post Monday October 22, 2012
The United States’ forthcoming rules on the cross border transfer of intangibles under the tax code 367(d) will include guidelines under a recent high profile notice targeted at stopping tax-free repatriations and will contain a sizeable component that addresses transfer pricing issues.
The guidance project will incorporate notices 2012-39, 2012-31 I.R.B 95, which are aimed at curbing tax free repatriations of cash without income recognition.
According to Ronald Dabrowski and Brenda Zent from the IRS and Treasury Office of international Tax Counsil respectively, say that transfer pricing issues that will be addressed include questions related to foreign goodwill. As John Peterson of Baker & McKenzie noted, Section 367(d) incorporates section 936(h)(3)(B) intangibles, but there is a disagreement as to whether goodwill falls under that category, the IRS claims it does whereas tax payers say it does not.
Notice 2012-39 aims to stop repatriations without income as key focus yet it also addresses other important pressure points within the tax code on outbound transfer of intangibles, says Dabrowski. He further adds that “the repatriation element is not to be dismissed here, but the notice is broader, and it’s hitting a lot more transactions’.
The notice will address deemed royalties in outbound intangibles transfers, as existing rules do not deal with what happens when there is “boot” in a reorganization that led to the transaction issue. Things like deemed royalty which is a kind of payment for the intangible, and boot paid, which is also a payment for the use of the intangible, need to be coordinated.
Another area of focus is the question of preserving assets and gain in these transactions.
The two officials discussed the guidance project at the luncheon sponsored by Bloomberg BNA Tax & Accounting and hosted by Buchanan, Ingersoll & Rooney.
Source: BNA Transfer Pricing Report
Image Source: Free Digital Photos
