Long-anticipated international tax changes pass in US, and there’s more to come.
With his signing yesterday of HR 1586 (ushering in Medicare aid and stimulus spending to states and school districts), President Obama enacted a series of foreign tax credit and other international tax rule changes that had been seeking a legislative home for several months. The changes, consistent with those discussed before (see related story here), include:
- FTC splitting restrictions (effective for foreign income taxes paid or accrued after December 31, 2010);
- Removal of FTC credits related to non-US taxable income involving asset acquisitions (generally effective for acquisitions after December 31, 2010);
- Limits on deemed-paid taxes from lower-tier foreign corporations (effective after December 31, 2010);
- Eliminating “50/80 effectively connected income planning” from FTC consideration (effective after date of enactment);
- Requiring separately basketed items resourced under tax treaties (effective after the date of enactment);
- Limiting direct foreign-to-foreign deemed dividends via redemptions (effective after date of
enactment); - Repeal the “80/20 company” rules (generally effective after December 31, 2010); and
- A technical correction to the foreign compliance provisions of the Hiring Incentives to Restore Employment (HIRE) Act meant to clarify the statute of limitations provisions for corporations that fail to disclose adequate information on cross-border transactions or foreign assets.
More to come
According to a special report by Deloitte, “the international provisions in HR 1586 are not the only tax increases the business community can expect to see this year.” Deloitte also highlights a troubling precedent set by this legislation: “In the past, tax increases under PAYGO have almost exclusively been dedicated as offsets for tax cuts. In this legislation, Congress used tax increases to offset spending priorities outside of the jurisdiction of the congressional tax-writing committees.” What this means is that as Congress comes to terms with the public’s growing reticence to see further deficit spending, they will increasingly look to get the business community to pay for even “non-business — and nontax — priorities.”
The upshot for MNC treasurers is to redouble efforts to invigorate their relationships with the tax department to ensure that the next wave of in-house banking structures and shared service centers being formed carry manageable tax risks and look into the tax ramifications of any of the new structures being peddled by Wall Street. And amid reports of individual US taxpayers lining up to relinquish their passports for tax reasons, move forward quietly with inversion contingency planning.