International Tax Services Washington Dispatch, August 2019

This edition of the ITS Washington Dispatch for August is themed all around the digital revolution and the tax implications of a digital system, including looking at how cloud transactions are classified for tax purposes.

There’s a look at comment from Emmanuel Macron, the French President, on their new Digital Services Tax, as well as how the IRS are tackling cryptocurrency issues.

There’s news on the new permissions for domestic partnerships and S corporations with regards applying Global Intangible Low Taxed Income regulations, and an examination of the court cases involving both Amazon and Altera Corporation and their implications for wider taxpayers.

This EY monthly update mainly focusses on digital tax issues. It begins with a look at the release of proposed regulation section 1.861-19, which addresses cloud-based transactions and other digital transactions. These regulations reflect an incremental approach by the Treasury to solve a host of complex tax issues related to the digital economy, including the classification of cloud transactions and the definitions of tangible and non-tangible property.

French President Emmanuel Macron has commented on the new Digital Services Tax, which entered into force into July. He stated that, if a new international tax system related to digital services was enforced then the DST would be repealed, and any payments would be reimbursed. The US believes that the tax targets certain US multinationals unfairly and has threatened tariff retaliations.

In other news, the IRS has increased enforcement efforts in the cryptocurrency space. It has begun sending letters to approximately 10,000 taxpayers with regards their cryptocurrency transactions.

The IRS has also announced that it will allow domestic partnerships and S corporations to apply the proposed Global Intangible Low Taxed Income (GILTI) regulations before 22 June 2019.

The US Circuit Court of Appeals has affirmed the Tax Court’s decision on Amazon’s case that it cannot define things such as employee experience and business culture as an intangible asset.

Finally, the IRS has withdrawn its Altera Memo Directive on cost-sharing arrangement stock-based compensation, with the Altera Memo applying for an en banc rehearing with the Ninth Circuit.

Learning outcomes

• Exploring the digital tax issues related to new regulations proposed by the Treasury as it looks at introducing ways to modernize the global tax system
• Looking at the escalating tensions between the US and France over DST and how France are willing to repeal DST should a multilateral agreement be found
• Understanding how the IRS views cryptocurrency issues and the actions it is taking to resolve them
• Looking at the court cases involving Amazon and Altera Corporation and the implications to other taxpayers