TEI Detroit
Chapter
International
Topics
April 29, 2014
AGENDA
8:30 – 8:45
Welcome Comments General Overview
8:45 –9:45
Compliance and Reporting Update (Holland/Yuldasheva)
9:45 –10:45
Cross Border M&A Update (Bodoh/Feinberg)
10:45-11:00
BREAK
11:00—12:00
Breakout--FTC Refresher (Shein) OR E&P and Hovering Deficits
(Jackman/Stoffregen)
12:00—1:00
Lunch
1:00—1:45
Hot Topics (Wallace/Kohler)
1:45—2:30
Breakout --India/China (Tan/Shah) OR Mexico/Brazil (Ramirez/Mello)
2:30—2:45
BREAK
2:45—3:30
FATCA Common Issues with Implementation (Riccardi/Wallace)
3:30—4:30
BEPS—Recent Discussion Drafts and Public Consultations
(Corwin/Blessing)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
1
Tax Executives Institute
International Tax Session:
Compliance and Reporting
Refresher and Update
Michigan State University
Management Education Center
Troy, Michigan
April 29, 2014
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS
ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without
limitation, the tax treatment or tax structure, or both, of any transaction described in the associated
materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax
analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to
change. Applicability of the information to specific situations should be determined through
consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Panelists
Douglas Holland
KPMG WNT
Washington, D.C.
International Tax
Senior Manager
(202) 533-5746
dholland@kpmg.com
Aziza Yuldasheva
KPMG WNT
Washington, D.C.
International Tax
Senior Manager
(202) 533-4547
ayuldasheva@kpmg.com
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Agenda

Tax-free transactions - common international compliance disclosures and elections
for outbound, inbound, and foreign-to-foreign:
 Section 351 transfers
 Section 368 reorganizations
 Section 332 liquidations

“Current Events”
 Changes to Form 5471
 Section 1298(f) reporting
 120 day response requirement for reasonable cause
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Part I: U.S. Tax Reporting for
Cross-Border Restructurings
8
Suggested Approach to International Restructurings

First step – What is Sub C characterization of transaction?
 Section 351 Exchange

Property, stock, control
 Section 368 Reorganization (asset or stock)

Statutory requirements (Section 368(a)(1)…)

Non-statutory requirements (COBE, COI, BP, Plan of Reorg.)
 Section 332 Liquidation

Stock ownership, plan of liquidation
 Section 355 Distribution
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
Suggested Approach to International Restructurings
(Cont’d)

Step two – What category of transaction?
 Outbound transfer
 Inbound transfer
 Foreign-to-foreign transfer

Step three – What are the relevant Section 367 provisions or regulations?

Step four – Any other relevant cross-border rules?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
Key Provisions of Section 367

Section 367(a)
 Outbound transfers of tangible assets and stock or securities (Sections 351, 354,
and 361)

Section 367(b)
 Foreign-to-foreign transactions (Sections 351, 354, and 361)
 Inbound transactions (Sections 332, 354, 361, and 355)

Section 367(d)
 Outbound transfers of intangibles (Sections 351 and 361)

Section 367(e)
 Outbound* and foreign-to-foreign Section 332 liquidations and outbound* Section
355 distributions

(*These “outbound” transfers are really an “inbound” fact pattern: a U.S.
corporation making tax-free distribution to its foreign shareholders)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Part IA: Section 351
Transfers
12
Section 351 Exchange
No gain unless boot
(351(a), (b))
Parent
“stock”
(and boot)
“property”
10b
100v
Parent
10b
100v
(358)
“control”
100%
T
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Sub
10b
100v
(362(a))
13
Section 351 Exchange – General Compliance

“Significant” Transferor
 Reg. Sec. 1.351-3(a) Statement
 Significant

5% or more (vote or value) of publicly traded Transferee stock

1% or more (vote or value) of non publicly traded Transferee stock
 Each US Shareholder reports if Significant Transferor a CFC

Transferee Corporation
 Reg. Sec. 1.351-3(b) Statement
 Each US Shareholder reports if Transferee a CFC
 Not required if -3(a) Statement filed in same tax return
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
Section 351 Exchange – General Compliance (cont’d)

Substantiation information
 Retain permanent records, including information regarding the amount, basis,
and FMV of distributed property, and relevant facts regarding any liabilities
assumed or extinguished
 Proposed Sec. 1.362(e)-1 reg package [Sep. 2013] would require delineation
between:
I.
Section 362(e)(1) “loss importation” property
II.
Section 362(e)(2) “loss duplication” property
III.
Property on which gain is recognized
IV.
All other property
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
Section 351 Exchange – General Compliance (cont’d)

Section 362(e)(2)(C) election
 Irrevocable election to apply basis limitation to transferee stock
 Secretary to prescribe procedures for election

Sep. 2013 Regulations (T.D. 9633)
 Transferor files prescribed certification statement with tax return
 Transferor a CFC or CFP – controlling U.S. shareholder(s) or partners file
 Protective election allowed
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
Section 351 Exchange – Section 362(e)(2) Comparison
Statutory Baseline
With Election
US
US
X
X
Y
Asset
X
100b
10v
Stock
100b
10v
FC
Y
Asset
X
100b
10v
Stock
FC
Asset X
Asset X
10b, 10v
100b, 10v
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10b
10v
17
Outbound Section 351 Exchange – Section 367(a)
US
X
Y
Stock
Asset
X
FC
Section 367(a) – general rule is gain, but not loss, recognized
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
Outbound Section 351 Exchange – Section 367(a) (cont’d)

Exceptions to general rule gain recognition rule of Section 367(a)
 Foreign active trade or business assets (FAT or B Assets)
 Section 936(h)(3)(B) intangibles (subject to Section 367(d))
 Stock or securities
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
19
Reporting – General Rules

Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation

Statement containing prescribed information
 Reg. Sec. 1.6038B-1(c) and -1T(c)
 Reg. Sec. 1.6038B-1T(c)(1) through (5)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
20
Reporting – Special Rules

Transfers by partnerships

Transfers of cash

Transfers of Section 936(h)(3)(B) Intangibles

Transfers of stocks or securities
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
21
Transfers by Partnerships:
IRS Advice Memo 2008-006

Individual B
Individual A
US Trust B
Domestic
Corps
General rule: if transferor is a
partnership (domestic or foreign)
the US partners (corps or
individuals), not the partnership
itself, are subject to §§ 367(a)

Same look-through rule for
transfer of a partnership
interest

Carries over to § 6038B/Form
926 reporting
US Trust A
US P/S 1
S Corp

US P/S 2
transfer
Foreign
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The US partner(s) is treated as
transferring his or her
proportionate share of the property

Partnership rules determine
proportionate share
22
AM 2008-006: Results

Transfer by US P/S 2 to Foreign Corp is treated as pro-rata by its U.S.
partners
 Individual A and US Trust A subject to §§ 367(a) and 6038B
 S Corp: it’s a domestic corporation that is a US person and there’s nothing
affirmatively providing for look-through treatment in this case. Therefore, S
Corp is the transferor.

Section 1373 treats S Corps as partnerships for certain int’l tax
provisions (e.g., FTC and Subpart F rules) but not for § 367 purposes
 Look-through rule for partnerships applies iteratively

US P/S 1 not transferor, but its domestic corp. partners are
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
23
Transfers of Cash

Special rules for outbound transfers of cash (See Reg. Sec. 1.6038B-1(b)(3))

Must report if:
 U.S. transferor owns directly or indirectly (modified Section 318 attribution rules)
at least 10% vote or value of transferee foreign corporation
 U.S. transferor (or related person) transfers cash exceeding $100,000 during 12month period
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
24
Transfers of Section 936(h)(3)(B) Intangibles

Transfers of Section 936(h)(3)(B) intangibles
 Subject to Section 367(d), not Section 367(a)
 Deemed annual royalty regime
 Election to treat certain transfer of intangibles, including “operating intangibles,” as
sale (see Reg. Sec. 1.367(d)-1T(g)(2))

General reporting requirements plus additional statement under Reg. Sec. 1.6038B1T(d)

Tie-in to Form 926
 Question 15: Transfer of goodwill and/or going concern value? If yes, what value?

TAM 200907024: Taxpayer separately valued a number of contracts with
foreign agents; reported 97% residual as attributable to goodwill/GCV instead of
to “network” or aggregate
 Question 17: Transfer of 936(h)(3)(B) intangible?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
25
Transfers of Stocks or Securities

Specific rules to avoid gain under Section 367(a) for outbound transfer of domestic
stock and foreign stock (see Reg. Sec. 1.367(a)-3(c), -3(b), respectively)

Gain recognition agreements (GRA) apply to transfers of domestic and foreign
stock

Reporting: Form 926, Sec. 6038B coordination with GRA filing
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
26
GRA Basics (Reg. Sec 1.367(a)-8)

GRA is U.S. Transferor’s agreement to recognize gain if transferee foreign
corporation (TFC) disposes of (or is deemed to dispose of) Transferred Property
during term of GRA

If GRA triggered?
 Generally report gain on amended return for year of initial transfer
 Election to report on return for year of triggering event (filed on return for year of
initial transfer)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
27
GRA Nomenclature
U.S.
Transferor
Transferred
Corporation
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

U.S. Transferor=UST

Transferred Corporation=TFD

Transferee Foreign
Corporation=TFC
Transferree
Foreign
Corporation
28
GRA Procedural Matters

File statement with timely filed income tax return for year of initial transfer
containing specified information

Waiver of statute of limitations (end of eighth year following year of initial transfer)
on Form 8838

Annual certification that triggering disposition has not occurred

Limited situations where IRS may require posting of bond or security
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
29
GRA Triggering Events

Generally, any type of disposition triggers GRA unless an exception applies
 See Reg. Sec. 1.367(a)-8(j) for Triggering Events, -8(k) for Exceptions

Including:
 TFC disposes of Transferred Property
 TFD disposes of substantially all of its assets (deemed disposition of stock in
TFD)
 U.S Transferor disposes of stock of TFC
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
30
GRA Non-Triggering Events

If certain requirements satisfied, many non-recognition transactions not
triggering events

UST transfers stock of TFC in Section 351, 354, 361, or 721 exchange

TFC transfers stock in TFD in Section 351, 354, 361, or 721 exchange

TFD transfers all or portion of its assets in Section 332, 351, 354, 361, or 721
exchange

Special rules for tax-free liquidations of UST, TFC or TFD
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
31
GRA Non-Triggering Events (cont’d)

Generally, original GRA terminates with no further effect

New GRA filed to replace original GRA
 Multiple events with one taxable year can be combined into a single
replacement GRA
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
32
GRAs: Further Compliance Aspects

Complying with GRA rules satisfies Section 6038B/Form 926 reporting obligation
for outbound stock transfer. (Reg. Sec. 1.6038B-1(b)(2)).

GRA document requires extensive information about transferred and foreign
transferee corporations, including adjusted U.S. tax basis and fair market value
of transferred stock interest.
 Taxpayers may be unable or unwilling to spend resources to determine this
information
 Long-running saga over “available on request”
 IRS suggests in preamble to 2009 regs, field advice (FAA 20074901F, TAM
200919032) that it’s serious about expecting this data to view GRA as
complete
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
33
GRA Directive

Issued July 26, 2010

Applies when taxpayer has timely filed either: (i) a proper GRA and then missed
later associated filings, or (ii) timely filed a document “purporting” to be a GRA
but which does not satisfy the regulatory standards in 1.367(a)-8.
 “Available on request”
 Does not apply if initial GRA (or purported GRA) filing was not timely—still
must seek reasonable cause

Can cure filings in these instances without having to demonstrate reasonable
cause by filing amended returns with proper GRA/associated filings and
indicating that they are submitted pursuant to directive

No clear expiration date; IRS officials publicly remind that it won’t last forever
[but it still hasn’t been pulled]
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
34
Proposed Amendments to § 367(a) GRA Regs (January 2013)

Preamble notes that “the existing reasonable cause standard, given its
interpretation under the case law, may not be satisfied by U.S. transferors in
many common situations even though the failure was not intentional and not
due to willful neglect.”

New proposed framework: full gain recognition under § 367(a) only appropriate
where conduct willful, and that § 6038B penalty (generally, 10% of FMV up to
$100k) should suffice otherwise.

Willful for this purpose “is to be interpreted consistent with the meaning of that
term in the context of other civil penalties which would include a failure due to
gross negligence, reckless disregard, or willful neglect.” [See Prop. Reg. Sec.
1.367(a)-8(p)(1).]

Proposed regs would remove requirement that IRS make determination within
120 days of notifying taxpayer of receipt of GRA submission.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
35
Examples in Proposed GRA Regs
1. Not Willful (Gold Standard): Failure to file not willful when it’s due to accidental
and isolated oversight, taxpayer had prepared the GRA but it was not included
with return, and taxpayer had filed GRA’s in past years without ever failing to
timely file beforehand.
2. Willful (History of Bad Conduct): Taxpayer filed without a GRA, knew of
requirement, had not consistently and in a timely manner filed GRAs in past,
and also had an established history of failing to timely file other tax and
information returns for which it was subject to penalties. Taxpayer then failed to
file a GRA for another transfer to the same transferee foreign corp. At time of
second transfer, taxpayer was aware of past mistakes but had not implemented
any safeguards to ensure future GRA compliance. Taxpayer asserts that both
failures are isolated incidents.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
36
Examples in Proposed GRA Regs (cont.)
3. Willful (Not complete in all material respects): Taxpayer aware of GRA rules,
completes GRA except for stock value—which is “available on request.” Failure
to materially complete is failure to comply, and is willful because taxpayer knew
of need to report value. Taxpayer must recognize full amount of gain.
4. Willful (Using Hindsight): At time GRA filing was due, taxpayer intends to sell
Business A and recognize a capital loss, which could be carried back and offset
capital gain on outbound stock transfer. Taxpayer chooses to not file GRA and
to recognize gain Sale falls through for legal reasons. Willful because
knowingly chose not to file a GRA at the time return was filed.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
37
Transfer of Stock or Securities – Other Reporting

Transfer of domestic stock
 US Target attaches notice under Reg. Sec. 1.367(a)-3(c)(6)
 Form 8806, “Information Return for Acquisition of Control or Substantial
Change in Capital Structure” ($100M threshold)

Transfer of foreign stock - U.S. Transferor attaches notice under Reg. Sec.
1.367(b)-1(c) Notice
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
38
Curing Defective Reporting –Outbound Transfers of NonStock Assets

GRA Directive only applies to transfers of stock or securities.

What about other assets? Examples: file a Form 926 but later determine that
transferred assets had a higher value overall; or later determine that a higher
percentage of overall value should have been allocated to fixed and intangible
assets versus foreign goodwill/GCV.

IRS Offshore Disclosure Program (via FAQ #18) may offer streamlined “clean-up”
filings for delinquent information returns
–
Not limited to individuals with undeclared bank accounts
–
BUT, to use FAQ #18 taxpayers must: (1) have timely paid all tax due on
transfers, and (2) not be under audit for any year (even if unrelated to outbound
transfer).
–
If change in value increases gain recognition (for example, because of OFL or
branch loss recapture), then taxpayer must demonstrate that failure was due to
reasonable cause
–
See generally: http://www.irs.gov/Individuals/International-Taxpayers/OffshoreVoluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
39
Inbound Section 351 Exchange
FP
X
Y
Asset
X
Stock
USS
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
40
Inbound Section 351 Exchange – Compliance Issues

Section 362(e)(1) – limitation on importation of BIL
 Sep. 2013 Proposed Regs

Form 5471 if FP transfers foreign stock

Section 897 if FP transfers USRPI

Section 884 branch profits tax if FP conducts and transfers U.S. branch operations
(Reg. Sec. 1.884-2T(d))

How does USS determine carryover Sec. 362(a) basis if FP had a non-USD
functional currency?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
41
Foreign-to-Foreign Section 351 Exchange
USP
CFC1
X
Y
Asset
X
Stock
CFC2
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
42
Foreign-to-Foreign Section 351 Exchange – Compliance
Issues

Section 362(e)(2) election (election to apply basis limitation to transferor’s stock
basis in transferee corporation)

Reg. Sec. 1.367(b)-1(c) notice if CFC1 transfers foreign stock to CFC2

Form 5471 if CFC1 transfers foreign stock

Section 897 if CFC1 transfers USRPI

Section 884 branch profits tax if CFC1 conducts and transfers U.S. branch
operations
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
43
Part IB: Section 368
Reorganizations
44
Section 368 Reorganizations

Section 368(a)(1) . . .
 (A) state law merger
 (B) stock-for-stock
 (C) stock-for-assets
 (D) controlled corporation
 (E) recapitalization
 (F) mere change in form
 (G) bankruptcy
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
45
Section 368 Reorganizations - Patterns

Two-Party asset acquisitions: (A), (C), (D)

Two-Party stock acquisitions: (B)

Three-Party acquisitions
 Triangular (B), (C)
 Forward triangular merger: (a)(2)(D)
 Reverse triangular merger: (a)(2)(E)
 Section 368(a)(2)(C) asset drops

Other reorganizations: (E), (F), (G)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
46
Two-Party Asset Reorganization Pattern
T Shs
No gain unless boot (354, 356)
Substituted basis in A stock (358)
Tacked HP in A stock (1223(1))
T Shs
T stock
A stock
T
T
No gain, loss (361(a), (b))
No gain, loss on distribution of A stock (361(c)(2)(B)
Gain on distribution of any retained assets (361(c)(2)(A)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
T assets &
liabilities
A
A stock
A
No gain, loss (1032)
Transferred basis in T assets (362(b))
Tacked HP T assets (1223(2))
Succeeds to Section 381 attributes
47
Stock Acquisition – Section 368(a)(1)(B)
A
Old
Acquiring
Solely Voting
Stock
Acquiring
A
Acquiring
Section 368(c)
Control
T
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
T
48
Section 368 Reorganizations - Compliance

Party to Reorganization
 Reg. Sec. 1.368-3(a) Statement
 US Shareholder reports if Party a CFC
 One statement for each tax return for same reorganization

Significant Holder
 Reg. Sec. 1.368-3(b) Statement
 Significant Holder of stock

5% or more (vote or value) of publicly traded Target stock

1% or more (vote or value) of non publicly traded Target stock
 Significant Holder of securities –basis at least $1M
 Each US Shareholder reports if Significant Holder a CFC
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
49
Section 368 Reorganizations – Compliance (cont’d)

Substantiation information
 Retain permanent records, including information regarding the amount,
basis, and FMV of distributed property, and relevant facts regarding any
liabilities assumed or extinguished
 See Reg. Secs. 1.368-3(d), 1.6001-1(e)
 Sep. 2013 Sec. 362(e)(1) Prop. Regs. would require more detailed reporting
by asset class (similar to Prop. Reg. Sec. 1.351-3, above)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
50
Outbound Section 354 Exchange
US
SHs
Target
FA voting
stock
Target
stock
FA
“B” Reorganization
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
51
Reporting

See discussion of outbound transfers of stock and securities (domestic or
foreign) in Section 351 exchange
 GRAs
 Reporting

Section 6038B, Form 926

Reg. Sec. 1.367(b)-1(c) notice if transfer of foreign stock
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
52
Outbound Section 361 Exchange
USP
FA
stock
USS
stock
FA stock
USS
FA
Assets &
liabilities
Section 368 Asset Reorganization
(“A,” “C,” “D,” or “F”)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
53
Reporting

See discussion of outbound transfers in Section 351 exchange
 FAT or B Assets
 Section 936(h)(3)(B) intangibles
 Stock or securities

Reg. Sec. 1.367(a)-7(c)(5) Statement (finalized March 2013):
 Must identify assets and basis adjustments subject to Section 367(a)(5)
 Agreement to recognize gain on later dispositions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
54
Inbound Section 361 Exchange
USP
USSH

USCo
stock
FT
stock
USCo stock
All E&P Amount
FT

- Carryover tax attributes
(Reg. Sec. 1.367(b)-3(e) and
(F)), basis
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
USCo
Acq
Assets &
liabilities
55
Reporting

File notice under Reg. Sec. 1.367(b)-1(c)

Form 5471

Section 897 if foreign target owns and transfers USRPI

Section 884 branch profits tax if foreign target conducts and transfers U.S.
branch operations

Section 987 foreign currency gain/loss on branch termination

(F/X translation for carryover asset basis may be easier given past Form 5471
filings for FT)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
56
Foreign-to-Foreign Section 361 Exchange
USP
FS2
stock
FS1
FA
stock
FA stock
FS2
FA
Assets &
liabilities
Section 367(b) applies
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
57
Reporting and Other Rules

Filing of notice under Reg. Sec. 1.367(b)-1(c)

Section 381 tax attributes – Reg. Sec. 1.367(b)-7, -9 address manner in which
E&P and foreign income taxes of foreign target and foreign acquiring
corporation combined under Section 381

Section 897 if foreign target owns and transfers USRPI

Section 884 branch profits tax if foreign target conducts and transfers U.S. trade
or business
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
58
Part IC: Section 332
Reorganizations
59
Section 332 Liquidation
General Tax Consequences
S

P
assets &
liabilities in
liquidation
No gain or loss
(Section 337)
P
S

No gain or loss
(Section 332)

Carryover basis in assets (Section
334(b)(1))

Succeeds to US’s tax attributes
(Section 381)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
60
Section 332 Liquidation – General Compliance Disclosures

Subsidiary (S)
 Form 966, Corporate Dissolution or Liquidation

Section 6043

Within 30 days of adopting resolution or plan to dissolve

Not filed for deemed liquidations (Section 338 or CTB election)
 Final federal income tax return
 See Reg. Sec. 1.332-6T(b)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
61
Section 332 Liquidation – General Compliance Disclosures
(cont’d)

Parent (P)
 Reg. Sec. 1.332-6T(a) statement for each year P receives distribution (s)
 If P is CFC, filed by each U.S. Shareholder (Section 951(b))

Statement must include:
 Representation that P of L adopted and the date
 Representation that liquidation either

Completed on Date, or

Not completed and file Form 952, Consent to Extend the Time to Assess Tax
Under Section 332(b)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
62
Section 332 Liquidation – General Compliance Disclosures
(cont’d)

Substantiation information
 Retain permanent records, including information regarding the amount, basis,
and FMV of distributed property, and relevant facts regarding any liabilities
assumed or extinguished
 See Reg. Sections. 1.332-6T(d), 1.6001-1(e)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
63
Outbound Section 332 Liquidation – Section 367(e)(2)
Reg. Sec. 1.367(e)-2(b)
FP
USS

assets &
liabilities in
liquidation
USS
FP

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Generally recognizes gain and
loss
General rules apply, with limited
exceptions (See Section 332(d))
64
Three Exceptions to General Rule

Property used in U.S. trade or business

U.S. real property interest (USRPI)

Stock of 80-percent-owned domestic subsidiary

General policy for exceptions—distributed property remains within U.S. tax
jurisdiction and therefore no need to impose tax at time of liquidation
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
65
U.S. Trade or Business Exception—
GRA Requirement

Agreement that gain (not loss) on qualifying property will be included in
amended return of domestic liquidating subsidiary for year of initial distribution if
“triggering event” within 10-year period

Contents of GRA in Reg. Sec. 1.367(e)-2(b)(2)(i)(C)

Signed by officer of USS and FP

File Form 8838, Consent to Extend the Time to Assess Tax Under Section 367 –
Gain Recognition Agreement
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
66
U.S. Trade or Business Exception—
GRA Requirement (cont’d)

Report certain “non triggering” events

Conversions or exchanges under Sections 1031 or 1032
 Amendment to Master Property Description
 Reg. Sec. 1.367(e)-2(b)(i)(E)(4)

Non-taxable transfer to Qualified Transferee
 Qualified Transferee “steps into the shoes” of foreign transferee
 Reg. Sec. 1.367(e)-2(b)(i)(E)(5)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
67
Stock of Domestic Subsidiary Exception

USS must file required statement under Reg. Sec. 1.367(e)-2(b)(2)(iii)(C)

Signed by officer of USS and FP
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
68
Other Reporting

Form 926

Form 5471 if USS distributes stock of foreign corporation

Form 5472

Form 1120F
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69
Inbound Section 332 Liquidation – Section 367(b)
Reg. Sec. 1.367(b)-3
USP
assets &
liabilities in
liquidation
FS
(CFC)
USP

“All E&P Amount” included in
income

Special rules regarding carryover
of tax attributes (e.g., loss
carryovers, E&P, asset basis)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
70
Other Reporting

File notice under Reg. Sec. 1.367(b)-1(c)

Form 5471

Section 897 if foreign target owns and transfers USRPI

Section 884 branch profits tax if foreign target conducts and transfers U.S. branch
operations

Section 987 foreign currency gain/loss on branch termination
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
71
Foreign-to-Foreign Section 332 Liquidation – Section 367(e)
Reg. Sec. 1.367(e)-2(c)
USP
FS
FP
(CFC)
assets &
liabilities in
liquidation

Generally no gain or loss

10-year GRA for USTB property
FS
(CFC)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
72
Foreign-to-Foreign Liquidations – Reporting and Other
Rules

Form 5471

Section 897 if foreign target owns and transfers USRPI

Section 987 foreign currency gain/loss on branch termination

Section 381 attributes – Reg. Sec. 1.367(b)-7
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
73
Part II: Recent Developments
74
Form 5471 – (Former) Cat. 5 Constructive Ownership
Exception Glitch


USLP attributed 100% of CFC stock from USP
under sec. 318(a)(3)(A) partner-to-partnership
full downward attribution rule.
US LP does not directly (or indirectly) own any
stock in CFC.

