Accidental Americans • Costly Intragroup Sales • Digital Taxes

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, and Daily Tax Report: International.

This week we will hear about potential U.S. tax pitfalls for people who never were or ceased to be U.S. citizens; the possible costs in combining two subsidiaries; the permutations in taxing the digitalizing economy; the trade war threat to cross-border transactions; and a regulatory defeat for the IRS.

• Alan Winston Granwell, Andrea Darling de Cortes, and William M. Sharp Sr. of Holland & Knight LLP on the new IRS procedure for “Accidental Americans” to become tax compliant
• Riccardo Gambineri of Crown Global Insurance Group on possible estate tax liability for foreign investors in U.S. equities
• Steve Jackson, Christopher Nelson, and Jillian Symes of Ernst & Young LLP on how an intragroup sale could be anything but a bargain
• Simon Webber of Duff & Phelps on the pros and cons of some of the approaches being considered to tax the digitalizing economy
• Barbara Angus and Luis Coronado of Ernst & Young LLP on what the OECD’s work plan on the digitalized economy means for your business
• Robert Willens on Mayo Clinic’s victory over the IRS to maintain its tax-exempt status as an “educational organization”
• Adrienne Braumiller, Vicky Wu, and Megan Mohler of Braumiller Law Group on how to deal with the uncertainty of a trade war

A wall-mounted monitor in Google’s new Berlin office. International tax experts continue to evaluate the OECD’s proposals on taxing the digital economy.

Photographer: Krisztian Bocsi/Bloomberg

The IRS has provided a path for U.S. expatriates—here “Accidental Americans”—to become tax compliant. Alan Winston Granwell, Andrea Darling de Cortes, and William M. Sharp Sr. of Holland & Knight LLP walk through who is eligible and what an expatriate needs to do to take advantage of the program. Read: New IRS Procedure Provides Favorable Path for Non-Compliant Expatriates to Become Tax Compliant

Many non-U.S. investors mistakenly assume U.S. estate tax applies only to property physically located in the U.S., such as real estate. Riccardo Gambineri of Crown Global Insurance Group LLC explains how the heirs of foreign investors could find themselves with tax liability for U.S. equities. Read: The Often Unknown Tax Liability Facing Foreign Investors in U.S. Equities

Multinational corporations need to restructure from time to time and sometimes find it expedient to combine operations in the same country by selling one company to another. Steve Jackson, Christopher Nelson, and Jillian Symes of Ernst & Young LLP show how tax code Section 304 could make that sale anything but a bargain. Read: When a Sale Might Not Be a Bargain

The OECD’s May 2019 proposals on the taxation of the digital economy—frequently referred to as “BEPS 2.0"—are potentially a considerable departure from existing international taxation norms. Simon Webber of Duff & Phelps looks at some of the approaches being considered and what the author views as the short-sighted focus on U.S. Internet companies. Read: Considering Some of the Issues and Proposals in the Digitalizing Economy Tax Debate

The OECD’s 2019 workplan on addressing the tax challenges of the digitalized economy looks set to be a major overhaul of the international taxation system. It will have a far-reaching impact on multinational enterprises, whether or not they are heavily involved in digital business, as Barbara Angus and Luis Coronado, of Ernst & Young LLP, discuss. Read: What Does BEPS 2.0 Mean for Your Business?

Another taxpayer—Mayo Clinic—has successfully challenged an IRS regulation at the trial court level. Robert Willens describes how Mayo Clinic fought the IRS’s assertion that the institution was required to have formal instruction as its primary function to qualify as an “educational organization” eligible for tax-exempt treatment despite the lack of such a requirement in the statute. Read: Mayo Clinic Is an ‘Educational Organization’

President Trump’s trade war with China continues. What options do businesses importing and exporting have in this period of uncertainty? Adrienne Braumiller, Vicky Wu and Megan Mohler of Braumiller Law Group look at some possible solutions. Read: Trade Wars—Global Protectionism as a Threat to Cross-Border Transactions

From the Archive

Bloomberg Tax contributors have been analyzing the OECD’s proposals for taxing the digitalized economy since the release of “BEPS 2.0" in May.

Digitization has created a new dynamic when considering the taxation of remote sales, which has had a direct impact on transfer pricing models and the remuneration of local sales and marketing activities. In an effort to understand local transfer pricing perspectives, KPMG LLP collected feedback from 26 KPMG International Member Firms to understand the extent to which a cost-plus transfer pricing remuneration for marketing support services would be challenged in today’s environment from a local transfer pricing perspective. Doreen Liu, Prita Subramanian, and Nicholas Stavrakis provided the key insights from that survey. Read: Cost-Plus Transfer Pricing for Marketing Support Services Between BEPS 1.0 and BEPS 2.0

The OECD digital tax project may produce a political agreement in 2019 or 2020 on how to allocate a multinational business’s profits among the countries touched by that business. Jefferson VanderWolk of Squire Patton Boggs (US) LLP said if the formula is just based on countries’ relative bargaining power as of mid-2020 there is a risk that a future government in a market country could turn the dials of its allocation formula to bring in more tax revenue from nonresident multinationals. Read: Global Tax Policy—What is the Best Alternative to Uncoordinated Unilateral Tax Measures?

Beyond Tax

What’s happening outside the world of tax?

Trends in the global merger and acquisition market point to slowdowns with China and Europe, but that could be a boon for U.S. deals, write Alston & Bird attorneys. They say the decrease in cross-border and inbound M&A will leave open additional opportunities for U.S. companies at home. Read: Global M&A Decline Creates Domestic Opportunities in U.S.

A dynamic political landscape and recent public comments from law enforcement confirm that anti-corruption efforts remain a priority throughout the Americas. King & Spalding attorneys examine trends and enforcement actions by U.S. authorities against Latin American entities. Read: Watching U.S. Anti-Corruption Efforts in Latin America

The NLRB is misguided in its proposed rule defining joint-employer status. NYU Law Professor Samuel Estreicher and coauthor Sara Spaur find that under the common law decisions antedating the New Deal actual control is not required for employer status, and contractual reservation of authority is sufficient. Read: Right to Control and Employer Status—Is Actual Control Required?

Watching the Democratic primary debates made PP&C Consulting’s Yolanda Castusciello think about how law firms similarly vie for attention and rankings through legal directories. The author admits the analogy is faulty, but she lays out lessons for law firms when making their case for distinctiveness to researchers. Read: Law Firm Rankings and Five Lessons From the Democratic Primaries

Interstate commerce of cannabis is illegal. But what if that changes? Reed Smith’s Marc Hauser looks at recent court decisions that touch similar issues and offers cannabis companies some tips for preparing for an unknown future post-legalization. Read: Envisioning the Future of the Cannabis Interstate Commerce

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Section 4968, which was added to the tax code by the Tax Cuts and Jobs Act, imposes an excise tax of 1.4% on the net investment income of certain private colleges and universities with endowments valued at $500,000 or more per student. On June 28 the Treasury Department and the IRS released proposed regulations for determining the new excise tax. Preston J. Quesenberry and Randall S. Thomas of KPMG LLP say the guidance was much needed, as most colleges and universities that are subject to the tax will have to make their first payments of the excise tax in November. Unfortunately, the proposed regulations provide these institutions with relatively little guidance on how to calculate the tax.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute please contact Erin McManus at emcmanus@bloombergtax.com.