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Sean Foley |
Landon McGrew |
The US Treasury Department and IRS recently issued the first round of guidance relating to the application of the newly-enacted section 909 (IRS Notice 2010-92). As we discussed in October 2010, President Obama signs new international tax provisions into law, new code section 909 generally provides that if a foreign tax credit splitting event occurs, the US taxpayer is prevented from claiming foreign tax credits for foreign taxes paid or accrued until the related foreign income is repatriated to the US or the taxes and related income are in the same foreign corporation.
The Notice is the first in a series of guidance the IRS plans to release related to the application of section 909. Notice 2010-92 specifically addresses the application of section 909 to foreign income taxes paid or accrued in taxable years of a section 902 corporation beginning on or before December 31 2010 (pre-2011 taxes). A section 902 corporation is defined as any foreign corporation with respect to which one or more US corporations meets the ownership requirements of sections 902(a) or (b). The Notice states that regulations will be issued providing that pre-2011 taxes paid or accrued by a section 902 corporation will not be suspended under section 909 if any of the following criteria are satisfied:
The taxes relate to a pre-2011 splitter arrangement specifically identified in the Notice;
The taxes have not already been deemed paid by a US corporation under § 902(a) or § 960 on or before the last day of the § 902 corporation's last pre-2011 year;
The related income has not been matched up with taxes at the level of a payor § 902 corporation and has not been taken into account by a § 902 shareholder on or before the last day of the § 902 corporation's last pre-2011 year; and
The taxes were paid or accrued in a taxable year of the payor § 902 corporation in a tax year beginning on or after January 1 1997.
The Notice provides an exclusive list of pre-2011 splitter arrangements as described below:
A reverse hybrid structure owned by a section 902 corporation (a reverse hybrid is an entity that is a corporation for US tax purposes and a pass-thru for foreign tax purposes);
A foreign consolidated group to the extent that the foreign consolidated tax liability was not allocated among the members of the foreign consolidated group in accordance with each member's share of consolidated taxable income included in the foreign tax base;
A foreign group relief or other loss sharing regime to the extent there is a shared loss related to a debt instrument that is disregarded for US tax purposes but regarded for foreign tax purposes; and
A hybrid instrument that is treated as equity for US tax purposes and debt for foreign tax purposes to the extent that pre-2011 taxes with respect to amounts on the instrument are deductible as interest for foreign tax purposes but does not give rise to income for US tax purposes, and vice versa.
If pre-2011 split taxes are paid or accrued by a section 902 corporation and are not specifically exempted from the application of section 909 by the Notice, those taxes will be subject to section 909 and thus suspended as of the first day of the section 902 corporation's first post-2010 taxable year.
In addition to the rules described above, the Notice also provides useful guidance with respect to its application to partnerships and trusts, and the interaction between section 909 and certain other provisions of the Internal Revenue Code.
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 (sffoley@kpmg.com) Washington, DC and Landon McGrew (lmcgrew@kpmg.com), McLean, VA
KPMG
Tel: +1 202 533 5588
Fax: +1 202 315 3087
Website: www.us.kpmg.com
