tax dispute resolution quarterly winter 2019 · 2020-02-27 · international’s 2016 global tax...
TRANSCRIPT
Tax Dispute Resolution Quarterly
Winter 2019
kpmg.com
IRS extends CAP
Tax dispute resolution survey report
Charting course for sales tax compliance
Transfer pricing: APAs, tariffs and prediction
International Compliance Assurance
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 1
Contents
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 2
IRS practice and procedure
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 3
By Michael Dolan and Timothy McCormally, Washington National Tax
On Aug. 27, the IRS announced both the continuation of and changes to its Compliance Assurance Process (CAP) program for 2019. Subsequent to the August announcement, the Internal Revenue Service posted on its website several documents related to the restrictions on CAP participation and the imposition of additional requirements on participants.
The highly lauded CAP program, begun as a pilot in 2005 and made permanent in 2011, provides for “real-time audits” of taxpayers—i.e., the review and resolution of tax issues through open, cooperative, and transparent interactions between the IRS and taxpayers before the filing of a return. An article in the Nov. 28 issue of Bloomberg BNA’s Daily Tax Report reviews the recent changes and makes preliminary observations about their possible effect on the CAP program.
IRS extends CAP program, modifying some requirements and signaling more significant restrictions may lie ahead
By Lynn Afeman, Rich Blumenreich, Katherine Breaks, Jason Dexter, and Cathy Fitzpatrick, Washington National Tax
This August report provides and overview of the proposed regulations (REG-104397-18) implementing changes to the additional first-year depreciation deduction (“bonus depreciation”) that were enacted as part of the new tax law known as the Tax Cuts and Jobs Act.
Proposed bonus depreciation regulations and 2018 filing season: Opportunities and pitfalls
The Treasury Department and IRS have issued proposed regulations under section 59A, the “base erosion and anti-abuse tax” (BEAT) enacted under the 2017 U.S. tax law. Regulations proposed in December 2018 provide guidance on which taxpayers will be subject to section 59A; the determination of what is a base erosion payment; the method for calculating the base erosion minimum tax amount; and the required BEAT resulting from that calculation. Read KPMG’s December 2018 report for initial impressions of the BEAT proposed regulations.
Analysis and observations about BEAT proposed regulations
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 4
Listen to professionals from KPMG’s Washington National Tax practice analyze the latest international tax guidance.
— BEAT: Are you subject to section 59A? January 10
— International aspects of section 163(j), foreign tax credit guidance December 6
— Proposed section 956 regulations November 15
— Proposed GILTI regulations September 21
TaxWatch webcasts: Latest international guidance
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 5
Enforcement trends
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 6
By Mark Martin, Mark Horowitz, and Thomas Bettge, Economic Valuation Services
Two years ago, these authors wrote an article—Medtronic v. Commissioner: A Taxpayer Win on Transfer Pricing, Commensurate with Income, and Section 367 Issues—analyzing (and generally commending) the U.S. Tax Court’s decision in Medtronic, Inc. v. Commissioner. On Aug. 16, 2018, the U.S. Court of Appeals for the Eighth Circuit vacated that decision, and remanded the case for additional factual findings. While the remand means that the Medtronic saga may still be in its early stages, an article in the August 21 issue of Bloomberg BNA’s Daily Tax Report discusses the brief Eighth Circuit opinion. The article notes that it is interesting in its own right, both for what it faults in the Tax Court opinion and for what it implicitly endorses.
How U.S. multinational corporations are managing, responding to, and evolving in today’s global tax disputes environment
Complementing the findings of KPMG International’s 2016 Global Tax Disputes Benchmarking Survey of foreign national companies, this report captures the issues facing U.S. multinational companies navigating audits and disputes with state, U.S. federal, and international tax authorities.
KPMG’s 2018 Tax Dispute Resolution Benchmarking Survey of in-house tax professionals appears to confirm the trend we’ve been seeing in tax controversies: Dispute activity with state and local tax (SALT) authorities has increased significantly. In addition, while IRS activity is not declining, its frequency and scope do not appear to be increasing as fast as SALT and foreign tax authority activity.
Clouded issues and silver linings in the Eighth Circuit’s Medtronic opinion
2018 Tax dispute resolution benchmarking survey
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 7
State & local tax
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 8
By KPMG LLP’s State and Local Tax practice
The U.S. Supreme Court’s Wayfair decision addressed when having sales in a state may indicate the taxpayer has sufficient presence—economic or virtual, if not physical—to establish a “substantial nexus” for sales tax purposes. The case’s significance income for tax purposes, however, may depend on several notable distinctions. This December article lays out the potential effect of some of the more important distinctions.
Wayfair in the context of income tax
By Harley Duncan and Jeff Cook, Washington National Tax
An article in the November 9 issue of Bloomberg BNA’s Daily Tax Report: State, discusses steps marketplace facilitators should take in order to understand their compliance obligations.
