign Acquirer is not

eligible for income tax

treaty benefits (or a more

advantageous income tax

treaty exists), an

intermediary foreign

company may be used to

access such benefits in

certain circumstances.

Intermediary

Foreign

Companies

However, certain criteria

(included in the

limitations on benefits

provisions in most U.S.

income tax treaties) must

be met by the

intermediate foreign

company to access the

desired treaty benefits.

Where the Foreign

Acquirer is not itself

eligible for treaty benefits,

the intermediate entity

typically will need to have

a substantial active

business in its country of

residence.

Limitation

on Benefits


Tax Treaty Planning

Paradigm 2: Acquisition Considerations Acquisition Form: Tax Treaty Planning



NDPPS 249466

107

Paradigm 2: Acquisition Considerations Acquisition Form: U.S. Holding Companies

Use of a U.S. holding company

eliminates U.S. Target's historic E&P.

U.S. Target and the U.S.

holding company form a

consolidated group after the

acquisition.

Although the E&P of a

subsidiary of a consolidated

group generally tier up to the

common parent, under the

consolidated return rules, the

pre-acquisition E&P of U.S.

Target does not tier up. See

Treas. Reg. Section 1.1502-

33.

U.S. Holding Companies



NDPPS 249466

108

Paradigm 2: Acquisition Considerations Acquisition Form: Debt Push-Downs

Overview

It may be advantageous to “push down”

acquisition debt into U.S Holdco. However this

may result in limitations on U.S. Holdco’s ability

to claim interest deductions on the acquisition

debt in certain instances.

When dealing with a debt pushdown into the

United States, the terms of the debt must be

closely considered to ensure that the debt is

treated as debt and not equity of U.S. Holdco.

Treatment as equity eliminates any potential

interest deductions in the United States and

may result in payments being taxed as

dividends.

Many different factors (e.g., the term/maturity

date of the debt, capitalization of the debtor, the

inclusion of creditor protections, subordination)

are used to determine if an instrument is treated

as debt or equity.

Section 163(j)

Under Section 163(j), if U.S. Holdco owes debt

to Foreign Acquirer, or Foreign Acquirer

guarantees debt of U.S. Holdco, interest

deductions on such debt may be disallowed

when:

U.S. Holdco is undercapitalized (i.e., a

debt-to-equity ratio of 1.5 to 1 or greater),

U.S. Holdco’s interest expense exceeds

50% of its adjusted gross income, and

Such interest payments are not otherwise

subject to, or are subject to a reduced rate

of, U.S. withholding tax (e.g., through the

application of a treaty).



NDPPS 249466

109

Generally, an inversion may provide a

significant tax benefit to the inverting

corporation if it can:

- Avoid or minimize Subpart F income,

and

- Reduce it’s exposure to tax on U.S.-

source income.

An inversion may occur pursuant to the acquisition

of stock or assets of the U.S. corporation by a

foreign corporation.

An inversion typically occurs when a U.S. corporation changes

its place of incorporation or corporate ownership to a foreign

jurisdiction with a more favorable tax system.

Inversion Planning

Considerations

Stock Acquisition

Versus

Asset Acquisitions

What is an

Inversion?

Paradigm 2: Acquisition Considerations Acquisition Form: Inversions



NDPPS 249466

110

Potential Inversion Costs

Section 367 Toll Charge

• Denies non-recognition treatment to certain transfers of property (including stock and intellectual property) by a U.S. person to a foreign corporation.

Section 7874 Toll Charge

• Certain penalties are imposed if a foreign corporation (the “Foreign Acquirer”) directly or indirectly acquires substantially all of the property of a U.S. corporation (“U.S. Target”) and the historic shareholders of U.S. Target own above a threshold percentage of stock of Foreign Acquirer. Further, in certain circumstances, the Foreign Acquirer may be treated as a U.S. corporation for U.S. Federal tax purposes.

Section 4985 Excise Tax Charges

• An excise tax is imposed on equity-based compensation of U.S Target’s officers and directors upon the occurrence of certain corporate inversion transactions.




NDPPS 249466

111

Section 367

Toll Charge Planning

Exceptions to the general rule

of tax on an outbound transfer

of property:

Rule does not apply to an

outbound transfer of

domestic corporation stock,

if:

Pursuant to the transfer, 50% or less of the

Foreign Acquirer stock is received, in the

aggregate, by transferors that are U.S.

persons;

Immediately after the transfer, 50% or less

of the Foreign Acquirer stock is owned by

U.S. persons that are officers or directors or

5% shareholders of the domestic

corporation;

U.S. transferors that own more than 5% of

the Foreign Acquirer enter into a gain

recognition agreement (a “GRA”) with the

IRS;

The Foreign Acquirer (or certain qualified

subsidiaries) is engaged in an active trade

or business outside the United States for

the 36 months immediately before the

transfer; and

The fair market value of the Foreign

Acquirer is at least equal to the fair market

value of the domestic corporation.

Paradigm 2: Acquisition Considerations Acquisition Form: Section 367



NDPPS 249466

112

Section 7874


Need to consider the “scope”

of section 7874.

Further, if at least 80% of the stock of

Foreign Acquirer is owned by the

domestic corporation’s historic

shareholders, Foreign Acquirer will be

taxed as if it were a U.S. corporation.

If after a corporate inversion transaction

i. At least 60% of the stock of Foreign

Acquirer is owned by U.S. Target’s

historic shareholders and

ii. Foreign Acquirer (taking into account

certain subsidiaries) does not have

“substantial business activities” in the

jurisdiction of incorporation,

Then U.S. Target is subject to tax on

inversion gain (i.e. gain on the inversion

transaction and certain sales of property)

for 10 years with limited offsets for

losses and credits.




NDPPS 249466

113

The Section 7874 Anti-Inversion Rule does

not apply if the Foreign Acquirer has

substantial business activities in its

jurisdiction of incorporation

Substantial Business Activities - at least

25% of employees, assets, and income of

the Foreign Acquirer located or derived in

the foreign jurisdiction.

IRS regulations preclude items,

employees, and assets transferred to a

foreign jurisdiction as part of a plan to

avoid the Section 7874 Anti-Inversion

Rule from being included in the

substantial business activities analysis.

Section 7874


Need to consider the scope of

section 7874.




NDPPS 249466

114

A 15% excise tax is imposed on the value of

certain stock compensation of an “expatriated

corporation” that is held by officers, directors and

10% or greater owners.

An expatriated corporation is a U.S. Target that

undergoes an inversion transaction where between

60-80% of the stock of Foreign Acquirer is owned

by U.S. Target’s historic shareholders.

The stock compensation this excise tax applies to

is payment received as compensation from the

expatriated entity the value of which is determined

by reference to value of the stock of that

corporation, e.g., compensatory stock and

restricted stock grants, compensatory stock

options, and other forms of stock-based

compensation.

This excise tax applies only if any of the

expatriated corporation's shareholders recognize

gain on any stock in the corporation by reason of

the corporate inversion transaction that caused the

expatriation.

Section 4985


Excise tax considerations.




NDPPS 249466

115

Paradigm 2: Acquisition Considerations

Treatment of Foreign Acquirer:

If U.S. Target shareholders receive 60% or

more (but less than 80%) of the stock of

Foreign Acquirer, U.S. Target is taxed on

inversion gain for 10 years (with limited

losses/credits) unless the substantial

business activities exception applies.


more of the stock of Foreign Acquirer, Foreign

Acquirer is taxed as if it were a U.S.

corporation unless the substantial business

activities exception applies.

U.S. Target SHs

Foreign Acquirer

SHs

OR

U.S. Target SHs

Assets

U.S. Target Assets

OR

Foreign

Acquirer U.S.

Target

U.S.

Target



NDPPS 249466

116

Paradigm 2: Acquisition Considerations

Treatment of U.S. Target Shareholders:

If undertaken as a Stock Transfer, U.S.

Target Shareholders are taxed on the

outbound transfer of U.S. Target stock

unless an exception applies, e.g., U.S.

Target Shareholders receive less than 50%

of Foreign Acquirer.


more (but less than 80%) of the stock of

Foreign Acquirer and U.S. Target

shareholders are taxed on the transfer, an

excise tax may be imposed on the equity-

based compensation of certain U.S Target

officers, directors, and 10% shareholders.

U.S. Target SHs

Foreign Acquirer

SHs

OR

U.S. Target SHs

Assets

U.S. Target Assets

OR

U.S.

Target

U.S.

Target

Foreign

Acquirer



NDPPS 249466

117

The Paradigm 2

acquisition transaction

creates a Sandwich

Structure with the U.S.

corporate tax rate (35%)

imposed on the income

of Target CFC (through

U.S. Target/U.S.

Holdco), subject to

potential FTC.

This creates an extra

layer of high-rate tax on

the income of Target

CFC that would not be

present if Foreign

Acquirer directly owned

Target CFC.

Out-From-Under Planning

“Out from under” planning has the economic effect of moving assets

out of the U.S. taxing jurisdiction without the full tax cost of such

movement.

Below are three broad categories of out from under planning. These

planning techniques are not exclusive and can be undertaken in

connection with each other:

Out

From

Under

Paradigm 2: Ownership Considerations Sandwich Structures

Freeze Structure

CFC Dilution

“Wither on the Vine” Planning



NDPPS 249466

118


Freeze Structure (Simplified)

Purpose

The purpose is to freeze the value of high growth

assets moved out of the U.S. taxing jurisdiction so

any future appreciation is not taxed in the U.S.

Transaction Steps:

Step 1: Target CFC transfers high growth assets

to F Sub, a non-CFC subsidiary of Foreign

Acquirer, in exchange for voting preferred stock

with a market rate, which represents at least 10%

of F Sub’s voting stock (but less than 50% of

value).

10% ownership interest results in indirect

FTCs.

Step 2: Foreign Acquirer will transfer assets to F

Sub.

VP/S

Low Growth

High Growth

(1)

(2)

U.S.

Target

Foreign

Acquirer

Target CFC

F Sub



NDPPS 249466

119


CFC Dilution (Simplified)

Purpose

Under this structure, it is assumed that income

generated by Target CFCs would result in Subpart

F Income inclusions to U.S. Target.

However, the Subpart F rules only apply if the

Target CFCs are CFCs with more than 50% (vote

or value) ownership (direct or indirect) by U.S.

persons that own 10% or more (directly or

indirectly) of the voting power.

Thus, the purpose of this planning is to terminate

Target CFCs’ status as CFCs by diluting U.S.

Target’s direct or indirect ownership.

Assume no recapitalization of U.S. Target stock in

Target CFC Holdco.

Assets

Foreign

Acquirer

Target CFC

Holdco

Target CFC

OpCo

U.S.

Target



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120


CFC Dilution (Simplified) (Cont.)

Transaction Steps:

Step 1: Foreign Acquirer contributes a low

growth asset to Target CFC Holdco (which

has little or no E&P) in exchange for voting

preferred stock representing more than

90% of the voting power and more than

50% of the value of Target CFC Holdco.

As a result of this dilution of voting

power, Target CFC HoldCo is no longer a

CFC. Sections 951 and 957.

Step 2: Target CFC OpCo sells its assets

to Foreign Acquirer for a Note.

(1)

(2)

CFC OpCo

Assets

U.S.

Target

Target CFC

Holdco

Target CFC

OpCo

Foreign

Acquirer



NDPPS 249466

121


CFC Dilution (Simplified) (Cont.)

Anticipated U.S. Federal Income Tax Consequences:

Step 2 is intended to be a taxable sale, which may generate

additional E&P in Target CFC OpCo.

However, Target CFC HoldCo and Target CFC OpCo are no

longer subject to the subpart F regime because neither

company has a U.S. Shareholder.

To avoid cash accumulating in Target CFC OpCo with

respect to repayment of the Note, this cash can be lent to

other members of the Foreign Acquirer group.

Consider PFIC issues for Target CFC Holdco and Target

CFC OpCo going forward.

Consider accumulation of E&P in Target CFC Holdco as a

result of ownership of asset received from Foreign Acquirer

in Step 1.

Potential exit strategies may include inbound F

reorganization of Target CFC Holdco and Target CFC OpCo.

However, consider the potential application of Treas. Reg.

Section 1.367(b)-3 with respect to Target CFC Holdco.

(1)

(2)

CFC OpCo

Assets

Target CFC

OpCo

Target CFC

Holdco

Foreign

Acquirer

U.S.

Target



NDPPS 249466

122


Wither on the Vine

Purpose

Under this planning technique, operations related to

U.S. Target’s intangible property in the United States

are gradually wound up and recreated outside the

United States (i.e., by Foreign Acquirer or F Sub).

This may require:

Elimination of employees by U.S. Target (or

failure to replace departing employees)

New hires by Foreign Acquirer or F Sub

U.S. Target directs new opportunities to Foreign

Acquirer or F Sub and

New investments by Foreign Acquirer or F Sub.

Since this does not result in an actual distribution of

this intangible property, there is no tax cost from the

movement of the intangible out of the United States.

However, this structure can take years to complete.

U.S.

Target

Foreign

Acquirer

F Sub

Target CFC



NDPPS 249466

123

Paradigm 2: Exit Considerations FIRPTA

FIRPTA

Under Section 897, the

disposition of U.S. Target

or U.S. Holdco stock by

Foreign Acquirer may

trigger a 10% withholding

tax on the gross sales

price, and full U.S.

taxation on any gain, if

either predominantly

owns, or has owned

during a 5-year period,

U.S. real estate.

Certain filing requirements

are necessary at the time

of sale to confirm no

withholding tax is due.

U.S. real estate??

Presenter Information

Devon M. Bodoh


Phone: 202-533-5681

Email: [email protected]

Aaron S. Feinberg

Managing Director, M&A Tax, Detroit

Phone: 313-230-3273


© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with

KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.


Foreign Tax Credit

Developments

Detroit

April 29, 2014

Caren Shein, Managing Director

KPMG LLP, Washington National Tax

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member

firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR

WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR

ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING

PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii)

PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY

MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction described in

the associated materials we provide to you, including, but not limited to, any tax opinions,

memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that

are subject to change. Applicability of the information to specific situations should

be determined through consultation with your tax adviser.

126



Agenda

Creditability of Foreign Taxes

Trending Issues

Credit versus Deduction – Interaction of § 6511(d)(2) and 6511(d)(3)

§ 901 Technical Taxpayer Regulations

§ 909 Splitter Temporary Regulations

Anti-Abuse Rules

§§ 901(k) and (l)

§ 901(m)

127

Trending Issues -

Creditability of

Foreign Taxes



Requirements to be a Creditable Tax

Under § 901

A foreign levy is creditable under § 901 if:

It is a “tax,” defined as a compulsory payment pursuant to a foreign

country’s authority to levy taxes. Foreign country is defined to include any

political subdivision thereof, and US possessions

Its predominant character is that of an income tax in the

US sense, meaning that it is likely to reach net gain in the normal

circumstances in which it is applied. A tax is likely to reach net gain if it

meets each of a realization, gross receipts and net income requirement

It is not a soak up tax

§ 903 expands definition of a creditable tax under § 901 to include certain

taxes paid “in lieu of” and not in addition to an income tax. Generally applies to

withholding taxes on payments to nonresidents

129



Creditability of Foreign Taxes – Is it a

Compulsory Payment?

An amount is not creditable to the extent it exceeds taxpayer’s liability for tax

under foreign law

Taxpayer has duty to contest excess taxes under reasonable interpretation of

foreign law

Must exhaust all effective and practical remedies

See CCA 200532044 (taxpayer must request competent authority

assistance)

Procter & Gamble v. United States, 106 AFTR2d 2010-5311 (S.D. Ohio

2010)

Electing to shift tax liability to current year does not make payment voluntary

130



Creditability of Foreign Taxes – Is it a

Compulsory Payment?

Taxpayer is not required to alter its form of doing business. Not a lot of

authority on how a taxpayer may qualify for the “business conduct safe

harbor,” but there are several IRS rulings on what the IRS believes does not

qualify:

FSA 200049010: Election to defer tax payment and pay foreign

government additional amounts

CCA 200622044: Election to reduce the amount of an otherwise

creditable tax as opposed to an otherwise non-creditable tax

CCA 200920051: Election to form foreign corporations then make

foreign tax elections to shift foreign tax burden

131



Specific Creditability Issues We’re Seeing PPL v. Commissioner, 133 S.Ct. 1897 (2013)

On May 20, 2013, the Supreme Court issued a unanimous decision reversing

the Third Circuit and holding in favor of the taxpayer that the 1997 UK “windfall

profits” tax (the “UK tax”) is a creditable tax under

§ 901.

The Court applied substance over form principles in holding that the UK tax is

a creditable tax, but the opinion is narrow and is unlikely to have larger

ramifications outside the FTC context.

132



Specific Creditability Issues We’re Seeing

PPL v. Commissioner - Facts

During the 1980s and 1990s, the UK government privatized several dozen

government-owned utility companies.

Most of the companies were required to maintain the same rates for four years,

so only way to increase profits during this period was for the companies to

operate more efficiently. Most did, resulting in significantly more profit than the

government anticipated.

In 1997, the UK enacted a special tax designed to capture the “windfall profits”

that 32 companies earned during the years in which they were prohibited from

raising rates.

The tax is computed based on a formula that imposes a 23% tax on the

difference between a company’s actual flotation value (its market capitalization

value after sale) and what the government thinks its flotation value should have

been (determined by multiplying the company’s average annual profits during

the initial period by a price-to-earnings ratio of 9).

133




PPL v. Commissioner - Analysis

Court began by noting that the predominant character rule in Reg.

§ 1.901-2(a) establishes several relevant principles:

First, the predominant character of a tax, or the “normal manner” in which a

tax applies, is controlling. The fact that a few taxpayers are affected

differently is not controlling

Second, foreign government’s characterization of the tax is not dispositive.

Instead, look to economic effect and whether the tax, if enacted in the

United States, would be an income, war profits, or excess profits tax under

US principles

Applying substance over form principles, the Court concluded that the UK tax

has the predominant character of an income tax in the U.S. sense because the

economic substance of the tax is that of a excess profits tax.

Despite the form of the formula for computing the tax, the Court found that

the tax is a tax on realized net income disguised as a tax on the difference

between two values.

134




Foreign Taxes

Brazil – Capital Gains Tax, PIS, COFIN, IRPJ, SCL

France and China – Business Taxes

India and France – Dividend Distribution Taxes

China – Circular 698 Tax

135




“FTC Generators”

IRS challenges to structured financing arrangements based on economic

substance doctrine (codified in 2010 as § 7701(o).

