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IBM’s Alien Affiliates • O-Zone Regulations • Crypto Reporting

Jan. 11, 2020, 3:00 PM

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 look at royalties paid by IBM’s “alien affiliates"; what stood out in the final opportunity zone regulations; the risk of not reporting virtual currency transactions; the benefits of leasing instead of buying; country-by-country reporting—or not—in the EU; CFC legislation in Italy; what executives need to worry about in their compensation packages; the negatives of required retiree minimum distribution rules; and international investment in Ireland. We’ll hear from:

  • Robert Willens on IBM’s New York tax bill for excluded royalty payments
  • Forrest Milder of Nixon Peabody on the highlights of the voluminous final opportunity zone regulations
  • Alan Winston Granwell, Andrea Darling de Cortes, and Alexander R. Olama of Holland & Knight on the IRS’s scrutiny of virtual currency transactions
  • Joe Sebik of Siemens on how the 2017 tax law made it preferable to lease rather than buy business equipment
  • Andrew Parkes of Andersen Tax on whether EU member states can ever agree on country-by-country reporting
  • Giovanni Rolle of WTS Global, Italy, on the Italian controlled foreign company legislation
  • Dan Morgan of Blank Rome on what executives need to be concerned about in their compensation
  • William Wang of U.C. Hastings on why required minimum distribution rules don’t make sense for retirees or the government coffers
  • Andrew Quinn, William Fogarty, and Lynn Cramer of Maples Group on the impact of the Irish Finance Act of 2019 on international investment
CeBIT 2017 tech fair in Hannover, Germany.
Photographer: Krisztian Bocsi/Bloomberg

IBM owes $64.6 million in New York state corporate franchise taxes for royalties paid by foreign affiliates, according to a state administrative court. Robert Willens says the decision eschewed the literal language of what appears to be an unambiguous statute. Read: IBM Can’t Exclude Royalty Payments From New York ‘Entire Net Income’

Forrest Milder of Nixon Peabody LLP walks us through highlights of the recently finalized Opportunity Zone regulations under tax code Section 1400Z-2. He praises the IRS for including a great deal of flexibility in these regulations, but he also cautions that many technical and transition rules will require very careful reading and application. Read: Highlights of the Final Opportunity Zone Regulations

Virtual currency transactions are coming under intense scrutiny by the Internal Revenue Service. As a result, U.S. persons who have engaged in virtual currency transactions and failed to properly report or pay tax on them should become U.S. tax compliant or face serious civil or criminal consequences. Alan Winston Granwell, Andrea Darling de Cortes, and Alexander R. Olama highlight what taxpayers need to know. Read: Virtual Currency—The Taxman Is Coming

In a previous Bloomberg Tax Insight, Bill Bosco of Leasing 101 explained why leasing is usually preferable to buying for most businesses. Joe Sebik of Siemens Corp. follows up with a lease-versus-own analysis from a tax perspective. Read: The Effect of Tax Reform on Equipment Financing

Andrew Parkes of Andersen Tax U.K. discusses how 12 EU countries, including Ireland, have blocked a proposed new rule that would have forced multinational companies to reveal how much profit they make and how little tax they pay in each of the 28 member states. Read: Country-by-Country Reporting—Can Member States Ever Agree?

The Italian CFC legislation has been amended, with effect from 2019, in order to implement the Anti-Tax Avoidance Directive (ATAD). Giovanni Rolle of WTS Global, Italy, looks at the main innovations and the departures from the EU implemented provisions. He also discusses whether, on the basis of the resulting rules, a solution can be envisaged for the unsolved issue of double taxation of CFC income in the case of indirect shareholdings. Read: New ATAD-based CFC Regime in Italy

As the new year begins, executives have a few things to be concerned about regarding their compensation packages in 2020. Dan Morgan of Blank Rome says these concerns include Democratic presidential candidate proposals, pending lawsuits challenging compensation packages, and changes to retirement plan minimum distribution rules. Read: Some Things For Executives to Be on the Lookout For in 2020

Traditional 401(k) plans and individual retirement accounts may be a positive-sum game. William K.S. Wang of U.C. Hastings College of Law explains how repeal of retiree required minimum distributions may increase government revenue. Read: Repeal of Retiree Required Minimum Distributions May Increase Government Revenue

Andrew Quinn, William Fogarty, and Lynn Cramer of Maples Group look at the measures in the Irish Finance Act that impact international investment and securitization structures located in Ireland. Read: Irish Finance Act 2019—a Practical Guide

From the Archive

Bloomberg Tax contributors have been keeping us abreast of how various jurisdictions are addressing the tax treatment of royalties paid between related parties.

The General Court of the European Union recently annulled the European Commission’s decision that Starbucks’ advance pricing agreement with the Netherlands constituted unlawful state aid. Monique van Herksen of Simmons & Simmons explained why the outcome was not as reassuring as it might appear.

The Swiss legislature adopted tax reform at the federal level in May. The legislation included a patent box that allows for a tax benefit to be derived from the patent’s income. Fabian Berr, Nate Zahnd, and Niloufar Najafi of Ernst & Young LLP in Switzerland examined what the legislation means for multinational enterprises and the transfer pricing implications.

Beyond Tax

What’s happening outside the world of tax?

Perceptions of cronyism in partner pay structures is real. Consultant Hugh A. Simons looks at findings from a Major, Lindsey & Africa’s Partner Compensation Survey and suggests leaders use profit pools to circumscribe explicitly the funds over which they exercise discretion, and to articulate how the rewards are drawn. One benefit is that it enables a successful junior partner to earn more than senior partners. Read: Grumpy Partners and the Case for ‘Multi-Pool’ Comp Systems

A New York state law on hemp products takes effect in March, but don’t expect crystal clarity just yet, write Perkins Coie attorneys. They look at the new law, discuss regulations to come, and point out the differences between state and New York City regulation of CBD products, especially food and beverage products. Read: CBD in New York—Differences in State, City Regulation Leave Questions

DOJ’s April guidance to prosecutors on corporate compliance shouldn’t be viewed as a complete list of risk areas for companies. Miller & Chevalier’s Danny Wendt says companies would be wise to add FCPA-related M&A risks for share sales, asset disposals, and market exits to their array when conducting risk assessments, designing policies and procedures, and more. Read: Key M&A Risks Missing From DOJ Guidance on Corporate Compliance

Experts are predicting 2020’s IPO market will grow, leading to a bigger emphasis on the role of the general counsel in preparing for successful exits. Chris Young, general counsel at Ironclad, draws lessons from the WeWork IPO, examines “legal debt” incurred in preparing for business exits, and offers suggestions for leadership and general counsel on proper strategy for managing it going forward. Read: Lessons from WeWork—2020 Will Be the Year Start-Ups Recognize Legal Debt

Exclusive Content for Bloomberg Tax Subscribers

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Rental real estate activities may or may not qualify for the deduction under tax code Section 199A depending on whether they qualify as a trade or business. James M. Kehl of Weil, Akman, Baylin & Coleman, P.A. examines how IRS Revenue Procedure 2019-38 provides a safe harbor for some real estate enterprises.

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.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

To contact the editor responsible for this story: Yuri Nagano at ynagano@bloombergtax.com

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