Unrelated partner not attributed any CFC stock
under sec. 318(a)(5)(C) (no “down then back
up”).

USLP is a Category 4&5 filer for CFC because
constructively in control of and a USSH of CFC
via attribution from USP.

USP’s filing 5471 for CFC exempts USLP from
Cat. 4 filing responsibilities.

What about Cat. 5 filing responsibilities (which in
any event are lesser than Cat. 4)—not
referenced in instructions?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Unrelated
Partner
USP
US
100%
50%
50%
US LP
US
CFC
75
Form 5471 – Updated Constructive Ownership Exception

As of December 2012 revision, Form 5471 instructions clarify/change application
of the constructive ownership exception.

Under the new instructions, a U.S. person described as a Category 5 filer (as
also with Category 3 and 4 filers) is no longer required to file Form 5471 if all
three conditions are satisfied:
 The U.S. person does not own a direct interest in the foreign corporation.
 The U.S. person is required to furnish the information requested solely
because of constructive ownership (as determined under Reg. section
1.6038-2(c) or 1.6046-1(i)) from another U.S. person.
 The U.S. person through whom the indirect shareholder constructively owns
an interest in the foreign corporation files Form 5471 to report all of the
required information.

The new instructions also clarify that no statement is required to be attached to
tax returns for persons claiming the constructive ownership exception.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
76
PFIC Reporting (Sec. 1298(f)) reg package
TD 9650 (December 2013)

Updates Secs. 6038 (Cats. 4 and 5) and 6046 (Cat. 3) to confirm no filing
necessary for constructive ownership exceptions.
 Catches regulations up to Form’s Instructions

Update Sec. 6046 regulations to reflect current statutory threshold (10% by
vote or value) instead of older (5% by value) requirement
 Technical correction needed to include voting power test

Section 1298(f): annual reporting for PFIC stock interests now required (for
taxable years ending on or after 12/31/13)
 Prior law: Form 8621 only required for elections or income events (sale,
distribution, QEF or MTM inclusions, purging elections, etc.)
 Regulations waive “catch-up” reporting that Notices 2010-34 and 2011-55
had indicated would be necessary
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
77
Section 367(a)(5) reg package
TDs 9614 and 9615 (March 2013)

Make a procedural modification to “reasonable cause” exception for Form
926/Sec. 6038B reporting deficiencies: the IRS no longer is required to respond
within 120 days of notifying taxpayer that their request was received.
 Some other cross-border compliance “reasonable cause” provisions (still)
have a 120-day response requirement, including:

FIRPTA (Rev. Proc. 2008-27)

Dual Consolidated Losses (Reg. Sec. 1.1503(d)-1(c))
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
78
Q&A
79
International Tax
Session:
Cross-Border M&A
Southeast Michigan TEI Chapter
April 29, 2014
Devon M. Bodoh
Principal, Washington National Tax
Aaron S. Feinberg
Managing Director, M&A Tax, Detroit
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG
TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY
FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED
HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without
limitation, the tax treatment or tax structure, or both, of any transaction described in the associated
materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax
analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to
change. Applicability of the information to specific situations should be determined through
consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
81
Dated Material
THE MATERIAL CONTAINED IN THESE COURSE
MATERIALS IS CURRENT AS OF THE DATE PRODUCED.
THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO INCORPORATE ANY
TECHNICAL CHANGES
TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS
TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE RESPONSIBLE
FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY TECHNICAL CHANGES
SINCE THE PRODUCTION DATE AND WHETHER OR NOT
THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR PRESENTATION TO
CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON NATIONAL TAX AND RISK
MANAGEMENT-TAX AS PART OF YOUR DUE DILIGENCE.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
82
Agenda
Topic
Overview of Post-Transaction Integration
Paradigm 1: U.S. Multinational Corporation Acquires Foreign Corporation
Paradigm 2: Foreign Corporation Acquires U.S. Corporation
Wrap-Up
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
83
Overview of
Post-Transaction Integration
Post-Transaction Integration: What Is It?
General Overview
Post Transaction Integration (PTI)
generally concerns the postacquisition integration of acquired
entities and business operations into
the acquiring company’s group
Tax Benefits of PTI Planning include:


Identification of tax efficiencies that
further a deal’s strategic objectives
(e.g., tax-efficient cash
repatriation/redeployment and global
ETR reduction through alignment of
existing and acquired business
operations)
Ensuring tax risks are accurately
captured and addressed in an
advantageous manner that is within
the company’s business objective
framework
Creation/
use of tax
attributes (e.g.,
FTCs)
Out-From-Under
planning
(for inbound
clients)
Common
PTI
Tax Planning
Strategies
Consolidation
of local country
affiliated groups
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Efficient
integration of IP
and other VCM
strategies
Debt
push-downs
Cash
Repatriation and
Deployment
85
Assessing Post-Transaction Integration Opportunities
Information Needed






Relevant org charts with U.S. tax classification for both buyer and
target
Current and projected financial statements / position
Global effective tax rate reconciliation, including EBT/tax by entity or
jurisdiction
Form 1118 / FTC limitation calculation workpapers
Intercompany loans schedule
Other key attribute schedules:
 E&P pools
 Tax pools
 NOLs



Summary of key business flows
Summary of organic growth plans
Summary of acquisition / disposition plans
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
86
Strategic Planning Areas of Focus
Foreign tax
credit planning
Accelerate FTCs
Annual Cash Utilization
 Small dividend/large




FTC
 Use/creation of
deficits
P
L
A
N
N
I
N
G
Cash
utilization/repatriation
Maximize FSI
 Incrementally
increasing foreign
source income
Minimize FSE




Interest
Local tax
planning
Stock options
Value Chain
Reassessment
Permanent Local
Tax Savings
Factoring
 Principal





Cost sharing
“Deductible”
repatriation
 Offshore working
capital
Specialized Cash
Utilization
G&A
 Reorganizations
 Return of basis
 PTI
Hybrid entity losses
Defer E&P
R&D
Value Chain
Management
companies
 Contract
manufacturing
 Commissionaires
 Limited risk
distributors
 Procurement
companies
Credits
Step-ups
Consolidation
Loss utilization
Holidays and
incentives
Strategic Financing
 Hybrids
 Hybrid instruments
 Dual residents
 Recirculate low taxed
cash/earnings
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
DRAFT – For Discussion Purposes Only
87
Paradigms
Paradigm 1:
U.S. Multinational Corporation
Acquires Foreign Corporation
Paradigm 1: Sample Transaction
Public

A wholly-owned foreign corporation (“F Sub”) of a
U.S. multinational corporation (“U.S. MNC”)
acquires the stock of a foreign corporation
(“Foreign Target”) that may own a U.S. subsidiary
(“U.S. Sub”).

Assume a 100% acquisition for cash.
SHs
$
U.S. MNC
Foreign
Target
F Sub
U.S. MNC
Foreign
Target
U.S. Sub
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
90
Paradigm 1: Acquisition Considerations
Foreign Cash Utilization
Foreign Cash Utilization
€
If F Sub has E&P, this acquisition may
present a good opportunity to use trapped
foreign cash of F Sub (particularly
because ownership of Foreign Target by F
Sub may result in a more tax efficient
structure).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
91
Paradigm 1: Acquisition Considerations
Post-Transaction Integration
Post-Transaction Integration

If U.S. MNC has a CFC located in the same country as Foreign Target,
moving Foreign Target under this CFC may result in operational
efficiency.
o Similarly, U.S. MNC may have a CFC holding company structure
and wish to move Foreign Target under this holding company
after the acquisition

Additional tax planning may also be necessary to integrate U.S. Sub
with U.S. MNC (and avoid an inefficient structure).
o One example of such tax planning - a Section 338 election - is
also discussed in the following slides.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
92
92
Paradigm 1: Acquisition Considerations
Triangular B Reorganization
Steps 1 & 2
Step 3
U.S. MNC
U.S. MNC
U.S. Sub
(1)
Foreign
Target
U.S. Sub
(3)
CFC
(2)
U.S. Sub

CFC
Foreign
Target
Triangular B Reorganization: Transaction
Steps
U.S. Sub
 Step 1: U.S. MNC acquires Foreign Target.
 Step 2: CFC acquires U.S. Sub voting
stock for cash or a note.
 Conversely, US Sub may acquire Foreign
Target and Foreign Target may acquire a
CFC of U.S. MNC.
 Step 3: CFC acquires all the stock of
Foreign Target from U.S. MNC in
exchange for the U.S. Sub stock
acquired in Step 2. This is intended to
qualify as a triangular B reorganization.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
93
Paradigm 1: Acquisition Considerations
Triangular B Reorganization
Triangular B Reorganization: U.S. Tax Consequences

Until April 25, 2014, the so-called Killer B Regulations provided:
 CFC is deemed to distribute cash to U.S. Sub in an amount equal to the amount of the
note or cash used to acquire the U.S. Sub stock, and
 U.S. Sub is deemed to contribute cash (in the same amount deemed distributed by
CFC) to CFC. See Treas. Reg. Section 1.367(b)-10(a),(b).

However, to the extent CFC has little or no E&P, the deemed contribution may allow CFC
to repatriate the same amount twice without resulting in any additional tax cost.
 Must consider Johnson basis recovery issues.
 Recently issued Notice 2014-32 provides that regulations will be issued with an
effective date as of April 25, 2014 that:

Remove the fictional cash contribution and

Permit the E&P of Foreign Target to be taken into account for purposes of the
deemed distribution.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
94
Paradigm 1: Acquisition Considerations
Section 338 Election
Section 338 election
A tax election may be available to treat the transaction as an acquisition of Foreign Target assets for U.S.
tax purposes which results in a fair market value tax basis in such assets (referred to as a “Section 338
election”).
Results of a Section 338 Election
F Sub takes a
fair market
value tax basis
in Foreign
Target.
Foreign Target
takes a fair
market value tax
basis in its assets
(including a U.S.
Sub owned by
Foreign Target).
E&P and tax history
of Foreign Target is
eliminated.
(Note: Election may
also be made with
respect to lower-tier
80% owned
subsidiaries.)
If Foreign Target is not a U.S. taxpayer, this election is not expected to result in any additional U.S. tax cost.
 Must consider FIRPTA implications with respect to U.S. Sub (including Section 1445).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
DRAFT – For Discussion Purposes Only
95
Paradigm 1: Acquisition Considerations
Post-Transaction Integration: Section 338 Election where Foreign Target owns U.S. Sub
Post Transaction Integration and Section 338 election
Public

After the Section 338 election, the following steps would occur:
 Step 1: Foreign Target distributes U.S. Sub to F Sub.

U.S. MNC
(2)
Neither Foreign Target nor F Sub recognize gain or loss in
the distribution (because of the fair market value tax basis
in Foreign Target and the elimination of Foreign Target’s
E&P).
 Step 2: F Sub distributes U.S. Sub to U.S. MNC.
F Sub
U.S. Sub

This may result in dividend income to U.S. MNC but F Sub
does not recognize any gain on the distribution (since it has
a fair market value tax basis in U.S. Sub).

U.S. Sub and U.S. MNC may file a consolidated return but
the distribution of U.S. Sub must occur within 6 months to
avoid certain consolidated return limitations on U.S. Sub’s
tax attributes (e.g., net operating losses).
(1)
Foreign
Target
U.S. Sub
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
96
Paradigm 1: Ownership Considerations
CFC Considerations
Generally, U.S. shareholders are not taxed on the undistributed earnings of a CFC.
However, U.S. shareholders of a CFC are immediately taxed on certain types of
undistributed income (“Subpart F Income”).
Subpart F Income
Subpart F Income
generally includes
passive income. See
Section 952-954.
Section 956
If Foreign Target owns U.S.
property (e.g., stock or
debt in a “related” U.S.
corporation, or U.S. real
estate), such ownership
may constitute an
investment in “U.S.
property” that results in a
deemed dividend to U.S.
MNC under Subpart F.
See Section 956.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Sales of
Operating Assets
Sales of operating assets
in certain instances may
avoid treatment as
Subpart F Income.
97
Paradigm 1: Ownership Considerations
Foreign Tax Credits
Two Types of FTCs
Direct FTCs

Generated by the payment of foreign income
taxes directly by a U.S. taxpayer (e.g.,
withholding taxes or net income taxes paid by
a branch or passthrough entity owned by a
U.S. corporation). Section 901.
Indirect FTCs

FTC Limitations


Note that a Section 338 Election (described
earlier) may result in lower depreciation
deductions for foreign tax purposes (resulting
in higher foreign taxes paid) than as compared
to the U.S. tax treatment.
A special rule may limit the availability of FTCs
in this instance. Section 901(m).
Available when a foreign corporation owned
by a 10% U.S. corporate taxpayer pays
foreign income taxes. These indirect FTCs
are available when the foreign corporation
pays a dividend (or generates Subpart F
Income) to the U.S. shareholder. Sections
902 and 960.
 Must ensure “voting power” requirement
is met.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
DRAFT – For Discussion Purposes Only
98
Paradigm 1: Ownership Considerations
Foreign Tax Credits
Covered Asset
Acquisition Defined
Disqualified Taxes
Overview of Section 901(m)
Section 901(m) disallows
FTCs for the disqualified
portion of foreign income tax
paid or accrued with respect
to income or gain attributable
to relevant foreign assets in a
covered asset acquisition.
Disqualified taxes
permanently disallowed as
credits, but deductible
 If taxpayer cannot
substantiate foreign
income, must
reconstruct income by
dividing foreign tax
paid by highest
marginal rate.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
 Qualified stock purchase
with Section 338(g) or
(h)(10) election.
 Any transaction treated as
acquisition of assets for
U.S. tax purposes but as
stock acquisition (or
disregarded) for foreign
tax purposes.
 Acquisition of a
partnership interest with
Section 754 election.
 Any other similar
transaction provided by
the Secretary.
99
99
Paradigm 1: Ownership Considerations
Foreign Tax Credits
Section 901(m) disqualified portion is computed using this formula:
Foreign Taxes x Basis Differences
Foreign Income

=
Disallowed
Foreign Taxes
Basis differences
 Adjusted U.S. tax basis immediately after CAA less adjusted
U.S. tax basis immediately before
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
100
Paradigm 1: Ownership Considerations
Sandwich Considerations
Post-Transaction Integration Considerations
–
Absent post-transaction integration, Foreign Target’s ownership of U.S.
Sub may be an investment in U.S. property which may result in a deemed
dividend to U.S. MNC.
 Consider Sections 956(b)(2) and (c)(2)(F).
 U.S. Sub would also be “affiliated” with U.S. MNC under Section
864(e) and 904(i).
-
In the Sandwich Structure, U.S. Sub and U.S. MNC cannot file a
consolidated return.
-
In addition, income generated by U.S. Sub may be subject to a high
effective tax rate since it may be subject to multiple layers of tax in the
United States.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
101
Paradigm 1: Exit Considerations
Section 1248
Section 1248
When U.S. MNC
disposes of
Foreign Target
stock, a portion
of U.S. MNC’s
gain may be
treated as
dividend income
instead of capital
gain.
Specifically, gain with respect to Foreign Target
stock is treated as a dividend to U.S. MNC to the
extent of Foreign Target’s E&P accumulated during
U.S. MNC’s ownership of Foreign Target.
If Foreign Target is not held directly by a U.S.
taxpayer (in this case U.S. MNC), there may be a
deemed dividend to the selling CFC under Section
964(e).
This deemed dividend under Section 1248 or 964(e)
may result in indirect FTCs to U.S. MNC.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
102
Paradigm 2:
Foreign Corporation
Acquires U.S. Corporation
Paradigm 2: Sample Transaction
Public
SHs
(2) $
Foreign
Acquirer
U.S.
Target

(1)
U.S.
Holdco

Target CFC

Step 1: A Foreign Acquirer forms a U.S.
Holdco.
Step 2: U.S. Holdco acquires all the stock
of a U.S. Target that has foreign assets (in
this case Target CFC).
Assume a 100% acquisition for cash.
U.S.
Target
Target CFC
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
104
Paradigm 2: Acquisition Considerations
Acquisition Form
Tax Treaty
Planning
Holding
Company
Considerations
Acquisition
Considerations
Debt
Push-Downs
Inversions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
105
Paradigm 2: Acquisition Considerations
Acquisition Form: Tax Treaty Planning
Tax Treaty Planning
Overview
U.S. withholding taxes
of 30% apply on
dividends and interest
payments from U.S.
Holdco to Foreign
Acquirer. Sections 871
and 881. However, the
withholding tax rate
may be reduced or
eliminated by the
application of an
income tax treaty.
Intermediary
Foreign
Companies
If Foreign Acquirer is not
eligible for income tax
treaty benefits (or a more
advantageous income tax
treaty exists), an
intermediary foreign
company may be used to
access such benefits in
certain circumstances.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Limitation
on Benefits
However, certain criteria
(included in the
limitations on benefits
provisions in most U.S.
income tax treaties) must
be met by the
intermediate foreign
company to access the
desired treaty benefits.
Where the Foreign
Acquirer is not itself
eligible for treaty benefits,
the intermediate entity
typically will need to have
a substantial active
business in its country of
residence.
DRAFT – For Discussion Purposes Only
106
Paradigm 2: Acquisition Considerations
Acquisition Form: U.S. Holding Companies
Use of a U.S. holding company
eliminates U.S. Target's historic E&P.
 U.S. Target and the U.S.
holding company form a
consolidated group after the
acquisition.
 Although the E&P of a
subsidiary of a consolidated
group generally tier up to the
common parent, under the
consolidated return rules, the
pre-acquisition E&P of U.S.
Target does not tier up. See
Treas. Reg. Section 1.150233.
U.S. Holding Companies
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
107
Paradigm 2: Acquisition Considerations
Acquisition Form: Debt Push-Downs
Section 163(j)
Overview




It may be advantageous to “push down”
acquisition debt into U.S Holdco. However this
may result in limitations on U.S. Holdco’s ability
to claim interest deductions on the acquisition
debt in certain instances.

When dealing with a debt pushdown into the
United States, the terms of the debt must be
closely considered to ensure that the debt is
treated as debt and not equity of U.S. Holdco.
Treatment as equity eliminates any potential
interest deductions in the United States and
may result in payments being taxed as
dividends.
Under Section 163(j), if U.S. Holdco owes debt
to Foreign Acquirer, or Foreign Acquirer
guarantees debt of U.S. Holdco, interest
deductions on such debt may be disallowed
when:
 U.S. Holdco is undercapitalized (i.e., a
debt-to-equity ratio of 1.5 to 1 or greater),
 U.S. Holdco’s interest expense exceeds
50% of its adjusted gross income, and
 Such interest payments are not otherwise
subject to, or are subject to a reduced rate
of, U.S. withholding tax (e.g., through the
application of a treaty).
Many different factors (e.g., the term/maturity
date of the debt, capitalization of the debtor, the
inclusion of creditor protections, subordination)
are used to determine if an instrument is treated
as debt or equity.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
108
Paradigm 2: Acquisition Considerations
Acquisition Form: Inversions
What is an
Inversion?
An inversion typically occurs when a U.S. corporation changes
its place of incorporation or corporate ownership to a foreign
jurisdiction with a more favorable tax system.
Stock Acquisition
Versus
An inversion may occur pursuant to the acquisition
of stock or assets of the U.S. corporation by a
foreign corporation.
Asset Acquisitions
Inversion Planning
Considerations
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Generally, an inversion may provide a
significant tax benefit to the inverting
corporation if it can:
- Avoid or minimize Subpart F income,
and
- Reduce it’s exposure to tax on U.S.source income.
109
Paradigm 2: Acquisition Considerations
Acquisition Form: Inversions
Potential Inversion Costs
Section 367 Toll Charge
• Denies non-recognition
treatment to certain
transfers of property
(including stock and
intellectual property) by a
U.S. person to a foreign
corporation.
Section 7874 Toll Charge
• Certain penalties are
imposed if a foreign
corporation (the “Foreign
Acquirer”) directly or
indirectly acquires
substantially all of the
property of a U.S.
corporation (“U.S. Target”)
and the historic
shareholders of U.S. Target
own above a threshold
percentage of stock of
Foreign Acquirer. Further,
in certain circumstances,
the Foreign Acquirer may
be treated as a U.S.
corporation for U.S.
Federal tax purposes.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Section 4985
Excise Tax Charges
• An excise tax is imposed
on equity-based
compensation of U.S
Target’s officers and
directors upon the
occurrence of certain
corporate inversion
transactions.
110
Paradigm 2: Acquisition Considerations
Acquisition Form: Section 367

Section 367
Toll Charge Planning
Exceptions to the general rule
of tax on an outbound transfer
of property:
 Rule does not apply to an
outbound transfer of
domestic corporation stock,
if:




© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Pursuant to the transfer, 50% or less of the
Foreign Acquirer stock is received, in the
aggregate, by transferors that are U.S.
persons;
Immediately after the transfer, 50% or less
of the Foreign Acquirer stock is owned by
U.S. persons that are officers or directors or
5% shareholders of the domestic
corporation;
U.S. transferors that own more than 5% of
the Foreign Acquirer enter into a gain
recognition agreement (a “GRA”) with the
IRS;
The Foreign Acquirer (or certain qualified
subsidiaries) is engaged in an active trade
or business outside the United States for
the 36 months immediately before the
transfer; and
The fair market value of the Foreign
Acquirer is at least equal to the fair market
value of the domestic corporation.
111
Paradigm 2: Acquisition Considerations
Acquisition Form: Inversions
Section 7874
Toll Charge Planning
Need to consider the “scope”
of section 7874.
If after a corporate inversion transaction
i.
At least 60% of the stock of Foreign
Acquirer is owned by U.S. Target’s
historic shareholders and
ii.
Foreign Acquirer (taking into account
certain subsidiaries) does not have
“substantial business activities” in the
jurisdiction of incorporation,
Further, if at least 80% of the stock of
Foreign Acquirer is owned by the
domestic corporation’s historic
shareholders, Foreign Acquirer will be
taxed as if it were a U.S. corporation.
Then U.S. Target is subject to tax on
inversion gain (i.e. gain on the inversion
transaction and certain sales of property)
for 10 years with limited offsets for
losses and credits.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
112
Paradigm 2: Acquisition Considerations
Acquisition Form: Inversions

Section 7874
Toll Charge Planning
Need to consider the scope of
section 7874.

The Section 7874 Anti-Inversion Rule does
not apply if the Foreign Acquirer has
substantial business activities in its
jurisdiction of incorporation
Substantial Business Activities - at least
25% of employees, assets, and income of
the Foreign Acquirer located or derived in
the foreign jurisdiction.
 IRS regulations preclude items,
employees, and assets transferred to a
foreign jurisdiction as part of a plan to
avoid the Section 7874 Anti-Inversion
Rule from being included in the
substantial business activities analysis.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
113
Paradigm 2: Acquisition Considerations
Acquisition Form: Inversions

Section 4985
Toll Charge Planning
Excise tax considerations.



