Attribution rules applicable to commercial activities or controlled commercial entities of a foreign government for sec. 163(j) purposes.Until recently, a foreign person subject to tax in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. was required to consider the U.S. related party rules only in a fairly narrow set of circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , for example, for purposes of the deduction deferral deferral - Waiting for quiet on the Ethernet. rules of Sec. 267(a)(2), the reporting requirements of Sec. 6038A and the regulations thereunder, and the transfer pricing Transfer pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be provisions of Sec. 482. Since 1986, however, several provisions have been added to the Code and regulations that significantly increase the complexity of - and administrative burden of complying with - the U.S. income tax laws by expanding the circumstances under which application of ownership attribution rules Attribution Rules
A set of rules created by Canada Customs and Revenue Agency (CCRA) that prevents investors from transferring assets between family members with the intention of avoiding taxes. is required; notably, under the foreign tax credit rules of Sec. 904(i) and the earnings stripping rules of Sec. 163(j). In the case of foreign governments particularly, these new requirements involve issues that historically have not been considered and on which there is little substantive guidance. This discussion focuses on the attribution at·tri·bu·tion
1. The act of attributing, especially the act of establishing a particular person as the creator of a work of art.
2. requirements imposed by the proposed regulations under Sec. 163(j).
Sec. 163(j) defers a deduction for interest paid to a related person on which no U.S. tax is imposed, subject to certain thresholds and limitations. Pursuant to Sec. 163(j)(6)(C), the computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of these thresholds and limitations must be made as if all members of the same affiliated group (within the meaning of Sec. 1504(a)) were a single taxpayer. Prop. Regs. Sec. 1.163(j)-5(a)(3) goes further, providing that an includible corporation (as defined in Sec. 1504(b)) that owns directly or indirectly at least 80% of another includible corporation is treated as a member of the same affiliated group; for purposes of these rules, the provisions of Sec. 318 are applied to determine indirect ownership. The example illustrating this requirement makes clear that a domestic subsidiary of a foreign corporation is a member of the same affiliated group as its domestic sister corporation that is a subsidiary of the common foreign parent, even though these corporations would not be affiliated within the meaning of Sec. 1504(a) because their common ownership is through a nonincludible corporation.
Assume a foreign government, rather than a foreign corporation, owns two domestic corporations, A and B. Sec. 318(a)(3)(C) provides that if 50% of the value of the stock of a corporation is owned, directly or indirectly, by any "person," the corporation will be treated as owning the stock owned by such person. Thus, if a foreign government is a "person" within the meaning of Sec. 318(a)(3)(C), A and B will be treated as members of the same affiliated group for Sec. 163(j) purposes. If a foreign government is not a "person," it is not subject to the provisions of Sec. 318, and A and B would not be considered members of the same affiliated group. There is precedent that the U.S. government is not a person within the meaning of Sec. 7701. In Letter Ruling 8829089, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. held that a bank was not a U.S. person within the meaning of Sec. 7701(a)130) or a government or agency of a government, for purposes of Secs. 2103 and 2104; see also Letter Ruling 8829020. The reference to U.S. person or government in the disjunctive dis·junc·tive
1. Serving to separate or divide.
2. Grammar Serving to establish a relationship of contrast or opposition. The conjunction but in the phrase poor but comfortable is disjunctive. implies that a government is not a U.S. person for purposes of the Code. In addition, in Rev. Rul. 94-16, the Service affirmed af·firm
v. af·firmed, af·firm·ing, af·firms
1. To declare positively or firmly; maintain to be true.
2. To support or uphold the validity of; confirm.
v.intr. a line of prior rulings holding that an Indian tribe INDIAN TRIBE. A separate and distinct community or body of the aboriginal Indian race of men found in the United States.
2. Such a tribe, situated within the boundaries of a state, and exercising the powers of government and, sovereignty, under the national is not a taxable entity for Federal income tax purposes. Of course, these precedents may be distinguished from the case of a foreign government, first because a foreign government is not the U.S. government (which was the government at issue in the letter rulings cited) and, second, because a foreign government is subject to U.S. income tax on its commercial activities in the United States pursuant to Sec. 892 (which does not apply to Indian tribes). Nevertheless, it remains relevant to examine whether a foreign government is a "person" within the meaning of Sec. 318(a)(3)(C).
This question appears to be answered by Sec. 892(a)(3), which provides that for purposes of the Code, a foreign government is treated as a "corporate resident of its country." If indeed a foreign government is treated as a corporation for purposes of the Code, it arguably ar·gu·a·ble
1. Open to argument: an arguable question, still unresolved.
2. That can be argued plausibly; defensible in argument: three arguable points of law. may be viewed as a "person" within the meaning of Sec. 7701(a)(1). Accordingly, it would be a person to which the provisions of Sec. 318(a)(3)(C) apply. The issue may be more precisely distinguished, however; namely, is a "corporate resident" necessarily a "person" for purposes of the Code, or can one be a resident but not a person? Guidance on this issue is scant scant
adj. scant·er, scant·est
1. Barely sufficient: paid scant attention to the lecture.
2. Falling short of a specific measure: a scant cup of sugar. . Sec. 892(a)(3) was enacted as part of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA TAMRA Technical And Miscellaneous Revenue Act of 1988
TAMRA Tetramethyl-6-Carboxyrhodamine (dye) ). Its legislative history is not very illuminating il·lu·mi·nate
v. il·lu·mi·nat·ed, il·lu·mi·nat·ing, il·lu·mi·nates
1. To provide or brighten with light.
2. To decorate or hang with lights.
3. , stating only that the provision codifies the rule that a foreign government is treated as a corporate resident of its country for purposes of a treaty obligation of the United States (so long as reciprocal Bilateral; two-sided; mutual; interchanged.