Under economic substance doctrine, a tax benefit may be disallowed even if

taxpayer complies with all code and regulatory requirements. At issue is

whether

The transaction changes in a meaningful way (apart from federal income

tax effects) the taxpayer’s economic position; and

The taxpayer has a substantial purpose (apart from federal income tax

effects) for entering into the transaction

IES Industries and Compaq – US borrowers pre tax profit/benefit is not

reduced by foreign tax costs

STARS cases – BONY, Salem Financial, Santander Holdings, AIG

136

Interaction of § 6511(d)(2)

and 6511(d)(3)



Credit v. Deduction

Annual election to deduct or credit foreign taxes – § 164(a)

or § 901:

Credit generally more beneficial but deduction may be preferable, for

example, if taxpayer has NOL

Generally cannot claim deduction and credit in same year

Make election to claim FTC by filing Form 1118

§ 6511(d)(3)(A) provides extended statute of limitations “if the claim for credit

or refund relates to an overpayment attributable to a foreign tax credit carry

back”

Allows change from credit to deduction, deduction to credit, or change to

amount of foreign tax credit claimed

Change election by filing amended return within 10 years of original due date

(without extensions) of the return for year in which taxes actually paid or

accrued

138



Interaction of § 6511(d)(2) and (d)(3)

§ 6511(d)(2) provides a special period of limitations for NOL carry backs – 3

year from the time prescribed by law (including extensions) for filing the return

for the year in which the NOL giving rise to the carry back arises

§ 6511(d)(3) provides a special period of limitations for overpayments relating to

foreign taxes – 10 years from the original due date (without extensions) of the

return for the year in which the taxes were actually paid or accrued

IRS has addressed interaction of these rules in several rulings, adopting an

“independent events” approach

139




CCA 201204008

FACTS: In year [8] taxpayer filed amended return for year [3] changing election

from FTC to deduction. Year [3] deduction created additional NOL which

taxpayer sought to carry back to year [1] . At issue was whether year [1]

amended return was timely.

§ 6511(d)(2) requires amended return within 3 years of extended due date

of year [3] return thus year [1] amended return not timely if (d)(2) applies to

year [1]

§ 6511(d)(3) allows 10 years to change from credit to deduction so year [3]

amendment timely; year [1] is also within 10 years and attributable to timely

year [3] change

IRS held that rules must be applied independently. Thus, change from credit

to deduction governed by and timely under § 6511(d)(3). But, NOL carryback

from year [3] to year [1] governed by § 6511(d)(2) and not timely.

140




CCA 201204008

IRS further took position that year [1] amended return also would not be timely

under an “attributable to” approach because § 6511(d)(3) applies only if the

claim for refund relates to an overpayment for a year for which a credit is

allowed under § 901. Once taxpayer changed to deduction for year [3], §

6511(d)(3) could not support allowance of NOL carry back.

See also ILM 201330031, reaching same conclusion

NOTE that only NOL carry backs are potentially disallowed. If taxpayer

changes from credit to deduction but cannot carry taxes back, then no

limitation on carry forward. But, if taxes could be carried back but for statutory

bar, it appears that taxpayer must reduce carry forward amount

May want to deduct taxes initially if not sure will be able to use credits, but

consider AMT impact

141

Technical Taxpayer Rules –

Regulation § 1.901-2(f)



Creditability of Foreign Taxes – Who is Legally

Liable for the Tax?

Only the person legally liable for a tax under foreign law

(the “technical taxpayer”) may claim credits

Withholding agents not technical taxpayers; look to beneficial owner of

income

Contractual arrangements shifting liability not relevant

Foreign law controls, but US law also relevant

Issues regarding technical taxpayer often arise in context of hybrid entities and

foreign consolidation/group relief regimes

On February 9, 2012, the IRS issued final regulations under § 901 addressing

who is legally liable for foreign taxes (i.e., who is the “technical taxpayer”)

imposed on foreign combined income groups and hybrid entities

Generally effective for tax years beginning after February 14, 2012, but

taxpayers can elect to apply combined income rules retroactively to tax

years beginning after December 31, 2010

143



§ 901 Final Regulations (2012)

Foreign Consolidated Groups

Final Reg. § 1.901-2(f)(3) provides that taxes imposed on a foreign combined

income group are apportioned among group members based on each person’s

“portion of the base of the tax”

― Foreign tax is imposed on combined income if it is computed on a

combined basis under foreign law and would otherwise be imposed on

each person’s separate taxable income

Combined income is calculated separately, and associated taxes are allocated

separately, if foreign law exempts from tax or provides a preferential tax rate for

certain types of income, and if certain expenses, deductions or credits are

taken into account only with respect to a “particular type of income”

Collateral consequences: US tax principles apply to determine the tax

consequences if one person remits tax “considered paid” by another

Rule does not apply to loss sharing regimes (e.g., UK group relief) or foreign

subpart F type regimes

144



Taxes Imposed on Combined Income

Reg. § 1.901-2(f)(5), Example 2

145

B has sole legal liability for group tax under

Country X law. Country X does not provide

rules for mandatory allocation of losses

Combined income is 240u and tax is 72u

(30% rate)

24u of group tax allocated to B (and thus A’s

§ 901 credits) and 48u allocated to C:

― Dividends are ignored under Reg. §

1.901-2(f)(3)(iii)(B)

Application of collateral consequences rule

where B pays group tax and C reimburses it

for its share – taxpayers should re-examine

tax sharing agreements

What if D’s loss is capital and can only

offset capital gain under Country X law?

Assume B’s income is capital and C’s

income is ordinary

B

(Country X)

A

(U.S.)

C

(Country X)

D

(Country X)

100u

200u (60u)

100u Dividend



§ 901 Final Regulations (2012)

Taxes Imposed on Income of Hybrid Entities

Final Reg. § 1.901-2(f)(4) addresses foreign taxes imposed at entity level

on:

― Partnerships – taxes are treated as partnership-level taxes that must be

allocated to partners applying principles of § 704(b)

― Disregarded entities (“DREs”) – taxes are treated as imposed on the owner of

the DRE

Final Reg. § 1.901-2(f)(4) also addresses changes in owners of

partnerships and DREs and certain partnership terminations in situations

where foreign tax year does not close:

― If partnership terminates, foreign tax for the year is allocated between the

partnership and its successor partnership, or a DRE if the partnership ceases

to have two owners, under the principles of Reg. § 1.1502-76(b)

― If there is a “change in the ownership” of a DRE, foreign tax is allocated

between the transferor and transferee based on respective portions of

taxable income determined under foreign law under principles of Reg.

§ 1.1502-76(b)

146



Hybrid Entities – Example

147

Target is a DRE that is a calendar year

taxpayer for foreign tax purposes

Target’s income for the year is 100u

Target’s foreign income tax for the year is 30u,

accrued on 12/31

Under Reg. § 1.901-2(f)(4)(ii), the 30u of tax is

apportioned between X and Y under the

principles of Reg. § 1.1502-76(b):

― Closing of the books vs. ratable

allocation

Query whether rule applies if election is made

to treat Target as a corporation effective 9/30?

Y X

Target

9/30 transfer

Target

Temporary and Proposed

§ 909 Splitter Regulations



§ 909 – Foreign Tax Credit Splitters

Background

§ 909 suspends foreign taxes if there is a FTC splitting event until the related

income and taxes are “reunited”

Applies to foreign taxes paid or accrued in taxable years beginning after

December 31, 2010, and also may apply retroactively to foreign income taxes

paid or accrued by a § 902 corporation in taxable years beginning before

January 1, 2011

Temporary and proposed regulations under § 909 provide an exclusive list of

splitter arrangements for tax years beginning on or after January 1, 2012:

Reverse hybrid Structures

Loss Sharing Regimes

Hybrid Instruments

Partnership Intra-Branch Payments (temporary provision as IRS also

amended § 704(b) regulations prospectively)

The regulations incorporate rules in Notice 2010-92 for pre-2011 years and also

generally incorporate the “mechanics” of Notice 2010-92

149



§ 909 - Foreign Tax Credit Splitters What is not Covered

Although temporary regulations contain exclusive list of splitters, preamble

notes areas in which IRS and Treasury still have concerns over separation of

income and taxes:

Certain asset transfers;

Taxes imposed on distributions that are dividends under foreign law but

§ 305(a) distributions or disregarded for U.S. tax purposes (“base

differences”); and

Any future guidance identifying additional splitters will be effective

prospectively

Result of disposition of an entity with related income or suspended taxes not

addressed

Rules for computing and distributing related income not fully addressed

150



Reverse Hybrid Splitter Arrangements

A reverse hybrid splitter arrangement arises when a payor pays or accrues

foreign income taxes with respect to income of a reverse hybrid:

Reverse hybrid is an entity that is treated as a corporation for U.S. tax

purposes but is fiscally transparent (or a branch) under foreign law

Rule applies even if the reverse hybrid has a loss for the year for U.S.

tax purposes (e.g., due to a timing difference or subsequent year loss)

Related income is the U.S. E&P of the reverse hybrid attributable to

activities of the reverse hybrid that gave rise to income included in

payor’s foreign tax base with respect to which foreign taxes were paid or

accrued

Foreign taxes paid or accrued with respect to reverse hybrid’s income

are “split taxes”

151



Reverse Hybrid Splitter – Example

30 of taxes paid by USP are split taxes

DE’s earnings (or deficits) are not included in the

foreign tax base and its activities thus do not give rise

to related income

50 of tax on DE’s income treated as paid by RH

under Reg. § 1.901-2(f)(4)

Related income is the 100 of E&P in RH attributable to

activities that gave rise to the 30 of taxes

Related income increased/decreased by future

income or losses attributable to relevant activities

RH’s E&P is 300, and its tax pool is 50, but only 100 is

related income

Distribution sourced proportionally to related and

non-related income

152

USP

RH

DE

100 E&P

30 Tax

200 E&P

50 Tax


firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 153

Loss Sharing Splitter Arrangements

A foreign group relief or loss sharing regime is a splitter to the extent a

shared loss of a U.S. combined income group could have been used to offset

income of the group (usable shared loss) but is instead used to offset income

of another U.S. combined income group

A U.S. combined income group is a single individual or entity and all other

entities (including fiscally transparent entities) that for U.S. federal income tax

purposes combine any of their respective items of income deduction, gain or

loss with the income, deductions, gain or loss of such individual or

corporation

Fiscally transparent entity is an entity for this purpose

If a fiscally transparent entity is a member of more than one U.S.

combined group, taxable income is allocated between the groups; for a

partnership generally apply principles in § 704(b) regulations

No hybrid, no splitter


firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 154

Loss Sharing Splitter Arrangements Temp. Reg. § 1.909-2T(b)(2)(vii), Example 2

-0- income

-0- tax

(100)

loss

200 income

(reduced to 100 by

shared loss)

30 tax

HP1 belongs to both CFC3 and CFC2/DE

U.S. combined income groups

Positive income of CFC2 group is 200 (100

in CFC2 plus 50% of HP1’s 200 income)

and of CFC3 group is 100 (50% of HP1’s

200 income)

Shared loss is (100) all of which would be

usable by CFC2 combined income group

Income offset by shared loss is 100 of HP1’s

income of which 50 is allocable to CFC2 and

50 is allocable to CFC3

Splitter results because 50 of usable shared

loss of CFC2 group offset income of CFC3

group

15 of CFC2 taxes are split taxes, and related

income of CFC3 is 50

How would split taxes be released?

USP

CFC1

DE

CFC2 CFC3

B

B

100 income

30 tax

HP1

50% 50%

-0- income

-0- tax

(100)

Loss

B B

B B

* Income amounts are Country B taxable income amounts



Group Relief – No Splitter

USP

UKP

UK1 UK2

Interest paid by UKP to FINCO intended to

qualify for § 954(c)(3)(A) or (c)(6) exceptions

– assume no withholding tax and minimal or

no taxes imposed on FINCO

UKP has E&P deficit attributable to interest

expense

UK1 has low-taxed E&P pool because it

benefits from loss surrender

UK2 has E&P and FTC pool at “regular” rate

No splitter because UKP loss not a usable

loss (e.g., because no DRE, branch or

partnership owned by UKP to which loss

could be surrendered)

§ 902 ETR benefit for dividends paid by UK2

to UKP because of UKP’s E&P deficit

Loss

Surrender

Loan

15

5

FINCO



Hybrid Instrument Splitter Arrangements

U.S. Equity Splitter

A U.S. equity hybrid instrument is an instrument treated as equity for

U.S. tax purposes and debt for foreign tax purposes, or with respect to

which the issuer is entitled to a deduction for foreign tax purposes for

amounts paid or accrued

― May include notional interest deduction regimes

A U.S. equity hybrid instrument is a splitter if payments or accruals with

respect to the instrument (1) give rise to foreign income taxes paid or

accrued by the owner of the instrument, (2) are deductible by the issuer

under the laws of the issuer’s foreign jurisdiction, and (3) do not give rise

to income for U.S. tax purposes

Similar rule for US Debt Splitter

156



U.S. Equity Hybrid Instrument

For foreign tax purposes, FP accrues interest

income and pays foreign tax; FS has an interest

deduction

For U.S. tax purposes, FP does not recognize

income and FS does not reduce its E&P because

instrument treated as equity and there is no

current payment

Split taxes are the 30 of tax paid by FP – the

amount that would not have been paid but for the

hybrid instrument

― Split taxes could include foreign withholding

taxes

Related income in FS is 100, the amount

deductible under foreign law, regardless of FS’s

actual E&P

157

100 deduction for

accrued interest

100 accrued

interest income

30 foreign tax

U.S. Equity/

Foreign Debt

FP

FS



Brazil – Interest on Equity

Brazilian interest on equity (IOE) rules allow a Brazilian subsidiary to

create an interest payable owing to its shareholder at a government

approved interest rate; subsidiary can deduct accrued or actual

payments against corporate income tax liability

Tax appears to be a creditable withholding tax

Issue arises under § 909, however, as to whether IOE regime creates a

hybrid instrument splitter arrangement resulting in suspended taxes:

― If “interest” is actually paid, does not appear to be a splitter because although

(i) USP’s stock is a US equity hybrid instrument, (ii) amounts of IOE paid or

accrued give rise to a Brazilian deduction, and (iii) the payments are subject

to foreign tax, US shareholder actually receives income and the final required

for a hybrid instrument splitter (payments or accruals do not give rise to

income for US tax) is not satisfied.

― But, if interest is accrued, the withholding tax would be suspended

158



Split Taxes on Deductible Disregarded Payments

Loan to DRE is disregarded for U.S. tax purposes, but gives rise to a 100 deduction for interest paid or accrued under foreign law

RH is fiscally transparent under foreign law and the 100 deduction thus offset’s 110 of RH income, resulting in 10 taxable income and 3 tax liability (30% rate) at DRE level under foreign law

The 3 of tax on DRE’s 10 of income is suspended at the USP level because the tax is paid as part of a reverse hybrid splitter arrangement

Reg. § 1.909-3T(b) also treats any foreign tax imposed on interest paid to USP as a split tax and thus suspended. Specifically, the rule treats taxes as split taxes to the extent they are paid with respect to the amount of a disregarded payment that is deductible by the payor of the disregarded payment under the foreign law of the jurisdiction in which the payor of the disregarded payment is subject to tax on income from a splitter arrangement:

What if RH’s income were 100 and no net tax liability at DRE?

What if DRE had two owners?

159

Loan

(100) Interest

Deduction

3 tax

110 Income

and E&P RH

USP

DRE

Anti-Abuse Rules



Anti-Abuse Rules

§ 901(k)

Enacted in 1997, imposes minimum holding periods for stock before a

taxpayer can claim a FTC for withholding taxes or deemed paid taxes on

dividends:

For common stock must own for at least 16 days during the 31 day

period beginning 15 days before the date on which such shares become

ex-dividend

For preferred stock increase to 46 days during 91 day period

Taxpayer must not be under obligation to make offsetting payments with

respect to a position in substantially similar or related property

Taxpayer must bear risk of loss with respect to stock for entire holding

period

Exception for security dealers; regulatory authority to provide additional

exceptions not yet exercised

161



Anti-Abuse Rules

§ 901(l)

Enacted in 2004; extends § 901(k) rules to apply to gain, interests, rents,

royalties. Credits are disallowed for gross basis withholding taxes under

§ 901(l)(1)(A) if the recipient has not held the property for 15 days during

a 31 day testing period, excluding periods when the recipient is protected

from risk of loss

§ 901(l)(1)(B) if the recipient is under an obligation to make offsetting

payments with respect to positions in substantially similar or related

property

Regulatory authority to limit application of the rule denying foreign tax credits

where denial is not necessary to achieve the purposes of § 901(l). Unlike

under § 901(k), the IRS has exercised its authority to limit the scope of §

901(l) in two notices, Notice 2005-90 and Notice 2010-65

162



Notice 2005-90 Back-to-Back Computer Program Licensing Arrangement

In Notice 2005-90, the IRS

concluded that denying credits for

foreign withholding taxes imposed

on payments in a back-to-back

computer program licensing

arrangement in the ordinary course

of the licensor’s and licensee’s

respective trades or businesses is

not necessary to carry out the

purposes of the statute

Computer

Co. 1

Computer

Co. 2

CFCs

Software

License

Software

Sub-License

Royalty

Royalty Subject

To Foreign

Withholding

Tax

163



Notice 2010-65 Back-to-Back Intellectual Property Licensing Arrangements

§ 901(l)(1)(B) shall not apply to back-to-back licensing arrangements

involving certain intellectual property or copyrighted articles entered into in

the ordinary course of business

Applies to intellectual property rights in or copies of film, television program

or recording, literary, musical or artistic composition, computer program,

right to publicity or

similar property

Intermediary company (licensee) may be a U.S. corporation or CFC, and

must be an “affiliate” of either owner of the property or sublicensee

Licensee and sublicensee must use rights in the property in a trade or

business

164



Notice 2010-65

Retail Distribution Arrangements

§ 901(l)(1)(A) shall not apply to transfers of covered copyrighted articles by

owner of the copyright directly or indirectly through U.S. affiliates to foreign

retail customers in the ordinary course of business

Covered copyrighted articles include copies of film, television program or

recording, literary, musical or artistic composition, computer program, or

similar property

Note that exception is narrow, would not apply where U.S. corporation

transfers to foreign affiliate for sale to foreign

retail customers

165



§ 901(m) – Covered Asset Acquisitions

§ 901(m), effective for tax years beginning after 12/31/10, disallows FTCs for the

disqualified portion of foreign income tax paid or accrued with respect to income or gain

attributable to relevant foreign assets in a covered asset acquisition.

Disqualified taxes are permanently disallowed as credits, but are deductible.

Statute is aimed at transaction that result in basis step-up for US but not foreign purposes

and disallows foreign taxes imposed on additional foreign income (because no basis step

up and thus less depreciation) that the US does not recognize.

Applies only to specifically enumerated transactions, referred to as “covered asset

acquisitions” or CAAs:

Qualified stock purchase with § 338(g) or (h)(10) election;

Any transaction treated as the acquisition of assets for US tax purposes but as a

stock acquisition (or disregarded) for foreign tax purposes;

Acquisition of a partnership interest with § 754 election; and

Any other similar transaction provided by the Secretary.

IRS has not issued any guidance under § 901(m), and “similar transactions” to specifically

enumerated CAAs are not currently CAAs and are not subject to § 901(m).

166



§ 901(m) - Mechanics

Step 1: Determine the Relevant Foreign Assets (RFAs)

Step 2: Determine the Basis Difference in Each RFA

Step 3: Allocate the Basis Difference to Taxable Years

Step 4: Determine the Income Attributable to the RFAs

Step 5: Determine the Amount of Foreign Income Taxes Paid on Income

Attributable to the RFAs

Step 6: Compute the Amount of Disallowed Foreign Taxes

167



§ 901(m) - Mechanics

Relevant foreign asset (“RFA”) means any asset if income, deduction, gain or

loss attributable to such asset is taken into account in determining applicable

foreign income taxes

Basis differences determined by looking to adjusted US tax basis immediately

before and after CAA

Disqualified portion is computed using formula:

Foreign Taxes x Basis Differences = Disallowed

Foreign Income Foreign Taxes

Acceleration of basis difference on disposition (except as provided in

regulations)

In describing the disposition rule, the Joint Committee Explanation states that “it is intended that [§

901(m)(3)(B)(ii)] generally appl[ies] in circumstances in which there is a disposition of a relevant

foreign asset and the associated income or gain is taken into account for purposes of determining

foreign income tax in the relevant jurisdiction”

To the extent a transaction is a CAA, § 901(m) provides a specific computation with respect to the

relevant party, but neither the statute nor the Joint Committee Explanation include a notion of an

entity being a successor in interest to prior basis differences

168



Covered Asset Acquisition

Sale with § 338 Election

169

Old

CFC

U.S.

