International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Outbound: President Obama releases FY2015 Budget

Sponsored by


President Obama recently released his annual Budget recommendations for fiscal year 2015.



Sean Foley

Landon McGrew

If enacted by Congress, the international tax proposals included in the Budget would raise an estimated $276 billion over the next 10 years. The President's Budget includes a number of international tax proposals that were included in last year's Budget and some significant new international tax proposals, especially in the outbound context. If enacted, the proposed effective date for items in the FY2015 budget is for taxable years beginning after December 31 2014. A brief summary of this year's new international tax proposals in the outbound context is described below.

Create a new category of Subpart F income for transactions involving digital goods or services

Under this proposal, a new category of subpart F income called foreign base company digital income (FBCDI) would be created. In general, FBCDI would include income of a controlled foreign corporation (CFC) from the lease or sale of a digital copyrighted article or from the provision of a digital service in cases where the CFC (i) uses intangible property developed by a related party to produce the income and (ii) does not make a substantial contribution to the development of the property or services that give rise to the income. The provision would include an exception for cases where the CFC earns income directly from customers located in the CFC's country of incorporation. If enacted, this proposal would raise an estimated $11.66 billion over the next 10 years.

Prevent avoidance of foreign base company sales income through manufacturing services arrangements

Under this proposal, foreign base company sales income (FBCSI) would be expanded 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 FBCSI would apply to this type of arrangement. If enacted, this proposal would raise an estimated $24.608 billion over the next 10 years.

Restrict the use of hybrid arrangements that create stateless income

This proposal would deny deductions for interest and royalty payments made to related parties under certain circumstances involving hybrid arrangements. As an example, the proposal states that a US taxpayer would be denied a deduction for interest or royalty payments made to a foreign related party where either (i) as a result of a hybrid arrangement, there is no income inclusion in the foreign jurisdiction or (ii) the hybrid arrangement would permit the taxpayer to claim an additional deduction for the payment in another jurisdiction. If enacted, this proposal would raise an estimated $937 million over the next 10 years.

Limit the application of exceptions under subpart F for certain transactions involving hybrid entities

Under this proposal, the section 954(c)(3) same-country exception rule and 954(c)(6) CFC look-through rule would not apply to payments made to a foreign reverse hybrid held directly by a US taxpayer when such amounts are treated as deductible payments received from foreign related persons. If enacted, this proposal would raise an estimated $1.336 billion over the next 10 years.

Limit the ability of domestic entities to expatriate

Under this proposal, the definition of an inversion transaction would be broadened by replacing the 80% test in section 7874 with a greater-than-50% test, and eliminating the 60% test. The proposal would also provide, in part, that an inversion will occur, regardless of the level of shareholder continuity, if (i) the affiliated group that includes the foreign corporation has substantial business activities in the US and (ii) the foreign corporation is primarily managed and controlled in the US. If enacted, this proposal would raise an estimated $17.004 billion over the next 10 years.

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.

This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.

Sean Foley (, Washington, DC and Landon McGrew (, McLean, VA


Tel: +1 202 533 5588

Fax: +1 202 315 3087


more across site & bottom lb ros

More from across our site

The German government unveils plans to implement pillar two, while EY is reportedly still divided over ‘Project Everest’.
With the M&A market booming, ITR has partnered with correspondents from firms around the globe to provide a guide to the deal structures being employed and tax authorities' responses.
Xing Hu, partner at Hui Ye Law Firm in Shanghai, looks at the implications of the US Uyghur Forced Labor Protection Act for TP comparability analysis of China.
Karl Berlin talks to Josh White about meeting the Fair Tax standard, the changing burden of country-by-country reporting, and how windfall taxes may hit renewable energy.
Sandy Markwick, head of the Tax Director Network (TDN) at Winmark, looks at the challenges of global mobility for tax management.
Taxpayers should look beyond the headline criteria of the simplification regime to ensure that their arrangements meet the arm’s-length standard, say Alejandro Ces and Mark Seddon of the EY New Zealand transfer pricing team.
In a recent webinar hosted by law firms Greenberg Traurig and Clayton Utz, officials at the IRS and ATO outlined their visions for 2023.
The Asia-Pacific awards research cycle has now begun – don’t miss on this opportunity be recognised in 2023
An intense period of lobbying and persuasion is under way as the UN secretary-general’s report on the future of international tax cooperation begins to take shape. Ralph Cunningham reports.
Fresh details of the European Commission’s state aid case against Amazon emerge, while a pension fund is suing Amgen over its tax dispute with the Internal Revenue Service.