2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR-END TAX GUIDE

Transfer Pricing Update

THE CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY (CARES) ACT The 116th U.S. Congress passed a $2.2 trillion economic stimulus bill on March 27, 2020, in response to the economic fallout from the coronavirus pandemic in the United States. X The CARES Act temporarily suspended the 80 percent taxable income limitation on the use of a net operating loss (NOL) to offset taxable income for tax years beginning after December 31, 2017, and before January 1, 2021. X The CARES Act further introduced temporary changes to the IRC business interest limitation. The CARES Act generally allows taxpayers to increase the 30 percent of adjusted taxable income (ATI) limitation on business interest expense to 50 percent of ATI for any tax year beginning in 2019 or 2020. Taxpayers could elect not to apply the higher 50 percent limitation. If the additional deduction yields negative tax consequences for another tax provision, such as the BEAT, taxpayers could decide not to elect to apply the increased limitation. X MNEs should review their current transfer pricing positions in conjunction with carryback tax loss relief to maximize

ACTION STEPS The TCJA changes related to the corporate tax rate and the imposition of FDII rules, GILTI and the BEAT require rethinking the approach to transfer pricing and intangibles ownership. A thorough modeling of these changes needs to be performed by MNE taxpayers to determine impact. Since this analysis is facts and circumstances-driven, there is no simple way to estimate the results or strategies that should be explored. Further, the impact of the COVID-19 pandemic and the CARES ACT stimulus should also be carefully considered to defend the transfer pricing position taken and maximize tax benefits. Marcum recommends that MNE taxpayers undertake a study to determine the impact of the TCJA on international structuring, transfer pricing policies, and global tax rates, and to defend their current transfer pricing positions due to the pandemic. The outcome of such a study will point out new strategies that should be explored to minimize global taxation for a MNE. Some possible new strategies could include the following:

For FDII and GILTI

X

Determine whether IP (intellectual property) is better located in the U.S. or abroad, including the costs of unwinding current structures and implementing new structures.

X

tax benefits. MNEs should further review any inter- company financing arrangements to maximize interest relief.

For GILTI

X

X Maximize the exempt deemed tangible income returns on CFCs to minimize GILTI.

Manage Foreign Tax Credit.

X

Manage pre-tax income distributions.

X

Consider non-CFC entities to house business operations, since the GILTI only applies to CFCs.

X