Seller

U.S.

Buyer

New

CFC

Assets

Cash

New CFC

Stock

New

CFC

U.S. seller has 20 basis in Old CFC stock

Old CFC has 50 basis in assets

Sales price is 100

Old CFC sells assets with

basis = 50 to New CFC for 100.

New CFC takes 100 basis in the

assets for U.S. tax purposes, which

allows it to claim larger

depreciation/amortization

deductions for U.S. purposes

Foreign country sees stock sale with

no basis step up and less

depreciation/amortization

deductions. Result is more foreign

taxable income and foreign tax

liability than would be computed

under U.S. principles




Sale of Disregarded Entity

170

USP

FS1 FS2

FS3 FS3

FS3 Stock

Cash

Transaction treated as a stock acquisition under foreign law and an asset

acquisition for U.S. purposes, resulting in basis step-up that can be amortized or

depreciated for U.S. tax purposes.




§ 351 with Boot

171

Assets

USP

Common

and NQPS

CFC2

CFC1

The transaction is generally tax free under foreign

law but taxable under US law to extent of built-in gain

in the assets because NQPS is “boot” in a § 351

transaction.

Any gain recognized results in a basis step-up in the

contributed assets for US but not foreign tax

purposes.

Although similar to the transactions specifically

described as CAAs in § 901(m), this transaction is

not a CAA because it is not specifically listed and no

regulations have been issued adding additional

transactions.

Results in a basis step-up without FTC disallowance.



Presenter

Caren Shein, Managing Director

202-533-4210

[email protected]

172



Foreign Tax Credit Planning

With Losses

April 29, 2014



174

− ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN


PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

− You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the

tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to

you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those

materials.

− The information contained herein is of a general nature and based on authorities that are subject to change.

Applicability of the information to specific situations should be determined through consultation with your tax

adviser.



Speakers

Pat Jackman


KPMG LLP

2122-872-3255

[email protected]

Phil Stoffregen


KPMG LLP

313-230-3223

[email protected]



High Basis—Low Value

Stock



Granite Trust Transaction

Facts

USP’s basis in the shares of CFC1 exceeds the FMV of CFC1. Thus, there is a $100 built-in-loss in the CFC1 shares.

USP transfers 25% of the CFC1 stock to CFC2 in exchange for NQPS.

CFC1 liquidates (actual or CTB liquidation).

Anticipated Results

USP realizes $25 capital loss on the transfer of the

CFC1 shares to CFC2 in exchange for NQPS. This

loss is deferred under §267(f). TD 9583

(4/20/2012).

USP realizes and recognizes a $75 capital loss on

the taxable liquidation of CFC1. See, e.g., Granite

Trust Co. v. U.S., 238 F.2d 670 (1st Cir. 1956)

(concluding that §332 is elective in nature).

25%

S1 Stock

Liquidation

FV: $100

AB: $200*

* Assumes each share has uniform basis.

177

USP

CFC2

CFC1



Technical Considerations

178

Is the liquidation of CFC1 an upstream “C” reorganization into USP?

Does USP acquire “substantially all” of CFC1’s assets? Does the nature of the CFC1

assets transferred to CFC2 impact this analysis?

What ownership percentage in CFC1 does USP need to transfer to CFC2 in order to

ensure the substantially all requirement is not satisfied? The greater amount of stock

transferred results in more loss being deferred under §267(f).

If CFC1 is a holding company owning stock in more than one controlled subsidiary, can

§355 apply to disallow the loss (tax-free split-up)?

Does the nature of USP’s divesture of the CFC1 shares to bust the §332 control

requirement impact the analysis?

If CFC uses cash, does the application of §304 matter (NQPS avoids the application of

§304)?

Can the economic substance doctrine apply to disallow the loss?



Stock Loss Transactions:

Foreign Owner

Facts

Same basic facts as the previous example except that the transferor is also a CFC.

Expected Results

Loss is recognized for E&P purposes.

Loss may reduce current year E&P or otherwise result in an overall E&P deficit that can be used in later years (see, e.g., deficit planning opportunities in later slides).

− Watch for §952(c) recapture potential.

− E&P in CFC1 is eliminated because the liquidation is not described in §381.

25%

S1 Stock

Liquidation

FV: $100

AB: $200*

Granite Trust Transaction

* Assumes each share has uniform basis.

179

CFC-P

CFC2

CFC1



E&P Deficit Planning

for CFCs



The E&P deficit planning addressed herein is focused on the following

two common scenarios:

1. A CFC with an accumulated E&P deficit begins to generate positive E&P

This may happen because the CFC’s business has become profitable or because

U.S. E&P deductions (e.g., amortization or interest deductions) have expired

Foreign taxes paid on the CFC’s earnings are “trapped” because Post-86

Undistributed Earnings are negative

Distributions by the CFC could give rise to taxable dividends (i.e., a nimble dividend)

with no foreign tax credit offset

Deficit planning could allow “trapped” taxes to become accessible

2. A CFC has an accumulated E&P deficit with no current expectation the E&P deficit will

reverse in the future

The CFC’s E&P deficit may be available to offset earnings generated in related

companies, optimizing the overall FTC position of the group

181

Affirmative Use of CFC E&P Deficits



A hovering deficit arises when two foreign corporations engage in a transaction in which

E&P and taxes carry over under §381 and either corporation has a deficit in Post-86

Undistributed Earnings in one or more FTC baskets

The deficit and associated taxes hover and can only be offset by earnings

“accumulated” after the §381 transaction in the same basket; taxes are released

proportionately as the deficit is earned out

There may be a hovering deficit in a basket even if overall E&P available for

distribution under §316 is positive

Earnings are treated as being “accumulated” if the earnings are not distributed or

deemed distributed (e.g., under subpart F) during the taxable year earned

Hovering deficit rules apply even if both corporations have a deficit in the same FTC

basket

Certain exceptions for qualified deficits and chain deficits under §952(c)

182

Hovering Deficit Rules



Facts

CFC1 is expected to generate $20 of U.S. E&P

each year

Due to the pre-existing accumulated E&P deficit, it will take

6-years to earn out of the accumulated deficit

CFC1’s earnings are subject to foreign tax (e.g., the prior

E&P deficit resulted from deductions for U.S. E&P purposes

only)

Expected Results

In 2013, a distribution from CFC1 would result in a taxable

dividend to the extent of current year E&P (i.e., a nimble

dividend)

Post-86 Undistributed Earnings has a deficit balance

(($100)). As such, distributions by CFC1 will not carry

foreign taxes

Based on the assumed earnings of $20 each year, USP

could not access foreign tax credits in CFC1 until 2019 (or

later, if current E&P is distributed)

183

Nimble Dividends and Trapped Taxes

As of 12/31/13

AEP ($120)

CEP $20

Post-86 E&P ($100)

Post-86 Taxes $40

As of 12/31/13

AEP $200

CEP $100

Post-86 E&P $300

Post-86 Taxes $0

All E&P is assumed to be general limitation earnings.

USP

CFC2

CFC1



Facts

CFC2 has Post-86 Undistributed Earnings of $300, which is

equal to its E&P available for distribution under §316

CFC2 incurs no foreign taxes on its earnings

CFC2 distributes $110 to CFC1. This distribution does not

result in subpart F income (e.g., §954(c)(6)

Expected Results

The $110 distribution from CFC2 increases CFC1’s current

year E&P to $130

Likewise, the current year E&P of $130 offsets the deficit in

Post-86 Undistributed Earnings, resulting in a positive

balance of $10

CFC1 can make a distribution of $10, equal to the amount of its

Post-86 Undistributed Earnings, which will carry all $40 of

Post-86 Taxes

Going forward, because CFC1 no longer has a deficit in Post-

86 Undistributed Earnings, CFC1 can make annual distributions

that carry foreign taxes

Planning is more difficult if CFC2 is not directly held by CFC1

(e.g., step transaction risks)

184

Nimble Dividends and Trapped Taxes – Movement of E&P

into CFC1

As of 12/31/13

AEP ($120)

CEP $20

Post-86 E&P ($100)

Post-86 Taxes $40

As of 12/31/13

AEP $200

CEP $100

Post-86 E&P $300

Post-86 Taxes $0

$110


USP

CFC2

CFC1



Facts

Over the next 5-years, CFC1 expects to earn $20 of E&P and

pay $5 of foreign taxes annually

On January 1, 2014, for valid business reasons, CFC2 merges

into CFC1 in a transaction that qualifies as a reorganization

under §368(a)

Expected Results

As of January 1, 2014, CFC1 has an accumulated E&P deficit

of ($100) and a deficit in Post-86 Undistributed Earnings of

($100)

CFC1’s ($100) deficit in Post-86 Undistributed Earnings hovers

and is excluded from Post-86 Undistributed Earnings and §316

E&P. CFC1’s $40 of Post-86 Taxes also hover and is released

proportionally as the ($100) deficit is earned out

The reorganization results in a “fresh start” for CFC1’s Post-86

Undistributed Earnings, allowing CFC1 to make post-merger

distributions that carry foreign taxes

The hovering deficit only solves for taxes incurred post-merger

that would otherwise have been trapped due to a deficit in

Post-86 Undistributed Earnings. The $40 of historic taxes

remain trapped until the hovering deficit is earned out

185

Nimble Dividends and Trapped Taxes – Creation of Hovering Deficit

Merger

As of 12/31/13

AEP ($120)

CEP $20

Post-86 E&P ($100)

Post-86 Taxes $40

As of 12/31/13

AEP $10

CEP $5

Post-86 E&P $15

Post-86 Taxes $0


USP

CFC2 CFC1



Facts

CFC2 has Post-86 Undistributed Earnings of $250, which is

equal to its E&P available for distribution under §316

CFC2’s E&P has an ETR of approximately 23%

CFC1 has an E&P deficit of ($200) and it is not expected to earn

out of the deficit

CFC2 distributes $250 to CFC1. This distribution does not result

in subpart F income (e.g., §954(c)(6)

Expected Results

The $250 distribution from CFC2 increases CFC1’s current year

E&P to $250

Likewise, the current year E&P of $250 offsets the deficit in Post-

86 Undistributed Earnings, resulting in a positive balance of $50

CFC1 can make a distribution of $50, equal to the amount of its

Post-86 Undistributed Earnings, which will carry all $75 of Post-

86 Taxes (which moved from CFC2 to CFC1)

A $50 distribution from CFC1 will carry foreign taxes with an ETR

of approximately 60%

Planning is more difficult if CFC2 is not directly held by CFC1

(e.g., step transaction risks)

186

E&P Deficit Offset

As of 12/31/13

AEP ($200)

CEP $0

Post-86 E&P ($200)

Post-86 Taxes $0

As of 12/31/13

AEP $200

CEP $50

Post-86 E&P $250

Post-86 Taxes $75

$250


USP

CFC2

CFC1



Hovering Deficit Traps

for the Unwary



Facts

On December 31, 2013, for valid business reasons, CFC1

merges into CFC2 in a transaction that qualifies as a

reorganization under §368(a)

Prior to the merger, the maximum dividend USP could

receive, from both CFC1 and CFC2, is $200, equal to the

$200 of §316 E&P in CFC1

Expected Results

Under §381, there would be no hovering deficit created

because neither CFC1 nor CFC2 has a deficit in §316

E&P. Generally, CFC1’s $200 of E&P would be

inherited by CFC2

However, under Reg. §1.367(b)-7, the hovering deficit

rules are applied by basket. Because CFC1 has a ($100)

deficit in the general basket, this amount becomes a

hovering deficit and is removed from Post-86

Undistributed Earnings and §316 E&P

CFC2 inherits $300 of E&P from CFC1 (all in the passive

basket), causing $100 of “springing” E&P because of the

removal of the general basket deficit from E&P

The total E&P available for distribution becomes $300

188

Springing E&P

Merger

As of 12/31/13

AEP $200

CEP $0

Post-86 General E&P ($100)

Post-86 General Taxes $40

Post-86 Passive E&P $300

As of 12/31/13

AEP $0

CEP $0

Post-86 E&P $0

Post-86 Taxes $0

USP

CFC2 CFC1



Facts

On December 31, 2013, for valid business reasons, CFC1

merges into CFC2 in a transaction that qualifies as a

reorganization under §368(a)

Expected Results

If CFC1 distributed $200 to USP prior to the merger, the

($100) deficit in its passive basket would offset the positive

balance in the general basket, leaving a balance of $200.

See Reg. §1.960-1(i)(4)

Because the $200 dividend is sourced entirely from the

general basket E&P, the distribution carries all $60 of taxes

The ($100) passive deficit would carry over, as a passive

deficit, to the next taxable year

As a result of the merger, the passive basket deficit becomes

a hovering deficit and is removed from Post-86 Undistributed

Earnings and §316 E&P, leaving CFC with §316 E&P of $300

In order to access all $60 of Post-86 Taxes, CFC2 would

need to distribute $300. This is because the ($100) passive

deficit is not available to “offset” the general basket E&P

under Reg. 1.960-1(i)(4)

189

Reg. §1.960-1(i)(4) Offset

Merger

As of 12/31/13

AEP $200

CEP $0

Post-86 General E&P $300


Post-86 Passive E&P ($100)

As of 12/31/13

AEP $0

CEP $0

Post-86 E&P $0

Post-86 Taxes $0

USP

CFC2 CFC1



Facts

CFC2 liquidates into CFC1 on 6/30/13. CFC2’s

($500) E&P deficit hovers and can only be offset by

earnings accumulated after the liquidation

CFC3 distributes $500 to CFC1 on 9/30/13, which

brings up $200 of §902 taxes. Assume the

distribution is CFC1’s only current year income and is

not subpart F income

Expected Results

Under Reg. §1.367(b)-7(f)(5)(i), earnings in the year

of the §381 transaction are deemed to accumulate

ratably over the entire year

Thus, although the $500 dividend is received after

the §332 liquidation on 6/30/13, only 50% (because

the liquidation was mid-way through the year) of the

earnings are treated as accumulated after the §381

transaction and available to be offset by the hovering

deficit

As of the beginning of 2014, CFC1 has a ($250)

hovering deficit (in the general basket) and $50 of

hovering taxes

190

Proration Rule for CEP in Year of §381 Transaction

$500 Dividend

9/30/13

Liquidation

6/30/13

As of 6/30/13

AEP ($500)

CEP $0

Post-86 General E&P ($500)


As of 12/31/13

AEP $1,000

CEP $0

Post-86 General E&P $1,000


As of 1/1/13

AEP $0

CEP $0

Post-86 General E&P $0


CFC3 CFC2

CFC1

Thank you

International Tax

Hot Topics



Recent International Tax Rulings and Guidance

Foreign Base Company Sales Income

Interest Expense Apportionment

Section 267(a)(3)

Foreign Tax Credit

Tax Extenders Update

Camp Tax Reform Proposal

Participation Exemption

Subpart F

Foreign Tax Credit

Interest Deduction Limits

Obama Administration 2015 Budget Tax Proposals

Expanded FBCSI

Limiting Subpart F Exceptions

Restricting Use of Certain Hybrid Arrangements

Restrict Excessive Interest Deductions

International Tax Hot Topics

Discussion Topics

Recent International Tax

Rulings and Guidance

Guidance on

Foreign Base

Company Sales

Income (FBCSI)



Tangible

Personal

Property

Tangible

Personal

Property

Income from property where CFC buys

property from or sells property to a

related person (or on behalf of a related

person), and both:

Property is manufactured or produced

outside CFC country of incorporation

Sold for use, consumption, or

disposition outside CFC country of

incorporation

Related Party—More than 50% control

Concern

Income of selling subsidiary separated

from manufacturing activities of

related corporation to obtain lower

rate of tax for sales income


In General

USP

F Sub

(X)

Unrelated

Customer



Foreign base company sales income does not include:

Unrelated party purchase and sale

Goods manufactured in CFC’s country of incorporation (no matter who the

manufacturer is) (same country mandatory rule)

Goods sold for use, consumption or disposition in CFC’s country of incorporation

CFC manufactures property sold (“manufacturing exception”)


Exceptions



Facts

USP and certain of its foreign subsidiaries

purchase products from unrelated foreign

manufacturers ("Vendors").

Taxpayer, its foreign affiliates, and FDE

have entered into a buying agency

agreement under which FDE performs

various procurement related activities.

Taxpayer and its foreign affiliates pay

FDE a commission for the procurement

related activities FDE performs.

FDE performs these procurement related

activities in Country X.

Issue

Whether income from the payments received

by FDE for the performance of procurement

related activities in connection with Products is

excluded from FBCSI pursuant to Treas. Reg.

§ 1.954-3(a)(4)(i).

USP

F Sub

(X)

FDE

(X)

Foreign

Affiliates

Procurement

Activities

Vendor

Commissions

Products


PLR 201332007 – Procurement Activities



Facts

Branch operates as a principal and, through

the activities of its employees, provides

overall support to the manufacture,

marketing and sale of products sold by a

related CFC.

Branch is compensated by the CFC at a

percentage of the proceeds from the sale of

the products.

Although Branch is significantly involved in

the manufacturing, marketing, and selling

activities with respect to products, it never

takes legal title to the raw materials, work in

process or the finished goods for such

products sold.

Issue

Whether Branch made a substantial contribution

to the manufacture of the products sold, within

the meaning of Treas. Reg. Section 1.954-

3(a)(4)(iv), even though the Branch did not hold

or pass legal title to the products sold.

USP

CFCs

P’ship

Branch

CFCs

Percentage

of Sales

CFCs


PLR 201325005 – Branch Does Not Hold Title



Facts

Pursuant to agreement, Corp X and its affiliates

perform physical manufacturing activities of

products.

Corp X manufactures several critical

component parts incorporated in Products

exclusively in Country X.

Corp X and its affiliates perform finishing

manufacturing activities outside of Country X.

CFC X purchases finished products from Corp X

and resells to related distribution center affiliates.

Issue

Whether the income earned by CFC X with respect to

the sale of products to a related person is not foreign

base company sales income because the income

qualifies for the same country manufacturing

exception under section 954(d)(1)(A).

USP

CFC X

(X) Distribution

Centers

Corp X

(X)

Affiliates


PLR 201206003 – Same Country Manufacturing Exception

Guidance on

Interest Expense

Apportionment



In the case of interest expense, allocations and apportionments must be made on the

basis of assets rather than gross income. Under the asset method, Taxpayer should

apportion interest expense to the various statutory groupings of income based on the

average total value of assets within each grouping, value is determined using either tax

book value or the fair market value of its assets.

As a general rule, interest expense allocation and apportionment rules are based on a

principal that interest is a fungible expense with limited exceptions.

Temporary Treas. Reg. section 1.861-12T(f) provides a special rule for adjusting the value

of assets funded by disallowed interest. In the case of any asset in connection with which

interest expense accruing at the end of the taxable year is capitalized, deferred, or

disallowed under any provision of the Code, the adjusted basis or fair market value

(depending on the taxpayer's choice of apportionment methods) of such an asset is

reduced by the principal amount of indebtedness the interest on which is so capitalized,

deferred, or disallowed.


In General



Facts

US1 holds intergroup loan receivable from US2.

