Reconciling U.S.-Foreign Intercompany Accounts to Avoid Taxable Deemed Dividends Under Section 956

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

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Conducted on Wednesday, December 9, 2015

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Course Materials

This course will provide corporate tax professionals with a deep dive into the complex and often neglected process of reconciling intercompany payables and receivables between a U.S. company and a controlled foreign subsidiary. The panel will discuss important but easily overlooked steps to properly record intercompany accounts to avoid negative tax consequences in the form of deemed dividends in cases where the accounts are not properly cleared.

Description

An important task for corporate tax professionals is annually reconciling and clearing intercompany A/R and A/P balances. Many companies carry forward intercompany balances between the U.S. parent and its foreign subsidiaries from year-to-year, leading to a potentially taxable “deemed dividend” under IRC Section 956. Unanticipated tax consequences can result from failing to maintain these intercompany accounts.

One situation that can trigger a deemed dividend occurs where the U.S. parent company books a net payable from a foreign subsidiary, and the payable remains outstanding beyond normal payment terms. In these circumstances, the payable may be considered a loan from the foreign subsidiary to the U.S. company. This loan is treated as a taxable deemed dividend because it is viewed as a repatriation of money to the U.S.

While much attention is given to structuring intercompany transactions, improper management of intercompany balances often impacts U.S. companies’ tax provisions as well as their actual tax liabilities. Tax professionals must understand the rules to avoid a costly deemed dividend, as well as know best practices for maintaining these intercompany accounts.

Listen as our experienced panel of tax experts provides a thorough exploration into how to properly maintain and manage intercompany balances using tools such as an enterprise resource planning (ERP) system, and presents guidance on what must be done to avoid deemed dividend tax consequences.

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Outline

  1. Intercompany receivables for U.S. parent company
  2. Avoiding deemed dividends
  3. Use of ERP systems
  4. Case study

Benefits

The panel will discuss these and other important questions:

  • Which accounts and transactions can trigger deemed dividends if not maintained?
  • What are threholds for avoiding Section 956 deemed dividend treatment?
  • How best to avoid substance over form issues?
  • How to maintain intercompany balances to conform to Section 956 requirements?

Faculty

Lewis J. Greenwald
Lewis J. Greenwald
Partner
Mayer Brown

Mr. Greenwald's practice is focused on providing international tax planning for multinational clients. He...  |  Read More

Skinner, William
William R. Skinner
Partner
Fenwick & West

Mr. Skinner focuses his practice on U.S. international taxation, with a particular emphasis on tax planning and...  |  Read More

Paul K. Marineau
Paul K. Marineau
Principal
Global Tax Consulting

Mr. Marineau is a Professor at Thomas M. Cooley Law School where he teaches International Tax–Outbound and...  |  Read More

Giardelli, Lucas
Lucas Giardelli
Mayer Brown

Mr. Giardelli's practice is focused on international tax planning (including controlled foreign...  |  Read More

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