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UK Tax Round Up: December 2018

Season’s greetings from Proskauer’s UK tax team and welcome to the December edition of the Tax Round Up. Following the Autumn Budget and draft Finance Bill last month, this month has been comparatively quiet with very few significant announcements.

Please view this month’s issue of the UK Tax Round Up.

Tax Reform: UBTI Guidance on Qualified Transportation Fringe Benefits

From Proskauer’s Not For Profit / Exempt Organization Blog, a discussion of recent IRS guidance and New York State legislative relief on Internal Revenue Code 512(a)(7), added by the Tax Cuts and Jobs Act (“TCJA”)…

Inclusion of Qualified Transportation Fringe Benefits in UBTI: Guidance, Relief, and Rumors of Possible Repeal

FATCA: Significant Relief in New Proposed Regulations

On December 13, 2018, the Internal Revenue Service (the “IRS”) and the U.S. Department of the Treasury (the “Treasury”) issued proposed regulations (the “Proposed Regulations”) addressing various aspects of the withholding and information reporting regime commonly referred to as “FATCA”.[1] The Proposed Regulations provide significant relief from potential withholding and compliance burdens that U.S. and non-U.S. financial institutions would otherwise be subject to under FATCA. The preamble to the Proposed Regulations announces that taxpayers may generally rely on the Proposed Regulations pending issuance of final regulations.

Read this post for a brief background of FATCA and a discussion of the most important aspects of the Proposed Regulations. For more information please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact. Continue Reading

U.S. Tax Reform: IRS Proposes Interest Deduction Limitation Regulations

On November 26, 2018, the Internal Revenue Service (the “IRS”) and the U.S. Department of the Treasury (the “Treasury”) issued proposed regulations (the “Proposed Regulations”) under section 163(j) of the Internal Revenue Code (the “Code”).[1]  Section 163(j) limits the deductibility of net business interest expense to 30% of “adjusted taxable income” plus “floor plan financing interest expense” for taxable years beginning after December 31, 2017.

The Proposed Regulations generally apply to taxable years ending after the date the Proposed Regulations are published as final regulations. However, taxpayers may elect to apply the Proposed Regulations retroactively to a taxable year beginning after December 31, 2017 so long as the taxpayer and any related parties consistently apply the Proposed Regulations to those taxable years.

This post provides background and a general summary of some of the most important aspects of the Proposed Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact.  Click to read more about the Proposed Regulations. Continue Reading

Impact of Proposed Regulations under Section 956 on Lending Arrangements Involving U.S. Corporate Borrowers

Introduction

On October 31, 2018, the U.S. Treasury Department (“Treasury”) and the Internal Revenue Service (the “IRS”) proposed new regulations (the “Proposed Regulations”)[1] that are likely to allow many controlled foreign corporations (“CFCs”)[2] of U.S. multi-national borrowers to guarantee the debt of their parents and to allow the U.S. parent to pledge more than 66 2/3% of the voting stock of the CFC (and to have the CFC provide negative covenants), all without causing the U.S parent to recognize deemed dividend income under Section 956 of the Code.[3] Specifically, the Proposed Regulations will exempt a corporate “United States shareholder”[4] of a CFC from including its pro rata share of a CFC’s earnings attributable to an “investment in United States property” (a “Section 956 deemed dividend”) as income to the extent that such deemed dividend would be excluded from income if it was paid as an actual dividend under Section 245A.  However, there will remain certain situations where Section 956 will still trigger deemed dividends.[5]  Although the Proposed Regulations are proposed only (and may be amended before being finalized), corporate U.S. borrowers may rely on them so long as the borrower and all parties related to the borrower apply them consistently with respect to all CFCs of which they are United States shareholders.[6]

Continue Reading

Summary of the Opportunity Zone Program

The Tax Cuts and Jobs Act enacted section 1400Z-2 of the Internal Revenue Code, which created the qualified opportunity zone program. The program is designed to encourage investment in distressed communities designated as “qualified opportunity zones” by providing tax incentives to invest in “qualified opportunity funds” (“opportunity funds”) that, in turn, invest directly or indirectly in the opportunity zones.

The qualified opportunity zone program generally offers three potential tax benefits to investors:

First, a taxpayer may elect to defer tax on capital gain from the sale or exchange of property with an unrelated person by investing the gain as equity in an opportunity fund within 180 days after the sale or exchange.  The deferral ends on December 31, 2026, or sooner if the taxpayer sells its interest in the opportunity fund, and at that time the taxpayer must recognize the gain (and pay tax) with respect to the original property.

Second, if the taxpayer holds its interest in an opportunity fund for five years, it can step up its basis in the opportunity fund by an amount equal to 10% of the deferred gain with respect to the original property and, if the taxpayer holds its interest in the opportunity fund for seven years, it can step up its basis in the opportunity fund by an amount equal to an additional 5% of the deferred gain with respect to the original property (for a total of 15%). The stepped up basis reduces the amount of gain recognized by the taxpayer at the end of the deferral period.

Finally, if the taxpayer holds its interest in the opportunity fund for at least 10 years, it can step up its basis in its interest in the opportunity fund to the fair market value of the interest on the date the interest is sold (enabling the taxpayer to eliminate income tax on any post-acquisition capital gain in its opportunity fund interest, including any capital gain attributable to leverage incurred by the fund).

An in depth discussion of the opportunity zone program and the proposed regulations can be found here: https://www.proskauer.com/report/irs-and-treasury-issue-proposed-opportunity-zone-regulations.

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