The Tax Times: US Tax Planning After BEPS?

Thursday, June 15, 2017

US Tax Planning After BEPS?

On June 6, 2017, we posted More than 100 countries conclude the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS where we discussed that more than 100 jurisdictions have concluded negotiations on a multilateral instrument that will swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.

Then on June 13, 2017 we posted New Int'l Tax Rules May Affect US Company's Foreign Subsidiary's Treaty Benefits where we discussed that even though the U.S. participated in the negotiations over the MLI, it ultimately chose not to adopt the convention, which means that treaties the U.S. has with other countries won't be modified by the MLI. However, the tax situations of multinational U.S. corporations could still be affected because anti-abuse rules are likely to automatically kick in in jurisdictions where these companies' foreign subsidiaries are making cross-border transactions outside the U.S., experts said.

Now Taxes Without Borders posted Inbound and Outbound U.S. Tax Planning – What’s Left After the MLI? where they discuss that despite these possible changes, a number of interesting planning opportunities appear to remain and while the MLI goes a long way toward curbing the types of abusive structures it was designed to eliminate; since not all countries have signed the MLI or consistently adopted similar treaty provisions on a bilateral basis, many such structures appear to remain viable.

For example, the possible inclusion of an anti-triangular provision from the MLI in a particular treaty could prevent treaty benefits from being available (and thus result in increased withholding tax) where payments are made to a third-country permanent establishment (PE) and that PE is not subject to a sufficient rate of tax.

Many existing structures also could be adversely affected by the inclusion of certain new elimination of double taxation provisions contained in the MLI. Under these provisions, an exemption may be denied in the home country for income that “may be taxed” in the treaty partner country, with a credit being provided instead for the tax paid on such income in the other country (which may often be zero or a de minimis amount).

Need a Defendable Tax Structure?