US2 contributed borrowed funds to FLP to fund

purchase of certain foreign assets.

Payments of interest are made in U.S. dollars or, at the

option of US2, in limited partnership units of FLP.

Interest deductions on the loan are disallowed under

section 163(l) because USCorp2 has the option to

pay the interest with limited partnership units of FLP.

Corresponding interest income accruing to US1 is

tax exempt interest under the intercompany

transaction rules in Treas. Reg. § 1.1502-13.

Issue

For purposes of determining Taxpayer’s interest expense

allocation and apportionment for foreign tax credit

purposes, should the adjusted basis of shares in FLP be

reduced by the principal amount of the loan pursuant to

Temp. Reg. § 1.861-12T(f).

USP

FDE

US2 US1

FLP

Loan


CCA 201336018 – Disallowed Interest under Section 163(l)

Guidance on

Section 267(a)



Section 267(a)(1) denies a deduction for any loss from the sale or exchange of property

(directly or indirectly) between related persons.

Section 267 does not apply to complete liquidations but may apply to section 302

distributions.

Section 267(a)(2) potentially defers a deduction for transactions with related parties by

applying a matching concept (mandatory cash-basis) for interest and expense deductions.

– Deductions are allowed when the item is included in income of the related payee.

Section 267(a)(3) expands matching principle to payments to foreign persons.

Notwithstanding this rule, for payments made to a CFC or PFIC a deduction is allowed

for any taxable year to the extent such item is includible (without regard to deductions

or deficits allowed) to a US person who is an owner under section 958(a).

General rule — payments by a U.S. person to related foreign persons put on cash

method for deductibility.

Applies to payments of income described in sections 871(a)(1)(A), (B) or (D), and

sections 881(a)(1), (2) or (4) (generally gains from the sale of intangibles and FDAP

(other than OID)).

“Related” is defined in section 267(b).

Amount treated as paid is determined under the withholding tax rules.

Section 267(a)

In General



Facts

USCo maintained a general account into which it

deposited amounts derived from all sources, including

advances from its foreign parent.

USCo claims to have made, out of this account, payments

of interest to FP on certain advances.

Funds sufficient to cover these payments were obtained

shortly before or after a claimed payment of interest,

either through additional loans from FP or pursuant to its

line of credit with FP.

These New Loans were documented by New Notes, with

the principal amount of each New Note due only at

maturity after several years. These New Notes were

subordinated to existing and future senior debt.

During the tax years at issue Taxpayer’s borrowing from

FP substantially increased.

Issue

Whether Taxpayer’s payment of interest to FP are deductible

per section 267(a)(3).

FP

USCo

Advances

General

Account

Interest

Section 267(a)

CCA 201334037 – Paying Interest with Issuer’s Own Note

Guidance on

Foreign Tax Credits &

Transfer Pricing



Among other requirements, a foreign levy is creditable under § 901 if it is a compulsory

payment pursuant to a foreign country’s authority to levy taxes.

An amount is not creditable to the extent it exceeds taxpayer’s liability for tax under foreign

law.

Taxpayer has duty to contest excess taxes under reasonable interpretation of foreign

law

Must exhaust all effective and practical remedies


In General



DE

USP

Overview

Transactions that are generally disregarded for U.S. tax purposes because they occur between entities that are disregarded as separate entities from one another may nevertheless impact foreign taxes.

Primary concern is that through the use of a non-arm’s length transfer price an U.S. taxpayer operating through a foreign branch, or its DE, may report too much income to the foreign country or countries in which it operates, resulting in an overpayment of foreign income tax.

The legal basis for disallowing credit for overpayments of foreign income taxes attributable to non-arm’s length transfer prices is the noncompulsory payment rule of Treas. Reg. section 1.901-2(e)(5).

Example 1

US makes service payment to DE, an entity incorporated under the law of the UK but is treated as fiscally transparent for US tax purposes.

From a UK perspective the DE is a separately regarded, related entity, and transactions between DE and US are respected transactions for UK tax purposes.

If DE fails to use an arm’s length transfer price to compute the income reported on its UK tax return it may have overstated its profits subject to foreign tax and made a noncompulsory payment that is not eligible for a U.S. foreign tax credit.

Service

Fee


CCA 201349015 – Application of Section 482 to Disregarded Income



CFC

Example 2

DE, a German incorporated entity, is fiscally transparent from

CFC for U.S. tax purposes.

Transfer pricing principles will not affect the service fee DE

makes to CFC in terms of computing CFC’s earnings and profits

for U.S. tax purposes.

However, the noncompulsory payment rules apply to the same

extent to taxes paid or accrued by foreign corporations that may

be deemed paid by their U.S. shareholders.

Burden falls on the taxpayer to establish that claims based upon

deemed paid credits include only foreign taxes that were

properly accrued and paid within the meaning of the regulations.

Indirect or deemed paid credits are calculated based upon multi-

year pools of foreign corporation’s earnings and taxes

accumulated in post-1986 taxable years. Because the U.S.

shareholder is not eligible to credit the taxes until a distribution or

income inclusion from the foreign corporation, the credit must be

substantiated in the year the credit is claimed rather than the

year or years the foreign taxes were paid or accrued by the

foreign corporation.

Service

Fee

USP

DE


CCA 201349015 – Application of Section 482 to Disregarded Income

“Tax Extenders” Update



On April 3, the Senate Finance Committee approved legislation to extend

expired tax preferences—the “tax extenders” legislation—for two years, through

2015.

The House Ways and Means Committee has scheduled for Tuesday, April 29, a

markup of a package of legislation that would permanently extend several

expired provisions—including the subpart F exemption for active financing and

CFC look-through rule.

Tax Extenders Update

Current State

Camp International Tax

Reform Proposals



Implementation of Participation Exemption

Changes to the Subpart F Rules

New Category of Subpart F

Changes to Current Subpart F Rules

Changes to the Foreign Tax Credit System

Interest Limitation Rules

Miscellaneous Provisions

Camp International Tax Reform Proposals

Discussion Topics



DRE

New section 245A provides a 95% DRD for

the foreign source portion of dividends

received from a “specified 10-percent owned

foreign corporation” by a domestic

corporation that is a USSH under section

951(b) (i.e., 10% corporate shareholders)

A specified 10% owned foreign corporation is

any foreign corporation in which a domestic

corporation directly, or indirectly under section

958(a), owns 10% or more of the voting stock

Six-month (180-day) holding period

requirement during the 361-day period

beginning 180 days before the ex-dividend

date

Foreign branches of domestic corporations

continue to be taxed under current rules


Participation Exemption – Overview

USP

Foreign

Sub

95%

Exempt

100%

Taxable



No FTC (or deduction) is allowed for any foreign taxes paid or accrued with respect

to any dividend for which the 95% DRD is allowed

A credit/deduction is disallowed for all of the foreign taxes (including withholding taxes)

related to the entire foreign source portion of the dividend; disallowance not limited to

the foreign taxes related to the portion of the dividend for which a DRD is allowed

For purposes of calculating a domestic corporation’s section 904(a) limitation, the entire

foreign source portion of the dividend is excluded from foreign source income

Limitation on losses with respect to specified 10% owned foreign corporations

For purposes of determining a 10% U.S. corporate shareholder’s loss on the sale or

exchange of stock of a specified foreign corporation, the shareholder’s basis in the

foreign corporation stock is reduced by the portion of any dividend for which the 95%

DRD was allowed

If a U.S. corporation transfers substantially all of the assets of a foreign branch to a

foreign subsidiary, the U.S. corporation generally would be required (pursuant to

complex recapture rules) to include in income the amount of any post-2014 losses that

previously were incurred by the branch to the extent the U.S. corporation receives

section 245A DRDs on dividends from any of its foreign subsidiaries


Participation Exemption – Offsets



The Proposal amends section 965 to subject any USSH that owns 10% of a foreign corporation to a deemed repatriation of the corporation’s undistributed and untaxed foreign earnings (“deferred E&P”) for the last tax year of the foreign corporation ending before the participation exemption system begins

Section 965 would create a deemed repatriation by increasing the foreign corporation’s subpart F income by the amount of the deferred E&P, thus resulting in a pro rata subpart F inclusion for all 10% USSHs

A 10% USSH is allowed a deduction against its pro rata share of the deferred E&P inclusion by reference to the portion of the deferred E&P held in cash/liquid assets vs. other assets

Effective 8.75% rate on accumulated E&P to the extent of the cash and cash equivalents held by the foreign corporations.

Effective 3.5% rate on the balance of the E&P.

For purposes of determining a USSH’s subpart F inclusion, a noncontrolled 10/50 company is treated as a CFC

A USSH’s income inclusion under the transition rule would be reduced by the USSH’s share of E&P deficits of other foreign corporations that it owns

A foreign tax credit is permitted for taxes paid on the taxable portion of these earnings.

A 10% USSH may elect to pay the U.S. tax on the repatriated earnings in up to 8 installments, subject to certain accelerating events


Participation Exemption – Transition Rules



Proposal generally preserves subpart F regime and section 960 FTC with several changes

New category for foreign base company intangible income (FBCII) (discussed later)

Mandatory High-Tax Kickout

Subpart F income does not include any item of CFC income subject to an effective foreign tax

rate equal to or greater than the maximum U.S. corporate rate (i.e., 25%)

FBCI does not include FBCSI subject to an effective foreign tax rate equal to or greater than

50% of the maximum U.S. corporate rate (i.e., 12.5%)

FBCI does not include FBCII subject to an effective foreign tax rate equal to or greater than 60%

of the maximum U.S. corporate rate (Proposal provides phase-in to 60% rate)

FBCSI Exclusions

Excludes from FBCI 50% of low-taxed FBCSI (i.e., income subject to an effective foreign tax

rate below 12.5%)

Section 960 credits remain available for foreign taxes related to excluded low-taxed FBCSI

Excludes 100% of FBCSI if CFC is eligible for benefits as a qualified resident under a

“comprehensive” income tax treaty with the United States (i.e., treaties with “robust” LOB

provisions)


Changes to Current Subpart F Rules (1/2)



Makes permanent section 954(c)(6)

Extension of Active Financing/Insurance Rules

Extends for 5 years the active financing/insurance rules in sections 954(h) and (i)

Excludes from FPHCI qualified banking or financing income (determined under section

954(h)) and qualifying insurance income (determined under section 954(i)) subject to an

effective foreign tax rate of at least 50% of the maximum U.S. corporate rate (i.e., 12.5%)

Excludes from FPHCI 50% of low-taxed qualified banking, financing, or insurance income

(i.e., income subject to an effective foreign tax rate below 12.5%)

Section 960 credits remain available for foreign taxes related to excluded low-taxed

banking/financing/insurance income

Amends the de minimis rule in section 954(b)(3)(A) to index the $1M exception for

inflation

Repeals section 955


Changes to Current Subpart F Rules (2/2)



The Proposal adds foreign base company intangible income (“FBCII”) as a new

category of subpart F income for intangible income derived by CFCs and provides a

phased-in deduction for domestic corporations for income from the foreign

exploitation of intangibles.

When fully phased-in, the deduction intended to result in a 15% tax rate for income from

the foreign exploitation of IP.

Broadly consistent with the base erosion Option C contained in the 2011 Draft, which

focused on the current taxation of CFC income attributable to intangible property.

CFC intangible income that is attributable to U.S.-destined goods and services would be

subject to full, current U.S. taxation.

Other CFC intangible income would be subject to current U.S. taxation at a 15% rate.

Domestic corporations likewise would enjoy a reduced 15 percent rate on intangible income

attributable to their foreign sales, thus placing domestic corporations on an equal footing

with foreign affiliates.

In determining whether sales or services are U.S.-destined, related party sales would be

disregarded, and if the seller or service provider knows or has reason to know that the good

or service will ultimately be consumed in the United States, then the sale or service is

treated as U.S.-destined even if sold or provided in the first instance outside the United

States.


New Category of Subpart F Income – FBCII



Under the new proposal “intangible income” is the excess of a CFC’s gross income over 10 percent of the basis of its tangible property.

In essence, the proposal, rather than being a tax on “intangible income,” is a tax on “excess returns,” with “routine returns” measured — in some sense — as a return on assets.

Other categories of Subpart F income take priority — either wholly or in part — over FBCII.

Expressed algebraically, FBCII = AGI – (10% x adjusted basis of QBAI) – (((AGI – (10% x adjusted basis of QBAI))/AGI) x relevant subpart F income).

Example of calculation of FBCII from JCT Report:

Assume that CFC that manufactures and sells widgets has AGI of $50, which includes $10 of FPHCI, and an aggregate basis of $300 in its QBAI.

FBCII = $50 AGI – (10% x $300 QBAI) = $20 - ((($50 AGI – (10% x $300 QBAI))/$50 AGI) x $10 relevant FPHCI) = $16

As noted earlier, the $16 of FBCII will be subpart F income only to the extent it is subject to an effective foreign tax rate below 60% of the maximum U.S. corporate tax rate.


Calculation of FBCII



Proposal completely repeals section 902 indirect FTC regime

Maintains section 960 deemed paid credits for subpart F inclusions, subject to modifications

Section 960 credits based on current year taxes rather than section 902 pooling approach

IRS and Treasury directed to provide rules for allocating taxes to subpart F inclusions. The JCT report anticipates that those rules would be similar to the rules in current Reg. section 1.904-6 for allocating taxes to separate section 904(d) categories of income. For example, if income treated as subpart F income for U.S. purposes is not subject to foreign tax, no taxes would be attributable and deemed paid with respect to a subpart F inclusion

To the extent foreign taxes attributable to a subpart F inclusion are not claimed as credits in the year of the subpart F inclusion (e.g., because they arise on a distribution of PTI from a lower-tier to an upper-tier CFC), these foreign taxes would be allowed as credits under section 960 in the year the PTI is distributed

Consistent with current law, the section 960 credit would be computed separately for each separate category of income under section 904(d)

Maintains two FTC categories for section 904 purposes, but renames passive category income as “mobile” income

Mobile income is similar to current law passive category income but is expanded to include FBCSI, FBCII, and financial services income


Changes to Foreign Tax Credit System – Overview



New section 904(b)(3) provides that for purposes of computing the FTC limitation, only

directly allocable deductions would be subtracted from foreign source gross income to

arrive at foreign source taxable income

Directly allocable expenses include salaries of sales personnel, supplies, and shipping

expenses directly related to producing foreign source income. Examples of expenses not

directly related to producing foreign source income include general and administrative

expenses, stewardship expenses and interest expense

Modifies the sourcing rules in current section 863(b) for income from sales of

inventory property produced in one jurisdiction and sold in another jurisdiction

Under the new rule, income from sales of inventory property would be sourced entirely

based on the place of production


Changes to Foreign Tax Credit System – Sourcing



U.S.-parented multinational groups

Reduced by the lesser of:

the indebtedness of the U.S. parent (including other members of the U.S. consolidated

group) exceeds 110% of the combined indebtedness of the worldwide affiliated group

(including both related domestic and related foreign entities); or

net interest expense exceeds 40% of the adjusted taxable income of the U.S. parent

Any disallowed interest expense could be carried forward to a subsequent tax year

Proposal is intended to (1) reduce the incentive for U.S. corporations to maintain excessive

leverage, and (2) prevent U.S. corporations from generating excessive interest deductions

and incurring disproportionate amounts of debt to produce exempt foreign income under

the proposed dividend-exemption system

Foreign-parented multinational

Amends section 163(j) to change 50% threshold for excess interest expense to 40%.

Note originally included in 2011 discussion draft.


Interest Limitation Rules



Limitation of treaty benefits for certain deductible payments made by a U.S. person to

a related foreign person

The treaty override provision would apply if the payor and payee are indirectly commonly

controlled by a foreign common parent corporation that is not itself eligible for treaty

benefits

Restrict insurance business exception to PFIC rules

Disallow deduction for non-taxed reinsurance premiums paid to foreign affiliates

Exclude CFC dividends from personal holding company income


Miscellaneous Proposals

Administration FY 2015

International Budget

Proposals



Prevent the Avoidance of FBCSI Through Manufacturing Services Arrangements

Limit the application of exceptions under Subpart F for certain transactions that use

reverse hybrids to create “stateless income”

Restrict the use of hybrid arrangements that create stateless income

Restrict deductions for excessive interest of members of financial reporting groups

Miscellaneous Items

Obama Administration 2015 Budget Proposals

Discussion Topics



The proposal would expand the category of

foreign base company sales income (FBCSI)

to include income of a CFC from the sale of

property manufactured on behalf of the CFC

by a related person. The existing exceptions

to foreign base company sales income

would continue to apply.

The proposal would be effective for tax years

beginning after December 31, 2014.

The provision is expected to result in a

reduction in deficit in the amount of $24.608

billion for 2015-2024.


Expansion of FBCSI Rules – Overview

Unrelated

Supplier

Title

USP

Sales Co

Unrelated

Customer

Contract

Manufacturer

Title

Finished

Goods

Raw

Parts



The administration’s FY15 proposal

includes a provision that makes sections

954(c)(3) (the so called same-country

exception) and 954(c)(6) (the controlled

foreign corporation look-through rules)

inapplicable to payments made to a foreign

reverse hybrid held directly by a US owner

when such amounts are treated as

deductible payments received from foreign

related persons.

This proposal would be effective for tax

years beginning after December 31, 2014.

USP

Foreign

OpCos

Debt

Dutch

CV

LLC

Dutch

BV

Debt


Limitation of Applicability Subpart F Exceptions



The administration’s FY15 proposal includes restrictions on the use of hybrid arrangements that give rise to income that is not taxed in any jurisdiction (stateless income). The Secretary would be granted authority to issue Treasury regulations to carry out the stated purpose of this proposal. These regulations would include rules that:

Deny deductions from certain conduit arrangements that involve hybrid arrangements between at least two of the parties to the arrangement;

Deny interest and royalties deductions arising from certain hybrid arrangements involving unrelated parties in appropriate circumstances, for example structured transactions; and

Deny all or a portion of a deduction claimed with respect to an interest or royalty payment that, as a result of the hybrid arrangement is subject to inclusion in the recipient’s jurisdiction pursuant to a preferential regime that has the effect of reducing the generally applicable statutory rate by at least 25%.

This proposal, as an example, is intended to deny a deduction to a US taxpayer upon an interest or royalty payment to a related party and either: 1) under a hybrid arrangement there is no corresponding income inclusion for the recipient in the foreign jurisdiction or 2) a hybrid arrangement would permit a taxpayer to claim an additional deduction for the same payment in another jurisdiction.

This proposal would be effective for tax years beginning after December 31, 2014


Restriction on Use of Certain Hybrid Arrangements



In its FY 2015 budget, the administration proposes a new rule to limit the deductibility of interest expense in the U.S. when a multinational group’s U.S. operations are over-leveraged relative to the group’s worldwide operations.

Under the FY 2015 proposal, the U.S. interest expense deduction of any member of a group that prepares consolidated financial statements in accordance with U.S. GAAP, IFRS, or other method authorized by the Secretary under regulations (“financial reporting group”) would be limited to the member’s interest income plus the member’s proportionate share of the financial reporting group’s net interest expense computed under U.S. income tax principles (based on the member’s proportionate share of the group’s earnings as reflected in the group’s financial statements). U.S. subgroups would be treated as a single member of a financial reporting group for purposes of applying the proposal, and the proposal would apply before the proposal that defers the deduction of interest expense allocable to deferred foreign earnings.

