CBIZ MHM Executive Education Series Key International Tax

CBIZ & MHM Executive Education Series™ Key International Tax Considerations Update Don Reiser and Paul Burns June 11, 2019 #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 1

About Us • Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest and advisory services • Over 2, 900 professionals nationwide A member of Kreston International A global network of independent accounting firms MHM (Mayer Hoffman Mc. Cann P. C. ) is an independent CPA firm that provides audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider. CBIZ and MHM are members of Kreston International Limited, a global network of independent accounting firms. #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 2

Before We Get Started… • Use the control panel on the right side of your screen to: • Change your audio mode between Computer Audio or Phone • Submit questions • Download handouts • If you need technical assistance: • Call support at 877 -582 -7011 • Email us at cbizmhmwebinars@cbiz. com #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 3

CPE Credit This webinar is eligible for CPE credit. To receive credit, you will need to answer polling questions throughout the webinar. External participants will receive their CPE certificates via email within 15 business days of the webinar. #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 4

Disclaimer The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your service provider to further discuss the impact on your business. #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 5

Presenters Don Reiser serves as the National Leader of the International Tax Practice for CBIZ. He has more than 30 years experience providing international tax consulting services to public and privately-held U. S. and foreign-based corporations as well as foreign individuals and businesses investing in the United States. Working closely with clients that span a variety of industries, Don addresses a broad range of domestic and foreign tax matters. Don Reiser 212. 790. 5724 • dreiser@cbiz. com Managing Director #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 6

Presenters Paul Burns is a Tax Director at CBIZ MHM, LLC and has been practicing tax for over three decades. He joined the firm in 2016. He has experience in the private sector and in government, in international tax and transfer pricing planning and compliance matters, as well as in tax dispute resolution and risk management. He has been a senior client service professional at large international law firms, Big Four accounting firms, and major consulting firms. In addition, he spent a number of years with the Office of Chief Counsel of the Internal Revenue Service, serving as a senior litigator and legal adviser to large case audit teams. Mr. Burns’ Paul Burns, Esq. Director, CBIZ National Tax Office broad and deep understanding of tax administration and the internal workings of tax authorities enable him to provide highly valuable counsel to multinational companies that want to proactively manage their international tax and transfer pricing issues. 949. 727. 1320 • pburns@cbiz. com #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 7

Agenda 01 Legislative 02 Administrative 03 Questions #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 8

LEGISLATIVE #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 9

H. R. 1711/S. 780, “No Tax Breaks for Outsourcing Act” • Introduced March 13 by Rep. Doggett (D-TX) and Sen. Whitehouse (D-RI) • Would increase amount of GILTI inclusion by eliminating exclusion for net deemed tangible income return #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 10

H. R. 1712/S. 779, “Stop Tax Haven Abuse Act” • Also introduced March 13 by Rep. Doggett and Sen. Whitehouse • Highlights: • Would narrow check-the-box rules and effectively repeal Section 954(c)(6) • Would treat foreign corporations managed and controlled in U. S. as domestic • Would tighten limits on deductibility of interest • Would establish beneficial ownership reporting requirements • Would enhance 10 -K and 10 -Q reporting of taxes paid #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 11

S. 1609, “Disclosure of Tax Havens and Offshoring Act” • Introduced by Sens. Van Hollen (D-MD) and Whitehouse (D-RI) on May 22 • Would amend Securities Exchange Act of 1934 to require public country-by-country reporting • Unclear how it will apply to taxpayers that are not subject to 1934 Act reporting requirements #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 12

S. 1610, “Removing Incentives for Outsourcing Act” • Introduced by Sens. Klobuchar (D-MN), Duckworth (DIL), and van Hollen (D-MD) on May 22 • Would increase amount of GILTI inclusion by eliminating exclusion for net deemed tangible income return • Would require calculation of GILTI (and related foreign tax credits) on a country-by-country basis #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 13

ADMINISTRATIVE #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 14

Guidance on the Tax Cuts and Jobs Act • Section 965 - Mandatory Repatriation • Proposed regulations issued on August 1, 2018 • Final regulations issued on February 4, 2019 • Global Intangible Low-Taxed Income (GILTI) • Proposed regulations issued on September 13, 2018 • Final regulations expected before June 22, 2019 • Foreign-Derived Intangible Income (FDII) • Proposed regulations issued on March 4, 2019 • Final regulations expected by August, 2019 • Base Erosion and Anti-Avoidance Tax (BEAT) • Proposed regulations issued on December 13, 2018 • Final regulations expected after August 16, 2019 #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 15