A 15% excise tax is imposed on the value of
certain stock compensation of an “expatriated
corporation” that is held by officers, directors and
10% or greater owners.
An expatriated corporation is a U.S. Target that
undergoes an inversion transaction where between
60-80% of the stock of Foreign Acquirer is owned
by U.S. Target’s historic shareholders.
The stock compensation this excise tax applies to
is payment received as compensation from the
expatriated entity the value of which is determined
by reference to value of the stock of that
corporation, e.g., compensatory stock and
restricted stock grants, compensatory stock
options, and other forms of stock-based
compensation.
This excise tax applies only if any of the
expatriated corporation's shareholders recognize
gain on any stock in the corporation by reason of
the corporate inversion transaction that caused the
expatriation.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
114
Paradigm 2: Acquisition Considerations
Treatment of Foreign Acquirer:
U.S.
Target
SHs
Foreign
Acquirer
SHs
U.S.
Target
SHs

OR
U.S.
Target
Foreign
Acquirer
Assets
U.S.
Target
OR

If U.S. Target shareholders receive 60% or
more (but less than 80%) of the stock of
Foreign Acquirer, U.S. Target is taxed on
inversion gain for 10 years (with limited
losses/credits) unless the substantial
business activities exception applies.
If U.S. Target shareholders receive 80% or
more of the stock of Foreign Acquirer, Foreign
Acquirer is taxed as if it were a U.S.
corporation unless the substantial business
activities exception applies.
U.S.
Target
Assets
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
115
Paradigm 2: Acquisition Considerations
Treatment of U.S. Target Shareholders:
U.S.
Target
SHs
U.S.
Target
SHs
Foreign
Acquirer
SHs

OR
U.S.
Target
Foreign
Acquirer
Assets
U.S.
Target
OR

U.S.
Target
Assets
If undertaken as a Stock Transfer, U.S.
Target Shareholders are taxed on the
outbound transfer of U.S. Target stock
unless an exception applies, e.g., U.S.
Target Shareholders receive less than 50%
of Foreign Acquirer.
If U.S. Target shareholders receive 60% or
more (but less than 80%) of the stock of
Foreign Acquirer and U.S. Target
shareholders are taxed on the transfer, an
excise tax may be imposed on the equitybased compensation of certain U.S Target
officers, directors, and 10% shareholders.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
116
Paradigm 2: Ownership Considerations
Sandwich Structures
 The Paradigm 2
acquisition transaction
creates a Sandwich
Structure with the U.S.
corporate tax rate (35%)
imposed on the income
of Target CFC (through
U.S. Target/U.S.
Holdco), subject to
potential FTC.
 This creates an extra
layer of high-rate tax on
the income of Target
CFC that would not be
present if Foreign
Acquirer directly owned
Target CFC.
Out-From-Under Planning
 “Out from under” planning has the economic effect of moving assets

out of the U.S. taxing jurisdiction without the full tax cost of such
movement.
Below are three broad categories of out from under planning. These
planning techniques are not exclusive and can be undertaken in
connection with each other:
Freeze Structure
Out
CFC Dilution From
Under
“Wither on the Vine” Planning
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
117
Paradigm 2: Ownership Considerations
Sandwich Structures
Freeze Structure (Simplified)
Purpose
Foreign
Acquirer
(2)

The purpose is to freeze the value of high growth
assets moved out of the U.S. taxing jurisdiction so
any future appreciation is not taxed in the U.S.
Transaction Steps:

U.S.
Target
F Sub
(1)
VP/S
Target CFC
Low
Growth
Step 1: Target CFC transfers high growth assets
to F Sub, a non-CFC subsidiary of Foreign
Acquirer, in exchange for voting preferred stock
with a market rate, which represents at least 10%
of F Sub’s voting stock (but less than 50% of
value).
 10% ownership interest results in indirect
FTCs.
High
Growth

Step 2: Foreign Acquirer will transfer assets to F
Sub.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
118
Paradigm 2: Ownership Considerations
Sandwich Structures
Foreign
Acquirer
CFC Dilution (Simplified)
Purpose

U.S.
Target

Target CFC
Holdco

Target CFC
OpCo

Under this structure, it is assumed that income
generated by Target CFCs would result in Subpart
F Income inclusions to U.S. Target.
However, the Subpart F rules only apply if the
Target CFCs are CFCs with more than 50% (vote
or value) ownership (direct or indirect) by U.S.
persons that own 10% or more (directly or
indirectly) of the voting power.
Thus, the purpose of this planning is to terminate
Target CFCs’ status as CFCs by diluting U.S.
Target’s direct or indirect ownership.
Assume no recapitalization of U.S. Target stock in
Target CFC Holdco.
Assets
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
119
Paradigm 2: Ownership Considerations
Sandwich Structures
CFC Dilution (Simplified) (Cont.)
Foreign
Acquirer
Transaction Steps:
(2)
CFC
OpCo
Assets

U.S.
Target
(1)
Target CFC
Holdco
Target CFC
OpCo
Step 1: Foreign Acquirer contributes a low
growth asset to Target CFC Holdco (which
has little or no E&P) in exchange for voting
preferred stock representing more than
90% of the voting power and more than
50% of the value of Target CFC Holdco.
 As a result of this dilution of voting
power, Target CFC HoldCo is no longer a
CFC. Sections 951 and 957.

Step 2: Target CFC OpCo sells its assets
to Foreign Acquirer for a Note.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
120
Paradigm 2: Ownership Considerations
Sandwich Structures
CFC Dilution (Simplified) (Cont.)
Anticipated U.S. Federal Income Tax Consequences:
Foreign
Acquirer

(2)
CFC
OpCo
Assets

U.S.
Target
(1)

Target CFC
Holdco
Target CFC
OpCo



Step 2 is intended to be a taxable sale, which may generate
additional E&P in Target CFC OpCo.
However, Target CFC HoldCo and Target CFC OpCo are no
longer subject to the subpart F regime because neither
company has a U.S. Shareholder.
To avoid cash accumulating in Target CFC OpCo with
respect to repayment of the Note, this cash can be lent to
other members of the Foreign Acquirer group.
Consider PFIC issues for Target CFC Holdco and Target
CFC OpCo going forward.
Consider accumulation of E&P in Target CFC Holdco as a
result of ownership of asset received from Foreign Acquirer
in Step 1.
Potential exit strategies may include inbound F
reorganization of Target CFC Holdco and Target CFC OpCo.
However, consider the potential application of Treas. Reg.
Section 1.367(b)-3 with respect to Target CFC Holdco.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
121
Paradigm 2: Ownership Considerations
Sandwich Structures
Wither on the Vine
Purpose
Foreign
Acquirer


U.S.
Target
Under this planning technique, operations related to
U.S. Target’s intangible property in the United States
are gradually wound up and recreated outside the
United States (i.e., by Foreign Acquirer or F Sub).
This may require:
 Elimination of employees by U.S. Target (or
failure to replace departing employees)
F Sub
 New hires by Foreign Acquirer or F Sub
 U.S. Target directs new opportunities to Foreign
Acquirer or F Sub and
Target CFC
 New investments by Foreign Acquirer or F Sub.

Since this does not result in an actual distribution of
this intangible property, there is no tax cost from the
movement of the intangible out of the United States.
However, this structure can take years to complete.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
122
Paradigm 2: Exit Considerations
FIRPTA
FIRPTA
 Under Section 897, the
disposition of U.S. Target
or U.S. Holdco stock by
Foreign Acquirer may
trigger a 10% withholding
tax on the gross sales
price, and full U.S.
taxation on any gain, if
either predominantly
owns, or has owned
during a 5-year period,
U.S. real estate.
U.S. real estate??
 Certain filing requirements
are necessary at the time
of sale to confirm no
withholding tax is due.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
123
Presenter Information
Devon M. Bodoh
Principal, Washington National Tax
Phone: 202-533-5681
Email: dbodoh@kpmg.com
Aaron S. Feinberg
Managing Director, M&A Tax, Detroit
Phone: 313-230-3273
Email: aaronfeinberg@kpmg.com
Tax Executives Institute
Foreign Tax Credit
Developments
Detroit
April 29, 2014
Caren Shein, Managing Director
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.
KPMG LLP, Washington National Tax
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR
WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR
ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii)
PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY
MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction described in
the associated materials we provide to you, including, but not limited to, any tax opinions,
memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that
are subject to change. Applicability of the information to specific situations should
be determined through consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
126
Agenda

Creditability of Foreign Taxes
 Trending Issues

Credit versus Deduction – Interaction of § 6511(d)(2) and 6511(d)(3)

§ 901 Technical Taxpayer Regulations

§ 909 Splitter Temporary Regulations

Anti-Abuse Rules
 §§ 901(k) and (l)
 § 901(m)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
127
Trending Issues Creditability of
Foreign Taxes
Requirements to be a Creditable Tax
Under § 901

A foreign levy is creditable under § 901 if:
 It is a “tax,” defined as a compulsory payment pursuant to a foreign
country’s authority to levy taxes. Foreign country is defined to include any
political subdivision thereof, and US possessions
 Its predominant character is that of an income tax in the
US sense, meaning that it is likely to reach net gain in the normal
circumstances in which it is applied. A tax is likely to reach net gain if it
meets each of a realization, gross receipts and net income requirement
 It is not a soak up tax

§ 903 expands definition of a creditable tax under § 901 to include certain
taxes paid “in lieu of” and not in addition to an income tax. Generally applies to
withholding taxes on payments to nonresidents
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
129
Creditability of Foreign Taxes – Is it a
Compulsory Payment?

An amount is not creditable to the extent it exceeds taxpayer’s liability for tax
under foreign law

Taxpayer has duty to contest excess taxes under reasonable interpretation of
foreign law
 Must exhaust all effective and practical remedies
 See CCA 200532044 (taxpayer must request competent authority
assistance)
 Procter & Gamble v. United States, 106 AFTR2d 2010-5311 (S.D. Ohio
2010)
 Electing to shift tax liability to current year does not make payment voluntary
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
130
Creditability of Foreign Taxes – Is it a
Compulsory Payment?

Taxpayer is not required to alter its form of doing business. Not a lot of
authority on how a taxpayer may qualify for the “business conduct safe
harbor,” but there are several IRS rulings on what the IRS believes does not
qualify:
 FSA 200049010: Election to defer tax payment and pay foreign
government additional amounts
 CCA 200622044: Election to reduce the amount of an otherwise
creditable tax as opposed to an otherwise non-creditable tax
 CCA 200920051: Election to form foreign corporations then make
foreign tax elections to shift foreign tax burden
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
131
Specific Creditability Issues We’re Seeing
PPL v. Commissioner, 133 S.Ct. 1897 (2013)


On May 20, 2013, the Supreme Court issued a unanimous decision reversing
the Third Circuit and holding in favor of the taxpayer that the 1997 UK “windfall
profits” tax (the “UK tax”) is a creditable tax under
§ 901.
The Court applied substance over form principles in holding that the UK tax is
a creditable tax, but the opinion is narrow and is unlikely to have larger
ramifications outside the FTC context.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
132
Specific Creditability Issues We’re Seeing
PPL v. Commissioner - Facts




During the 1980s and 1990s, the UK government privatized several dozen
government-owned utility companies.
Most of the companies were required to maintain the same rates for four years,
so only way to increase profits during this period was for the companies to
operate more efficiently. Most did, resulting in significantly more profit than the
government anticipated.
In 1997, the UK enacted a special tax designed to capture the “windfall profits”
that 32 companies earned during the years in which they were prohibited from
raising rates.
The tax is computed based on a formula that imposes a 23% tax on the
difference between a company’s actual flotation value (its market capitalization
value after sale) and what the government thinks its flotation value should have
been (determined by multiplying the company’s average annual profits during
the initial period by a price-to-earnings ratio of 9).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
133
Specific Creditability Issues We’re Seeing
PPL v. Commissioner - Analysis


Court began by noting that the predominant character rule in Reg.
§ 1.901-2(a) establishes several relevant principles:
 First, the predominant character of a tax, or the “normal manner” in which a
tax applies, is controlling. The fact that a few taxpayers are affected
differently is not controlling
 Second, foreign government’s characterization of the tax is not dispositive.
Instead, look to economic effect and whether the tax, if enacted in the
United States, would be an income, war profits, or excess profits tax under
US principles
Applying substance over form principles, the Court concluded that the UK tax
has the predominant character of an income tax in the U.S. sense because the
economic substance of the tax is that of a excess profits tax.
 Despite the form of the formula for computing the tax, the Court found that
the tax is a tax on realized net income disguised as a tax on the difference
between two values.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
134
Specific Creditability Issues We’re Seeing
Foreign Taxes

Brazil – Capital Gains Tax, PIS, COFIN, IRPJ, SCL

France and China – Business Taxes

India and France – Dividend Distribution Taxes

China – Circular 698 Tax
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
135
Specific Creditability Issues We’re Seeing
“FTC Generators”

IRS challenges to structured financing arrangements based on economic
substance doctrine (codified in 2010 as § 7701(o).

Under economic substance doctrine, a tax benefit may be disallowed even if
taxpayer complies with all code and regulatory requirements. At issue is
whether

The transaction changes in a meaningful way (apart from federal income
tax effects) the taxpayer’s economic position; and

The taxpayer has a substantial purpose (apart from federal income tax
effects) for entering into the transaction

IES Industries and Compaq – US borrowers pre tax profit/benefit is not
reduced by foreign tax costs

STARS cases – BONY, Salem Financial, Santander Holdings, AIG
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
136
Interaction of § 6511(d)(2)
and 6511(d)(3)
Credit v. Deduction

Annual election to deduct or credit foreign taxes – § 164(a)
or § 901:
 Credit generally more beneficial but deduction may be preferable, for
example, if taxpayer has NOL
 Generally cannot claim deduction and credit in same year
 Make election to claim FTC by filing Form 1118

§ 6511(d)(3)(A) provides extended statute of limitations “if the claim for credit
or refund relates to an overpayment attributable to a foreign tax credit carry
back”
 Allows change from credit to deduction, deduction to credit, or change to
amount of foreign tax credit claimed
 Change election by filing amended return within 10 years of original due date
(without extensions) of the return for year in which taxes actually paid or
accrued
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
138
Interaction of § 6511(d)(2) and (d)(3)

§ 6511(d)(2) provides a special period of limitations for NOL carry backs – 3
year from the time prescribed by law (including extensions) for filing the return
for the year in which the NOL giving rise to the carry back arises

§ 6511(d)(3) provides a special period of limitations for overpayments relating to
foreign taxes – 10 years from the original due date (without extensions) of the
return for the year in which the taxes were actually paid or accrued

IRS has addressed interaction of these rules in several rulings, adopting an
“independent events” approach
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
139
Interaction of § 6511(d)(2) and (d)(3)
CCA 201204008

FACTS: In year [8] taxpayer filed amended return for year [3] changing election
from FTC to deduction. Year [3] deduction created additional NOL which
taxpayer sought to carry back to year [1] . At issue was whether year [1]
amended return was timely.
 § 6511(d)(2) requires amended return within 3 years of extended due date
of year [3] return thus year [1] amended return not timely if (d)(2) applies to
year [1]
 § 6511(d)(3) allows 10 years to change from credit to deduction so year [3]
amendment timely; year [1] is also within 10 years and attributable to timely
year [3] change

IRS held that rules must be applied independently. Thus, change from credit
to deduction governed by and timely under § 6511(d)(3). But, NOL carryback
from year [3] to year [1] governed by § 6511(d)(2) and not timely.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
140
Interaction of § 6511(d)(2) and (d)(3)
CCA 201204008

IRS further took position that year [1] amended return also would not be timely
under an “attributable to” approach because § 6511(d)(3) applies only if the
claim for refund relates to an overpayment for a year for which a credit is
allowed under § 901. Once taxpayer changed to deduction for year [3], §
6511(d)(3) could not support allowance of NOL carry back.

See also ILM 201330031, reaching same conclusion

NOTE that only NOL carry backs are potentially disallowed. If taxpayer
changes from credit to deduction but cannot carry taxes back, then no
limitation on carry forward. But, if taxes could be carried back but for statutory
bar, it appears that taxpayer must reduce carry forward amount

May want to deduct taxes initially if not sure will be able to use credits, but
consider AMT impact
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
141
Technical Taxpayer Rules –
Regulation § 1.901-2(f)
Creditability of Foreign Taxes – Who is Legally
Liable for the Tax?

Only the person legally liable for a tax under foreign law
(the “technical taxpayer”) may claim credits
 Withholding agents not technical taxpayers; look to beneficial owner of
income
 Contractual arrangements shifting liability not relevant


Foreign law controls, but US law also relevant

On February 9, 2012, the IRS issued final regulations under § 901 addressing
who is legally liable for foreign taxes (i.e., who is the “technical taxpayer”)
imposed on foreign combined income groups and hybrid entities
Issues regarding technical taxpayer often arise in context of hybrid entities and
foreign consolidation/group relief regimes
 Generally effective for tax years beginning after February 14, 2012, but
taxpayers can elect to apply combined income rules retroactively to tax
years beginning after December 31, 2010
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
143
§ 901 Final Regulations (2012)
Foreign Consolidated Groups

Final Reg. § 1.901-2(f)(3) provides that taxes imposed on a foreign combined
income group are apportioned among group members based on each person’s
“portion of the base of the tax”
―
Foreign tax is imposed on combined income if it is computed on a
combined basis under foreign law and would otherwise be imposed on
each person’s separate taxable income

Combined income is calculated separately, and associated taxes are allocated
separately, if foreign law exempts from tax or provides a preferential tax rate for
certain types of income, and if certain expenses, deductions or credits are
taken into account only with respect to a “particular type of income”

Collateral consequences: US tax principles apply to determine the tax
consequences if one person remits tax “considered paid” by another

Rule does not apply to loss sharing regimes (e.g., UK group relief) or foreign
subpart F type regimes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
144
Taxes Imposed on Combined Income
Reg. § 1.901-2(f)(5), Example 2

B has sole legal liability for group tax under
Country X law. Country X does not provide
rules for mandatory allocation of losses

Combined income is 240u and tax is 72u
(30% rate)

24u of group tax allocated to B (and thus A’s
§ 901 credits) and 48u allocated to C:
― Dividends are ignored under Reg. §
1.901-2(f)(3)(iii)(B)

Application of collateral consequences rule
where B pays group tax and C reimburses it
for its share – taxpayers should re-examine
tax sharing agreements

What if D’s loss is capital and can only
offset capital gain under Country X law?
Assume B’s income is capital and C’s
income is ordinary
A
(U.S.)
100u
B
(Country X)
100u Dividend
C
(Country X)
200u
D
(Country X)
(60u)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
145
§ 901 Final Regulations (2012)
Taxes Imposed on Income of Hybrid Entities

Final Reg. § 1.901-2(f)(4) addresses foreign taxes imposed at entity level
on:
– taxes are treated as partnership-level taxes that must be
allocated to partners applying principles of § 704(b)
― Disregarded entities (“DREs”) – taxes are treated as imposed on the owner of
the DRE
― Partnerships

Final Reg. § 1.901-2(f)(4) also addresses changes in owners of
partnerships and DREs and certain partnership terminations in situations
where foreign tax year does not close:
― If
partnership terminates, foreign tax for the year is allocated between the
partnership and its successor partnership, or a DRE if the partnership ceases
to have two owners, under the principles of Reg. § 1.1502-76(b)
― If there is a “change in the ownership” of a DRE, foreign tax is allocated
between the transferor and transferee based on respective portions of
taxable income determined under foreign law under principles of Reg.
§ 1.1502-76(b)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
146
Hybrid Entities – Example
X

Target is a DRE that is a calendar year
taxpayer for foreign tax purposes

Target’s income for the year is 100u

Target’s foreign income tax for the year is 30u,
accrued on 12/31

Under Reg. § 1.901-2(f)(4)(ii), the 30u of tax is
apportioned between X and Y under the
principles of Reg. § 1.1502-76(b):
― Closing of the books vs. ratable
allocation

Query whether rule applies if election is made
to treat Target as a corporation effective 9/30?
Y
9/30 transfer
Target
Target
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
147
Temporary and Proposed
§ 909 Splitter Regulations
§ 909 – Foreign Tax Credit Splitters
Background




§ 909 suspends foreign taxes if there is a FTC splitting event until the related
income and taxes are “reunited”
Applies to foreign taxes paid or accrued in taxable years beginning after
December 31, 2010, and also may apply retroactively to foreign income taxes
paid or accrued by a § 902 corporation in taxable years beginning before
January 1, 2011
Temporary and proposed regulations under § 909 provide an exclusive list of
splitter arrangements for tax years beginning on or after January 1, 2012:
 Reverse hybrid Structures
 Loss Sharing Regimes
 Hybrid Instruments
 Partnership Intra-Branch Payments (temporary provision as IRS also
amended § 704(b) regulations prospectively)
The regulations incorporate rules in Notice 2010-92 for pre-2011 years and also
generally incorporate the “mechanics” of Notice 2010-92
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
149
§ 909 - Foreign Tax Credit Splitters
What is not Covered

Although temporary regulations contain exclusive list of splitters, preamble
notes areas in which IRS and Treasury still have concerns over separation of
income and taxes:
 Certain asset transfers;
 Taxes imposed on distributions that are dividends under foreign law but
§ 305(a) distributions or disregarded for U.S. tax purposes (“base
differences”); and
 Any future guidance identifying additional splitters will be effective
prospectively

Result of disposition of an entity with related income or suspended taxes not
addressed
Rules for computing and distributing related income not fully addressed

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
150
Reverse Hybrid Splitter Arrangements

A reverse hybrid splitter arrangement arises when a payor pays or accrues
foreign income taxes with respect to income of a reverse hybrid:
 Reverse hybrid is an entity that is treated as a corporation for U.S. tax
purposes but is fiscally transparent (or a branch) under foreign law
 Rule applies even if the reverse hybrid has a loss for the year for U.S.
tax purposes (e.g., due to a timing difference or subsequent year loss)
 Related income is the U.S. E&P of the reverse hybrid attributable to
activities of the reverse hybrid that gave rise to income included in
payor’s foreign tax base with respect to which foreign taxes were paid or
accrued
 Foreign taxes paid or accrued with respect to reverse hybrid’s income
are “split taxes”
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
151
Reverse Hybrid Splitter – Example
USP
RH
30 Tax

30 of taxes paid by USP are split taxes

DE’s earnings (or deficits) are not included in the
foreign tax base and its activities thus do not give rise
to related income
 50 of tax on DE’s income treated as paid by RH
under Reg. § 1.901-2(f)(4)
100 E&P

DE
Related income is the 100 of E&P in RH attributable to
activities that gave rise to the 30 of taxes
 Related income increased/decreased by future
income or losses attributable to relevant activities
200 E&P
50 Tax

RH’s E&P is 300, and its tax pool is 50, but only 100 is
related income
 Distribution sourced proportionally to related and
non-related income
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
152
Loss Sharing Splitter Arrangements

A foreign group relief or loss sharing regime is a splitter to the extent a
shared loss of a U.S. combined income group could have been used to offset
income of the group (usable shared loss) but is instead used to offset income
of another U.S. combined income group

A U.S. combined income group is a single individual or entity and all other
entities (including fiscally transparent entities) that for U.S. federal income tax
purposes combine any of their respective items of income deduction, gain or
loss with the income, deductions, gain or loss of such individual or
corporation
 Fiscally transparent entity is an entity for this purpose
 If a fiscally transparent entity is a member of more than one U.S.
combined group, taxable income is allocated between the groups; for a
partnership generally apply principles in § 704(b) regulations
 No hybrid, no splitter
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
153
Loss Sharing Splitter Arrangements
Temp. Reg. § 1.909-2T(b)(2)(vii), Example 2

HP1 belongs to both CFC3 and CFC2/DE
U.S. combined income groups

Positive income of CFC2 group is 200 (100
in CFC2 plus 50% of HP1’s 200 income)
and of CFC3 group is 100 (50% of HP1’s
200 income)

Shared loss is (100) all of which would be
usable by CFC2 combined income group

Income offset by shared loss is 100 of HP1’s
income of which 50 is allocable to CFC2 and
50 is allocable to CFC3

Splitter results because 50 of usable shared
loss of CFC2 group offset income of CFC3
group

15 of CFC2 taxes are split taxes, and related
income of CFC3 is 50

How would split taxes be released?
USP
-0- income
-0- tax
CFC1
B
100 income
30 tax
-0- income
-0- tax
CFC2
CFC3
B
B
50%
50%
B
200 income
(100)
loss
DE
B
(100)
Loss
HP1
B
(reduced to 100 by
shared loss)
30 tax
* Income amounts are Country B taxable income amounts
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
154
Group Relief – No Splitter

Interest paid by UKP to FINCO intended to
qualify for § 954(c)(3)(A) or (c)(6) exceptions
– assume no withholding tax and minimal or
no taxes imposed on FINCO

UKP has E&P deficit attributable to interest
expense

UK1 has low-taxed E&P pool because it
benefits from loss surrender

UK2 has E&P and FTC pool at “regular” rate

No splitter because UKP loss not a usable
loss (e.g., because no DRE, branch or
partnership owned by UKP to which loss
could be surrendered)

§ 902 ETR benefit for dividends paid by UK2
to UKP because of UKP’s E&P deficit
USP
FINCO
UKP
Loss
Surrender
Loan
UK1
UK2
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
5
Hybrid Instrument Splitter Arrangements
U.S. Equity Splitter

A U.S. equity hybrid instrument is an instrument treated as equity for
U.S. tax purposes and debt for foreign tax purposes, or with respect to
which the issuer is entitled to a deduction for foreign tax purposes for
amounts paid or accrued
― May
include notional interest deduction regimes

A U.S. equity hybrid instrument is a splitter if payments or accruals with
respect to the instrument (1) give rise to foreign income taxes paid or
accrued by the owner of the instrument, (2) are deductible by the issuer
under the laws of the issuer’s foreign jurisdiction, and (3) do not give rise
to income for U.S. tax purposes

Similar rule for US Debt Splitter
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
156
U.S. Equity Hybrid Instrument
100 accrued
interest income
30 foreign tax

For foreign tax purposes, FP accrues interest
income and pays foreign tax; FS has an interest
deduction

For U.S. tax purposes, FP does not recognize
income and FS does not reduce its E&P because
instrument treated as equity and there is no
current payment

Split taxes are the 30 of tax paid by FP – the
amount that would not have been paid but for the
hybrid instrument
FP
U.S. Equity/
Foreign Debt
100 deduction for
accrued interest
―
FS

Split taxes could include foreign withholding
taxes
Related income in FS is 100, the amount
deductible under foreign law, regardless of FS’s
actual E&P
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
157
Brazil – Interest on Equity

Brazilian interest on equity (IOE) rules allow a Brazilian subsidiary to
create an interest payable owing to its shareholder at a government
approved interest rate; subsidiary can deduct accrued or actual
payments against corporate income tax liability

Tax appears to be a creditable withholding tax

Issue arises under § 909, however, as to whether IOE regime creates a
hybrid instrument splitter arrangement resulting in suspended taxes:
― If
“interest” is actually paid, does not appear to be a splitter because although
(i) USP’s stock is a US equity hybrid instrument, (ii) amounts of IOE paid or
accrued give rise to a Brazilian deduction, and (iii) the payments are subject
to foreign tax, US shareholder actually receives income and the final required
for a hybrid instrument splitter (payments or accruals do not give rise to
income for US tax) is not satisfied.
― But, if interest is accrued, the withholding tax would be suspended
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
158
Split Taxes on Deductible Disregarded Payments

Loan to DRE is disregarded for U.S. tax purposes, but
gives rise to a 100 deduction for interest paid or
accrued under foreign law

RH is fiscally transparent under foreign law and the
100 deduction thus offset’s 110 of RH income,
resulting in 10 taxable income and 3 tax liability (30%
rate) at DRE level under foreign law

The 3 of tax on DRE’s 10 of income is suspended at
the USP level because the tax is paid as part of a
reverse hybrid splitter arrangement

Reg. § 1.909-3T(b) also treats any foreign tax imposed
on interest paid to USP as a split tax and thus
suspended. Specifically, the rule treats taxes as split
taxes to the extent they are paid with respect to the
amount of a disregarded payment that is deductible by
the payor of the disregarded payment under the
foreign law of the jurisdiction in which the payor of the
disregarded payment is subject to tax on income from
a splitter arrangement:

What if RH’s income were 100 and no net tax liability
at DRE?