Charting a course for sales tax compliance by marketplace facilitators
By Shirley Sicilian, Raj Lapsiwala, and Sarah Vergel De Dios, Washington National Tax
As state tax agencies grapple with reducing uncertainty and smoothing the transition to the new post-Wayfair world, sales sourcing is one issue that could grow in importance, especially as new state laws and guidance take effect and begin to be enforced. An article in the October 2018 issue of the Journal of Multistate Taxation and Incentives looks at “self-fulfilling” nexus and charts states’ migration to sales-based nexus. It also illustrates how sourcing of digital goods differs by state and tax type.
After Wayfair, a focus on sourcing
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 9
In an increasingly mobile business environment, the role of the U.S. cross-border business traveler is growing. Consequently, the ability of multistate employers and their third-party providers to proactively manage the overall compliance issues associated with domestic, state-to-state, and short-term travel is vital to managing both business and regulatory demands.
To better understand current business attitudes and processes, KPMG LLP’s Global Mobility Services practice teamed with the American Payroll Association to conduct a survey of tax/payroll professionals. The results provide an in-depth look at corporate reaction by over 1,300 participating organizations to this increasingly complex and ever-changing issue.
2018 Multistate Nonresident Withholding Survey Report
As we approach the first-year anniversary of the Tax Cuts and Jobs Act, states are still formulating legislative and administrative responses to federal tax reform. In addition, over the last few months, more and more states and localities have responded to the Wayfair decision and adopted sales and use tax economic nexus standards.
During this October 24 webcast, professionals from KPMG’s Washington National Tax State and Local Tax practice discuss recent state legislation and guidance on certain aspects of federal tax reform, and provide an overview of the lay of the land post South Dakota v. Wayfair. They also address impending changes to Colorado’s local sales and use tax regimes that are expected to affect most sellers making sales of goods into the state.
TaxWatch: State reactions to tax reform and Wayfair
This report, prepared by KPMG’s State and Local Tax practice, provides a summary of state and local tax developments for 2018 in table format.
2018 summary of state, local tax changes
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 10
Global tax disputes
Corporate board oversight and governance
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 11
By Steven C. Wrappe and Cameron Taheri, Economic Valuation Services
In an article in the September 24 issue of Tax Notes International, the authors examine changes in the transfer pricing environment on both an international level and in the United States, including changes in the IRS’s approach to transfer pricing enforcement and in the advance pricing agreement process, to determine how these shifts affect taxpayers’ desire to pursue an APA in the United States.
By Luis Abad and Brian Cody, Washington National Tax, and Steven Wrappe, Economic Valuation Services
Significant new tariffs enacted by the United States and any retaliatory tariffs enacted by other countries threaten to have an immediate, material impact on the transfer pricing results of multinational companies.
Because of a lack of recent experience with intense and escalating trade disputes involving significantly high tariffs, few companies are prepared to deal effectively with the transfer pricing implications, which could be substantial. An article in the November 1 issue of Bloomberg Tax Management Transfer Pricing Report explains the interconnection between tariffs and transfer pricing and the potential challenges for multinational companies.
By Matthew Frank, Economic Valuation Services
In an Australian transfer pricing decision, Chevron Australia Holdings v. Commissioner, the Australian court took an unusual path to reach a fairly ordinary conclusion. The court focused its analysis on the predicted behavior of the taxpayer in the case rather than the general arm’s-length nature of the loan structure and pricing. An article in the October 23 edition of Law360 Tax Authority explains why this development merits attention and details measures that could shield taxpayers from similar transfer pricing adjustments in the future.
Outlook for U.S. advance pricing agreements
New tariffs affect transfer pricing resultsThe problem with prediction in transfer pricing
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 12
While compliance leaders may understand how automation can help their organizations more efficiently respond to shifting regulatory expectations and the changing risk landscape, more than half of 206 U.S. chief information officers (CIOs) and chief compliance officers (CCOs) surveyed by KPMG are not yet automating their compliance activities, according to the new KPMG report, Innovating compliance through automation. And, while 90 percent plan to increase funding for automation in the coming years, just 1 in 5 have a well-defined strategy to automate compliance in the next two years.
Forbes Insights on behalf of KPMG LLP conducted an outlook survey of 300 chief tax officers on the changing landscape of tax and its impact on business. CTOs from companies across all major industries with revenue of $500 million or more shared their views on the global economy, 2017 tax reform legislation, technology and the tax function, and the transformation of the tax function and the CTO.
Relevant results from the study include:
— The top two challenges cited by respondents (32% and 31%, respectively) are meeting reporting and compliance requirements with existing resources and identifying and implementing new technologies
— 38% say they are interacting more with boards and the C-suite, and 45% say they are collaborating more with financial executives
— 64% say they expect to make tax planning changes within the next 12 months in response to tax reform, and 27% expect to make changes in 12-18 months, and
— Only 45% say the tax function is keeping pace with innovation.
Compliance automation survey
With tax audit and dispute activity rising in almost every country, keeping up with developments is more important than ever. In this edition of Global Tax Dispute Update, you’ll find briefings on key news, events, and thought leadership from Global Tax Dispute Resolution & Controversy professionals in KPMG member firms worldwide. Staying informed can be a crucial first line of defense as you manage your disputes around the globe.