If a member fails to substantiate its proportionate share of the group’s net interest expense, or a member so elects, the member’s interest deduction would be limited to 10 percent of the member’s adjusted taxable income (as defined under section 163(j)). Any disallowed interest would be carried forward indefinitely and any excess limitation for a tax year would be carried forward to the three subsequent tax years. A member of a financial reporting group that is subject to the proposal would be exempt from the application of section 163(j).

The proposal would not apply to financial services entities, and such entities would be excluded from the financial reporting group for purposes of applying the proposal to other members of the financial reporting group. The proposal also would not apply to financial reporting groups that would otherwise report less than $5 million of net interest expense, in the aggregate, on one or more U.S. income tax returns for a tax year. Entities that are exempt from this proposal would remain subject to section 163(j).

The proposal would be effective for tax years beginning after December 31, 2014.


Reforming the Earnings Stripping Rules



FATCA implementation – allow for greater information exchange with foreign

jurisdictions regarding financial account information of foreign nationals in the

United States

Expand anti-inversion rules – broaden the definition of an inversion transaction

by reducing the 80% test to a greater-than-50% test and eliminating the 60% test.

Tax gain from the sale of a partnership interest on a look-through basis – a

foreign partner’s gain or loss from the disposition of an interest in a partnership

engaged in a U.S. trade or business would be ECI gain or loss to the extent

attributable to ECI property of the partnership (codifies current IRS position).

Extenders – the FY2015 Budget does not expressly propose to extend expiring

provisions such as section 954(c)(6) and section 954(h) (CFC look-thru and active

financing exceptions, respectively).


Miscellaneous Items

India Tax & Regulatory update

Jilesh Shah

Senior Manager, International Tax

India Center of Excellence

2 © 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered

trademarks or trademarks of KPMG International.

Notices

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON

OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED

ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO

ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax

treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including,

but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability

of the information to specific situations should be determined through consultation with your tax adviser.




Evolving Fiscal Regime

New Indian Companies Act, 2013 (replaces earlier Act of 1956)

Focus on governance & accountability

Mandatory Audit Rotation

Corporate Social Responsibility

Direct Taxes Code (DTC)

Currently, Indian Income-tax Act, 1961

Continuous changes; complexity

Goods & Services Tax (GST); to replace current structure

Unified indirect tax regime

Dual structure; Federal and state government




Recent developments

Limited Liability Partnerships (LLP)

Relatively new structure; evolving

Considerable flexibility; tax savings

Developments vis-à-vis foreign direct investment structuring

Issue of securities containing an optionality clause is now specifically permissible, subject

to conditions

Pre-emptive rights / call / put options now permitted; subject to conditions

Proposal to withdraw pricing guidelines




Withholding tax on payments received from India

Software payments / website hosting / transponder payments – ‘Royalty’

Wide definition under Indian domestic tax law

Definition under India – USA tax treaty

Withholding tax; onerous obligation on Indian companies

Generally, Indian companies insist on

Tax Residency Certificate from US IRS

Form 10F (as prescribed by Indian Revenue)

Undertaking from US company that it does not have a PE in India

Tax Identification Number (PAN) from Indian Revenue.




Transfer Pricing

Highly litigious tax regime; relief at higher level

Significant adjustments: Cost plus mark-up, Contract R&D, Profit split method, etc

Steps to reduce disputes: Advance Pricing Agreement (APA) and Safe Harbor rules

Advance Pricing Agreements (APA)

Launched in July 2012; first set of rulings delivered in March 2014

Unilateral v/s bilateral / multilateral

Valid for maximum 5 years (renewable for another five years)

Pre-filing consultation available; anonymous pre-filing possible

Evolving Regime: applications filed, orders awaited




Vodafone: Supreme Court ruling in favor of

tax payer

Finance Act 2012: Retroactive amendment /

clarification

Indirect transfer of shares / interest of a

foreign company which derives its value

substantially from assets located in India;

subject to tax in India

Buyer required to withhold taxes, irrespective

of presence in India

Expert Committee Recommendations

Direct Taxes Code, 2013 (Draft)

US Co

Sale of shares of US Co /

Intermediary Holding Co

Recent controversies – Indirect transfer of shares

US Co.

India Japan Japan

Buyer

US Co /

Intermediary

Holding company




Shell India: Transfer pricing adjustment on valuation of shares

Nokia India: WHT Tax demands on payments to parent company

Impact on Microsoft – Nokia deal

Steps taken by Indian Government

Transfer Pricing: Advance Pricing Agreement (APA) and Safe Harbor Rules

o APA launched in July 2012; first set of rulings delivered in March 2014

Expert Committee set-up for various issues such as indirect transfer, IT sector

Tax Administration Reform Commission

Recent controversies and steps taken to address them

China Update

Wayne Tan

Senior Manager, International Tax

China Center of Excellence

29 April, 2014

10 © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member


Agenda

Secondment and Permanent Establishment

China VAT Reform

Secondment and

Permanent

Establishment



Typical Secondment Arrangement

Secondment contract

Wages & Salaries

Assign duties

Report Duties

Overseas

PRC

Home Entity:

Enters into secondment contract with the

Secondees

Requests the Secondees to report duties to

the business line leader of Home Entity

Pays part or all of the remuneration to the

Secondees

Charges the part or all of the remuneration

cost to the Host Entity

Host Entity:

Assigns duties for the Secondees

Makes reimbursement payment to the Home

Entity

Bears part or all the remuneration cost of the

Secondees

US Co.

(Home Entity)

Secondees

China related

Co.

(Host Entity)



China Tax Implications

Substance

Corporate Income

Tax (CIT)?

Business Tax (BT)

/Value Added Tax

(VAT)?

Local surcharges?

Individual Income

Tax (IIT)?

√

√

√

√

X

X

X

√

1. The discussion is in treaty context

2. CIT may be creditable while others generally cannot

Secondment

Employment Service Provision /

Permanent Establishment



What’s New in Announcement 19?

Responsibilities

and risks

Job performance

appraisal

Fundamental criterion



What’s New in Announcement 19?

Reference factors

1. Any

service fees

2. Reimbursement

payment > Remuneration

payment

3. Retain part

of payments

4. IIT not paid

on full amount

5. Number,

qualification, salary, working

location of secondees

Salary

Social security contribution

Other related expenses

China VAT Reform



Expansion of China VAT Reform

Beijing

Tib

et

Jian

gxi Fuji

an

Tianjin

Anhui

Shanghai

Zhejiang

Fujian

Guangdong

Hubei

Jiangsu

1 Oct

2012

Jiangsu and Anhui

Beijing Sept. 1 2012

Shanghai Jan. 1 2012

Nov. 1, 2012 Fujian and Guangdong

Dec. 1, 2012

2013 and

after

Tianjin, Zhejiang and Hubei

Oct. 1, 2012

The remaining cities and

provinces in China Aug. 1, 2013

Expansion

by scope

Financial

services &

insurance

( 2015）

Real estate &

Construction

(2015）

Other services,

entertainment

(2015）

Radio, Films & TV

(1 Aug 2013)

Post &

Railways

(1 Jan 2014)

Telecoms

(Mid of 2014)



Scope of VAT Pilot Program

Industry VAT Rate

Leasing of tangible movable property

17%

Transportation services including railway

11%

Postal services 11%

Research and development (R&D) and technical services

6%

Information technology (IT) services

6%

Cultural and creative services

6%

Logistics and ancillary services

6%

Certification and consulting services, translation, bookkeeping

6%

Radio, film, TV 6%

Small scale VAT taxpayers

3%



Key VAT implications for cross-border service transactions

Location of supplier Location of recipient /

place of consumption

VAT treatment

In China*

Outside China* Zero-rated or exempt

Outside China In China Recipient may claim input VAT credit

Outside China Outside China** Not subject to VAT

* Provided the services are not related to goods or real estate located within China

** Services wholly consumed outside of China and Leased goods used entirely outside China

Output VAT Creditable input VAT

Zero–rated No Yes

Exempt No No



Impact of VAT Reforms on Profitability

BT Regime VAT Regime

Sales Revenue ($) 100 ?

BT payable @ 5% 5 N/A

VAT – output ($) N/A ?

Costs of Sales($) 80 ?

VAT - input($) N/A ?

Profit($) 15

Ensure cost savings of

suppliers is passed on

Tip 1: Try to pass on VAT

costs to customers

Seek to pass on VAT to

customers

Maximise input VAT credits

15

Brazil and Mexico

Update Southeast Michigan TEI Chapter

April 29, 2014

Murilo Rodrigues de Mello

Partner

KPMG Brazil

Jose Manuel Ramirez

Partner

KPMG Mexico



NDPPS 249466

1

Notice


BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING


MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS

ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction described in

the associated materials we provide to you, including, but not limited to, any tax opinions,

memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be determined

through consultation with your tax adviser.



NDPPS 249466

2

Dated Material

THE MATERIAL CONTAINED IN THESE COURSE

MATERIALS IS CURRENT AS OF THE DATE PRODUCED.

THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO

INCORPORATE ANY TECHNICAL CHANGES

TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS

TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE

RESPONSIBLE FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY

TECHNICAL CHANGES SINCE THE PRODUCTION DATE AND WHETHER OR

NOT

THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR

PRESENTATION TO CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON

NATIONAL TAX AND RISK MANAGEMENT-TAX AS PART OF YOUR DUE

DILIGENCE.



NDPPS 249466

3

Agenda

Topic Presenters

Overview


Brazil Tax Update


Mexico Tax Reform

Jose Manuel Ramirez

Wrap-Up

Jose Manuel Ramirez

Brazil Tax Update

Corporate

income tax



NDPPS 249466

6

Quarterly or annual basis (pre-payments on annual

regime)

Taxable income: Company’s profit adjusted

Utilization of tax attributes (NOLs, amortization of

premium, etc.)

PIS and COFINS – Non-cumulative system (9.25%)

Requires more support documentation

Quarterly basis

Taxable income: “deemed profit margin on gross

sales (8%, 12%, 32%)

No tax attributes

PIS and COFINS – Cumulative system (3.65%)

To be eligible revenue requirements must be met

(e.g. maximum annual revenues of R$ 78 million)

What to “Tax Watch” FY2014?

IFRS conversion issues, e.g. separate book entries, dividends taxation, gross revenue

“new” concept.

New electronic tax compliance “environment”

Actual Profit Presumed Profit

Corporate Income taxes

Tax regimes



NDPPS 249466

7

Extinguishes

the RTT and

aligns tax

computation

with IFRS.

Law

11,941

Provisional

Measure

627

2007 2009 2013

New

accounting

criteria and

methods

(IFRS)

RTT

(Transitory Tax

Regime) was

introduced to

neutralize

accounting

effects for tax

purposes

Changes in the

implementation

of the RTT

Law

11,638

Normative

Instruction

1,397

Opinion

(“Parecer”)

PGFN 202

Profit

based on

the RTT for

the

exemption

on dividend

distribution

2013 2013

IFRS conversion

Provisional Measure (“MP”) 627/2013



NDPPS 249466

8

IFRS conversion


Summary of some significant changes:

Termination of the Transitory Tax regime (“RTT”). IFRS conversion will

become effective on January 1st, 2015, however, there is the option to

adopt (irrevocably) its provisions as of January 1st, 2014

Repatriation aspects: Potential discussions regarding withholding taxation

on dividends. Interest on net equity (INE) benefit remains as a good source

of repatriation

Goodwill Tax Amortization: tax benefits preserved following IFRS allocation

methods (e.g., PPA). New requirements and restrictions are introduced:

fillings for PPA report, “in-house” goodwill forbidden on intra-group

transactions and exchange of shares could not create goodwill. Important:

former rules may still be applicable for mergers occurred until December

31st, 2015, whose corporate participation was acquired until December

31st, 2014

Brazilian CFC rules: new rules and concepts introduced (e.g., “passive

income” tests, tax deferrals)



NDPPS 249466

9

Abroad

Brazil

Company

Abroad

Brazilian

Company

Dividends

Potential differences (Book profits x Tax profits)

distributable as dividend could trigger WHT:

Brazilian resident individuals (7.5% - 27.5%)

Brazilian resident legal entities (34% or 40%,

financial services)

Non-residents (15% or 25%, low tax jurisdictions)

Interest on Net Equity (INE)

15%-25% WHT

Net equity basis

IFRS conversion


Brazilian

Company

Tax Structuring



NDPPS 249466

11

Tax structuring Tax efficient strategies

Still available potential opportunities in domestic

acquisitions through stock deals:

“Step-up” assets and goodwill tax amortizable –

deducted for tax purposes

“Substance over form” – no final precedent and

issues for implementation

Funding

Certain notes-debentures could offer WHT tax

exemption

Debt / Equity alternatives

Thin cap rules

Foreign

Investor

Company

Holding

Abroad

Brazil



NDPPS 249466

12

Tax structuring Shareholder control issues

“Two tier” foreign shareholder structure

Direct control tax determination: potential tax

benefits deriving from participation

exemption regimes and repatriation

alternatives (INE and dividends)

Utilization of previous “tested” jurisdictions

Favorable double tax treaty provisions

Non-resident capital gains

Recent changes on cost basis determination

Indirect transfer of shares and “substance”

issues

US investor

Company

Foreign

Holding

Brazil



NDPPS 249466

13

How to structure your investment in Brazil? FIP structure

FIP structure

Income and capital gains

exempted at FIP’s level

No WHT on disposal or

amortization of FIP quotas

Premium opportunity when

having a Brazilian company

owned by the FIP to acquire

Target (when there is genuine

business purpose)

IOF tax (zero percent on the

inflow of funds and on capital

repatriation)

A B C

FIP

Target Co.

Just corporations (S/A)

Abroad

Brazil

Participation

must be less

than 40% of

shares and up

to 40% of

proceeds

Investors Investors Investors

Holding



NDPPS 249466

14

Funding and Repatriation Alternatives

No WHT on

dividends

IOF zero-rated

No tax deduction in

Brazil

Potential trapped

cash – no

repatriation until

sufficient earnings

to pay dividends

± Recent issue:

Potential WHT

taxation on

distributions (IFRS

vs. Tax accounting)

Tax deduction in

Brazil

IOF zero-rated

WHT of 15% or

25% (low tax

jurisdiction)

Potential trapped

cash/ limitation:

50% of current

profits / profits

reserve (and TJLP

on net equity)

± Treatment on

beneficiary country

FIP

Disposal of Brazilian

company: No WHT

Withdrawal of FIP

quotas: No WHT (if

requirements are

met)

Direct investment

Taxable non-resident

capital gains (15% or

25%, low tax

jurisdiction)

Brazilian Holding

Disposal of Brazilian

company: 34% of CIT

Tax deduction

(subject to transfer

pricing, thin-cap

rules and relation

with the activity of

the company)

WHT of 15% or

25% (low tax

jurisdiction)

Foreign Exchange

impacts

Dividends Interest on loan INE Exit



NDPPS 249466

15

Abroad

Brazil

Company

Abroad

Brazilian

Company

IFRS conversion Cost reimbursement arrangement

Possible tax efficient repatriation alternative

Important recent administrative precedent recognized

cost reimbursement

Challenges for cost reimbursement implementation:

Not risk free transaction: lack of specific tax

provisions and existence of contradictory

precedents (services?)

Transfer pricing and other compliance issues (e.g.

Central Bank, SISCOSERV, etc.)

Treatment of cross border taxes (PIS, COFINS,

CIDE, ISS)

Supporting documentation and determination of

“reasonable criteria” based on facts and

circumstances

Necessity of feasibility analysis prior to implementation



NDPPS 249466

16

Technical services

New Brazilian Federal Revenue position (“PN PGFN

2,363/2013”): WHT exemption under certain

conditions:

Cross border payments involving the payment of

technical services (without the transference of

technology)

Payment to beneficiaries in countries with treaty

signed with Brazil

Treaty provisions could enable the treatment of

services as “business profits” (Article 7)

Unfortunately no Double Tax Treaty with US (only a

treaty to exchange information)

Analysis on a case by case basis

IFRS conversion New administrative position (“PN PGFN 2,362/2013”)

Abroad

Brazil

Company

Abroad

Brazilian

Company

Indirect taxes



NDPPS 249466

18

Intra state transaction and tax incentives:

ICMS intra state transaction: different tax rates, e.g. 12%, 7%, 4%

ICMS tax incentives x CONFAZ regulations

Tax litigation involving ICMS tax incentives

Main takeaways:

Impacts on supply chain

Necessity to assess tax incentives and tax planning

Indirect taxes up-dates

ICMS Tax Competition

1988 Federal Constitution

States regulation (“RICMS”)

27 states



NDPPS 249466

19

Import

BR Seller

(SP) Resale

BR Buyer

(Other State)

Potential tax credit

accumulation eliminated

Credit

18%

Debt

4% ~14% credit

Foreign

Supplier

Indirect taxes up-dates ICMS accumulated credits

ICMS

18%

ICMS

4%

The company must present a tax model study on ICMS credit

position - Portaria CAT 108/2014

The application must comply with other rules, e.g. clearance

certificate and may attract tax inspection

19



NDPPS 249466

20

ISS

Potential new regulations regarding cloud computing services (PLS

386/12). Draft legislation still pending.

No major tax reform is expected

However “per taxes” reforms or changes should be expected

FY2014-15 there might have important judicial precedents ruled by Supreme

Courts

IFRS conversion: potential impacts for PIS-COFINS computation

Increasingly electronic tax compliance

20

Indirect taxes up-dates

Other topics

Other topics



NDPPS 249466

22

Tax incentives - R&D Technological innovation

In general lines, technological innovation incentives may grant for the

taxpayer the following tax benefits:

• Special deductions and tax reductions on the income tax computation in connection to expenses incurred during technological research

• 50% tax reduction of the IPI levied on machines, equipments or spare parts and tools in connection to technological research

• Full depreciation in the year of acquisition of new fixed assets in connection to technological research

• Accelerated amortization for intangible assets acquired in connection to technological research

• WHT zero-rated on remittances abroad related to trademarks, patents and cultivars



NDPPS 249466

23

ECF—The new corporate income tax filing

What is ECF?

A new tax filing obligation that will require all information concerning the

corporate income tax (IRPJ) and social contribution on net profit (CSLL)

calculation base as well as all accounting records that support the tax

computation

The ECF will replace the current corporate income tax return (known as DIPJ)

When does it become mandatory?

It is mandatory for the 2014 tax year and must be filed by mid-2015

Penalties for late filing or errors

Heavy penalties can be enforced:

0.025% of the company’s gross revenue per month of delay (limited to 1%) in

case of late filing

5% of the value of the information omitted or provided with error

Note: Legislation is being discussed in the Brazilian Congress that may reduce

these penalties



NDPPS 249466

24

eSocial

What is eSocial?

eSocial is one of the modules of the SPED program and it aims to unify the tax,

labor, and social security obligations which will be required to be submitted

electronically


For companies on the actual profit system (any company with annual gross

revenues higher than US $32 million):October, 2014 (date still to be ratified by

the tax authorities)

For companies subject to other tax regimes: under discussion

Labor events (e.g. admissions, rescission of employment contracts, salary

changes, function changes, etc.) must also be provided immediately. In other

words, labor events recorded in eSocial will be validated at the time submitted.



NDPPS 249466

25

eSocial

Information to be provided

Technical layout: eSocial has 44 types of files containing approximately

1,760 fields.

Much of the required information is not in existing payroll systems and needs

to be collected in another systemic platform.