What if DRE had two owners?
USP
Loan
(100) Interest
Deduction
3 tax
110 Income
and E&P
DRE
RH
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
159
Anti-Abuse Rules
Anti-Abuse Rules
§ 901(k)

Enacted in 1997, imposes minimum holding periods for stock before a
taxpayer can claim a FTC for withholding taxes or deemed paid taxes on
dividends:
 For common stock must own for at least 16 days during the 31 day
period beginning 15 days before the date on which such shares become
ex-dividend
 For preferred stock increase to 46 days during 91 day period
 Taxpayer must not be under obligation to make offsetting payments with
respect to a position in substantially similar or related property
 Taxpayer must bear risk of loss with respect to stock for entire holding
period
 Exception for security dealers; regulatory authority to provide additional
exceptions not yet exercised
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
161
Anti-Abuse Rules
§ 901(l)

Enacted in 2004; extends § 901(k) rules to apply to gain, interests, rents,
royalties. Credits are disallowed for gross basis withholding taxes under
 § 901(l)(1)(A) if the recipient has not held the property for 15 days during
a 31 day testing period, excluding periods when the recipient is protected
from risk of loss
 § 901(l)(1)(B) if the recipient is under an obligation to make offsetting
payments with respect to positions in substantially similar or related
property

Regulatory authority to limit application of the rule denying foreign tax credits
where denial is not necessary to achieve the purposes of § 901(l). Unlike
under § 901(k), the IRS has exercised its authority to limit the scope of §
901(l) in two notices, Notice 2005-90 and Notice 2010-65
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
162
Notice 2005-90
Back-to-Back Computer Program Licensing Arrangement

Software
License
Computer
Co. 1
Computer
Co. 2
Royalty
Software
Sub-License
Royalty Subject
To Foreign
Withholding
Tax
In Notice 2005-90, the IRS
concluded that denying credits for
foreign withholding taxes imposed
on payments in a back-to-back
computer program licensing
arrangement in the ordinary course
of the licensor’s and licensee’s
respective trades or businesses is
not necessary to carry out the
purposes of the statute
CFCs
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
163
Notice 2010-65
Back-to-Back Intellectual Property Licensing Arrangements




§ 901(l)(1)(B) shall not apply to back-to-back licensing arrangements
involving certain intellectual property or copyrighted articles entered into in
the ordinary course of business
Applies to intellectual property rights in or copies of film, television program
or recording, literary, musical or artistic composition, computer program,
right to publicity or
similar property
Intermediary company (licensee) may be a U.S. corporation or CFC, and
must be an “affiliate” of either owner of the property or sublicensee
Licensee and sublicensee must use rights in the property in a trade or
business
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
164
Notice 2010-65
Retail Distribution Arrangements



§ 901(l)(1)(A) shall not apply to transfers of covered copyrighted articles by
owner of the copyright directly or indirectly through U.S. affiliates to foreign
retail customers in the ordinary course of business
Covered copyrighted articles include copies of film, television program or
recording, literary, musical or artistic composition, computer program, or
similar property
Note that exception is narrow, would not apply where U.S. corporation
transfers to foreign affiliate for sale to foreign
retail customers
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
165
§ 901(m) – Covered Asset Acquisitions

§ 901(m), effective for tax years beginning after 12/31/10, disallows FTCs for the
disqualified portion of foreign income tax paid or accrued with respect to income or gain
attributable to relevant foreign assets in a covered asset acquisition.

Disqualified taxes are permanently disallowed as credits, but are deductible.

Statute is aimed at transaction that result in basis step-up for US but not foreign purposes
and disallows foreign taxes imposed on additional foreign income (because no basis step
up and thus less depreciation) that the US does not recognize.

Applies only to specifically enumerated transactions, referred to as “covered asset
acquisitions” or CAAs:
Qualified stock purchase with § 338(g) or (h)(10) election;
Any transaction treated as the acquisition of assets for US tax purposes but as a
stock acquisition (or disregarded) for foreign tax purposes;
Acquisition of a partnership interest with § 754 election; and
Any other similar transaction provided by the Secretary.

IRS has not issued any guidance under § 901(m), and “similar transactions” to specifically
enumerated CAAs are not currently CAAs and are not subject to § 901(m).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
166
§ 901(m) - Mechanics

Step 1: Determine the Relevant Foreign Assets (RFAs)

Step 2: Determine the Basis Difference in Each RFA

Step 3: Allocate the Basis Difference to Taxable Years

Step 4: Determine the Income Attributable to the RFAs

Step 5: Determine the Amount of Foreign Income Taxes Paid on Income
Attributable to the RFAs

Step 6: Compute the Amount of Disallowed Foreign Taxes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
167
§ 901(m) - Mechanics



Relevant foreign asset (“RFA”) means any asset if income, deduction, gain or
loss attributable to such asset is taken into account in determining applicable
foreign income taxes
Basis differences determined by looking to adjusted US tax basis immediately
before and after CAA
Disqualified portion is computed using formula:
Foreign Taxes x Basis Differences =
Foreign Income

Disallowed
Foreign Taxes
Acceleration of basis difference on disposition (except as provided in
regulations)
 In describing the disposition rule, the Joint Committee Explanation states that “it is intended that [§
901(m)(3)(B)(ii)] generally appl[ies] in circumstances in which there is a disposition of a relevant
foreign asset and the associated income or gain is taken into account for purposes of determining
foreign income tax in the relevant jurisdiction”
 To the extent a transaction is a CAA, § 901(m) provides a specific computation with respect to the
relevant party, but neither the statute nor the Joint Committee Explanation include a notion of an
entity being a successor in interest to prior basis differences
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
168
Covered Asset Acquisition
Sale with § 338 Election
U.S.
Seller
New CFC
Stock
U.S.
Buyer
Cash
Old
CFC
New
CFC
New
CFC
Assets
U.S. seller has 20 basis in Old CFC stock
Old CFC has 50 basis in assets
Sales price is 100
Old CFC sells assets with
basis = 50 to New CFC for 100.
New CFC takes 100 basis in the
assets for U.S. tax purposes, which
allows it to claim larger
depreciation/amortization
deductions for U.S. purposes
Foreign country sees stock sale with
no basis step up and less
depreciation/amortization
deductions. Result is more foreign
taxable income and foreign tax
liability than would be computed
under U.S. principles
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
169
Covered Asset Acquisition
Sale of Disregarded Entity
USP
FS1
Cash
FS2
FS3 Stock
FS3
FS3
Transaction treated as a stock acquisition under foreign law and an asset
acquisition for U.S. purposes, resulting in basis step-up that can be amortized or
depreciated for U.S. tax purposes.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
170
Covered Asset Acquisition
§ 351 with Boot
The transaction is generally tax free under foreign
law but taxable under US law to extent of built-in gain
in the assets because NQPS is “boot” in a § 351
transaction.
USP
Any gain recognized results in a basis step-up in the
contributed assets for US but not foreign tax
purposes.
CFC1
Common
and NQPS
Assets
CFC2
Although similar to the transactions specifically
described as CAAs in § 901(m), this transaction is
not a CAA because it is not specifically listed and no
regulations have been issued adding additional
transactions.
Results in a basis step-up without FTC disallowance.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
171
Presenter
Caren Shein, Managing Director
202-533-4210
cshein@kpmg.com
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
172
Foreign Tax Credit Planning
With Losses
April 29, 2014
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
− ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
−
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the
tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to
you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those
materials.
−
The information contained herein is of a general nature and based on authorities that are subject to change.
Applicability of the information to specific situations should be determined through consultation with your tax
adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
174
Speakers
Pat Jackman
Principal, Washington National Tax
KPMG LLP
2122-872-3255
pjackman@kpmg.com
Phil Stoffregen
Principal, Washington National Tax
KPMG LLP
313-230-3223
pstoffregen@kpmg.com
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
High Basis—Low Value
Stock
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Granite Trust Transaction
Facts
USP
FV: $100
AB: $200*

USP’s basis in the shares of CFC1 exceeds the
FMV of CFC1. Thus, there is a $100 built-in-loss in
the CFC1 shares.


25%
S1 Stock
USP transfers 25% of the CFC1 stock to CFC2 in
exchange for NQPS.

CFC1 liquidates (actual or CTB liquidation).
Anticipated Results
CFC2
CFC1
Liquidation


USP realizes $25 capital loss on the transfer of the
CFC1 shares to CFC2 in exchange for NQPS. This
loss is deferred under §267(f).
TD 9583
(4/20/2012).

USP realizes and recognizes a $75 capital loss on
the taxable liquidation of CFC1. See, e.g., Granite
Trust Co. v. U.S., 238 F.2d 670 (1st Cir. 1956)
(concluding that §332 is elective in nature).
* Assumes each share has uniform basis.
177
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Technical Considerations
Is the liquidation of CFC1 an upstream “C” reorganization into USP?
Does USP acquire “substantially all” of CFC1’s assets? Does the nature of the CFC1
assets transferred to CFC2 impact this analysis?
What ownership percentage in CFC1 does USP need to transfer to CFC2 in order to
ensure the substantially all requirement is not satisfied? The greater amount of stock
transferred results in more loss being deferred under §267(f).
If CFC1 is a holding company owning stock in more than one controlled subsidiary, can
§355 apply to disallow the loss (tax-free split-up)?
Does the nature of USP’s divesture of the CFC1 shares to bust the §332 control
requirement impact the analysis?
If CFC uses cash, does the application of §304 matter (NQPS avoids the application of
§304)?
Can the economic substance doctrine apply to disallow the loss?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
178
Stock Loss Transactions:
Foreign Owner
Facts
Granite Trust Transaction
CFC-P


25%
S1 Stock
FV: $100
AB: $200*
CFC2
CFC1
Liquidation

Same basic facts as the previous
example except that the transferor is
also a CFC.
Expected Results

Loss is recognized for E&P purposes.

Loss may reduce current year E&P or
otherwise result in an overall E&P
deficit that can be used in later years
(see, e.g., deficit planning
opportunities in later slides).
− Watch for §952(c) recapture potential.
− E&P in CFC1 is eliminated because
the liquidation is not described in §381.
* Assumes each share has uniform basis.
179
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
E&P Deficit Planning
for CFCs
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Affirmative Use of CFC E&P Deficits
The E&P deficit planning addressed herein is focused on the following
two common scenarios:
1. A CFC with an accumulated E&P deficit begins to generate positive E&P
 This may happen because the CFC’s business has become profitable or because
U.S. E&P deductions (e.g., amortization or interest deductions) have expired
 Foreign taxes paid on the CFC’s earnings are “trapped” because Post-86
Undistributed Earnings are negative
 Distributions by the CFC could give rise to taxable dividends (i.e., a nimble dividend)
with no foreign tax credit offset
 Deficit planning could allow “trapped” taxes to become accessible
2.
A CFC has an accumulated E&P deficit with no current expectation the E&P deficit will
reverse in the future
 The CFC’s E&P deficit may be available to offset earnings generated in related
companies, optimizing the overall FTC position of the group
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
181
Hovering Deficit Rules
 A hovering deficit arises when two foreign corporations engage in a transaction in which
E&P and taxes carry over under §381 and either corporation has a deficit in Post-86
Undistributed Earnings in one or more FTC baskets
 The deficit and associated taxes hover and can only be offset by earnings
“accumulated” after the §381 transaction in the same basket; taxes are released
proportionately as the deficit is earned out
 There may be a hovering deficit in a basket even if overall E&P available for
distribution under §316 is positive
 Earnings are treated as being “accumulated” if the earnings are not distributed or
deemed distributed (e.g., under subpart F) during the taxable year earned
 Hovering deficit rules apply even if both corporations have a deficit in the same FTC
basket
 Certain exceptions for qualified deficits and chain deficits under §952(c)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
182
Nimble Dividends and Trapped Taxes
Facts
 CFC1 is expected to generate $20 of U.S. E&P
USP

As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40

CFC1
each year
Due to the pre-existing accumulated E&P deficit, it will take
6-years to earn out of the accumulated deficit
CFC1’s earnings are subject to foreign tax (e.g., the prior
E&P deficit resulted from deductions for U.S. E&P purposes
only)
Expected Results
As of 12/31/13
AEP $200
CEP $100
Post-86 E&P $300
Post-86 Taxes $0
 In 2013, a distribution from CFC1 would result in a taxable
CFC2

All E&P is assumed to be general limitation earnings.

dividend to the extent of current year E&P (i.e., a nimble
dividend)
Post-86 Undistributed Earnings has a deficit balance
(($100)). As such, distributions by CFC1 will not carry
foreign taxes
Based on the assumed earnings of $20 each year, USP
could not access foreign tax credits in CFC1 until 2019 (or
later, if current E&P is distributed)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
183
Nimble Dividends and Trapped Taxes – Movement of E&P
into CFC1
Facts
 CFC2 has Post-86 Undistributed Earnings of $300, which is
equal to its E&P available for distribution under §316
 CFC2 incurs no foreign taxes on its earnings
 CFC2 distributes $110 to CFC1. This distribution does not
result in subpart F income (e.g., §954(c)(6)
USP
As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40
As of 12/31/13
AEP $200
CEP $100
Post-86 E&P $300
Post-86 Taxes $0
CFC1
$110
CFC2
All E&P is assumed to be general limitation earnings.
Expected Results
 The $110 distribution from CFC2 increases CFC1’s current
year E&P to $130
 Likewise, the current year E&P of $130 offsets the deficit in
Post-86 Undistributed Earnings, resulting in a positive
balance of $10
 CFC1 can make a distribution of $10, equal to the amount of its
Post-86 Undistributed Earnings, which will carry all $40 of
Post-86 Taxes
 Going forward, because CFC1 no longer has a deficit in Post86 Undistributed Earnings, CFC1 can make annual distributions
that carry foreign taxes
 Planning is more difficult if CFC2 is not directly held by CFC1
(e.g., step transaction risks)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
184
Nimble Dividends and Trapped Taxes – Creation
of Hovering Deficit
Facts
 Over the next 5-years, CFC1 expects to earn $20 of E&P and
pay $5 of foreign taxes annually
 On January 1, 2014, for valid business reasons, CFC2 merges
into CFC1 in a transaction that qualifies as a reorganization
under §368(a)
USP
Merger
CFC1
As of 12/31/13
AEP ($120)
CEP $20
Post-86 E&P ($100)
Post-86 Taxes $40
CFC2
As of 12/31/13
AEP $10
CEP $5
Post-86 E&P $15
Post-86 Taxes $0
All E&P is assumed to be general limitation earnings.
Expected Results
 As of January 1, 2014, CFC1 has an accumulated E&P deficit
of ($100) and a deficit in Post-86 Undistributed Earnings of
($100)
 CFC1’s ($100) deficit in Post-86 Undistributed Earnings hovers
and is excluded from Post-86 Undistributed Earnings and §316
E&P. CFC1’s $40 of Post-86 Taxes also hover and is released
proportionally as the ($100) deficit is earned out
 The reorganization results in a “fresh start” for CFC1’s Post-86
Undistributed Earnings, allowing CFC1 to make post-merger
distributions that carry foreign taxes
 The hovering deficit only solves for taxes incurred post-merger
that would otherwise have been trapped due to a deficit in
Post-86 Undistributed Earnings. The $40 of historic taxes
remain trapped until the hovering deficit is earned out
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
185
E&P Deficit Offset
Facts
 CFC2 has Post-86 Undistributed Earnings of $250, which is
equal to its E&P available for distribution under §316
 CFC2’s E&P has an ETR of approximately 23%
 CFC1 has an E&P deficit of ($200) and it is not expected to earn
out of the deficit
 CFC2 distributes $250 to CFC1. This distribution does not result
in subpart F income (e.g., §954(c)(6)
USP
As of 12/31/13
AEP ($200)
CEP $0
Post-86 E&P ($200)
Post-86 Taxes $0
CFC1
As of 12/31/13
AEP $200
CEP $50
Post-86 E&P $250
Post-86 Taxes $75
CFC2
$250
All E&P is assumed to be general limitation earnings.
Expected Results
 The $250 distribution from CFC2 increases CFC1’s current year
E&P to $250
 Likewise, the current year E&P of $250 offsets the deficit in Post86 Undistributed Earnings, resulting in a positive balance of $50
 CFC1 can make a distribution of $50, equal to the amount of its
Post-86 Undistributed Earnings, which will carry all $75 of Post86 Taxes (which moved from CFC2 to CFC1)
 A $50 distribution from CFC1 will carry foreign taxes with an ETR
of approximately 60%
 Planning is more difficult if CFC2 is not directly held by CFC1
(e.g., step transaction risks)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
186
Hovering Deficit Traps
for the Unwary
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Springing E&P
Facts
 On December 31, 2013, for valid business reasons, CFC1
merges into CFC2 in a transaction that qualifies as a
reorganization under §368(a)
 Prior to the merger, the maximum dividend USP could
receive, from both CFC1 and CFC2, is $200, equal to the
$200 of §316 E&P in CFC1
USP
Merger
CFC1
As of 12/31/13
AEP $200
CEP $0
Post-86 General E&P ($100)
Post-86 General Taxes $40
Post-86 Passive E&P $300
CFC2
As of 12/31/13
AEP $0
CEP $0
Post-86 E&P $0
Post-86 Taxes $0
Expected Results
 Under §381, there would be no hovering deficit created
because neither CFC1 nor CFC2 has a deficit in §316
E&P. Generally, CFC1’s $200 of E&P would be
inherited by CFC2
 However, under Reg. §1.367(b)-7, the hovering deficit
rules are applied by basket. Because CFC1 has a ($100)
deficit in the general basket, this amount becomes a
hovering deficit and is removed from Post-86
Undistributed Earnings and §316 E&P
 CFC2 inherits $300 of E&P from CFC1 (all in the passive
basket), causing $100 of “springing” E&P because of the
removal of the general basket deficit from E&P
 The total E&P available for distribution becomes $300
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
188
Reg. §1.960-1(i)(4) Offset
Facts
 On December 31, 2013, for valid business reasons, CFC1
merges into CFC2 in a transaction that qualifies as a
reorganization under §368(a)
USP
Merger
CFC1
As of 12/31/13
AEP $200
CEP $0
Post-86 General E&P $300
Post-86 General Taxes $60
Post-86 Passive E&P ($100)
CFC2
As of 12/31/13
AEP $0
CEP $0
Post-86 E&P $0
Post-86 Taxes $0
Expected Results
 If CFC1 distributed $200 to USP prior to the merger, the
($100) deficit in its passive basket would offset the positive
balance in the general basket, leaving a balance of $200.
See Reg. §1.960-1(i)(4)
 Because the $200 dividend is sourced entirely from the
general basket E&P, the distribution carries all $60 of taxes
 The ($100) passive deficit would carry over, as a passive
deficit, to the next taxable year
 As a result of the merger, the passive basket deficit becomes
a hovering deficit and is removed from Post-86 Undistributed
Earnings and §316 E&P, leaving CFC with §316 E&P of $300
 In order to access all $60 of Post-86 Taxes, CFC2 would
need to distribute $300. This is because the ($100) passive
deficit is not available to “offset” the general basket E&P
under Reg. 1.960-1(i)(4)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
189
Proration Rule for CEP in Year of §381 Transaction
Liquidation
6/30/13
CFC2
CFC1
$500 Dividend
9/30/13
As of 6/30/13
AEP ($500)
CEP $0
Post-86 General E&P ($500)
Post-86 General Taxes $100
As of 1/1/13
AEP $0
CEP $0
Post-86 General E&P $0
Post-86 General Taxes $0
CFC3
As of 12/31/13
AEP $1,000
CEP $0
Post-86 General E&P $1,000
Post-86 General Taxes $400
Facts
 CFC2 liquidates into CFC1 on 6/30/13. CFC2’s
($500) E&P deficit hovers and can only be offset by
earnings accumulated after the liquidation
 CFC3 distributes $500 to CFC1 on 9/30/13, which
brings up $200 of §902 taxes. Assume the
distribution is CFC1’s only current year income and is
not subpart F income
Expected Results
 Under Reg. §1.367(b)-7(f)(5)(i), earnings in the year
of the §381 transaction are deemed to accumulate
ratably over the entire year
 Thus, although the $500 dividend is received after
the §332 liquidation on 6/30/13, only 50% (because
the liquidation was mid-way through the year) of the
earnings are treated as accumulated after the §381
transaction and available to be offset by the hovering
deficit
 As of the beginning of 2014, CFC1 has a ($250)
hovering deficit (in the general basket) and $50 of
hovering taxes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
190
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Thank you
International Tax
Hot Topics
International Tax Hot Topics
Discussion Topics

Recent International Tax Rulings and Guidance
 Foreign Base Company Sales Income
 Interest Expense Apportionment
 Section 267(a)(3)
 Foreign Tax Credit

Tax Extenders Update

Camp Tax Reform Proposal
 Participation Exemption
 Subpart F
 Foreign Tax Credit
 Interest Deduction Limits

Obama Administration 2015 Budget Tax Proposals
 Expanded FBCSI
 Limiting Subpart F Exceptions
 Restricting Use of Certain Hybrid Arrangements
 Restrict Excessive Interest Deductions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
194
Recent International Tax
Rulings and Guidance
Guidance on
Foreign Base
Company Sales
Income (FBCSI)
Foreign Base Company Sales Income
In General

USP
Income from property where CFC buys
property from or sells property to a
related person (or on behalf of a related
person), and both:
 Property is manufactured or produced
outside CFC country of incorporation
 Sold for use, consumption, or
disposition outside CFC country of
incorporation
Tangible
Personal
Property
F Sub
(X)
Tangible
Personal
Property
Unrelated
Customer

Related Party—More than 50% control

Concern
 Income of selling subsidiary separated
from manufacturing activities of
related corporation to obtain lower
rate of tax for sales income
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
197
Foreign Base Company Sales Income
Exceptions

Foreign base company sales income does not include:
 Unrelated party purchase and sale
 Goods manufactured in CFC’s country of incorporation (no matter who the
manufacturer is) (same country mandatory rule)
 Goods sold for use, consumption or disposition in CFC’s country of incorporation
 CFC manufactures property sold (“manufacturing exception”)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
198
Foreign Base Company Sales Income
PLR 201332007 – Procurement Activities
Facts
USP and certain of its foreign subsidiaries
purchase products from unrelated foreign
manufacturers ("Vendors").
 Taxpayer, its foreign affiliates, and FDE
have entered into a buying agency
agreement under which FDE performs
various procurement related activities.
 Taxpayer and its foreign affiliates pay
FDE a commission for the procurement
related activities FDE performs.
 FDE performs these procurement related
activities in Country X.
Issue

Vendor
Products
USP
F Sub
(X)
Foreign
Affiliates
Commissions
FDE
(X)
Procurement
Activities
Whether income from the payments received
by FDE for the performance of procurement
related activities in connection with Products is
excluded from FBCSI pursuant to Treas. Reg.
§ 1.954-3(a)(4)(i).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
199
Foreign Base Company Sales Income
PLR 201325005 – Branch Does Not Hold Title
Facts
USP
CFCs
CFCs
CFCs
P’ship
Percentage
of Sales
Branch
Branch operates as a principal and, through
the activities of its employees, provides
overall support to the manufacture,
marketing and sale of products sold by a
related CFC.
 Branch is compensated by the CFC at a
percentage of the proceeds from the sale of
the products.
 Although Branch is significantly involved in
the manufacturing, marketing, and selling
activities with respect to products, it never
takes legal title to the raw materials, work in
process or the finished goods for such
products sold.
Issue

Whether Branch made a substantial contribution
to the manufacture of the products sold, within
the meaning of Treas. Reg. Section 1.9543(a)(4)(iv), even though the Branch did not hold
or pass legal title to the products sold.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
200
Foreign Base Company Sales Income
PLR 201206003 – Same Country Manufacturing Exception
Facts

USP
Pursuant to agreement, Corp X and its affiliates
perform physical manufacturing activities of
products.
 Corp X manufactures several critical
component parts incorporated in Products
exclusively in Country X.
CFC X
(X)
 Corp X and its affiliates perform finishing
manufacturing activities outside of Country X.
Distribution
Centers

Corp X
(X)
Affiliates
CFC X purchases finished products from Corp X
and resells to related distribution center affiliates.
Issue
Whether the income earned by CFC X with respect to
the sale of products to a related person is not foreign
base company sales income because the income
qualifies for the same country manufacturing
exception under section 954(d)(1)(A).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
201
Guidance on
Interest Expense
Apportionment
Interest Expense Apportionment
In General

In the case of interest expense, allocations and apportionments must be made on the
basis of assets rather than gross income. Under the asset method, Taxpayer should
apportion interest expense to the various statutory groupings of income based on the
average total value of assets within each grouping, value is determined using either tax
book value or the fair market value of its assets.
 As a general rule, interest expense allocation and apportionment rules are based on a
principal that interest is a fungible expense with limited exceptions.

