US fiscal Budget proposals for 2016 have brought some changes to the Internal Revenue Code (IRC) with respect to tax administration and compliance.
The key proposals include:
- Restricted deductions of excessive interest expenses by members of financial reporting groups with a provision of unlimited carry forward of disallowed interest expenses and 3 years for excess limitation amounts.
- Provision of tax credit equal to 20% of the expenses relating to in sourcing a US trade or business.
- Subjecting foreign earnings of a CFC or branch of a US corporation to current US taxation at a rate of 19% reduced (but not below zero) by 85% of the per-country foreign effective tax rate applicable to such CFC or branch.
- Imposing a one-time 14% tax on earnings accumulated in CFCs and not previously subject to US tax, with a partial credit permitted for foreign taxes associated with such earnings, in connection with the transition to the 19% minimum tax.
- Limiting shifting of income through intangible property transfers under the transfer pricing rules of IRC section 482 and the outbound transfer rules of IRC section 367(d).
- Allowing a dual capacity taxpayer (i.e. a taxpayer that is subject to a foreign levy and that also receives a specific economic benefit from the levying country) to treat as a creditable tax the portion of a foreign levy that the taxpayer would pay if it were not a dual capacity taxpayer.
- Extending IRC section 338(h)(16) to any covered asset acquisition (CAA) as defined in IRC section 901(m) (i.e. transactions that are treated as asset acquisitions for US tax purposes but the acquisition of an interest in an entity for foreign tax purposes).
- Reducing the amount of the foreign taxes paid by a foreign subsidiary for purposes of the US indirect FTC (i.e. reducing the foreign tax pool) if the earnings and profits (E&P) of the subsidiary are reduced other than by reason of a dividend or other than by reason of IRC section 381.