■ Labor Events

■ Labor Changes

■ Payroll

■ Taxes and

Contributions

on Payroll

■ Payment of

Taxes and

Contributions

■ Payment for

Services

Rendered

■ Cash Receipts

for Services

Rendered

■ Accounting

Data

■ Interfaces

■ Information

Extraction

■ Information

Security

■ Health and

Workplace

Safety

Information

(Professional

Profile for

Social Security,

etc.)

■ Labor Claims

■ Judicial

Deposits

Financial /

Accounting

Human

Resources IT

Labor

safety Legal



NDPPS 249466

26

ECF—The new corporate income tax filing

What is ECF?

A new tax filing obligation that will require all information concerning the corporate

income tax (IRPJ) and social contribution on net profit (CSLL) calculation base as

well as all accounting records that support the tax computation

The ECF will replace the current corporate income tax return (known as DIPJ)


It is mandatory for the 2014 tax year and must be filed by mid-2015

Penalties for late filing or errors

Heavy penalties can be enforced:

0.025% of the company’s gross revenue per month of delay (limited to 1%) in case

of late filing

5% of the value of the information omitted or provided with error

Note: Legislation is being discussed in the Brazilian Congress that may reduce

these penalties

Mexican Tax Reform



NDPPS 249466

28

Mexican tax reform 2014 – Background and overview

Global pressure to increase tax collection and reduce special regimes

On October 31, 2013, the Senate approved the 2014 economic package, together with a tax

reform.

Among the most outstanding of the tax reform are:

Issuing a new Income Tax Law (simplification + fiscal symmetry):

o Elimination of certain special tax regimes

o Elimination of certain deductions

o Elimination of certain tax incentives

Imposing special excise tax of 8% to the so-called junk foods

Repeal the IETU (the single rate business tax, transitory rules to be analyzed)

Repeal the IDE (the tax on cash deposits)

Imposing Green Taxes

Contrary to expectations, there are no proposals to impose value added tax (VAT) on food

and medicine; however, several other exemptions are being repealed.



NDPPS 249466

29

Income tax law

Corporate Tax

Impose a corporate income tax rate of 30%

Repeal the current phase-down of the corporate income tax rate

29% for FY 2014 and 28% for FY 2015 onwards

Tax Consolidation is repealed a new integration regime is incorporated

Proposals to Repeal or Limit Deductions

Immediate and/or accelerated depreciation of investment would no longer be applicable.

Contributions to pension and retirement funds would only be deductible for an amount

equal to 47% or 53% of the contributions made to pension funds, pensions and seniority

premiums it fulfilling the requirements established in the Law.

“Exempt remunerations” paid to workers would only be deductible for an amount equal to

47% or 53% (reason?) of the payment.

i.e., social security, saving funds, annual gratuity, and overtime



NDPPS 249466

30

Income tax law & international aspects

Withholding Tax on interest – 4.9%

Application of Tax Treaties’ benefits

Transactions between related parties,

The foreign resident to prove the existence of “legal” double taxation through a

statement, made under oath and signed by the taxpayer’s legal representative.

Tax on Dividends

Corporate income tax withholding of 10% on profits and dividends paid to Mexican

individuals and foreign residents.

Dividends paid to other Mexican legal entities are exempt.

Apply benefits given by the double tax treaties.

Permanent establishment – self-assessment of the tax



NDPPS 249466

31

Income tax law & international aspects (continued)

Proposals to Repeal or Limit Deductions the BEPS influence…

Payments of expenses to persons, legal entities, trusts, partnerships, investment funds, as

well as any other legal vehicle whose income is subject to preferential tax treatment, would

not be deductible unless the taxpayer demonstrates that the price or the amount of the

consideration is equal to the price/amount that would have been agreed to in comparable

transactions between independent parties.

Payments made by a Mexican tax resident when also deducted by a related party either

resident in Mexico or abroad, would not be deductible, unless the income is taxable by the

related party.

Payments made to a foreign entity that controls or is controlled by the taxpayer, with

respect to payments of interest or royalties or payments for technical assistance, and that

fall under any of the following circumstances, would not be deductible:

The entity receiving the payment is transparent (exceptions)

The payment is considered as non existent (SRL)

The foreign entity does not consider the payment as taxable income in accordance with

applicable tax provisions (hybrid instruments)



NDPPS 249466

32


Changes Affecting Foreign Pension Funds

The threshold to take advantage of a capital

gains exemption would be increased:

The real estate would have to be leased for a

period of at least four years (instead of one,

as currently required).

The capital gain could not be derived from a

trade of business conducted by the foreign

pension fund.

Computation of 90% threshold



NDPPS 249466

33


Foreign Tax Credit

Several adjustments are being proposed to

Mexico’s foreign tax credit regime.

Changes would provide guidance for

determining the limits of creditability.

Controlling the foreign tax paid on a

country basis

Limiting the potential blending between

low and high tax foreign income

Capital Gains in Stock Market

The current exemption with respect to gains realized on the alienation of shares via

a stock exchange transaction would be repealed for Mexican individuals and

foreign residents. (Treaty countries residents may still be exempt)

All gains would be subject to tax at a rate of 10%.



NDPPS 249466

34

Maquiladora and IMMEX

They must perform a maquila operation; They must usually process in the country goods or merchandise maintained therein by the

nonresident or by a third party having a commercial relationship with the maquiladoras’ customer. The goods or merchandise supplied must be subject to a transforming or repair process and must be temporarily imported into Mexico in order to be subsequently exported, including through virtual transactions. If, in said process, national or foreign merchandise not temporarily imported were used, these must be exported jointly with that merchandise that was indeed temporarily imported;

They must use assets provided, directly or indirectly, by the nonresident or any related

company. The assets (machinery and equipment / M&E) used in the transformation or repair process may not have been owned by the company performing the maquila operation or by a related party residing in Mexico. Additionally, at least 30% of the machinery and equipment used in the maquila operation must be provided by the nonresident. Maquiladoras that were operating as such and complied with transfer pricing rules applicable to maquiladoras before January 1, 2010 and that do not comply with this requirement would have a two years period to reach the minimum of 30% of M&E to be provided by its Principal resident abroad (Grandfathering Clause included in the Decree with tax benefits)

The nonresident must reside in a country that has signed a treaty to avoid double taxation with Mexico;



NDPPS 249466

35

Maquiladora and IMMEX

The maquiladora must comply with the provisions regarding transfer pricing. For these purposes the maquiladoras may use the scheme known as “Safe Harbor” in both modalities: 6.5% over the total maquila costs and expenses or 6.9% of total assets used in the maquila operation, whichever is greater, or request an Advance Pricing Agreement (Acuerdo Anticipado de Precios) to the Mexican tax authorities. The other options regarding economic studies are eliminated;

The total income derived from their productive activities must exclusively result from

their maquila operations; for these purposes, it is understood that maquiladoras cannot sell in Mexico the goods that were manufactured by themselves; however, they can carry our other activities such as: shared services, centralized treasury, etc., as long as they maintain a clear separation between the different business activities. For those maquiladoras that as of the date this new requirement started to be in force do not comply with the same in connection with the sales in Mexico will have until July 1, 2014 to comply with the same (to stop selling directly in Mexico).

With regard to maquiladoras under a shelter program, the regime presently contained in

the Federal Revenue Law (Ley de Ingresos de la Federación) is incorporated into the law, limiting the time during which the nonresident may operate under said modality to 4 years;



NDPPS 249466

36

Current Regime New Regime

Applicable corporate tax rate Combined of 17.5% Corporate income tax rate of 30% Tax benefits (income tax exemption and flat tax credit) were repealed.

Transfer pricing compliance Three methodologies are allowed: Economic study with 1% of foreign assets Safe harbor (6.5% over costs and 6.9%

over assets) Economic study under return of assets

scheme Possibility to request an APA

Options allowed would be: Safe harbor Possibility to request an APA

Definition of maquila operation – restriction to carry out different business activities

None Maquiladoras cannot sell directly in the Mexican market – transition up to July 1, 2014

Value added tax – temporary imports and transfers of goods

Currently exempted Taxable with three options available to handle this tax: o Obtain a certification as to be a

taxpayer in compliance – a tax credit equal to VAT triggered is granted

o Submit a bond as guarantee of the VAT triggered

o Pay the VAT an ask for the refund

Maquiladora

Changes (continued)

Maquiladora – Comparative Example of Benefits



NDPPS 249466

37

Current Regime New Regime

Value Added Tax – Sale of goods by foreign residents to IMMEX entities

Currently exempted Taxable. o The possibility of an immediate credit

of the VAT against the VAT withholding to be made to the foreign resident (Tax Decree)

Combined effects of changes above mentioned

Higher corporate rate and taxable

base Need to obtain a Certification for VAT

purposes to avoid additional financial costs related with obtaining the refund of the same.

Possible double taxation

Maquiladora

Changes (continued)

Maquiladora – Comparative Example of Benefits



NDPPS 249466

38

Special Tax on Production and Services (IEPS)

Flavoring drinks, concentrates, powders, syrups,

essences or flavors extracts, containing any type of

added sugar (soft drinks, canned milkshakes,

yogurts, etc.)

Including energizing beverages

Subject to USD $0.08 per liter

No changes would be made to the taxation of

alcoholic beverages; thus, the current rates would

continue with a possible rate reduction in future

years.

This tax does not levy the commercial chain, but

applies only to the importer and the manufacturer or

producer.

Exchange rate used is MXN $13 = USD $1.

Special tax on production and services



NDPPS 249466

39

Special Tax on Production and Services (IEPS)

Also, for health protection reasons, a new tax of 8%

to some foods with a caloric density of 275 kcal or

more per 100 grams is introduced.

Foods subject to this tax are: snacks, confections,

chocolates and other cocoa products, custards,

puddings, fruit and vegetables sweets, peanut and

hazelnut cream, milk sweets, prepared foods from

cereals, ice cream and popsicles.

Hearing Guaranty – closure of games and raffles

Carved Tobacco

Cigarettes – Security codes

Printing

Exchange rate used is MXN $13 = USD $1.

Special tax on production and services (continued)



NDPPS 249466

40

Special tax on production and services (continued)

Special Tax on Production and Services (IEPS) – Green Taxes

New taxes would be imposed, under an “ecological purpose” regime, for the

following reasons:

Gradual reduction of carbon dioxide emissions, greenhouse gases, and

Gradually reducing the use of pesticides that indirectly cause damage to

health and the environment.

It is proposed to set specific quotas by fuel type, considering the tons of carbon

dioxide per unit volume, to the import and sale of fossil fuels.

US$5.70 carbon ton

Table

In the case of pesticides, the import and sale would be taxed at rates that range

from 6% to 9%, depending on the level of toxicity. Transition rates during 2014.



NDPPS 249466

41

Federal tax code

Tax Mailbox

Communication with Tax Authorities – Taxpayers

Notice– Promotions– Devolutions– Advisory

Notice confirmation

Electronic review – pre liquidation

Motion for reconsideration

Digital Tax Invoices

Applicable to all transactions

Withholdings

Rules

Suppliers authorities reversal

Assumption regarding non existent operations



NDPPS 249466

42

Federal tax code (continued)

Conclusive Agreements

Participation of the PRODECON

The agreements will be mandatory and not appealable

100% Fine remission

Similar to the “Settlement” structure in different countries.

Joint Responsibilities

Partners or stockholders

Participation percentage increased

Effective control is restricted

Executor

Presenter Information


Partner

KPMG Brazil

Jose Manuel Ramirez

Partner

KPMG Mexico

FATCA for

Nonfinancial

Companies—

Common

Implementation

Issues

April 22, 2014



NDPPS 177853

1

NOTICE & DISCLAIMER



PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation,

the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide

to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those

materials.

The information contained herein is of a general nature and based on authorities that are subject to change.

Applicability of the information to specific situations should be determined through consultation with your tax

adviser.



NDPPS 177853

2

FATCA: What is it?

FATCA is not a tax.

It’s an information reporting regime with a “tax”

imposed as a noncompliance penalty.



NDPPS 177853

3

FATCA: What is it?

In the fallout of various U.S. tax evasion scandals, Congress passed

the Foreign Account Tax Compliance Act (FATCA), IRS sections 1471

through 1474

Aimed at identifying U.S. tax evaders, FATCA requires foreign payees to

disclose their involvement with significant U.S. investors (i.e., substantial US

accountholders and owners)

Foreign payees who fail to comply suffer a 30 percent charge on their own

cross-border payments

Withholding agents are required administer the new rules, and take secondary

liability mistakes



NDPPS 177853

4

FATCA backstops investor self-reporting with foreign payee and

withholding agent disclosures.

Withholding

agent

Foreign

Payee

Owners

IRS

Accountholders

Substantial US

investor information

$$$ subject to a 30%

penalty for

noncompliance

Documentation

showing compliance

Returns that may not fully

disclose investment

information

FATCA: What is it?

Instead of one, unreliable stream of information, the IRS now has several streams.



NDPPS 177853

5

Withholding

agent

Qualifying payment

triggers application

Foreign

Foreign payee

1441 targets

visibility at

payee level

FATCA

targets

visibility at

investor

level

???

Responsible for

collecting the required

information or the 30

percent tax, and has

secondary liability for

mistakes

Has primary liability for

tax on the payment,

unless valid

documentation is

provided

FATCA: What is it?

FATCA uses the same operating mechanisms as §1441 withholding

But – FATCA targets a different problem than current §1441 U.S.

withholding regime



NDPPS 177853

6

Overview of Issues

Parent

U.S.

Group

U.S. Sub U.S. Sub

Foreign

HoldCo

Foreign

Sub

Foreign

Sub

On the Payment

Side

Payors as Withholding

Agents (often US

entities):

What payments are in

scope?

What documentation do I

need to collect?

What are my reporting

obligations?

What payments must I

withhold upon?

Exposures if Non-

Compliant:

Secondary liability,

penalties and interest

Penalties for reporting

failures

Strain on vendor

relationships

On the Payee

Side

Classification

and documentation

responsibilities:

What is my

classification?

What do I need to do to

avoid being withheld

on?

Exposures if Non-

Compliant:

30% withholding

Foreign bank account,

brokerage, or custody

account termination

Payment Side



NDPPS 177853

8

Withholding

Agent Foreign

Payee

Qualifying payment

triggers

application

FATCA targets visibility

at investor level

Foreign

1441 targets visibility at

payee level

???

Responsible for collecting the

required information or the

30% tax, and has secondary

liability for mistakes

The Payment Side of FATCA

Suffers tax on the payment

unless valid documentation

is provided



NDPPS 177853

9

Since FATCA piggybacks off §1441, it’s easiest to talk about FATCA

in comparison to the §1441 rules

Operating mechanism: Generally the same –

Withholding agent collects tax forms and information from payees,

determines the applicable withholding, and remits any tax to the government

30% default withholding applies unless valid documentation is provided

The withholding agent is also responsible for annual information reporting on

payments, related tax and payees

Stakes for withholding agents: Generally the same –

Secondary liability for failed withholding, plus interest and penalties

Penalties also apply for information reporting failures




NDPPS 177853

10

Scope of payments: Different – FATCA is both broader and narrower than

§1441 withholding.

FATCA applies to US source FDAP

Plus gross proceeds from the disposition of property that gives rise to US

source dividends and interest (e.g., positions in U.S. securities)

BUT there are two major exceptions from withholding:

1. Payments on grandfathered (pre-July 1, 2014) obligations

Need to have an “obligation”

The obligation cannot be “materially modified” (and treated as a brand

new obligation) after July 1, 2014, or it loses its grandfathered status




NDPPS 177853

11

2. Low risk, nonfinancial payments (“excluded nonfinancial payments”)

The exception covers payments for services and the use of property, and a

few additional items (e.g., prizes and awards, gambling winnings)

Also includes interest on accounts payable arising from the acquisition of

goods and services

Explicitly excludes certain financial services-type payments, such as

payments on financial instruments, insurance premiums, broker or custodian

fees, dividends, and other types of interest




NDPPS 177853

12

US Parent

Corporation

Foreign

IP Co

US source

royalties

FATCA reporting applies to all kinds of “typical” payments, although some

may be eligible for exceptions from withholding:

US

OpCo

Foreign 3P

Vendor

Interest on

product-

related A/P

Foreign

Bank

US source

interest

US source

dividends

and (post-

2016) stock

redemption

proceeds

Foreign 3P

Law Firm

Foreign

Shipper

US source

services

fees US risk-

related

premiums

public

Chapter 4 Reportable Amounts

Foreign

Insurer

International

shipping fees



NDPPS 177853

13

Two Paths to Withholding Exception?

Challenges • Payor must classify payments

• Systems/ Processes needed to classify

• Ongoing review of contracts (material

modification)

• Counterparties provide W-8 information

• Systems and Process to collect and compile W-8 information

Incremental

efforts

• For financial payments need to collect

W-8 forms

• For non-responsive payees, need to determine payment

exceptions

Reporting • 1042-S reflecting exemption codes • 1042-S reflecting payee status

Risk • Misclassification risk generally on payor • Misclassification risk generally on payee

• Non-Financial

or

Grandfathered

Obligation

• Payor to

Classify

• FATCA

Classification

• Payee

provides W-8

Payment Exception Payee Exception

Solution: Most often a combination of the two approaches, depending on company involved



NDPPS 177853

14

Reporting will include additional information your systems are not currently capturing, for

example:

9 new exemption

codes

34 new status

codes

New Form

W-8 BEN-E

Required Reporting



NDPPS 177853

15

Penalties Example

1 This could arise, e.g., if the parties’ agreement specifies that the withholding agent will pay the foreign payee net of withholding.

2 Note, there is some slight offset of these two penalties, so that the maximum combined penalty for the failure to file and failure to pay is $203,571.

3 For each withholding agent, the failure to file information reporting return penalty for a calendar year cannot exceed the specified amount as applied to

each missing form (e.g., A Co could be liable for intentional disregard failure to file with the IRS and also for failure to furnish to the payee, for penalties up

to 10% of the $1,428,251 payment for each of the Form 1042-S related to an unreported payment). This penalty will apply for reportable payments, even

if no withholding is due.

Penalty Calculation Maximum Due

Failure to File $428,571 x 5%/month 25% = $107,1432

Failure to Pay $428,571 x .5%/month 25% = $107,1432

Failure to Deposit $428,571 x 10% $42,857

Failure to File Information Reporting Return 23 x $100 $200

Total Penalty Calculation $246,628

Intentional Disregard $1,428,571 x 10% x 23 $285,714

Total Potential Liability $960,713

Consequence Calculation Maximum Due

Withholding Agent’s Liability 30% x $1,000,000 $300,000

Gross Up or Pyramid Effect1 $1,000,000/.7 = $1,428,571

Total Liability with Gross Up 30% x $1,428,571 $428,571

A Co is a domestic corporation that, in 2014, pays a foreign vendor (“FC”) $1 million of US source

interest. FC is a foreign entity. A Co fails to obtain a form W-8BEN-E from FC, fails to withhold on

its interest payments, and fails to file its related forms 1042 and 1042-S. A Co is liable for

withholding and penalties as follows. In addition, interest will run on the $428,571 withholding

payment and any accuracy-related or failure to file penalties due starting on March 15, 2015, the

due date for A Co’s Form 1042.

Payee Side



NDPPS 177853

17

FATCA addresses TWO types of foreign payees / basic mechanisms

for evading U.S. tax

Undisclosed

interests in

foreign

entities

U.S.

persons

Unreported

foreign

assets in

financial

accounts

Foreign financial institutions

(FFIs) are required to identify their

substantial U.S. accounts, obtain

U.S. accountholder tax

information, and report to the IRS

Non-financial foreign entities

(NFFEs) are required to report

their substantial U.S. owners, or

to certify that they are eligible for

excepted, “low-risk” status

Foreign payees need to certify to the withholding agent that they are complying with

their FATCA requirements, or suffer 30% withholding on their own qualifying

payments.