Temporary Treas. Reg. section 1.861-12T(f) provides a special rule for adjusting the value
of assets funded by disallowed interest. In the case of any asset in connection with which
interest expense accruing at the end of the taxable year is capitalized, deferred, or
disallowed under any provision of the Code, the adjusted basis or fair market value
(depending on the taxpayer's choice of apportionment methods) of such an asset is
reduced by the principal amount of indebtedness the interest on which is so capitalized,
deferred, or disallowed.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
203
Interest Expense Apportionment
CCA 201336018 – Disallowed Interest under Section 163(l)
USP
US1
Loan
US2
FDE
Facts
 US1 holds intergroup loan receivable from US2.
 US2 contributed borrowed funds to FLP to fund
purchase of certain foreign assets.
 Payments of interest are made in U.S. dollars or, at the
option of US2, in limited partnership units of FLP.
 Interest deductions on the loan are disallowed under
section 163(l) because USCorp2 has the option to
pay the interest with limited partnership units of FLP.
 Corresponding interest income accruing to US1 is
tax exempt interest under the intercompany
transaction rules in Treas. Reg. § 1.1502-13.
Issue
FLP
For purposes of determining Taxpayer’s interest expense
allocation and apportionment for foreign tax credit
purposes, should the adjusted basis of shares in FLP be
reduced by the principal amount of the loan pursuant to
Temp. Reg. § 1.861-12T(f).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
204
Guidance on
Section 267(a)
Section 267(a)
In General

Section 267(a)(1) denies a deduction for any loss from the sale or exchange of property
(directly or indirectly) between related persons.
 Section 267 does not apply to complete liquidations but may apply to section 302
distributions.

Section 267(a)(2) potentially defers a deduction for transactions with related parties by
applying a matching concept (mandatory cash-basis) for interest and expense deductions.
–

Deductions are allowed when the item is included in income of the related payee.
Section 267(a)(3) expands matching principle to payments to foreign persons.
 Notwithstanding this rule, for payments made to a CFC or PFIC a deduction is allowed
for any taxable year to the extent such item is includible (without regard to deductions
or deficits allowed) to a US person who is an owner under section 958(a).
 General rule — payments by a U.S. person to related foreign persons put on cash
method for deductibility.
 Applies to payments of income described in sections 871(a)(1)(A), (B) or (D), and
sections 881(a)(1), (2) or (4) (generally gains from the sale of intangibles and FDAP
(other than OID)).
 “Related” is defined in section 267(b).
 Amount treated as paid is determined under the withholding tax rules.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
206
Section 267(a)
CCA 201334037 – Paying Interest with Issuer’s Own Note
Facts
 USCo maintained a general account into which it
deposited amounts derived from all sources, including
advances from its foreign parent.
FP
Advances

USCo claims to have made, out of this account, payments
of interest to FP on certain advances.

Funds sufficient to cover these payments were obtained
shortly before or after a claimed payment of interest,
either through additional loans from FP or pursuant to its
line of credit with FP.

These New Loans were documented by New Notes, with
the principal amount of each New Note due only at
maturity after several years. These New Notes were
subordinated to existing and future senior debt.
During the tax years at issue Taxpayer’s borrowing from
FP substantially increased.
Interest
USCo
General
Account

Issue
Whether Taxpayer’s payment of interest to FP are deductible
per section 267(a)(3).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
207
Guidance on
Foreign Tax Credits &
Transfer Pricing
Creditability of Foreign Taxes
In General

Among other requirements, a foreign levy is creditable under § 901 if it is a compulsory
payment pursuant to a foreign country’s authority to levy taxes.

An amount is not creditable to the extent it exceeds taxpayer’s liability for tax under foreign
law.
 Taxpayer has duty to contest excess taxes under reasonable interpretation of foreign
law
 Must exhaust all effective and practical remedies
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
209
Creditability of Foreign Taxes
CCA 201349015 – Application of Section 482 to Disregarded Income
Overview

Transactions that are generally disregarded for U.S. tax purposes
because they occur between entities that are disregarded as separate
entities from one another may nevertheless impact foreign taxes.

Primary concern is that through the use of a non-arm’s length transfer
price an U.S. taxpayer operating through a foreign branch, or its DE,
may report too much income to the foreign country or countries in
which it operates, resulting in an overpayment of foreign income tax.

The legal basis for disallowing credit for overpayments of foreign
income taxes attributable to non-arm’s length transfer prices is the
noncompulsory payment rule of Treas. Reg. section 1.901-2(e)(5).
USP
Service
Fee
Example 1
DE

US makes service payment to DE, an entity incorporated under the law
of the UK but is treated as fiscally transparent for US tax purposes.

From a UK perspective the DE is a separately regarded, related entity,
and transactions between DE and US are respected transactions for
UK tax purposes.

If DE fails to use an arm’s length transfer price to compute the income
reported on its UK tax return it may have overstated its profits subject
to foreign tax and made a noncompulsory payment that is not eligible
for a U.S. foreign tax credit.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
210
Creditability of Foreign Taxes
CCA 201349015 – Application of Section 482 to Disregarded Income
Example 2

DE, a German incorporated entity, is fiscally transparent from
CFC for U.S. tax purposes.

Transfer pricing principles will not affect the service fee DE
makes to CFC in terms of computing CFC’s earnings and profits
for U.S. tax purposes.

However, the noncompulsory payment rules apply to the same
extent to taxes paid or accrued by foreign corporations that may
be deemed paid by their U.S. shareholders.

Burden falls on the taxpayer to establish that claims based upon
deemed paid credits include only foreign taxes that were
properly accrued and paid within the meaning of the regulations.

Indirect or deemed paid credits are calculated based upon multiyear pools of foreign corporation’s earnings and taxes
accumulated in post-1986 taxable years. Because the U.S.
shareholder is not eligible to credit the taxes until a distribution or
income inclusion from the foreign corporation, the credit must be
substantiated in the year the credit is claimed rather than the
year or years the foreign taxes were paid or accrued by the
foreign corporation.
USP
CFC
Service
Fee
DE
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
211
“Tax Extenders” Update
Tax Extenders Update
Current State

On April 3, the Senate Finance Committee approved legislation to extend
expired tax preferences—the “tax extenders” legislation—for two years, through
2015.

The House Ways and Means Committee has scheduled for Tuesday, April 29, a
markup of a package of legislation that would permanently extend several
expired provisions—including the subpart F exemption for active financing and
CFC look-through rule.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
213
Camp International Tax
Reform Proposals
Camp International Tax Reform Proposals
Discussion Topics

Implementation of Participation Exemption

Changes to the Subpart F Rules
 New Category of Subpart F
 Changes to Current Subpart F Rules

Changes to the Foreign Tax Credit System

Interest Limitation Rules

Miscellaneous Provisions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
215
Camp International Tax Reform Proposals
Participation Exemption – Overview

95%
Exempt
100%
Taxable
USP
Foreign
Sub
New section 245A provides a 95% DRD for
the foreign source portion of dividends
received from a “specified 10-percent owned
foreign corporation” by a domestic
corporation that is a USSH under section
951(b) (i.e., 10% corporate shareholders)
 A specified 10% owned foreign corporation is
any foreign corporation in which a domestic
corporation directly, or indirectly under section
958(a), owns 10% or more of the voting stock
 Six-month (180-day) holding period
requirement during the 361-day period
beginning 180 days before the ex-dividend
date
DRE

Foreign branches of domestic corporations
continue to be taxed under current rules
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
216
Camp International Tax Reform Proposals
Participation Exemption – Offsets

No FTC (or deduction) is allowed for any foreign taxes paid or accrued with respect
to any dividend for which the 95% DRD is allowed
 A credit/deduction is disallowed for all of the foreign taxes (including withholding taxes)
related to the entire foreign source portion of the dividend; disallowance not limited to
the foreign taxes related to the portion of the dividend for which a DRD is allowed
 For purposes of calculating a domestic corporation’s section 904(a) limitation, the entire
foreign source portion of the dividend is excluded from foreign source income

Limitation on losses with respect to specified 10% owned foreign corporations
 For purposes of determining a 10% U.S. corporate shareholder’s loss on the sale or
exchange of stock of a specified foreign corporation, the shareholder’s basis in the
foreign corporation stock is reduced by the portion of any dividend for which the 95%
DRD was allowed
 If a U.S. corporation transfers substantially all of the assets of a foreign branch to a
foreign subsidiary, the U.S. corporation generally would be required (pursuant to
complex recapture rules) to include in income the amount of any post-2014 losses that
previously were incurred by the branch to the extent the U.S. corporation receives
section 245A DRDs on dividends from any of its foreign subsidiaries
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
217
Camp International Tax Reform Proposals
Participation Exemption – Transition Rules

The Proposal amends section 965 to subject any USSH that owns 10% of a foreign corporation to
a deemed repatriation of the corporation’s undistributed and untaxed foreign earnings (“deferred
E&P”) for the last tax year of the foreign corporation ending before the participation exemption
system begins

Section 965 would create a deemed repatriation by increasing the foreign corporation’s subpart F
income by the amount of the deferred E&P, thus resulting in a pro rata subpart F inclusion for all
10% USSHs

A 10% USSH is allowed a deduction against its pro rata share of the deferred E&P inclusion by
reference to the portion of the deferred E&P held in cash/liquid assets vs. other assets
 Effective 8.75% rate on accumulated E&P to the extent of the cash and cash equivalents held
by the foreign corporations.
 Effective 3.5% rate on the balance of the E&P.

For purposes of determining a USSH’s subpart F inclusion, a noncontrolled 10/50 company is
treated as a CFC

A USSH’s income inclusion under the transition rule would be reduced by the USSH’s share of
E&P deficits of other foreign corporations that it owns

A foreign tax credit is permitted for taxes paid on the taxable portion of these earnings.

A 10% USSH may elect to pay the U.S. tax on the repatriated earnings in up to 8 installments,
subject to certain accelerating events
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
218
Camp International Tax Reform Proposals
Changes to Current Subpart F Rules (1/2)

Proposal generally preserves subpart F regime and section 960 FTC with several changes

New category for foreign base company intangible income (FBCII) (discussed later)

Mandatory High-Tax Kickout
 Subpart F income does not include any item of CFC income subject to an effective foreign tax
rate equal to or greater than the maximum U.S. corporate rate (i.e., 25%)
 FBCI does not include FBCSI subject to an effective foreign tax rate equal to or greater than
50% of the maximum U.S. corporate rate (i.e., 12.5%)
 FBCI does not include FBCII subject to an effective foreign tax rate equal to or greater than 60%
of the maximum U.S. corporate rate (Proposal provides phase-in to 60% rate)

FBCSI Exclusions
 Excludes from FBCI 50% of low-taxed FBCSI (i.e., income subject to an effective foreign tax
rate below 12.5%)

Section 960 credits remain available for foreign taxes related to excluded low-taxed FBCSI
 Excludes 100% of FBCSI if CFC is eligible for benefits as a qualified resident under a
“comprehensive” income tax treaty with the United States (i.e., treaties with “robust” LOB
provisions)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
219
Camp International Tax Reform Proposals
Changes to Current Subpart F Rules (2/2)

Makes permanent section 954(c)(6)

Extension of Active Financing/Insurance Rules
 Extends for 5 years the active financing/insurance rules in sections 954(h) and (i)
 Excludes from FPHCI qualified banking or financing income (determined under section
954(h)) and qualifying insurance income (determined under section 954(i)) subject to an
effective foreign tax rate of at least 50% of the maximum U.S. corporate rate (i.e., 12.5%)
 Excludes from FPHCI 50% of low-taxed qualified banking, financing, or insurance income
(i.e., income subject to an effective foreign tax rate below 12.5%)

Section 960 credits remain available for foreign taxes related to excluded low-taxed
banking/financing/insurance income

Amends the de minimis rule in section 954(b)(3)(A) to index the $1M exception for
inflation

Repeals section 955
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
220
Camp International Tax Reform Proposals
New Category of Subpart F Income – FBCII

The Proposal adds foreign base company intangible income (“FBCII”) as a new
category of subpart F income for intangible income derived by CFCs and provides a
phased-in deduction for domestic corporations for income from the foreign
exploitation of intangibles.
 When fully phased-in, the deduction intended to result in a 15% tax rate for income from
the foreign exploitation of IP.

Broadly consistent with the base erosion Option C contained in the 2011 Draft, which
focused on the current taxation of CFC income attributable to intangible property.
 CFC intangible income that is attributable to U.S.-destined goods and services would be
subject to full, current U.S. taxation.
 Other CFC intangible income would be subject to current U.S. taxation at a 15% rate.

Domestic corporations likewise would enjoy a reduced 15 percent rate on intangible income
attributable to their foreign sales, thus placing domestic corporations on an equal footing
with foreign affiliates.

In determining whether sales or services are U.S.-destined, related party sales would be
disregarded, and if the seller or service provider knows or has reason to know that the good
or service will ultimately be consumed in the United States, then the sale or service is
treated as U.S.-destined even if sold or provided in the first instance outside the United
States.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
221
Camp International Tax Reform Proposals
Calculation of FBCII

Under the new proposal “intangible income” is the excess of a CFC’s gross income
over 10 percent of the basis of its tangible property.
 In essence, the proposal, rather than being a tax on “intangible income,” is a tax on
“excess returns,” with “routine returns” measured — in some sense — as a return on
assets.

Other categories of Subpart F income take priority — either wholly or in part — over
FBCII.

Expressed algebraically, FBCII = AGI – (10% x adjusted basis of QBAI) – (((AGI – (10% x
adjusted basis of QBAI))/AGI) x relevant subpart F income).

Example of calculation of FBCII from JCT Report:
 Assume that CFC that manufactures and sells widgets has AGI of $50, which includes $10
of FPHCI, and an aggregate basis of $300 in its QBAI.
 FBCII = $50 AGI – (10% x $300 QBAI) = $20 - ((($50 AGI – (10% x $300 QBAI))/$50 AGI)
x $10 relevant FPHCI) = $16
 As noted earlier, the $16 of FBCII will be subpart F income only to the extent it is subject to
an effective foreign tax rate below 60% of the maximum U.S. corporate tax rate.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
222
Camp International Tax Reform Proposals
Changes to Foreign Tax Credit System – Overview

Proposal completely repeals section 902 indirect FTC regime

Maintains section 960 deemed paid credits for subpart F inclusions, subject to modifications
 Section 960 credits based on current year taxes rather than section 902 pooling approach
 IRS and Treasury directed to provide rules for allocating taxes to subpart F inclusions. The JCT
report anticipates that those rules would be similar to the rules in current Reg. section 1.904-6 for
allocating taxes to separate section 904(d) categories of income. For example, if income treated
as subpart F income for U.S. purposes is not subject to foreign tax, no taxes would be
attributable and deemed paid with respect to a subpart F inclusion
 To the extent foreign taxes attributable to a subpart F inclusion are not claimed as credits in the
year of the subpart F inclusion (e.g., because they arise on a distribution of PTI from a lower-tier
to an upper-tier CFC), these foreign taxes would be allowed as credits under section 960 in the
year the PTI is distributed
 Consistent with current law, the section 960 credit would be computed separately for each
separate category of income under section 904(d)

Maintains two FTC categories for section 904 purposes, but renames passive category
income as “mobile” income
 Mobile income is similar to current law passive category income but is expanded to include
FBCSI, FBCII, and financial services income
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
223
Camp International Tax Reform Proposals
Changes to Foreign Tax Credit System – Sourcing

New section 904(b)(3) provides that for purposes of computing the FTC limitation, only
directly allocable deductions would be subtracted from foreign source gross income to
arrive at foreign source taxable income
 Directly allocable expenses include salaries of sales personnel, supplies, and shipping
expenses directly related to producing foreign source income. Examples of expenses not
directly related to producing foreign source income include general and administrative
expenses, stewardship expenses and interest expense

Modifies the sourcing rules in current section 863(b) for income from sales of
inventory property produced in one jurisdiction and sold in another jurisdiction
 Under the new rule, income from sales of inventory property would be sourced entirely
based on the place of production
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
224
Camp International Tax Reform Proposals
Interest Limitation Rules

U.S.-parented multinational groups
 Reduced by the lesser of:

the indebtedness of the U.S. parent (including other members of the U.S. consolidated
group) exceeds 110% of the combined indebtedness of the worldwide affiliated group
(including both related domestic and related foreign entities); or

net interest expense exceeds 40% of the adjusted taxable income of the U.S. parent
 Any disallowed interest expense could be carried forward to a subsequent tax year
 Proposal is intended to (1) reduce the incentive for U.S. corporations to maintain excessive
leverage, and (2) prevent U.S. corporations from generating excessive interest deductions
and incurring disproportionate amounts of debt to produce exempt foreign income under
the proposed dividend-exemption system

Foreign-parented multinational
 Amends section 163(j) to change 50% threshold for excess interest expense to 40%.
 Note originally included in 2011 discussion draft.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
225
Camp International Tax Reform Proposals
Miscellaneous Proposals

Limitation of treaty benefits for certain deductible payments made by a U.S. person to
a related foreign person
 The treaty override provision would apply if the payor and payee are indirectly commonly
controlled by a foreign common parent corporation that is not itself eligible for treaty
benefits

Restrict insurance business exception to PFIC rules

Disallow deduction for non-taxed reinsurance premiums paid to foreign affiliates

Exclude CFC dividends from personal holding company income
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
226
Administration FY 2015
International Budget
Proposals
Obama Administration 2015 Budget Proposals
Discussion Topics

Prevent the Avoidance of FBCSI Through Manufacturing Services Arrangements

Limit the application of exceptions under Subpart F for certain transactions that use
reverse hybrids to create “stateless income”

Restrict the use of hybrid arrangements that create stateless income

Restrict deductions for excessive interest of members of financial reporting groups

Miscellaneous Items
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
228
Obama Administration 2015 Budget Proposals
Expansion of FBCSI Rules – Overview

The proposal would expand the category of
foreign base company sales income (FBCSI)
to include income of a CFC from the sale of
property manufactured on behalf of the CFC
by a related person. The existing exceptions
to foreign base company sales income
would continue to apply.

The proposal would be effective for tax years
beginning after December 31, 2014.

The provision is expected to result in a
reduction in deficit in the amount of $24.608
billion for 2015-2024.
USP
Raw
Parts
Contract
Manufacturer
Finished
Goods
Unrelated
Supplier
Title
Unrelated
Customer
Sales Co
Title
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
229
Obama Administration 2015 Budget Proposals
Limitation of Applicability Subpart F Exceptions

The administration’s FY15 proposal
includes a provision that makes sections
954(c)(3) (the so called same-country
exception) and 954(c)(6) (the controlled
foreign corporation look-through rules)
inapplicable to payments made to a foreign
reverse hybrid held directly by a US owner
when such amounts are treated as
deductible payments received from foreign
related persons.

This proposal would be effective for tax
years beginning after December 31, 2014.
USP
LLC
Dutch
CV
Debt
Dutch
BV
Debt
Foreign
OpCos
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
230
Obama Administration 2015 Budget Proposals
Restriction on Use of Certain Hybrid Arrangements

The administration’s FY15 proposal includes restrictions on the use of hybrid arrangements
that give rise to income that is not taxed in any jurisdiction (stateless income). The Secretary
would be granted authority to issue Treasury regulations to carry out the stated purpose of this
proposal. These regulations would include rules that:
 Deny deductions from certain conduit arrangements that involve hybrid arrangements
between at least two of the parties to the arrangement;
 Deny interest and royalties deductions arising from certain hybrid arrangements involving
unrelated parties in appropriate circumstances, for example structured transactions; and
 Deny all or a portion of a deduction claimed with respect to an interest or royalty payment
that, as a result of the hybrid arrangement is subject to inclusion in the recipient’s
jurisdiction pursuant to a preferential regime that has the effect of reducing the generally
applicable statutory rate by at least 25%.

This proposal, as an example, is intended to deny a deduction to a US taxpayer upon an
interest or royalty payment to a related party and either: 1) under a hybrid arrangement there
is no corresponding income inclusion for the recipient in the foreign jurisdiction or 2) a hybrid
arrangement would permit a taxpayer to claim an additional deduction for the same payment
in another jurisdiction.

This proposal would be effective for tax years beginning after December 31, 2014
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
231
Obama Administration 2015 Budget Proposals
Reforming the Earnings Stripping Rules

In its FY 2015 budget, the administration proposes a new rule to limit the deductibility of interest
expense in the U.S. when a multinational group’s U.S. operations are over-leveraged relative to the
group’s worldwide operations.

Under the FY 2015 proposal, the U.S. interest expense deduction of any member of a group that
prepares consolidated financial statements in accordance with U.S. GAAP, IFRS, or other method
authorized by the Secretary under regulations (“financial reporting group”) would be limited to the
member’s interest income plus the member’s proportionate share of the financial reporting group’s
net interest expense computed under U.S. income tax principles (based on the member’s
proportionate share of the group’s earnings as reflected in the group’s financial statements). U.S.
subgroups would be treated as a single member of a financial reporting group for purposes of
applying the proposal, and the proposal would apply before the proposal that defers the deduction
of interest expense allocable to deferred foreign earnings.

If a member fails to substantiate its proportionate share of the group’s net interest expense, or a
member so elects, the member’s interest deduction would be limited to 10 percent of the member’s
adjusted taxable income (as defined under section 163(j)). Any disallowed interest would be carried
forward indefinitely and any excess limitation for a tax year would be carried forward to the three
subsequent tax years. A member of a financial reporting group that is subject to the proposal would
be exempt from the application of section 163(j).

The proposal would not apply to financial services entities, and such entities would be excluded
from the financial reporting group for purposes of applying the proposal to other members of the
financial reporting group. The proposal also would not apply to financial reporting groups that would
otherwise report less than $5 million of net interest expense, in the aggregate, on one or more U.S.
income tax returns for a tax year. Entities that are exempt from this proposal would remain subject
to section 163(j).

The proposal would be effective for tax years beginning after December 31, 2014.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
232
Obama Administration 2015 Budget Proposals
Miscellaneous Items

FATCA implementation – allow for greater information exchange with foreign
jurisdictions regarding financial account information of foreign nationals in the
United States

Expand anti-inversion rules – broaden the definition of an inversion transaction
by reducing the 80% test to a greater-than-50% test and eliminating the 60% test.

Tax gain from the sale of a partnership interest on a look-through basis – a
foreign partner’s gain or loss from the disposition of an interest in a partnership
engaged in a U.S. trade or business would be ECI gain or loss to the extent
attributable to ECI property of the partnership (codifies current IRS position).

