IRS today announced that U.S. taxpayers with maquiladora operations in Mexico will not be exposed to double taxation if they enter into a unilateral advance pricing agreement (APA) with Mexico’s Servicio de Administración Tributaria (SAT) under terms discussed in advance between the U.S. and Mexican competent authorities.
Maquiladoras typically operate in Mexico as contract manufacturers of foreign multinationals.
To recap in 1999, the U.S. and Mexican competent authorities reached an agreement on transfer pricing and other aspects of the tax treatment of maquiladoras of U.S. multinational enterprises. The new agreement updates and expands upon the 1999 agreement in order to reflect recent revisions to Mexican domestic tax rules governing transfer pricing rules, documentation requirements and other tax attributes of maquiladoras.
Because the transfer pricing framework adopted under SAT’s program was discussed and agreed upon with the U.S. competent authority in advance, the transfer pricing results set forth in unilateral APAs executed between SAT and Mexican affiliates of U.S. taxpayers pursuant to this program will be regarded as “arm’s length” under section 482 of the Internal Revenue Code.
In conjunction with the 1999 agreement, this announcement will provide certainty for U.S. taxpayers regarding double taxation, foreign tax credits and permanent establishments in relation to transactions with their maquiladoras. Further guidance on the U.S. taxable years and tax consequences of these unilateral APAs will be included in a forthcoming IRS practice unit.
Please contact CPA Global Tax for further information and assistance.
IRS today announced that it posted the revised FATCA regulations in the Federal register for publication.
This contains the regulations coordinating chapters 3, 4, 61, and Section 3406 of the Internal Revenue Code as well as the revised final FATCA regulations.
IRS also posted on its website the revised certain FATCA Forms. These Forms were in draft form until now:
- Form 1042
- Form 8966
- Form W-8BEN
- Instructions to Form W-8BEN
- Form W-8ECI
- Instructions to Form W-8ECI
It is important to note that the foreign entity receiving the US source FDAP income should file Form W-8BEN-E and is not eligible to file W-8BEN.
Transfer pricing audit is getting a momentum and is being perceived as a big weapon in the hands of IRS for the adjustments. IRC 482 gives immense powers to IRS for adjusting income, credits and deductions of a taxpayer where it finds that a revenue is lost due to the related party transactions that were not conducted on arm’s length standard.
The IRS’s Large Business and International division has released a roadmap providing detailed guidance on transfer audits, including audit techniques and tools to assist with transfer pricing exams, as well as an estimated timeline for the exam, insights as to how the exams will be conducted, and tips for upfront planning.
The roadmap provides the key themes and acknowledges that cases are won and lost on the facts and that enforcement of the arm’s length standard requires the exercise of judgment. As a result, the roadmap encourages IRS examiners to keep an open mind during the examination and avoid “fishing expeditions” (theories in search of facts). Ultimately, the roadmap encourages IRS auditors to determine a reasonable result under the facts and to consider that the taxpayer may have the more compelling theory regarding its situation.
It must be remembered that the roadmap is not an official guidance but a working document for the auditors in planning their audits without having to consult with the Internal Revenue Manual at all times. The roadmap would be equally helpful to the taxpayers and the IRS auditors to understand the objectives and plan for the equitable outcome.
The document can be found at http://www.irs.gov/pub/irs-utl/FinalTrfPrcRoadMap.pdf.
In the case, the taxpayer (ONGC) was an Indian resident company engaged in the exploration and development of natural oil and gas. ONGC subscribed to an online database maintained by Wood MacKenzie (WM), a U.K. resident company. The subscription, which provided information on the global oil and gas industry, required ONGC to pay a fee to WM in exchange for a license agreement that provided for an exclusive and non-transferable right to access and download information from the site. No right to sublicense was granted to ONGC under the license agreement and the use of the information was limited to what was specified in the agreement. The website was only accessible by select ONGC employees and WM provided two days of training per year to 20 ONGC employees on technical issues related to oil and gas exploration.