Make sure to view our past issues of Global Tax Disputes Update.
Global Tax Disputes Update— January 2019
CTO outlook in the age of tax reform and disruptive technologies
Sharon Katz-Pearlman Head of KPMG’s Global Tax Dispute Resolution & Controversy
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 13
Prompted by the noticeable increase in revenue authorities’ use of technology tools in conducting tax examinations and investigations, KPMG’s Global Tax Dispute Resolution & Controversy network undertook an internal survey of the use of technology by revenue authorities. This new technology may be used to more efficiently gather and access new information, as well as to analyze data already existing in the revenue authorities’ possession. To better understand the trends, we surveyed representatives from KPMG’s GTDR&C network of professionals and requested their insights into how revenue authorities are using technology in a variety of jurisdictions, and how multinationals are responding. Access the report to see the results.
Global tax administrations leveraging technology
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 14
OECD & BEPSKPMG comments on future revisions to OECD transfer pricing guidelines
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 15
By Francois Vincent, Brian Trauman, Steven Back, Clemence Bon, and Irina Puchkova, Economic Valuation Services
Before hailing the newly minted International Compliance Assurance Programme (ICAP) from the Organisation for Economic Co-operation and Development as a panacea to resolve problems of double taxation for multinational enterprises, the authors of an article that appeared in Tax Management Transfer Pricing Report on August 23 thought it would be useful to review and compare the ICAP’s salient features with those of other existing programs aimed at resolving double taxation.
The article provides a side-by-side comparison of various multijurisdictional tools/programs available pursuant to double tax treaties to resolve double taxation in respect of transfer pricing transactions: mutual agreement procedure, advance pricing arrangements, simultaneous tax examinations, joint audits, and ICAP. Each of these programs is reviewed as it relates to the following topics: (1) goals, (2) parties, (3) process, (4) documentation required, (5) timing, (6) availability, (7) benefits, and (8) drawbacks.
International Compliance Assurance Programme—Oasis or Mirage?
These two TaxWatch webcasts address the increasing number of tax controversies multinationals are facing around the world and how tax departments are managing this challenge.
During the September 20 webcast, on transfer pricing in a post-BEPS and post-U.S. tax reform environment, guest speakers Bryon Christensen, Associate General Tax Counsel from Microsoft Corporation, and Patricia Rexford, Senior Director of Global Tax Disputes from Johnson & Johnson, joined professionals from KPMG’s Transfer Pricing and Washington National Tax practices to discuss:
— Practical impact of BEPS and U.S. tax reform on tax audits
— Managing global controversies, leading practices
— How to proactively prepare for the coming wave of controversy
— On the October 29 webcast, professionals from KPMG’s Transfer Pricing and Tax Controversy practices discussed anticipated compliance issues, tools for ensuring controversy readiness in the wake of BEPS and U.S. tax reform, and approaches to assessing risk across jurisdictions.
TaxWatch series: International tax controversies, post-BEPS, post-tax reform
Updated regularly, this summary report in table format offers a snapshot of implementation of country-by-country (CbC) reporting and Master file/Local file documentation requirements around the world.
BEPS Action 13: Latest country implementation update
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 824120 16
Contacts
KPMG LLP’s Tax Dispute Resolution ServicesKPMG’s Tax Dispute Resolution Services network helps companies prevent, prepare for, and respond to challenges by the varying tax authorities. The network is a national team of tax professionals, who assist companies in identifying, managing, and mitigating potential tax risks and exposures.
Contributors
Luis Abad [email protected]
Lynn Afeman [email protected]
Steven Back [email protected]
Thomas Bettge [email protected]
Rich Blumenreich [email protected]
Clemence Bon [email protected]
Katherine Breaks [email protected]
Brian Cody [email protected]
Jeff Cook [email protected]
Jason Dexter [email protected]
Mike Dolan [email protected]
Harley Duncan [email protected]
Cathy Fitzpatrick [email protected]
Matthew Frank [email protected]
Mark Horowitz [email protected]
Raj Lapsiwala [email protected]
Mark Martin [email protected]
Timothy McCormally [email protected]
Irina Puchkova [email protected]
Shirley Sicilian [email protected]
Cameron Taheri [email protected]
Brian Trauman [email protected]
Francois Vincent [email protected]
Sarah Vergel de Dios [email protected]
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.
kpmg.com/socialmedia
Tax Dispute Resolution– National Leader
Sharon D. Katz-Pearlman [email protected]
Business Unit Leader EastMid-South and Chesapeake
Michael P. Dolan [email protected]
New England
Thomas D. Greenaway [email protected]
New York Metro
Sharon D. Katz-Pearlman [email protected]
Pennsylvania
Justin Donatello [email protected]
Short Hills
Miri Forster [email protected]
Business Unit Leader West
Gateway West/North Heartland
Jeffrey S. Luechtefeld [email protected]
Chicago Metro/Mid-America
Kathleen C. Schlenzig [email protected]
Dallas/Denver
Victoria J. Sherlock [email protected]
Pacific Northwest
Garrett Hahn [email protected]
Aaron Vaughan [email protected]
David R. Unger [email protected]