International Tax Services Washington Dispatch, July 2019

This edition of the ITS Washington Dispatch for July dives into the four amended US trade protocols with Luxembourg, Switzerland, Japan and Spain. It covers the delays in the Senate and what the newly approved protocols mean for international trade, as well as the outstanding agreements still to be finalized.

There’s a look at the US’ decision to investigate France’s new Digital Services Tax, and an overview of new finalized regulations from the IRS on PFIC and allocating creditable foreign tax expenditures in partnerships.

Finally, there’s a look at the IRS sending letters to anyone deemed to have failed to declare their virtual currencies, and a look at why Altera Corporation is looking to have their case of cost sharing reheard by the Ninth Circuit.

This EY monthly update starts with a look at the consent given by the US Senate to amend four US tax treaties with four countries. These include the 2009 Luxembourg Protocol, the 2009 Swiss Protocol, the 2013 Spanish Protocol and the 2013 Japanese Protocol.

Some of these have been delayed in the Senate for almost a decade, and now only minor barriers stand before entry-into-force expected in the coming months.

In digital taxation news, the US has upped the ante against France’s implementation of its new Digital Services Tax. The US Treasury has announced a hearing into the tax, with an adverse finding laying the groundwork for retaliatory action on the behalf of the US, such as imposed tariffs.

The Treasury and IRS have issued proposed regulations under the Passive Foreign Investment Company rules, which clarify which exclusions from passive income are relevant for PFIC purposes and which other rules need to be applied in PFIC cases.

The IRS has also published final regulations under Section 704(b) related to the allocation of creditable foreign tax expenditures by a partnership. These adopt, with minor changes, the temporary regulations that were published in February 2016.

Anyone who owns virtual currency that may have failed to report their cryptocurrency dealings will have received a letter from the IRS in July. And finally, the Altera Corporation has filed a petition for a rehearing of its cost sharing cast in the Ninth Circuit. A decision is due by next month.

Learning outcomes

• Understanding of the four amended tax protocol agreements between the US and Luxembourg, Switzerland, Japan and Spain respectively and what these amendments mean
• Viewing the potential issues caused by France’s new Digital Services Tax and ramifications of the US investigation
• Examining new regulations imposed by the IRS on PFIC and the allocation of creditable foreign tax expenditures for partnerships
• Looking at how the IRS is attempting to tackle non-declaration of virtual currencies
• Gaining an overview of the Altera Corporation’s appeal for a rehearing of their case on cost sharing