Leveraging Earnings-Stripping Regs for Foreign Investments: Maximizing Tax Savings, Minimizing IRS Scrutiny

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, February 6, 2014

Recorded event now available

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Program Materials

This webinar will provide tax professionals and advisors with an in-depth analysis of Sect. 163(j) regulations and guidance, explore frequently faced decisions involving interest deductions, and outline key strategies.

Description

The IRS has targeted earnings stripping for heightened enforcement. This is a practice where companies reduce taxes paid by U.S. foreign-controlled domestic corporations by disguising taxable equity investments as tax-deductible loans. In situations where the company is thinly capitalized and has a high debt to equity ratio, the IRS could re-characterize the debt as equity to deny interest expense deductions for U.S. federal tax purposes.

Corporate tax professionals must stay current with all aspects of Sect. 163(j) terms for disqualification of interest paid to certain related or unrelated parties or affiliated REITs, deferral of deductions for interest payments, treatment of foreign flow-through entities, and other provisions.

Tax professionals need insight into recent developments in the area including the Tyco International Ltd. case filed in federal tax court in Aug. 2013. Tyco asserts it held valid inter-company debt owed to a related party. PepsiCo Inc. and Scottish Power Ltd triumphed over the IRS in similar cases in recent years. To get the most from interest deductions in such cases, tax professionals must grasp the impact of the court developments and IRS arguments.

Listen as our panel provides their own experiences and perspectives on Sect. 163(j) related-party interest compliance challenges. Our panel of seasoned federal tax specialists will offer current updates and best practices for planning.

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Outline

  1. Overview IRC 163(j)
    1. Deferral of deduction for interest payments, if no U.S. tax paid on interest
    2. Disqualified interest expense test
      1. To related parties not subject to U.S. income tax on interest
      2. To unrelated parties if there is disqualified guarantee of debt and interest not subject to U.S. tax
      3. Interest paid to REIT by taxable REIT subsidiary
    3. Debt-to-equity ratio safe harbor
    4. Cash flow safe harbor
  2. Government scrutiny of earnings stripping
    1. Important earnings stripping facets
      1. Using deductible interest or royalties, U.S. company makes deductible payments to parent
      2. Depending on parent location, U.S. earnings may be taxed at very low rate
  3. Important Legal Developments
    1. Tyco, U.S. Tax Court
    2. PepsiCo, U.S. Tax Court
    3. Scottish Power Ltd., U.S. Tax Court
  4. Planning Strategies available with Sect. 163(j)
    1. New Wrinkles
  5. Compliance
    1. Form 8926 (disqualified corporate interest expense disallowed under Section 163(j) and related information)

Benefits

The panel will review these and other key questions:

  • Material terms of the 163(j) regulations and administrative guidance with which you must be familiar.
  • Cases such as the Tyco, PepsiCo Inc. and Scottish Power Ltd. litigation in U.S. Tax Court and lessons you should draw from them.
  • Form 8926: Best practices for making computing and reporting decisions regarding disqualified interest.
  • Impact of continued federal scrutiny of earnings stripping and proposed changes to rules.

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Susan Conklin
Susan Conklin

Director, U.S. Inbound International Taxes at PwC
PWC

Ms. Conklin is assigned to the firm's Washington National Tax Services practice and advises foreign multi-nationals...  |  Read More

Matthew P. Moseley
Matthew P. Moseley

Alston & Bird

Mr. Moseley has a practice focused on the U.S. federal income tax consequences of domestic and cross-border business...  |  Read More

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