Reciprocal obligations are duties owed by one individual to another and vice versa. A reciprocal contract is one in which the parties enter into mutual agreements. treatment is granted the United States by the foreign government), and for purposes of the Code generally (without regard to any corresponding treatment by a foreign government); there is no explanation of what the term "corporate resident" means. Moreover, it is not clear why it was determined to be necessary to apply this characterization A rather long and fancy word for analyzing a system or process and measuring its "characteristics." For example, a Web characterization would yield the number of current sites on the Web, types of sites, annual growth, etc. beyond treaty purposes, other than perhaps to determine the applicable rate of tax corporate versus individual).
It is interesting that the legislative history of the Tax Reform Act of 1986 (TRA TRA Training
TRA Tennessee Regulatory Authority
TRA Telecommunications Regulatory Authority (Oman)
TRA Tax Reform Act (1976, 1984, or 1986)
TRA Teachers Retirement Association ), under which Sec. 892 was amended more substantively (by codifying the limitations on the exemption from U.S. tax on income derived by a foreign government from its activities in the United States), discussed the treatment of a foreign government with which the United States has an income tax treaty. The Senate Finance Report stated: "The committee intends that, for treaty purposes, a foreign government be treated as a resident of its country, unless it denies treaty benefits to the United States." (Emphasis added.) No reference to the foreign government as a corporate resident is made, and no explanation of the addition of the word "corporate" in TAMRA's legislative history can be found. Note, though, that the TRA legislative history also stated that it generally was not the intent of Congress to provide a regime that favored nationalized industries over those privately owned. This language reflects the policy that a foreign government that owns several U.S. entities should not be treated differently from a foreign corporation that owns similarly structured U.S. entities for purposes of the Code, and would dictate TO DICTATE. To pronounce word for word what is destined to be at the same time written by another. Merlin Rep. mot Suggestion, p. 5 00; Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 5, n. 410. that the same rules should govern both private and public entities.
The ramifications ramifications npl → Auswirkungen pl of these rules are unclear, as there is no additional guidance on the application of these rules. Certain regulatory provisions may be read to support a position that perhaps the scope of the language of Sec. 892(a)(3) may be applied more narrowly in certain circumstances, however.
In Regs. Sec. 1.6038A-1(f), "foreign person" is defined to include a foreign government. A foreign government is therefore a person to which the related party rules of Secs. 267(b) and 707(b) apply for purposes of determining a reporting corporation's reporting requirements; see Regs. Sec. 1.6038A-1(f)(5) and (d). Interestingly, these regulations were promulgated prom·ul·gate
tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates
1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce.
2. after Sec. 8921a)(3) was enacted. If Sec. 892(a)(3) is read to provide that a foreign government is treated as a corporation resident in its country, the special rules of Regs. Sec. 1.6038A-1(f)(5) should be unnecessary (since a foreign person is defined to include a foreign corporation pursuant to Regs. Sec. 1.6038A-1(f)(3)); see also Temp. Regs. Sec. 1.897-9T(e). Moreover, the practical problems associated with this rule are enormous. Consider any nationalized industry, the scope of which may be extremely broad. As a practical matter, it may not be possible to determine all related party transactions if common control includes all entities controlled by all agencies and branches of a foreign government.
Perhaps an argument may be made based on the implied message of Regs. Sec. 1.6038A-1(f)(5) that the IRS intended to distinguish between a "corporate resident" of a country and a "corporation [that is] resident" in a country; or that these regulations reflect the Service's view that the application of attribution rules to entities controlled by a foreign government requires explicit direction in the operative OPERATIVE. A workman; one employed to perform labor for another.
2. This word is used in the bankrupt law of 19th August, 1841, s. 5, which directs that any person who shall have performed any labor as an operative in the service of any bankrupt shall be law or regulations. This argument is difficult to support as a technical matter, and the policy argument articulated in the legislative history (noting a reluctance on the part of Congress to favor commercial activities conducted by a foreign government over those conducted by a private enterprise) further undermines this position. Accordingly, absent more explicit guidance offering direct relief, it appears Sec. 892(a)(3) should be read to characterize a foreign government as a foreign person for purposes of the Code.
A number of considerations remain, however, if it is determined that a foreign government is subject to the attribution rules of Sec. 318 for purposes of Sec. 163(j). As noted, administrative concerns clearly arise, particularly when the activities of the foreign government in the United States are diverse and are conducted through a number of separate government agencies or instrumentalities. In addition, return filing issues also arise; for example, does a foreign government file a single return reporting all of its U.S. trade or business activities, or may a separate return be filed for each of the separate agencies of the government that are so engaged? If there is a failure to report the income or activities of one of its agencies, is the government return an incomplete return for penalty and other purposes (e.g., statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought.
Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. or denial of deductions)?
Needless to say, the complexities associated with the increased attention of the Code and regulations on an expanded definition of affiliated group activities, for such purposes as the foreign tax credit (Sec. 904(i)), interest expense allocation (Sec. 864(e)) and earnings stripping (Sec. 163(j)), are themselves multiplied mul·ti·ply 1
v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies
1. To increase the amount, number, or degree of.
2. Mathematics To perform multiplication on. when the expansive definition of affiliated group brings under its ambit the activities and entities of a foreign government. As noted, guidance in this area is minimal, and careful consideration must be given when these issues present themselves.