The Payee Side of FATCA



NDPPS 177853

18

The Payee Side of FATCA

Foreign payees must be classified and their status reported on new Forms W-8BEN-E



NDPPS 177853

19

Identify FFIs and NFFEs

Foreign Financial

Institutions

(FFI)

Accepts

deposits

Holds financial

assets for others

Conducts

investment

activities for a

customer (or

managed by the

same)

Investment

Entities &

Pension Funds

Custodians

Banks

Foreign Financial Institution Nonfinancial Foreign Entity

An NFFE is any foreign

entity that is not an FFI.

Once the determination of NFFE

status is made, an entity may either:

1. Disclose substantial US owners to

the withholding agent or directly to

the IRS

2. Assert Excepted NFFE status

– Publicly traded corporation or

Subsidiary of foreign publicly

traded corporation

– Active: 50 & 50 test

Conducts group

financing or

hedging

activities

Certain Treasury

Centers and

HoldCos

Issues Cash

Value Insurance

or Annuity

Contracts

Specified

Insurance

Companies



NDPPS 177853

20

Classification Characteristics

Bank (Depository) • Accepts deposits and performs banking activities (e.g.,

makes loans) in the ordinary course of business

Custodian • Holds, as a substantial percentage of business, financial

assets for the benefit of one or more persons

• Substantial Percentage: ≥ 20% of gross income during 3

year testing period

Investment Entity • Primarily conducts one of the following on behalf of its

customers:

• Trading, Money Market, Currency, Securities,

• Portfolio Management; or,

• Investing, administrating funds or financial assets.

• Primarily conducts: ≥ 50% of gross income over 3 years

Insurance Company or

Holding Co

• EAG has insurance company or insurance holdco issuing

cash value policies or annuities

Holding Co or Treasury

Center

• EAG includes bank, custodian, insurance company,

investment entity or is used for investment activities

Types of Financial Institutions



NDPPS 177853

21

Potential Relief for Nonfinancial Groups

Possible movement from FFI to NFFE if:

A. Group qualifies as “nonfinancial”

1. ≤5 % of the group’s gross income is derived by FFI affiliates;

2. ≤25% of the group’s gross income in preceding 3 yrs consists of passive income; and

3. ≤25% of group’s assets (FMV) hare held for production of passive income

Must review group entities to make determination

AND

B. Entity is one of the below:

1. Holding Company: Primary activity consists of holding the stock of expanded affiliated group

2. Treasury Center: Primary activity is to enter into investment hedging and financing transactions with

or for members of expanded affiliated group for managing certain financial risks or acting as

financing vehicle

3. Captive Finance Company: Primary activity is to enter into financing or leasing transactions with or

for suppliers, distributors, dealers or customers of such entity or any member of the expanded

affiliated group



NDPPS 177853

22

Intergovernmental Agreements

What is an IGA?

Foreign law may restrict an FFI’s ability to comply with the FATCA regulations. The Treasury

and IRS have developed an alternative approach to FATCA compliance that takes these

restrictions into account – Intergovernmental Agreements (IGAs)

Under an IGA, the foreign jurisdiction agrees to create rules that will either allows its financial

institutions to report directly to the IRS or report to the foreign jurisdiction (which in turn will

report information to the IRS)

Under the Model 1 IGA, the financial institutions in the foreign jurisdiction are required to

register with the IRS as participating FFIs, but still have due diligence and reporting

responsibilities to the foreign jurisdiction

Under the Model 2 IGA, the covered financial institutions are required to register with the

IRS as participating FFIs and report to the IRS



NDPPS 177853

23

Intergovernmental Agreements

Why do multinationals care?

IGAs (and their local implementing regulations) contain their own definitions of “FFIs”

IGAs apply to resident entities as well as local branches, so the analysis may be more

complicated than expected

What rules apply to determine FFI/NFFE status?

(For now) regulations, taking U.K. and Swiss income

and activities into account

(If any) maybe U.S.-China IGA, applied only to

China HoldCo’s income and activities

U.S. – U.K. IGA, applied only to U.K. DE’s income

and activities

U.S. – Switzerland IGA, applied only to Swiss DE’s

income and activities

U.S. Co

China

HoldCo

U.K. DE Swiss DE

If you have foreign affiliates that need to determine their FATCA status, you will have to do

the analysis early – and possibly often.

FATCA: Common

Implementation Issues



NDPPS 177853

25

Challenges faced by Clients:

Gaps in Chapter 3 Reporting

New Challenges with FATCA reporting—Payor Side

Payee Classification Issues and Uncertainty

Pensions Challenges

W-8BEN Validation

Common Implementation Issues



NDPPS 177853

26

Gaps in Chapter 3 Reporting

Payments to related parties not reported on Form 1042/Form 5472

Lack of good system for maintenance of W-8BENs

Missing W-8BENs for related party payments

Not properly validated

Capturing payments for US source services income

Engineering, Installation, Legal Services

Communications between A/P, Treasury, and Tax

Changes to treaties or domestic rules not updated

Common Implementation Issues (cont.)



NDPPS 177853

27

FATCA Chapter 4—Payor Side:

Determining who is going to own the process (Hot Potato)

Decentralized A/P departments (by plant or because of acquisitions)

Different vendor systems for product related A/P and non-product A/P

Systems issues

Inability to track different types of payments to vendors (services)

Practical issues with grandfathering

Ability to stop payments in a PO-based system

Challenges with validation and storage of W-8BEN-Es

Wire payments

Inability to get detail on what payments relate to

Payments often made outside A/P process

How to collect information in useable format for reporting (SAP/Oracle)

Common Implementation Issues (cont.)



NDPPS 177853

28

Payee Classification:

Lack of instructions for the Form W-8BEN-E

Constantly changing landscape with IGAs

No implementation regulations in most IGA countries

Physical branches

Overlap challenges

(IGA Countries) Dutch Co (Model 1) with Swiss Finance Branch (Model 2)

(IGA Country with non-IGA) IGA Holdco with China subsidiary

Determining proper registering entity in branch scenario

Availability of data/complexity determining applicability of non-financial group

exception




NDPPS 177853

29

Pensions Classification:

Control of the pensions often outside the tax and treasury function

Getting to the right person can be challenging

Often outsourced making it expensive to get access to required data

Very specific rules based on type of plan

Need someone in the local country to attest to the type of plan

Is your plan akin to a section 401 plan? Difficult to determine without an IRS

determination letter or opinion

Technical determination of treaty benefits time consuming if not already

completed




NDPPS 177853

30

W-8BEN Common Issues

The contracting party does not match the name on the W-8BEN

More than one beneficial owner is named

The form is not signed and legible (no Chinese characters)

Form dated more than 90 days prior to receipt

They do not provide a physical address or the address is US address or c/o address

Claim a treaty benefit for a country with no treaty or the treaty country does not match the

address

Entity type is incorrect or inconsistent. Is this the right form?

Does the person signing have capacity to sign? Certification is crossed out

Claiming treaty benefits but do not complete required sections

Claiming treaty benefits with no TIN (on new form foreign TIN) provided

W-8BEN Validation

Questions?

Contact:

Kortney Wallace

313.230.3056

[email protected]

Chris Riccardi 404.979.2305

[email protected]

Tax Executives

Institute

KPMG Speaker Bios

April 29, 2014



Peter H. Blessing Managing Director

Background

Peter is head, Cross-Border Transactions, in the International Corporate Services group of KPMG LLP’s

Washington National Tax practice. Prior to joining KPMG he was a partner at Shearman & Sterling LLP for over 25

years.

Professional and Industry Experience

Over this career, Peter has developed a reputation as one of the leading international tax advisors, with broad

experience in the major areas of cross-border taxation. His advice is sought by both industrial and financial clients,

including in the following areas:

Cross-border acquisitions, corporate inversions, restructurings and financings

Tax-optimized structuring for flows of goods and services and IP ownership

Private equity investments

Treaty planning and ruling practice

Recognition by Clients and Peers

Best Lawyers of America 2012 (New York Area “Tax Lawyer of the Year”), Chambers USA (Tax, Tier 1),

Chambers Global, Euromoney’s Best of the Best USA, International Tax Review (World Tax), Tax Directors’

Hand Book, Who’s Who of Corporate Tax Lawyers, PLC Which Lawyer?, The Legal 500, Super Lawyers, etc.

Publications and Speaking Engagements

Editor and a co-author of Tax Planning for International Mergers, Acquisitions, Joint Ventures and Restructurings

(Kluwer). Authored a treatise, Income Tax Treaties of the United States (Warren Gorham & Lamont).

Peter is a frequent lecturer on various aspects of taxation and cross-border taxation at seminars sponsored by

IFA, IBA, ABA, ALI-ABA, NYSBA, CTF, NYU, PLI, GW-IRS, California State Bar, USC Tax institute, and others.

Professional Associations

American Bar Association Tax Section - Vice -Chair Government Relations and Vice-Chair Transfer Pricing

Committee and chair Foreign Activities of US Taxpayers Committee 2004-06

New York State Bar Association Tax Section - Executive Committee member and Chair 2010

International Fiscal Association - Executive Vice President, USA Branch

International Bar Association Taxes Committee – Chair 2011

International Tax Institute - Board member and President 2003-05

Columbia Law School - Adjunct Professor, JD program, 2008-11

Fellow, American College of Tax Counsel

Admitted to practice before the United States Tax Court

Peter H. Blessing Managing Director

KPMG LLP

345 Park Avenue

New York, NY 10154

Tel 212-954-2660 (New York)

Tel 203-406-8052 (Stamford)

Fax 203-286-1926

Cell 917-238-4055

[email protected]

Function and Specialization Peter specializes in cross-border M&A, financing transactions and international and treaty planning

Education, Licenses & Certifications LL.M in Taxation, New York University School of

Law

JD, Columbia University Law School

BA, Princeton University



Devon M. Bodoh

Principal


Devon M. Bodoh is the co-leader of KPMG’s Washington National Tax International M&A Initiative and a

principal in Washington National Tax. In addition, Mr. Bodoh is the Principal in Charge for the firm’s US-

Brazil High Growth Market Practice and leads the Inbound Tax Team for Brazil.

Mr. Bodoh advises clients on international and domestic mergers, acquisitions, spin-offs, other divisive

strategies, restructurings, bankruptcy and non-bankruptcy workouts, the use of net operating losses and

other tax attributes, and consolidated return matters.

Prior to joining KPMG, Mr. Bodoh was a partner in the international law firm of Dewey & LeBoeuf LLP.


Mr. Bodoh is a frequent speaker on subjects in his practice area for various groups, including the Tax

Executives Institute, the American Bar Association, the American Law Institute/American Bar Association,

BNA/Center for International Tax Education and the Law Education Institute.

Mr. Bodoh is a former chairperson and vice-chairperson of the American Bar Association's Committee on

Affiliated and Related Corporations and is an officer of the American Bar Association's Corporate Tax

Committee.

Mr. Bodoh is an adjunct professor at George Mason University School of Law. In addition, Mr. Bodoh is a

member of the Dean's Advisory Board for the University of Detroit School of Law.

Representative Clients

AT&T, Inc., Bank of America Corporation, General Electric Company, General Motors Company, Grupo EBX,

HCA Holdings, Inc., Iochpe Maxion SA, Itau Unibanco, NCR Corporation, Odebrecht SA, Pfizer Inc., the

Walt Disney Company and Viacom

DEVON M. BODOH

Principal

Washington National Tax

KPMG LLP

1801 K Street, NW

Washington, DC 20006

Tel 202-533-5681

Fax 202-609-8969

Cell 646-752-9444

[email protected]

Function and Specialization

Mergers, acquisitions, spin-offs, divestitures,

liquidating and nonliquidating corporate distributions,

corporate reorganization, and consolidated returns

Education, Licenses & Certifications

• LLM, Taxation, New York University of Law

• JD, University of Detroit Mercy School of Law

School

• BBA, University of Michigan Stephen M. Ross

School of Business



Background

Mike is a principal in the International Corporate Services group of the Washington National Tax practice. He

began practicing in the federal income tax field in 1984 with an emphasis in international tax issues since

1988. Mike specializes in complex international corporate tax issues including international corporate

restructuring and supply chain structuring. Specific areas of substantive expertise include subpart F planning,

cross border transactional planning and structuring, mergers and acquisitions (domestic and international),

joint venture structuring, entity classification, check the box planning, intangible property planning, and

electronic commerce issues.


In addition to working for other Big 4 accounting firms and major law firms, he was the Special Counsel to the

Associate Chief Counsel (International) in the Chief Counsel’s Office at the Internal Revenue Service. As

Special Counsel, he reviewed and assisted in developing positions for PLRs, FSAs, TAMs and controversy

matters on numerous issues. In addition, he was involved in several guidance projects including extensive

involvement in the final regulations under Section 367(a), Section 367(b) and Subpart F. During the course of

his career, Mr. Cornett also has handled negotiations with the IRS on various international tax matters

including cost sharing arrangements and Competent Authority matters.

Representative Experience

• Developed and implemented Swiss principal structure for a major clothing retailer that involved the

opening of company owned stores in several countries and the procurement of product from third party

suppliers. The project also included the transfer of intangible property through a cost sharing

arrangement and the negotiation of a bi-lateral Advance Pricing Agreement.

• Developed and implemented a plan for the acquisition and integration of several companies in Europe

and Russia into an existing Swiss principal structure for a Fortune 100 company in consumer products.

• Developed and implemented world wide tax structure based in Switzerland for a major Internet Service

Provider.

• Assisted chemical company in structuring foreign operations to maximize utilization of foreign tax credits

and tax efficient movement of cash between affiliates.

• Lead associate in Bausch & Lomb v. Commissioner, a U.S. Tax Court case that dealt with the issue of

what constitutes manufacturing for purposes of Subpart F.

J. Michael Cornett

Principal

KPMG LLP

1801 K Street, N.W.

Washington, D.C. 20006

Tel 202 533 5202

Cell 202 412 0783

Fax 202 330 5065

[email protected]


• L.L.M., Georgetown University Law Center

• J.D., University of North Carolina, Chapel Hill

• BS in Accounting, University of Notre Dame

• CPA License in Ohio

• Bar Admission in District of Columbia and

Pennsylvania.


• Members of American Bar Association and

Chairman of Pass Through Committee for

FAUST

• Members of American Institute of Certified

Public Accountants

J. Michael Cornett

Principal



Manal S. Corwin National Leader, International Tax, KPMG LLP

and Principal-in-Charge of International Tax Policy, Washington National Tax

Background

Manal Corwin is KPMG LLP’s National Service Line Leader for International Tax as well as Principal-in-Charge

of Washington National Tax—International Tax Policy. She recently rejoined the firm following completion of her

tenure as Deputy Assistant Secretary of Tax Policy for International Affairs in the Treasury Department.


During her tenure at the U.S. Treasury Department, Manal helped shape the Administration’s views and policies

in all areas of international taxation and worked closely with the IRS, members of Congress, and key tax

regulators globally. In this regard, Manal worked on the international tax provisions of several of the

Administration’s budget proposals as well as the development of the Administration’s framework for tax reform.

Manal also served a as the U.S. delegate and Vice Chair to the OECD’s Committee on Fiscal Affairs and was

actively engaged in the initiation and development of the OECD BEPS initiative. In addition, Manal served as

the U.S. delegate to the Global Forum on Tax and Transparency. Significantly, she was responsible for leading

the development and implementation of the intergovernmental approach to the Foreign Account Tax Compliance

Act (FATCA) which has recently been endorsed as the foundation for a global standard for automatic exchange

of information. Manal also was head of the delegations responsible for negotiating income tax treaties with

Japan, Spain, Chile, and the United Kingdom.

Prior to joining the Treasury Department (first as International Tax Counsel in the Office of Tax Policy and then

as Deputy Assistant Secretary for International Tax Affairs), Manal was a principal in KPMG’s Washington

National Tax practice from 2001 to 2009, where she advised multinational corporations on the U.S. international

tax aspects of their operations and transactions and represented clients in tax controversies before the IRS.

Earlier in her career, Manal served as the Deputy and then Acting International Tax Counsel in the Office of Tax

Policy at the U.S. Treasury Department. Prior to that, Manal practiced as an attorney specializing in international

taxation at the law firm of Covington & Burling in Washington, D.C. Manal also served as a judicial clerk for then

Chief Judge Levin Campbell on the U.S. Court of Appeals for the First Circuit.

Other Activities/Honors

Manal is a member of the Board of Directors of the National Foreign Trade Council and is a frequent speaker

and commentator on international tax policy.

Manal served as Editor-in-Chief of the Boston University Law Review 1990-1991; she received the Ordronaux

Prize, 1991; Edward Hennessey Distinguished Scholar, 1990-1991; Paul J. Liacos Scholar, 1989-90; G. Joseph

Tauro Distinguished Scholar, 1988-89.

MANAL S. CORWIN National Leader, International Tax and

Principal-in-Charge of International Tax Policy

Washington

National Tax

KPMG LLP

Suite 1200

1800 K Street NW


Tel 202-533-3127

[email protected]

Function and Specialization Manal S. Corwin leads KPMG LLP’s international tax

practice . She advises multinational corporations on

U.S. international tax aspects of their structures,

operations and transactions. She specializes in

consulting and advising on issues relating to

international tax policy, expense allocation, the source

of income rules, foreign tax credits, subpart F, U.S.

taxation of international transportation income and

certain special tax benefit provisions.

Professional Associations Member of the Massachusetts Bar Association

Member of the District of Columbia Bar Association

Education, Licenses & Certifications J.D. magna cum laude, from the Boston University,

School of Law, May 1991

A.B. in Psychology, cum laude, from Harvard

University, June 1986



Aaron Feinberg

Managing Director

Background

Aaron is a Managing Director in the Mergers & Acquisitions Tax practice. He has significant

experience representing clients in U.S. federal tax aspects of business acquisitions and

dispositions and representing financially troubled companies.


Aaron’s experience includes assisting various forms of business entities on U.S. tax matters

critical to mergers and acquisitions, internal restructurings and financially distressed

companies. His background includes the provision of tax advice relating to transaction and

financing structures, due diligence, debt modifications and the preservation of net operating

losses and other tax attributes.

Aaron has experience in a broad category of transactions and industries, including the

following:

• Advising several multinational Fortune 500 companies in connection with internal, cross-

border restructurings.

•Representation of several Fortune 500 debtor corporations in connection with tax issues

arising from their Chapter 11 bankruptcy filings, including issues arising from the cancellation

of existing indebtedness, the post-emergence preservation of tax attributes and tax planning

for bankruptcy emergence transactions.

• Advising U.S. and foreign business entities and private equity funds on the U.S. tax aspects

of structuring acquisitions of U.S. and non-U.S. businesses, including tax-free reorganizations

of publicly-traded target companies.

AARON FEINBERG

Managing Director-Tax

KPMG LLP

150 West Jefferson

Suite 1200

Detroit, Michigan 48226

Tel 313-230-3273

Fax 313-447-2430

Cell 617-835-2793

[email protected]


Aaron specializes in the U.S. tax aspects of

business acquisitions and dispositions and U.S. tax

issues relating to financially distressed companies.