Extenders – the FY2015 Budget does not expressly propose to extend expiring
provisions such as section 954(c)(6) and section 954(h) (CFC look-thru and active
financing exceptions, respectively).
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
233
India
Tax & Regulatory update
Jilesh Shah
Senior Manager, International Tax
India Center of Excellence
Notices
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON
OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED
ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO
ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax
treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including,
but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability
of the information to specific situations should be determined through consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
2
Evolving Fiscal Regime
 New Indian Companies Act, 2013 (replaces earlier Act of 1956)
 Focus on governance & accountability
 Mandatory Audit Rotation
 Corporate Social Responsibility
 Direct Taxes Code (DTC)
 Currently, Indian Income-tax Act, 1961
 Continuous changes; complexity
 Goods & Services Tax (GST); to replace current structure
 Unified indirect tax regime
 Dual structure; Federal and state government
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
3
Recent developments
 Limited Liability Partnerships (LLP)
 Relatively new structure; evolving
 Considerable flexibility; tax savings
 Developments vis-à-vis foreign direct investment structuring
 Issue of securities containing an optionality clause is now specifically permissible, subject
to conditions
 Pre-emptive rights / call / put options now permitted; subject to conditions
 Proposal to withdraw pricing guidelines
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
4
Withholding tax on payments received from India
 Software payments / website hosting / transponder payments – ‘Royalty’
 Wide definition under Indian domestic tax law
 Definition under India – USA tax treaty
 Withholding tax; onerous obligation on Indian companies
 Generally, Indian companies insist on
 Tax Residency Certificate from US IRS
 Form 10F (as prescribed by Indian Revenue)
 Undertaking from US company that it does not have a PE in India
 Tax Identification Number (PAN) from Indian Revenue.
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
5
Transfer Pricing
 Highly litigious tax regime; relief at higher level
 Significant adjustments: Cost plus mark-up, Contract R&D, Profit split method, etc
 Steps to reduce disputes: Advance Pricing Agreement (APA) and Safe Harbor rules
 Advance Pricing Agreements (APA)
 Launched in July 2012; first set of rulings delivered in March 2014
 Unilateral v/s bilateral / multilateral
 Valid for maximum 5 years (renewable for another five years)
 Pre-filing consultation available; anonymous pre-filing possible
 Evolving Regime: applications filed, orders awaited
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
6
Recent controversies – Indirect transfer of shares
Sale of shares of US Co /
Intermediary Holding Co
Co.
US Co
 Vodafone: Supreme Court ruling in favor of
tax payer
 Finance Act 2012: Retroactive amendment /
clarification
Buyer
US Co /
Intermediary
Holding company
 Indirect transfer of shares / interest of a
foreign company which derives its value
substantially from assets located in India;
subject to tax in India
 Buyer required to withhold taxes, irrespective
of presence in India
 Expert Committee Recommendations
India
Japan
Japan
 Direct Taxes Code, 2013 (Draft)
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
7
Recent controversies and steps taken to address them
 Shell India: Transfer pricing adjustment on valuation of shares
 Nokia India: WHT Tax demands on payments to parent company
 Impact on Microsoft – Nokia deal
 Steps taken by Indian Government
 Transfer Pricing: Advance Pricing Agreement (APA) and Safe Harbor Rules
o APA launched in July 2012; first set of rulings delivered in March 2014
 Expert Committee set-up for various issues such as indirect transfer, IT sector
 Tax Administration Reform Commission
© 2014 KPMG LLP, a Delaware liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), as Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.
8
China Update
Wayne Tan
Senior Manager, International Tax
China Center of Excellence
29 April, 2014
Agenda

Secondment and Permanent Establishment

China VAT Reform
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
Secondment and
Permanent
Establishment
Typical Secondment Arrangement
Home Entity:
US Co.
(Home Entity)
 Enters into secondment contract with the
Secondees
 Requests the Secondees to report duties to
Overseas
the business line leader of Home Entity
PRC

Secondees
 Pays part or all of the remuneration to the
Secondees
 Charges the part or all of the remuneration
cost to the Host Entity
China related
Co.
(Host Entity)
Secondment contract
Wages & Salaries
Assign duties
Report Duties
Host Entity:
 Assigns duties for the Secondees
 Makes reimbursement payment to the Home
Entity
 Bears part or all the remuneration cost of the
Secondees
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
China Tax Implications
Secondment
Substance
Service Provision /
Permanent Establishment
√
√
√
√
Employment
Corporate Income
Tax (CIT)?
Business Tax (BT)
/Value Added Tax
(VAT)?
X
X
X
Local surcharges?
Individual Income
Tax (IIT)?
√
1. The discussion is in treaty context
2. CIT may be creditable while others generally cannot
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
What’s New in Announcement 19?
Responsibilities
and risks
Fundamenta
l criterion
Job
performance
appraisal
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
14
What’s New in Announcement 19?
1.
Any
service
fees
5.
Number,
qualification,
salary, working
location of
secondees
2.
Reimbursement
payment >
Remuneration
payment
Reference
factors



4.
IIT not paid
on full
amount
Salary
Social security contribution
Other related expenses
3.
Retain part
of
payments
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
China VAT Reform
Expansion of China VAT Reform
Jan. 1 2012
Shanghai
Sept. 1 2012
Beijing
Beijing
Tianjin
Anhui
1 Oct
2012
Jiangsu
Tib
et
Shanghai
Jiangsu and Anhui
Oct. 1, 2012
Nov. 1, 2012
Fujian and Guangdong
Zhejiang
Jian
gxi Fuji
Fujian
an
Dec. 1, 2012
Tianjin, Zhejiang and Hubei
Guangdong
2013
and
Aug.
1, 2013
Hubei
Expansion
by scope
Radio, Films & TV
(1 Aug 2013)
Post &
Railways
(1 Jan 2014)
after
Telecoms
(Mid of 2014)
Financial
services &
insurance
( 2015）
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Real estate &
Construction
(2015）
The remaining cities and
provinces in China
Other services,
entertainment
(2015）
17
Scope of VAT Pilot Program
Industry
VAT Rate
Leasing of tangible movable property
17%
Transportation services including railway
11%
Postal services
11%
Research and development (R&D) and technical services
6%
Information technology (IT) services
6%
Cultural and creative services
6%
Logistics and ancillary services
6%
Certification and consulting services, translation, bookkeeping
6%
Radio, film, TV
6%
Small scale VAT taxpayers
3%
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
Key VAT implications for cross-border service transactions
Location of supplier
Location of recipient /
place of consumption
VAT treatment
In China*
Outside China*
Zero-rated or exempt
Outside China
In China
Recipient may claim input VAT credit
Outside China
Outside China**
Not subject to VAT
* Provided the services are not related to goods or real estate located within China
** Services wholly consumed outside of China and Leased goods used entirely outside China
Output VAT
Creditable input VAT
Zero–rated
No
Yes
Exempt
No
No
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
19
Impact of VAT Reforms on Profitability
BT Regime
VAT Regime
Sales Revenue ($)
100
?
BT payable @ 5%
5
N/A
VAT – output ($)
N/A
?
Costs of Sales($)
80
?
VAT - input($)
N/A
?
Profit($)
15
15
Tip 1: Try to
Seek to pass on
pass on VAT
VAT to
costs to
customers
customers
Ensure cost
savings of
suppliers is
passed on
Maximise input
VAT credits
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
20
Brazil and Mexico
Update
Southeast Michigan TEI Chapter
April 29, 2014
Murilo Rodrigues de Mello
Partner
KPMG Brazil
Jose Manuel Ramirez
Partner
KPMG Mexico
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING
PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING,
MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS
ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction described in
the associated materials we provide to you, including, but not limited to, any tax opinions,
memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be determined
through consultation with your tax adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
1
Dated Material
THE MATERIAL CONTAINED IN THESE COURSE
MATERIALS IS CURRENT AS OF THE DATE PRODUCED.
THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO
INCORPORATE ANY TECHNICAL CHANGES
TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS
TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE
RESPONSIBLE FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY
TECHNICAL CHANGES SINCE THE PRODUCTION DATE AND WHETHER OR
NOT
THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR
PRESENTATION TO CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON
NATIONAL TAX AND RISK MANAGEMENT-TAX AS PART OF YOUR DUE
DILIGENCE.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
2
Agenda
Topic
Presenters
Overview
Murilo Rodrigues de Mello
Brazil Tax Update
Murilo Rodrigues de Mello
Mexico Tax Reform
Jose Manuel Ramirez
Wrap-Up
Jose Manuel Ramirez
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
3
Brazil Tax Update
Corporate
income tax
Corporate Income taxes
Tax regimes
Presumed Profit
Actual Profit
Quarterly or annual basis (pre-payments on annual
regime)
Taxable income: Company’s profit adjusted
Utilization of tax attributes (NOLs, amortization of
premium, etc.)
Quarterly basis
Taxable income: “deemed profit margin on gross
sales (8%, 12%, 32%)
No tax attributes
PIS and COFINS – Cumulative system (3.65%)
PIS and COFINS – Non-cumulative system (9.25%)
Requires more support documentation
To be eligible revenue requirements must be met
(e.g. maximum annual revenues of R$ 78 million)
What to “Tax Watch” FY2014?
 IFRS conversion issues, e.g. separate book entries, dividends taxation, gross revenue
“new” concept.
 New electronic tax compliance “environment”
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
6
IFRS conversion
Provisional Measure (“MP”) 627/2013
2007
2009
Law
11,638
Law
11,941
New
accounting
criteria and
methods
(IFRS)
RTT
(Transitory Tax
Regime) was
introduced to
neutralize
accounting
effects for tax
purposes
2013
Opinion
(“Parecer”)
PGFN 202
Profit
based on
the RTT for
the
exemption
on dividend
distribution
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
2013
2013
Normative
Instruction
1,397
Provisional
Measure
627
Changes in the
implementation
of the RTT
Extinguishes
the RTT and
aligns tax
computation
with IFRS.
7
IFRS conversion
Provisional Measure (“MP”) 627/2013
Summary of some significant changes:
 Termination of the Transitory Tax regime (“RTT”). IFRS conversion will



become effective on January 1st, 2015, however, there is the option to
adopt (irrevocably) its provisions as of January 1st, 2014
Repatriation aspects: Potential discussions regarding withholding taxation
on dividends. Interest on net equity (INE) benefit remains as a good source
of repatriation
Goodwill Tax Amortization: tax benefits preserved following IFRS allocation
methods (e.g., PPA). New requirements and restrictions are introduced:
fillings for PPA report, “in-house” goodwill forbidden on intra-group
transactions and exchange of shares could not create goodwill. Important:
former rules may still be applicable for mergers occurred until December
31st, 2015, whose corporate participation was acquired until December
31st, 2014
Brazilian CFC rules: new rules and concepts introduced (e.g., “passive
income” tests, tax deferrals)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
8
IFRS conversion
Provisional Measure (“MP”) 627/2013
Dividends
Company
Abroad
Abroad
Brazil
Brazilian
Company
Brazilian
Company

Potential differences (Book profits x Tax profits)
distributable as dividend could trigger WHT:

Brazilian resident individuals (7.5% - 27.5%)

Brazilian resident legal entities (34% or 40%,
financial services)

Non-residents (15% or 25%, low tax jurisdictions)
Interest on Net Equity (INE)
 15%-25% WHT
 Net equity basis
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
9
Tax Structuring
Tax structuring
Tax efficient strategies

Foreign
Investor
Still available potential opportunities in domestic
acquisitions through stock deals:
 “Step-up” assets and goodwill tax amortizable –
Abroad
deducted for tax purposes
Brazil
 “Substance over form” – no final precedent and
Holding
issues for implementation

Funding
 Certain notes-debentures could offer WHT tax
Company
exemption
 Debt / Equity alternatives
 Thin cap rules
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
11
Tax structuring
Shareholder control issues

US investor
“Two tier” foreign shareholder structure
 Direct control tax determination: potential tax
benefits deriving from participation
exemption regimes and repatriation
alternatives (INE and dividends)
Foreign
Holding
 Utilization of previous “tested” jurisdictions
Brazil
 Favorable double tax treaty provisions
Company

Non-resident capital gains
 Recent changes on cost basis determination
 Indirect transfer of shares and “substance”
issues
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
12
How to structure your investment in Brazil?
FIP structure
Investors
A
Investors
B
Investors
FIP structure
 Income and capital gains
exempted at FIP’s level
C

No WHT on disposal or
amortization of FIP quotas

Premium opportunity when
having a Brazilian company
owned by the FIP to acquire
Target (when there is genuine
business purpose)

IOF tax (zero percent on the
inflow of funds and on capital
repatriation)
Abroad
Brazil
FIP
Holding
Target Co.
Participation
must be less
than 40% of
shares and up
to 40% of
proceeds
Just corporations (S/A)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
13
Funding and Repatriation
Alternatives
INE
Dividends


No WHT on
dividends
IOF zero-rated
 No tax deduction in
Brazil
 Potential trapped
cash – no
repatriation until
sufficient earnings
to pay dividends
± Recent issue:
Potential WHT
taxation on
distributions (IFRS
vs. Tax accounting)


Tax deduction in
Brazil
IOF zero-rated
 WHT of 15% or
25% (low tax
jurisdiction)
 Potential trapped
cash/ limitation:
50% of current
profits / profits
reserve (and TJLP
on net equity)
± Treatment on
beneficiary country
Exit
Interest on loan

Tax deduction
(subject to transfer
pricing, thin-cap
rules and relation
with the activity of
the company)
 WHT of 15% or
25% (low tax
jurisdiction)
 Foreign Exchange
impacts
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466

FIP
 Disposal of Brazilian
company: No WHT
 Withdrawal of FIP
quotas: No WHT (if
requirements are
met)

Direct investment
 Taxable non-resident
capital gains (15% or
25%, low tax
jurisdiction)

Brazilian Holding
 Disposal of Brazilian
company: 34% of CIT
14
IFRS conversion
Cost reimbursement arrangement
Company
Abroad
Abroad
Brazil
Brazilian
Company
Possible tax efficient repatriation alternative
 Important recent administrative precedent recognized
cost reimbursement
 Challenges for cost reimbursement implementation:
 Not risk free transaction: lack of specific tax
provisions and existence of contradictory
precedents (services?)
 Transfer pricing and other compliance issues (e.g.
Central Bank, SISCOSERV, etc.)
 Treatment of cross border taxes (PIS, COFINS,
CIDE, ISS)
 Supporting documentation and determination of
“reasonable criteria” based on facts and
circumstances
 Necessity of feasibility analysis prior to implementation
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
15
IFRS conversion
New administrative position (“PN PGFN 2,362/2013”)
Company
Abroad
Abroad
Brazil
Brazilian
Company
Technical services
 New Brazilian Federal Revenue position (“PN PGFN
2,363/2013”): WHT exemption under certain
conditions:
 Cross border payments involving the payment of
technical services (without the transference of
technology)
 Payment to beneficiaries in countries with treaty
signed with Brazil
 Treaty provisions could enable the treatment of
services as “business profits” (Article 7)
 Unfortunately no Double Tax Treaty with US (only a
treaty to exchange information)
 Analysis on a case by case basis
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
16
Indirect taxes
Indirect taxes up-dates
ICMS Tax Competition

1988 Federal Constitution

States regulation (“RICMS”)

27 states

Intra state transaction and tax
incentives:
 ICMS intra state transaction:
different tax rates, e.g. 12%,
7%, 4%
 ICMS tax incentives x CONFAZ
regulations
 Tax litigation involving ICMS tax
incentives

Main takeaways:
 Impacts on supply chain
 Necessity to assess tax
incentives and tax planning
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
18
Indirect taxes up-dates
ICMS accumulated credits
Foreign
Supplier
ICMS
18%
ICMS
4%
BR Seller
(SP)
Import
Resale
BR Buyer
(Other State)
Potential tax credit
accumulation eliminated
Credit
18%


Debt
4%
~14% credit
The company must present a tax model study on ICMS credit
position - Portaria CAT 108/2014
The application must comply with other rules, e.g. clearance
certificate and may attract tax inspection
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
19
19
Indirect taxes up-dates
Other topics

ISS
 Potential new regulations regarding cloud computing services (PLS
386/12). Draft legislation still pending.

No major tax reform is expected
 However “per taxes” reforms or changes should be expected

FY2014-15 there might have important judicial precedents ruled by Supreme
Courts
 IFRS conversion: potential impacts for PIS-COFINS computation

Increasingly electronic tax compliance
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
20
20
Other topics
Tax incentives - R&D Technological innovation
In general lines, technological innovation incentives may grant for the
taxpayer the following tax benefits:
• Special deductions and tax reductions on the income tax computation in
connection to expenses incurred during technological research
• 50% tax reduction of the IPI levied on machines, equipments or spare parts and
tools in connection to technological research
• Full depreciation in the year of acquisition of new fixed assets in connection to
technological research
• Accelerated amortization for intangible assets acquired in connection to
technological research
• WHT zero-rated on remittances abroad related to trademarks, patents and
cultivars
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
22
ECF—The new corporate income tax filing
What is ECF?

A new tax filing obligation that will require all information concerning the
corporate income tax (IRPJ) and social contribution on net profit (CSLL)
calculation base as well as all accounting records that support the tax
computation

The ECF will replace the current corporate income tax return (known as DIPJ)
When does it become mandatory?

It is mandatory for the 2014 tax year and must be filed by mid-2015
Penalties for late filing or errors

Heavy penalties can be enforced:

0.025% of the company’s gross revenue per month of delay (limited to 1%) in
case of late filing

5% of the value of the information omitted or provided with error

Note: Legislation is being discussed in the Brazilian Congress that may reduce
these penalties
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
23
eSocial
What is eSocial?

eSocial is one of the modules of the SPED program and it aims to unify the tax,
labor, and social security obligations which will be required to be submitted
electronically
When does it become mandatory?

For companies on the actual profit system (any company with annual gross
revenues higher than US $32 million):October, 2014 (date still to be ratified by
the tax authorities)


For companies subject to other tax regimes: under discussion
Labor events (e.g. admissions, rescission of employment contracts, salary
changes, function changes, etc.) must also be provided immediately. In other
words, labor events recorded in eSocial will be validated at the time submitted.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
24
eSocial
Information to be provided

Technical layout: eSocial has 44 types of files containing approximately
1,760 fields.
 Much of the required information is not in existing payroll systems and needs
to be collected in another systemic platform.
Human
Resources
■
Labor Events
■
Labor Changes
■
Payroll
■
Taxes and
Contributions
on Payroll
Financial /
Accounting
■
■
Payment of
Taxes and
Contributions
Payment for
Services
Rendered
■
Cash Receipts
for Services
Rendered
■
Accounting
Data
Labor
safety
IT
■
Interfaces
■
Information
Extraction
■
Information
Security
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
■
Health and
Workplace
Safety
Information
(Professional
Profile for
Social Security,
etc.)
Legal
■
■
Labor Claims
Judicial
Deposits
25
ECF—The new corporate income tax filing
What is ECF?

A new tax filing obligation that will require all information concerning the corporate
income tax (IRPJ) and social contribution on net profit (CSLL) calculation base as
well as all accounting records that support the tax computation

The ECF will replace the current corporate income tax return (known as DIPJ)
When does it become mandatory?

It is mandatory for the 2014 tax year and must be filed by mid-2015
Penalties for late filing or errors

Heavy penalties can be enforced:

0.025% of the company’s gross revenue per month of delay (limited to 1%) in case
of late filing

5% of the value of the information omitted or provided with error

Note: Legislation is being discussed in the Brazilian Congress that may reduce
these penalties
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
26
Mexican Tax Reform
Mexican tax reform 2014 – Background and overview

Global pressure to increase tax collection and reduce special regimes

On October 31, 2013, the Senate approved the 2014 economic package, together with a tax
reform.

Among the most outstanding of the tax reform are:
 Issuing a new Income Tax Law (simplification + fiscal symmetry):
o
Elimination of certain special tax regimes
o
Elimination of certain deductions
o
Elimination of certain tax incentives
 Imposing special excise tax of 8% to the so-called junk foods
 Repeal the IETU (the single rate business tax, transitory rules to be analyzed)
 Repeal the IDE (the tax on cash deposits)
 Imposing Green Taxes

Contrary to expectations, there are no proposals to impose value added tax (VAT) on food
and medicine; however, several other exemptions are being repealed.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
28
Income tax law
Corporate Tax

Impose a corporate income tax rate of 30%

Repeal the current phase-down of the corporate income tax rate
 29% for FY 2014 and 28% for FY 2015 onwards
Tax Consolidation is repealed a new integration regime is incorporated
Proposals to Repeal or Limit Deductions

Immediate and/or accelerated depreciation of investment would no longer be applicable.

Contributions to pension and retirement funds would only be deductible for an amount
equal to 47% or 53% of the contributions made to pension funds, pensions and seniority
premiums it fulfilling the requirements established in the Law.

“Exempt remunerations” paid to workers would only be deductible for an amount equal to
47% or 53% (reason?) of the payment.
 i.e., social security, saving funds, annual gratuity, and overtime
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
29
Income tax law & international aspects

Withholding Tax on interest – 4.9%

Application of Tax Treaties’ benefits
 Transactions between related parties,
 The foreign resident to prove the existence of “legal” double taxation through a
statement, made under oath and signed by the taxpayer’s legal representative.
Tax on Dividends

Corporate income tax withholding of 10% on profits and dividends paid to Mexican
individuals and foreign residents.
 Dividends paid to other Mexican legal entities are exempt.
 Apply benefits given by the double tax treaties.
 Permanent establishment – self-assessment of the tax
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
30
Income tax law & international aspects (continued)
Proposals to Repeal or Limit Deductions the BEPS influence…

Payments of expenses to persons, legal entities, trusts, partnerships, investment funds, as
well as any other legal vehicle whose income is subject to preferential tax treatment, would
not be deductible unless the taxpayer demonstrates that the price or the amount of the
consideration is equal to the price/amount that would have been agreed to in comparable
transactions between independent parties.

Payments made by a Mexican tax resident when also deducted by a related party either
resident in Mexico or abroad, would not be deductible, unless the income is taxable by the
related party.

Payments made to a foreign entity that controls or is controlled by the taxpayer, with
respect to payments of interest or royalties or payments for technical assistance, and that
fall under any of the following circumstances, would not be deductible:
 The entity receiving the payment is transparent (exceptions)
 The payment is considered as non existent (SRL)
 The foreign entity does not consider the payment as taxable income in accordance with
applicable tax provisions (hybrid instruments)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
31
Income tax law & international aspects (continued)
Changes Affecting Foreign Pension Funds

The threshold to take advantage of a capital
gains exemption would be increased:
 The real estate would have to be leased for a
period of at least four years (instead of one,
as currently required).
 The capital gain could not be derived from a
trade of business conducted by the foreign
pension fund.
 Computation of 90% threshold
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
32
Income tax law & international aspects (continued)
Foreign Tax Credit

Several adjustments are being proposed to
Mexico’s foreign tax credit regime.

Changes would provide guidance for
determining the limits of creditability.
 Controlling the foreign tax paid on a
country basis
 Limiting the potential blending between
low and high tax foreign income
Capital Gains in Stock Market

The current exemption with respect to gains realized on the alienation of shares via
a stock exchange transaction would be repealed for Mexican individuals and
foreign residents. (Treaty countries residents may still be exempt)
 All gains would be subject to tax at a rate of 10%.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
33
Maquiladora and IMMEX

They must perform a maquila operation;

They must usually process in the country goods or merchandise maintained therein by the
nonresident or by a third party having a commercial relationship with the maquiladoras’
customer. The goods or merchandise supplied must be subject to a transforming or repair
process and must be temporarily imported into Mexico in order to be subsequently
exported, including through virtual transactions. If, in said process, national or foreign
merchandise not temporarily imported were used, these must be exported jointly with that
merchandise that was indeed temporarily imported;

They must use assets provided, directly or indirectly, by the nonresident or any related
company. The assets (machinery and equipment / M&E) used in the transformation or
repair process may not have been owned by the company performing the maquila
operation or by a related party residing in Mexico. Additionally, at least 30% of the
machinery and equipment used in the maquila operation must be provided by the
nonresident. Maquiladoras that were operating as such and complied with transfer pricing
rules applicable to maquiladoras before January 1, 2010 and that do not comply with this
requirement would have a two years period to reach the minimum of 30% of M&E to be
provided by its Principal resident abroad (Grandfathering Clause included in the Decree
with tax benefits)

The nonresident must reside in a country that has signed a treaty to
avoid double taxation with Mexico;
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
34
Maquiladora and IMMEX

The maquiladora must comply with the provisions regarding transfer pricing. For these
purposes the maquiladoras may use the scheme known as “Safe Harbor” in both
modalities: 6.5% over the total maquila costs and expenses or 6.9% of total assets used
in the maquila operation, whichever is greater, or request an Advance Pricing Agreement
(Acuerdo Anticipado de Precios) to the Mexican tax authorities. The other options
regarding economic studies are eliminated;

The total income derived from their productive activities must exclusively result from
their maquila operations; for these purposes, it is understood that maquiladoras cannot
sell in Mexico the goods that were manufactured by themselves; however, they can
carry our other activities such as: shared services, centralized treasury, etc., as long as
they maintain a clear separation between the different business activities. For those
maquiladoras that as of the date this new requirement started to be in force do not
comply with the same in connection with the sales in Mexico will have until July 1, 2014
to comply with the same (to stop selling directly in Mexico).

With regard to maquiladoras under a shelter program, the regime presently contained in
the Federal Revenue Law (Ley de Ingresos de la Federación) is incorporated into the
law, limiting the time during which the nonresident may operate under said modality to 4
years;
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
35
Maquiladora
Changes (continued)
Maquiladora – Comparative Example of Benefits
Current Regime
New Regime
Applicable corporate tax rate
Combined of 17.5%
Corporate income tax rate of 30%
Tax benefits (income tax exemption and
flat tax credit) were repealed.
Transfer pricing compliance
Three methodologies are allowed:
 Economic study with 1% of foreign assets
 Safe harbor (6.5% over costs and 6.9%
over assets)
 Economic study under return of assets
scheme
 Possibility to request an APA
Options allowed would be:
 Safe harbor
 Possibility to request an APA
Definition of maquila operation
– restriction to carry out
different business activities
None
Maquiladoras cannot sell directly in the
Mexican market – transition up to July 1,
2014
Value added tax – temporary
imports and transfers of goods
Currently exempted

© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Taxable with three options available
to handle this tax:
o Obtain a certification as to be a
taxpayer in compliance – a tax
credit equal to VAT triggered is
granted
o Submit a bond as guarantee of the
VAT triggered
o Pay the VAT an ask for the refund
36
Maquiladora
Changes (continued)
Maquiladora – Comparative Example of Benefits
Current Regime
Value Added Tax – Sale of
goods by foreign residents to
IMMEX entities
Currently exempted
Combined effects of changes
above mentioned
New Regime
Taxable.
o The possibility of an immediate credit
of the VAT against the VAT
withholding to be made to the foreign
resident (Tax Decree)



© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
Higher corporate rate and taxable
base
Need to obtain a Certification for VAT
purposes to avoid additional financial
costs related with obtaining the
refund of the same.
Possible double taxation
37
Special tax on production and services
Special Tax on Production and Services (IEPS)

Flavoring drinks, concentrates, powders, syrups,
essences or flavors extracts, containing any type of
added sugar (soft drinks, canned milkshakes,
yogurts, etc.)

Including energizing beverages
 Subject to USD $0.08 per liter

No changes would be made to the taxation of
alcoholic beverages; thus, the current rates would
continue with a possible rate reduction in future
years.

