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Cross-border Tax Talks
June 07, 2023
Sweet Child O'Mine: Inbounding Intangibles to the US
Doug McHoney (PwC's International Tax Services Global Leader) is joined by Aaron Junge, PwC National Tax Services International Tax Partner, and former Tax Counsel for the House of Representatives during the enactment of the Tax Cuts and Jobs Act. They discuss the historical perspective of the Section 367(d) rules beginning back in 1984, the recent regulations, and how we got here. Doug and Aaron touch on Section 367(d)’s original intended purpose, how the changes that occurred during TCJA changed intangible property (IP) ownership for US MNC’s (the carrot and the stick metaphor), the possible tax treatments of the repatriation of IP, the applicability dates, and how taxpayers can prepare, while considering Pillar Two, among other areas.
Timestamps:
- 3:30 - In 1984, Congress enacted Section 367(d) to address the issue where “[T]ransferor U.S. companies hope to reduce their U.S. taxable income by deducting substantial research and experimentation expenses associated with the development of the transferred intangible and, by transferring the intangible to a foreign corporation at the point of profitability, to ensure deferral of U.S. tax on the profits generated by the intangible.” How does Section 367(d) operate to address this issue?
- 7:45 - How do subsequent transfer rules fit into Section 367(d)?
- 10:45 - What were some of the changes to the Section 367(d) statutory rules during the enactment of TCJA?
- 14:20 - How did TCJA change IP ownership for US MNCs, particularly the ‘carrot and stick’ concept?
- 19:55 - There was a big push for US MNCs to bring IP back to the US as a result of TCJA. Prior to these proposed regulations, what did Section 367(d) tell companies that had moved IP offshore in a transaction that was subject to 367(d), and then wanted to repatriate that IP?
- 23:30 - Absent the IRS issuing a PLR, taxpayers were in a conundrum of “what do we do, how do we treat it? '' in order to avoid double taxation. What key policy issues might ‘reg writers’ have been struggling with prior to releasing the proposed regulations?
- 25:50 - Treasury released proposed regulations on May 2, 2023 related to the repatriation of IP. What were some of the related policy decisions and how will they operate? What is a qualified domestic person (QDP)?
- 29:10 - The rules also provide guidance with respect to repatriation of IP, of whether it’s a tax-free repatriation or a taxable repatriation. How are those rules designed?
- 35:15 - Why are the changes to the allocation of deductions rules important?
- 36:20 - What are the applicability dates of the proposed regulations, and what should taxpayers do to prepare?
Speakers
International Tax Services Global Leader, PwC US
Aaron Junge
International Tax Partner, PwC US
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