Guidance on the Tax Cuts and Jobs Act • Foreign Tax Credit • Proposed regulations issued on December 7, 2018 • Final regulations expected before June 22, 2019 • Withholding on Disposition of Partnership Interest • Proposed regulations issued on May 7, 2019 • Hybrid Transactions and Hybrid Entities • Proposed regulations issued on December 20, 2018 • Final regulations expected by September 23, 2019 #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 16

Poll Question - 1 • What is the likelihood of major tax legislation before 2021? a) Small b) Very small c) Very very small d) Are you kidding? #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 17

Section 250 Deduction for Individuals Electing under Section 962 • Section 951 A, introduced by the 2017 Tax Cuts and Jobs Act, requires a 10% U. S. • • • shareholder of a controlled foreign corporation (CFC) to include in gross income annually its global intangible low-taxed income (GILTI) Under Section 250, U. S. corporate shareholder of a CFC is allowed to deduct 50 percent of GILTI for tax years through 2025 and 37. 5 percent of GILTI after 2025 • U. S. corporate shareholder of a CFC can also claim a foreign tax credit for 80 percent of the foreign taxes paid or accrued by the CFC on GILTI Prior to the proposed Section 250 regulations—individual shareholders of CFCs could reduce their GILTI tax liability by making a Section 962 election, but were not eligible for the Section 250 deduction Under proposed regulations issued on March 4, 2019, U. S. individuals (and trusts and estates) that make a Section 962 election are allowed a Section 250 deduction for GILTI and the GILTI Section 78 gross-up • Could eliminate the individual’s U. S. tax liability under GILTI • However, future distributions from the CFC (in excess of any corporate tax paid under the Section 962 election) may be taxed as dividends to the individual shareholder • Effective for taxable years ending after March 4, 2019—deduction not available for 2018 #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 18

Proposed FDII Regulations: Documentation of FDDEI Eligibility • In order for a sale or service transaction to qualify for the FDII deduction, there must be a sale TO a foreign person FOR foreign use • The Proposed Regulations impose burdensome documentation rules with respect to both prongs of the test • Inadequate documentation results in the loss of the FDII deduction #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 19

Proposed FDII Regulations: Documenting Foreign Person Status • Four possibilities: • Written statement from the recipient • (For entities) documentation that establishes organization under laws of a foreign jurisdiction (e. g. , copy of formation documents) • (For entities) government filing that establishes organization under laws of a foreign jurisdiction (e. g. , SEC Form 20 -F of a foreign issuer) • (For individuals) foreign government issued ID • Simplified rules for small businesses • Must obtain documentation by return due date • Cannot rely on documentation that taxpayer knows or has reason to know is incorrect #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 20

Proposed FDII Regulations: Documenting Foreign Use • Must be able to show one of the following: • Property is not used in the U. S. within three years after delivery; or • Property is subject to manufacture, assembly, or other processing outside the U. S. prior to any domestic use • Permissible documentation • Written statement from the recipient that property is foreign use • Binding contract that provides foreign use • Copy of commercial documentation (e. g. , export bill of lading) • Simplified rules for small businesses #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 21

Poll Question - 2 • What is the threshold for the Subpart F high-tax exception? a) 18. 9 percent b) 31. 5 percent c) 13. 125 percent d) None of the above #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 22

Final Section 956 Regulations • Section 956 generally subjects a U. S. shareholder of a controlled foreign • corporation (CFC) to an income inclusion when such income is effectively repatriated through the CFCs investment in “U. S. Property” • CFC purchases of stock of U. S. affiliate • CFC purchases tangible or intangible property located or used in the U. S. • CFC loans funds to U. S. affiliate • CFC guarantees or provides collateral support for U. S. affiliate borrowing On October 31, 2018, Treasury and IRS issued proposed regulations providing guidance on the operation of Section 956 in light of the new participation exemption under Section 245 A • Section 245 A provides a 100% dividends-received deduction foreign source dividends from 10% owned foreign corporation • Under the statute, Section 245 A does not apply to Section 956 inclusions • Incongruous result--Actual dividends to 10% U. S. corporate shareholders are tax -free, but Section 956 deemed dividends are subject to tax #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 23

Final Section 956 Regulations (Cont’d) • Proposed Section 956 regulations harmonized the taxation of actual dividends and Section 956 inclusions • The amount otherwise included in income under Section 956 is reduced by the deduction the U. S. corporate shareholder would have been allowed under Section 245 A if such amount had been received as a dividend from the CFC • Both actual dividends and deemed inclusions under Section 956 to 10% U. S. corporations generally tax-free • Effectively eliminated the impact of Section 956 on corporate lending transactions • On May 23, 2019, Treasury and IRS issued final Section 956 regulations that generally adopt the proposed regulations, with two principal changes • Provide an ordering rule to address situations in which a CFC has prior-year E&P from a Section 956 inclusion and distributes current year E&P that is not taxed under Subpart F or GILTI • Address the application of the regulations to U. S. domestic partnership shareholder of a CFC with partners that are a combination of U. S. corporations, U. S. individuals and other persons • Final Section 956 regulations generally apply to taxable years of a CFC beginning on or after July 22, 2019, and to taxable years of a U. S. shareholder in which or with which such taxable years of the CFC ends #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 24