• LL.M. in Taxation, Georgetown University Law

Center

• J.D., Boston University School of Law

• B.A., Michigan State University



Douglas G. Holland Senior Manager


Doug is a senior manager in the International Tax group of KPMG’s Washington National Tax

office. He provides advice on a wide range of international tax issues including cross-border

acquisitions and restructuring, the dual consolidated loss rules, earnings-stripping limitations,

application of the branch tax and FIRPTA rules to inbound investments, treaty qualification, anti-

deferral rules, international shipping and air transport income, and foreign charitable organizations,

as well as the associated information reporting and compliance aspects. Doug has worked with a

variety multinational and private equity companies and has substantial experience in the oil and

gas industry.

Doug is the author or co-author of a number of articles on topics such as the permanent

establishment implications of commissionaire structures, the IRS LMSB’s series of section 965

directives and international tax aspects of the “check-the-box” rules. He is a frequent presenter at

internal and external events, and is also a member of the International Fiscal Association.

Prior to joining KPMG, Doug served as an attorney-advisor to the Hon. Joseph H. Gale of the

United States Tax Court.

DOUGLAS G. HOLLAND Senior Manager

KPMG LLP

1801 K Street, NW

Suite 12000


Tel 202-533-5746

Fax 202-403-3988

[email protected]

Function and Specialization Doug specializes in the taxation and reporting of cross-

border transactions and investments.

Education, Licenses & Certifications • LL.M. in taxation, University of Florida

• JD, magna cum laude, Duke University School of Law

• BA, University of Michigan



Patrick Jackman Principal

7


Patrick is an International Tax Partner in KPMG’s Washington National Tax Practice, based in New York, where

he advises clients on cross-border transactions, both taxable and tax-free, including public and private

reorganizations/mergers, spin-offs, and partnerships. In connection therewith, he assists clients in developing

structures that provide for tax-efficient repatriation, foreign tax credit planning, acquisition financing and post-

acquisition integration of acquired operations.

Prior to joining KPMG, Pat was a partner with Weil, Gotshal and Manges LLP in New York, where he focused

principally on international transactions for multinationals, including corporate acquisitions and mergers, internal

restructurings, business formations and joint ventures. Prior to Weil Gotshal, Pat was Managing Director, Head

of International Tax, for Merrill Lynch. There he focused on optimizing tax-efficiency of Merrill Lynch’s foreign

and cross-border operations, investments and funding, with specific focus on strategic M&A support and

optimization, business unit/product support and oversight.

Publications/Speeches

■ Co-author (with Kevin Dolan et al) of the leading International M&A tax treatise, “U.S. Taxation of

International Mergers, Acquisitions, and Joint Ventures”; articles written for Journal of International Tax,

International Tax Journal, and Tax Notes International

■ Speeches given at GWU/IRS Conference on International Taxation, Canadian Tax Foundation, IFA, TEI,

International Tax Institute, Atlas, and CITE.

Additional Information

■ Member of the District of Columbia, Colorado (inactive), and Maryland (inactive) Bars; member of

International Fiscal Association, Wall Street Tax Association, and the ABA Section of Taxation


■ General Electric, Bank of America, AIG, and Sanofi Aventis

Patrick Jackman

Principal

KPMG LLP

345 Park Avenue

New York, NY 10154

Tel 212 872 3255

Fax 212 937 2087

Cell 917 549 7802

[email protected]


Cross Border Mergers & Acquisitions; FTC and

Subpart F Planning

Education, Licenses &

Certifications

■ University of Virginia Law School, J.D.

■ Haverford College, B.A., Economics,

National Merit Finalist Scholarship



Charlie Kohler Senior Manager

8

Position in Firm

Charlie is a senior manager in the International Corporate Services (“ICS”) practice in Detroit. He assists

large and mid-sized multinational clients with international tax planning and compliance matters.

Relevant Experience

Charlie has experience in cross-border restructurings, repatriation strategies, foreign tax credit planning,

subpart F planning, cash/tax management, global effective rate planning, acquisitions and divestitures

and related financing arrangements, tax deferral, and international tax compliance.

His experiences include planning and implementing a global restructuring for a large multinational

manufacturer, completing an overall foreign loss study for a tier one automobile supplier, and assisting in

the seller side due diligence for a large international manufacturer.

Charlie has previously served as in-house tax counsel for a foreign-owned manufacturing company with

over $25 billion in worldwide sales. In this position, Charlie assisted with out-from-under planning, dual

consolidated loss planning, cross-border debt restructuring, and repatriation planning. Charlie also

managed the international portion of the organization’s US tax compliance, including the filing of Forms

5471, 8858, 8865, 1120-F and 5472.

In addition, Charlie undertook an earnings and profits and stock basis study that covered over 150 US

entities, 10 consolidated groups, 50 years, and 100 mergers, transfers, or liquidations, including multiple

deconsolidations and group structure changes.


Charlie has advised multinational manufacturers, global software companies, and international financial

entities.

CHARLIE KOHLER

Senior Manager,

International Corporate Tax

KPMG LLP

150 West Jefferson Avenue


Tel 313-230-3035

Cell 586-214-5918

Fax 313-447-2404

[email protected]


Charlie is a Sr. Manager in KPMG’s Detroit office,

where he focuses on U.S. income tax issues

affecting multinational corporations.

Representative Clients •Benteler Automotive

•Ford Motor Company

•Key Safety Systems

•Magna International


•International Fiscal Association


•LL.M. in Taxation – Northwestern University School

of Law

•J.D. – Valparaiso University School of Law

•B.A. – Wayne State University

•Member, Michigan Bar.



Murilo Mello Partner


Murilo Mello is a Partner at the International Corporate Tax & Transfer Pricing department, with experience

with tax structuring in large projects M&A deals. Murilo is also dedicated to Indirect Taxes and Trade &

Customs practice, involved in supply chain projects and general tax consulting.

Since 1996, Murilo has been working with tax audit, advisory services, tax planning and corporate

restructuring. He is currently working with domestic and foreign clients, as well as assisting other KPMG’s

offices, providing advice to multinational corporations on cross-border transactions, tax strategies and indirect

tax minimization projects.

Murilo has a Law Degree from Universidade Mackenzie – São Paulo and a post-graduate degree in Tax Law

from Universidade de São Paulo (USP). He also has a Master’s degree in Law in International Tax Law

(LLM) from the University of London (Queen Mary). He is a member of the Brazilian Bar Association (OAB).


Mr. Mello is a frequent speaker on subjects in Brazilian tax matters for a variety of groups, in Brazil or abroad

such as the Brazilian Bar Association, AICPA, FDC.

Mr. Mello is an invited professor at Brazilian Institute of Tax Law studies (Instituto Brasileiro de Direito

Tributario – IBDT).

MURILO MELLO

Brazilian Tax Partner

KPMG LLP

200 South Biscayne Blvd.

Suite 2000

Miami, FL 33131

Tel: +1 (305) 913-2781

Fax: +1 (305) 418-7378



• Cross border mergers, acquisitions, corporate

reorganization, indirect taxes and TP


• LLM, Taxation, University of London

• Law Degree, University Mackenzie, Sao Paulo –

Brazil



Jose Manuel Ramirez

Principal


Jose Manuel Ramirez is the Partner in charge of the International Taxes practice with KPMG Cardenas

Dosal S.C., the Mexican member firm of KPMG International. He is seconded to KPMG LLP (U.S.), where

he heads the International Tax Team - Mexico in New York, a role he assumed in February 2006.

Jose Manuel joined KPMG in Mexico in 1993 and has more than 20 years of experience in providing tax

services to large multinational companies. His background encompasses domestic and international tax

planning, consolidation for tax purposes, corporate restructuring (liquidation/spin-offs), cross-border

transactions, M&A, indirect and excise duties, principal structure, site location, captive insurance, shared

services centers and tax incentives projects (including national filming projects), BEPS.

He has provided services to clients across a wide range of industries, including: energy, logistics,

transportation, distribution, manufacturing / Maquiladoras, food, tourism,

construction, telecommunications, wines and spirits, pharmaceutical, broadcasting and media, mining,

retail, private equity investors and banking.

Currently Jose Manuel is advising multinationals investing in the LATAM region as well as Mexican

Multinationals investing around the world, amongst others on the design of efficient supply chain

structures, being in charge of coordinate the KPMG network teams on the region.

Jose Manuel is a CPA in Mexico, and a member of the College of Public Accountants of Mexico, the

Mexican Institute of Public Accountants, and the International Fiscal Association Mexican Branch. He holds

a Tax Law Master’s degree from the Superior School of Legal Sciences.

Jose Manuel Ramirez

Partner

KPMG Mexico

345 Park Avenue, 13 Fl

New York, N.Y., 10154-0102

Tel 212-872-6541

Fax 718-228-9237

Cell 917-664-8607

[email protected] /

[email protected]


Jose Manuel specializes in domestic and cross-

border tax planning, focusing on foreign

investments in the LATAM region as well as

LATAM entrepreneurs investing Worldwide.

.


• Mexican CPA

• Tax Law Master from the Superior School of

Legal Sciences

• Member of the College of Public Accountants of

Mexico, Mexican Institute of Public Accountants

• Member of the International Fiscal Association

Mexican Branch





Jilesh Shah Senior Manager

Background

Jilesh is a Senior Manager from KPMG India, on long term rotation to USA, based out of the New York

Office

He has over 9 years of professional experience in advising multinational companies on entry strategy,

business entity structuring, cross border tax & regulatory matters, and tax controversy issues


Over the years, Jilesh has advised multinational clients on entry strategy, JV structuring etc from an

international tax, Indian domestic tax and regulatory perspective

Jilesh has also advised on corporate mergers and acquisition, due diligence reviews, internal

reorganizations, buy-back of securities, minority buy-out, etc

He has been involved in tax litigation matters at various forums including Courts and have represented

clients before the Indian Revenue authorities

He has been involved in making representations to the Ministry of Finance and Corporate Affairs for

tax and regulatory matters

Jilesh has worked with clients from a cross section / diverse industry segments such as technology,

service, manufacturing, infrastructure, healthcare, consumer markets, pharmaceuticals, financial

services etc

Jilesh speaks regularly at various seminars and workshops organized in US and India

Jilesh Shah

Tel +1 1212 954 2707

Mobile +1 973 906 4448

[email protected]

Function and Specialization Jilesh is a member of the International tax practice,

providing corporate tax advice on international tax

issues, acquisitions and restructurings

Education, Licenses & Certifications • Chartered Accountant (Fellow of the Institute of

Chartered Accountants of India)

• Graduate in Commerce (Bachelor of Commerce

from H R College of Commerce, Mumbai

University

Languages English, Hindi, Gujarati

11



Caren S. Shein

Managing Director


Ms. Shein advises clients on outbound and inbound international tax planning and compliance issues,

including foreign tax credit, subpart F, expense allocation, and permanent establishment. Her particular

area of expertise is the foreign tax credit, and she regularly writes, speaks and teaches in this area.

Caren is the author or co-author of numerous articles, including “Emergency Economic Stabilization Act

of 2008 – Throwing a Rope to the Ailing Financial Industry Tightens the Noose on Big Oil,” Tax

Management International Journal (February 2009), “Temporary Regulations Deny Foreign Tax Credits

for Amounts Paid Pursuant to “Structured Passive Investment Arrangements”, Tax Management

International Journal (October 2008), “New Temporary Regulations Under Section 905(c): A Big

Improvement but Puzzling Issues Still Remain,” Tax Management Journal (May 2008), “The IRS

Proposes a New Approach to Determine the Technical Taxpayer – Will it Work?,” Journal of Taxation of

Global Transactions (Fall 2006), “Section 905(c) – The Missing Piece of the Foreign Tax Credit Puzzle”,

Tax Management International Journal (January 2002), and “A Fresh View of Overall Foreign Losses and

Consolidated Returns”, Tax Management International Journal (May 1999).

Prior to joining KPMG, Ms. Shein was an attorney advisor at the Internal Revenue Service, Office of

Associate Chief Counsel (International). There she worked on rulings, regulations and litigation, primarily

relating to foreign tax credits. Ms. Shein began her career as a law clerk to the Honorable B. John

Williams, Jr., of the United States Tax Court.

CAREN S. SHEIN

Managing Director

KPMG LLP

2001 M Street, N.W.


Tel 202-533-4210

Fax 202-315-3164

[email protected]


Caren Shein is a managing director in the

International Corporate Services group of the

Washington National Tax Practice.


• L.L.M., Georgetown University Law Center

• J.D., The American University, Washington

College

of Law, cum laude

• B.A., Yale University




Philip A. Stoffregen Principal

Background

Philip Stoffregen is an International Tax principal with KPMG’s Washington National Tax group.


Phil has advised some of the largest corporations in the United States on a broad range of

international tax matters, including out-bound transfers of fixed assets and intellectual property, tax-

free restructurings of foreign subsidiaries, tax-free and taxable international acquisitions and

dispositions, cash repatriation and foreign tax credit utilization planning, subpart F and passive

foreign investment company issues, and planning to utilize foreign losses.

He has assisted in structuring international joint ventures in many jurisdictions, including Canada,

Mexico, the U.K., Germany, Japan, China, France, the Czech Republic, Australia, Brazil, and

Venezuela. Phil has advised on the U.S./International tax aspects of two major public company spin

off transactions. He also has substantial experience in tax controversy matters at both the audit and

appeals levels, and, as a partner at Kirkland & Ellis and Jenner & Block, represented clients at both

Federal District Court and Tax Court.


Phil has numerous publications on various tax subjects, is a frequent lecturer on international tax

topics, and has served as an adjunct professor in the DePaul Law School and Chicago-Kent Law

School LLM programs.

Philip A. Stoffregen International Tax Principal

KPMG LLP

150 West Jefferson

Suite 1200

Detroit, MI 48226-4429

Tel 313-230-3223

Cell 313-377-2797

Fax 313-668-6260

[email protected]

Function and Specialization Phil is a member of the Washington National Tax International Corporate Services practice, specializing in U.S. income tax issues affecting U.S. based multinationals. Professional Associations Admitted Member, International Fiscal Association

Education, Licenses & Certifications BA, Earlham College

PhD and JD, University of Chicago



Wayne Tan Senior Manager

Background

Wayne is a Certified Tax Agent in China with more than nine years of experience in providing advisory

on China tax, foreign exchange, customs and business regulatory. He is currently on a long-term

secondment in the U.S. to assist U.S. companies’ investment and business in China.


Wayne has extensive experience in providing advisory services to multinational conglomerates for their

investment in China. He has helped various multinational companies for their entry strategy into China,

holding structure, financing, incentive policy application, supply chain planning, group restructuring and

investment exit strategy etc. In addition, he has assisted in numerous tax due diligence and tax health

check review engagements.

In 2009, Wayne has worked in KPMG Dublin for a period of time participating in advisory to Irish

investors for their investment and business in China.

Publications and speaking engagements

Wayne has presented at various internal and external events for China tax matters.

Wayne Tan Senior Manager, Tax

International Corporate Service

China Center of Excellence

KPMG LLP

3975 Freedom Circle Drive, Mission Tower 1, Suite

100

Santa Clara, CA95054

Tel 408-367-1574

Fax 408-516-8914

Cell 650-279-8697

[email protected]

Function and Specialization China tax, business regulatory, foreign exchange advisory for market entry strategy, operation, M&A and restructuring.

Education, Licenses & Certifications Master degree of engineering

China Certified Tax Agent



Kortney Wallace

Managing Director

Background Kortney is a Managing Director leading the international tax team in the Mid-America region which includes

Michigan, Ohio, Indiana, and Kentucky. Kortney has over 14 years of experience advising multi-national

corporations on their international activities. Kortney spent over 8 years as part of KPMG’s Washington

National Tax practice.


Kortney has advised multinational corporations on a broad range of international tax matters including both

inbound and outbound tax issues such as international mergers and acquisitions, out-bound property

transfers, taxable and tax-free group restructuring of foreign subsidiaries, repatriation and debt servicing,

foreign tax credit utilization planning, subpart F and contract manufacturing, cross-border financing, and

planning to utilize foreign losses.

Kortney has advised on many transactions and provided both tax due diligence and tax structuring advice in

several industries. For example:

Provided inbound tax planning advice for foreign corporations on exposure to U.S. taxation stemming

from investments in the U.S. and recommended various tax-efficient structures.

Examined U.S. and foreign tax implications of a large multinational converting to a limited liability

structure and helped to navigate the effects for on withholding tax under a number of income tax treaties.

Advised numerous foreign corporations in the U.S. on maximizing administrative efficiency and

minimizing tax exposure by establishing client-specific corporate structures, including establishing

controlled corporations in foreign countries.

Assisted a major retailer with restructuring of its off-shore procurement functions to avoid subpart F and

achieve state tax benefits.

Worked with several companies on IP migration issues.

KORTNEY WALLACE

Managing Director

KPMG LLP

150 West Jefferson

Suite 1900


Tel 313-230-3056

Fax 313-447-2377

Cell 248-761-9175

[email protected]


Kortney is a Managing Director leading the

International Tax practice in Mid-America. She

spent 8 years as a member of KPMG’s

Washington National Tax practice specializing in

U.S. income tax issues affecting multinational

corporations.


General Motors Company

Steelcase Inc.

Macy’s Inc.

Delphi LLP

Visteon

BorgWarner, Inc


BA degree, University of Michigan

LLM degree in taxation, Georgetown University

JD degree, The Thomas M. Cooley Law

School, cum laude



Aziza Yuldasheva Senior Manager

Background

■ Aziza is a senior manager in the International Tax group of KPMG’s Washington National Tax practice. She

joined KPMG LLP in Detroit in 2007 after practicing law at a law firm; she transferred to WNT in 2010.


■ Aziza consults regarding U.S. taxation of multinational companies, their outbound and inbound operations,

restructuring, M&A, refinancing, and other transactions.

■ Most recently, Aziza played an integral role in several components of a multi-million dollar engagement with

the largest publicly traded company in its industry sector, from planning and opinions to implementation and

reporting (tax and financial). The engagement involved internal restructuring, utilization of operational as well

as shareholder and creditor losses, cash repatriation, foreign tax credit utilization, migration of intellectual

property, refinancing of intra-consolidated group debt, and leveraged partnership structuring.

■ Other recent projects on which Aziza worked include: a feasibility analysis of a merger and redomestication

transaction (including section 7874 modeling, and shareholder gain and excise tax mitigation);

reorganization of a multinational manufacturing group; financing of a foreign target acquisition; and supply

chain restructuring projects.

■ In addition, Aziza frequently fields questions regarding cost-sharing agreements and other issues under

section 482, IC-DISCs, PFICs, subpart F branch rules, foreign currency, and complex post-transaction tax

reporting.

■ Aziza contributes to publications (including updates to a PLI publication on cross-border reorganizations and

section 367) and presents on various technical subjects both internally (including at firm-wide training) and

externally (e.g., at BNA CITE and, in the past, to a Fortune 10 company’s tax group).

AZIZA YULDASHEVA

Senior Manager

KPMG LLP

Suite 1200

1800 K Street, NW


Tel: 202-533-4547

[email protected]


■ International Tax


■ Member, State Bar of Michigan


■ LLM, Georgetown University Law

Center

■ JD, Wayne State University Law

School (Cum Laude; Law Review)

■ BBA (International Business: Finance

& French), Eastern Michigan University

(Magna Cum Laude)

© 2014 KPMG LLP, a Delaware limited liability

partnership and the U.S. member firm of the KPMG

network of independent member firms affiliated with

KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

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complexity” are registered trademarks or trademarks

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