This tax does not levy the commercial chain, but
applies only to the importer and the manufacturer or
producer.
Exchange rate used is MXN $13 = USD $1.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
38
Special tax on production and services (continued)
Special Tax on Production and Services (IEPS)

Also, for health protection reasons, a new tax of 8%
to some foods with a caloric density of 275 kcal or
more per 100 grams is introduced.
 Foods subject to this tax are: snacks, confections,
chocolates and other cocoa products, custards,
puddings, fruit and vegetables sweets, peanut and
hazelnut cream, milk sweets, prepared foods from
cereals, ice cream and popsicles.

Hearing Guaranty – closure of games and raffles

Carved Tobacco

Cigarettes – Security codes
 Printing
Exchange rate used is MXN $13 = USD $1.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
39
Special tax on production and services (continued)
Special Tax on Production and Services (IEPS) – Green Taxes

New taxes would be imposed, under an “ecological purpose” regime, for the
following reasons:
 Gradual reduction of carbon dioxide emissions, greenhouse gases, and
 Gradually reducing the use of pesticides that indirectly cause damage to
health and the environment.

It is proposed to set specific quotas by fuel type, considering the tons of carbon
dioxide per unit volume, to the import and sale of fossil fuels.
 US$5.70 carbon ton
 Table

In the case of pesticides, the import and sale would be taxed at rates that range
from 6% to 9%, depending on the level of toxicity. Transition rates during 2014.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
40
Federal tax code
Tax Mailbox

Communication with Tax Authorities – Taxpayers

Notice– Promotions– Devolutions– Advisory

Notice confirmation

Electronic review – pre liquidation

Motion for reconsideration
Digital Tax Invoices

Applicable to all transactions

Withholdings

Rules

Suppliers authorities reversal

Assumption regarding non existent operations
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
41
Federal tax code (continued)
Conclusive Agreements

Participation of the PRODECON

The agreements will be mandatory and not appealable

100% Fine remission

Similar to the “Settlement” structure in different countries.
Joint Responsibilities

Partners or stockholders

Participation percentage increased

Effective control is restricted

Executor
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 249466
42
Presenter Information
Murilo Rodrigues de Mello
Partner
KPMG Brazil
Jose Manuel Ramirez
Partner
KPMG Mexico
FATCA for
Nonfinancial
Companies—
Common
Implementation
Issues
April 22, 2014
NOTICE & DISCLAIMER
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN
BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER
PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation,
the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide
to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those
materials.
The information contained herein is of a general nature and based on authorities that are subject to change.
Applicability of the information to specific situations should be determined through consultation with your tax
adviser.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
1
FATCA: What is it?
FATCA is not a tax.
It’s an information reporting regime with a “tax”
imposed as a noncompliance penalty.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
2
FATCA: What is it?
In the fallout of various U.S. tax evasion scandals, Congress passed
the Foreign Account Tax Compliance Act (FATCA), IRS sections 1471
through 1474

Aimed at identifying U.S. tax evaders, FATCA requires foreign payees to
disclose their involvement with significant U.S. investors (i.e., substantial US
accountholders and owners)

Foreign payees who fail to comply suffer a 30 percent charge on their own
cross-border payments

Withholding agents are required administer the new rules, and take secondary
liability mistakes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
3
FATCA: What is it?
FATCA backstops investor self-reporting with foreign payee and
withholding agent disclosures.
IRS
Returns that may not fully
disclose investment
information
Substantial US
investor information
Owners
Withholding
agent
Documentation
showing compliance
$$$ subject to a 30%
penalty for
noncompliance
Foreign
Payee
Accountholders
Instead of one, unreliable stream of information, the IRS now has several streams.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
4
FATCA: What is it?
FATCA uses the same operating mechanisms as §1441 withholding
But – FATCA targets a different problem than current §1441 U.S.
withholding regime
???
Withholding
agent
Responsible for
collecting the required
information or the 30
percent tax, and has
secondary liability for
mistakes
Qualifying payment
triggers application
FATCA
targets
visibility at
investor
level
Foreign
Foreign payee
1441 targets
visibility at
payee level
Has primary liability for
tax on the payment,
unless valid
documentation is
provided
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
5
Overview of Issues
On the Payment
Side
On the Payee
Side
Parent
Payors as Withholding
Agents (often US
entities):


What payments are in
scope?
Classification
and documentation
responsibilities:
U.S.
Group
What documentation do I
need to collect?

What are my reporting
obligations?

What payments must I
withhold upon?
U.S. Sub
Secondary liability,
penalties and interest

Penalties for reporting
failures

Strain on vendor
relationships
What is my
classification?

What do I need to do to
avoid being withheld
on?
U.S. Sub
Foreign
HoldCo
Exposures if NonCompliant:


Foreign
Sub
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
Foreign
Sub
Exposures if NonCompliant:

30% withholding

Foreign bank account,
brokerage, or custody
account termination
6
Payment Side
The Payment Side of FATCA
???
Withholding
Agent
Responsible for collecting the
required information or the
30% tax, and has secondary
liability for mistakes
Qualifying payment
triggers
application
FATCA targets visibility
at investor level
Foreign
Foreign
Payee
1441 targets visibility at
payee level
Suffers tax on the payment
unless valid documentation
is provided
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
8
The Payment Side of FATCA
Since FATCA piggybacks off §1441, it’s easiest to talk about FATCA
in comparison to the §1441 rules

Operating mechanism: Generally the same –

Withholding agent collects tax forms and information from payees,
determines the applicable withholding, and remits any tax to the government

30% default withholding applies unless valid documentation is provided

The withholding agent is also responsible for annual information reporting on
payments, related tax and payees

Stakes for withholding agents: Generally the same –

Secondary liability for failed withholding, plus interest and penalties

Penalties also apply for information reporting failures
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
9
The Payment Side of FATCA

Scope of payments: Different – FATCA is both broader and narrower than
§1441 withholding.

FATCA applies to US source FDAP

Plus gross proceeds from the disposition of property that gives rise to US
source dividends and interest (e.g., positions in U.S. securities)

BUT there are two major exceptions from withholding:
1. Payments on grandfathered (pre-July 1, 2014) obligations

Need to have an “obligation”

The obligation cannot be “materially modified” (and treated as a brand
new obligation) after July 1, 2014, or it loses its grandfathered status
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
10
The Payment Side of FATCA
2. Low risk, nonfinancial payments (“excluded nonfinancial payments”)

The exception covers payments for services and the use of property, and a
few additional items (e.g., prizes and awards, gambling winnings)

Also includes interest on accounts payable arising from the acquisition of
goods and services

Explicitly excludes certain financial services-type payments, such as
payments on financial instruments, insurance premiums, broker or custodian
fees, dividends, and other types of interest
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
11
Chapter 4 Reportable Amounts
FATCA reporting applies to all kinds of “typical” payments, although some
may be eligible for exceptions from withholding:
Foreign 3P
Law Firm
Foreign
Insurer
US riskrelated
premiums
US source
services
fees
Interest on
productrelated A/P
US source
dividends
and (post2016) stock
redemption
proceeds
US
OpCo
public
US Parent
Corporation
US source
royalties
US source
interest
Foreign
Bank
Foreign
IP Co
International
shipping fees
Foreign 3P
Vendor
Foreign
Shipper
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
12
Two Paths to Withholding Exception?
Payee Exception
Payment Exception
• Non-Financial
or
Grandfathered
Obligation
• Payor to
Classify
• FATCA
Classification
• Payee
provides W-8
Challenges
• Payor must classify payments
• Systems/ Processes needed to classify
• Ongoing review of contracts (material
modification)
• Counterparties provide W-8 information
• Systems and Process to collect and compile W-8 information
Incremental
efforts
• For financial payments need to collect
W-8 forms
• For non-responsive payees, need to determine payment
exceptions
Reporting
• 1042-S reflecting exemption codes
• 1042-S reflecting payee status
Risk
• Misclassification risk generally on payor
• Misclassification risk generally on payee
Solution: Most often a combination of the two approaches, depending on company involved
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
13
Required Reporting
Reporting will include additional information your systems are not currently capturing, for
example:
9 new exemption
codes
34 new status
codes
New Form
W-8 BEN-E
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
14
Penalties Example
A Co is a domestic corporation that, in 2014, pays a foreign vendor (“FC”) $1 million of US source
interest. FC is a foreign entity. A Co fails to obtain a form W-8BEN-E from FC, fails to withhold on
its interest payments, and fails to file its related forms 1042 and 1042-S. A Co is liable for
withholding and penalties as follows. In addition, interest will run on the $428,571 withholding
payment and any accuracy-related or failure to file penalties due starting on March 15, 2015, the
due date for A Co’s Form 1042.
Consequence
Withholding Agent’s Liability
Gross Up or Pyramid Effect1
Total Liability with Gross Up
Penalty
Failure to File
Failure to Pay
Failure to Deposit
Failure to File Information Reporting Return
Total Penalty Calculation
Intentional Disregard
Calculation
30% x $1,000,000
Maximum Due
$300,000
$1,000,000/.7 = $1,428,571
30% x $1,428,571
$428,571
Calculation
$428,571 x 5%/month
$428,571 x .5%/month
$428,571 x 10%
23 x $100
$1,428,571 x 10% x
Total Potential Liability
Maximum Due
25% = $107,1432
25% = $107,1432
$42,857
$200
23
$246,628
$285,714
$960,713
1
This could arise, e.g., if the parties’ agreement specifies that the withholding agent will pay the foreign payee net of withholding.
2
Note, there is some slight offset of these two penalties, so that the maximum combined penalty for the failure to file and failure to pay is $203,571.
3
For each withholding agent, the failure to file information reporting return penalty for a calendar year cannot exceed the specified amount as applied to
each missing form (e.g., A Co could be liable for intentional disregard failure to file with the IRS and also for failure to furnish to the payee, for penalties up
to 10% of the $1,428,251 payment for each of the Form 1042-S related to an unreported payment). This penalty will apply for reportable payments, even
if no withholding is due.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
15
Payee Side
The Payee Side of FATCA
FATCA addresses TWO types of foreign payees / basic mechanisms
for evading U.S. tax
Foreign financial institutions
(FFIs) are required to identify their
substantial U.S. accounts, obtain
U.S. accountholder tax
information, and report to the IRS
U.S.
persons
Unreported
foreign
assets in
financial
accounts
Non-financial foreign entities
(NFFEs) are required to report
their substantial U.S. owners, or
to certify that they are eligible for
excepted, “low-risk” status
Undisclosed
interests in
foreign
entities
Foreign payees need to certify to the withholding agent that they are complying with
their FATCA requirements, or suffer 30% withholding on their own qualifying
payments.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
17
The Payee Side of FATCA
Foreign payees must be classified and their status reported on new Forms W-8BEN-E
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
18
Identify FFIs and NFFEs
Nonfinancial Foreign Entity
Foreign Financial Institution
Banks
Holds financial
assets for others
Accepts
deposits
Investment
Entities &
Pension Funds
Conducts
investment
activities for a
customer (or
managed by the
same)
An NFFE is any foreign
entity that is not an FFI.
Custodians
Foreign Financial
Institutions
(FFI)
Certain Treasury Conducts group
Centers and
financing or
HoldCos
hedging
activities
Issues Cash
Value Insurance
or Annuity
Contracts
Specified
Insurance
Companies
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
Once the determination of NFFE
status is made, an entity may either:
1. Disclose substantial US owners to
the withholding agent or directly to
the IRS
2. Assert Excepted NFFE status
–
Publicly traded corporation or
Subsidiary of foreign publicly
traded corporation
–
Active: 50 & 50 test
19
Types of Financial Institutions
Classification
Characteristics
Bank (Depository)
• Accepts deposits and performs banking activities (e.g.,
makes loans) in the ordinary course of business
Custodian
• Holds, as a substantial percentage of business, financial
assets for the benefit of one or more persons
• Substantial Percentage: ≥ 20% of gross income during 3
year testing period
Investment Entity
• Primarily conducts one of the following on behalf of its
customers:
• Trading, Money Market, Currency, Securities,
• Portfolio Management; or,
• Investing, administrating funds or financial assets.
• Primarily conducts: ≥ 50% of gross income over 3 years
Insurance Company or
Holding Co
• EAG has insurance company or insurance holdco issuing
cash value policies or annuities
Holding Co or Treasury
Center
• EAG includes bank, custodian, insurance company,
investment entity or is used for investment activities
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
20
Potential Relief for Nonfinancial Groups
Possible movement from FFI to NFFE if:
A. Group qualifies as “nonfinancial”
1. ≤5 % of the group’s gross income is derived by FFI affiliates;
2. ≤25% of the group’s gross income in preceding 3 yrs consists of passive income; and
3. ≤25% of group’s assets (FMV) hare held for production of passive income
Must review group entities to make determination
AND
B. Entity is one of the below:
1. Holding Company: Primary activity consists of holding the stock of expanded affiliated group
2. Treasury Center: Primary activity is to enter into investment hedging and financing transactions with
or for members of expanded affiliated group for managing certain financial risks or acting as
financing vehicle
3. Captive Finance Company: Primary activity is to enter into financing or leasing transactions with or
for suppliers, distributors, dealers or customers of such entity or any member of the expanded
affiliated group
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
21
Intergovernmental Agreements
What is an IGA?

Foreign law may restrict an FFI’s ability to comply with the FATCA regulations. The Treasury
and IRS have developed an alternative approach to FATCA compliance that takes these
restrictions into account – Intergovernmental Agreements (IGAs)

Under an IGA, the foreign jurisdiction agrees to create rules that will either allows its financial
institutions to report directly to the IRS or report to the foreign jurisdiction (which in turn will
report information to the IRS)
 Under the Model 1 IGA, the financial institutions in the foreign jurisdiction are required to
register with the IRS as participating FFIs, but still have due diligence and reporting
responsibilities to the foreign jurisdiction
 Under the Model 2 IGA, the covered financial institutions are required to register with the
IRS as participating FFIs and report to the IRS
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
22
Intergovernmental Agreements
Why do multinationals care?

IGAs (and their local implementing regulations) contain their own definitions of “FFIs”

IGAs apply to resident entities as well as local branches, so the analysis may be more
complicated than expected
U.S. Co
China
HoldCo
U.K. DE
Swiss DE
What rules apply to determine FFI/NFFE status?
(For now) regulations, taking U.K. and Swiss income
and activities into account
(If any) maybe U.S.-China IGA, applied only to
China HoldCo’s income and activities
U.S. – U.K. IGA, applied only to U.K. DE’s income
and activities
U.S. – Switzerland IGA, applied only to Swiss DE’s
income and activities
If you have foreign affiliates that need to determine their FATCA status, you will have to do
the analysis early – and possibly often.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
23
FATCA: Common
Implementation Issues
Common Implementation Issues
Challenges faced by Clients:

Gaps in Chapter 3 Reporting

New Challenges with FATCA reporting—Payor Side

Payee Classification Issues and Uncertainty

Pensions Challenges

W-8BEN Validation
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
25
Common Implementation Issues (cont.)
Gaps in Chapter 3 Reporting

Payments to related parties not reported on Form 1042/Form 5472

Lack of good system for maintenance of W-8BENs
 Missing W-8BENs for related party payments
 Not properly validated

Capturing payments for US source services income
 Engineering, Installation, Legal Services

Communications between A/P, Treasury, and Tax
 Changes to treaties or domestic rules not updated
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
26
Common Implementation Issues (cont.)
FATCA Chapter 4—Payor Side:

Determining who is going to own the process (Hot Potato)

Decentralized A/P departments (by plant or because of acquisitions)

Different vendor systems for product related A/P and non-product A/P

Systems issues
 Inability to track different types of payments to vendors (services)
 Practical issues with grandfathering

Ability to stop payments in a PO-based system

Challenges with validation and storage of W-8BEN-Es

Wire payments
 Inability to get detail on what payments relate to
 Payments often made outside A/P process

How to collect information in useable format for reporting (SAP/Oracle)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
27
Common Implementation Issues
Payee Classification:

Lack of instructions for the Form W-8BEN-E

Constantly changing landscape with IGAs

No implementation regulations in most IGA countries

Physical branches

Overlap challenges
 (IGA Countries) Dutch Co (Model 1) with Swiss Finance Branch (Model 2)
 (IGA Country with non-IGA) IGA Holdco with China subsidiary

Determining proper registering entity in branch scenario

Availability of data/complexity determining applicability of non-financial group
exception
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
28
Common Implementation Issues
Pensions Classification:

Control of the pensions often outside the tax and treasury function
 Getting to the right person can be challenging
 Often outsourced making it expensive to get access to required data

Very specific rules based on type of plan
 Need someone in the local country to attest to the type of plan
 Is your plan akin to a section 401 plan? Difficult to determine without an IRS
determination letter or opinion

Technical determination of treaty benefits time consuming if not already
completed
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
29
W-8BEN Validation
W-8BEN Common Issues

The contracting party does not match the name on the W-8BEN
 More than one beneficial owner is named

The form is not signed and legible (no Chinese characters)

Form dated more than 90 days prior to receipt

They do not provide a physical address or the address is US address or c/o address

Claim a treaty benefit for a country with no treaty or the treaty country does not match the
address

Entity type is incorrect or inconsistent. Is this the right form?

Does the person signing have capacity to sign? Certification is crossed out

Claiming treaty benefits but do not complete required sections

Claiming treaty benefits with no TIN (on new form foreign TIN) provided
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 177853
30
Questions?
Contact:
Kortney Wallace
313.230.3056
kdwallace@kpmg.com
Chris Riccardi
404.979.2305
criccardi@kpmg.com
Tax Executives
Institute
KPMG Speaker Bios
April 29, 2014
Peter H. Blessing
Managing Director
Background
Peter is head, Cross-Border Transactions, in the International Corporate Services group of KPMG LLP’s
Washington National Tax practice. Prior to joining KPMG he was a partner at Shearman & Sterling LLP for over 25
years.
Professional and Industry Experience
Peter H. Blessing
Managing Director
KPMG LLP
345 Park Avenue
New York, NY 10154
Tel 212-954-2660 (New York)
Tel 203-406-8052 (Stamford)
Fax 203-286-1926
Cell 917-238-4055
phblessing@kpmg.com
Over this career, Peter has developed a reputation as one of the leading international tax advisors, with broad
experience in the major areas of cross-border taxation. His advice is sought by both industrial and financial clients,
including in the following areas:
 Cross-border acquisitions, corporate inversions, restructurings and financings
 Tax-optimized structuring for flows of goods and services and IP ownership
 Private equity investments
 Treaty planning and ruling practice
Recognition by Clients and Peers

Best Lawyers of America 2012 (New York Area “Tax Lawyer of the Year”), Chambers USA (Tax, Tier 1),
Chambers Global, Euromoney’s Best of the Best USA, International Tax Review (World Tax), Tax Directors’
Hand Book, Who’s Who of Corporate Tax Lawyers, PLC Which Lawyer?, The Legal 500, Super Lawyers, etc.
Publications and Speaking Engagements
 Editor and a co-author of Tax Planning for International Mergers, Acquisitions, Joint Ventures and Restructurings
(Kluwer). Authored a treatise, Income Tax Treaties of the United States (Warren Gorham & Lamont).
 Peter is a frequent lecturer on various aspects of taxation and cross-border taxation at seminars sponsored by
IFA, IBA, ABA, ALI-ABA, NYSBA, CTF, NYU, PLI, GW-IRS, California State Bar, USC Tax institute, and others.
Function and Specialization
Peter specializes in cross-border M&A, financing
transactions and international and treaty planning
Education, Licenses & Certifications

LL.M in Taxation, New York University School of
Law
 JD, Columbia University Law School
 BA, Princeton University
Professional Associations
American Bar Association Tax Section - Vice -Chair Government Relations and Vice-Chair Transfer Pricing
Committee and chair Foreign Activities of US Taxpayers Committee 2004-06







New York State Bar Association Tax Section - Executive Committee member and Chair 2010
International Fiscal Association - Executive Vice President, USA Branch
International Bar Association Taxes Committee – Chair 2011
International Tax Institute - Board member and President 2003-05
Columbia Law School - Adjunct Professor, JD program, 2008-11
Fellow, American College of Tax Counsel
Admitted to practice before the United States Tax Court
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Devon M. Bodoh
Principal
Professional and Industry Experience
Devon M. Bodoh is the co-leader of KPMG’s Washington National Tax International M&A Initiative and a
principal in Washington National Tax. In addition, Mr. Bodoh is the Principal in Charge for the firm’s USBrazil High Growth Market Practice and leads the Inbound Tax Team for Brazil.
Mr. Bodoh advises clients on international and domestic mergers, acquisitions, spin-offs, other divisive
strategies, restructurings, bankruptcy and non-bankruptcy workouts, the use of net operating losses and
other tax attributes, and consolidated return matters.
Prior to joining KPMG, Mr. Bodoh was a partner in the international law firm of Dewey & LeBoeuf LLP.
DEVON M. BODOH
Principal
Washington National Tax
KPMG LLP
1801 K Street, NW
Washington, DC 20006
Tel 202-533-5681
Fax 202-609-8969
Cell 646-752-9444
dbodoh@kpmg.com
Publications and Speaking Engagements
Mr. Bodoh is a frequent speaker on subjects in his practice area for various groups, including the Tax
Executives Institute, the American Bar Association, the American Law Institute/American Bar Association,
BNA/Center for International Tax Education and the Law Education Institute.
Mr. Bodoh is a former chairperson and vice-chairperson of the American Bar Association's Committee on
Affiliated and Related Corporations and is an officer of the American Bar Association's Corporate Tax
Committee.
Function and Specialization
Mr. Bodoh is an adjunct professor at George Mason University School of Law. In addition, Mr. Bodoh is a
member of the Dean's Advisory Board for the University of Detroit School of Law.
Education, Licenses & Certifications
Representative Clients
AT&T, Inc., Bank of America Corporation, General Electric Company, General Motors Company, Grupo EBX,
HCA Holdings, Inc., Iochpe Maxion SA, Itau Unibanco, NCR Corporation, Odebrecht SA, Pfizer Inc., the
Walt Disney Company and Viacom
Mergers, acquisitions, spin-offs, divestitures,
liquidating and nonliquidating corporate distributions,
corporate reorganization, and consolidated returns
• LLM, Taxation, New York University of Law
• JD, University of Detroit Mercy School of Law
School
• BBA, University of Michigan Stephen M. Ross
School of Business
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
J. Michael Cornett
Principal
Background
Mike is a principal in the International Corporate Services group of the Washington National Tax practice. He
began practicing in the federal income tax field in 1984 with an emphasis in international tax issues since
1988. Mike specializes in complex international corporate tax issues including international corporate
restructuring and supply chain structuring. Specific areas of substantive expertise include subpart F planning,
cross border transactional planning and structuring, mergers and acquisitions (domestic and international),
joint venture structuring, entity classification, check the box planning, intangible property planning, and
electronic commerce issues.
Professional and Industry Experience
J. Michael Cornett
Principal
KPMG LLP
1801 K Street, N.W.
Washington, D.C. 20006
Tel 202 533 5202
Cell 202 412 0783
Fax 202 330 5065
mcornett@kpmg.com
In addition to working for other Big 4 accounting firms and major law firms, he was the Special Counsel to the
Associate Chief Counsel (International) in the Chief Counsel’s Office at the Internal Revenue Service. As
Special Counsel, he reviewed and assisted in developing positions for PLRs, FSAs, TAMs and controversy
matters on numerous issues. In addition, he was involved in several guidance projects including extensive
involvement in the final regulations under Section 367(a), Section 367(b) and Subpart F. During the course of
his career, Mr. Cornett also has handled negotiations with the IRS on various international tax matters
including cost sharing arrangements and Competent Authority matters.
Representative Experience
•
Developed and implemented Swiss principal structure for a major clothing retailer that involved the
opening of company owned stores in several countries and the procurement of product from third party
suppliers. The project also included the transfer of intangible property through a cost sharing
arrangement and the negotiation of a bi-lateral Advance Pricing Agreement.
•
Developed and implemented a plan for the acquisition and integration of several companies in Europe
and Russia into an existing Swiss principal structure for a Fortune 100 company in consumer products.
•
Developed and implemented world wide tax structure based in Switzerland for a major Internet Service
Provider.
•
Assisted chemical company in structuring foreign operations to maximize utilization of foreign tax credits
and tax efficient movement of cash between affiliates.
•
Lead associate in Bausch & Lomb v. Commissioner, a U.S. Tax Court case that dealt with the issue of
what constitutes manufacturing for purposes of Subpart F.
Education, Licenses & Certifications
•
•
•
•
•
L.L.M., Georgetown University Law Center
J.D., University of North Carolina, Chapel Hill
BS in Accounting, University of Notre Dame
CPA License in Ohio
Bar Admission in District of Columbia and
Pennsylvania.
Professional Associations
• Members of American Bar Association and
Chairman of Pass Through Committee for
FAUST
• Members of American Institute of Certified
Public Accountants
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Manal S. Corwin
National Leader, International Tax, KPMG LLP
and Principal-in-Charge of International Tax Policy, Washington National Tax
Background
Manal Corwin is KPMG LLP’s National Service Line Leader for International Tax as well as Principal-in-Charge
of Washington National Tax—International Tax Policy. She recently rejoined the firm following completion of her
tenure as Deputy Assistant Secretary of Tax Policy for International Affairs in the Treasury Department.
Professional and Industry Experience
MANAL S. CORWIN
National Leader, International Tax and
Principal-in-Charge of International Tax Policy
Washington
National Tax
KPMG LLP
Suite 1200
1800 K Street NW
Washington, D.C. 20006
Tel 202-533-3127
mcorwin@kpmg.com
Function and Specialization
Manal S. Corwin leads KPMG LLP’s international tax
practice . She advises multinational corporations on
U.S. international tax aspects of their structures,
operations and transactions. She specializes in
consulting and advising on issues relating to
international tax policy, expense allocation, the source
of income rules, foreign tax credits, subpart F, U.S.
taxation of international transportation income and
certain special tax benefit provisions.
Professional Associations