Withholding on Sales of Partnership Interests – Proposed Regulations • Under Section 864 (c)(8), the Tax Cuts and Jobs Act, a foreign partner’s gain or loss • • from the sale, exchange or other disposition of a partnership interest is treated as effectively connected with the conduct of a U. S. trade or business (“ECI”) to the extent such partner would have had ECI had the partnership sold all its assets at fair market value Under Section 1446(f), if any portion is treated as ECI, the transferee must deduct and withhold 10% of the amount realized on the disposition If the transferee fails to withhold, the partnership must deduct and withhold from distributions to the transferee an amount equal to the under-withheld amount On May 7, 2019, the IRS and Treasury issued proposed regulations under Section 1446(f) regarding withholding on transfers of partnership interests by foreign persons Notifications required, including: • Foreign transferor must notify the partnership within 30 days of the transfer with statement containing information for partnership calculations • Partnership must furnish required information to the transferring partner by the due date of Schedule K of Form 1065 for the tax year of the partnership in which the transfer occurred #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 25

Withholding on Sales of Partnership Interests – Proposed Regulations Cont’d • Six exceptions to withholding on transfer of non-publicly traded • • partnership interest • Certification of non-foreign status • Certification of no realized gain • Certification of less than 10% effectively connected income • Certification of Non-Recognition by Transferor • Certification of Treaty Exemption Determining Amount of Partnership Liabilities • Non-controlling partner certification • Partnership certification Certification of Maximum Tax Liability Withholding by Non-Publicly Traded Partnership Withholding on the Transfer of a Publicly Traded Partnership Interest #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 26

Poll Question - 3 • Which of the following gives rise to cookie nexus? a) b) c) d) Chocolate chips Oatmeal and raisins Small downloadable files None of the above #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 27

Proposed Amendments to Foreign Tax Credit Rules • Highlights • IRS did not follow comments that suggested not allocating or apportioning any expenses to GILTI • Gross income sheltered by the Section 250 deduction (GILTI and FDII) is treated as exempt for purposes of allocation and apportionment of expenses • For allocation and apportionment purposes, the Section 250 deduction is divided into two parts, one attributable to FDII and the other attributable to GILTI • Expenses allocable to a dividend that is subject to the 100 percent DRD are disregarded • Unused pre-2018 foreign taxes carry over to the same basket post -2017, not to the foreign branch income or GILTI baskets • Complex new rules for assigning foreign taxes to PTI, by year and by basket #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 28

New LB&I International Compliance Campaigns (Cont’d) • On April 16, 2019 the IRS Large Business and International Division (LB&I) announced the approval of 3 new campaigns on international tax enforcement issues • Captive Services Provider Campaign • Addresses excessive transfer pricing in transactions where a foreign captive subsidiary performs services exclusively for its parent or other members of the multinational group • Goal is to ensure that U. S. multinational companies are paying their captive service providers no more than arm’s length prices • IRS will carry out this campaign through issue based examinations and soft letters to taxpayers #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 29

New LB&I International Compliance Campaigns • Offshore Private Banking Campaign • Addresses tax noncompliance and the information reporting associated with offshore accounts • IRS will initially address tax noncompliance by conducting examinations and issuing soft letters to taxpayers • Additional treatment streams may be developed based on feedback received throughout the campaign • Loose Filed Forms 5471 • Addresses incorrect filing of Form 5471 by taxpayers who send the form to the IRS without attaching it to a tax return (or a partnership or exempt organization return) • Goal is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 30

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If You Enjoyed This Webcast… Upcoming Courses: • 06/12: Top 10 Common Errors in Valuation • 06/25: Oddities in Leasing: Don’t Let These Provisions Be the Odd Thing Out of Your Implementation Plan • 07/09: Second Quarter Accounting and Financial Reporting Issues Update Recent Publications: • State & Local Tax Alert: Oregon Enacts the Corporate Activity Tax • The 2020 Campaign and Taxes Part 4: Tax Credits for Low Income Housing • Recent Developments in UBTI for Not-for-Profits • Transfer Pricing Trends in 2019: A Snapshot of Q 1 Developments #cbizmhmwebinar Questions? Email cbizmhmwebinars@cbiz. com 32

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