US Tax Reform
The US Congress returns to Washington this week to begin the 115th Congress. Topping the agenda for the new Congress and incoming Trump Administration will be US tax reform. The starting point for the legislative effort in the House is expected to be the House Republican Blueprint for Tax Reform, which was released this past June and includes a novel provision for border adjustments. Under the proposal, border adjustments would exclude US exports from the tax base while including imports. This represents a major departure from the current corporate income tax. It would transform the consumption-based tax Blueprint plan to a destination-based tax on domestic consumption and significantly affect exporters, importers, consumers and trade.
It was recently reported that House Ways and Means Committee Chairman Kevin Brady was having ongoing discussions with the Trump transition team on all aspects of the House Blueprint, including the proposed border adjustment tax. It is not clear how President-elect Trump views this aspect of the House tax plan, however. President-elect Trump’s team has floated the idea of a tariff on imports as high as 10%, which reportedly could be implemented either by executive order or as part of a tax reform package that includes the border adjustment proposal.
The Internal Revenue Service (IRS) issued final passive foreign investment company (PFIC) regulations on 27 December, keeping its word that it would not allow temporary PFIC regulations which were set to sunset on 30 December 2016 to expire before they were finalized. The final regulations provide guidance on determining ownership of a PFIC and certain annual reporting requirements for PFIC shareholders to file Form 8621. The final regulations also contain guidance on the exception to the requirement for certain shareholders of foreign corporations to file Form 5471.
Finally and as a surprise (!), the US and Argentina signed a first-ever tax information exchange agreement on 23 December. There is currently no US-Argentina income tax treaty in force (U.S. Embassy in Argentina: New tax information exchange agreement between the U.S. & Argentina). Once published, the TIEA should be available on the U.S. Treasury’s Resource Center for Treaties and TIEAs.