Member of the Massachusetts Bar Association
Member of the District of Columbia Bar Association
Education, Licenses & Certifications


J.D. magna cum laude, from the Boston University,
School of Law, May 1991
A.B. in Psychology, cum laude, from Harvard
University, June 1986
During her tenure at the U.S. Treasury Department, Manal helped shape the Administration’s views and policies
in all areas of international taxation and worked closely with the IRS, members of Congress, and key tax
regulators globally. In this regard, Manal worked on the international tax provisions of several of the
Administration’s budget proposals as well as the development of the Administration’s framework for tax reform.
Manal also served a as the U.S. delegate and Vice Chair to the OECD’s Committee on Fiscal Affairs and was
actively engaged in the initiation and development of the OECD BEPS initiative. In addition, Manal served as
the U.S. delegate to the Global Forum on Tax and Transparency. Significantly, she was responsible for leading
the development and implementation of the intergovernmental approach to the Foreign Account Tax Compliance
Act (FATCA) which has recently been endorsed as the foundation for a global standard for automatic exchange
of information. Manal also was head of the delegations responsible for negotiating income tax treaties with
Japan, Spain, Chile, and the United Kingdom.
Prior to joining the Treasury Department (first as International Tax Counsel in the Office of Tax Policy and then
as Deputy Assistant Secretary for International Tax Affairs), Manal was a principal in KPMG’s Washington
National Tax practice from 2001 to 2009, where she advised multinational corporations on the U.S. international
tax aspects of their operations and transactions and represented clients in tax controversies before the IRS.
Earlier in her career, Manal served as the Deputy and then Acting International Tax Counsel in the Office of Tax
Policy at the U.S. Treasury Department. Prior to that, Manal practiced as an attorney specializing in international
taxation at the law firm of Covington & Burling in Washington, D.C. Manal also served as a judicial clerk for then
Chief Judge Levin Campbell on the U.S. Court of Appeals for the First Circuit.
Other Activities/Honors
Manal is a member of the Board of Directors of the National Foreign Trade Council and is a frequent speaker
and commentator on international tax policy.
Manal served as Editor-in-Chief of the Boston University Law Review 1990-1991; she received the Ordronaux
Prize, 1991; Edward Hennessey Distinguished Scholar, 1990-1991; Paul J. Liacos Scholar, 1989-90; G. Joseph
Tauro Distinguished Scholar, 1988-89.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Aaron Feinberg
Managing Director
Background
Aaron is a Managing Director in the Mergers & Acquisitions Tax practice. He has significant
experience representing clients in U.S. federal tax aspects of business acquisitions and
dispositions and representing financially troubled companies.
Professional and Industry Experience
AARON FEINBERG
Managing Director-Tax
KPMG LLP
150 West Jefferson
Suite 1200
Detroit, Michigan 48226
Tel 313-230-3273
Fax 313-447-2430
Cell 617-835-2793
aaronfeinberg@kpmg.com
Aaron’s experience includes assisting various forms of business entities on U.S. tax matters
critical to mergers and acquisitions, internal restructurings and financially distressed
companies. His background includes the provision of tax advice relating to transaction and
financing structures, due diligence, debt modifications and the preservation of net operating
losses and other tax attributes.
Aaron has experience in a broad category of transactions and industries, including the
following:
• Advising several multinational Fortune 500 companies in connection with internal, crossborder restructurings.
•Representation of several Fortune 500 debtor corporations in connection with tax issues
Function and Specialization
arising from their Chapter 11 bankruptcy filings, including issues arising from the cancellation
of existing indebtedness, the post-emergence preservation of tax attributes and tax planning
for bankruptcy emergence transactions.
Education, Licenses & Certifications
• Advising U.S. and foreign business entities and private equity funds on the U.S. tax aspects
Aaron specializes in the U.S. tax aspects of
business acquisitions and dispositions and U.S. tax
issues relating to financially distressed companies.
• LL.M. in Taxation, Georgetown University Law
Center
• J.D., Boston University School of Law
• B.A., Michigan State University
of structuring acquisitions of U.S. and non-U.S. businesses, including tax-free reorganizations
of publicly-traded target companies.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Douglas G. Holland
Senior Manager
Professional and Industry Experience
DOUGLAS G. HOLLAND
Senior Manager
KPMG LLP
1801 K Street, NW
Suite 12000
Washington, D.C. 20006
Tel 202-533-5746
Fax 202-403-3988
dholland@kpmg.com
Doug is a senior manager in the International Tax group of KPMG’s Washington National Tax
office. He provides advice on a wide range of international tax issues including cross-border
acquisitions and restructuring, the dual consolidated loss rules, earnings-stripping limitations,
application of the branch tax and FIRPTA rules to inbound investments, treaty qualification, antideferral rules, international shipping and air transport income, and foreign charitable organizations,
as well as the associated information reporting and compliance aspects. Doug has worked with a
variety multinational and private equity companies and has substantial experience in the oil and
gas industry.
Doug is the author or co-author of a number of articles on topics such as the permanent
establishment implications of commissionaire structures, the IRS LMSB’s series of section 965
directives and international tax aspects of the “check-the-box” rules. He is a frequent presenter at
internal and external events, and is also a member of the International Fiscal Association.
Prior to joining KPMG, Doug served as an attorney-advisor to the Hon. Joseph H. Gale of the
United States Tax Court.
Function and Specialization
Doug specializes in the taxation and reporting of crossborder transactions and investments.
Education, Licenses & Certifications
•
•
•
LL.M. in taxation, University of Florida
JD, magna cum laude, Duke University School of Law
BA, University of Michigan
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Patrick Jackman
Principal
Patrick Jackman
Principal
KPMG LLP
345 Park Avenue
New York, NY 10154
Tel 212 872 3255
Fax 212 937 2087
Cell 917 549 7802
pjackman@kpmg.com
Function and Specialization
Cross Border Mergers & Acquisitions; FTC and
Subpart F Planning
Education, Licenses &
Certifications
■ University of Virginia Law School, J.D.
Professional and Industry Experience
Patrick is an International Tax Partner in KPMG’s Washington National Tax Practice, based in New York, where
he advises clients on cross-border transactions, both taxable and tax-free, including public and private
reorganizations/mergers, spin-offs, and partnerships. In connection therewith, he assists clients in developing
structures that provide for tax-efficient repatriation, foreign tax credit planning, acquisition financing and postacquisition integration of acquired operations.
Prior to joining KPMG, Pat was a partner with Weil, Gotshal and Manges LLP in New York, where he focused
principally on international transactions for multinationals, including corporate acquisitions and mergers, internal
restructurings, business formations and joint ventures. Prior to Weil Gotshal, Pat was Managing Director, Head
of International Tax, for Merrill Lynch. There he focused on optimizing tax-efficiency of Merrill Lynch’s foreign
and cross-border operations, investments and funding, with specific focus on strategic M&A support and
optimization, business unit/product support and oversight.
Publications/Speeches
■ Co-author (with Kevin Dolan et al) of the leading International M&A tax treatise, “U.S. Taxation of
International Mergers, Acquisitions, and Joint Ventures”; articles written for Journal of International Tax,
International Tax Journal, and Tax Notes International
■ Speeches given at GWU/IRS Conference on International Taxation, Canadian Tax Foundation, IFA, TEI,
International Tax Institute, Atlas, and CITE.
Additional Information
■ Member of the District of Columbia, Colorado (inactive), and Maryland (inactive) Bars; member of
International Fiscal Association, Wall Street Tax Association, and the ABA Section of Taxation
■ Haverford College, B.A., Economics,
National Merit Finalist Scholarship
Representative Clients
■ General Electric, Bank of America, AIG, and Sanofi Aventis
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Charlie Kohler
Senior Manager
Position in Firm
Charlie is a senior manager in the International Corporate Services (“ICS”) practice in Detroit. He assists
large and mid-sized multinational clients with international tax planning and compliance matters.
Relevant Experience
CHARLIE KOHLER
Senior Manager,
International Corporate Tax
KPMG LLP
150 West Jefferson Avenue
Detroit, Michigan 48082
Tel 313-230-3035
Cell 586-214-5918
Fax 313-447-2404
ckohler@kpmg.com
Function and Specialization
Charlie is a Sr. Manager in KPMG’s Detroit office,
where he focuses on U.S. income tax issues
affecting multinational corporations.
Representative Clients
•Benteler Automotive
•Ford Motor Company
•Key Safety Systems
•Magna International
Professional Associations
•International Fiscal Association
Charlie has experience in cross-border restructurings, repatriation strategies, foreign tax credit planning,
subpart F planning, cash/tax management, global effective rate planning, acquisitions and divestitures
and related financing arrangements, tax deferral, and international tax compliance.
His experiences include planning and implementing a global restructuring for a large multinational
manufacturer, completing an overall foreign loss study for a tier one automobile supplier, and assisting in
the seller side due diligence for a large international manufacturer.
Charlie has previously served as in-house tax counsel for a foreign-owned manufacturing company with
over $25 billion in worldwide sales. In this position, Charlie assisted with out-from-under planning, dual
consolidated loss planning, cross-border debt restructuring, and repatriation planning. Charlie also
managed the international portion of the organization’s US tax compliance, including the filing of Forms
5471, 8858, 8865, 1120-F and 5472.
In addition, Charlie undertook an earnings and profits and stock basis study that covered over 150 US
entities, 10 consolidated groups, 50 years, and 100 mergers, transfers, or liquidations, including multiple
deconsolidations and group structure changes.
Education, Licenses & Certifications
•LL.M. in Taxation – Northwestern University School
of Law
•J.D. – Valparaiso University School of Law
•B.A. – Wayne State University
•Member, Michigan Bar.
Professional and Industry Experience
Charlie has advised multinational manufacturers, global software companies, and international financial
entities.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Murilo Mello
Partner
Professional and Industry Experience
Murilo Mello is a Partner at the International Corporate Tax & Transfer Pricing department, with experience
with tax structuring in large projects M&A deals. Murilo is also dedicated to Indirect Taxes and Trade &
Customs practice, involved in supply chain projects and general tax consulting.
Since 1996, Murilo has been working with tax audit, advisory services, tax planning and corporate
restructuring. He is currently working with domestic and foreign clients, as well as assisting other KPMG’s
offices, providing advice to multinational corporations on cross-border transactions, tax strategies and indirect
tax minimization projects.
MURILO MELLO
Brazilian Tax Partner
Murilo has a Law Degree from Universidade Mackenzie – São Paulo and a post-graduate degree in Tax Law
from Universidade de São Paulo (USP). He also has a Master’s degree in Law in International Tax Law
(LLM) from the University of London (Queen Mary). He is a member of the Brazilian Bar Association (OAB).
KPMG LLP
200 South Biscayne Blvd.
Suite 2000
Miami, FL 33131
Publications and Speaking Engagements
Mr. Mello is a frequent speaker on subjects in Brazilian tax matters for a variety of groups, in Brazil or abroad
such as the Brazilian Bar Association, AICPA, FDC.
Tel: +1 (305) 913-2781
Fax: +1 (305) 418-7378
Email: mrodriguesdemello@kpmg.com
Mr. Mello is an invited professor at Brazilian Institute of Tax Law studies (Instituto Brasileiro de Direito
Tributario – IBDT).
Function and Specialization
• Cross border mergers, acquisitions, corporate
reorganization, indirect taxes and TP
Education, Licenses & Certifications
• LLM, Taxation, University of London
• Law Degree, University Mackenzie, Sao Paulo –
Brazil
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Jose Manuel Ramirez
Principal
Professional and Industry Experience
Jose Manuel Ramirez is the Partner in charge of the International Taxes practice with KPMG Cardenas
Dosal S.C., the Mexican member firm of KPMG International. He is seconded to KPMG LLP (U.S.), where
he heads the International Tax Team - Mexico in New York, a role he assumed in February 2006.
Jose Manuel Ramirez
Partner
Jose Manuel joined KPMG in Mexico in 1993 and has more than 20 years of experience in providing tax
services to large multinational companies. His background encompasses domestic and international tax
planning, consolidation for tax purposes, corporate restructuring (liquidation/spin-offs), cross-border
transactions, M&A, indirect and excise duties, principal structure, site location, captive insurance, shared
services centers and tax incentives projects (including national filming projects), BEPS.
KPMG Mexico
345 Park Avenue, 13 Fl
New York, N.Y., 10154-0102
He has provided services to clients across a wide range of industries, including: energy, logistics,
transportation,
distribution,
manufacturing
/
Maquiladoras,
food,
tourism,
construction, telecommunications, wines and spirits, pharmaceutical, broadcasting and media, mining,
retail, private equity investors and banking.
Tel 212-872-6541
Fax 718-228-9237
Cell 917-664-8607
josemanuelramirez@kpmg.com /
ramirez.manuel@kpmg.com.mx
Currently Jose Manuel is advising multinationals investing in the LATAM region as well as Mexican
Multinationals investing around the world, amongst others on the design of efficient supply chain
structures, being in charge of coordinate the KPMG network teams on the region.
Function and Specialization
Jose Manuel specializes in domestic and crossborder tax planning, focusing on foreign
investments in the LATAM region as well as
LATAM entrepreneurs investing Worldwide.
.
Jose Manuel is a CPA in Mexico, and a member of the College of Public Accountants of Mexico, the
Mexican Institute of Public Accountants, and the International Fiscal Association Mexican Branch. He holds
a Tax Law Master’s degree from the Superior School of Legal Sciences.
Education, Licenses & Certifications
• Mexican CPA
• Tax Law Master from the Superior School of
Legal Sciences
• Member of the College of Public Accountants of
Mexico, Mexican Institute of Public Accountants
• Member of the International Fiscal Association
Mexican Branch
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Jilesh Shah
Senior Manager
Background
Jilesh is a Senior Manager from KPMG India, on long term rotation to USA, based out of the New York
Office
He has over 9 years of professional experience in advising multinational companies on entry strategy,
business entity structuring, cross border tax & regulatory matters, and tax controversy issues
Professional and Industry Experience
Over the years, Jilesh has advised multinational clients on entry strategy, JV structuring etc from an
international tax, Indian domestic tax and regulatory perspective
Jilesh Shah
Tel
+1 1212 954 2707
Mobile +1 973 906 4448
jileshshah@kpmg.com
Function and Specialization
Jilesh is a member of the International tax practice,
providing corporate tax advice on international tax
issues, acquisitions and restructurings
Education, Licenses & Certifications
• Chartered Accountant (Fellow of the Institute of
Chartered Accountants of India)
• Graduate in Commerce (Bachelor of Commerce
from H R College of Commerce, Mumbai
University
Jilesh has also advised on corporate mergers and acquisition, due diligence reviews, internal
reorganizations, buy-back of securities, minority buy-out, etc
He has been involved in tax litigation matters at various forums including Courts and have represented
clients before the Indian Revenue authorities
He has been involved in making representations to the Ministry of Finance and Corporate Affairs for
tax and regulatory matters
Jilesh has worked with clients from a cross section / diverse industry segments such as technology,
service, manufacturing, infrastructure, healthcare, consumer markets, pharmaceuticals, financial
services etc
Jilesh speaks regularly at various seminars and workshops organized in US and India
Languages
English, Hindi, Gujarati
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Caren S. Shein
Managing Director
Professional and Industry Experience
Ms. Shein advises clients on outbound and inbound international tax planning and compliance issues,
including foreign tax credit, subpart F, expense allocation, and permanent establishment. Her particular
area of expertise is the foreign tax credit, and she regularly writes, speaks and teaches in this area.
CAREN S. SHEIN
Managing Director
KPMG LLP
2001 M Street, N.W.
Washington, D.C. 20036
Tel 202-533-4210
Fax 202-315-3164
cshein@kpmg.com
Function and Specialization
Caren Shein is a managing director in the
International Corporate Services group of the
Washington National Tax Practice.
Education, Licenses & Certifications
Caren is the author or co-author of numerous articles, including “Emergency Economic Stabilization Act
of 2008 – Throwing a Rope to the Ailing Financial Industry Tightens the Noose on Big Oil,” Tax
Management International Journal (February 2009), “Temporary Regulations Deny Foreign Tax Credits
for Amounts Paid Pursuant to “Structured Passive Investment Arrangements”, Tax Management
International Journal (October 2008), “New Temporary Regulations Under Section 905(c): A Big
Improvement but Puzzling Issues Still Remain,” Tax Management Journal (May 2008), “The IRS
Proposes a New Approach to Determine the Technical Taxpayer – Will it Work?,” Journal of Taxation of
Global Transactions (Fall 2006), “Section 905(c) – The Missing Piece of the Foreign Tax Credit Puzzle”,
Tax Management International Journal (January 2002), and “A Fresh View of Overall Foreign Losses and
Consolidated Returns”, Tax Management International Journal (May 1999).
Prior to joining KPMG, Ms. Shein was an attorney advisor at the Internal Revenue Service, Office of
Associate Chief Counsel (International). There she worked on rulings, regulations and litigation, primarily
relating to foreign tax credits. Ms. Shein began her career as a law clerk to the Honorable B. John
Williams, Jr., of the United States Tax Court.
• L.L.M., Georgetown University Law Center
• J.D., The American University, Washington
College
of Law, cum laude
• B.A., Yale University
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Philip A. Stoffregen
Principal
Background
Philip Stoffregen is an International Tax principal with KPMG’s Washington National Tax group.
Professional and Industry Experience
Phil has advised some of the largest corporations in the United States on a broad range of
international tax matters, including out-bound transfers of fixed assets and intellectual property, taxfree restructurings of foreign subsidiaries, tax-free and taxable international acquisitions and
dispositions, cash repatriation and foreign tax credit utilization planning, subpart F and passive
foreign investment company issues, and planning to utilize foreign losses.
Philip A. Stoffregen
International Tax Principal
KPMG LLP
150 West Jefferson
Suite 1200
Detroit, MI 48226-4429
Tel 313-230-3223
Cell 313-377-2797
Fax 313-668-6260
pstoffregen@kpmg.com
Function and Specialization
Phil is a member of the Washington National Tax
International Corporate Services practice, specializing in
U.S. income tax issues affecting U.S. based multinationals.
He has assisted in structuring international joint ventures in many jurisdictions, including Canada,
Mexico, the U.K., Germany, Japan, China, France, the Czech Republic, Australia, Brazil, and
Venezuela. Phil has advised on the U.S./International tax aspects of two major public company spin
off transactions. He also has substantial experience in tax controversy matters at both the audit and
appeals levels, and, as a partner at Kirkland & Ellis and Jenner & Block, represented clients at both
Federal District Court and Tax Court.
Publications and Speaking Engagements
Phil has numerous publications on various tax subjects, is a frequent lecturer on international tax
topics, and has served as an adjunct professor in the DePaul Law School and Chicago-Kent Law
School LLM programs.
Professional Associations

Admitted Member, International Fiscal Association
Education, Licenses & Certifications


BA, Earlham College
PhD and JD, University of Chicago
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Wayne Tan
Senior Manager
Background
Wayne is a Certified Tax Agent in China with more than nine years of experience in providing advisory
on China tax, foreign exchange, customs and business regulatory. He is currently on a long-term
secondment in the U.S. to assist U.S. companies’ investment and business in China.
Professional and Industry Experience
Wayne has extensive experience in providing advisory services to multinational conglomerates for their
investment in China. He has helped various multinational companies for their entry strategy into China,
holding structure, financing, incentive policy application, supply chain planning, group restructuring and
investment exit strategy etc. In addition, he has assisted in numerous tax due diligence and tax health
check review engagements.
Wayne Tan
Senior Manager, Tax
In 2009, Wayne has worked in KPMG Dublin for a period of time participating in advisory to Irish
investors for their investment and business in China.
Publications and speaking engagements
International Corporate Service
China Center of Excellence
Wayne has presented at various internal and external events for China tax matters.
KPMG LLP
3975 Freedom Circle Drive, Mission Tower 1, Suite
100
Santa Clara, CA95054
Tel 408-367-1574
Fax 408-516-8914
Cell 650-279-8697
wtan@kpmg.com
Function and Specialization
China tax, business regulatory, foreign exchange
advisory for market entry strategy, operation, M&A
and restructuring.
Education, Licenses & Certifications


Master degree of engineering
China Certified Tax Agent
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Kortney Wallace
Managing Director
Background
Kortney is a Managing Director leading the international tax team in the Mid-America region which includes
Michigan, Ohio, Indiana, and Kentucky. Kortney has over 14 years of experience advising multi-national
corporations on their international activities. Kortney spent over 8 years as part of KPMG’s Washington
National Tax practice.
Professional and Industry Experience
KORTNEY WALLACE
Managing Director
KPMG LLP
150 West Jefferson
Suite 1900
Detroit, Michigan 48226
Tel 313-230-3056
Fax 313-447-2377
Cell 248-761-9175
kdwallace@kpmg.com
Function and Specialization
Kortney is a Managing Director leading the
International Tax practice in Mid-America. She
spent 8 years as a member of KPMG’s
Washington National Tax practice specializing in
U.S. income tax issues affecting multinational
corporations.
Representative Clients






General Motors Company
Steelcase Inc.
Macy’s Inc.
Delphi LLP
Visteon
BorgWarner, Inc
Kortney has advised multinational corporations on a broad range of international tax matters including both
inbound and outbound tax issues such as international mergers and acquisitions, out-bound property
transfers, taxable and tax-free group restructuring of foreign subsidiaries, repatriation and debt servicing,
foreign tax credit utilization planning, subpart F and contract manufacturing, cross-border financing, and
planning to utilize foreign losses.
Kortney has advised on many transactions and provided both tax due diligence and tax structuring advice in
several industries. For example:

Provided inbound tax planning advice for foreign corporations on exposure to U.S. taxation stemming
from investments in the U.S. and recommended various tax-efficient structures.

Examined U.S. and foreign tax implications of a large multinational converting to a limited liability
structure and helped to navigate the effects for on withholding tax under a number of income tax treaties.

Advised numerous foreign corporations in the U.S. on maximizing administrative efficiency and
minimizing tax exposure by establishing client-specific corporate structures, including establishing
controlled corporations in foreign countries.

Assisted a major retailer with restructuring of its off-shore procurement functions to avoid subpart F and
achieve state tax benefits.

Worked with several companies on IP migration issues.
Education, Licenses & Certifications
BA degree, University of Michigan
LLM degree in taxation, Georgetown University
 JD degree, The Thomas M. Cooley Law
School, cum laude
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


Aziza Yuldasheva
Senior Manager
Background
■ Aziza is a senior manager in the International Tax group of KPMG’s Washington National Tax practice. She
joined KPMG LLP in Detroit in 2007 after practicing law at a law firm; she transferred to WNT in 2010.
Professional and Industry Experience
■ Aziza consults regarding U.S. taxation of multinational companies, their outbound and inbound operations,
restructuring, M&A, refinancing, and other transactions.
AZIZA YULDASHEVA
Senior Manager
KPMG LLP
Suite 1200
1800 K Street, NW
Washington, D.C. 20006
Tel: 202-533-4547
ayuldasheva@kpmg.com
Function and Specialization
■ International Tax
■ Most recently, Aziza played an integral role in several components of a multi-million dollar engagement with
the largest publicly traded company in its industry sector, from planning and opinions to implementation and
reporting (tax and financial). The engagement involved internal restructuring, utilization of operational as well
as shareholder and creditor losses, cash repatriation, foreign tax credit utilization, migration of intellectual
property, refinancing of intra-consolidated group debt, and leveraged partnership structuring.
■ Other recent projects on which Aziza worked include: a feasibility analysis of a merger and redomestication
transaction (including section 7874 modeling, and shareholder gain and excise tax mitigation);
reorganization of a multinational manufacturing group; financing of a foreign target acquisition; and supply
chain restructuring projects.
Professional Associations
■ Member, State Bar of Michigan
■ In addition, Aziza frequently fields questions regarding cost-sharing agreements and other issues under
section 482, IC-DISCs, PFICs, subpart F branch rules, foreign currency, and complex post-transaction tax
reporting.
Education, Licenses & Certifications
■ LLM, Georgetown University Law
Center
■ Aziza contributes to publications (including updates to a PLI publication on cross-border reorganizations and
section 367) and presents on various technical subjects both internally (including at firm-wide training) and
externally (e.g., at BNA CITE and, in the past, to a Fortune 10 company’s tax group).
■ JD, Wayne State University Law
School (Cum Laude; Law Review)
■ BBA (International Business: Finance
& French), Eastern Michigan University
(Magna Cum Laude)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
© 2014 KPMG LLP, a Delaware limited liability
partnership and the U.S. member firm of the KPMG
network of independent member firms affiliated with
KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through
complexity” are registered trademarks or trademarks
of KPMG International.