Portland Chapter update. (Chapter News).
The January 14 meeting of the Portland Chapter began with a federal audit roundtable workshop moderated by Chapter member Brad George of Oregon Steel Mills. Members exchanged information about their current audit status, the kinds of issues being raised by the IRS, and effect of some of the new audit initiatives. While there is much room for improvement, the consensus among the participants was that some of the IRS's process improvements have contributed positively to the audit process. There is evidence of a greater willingness and ability on the IRS's part to settle issues at the exam level.
The dinner speakers for the evening were Stuart M. Ison and John S. MacArthur of Ernst & Young. Ernst & Young has recently opened an office in Portland after being absent from the city for a number of years. Messrs. Ison and MacArthur discussed "Recent International Tax Developments Affecting U.S. Multinational Corporations."
Mr. MacArthur addressed the membership first saying that it could be a wild year legislatively for U.S. tax matters. President Bush's Economic Stimulus Plan, as well as international tax reform resulting from the WTO's pressure to repeal the ETI regime, could provide some radical changes in the area of U.S. taxation of multinational companies. Mr. MacArthur pointed out that the dividend exclusion provisions and retention of the 30 percent withholding tax on dividends paid to foreign recipients tilts the United States tax system toward U.S. investment. The speaker added that the bill is an "economic stimulus" bill, not a "reconciliation" bill, although recent articles in the Wail Street Journal indicated the bill could change direction. Mr. MacArthur went on to discuss the excludable dividend account (EDA) in some depth and suggested that the dividend exclusion may put market pressure on publicly held companies to pay dividends.
Mr. Ison went on to cover some of the global competitiveness proposals, such as repeal of CFC rules on foreign base company sales and income and look-through treatment of payments between related CFCs and FPHCs. He also discussed the Boeing Co. case where taxpayer argued that R&D should be allocated and apportioned based upon product groups, but the government argued that R&D should be allocated and apportioned based on SIC categories. The Ninth Circuit ruled in favor of the government. The case was argued before the U.S. Supreme Court on December 9, 2002. (Editor's Note: The Supreme Court subsequently affirmed the decision in favor of the government.)
Mr. Ison briefly commented on Microsoft Corp., No. 01-71584 (9th Cir. Dec. 3, 2002) where the Ninth Circuit reversed the Tax Court which had held that software master did not qualify as export property. The Brown Group regulations--concerned with whether the "entity" or "aggregate" theory of partnership tax applies in the context of Subpart F rules--was also discussed.
Mr. MacArthur finished the presentation with a brief overview of major developments in foreign countries such as Australia, Germany, and Hungary.
In attendance at the February 12 meeting was scholarship winner Karen Webber of Lewis and Clark Law School. Mr. Jack Bogdanski, Professor of Law at Northwestern School of Law of Lewis and Clark College and administrator for the Chapter's annual scholarship at the university, was also present.
Dale MacHaffie of ESCO Corporation led a workshop on current IRS administrative affairs. Among the topics discussed by the group were IRS proposals to require CEOs to sign tax returns, requests for tax accrual workpapers, and the book-tax filter for identifying potential tax shelters.
The meeting started with the sad announcement that long-time chapter member Jimmie Gleason had passed away on January 23. Mr. Gleason had spent 44 years with PacifiCorp until his retirement in 1996. It was also announced that another long-time member, Ed Miska of Portland General Electric retired at the end of February. Mr. Miska has been an active member of the chapter and served as Regional Vice President of TEI in 1976. The Chapter extends its best wishes to him.
The dinner speakers for the evening were Norm Nystrom and Ron Greve of PricewaterhouseCoopers' Minneapolis office. The speakers discussed foreign currency considerations in international tax planning, particularly in the area of dividend planning, branch remittances, CFC liquidations, and cash flows involving holding companies.
Mr. Nystrom talked about opportunities for arbitrage between the dates when taxes are paid and when dividends are paid. He also discussed the tax consequences of branch remittances and translation rules under section 987 where branch profits and losses and branch taxes are translated at average exchange rates but the actual remittance is translated at the spot rate. Mr. Nystrom pointed out that the IRS believes section 987 may be abusive, especially when distributions are returned to the branch, and suggested watching for a change in the law (Notice 2000-20).
According to the speaker, each qualified business unit under a CFC holding company is viewed separately and section 987 applies to any transfer and remittance, including intra-company loans, payments for services and sales, etc. Consequently, any of these activities can trigger foreign exchange gains and losses and can impact the E&P and tax pools of the holding company. Subpart F income is also a possibility.
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|Date:||Mar 1, 2003|
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