The Indian Income tax Appellate Tribunal ruled that the fees paid by ONCG are properly characterized as royalties, for Indian tax purposes, under both Indian domestic law and the India-UK double taxation treaty. It was therefore subject to the applicable withholding tax according to the treaty.
Number of U.S. based companies provide the database subscriptions services to the users in India. They should closely study amd monitor the case as this may have deep implications for them.
The IRS is aggressively using intelligence gathered from the agency’s Offshore Voluntary Compliance Program to study the movement of undisclosed funds abroad and to deter tax avoidance, an IRS official said February 18.
“When [taxpayers] come in and tell us about their offshore account in one bank in one country, they may tell us about another account in another bank in another country and about the bankers they used,” said Rebecca Sparkman, Acting Executive Director Investigations and Enforcement Operations Division of the IRS at the American Bar Association Section of Taxation meeting in San Diego. “As you can imagine we start looking at all that intelligence and it points the way for the next criminal investigation.”
Although her comments had undertones of the recent indictment of Wegelin & Co., Switzerland’s oldest private bank, she declined to speak directly on any specific matter. The bank has been charged with aiding tax offenders move their undisclosed accounts from UBS.
“We want to assure you that we are reviewing all the information that comes in from your clients to match up [and provide direction on] where we should look next,” she said.
She cautioned practitioners to be fully truthful when bringing their clients into compliance.
“Please be fully, fully truthful,” she told the audience. “Because there may be those folks that are tempted to only disclose that account in that one bank that they think we know about in that one country because they think we don’t know about [an account] somewhere else. But guess what? They come in, they come through the whole program, we get their name on a list for some other bank, some other country, all bets are off! Now they are facing criminal investigation because they were not fully truthful.”
Sparkman stressed that the time to come forward with all offshore account information is at the time a voluntary disclosure is made, not subsequently.
“When you walk in the door, that is the time to be fully truthful,” she said. “Don’t be hiding anything else.”
The Treasury Department, in a joint statement with five European countries, said on Feb. 8 that the nations intend to pursue a government-to-government framework for implementing the Foreign Account Tax Compliance Act (FATCA).
Treasury sees this as a key step “toward addressing legal impediments” faced by financial institutions in complying with proposed FATCA regulations that were published on Feb. 8. “The statement does not contemplate an exemption from FATCA for any jurisdiction, but instead offers a framework for information sharing pursuant to existing bilateral income tax treaties and allows FFIs [Foreign Financial Institutions] to report the necessary information to their respective governments rather than to the IRS,” Treasury said. The countries that joined in the statement were France, Germany, Italy, Spain and the United Kingdom. In the joint statement, the U.S. acknowledged that the policy objective of FATCA centers on enhanced reporting rather than collecting withheld tax.
The U.S. also affirmed its willingness to reciprocate in the collection and exchange of information on accounts held in U.S. financial institutions by residents of the five European countries. In addition, the joint statement cited the need to keep compliance costs as low as possible and the desirability of achieving common reporting and due diligence standards. Based on these considerations, the countries “have agreed to explore a common approach to FATCA implementation through domestic reporting and reciprocal automatic exchange and based on existing bilateral tax treaties,” the joint statement said. The document also offers a possible framework for an intergovernmental approach that provides a valuable insight into Treasury’s thinking on the subject.
PALO ALTO—U.S. participation in exchange of information agreements does not mean that the Internal Revenue Service automatically releases taxpayer information to any nation that requests it, Douglas O’Donnell, IRS assistant deputy commissioner (International), said on Jan. 20.
“Every country that’s on the receiving end of a specific request is paying very close attention to the narrative of the story that is being told by the requesting jurisdiction,” he told attendees at the 2012 Pacific Rim Tax Institute. That way, he said, countries“know whether they have met the standard to request the information.”
Since the Group of 20 launched its global initiative in 2009 to safeguard the international financial system through improved transparency, more than 700 additional EOI agreements have been signed and 81 nations—including the United States—have undergone peer reviews, O’Donnell said.
Courtesy – thetaxtimes.blogspot.com