The Department of the Treasury submitted proposed regulations to the Federal Register that would revise the rules relating to investments in U.S. property under section 956 to reflect changes enacted in the Tax Cuts and Jobs Act.[i] Treasury and the Internal Revenue Service (IRS) determined that, following the enactment of the participation exemption system set out in section 245A, a broad application of section 956 to corporate U.S. shareholders would be inconsistent with the purposes of the section and the scope of transactions it is intended to address. The IRS notice stated, “The proposed regulations exclude corporate U.S. shareholders from the application of section 956 to the extent necessary to maintain symmetry between the taxation of actual repatriations and the taxation of effective repatriations.”[ii]
UK Digital Tax:
The United Kingdom has announced that it will impose a Digital Services Tax (DST) beginning in 2020. According to the UK 2018 Budget, the DST would impose a two percent tax on the revenues of digital businesses. Specifically, the proposal would apply to “search engines, social media platforms, and online marketplaces.”[iii] Her Majesty’s Treasury contends that the DST is warranted because these companies create significant value from the participation of their UK-based users.
Ways and Means Chairman Kevin Brady issued a stern rebuke of the move, stating the targeting of “American companies for taxation that is inconsistent with international norms is a blatant revenue grab.”[iv]
Her Majesty’s Treasury made an infographic which illustrates Brady’s point.
EU Digital Tax:
Next week, European Union finance ministers will meet to discuss a proposal on an EU-wide digital tax. They will try and persuade reluctant member governments to agree on a plan by the end of the year. In March, the European Commission proposed a plan that would charge a three percent levy on the digital turnover of large digital firms such as Facebook and Google.[v] While some of the large EU members are pushing for a quick introduction of the proposal, smaller members are opposing the measure fearing it would cut into their tax revenues. The Austrian government, which holds the EU Presidency, is proposing a “fixed expiry date” on the tax. EU finance ministers will meet on November 6th to discuss the new Austrian option on the tax.