2023 Marcum Year-End Tax Guide

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taxation are not only costly, time consuming, and disruptive but can also have a significant impact on MNEs’ performance. More than ever, transfer pricing is considered a leading tax audit concern. Advanced Price Agreements (APAs) have been the tool available to MNEs to increase transfer pricing certainty. The OECD recently established a new program to assist MNEs in managing transfer pricing risk under the International Compliance Assurance Program (ICAP). Similarly to APAs, ICAP is a voluntary program intended to help MNEs manage transfer pricing risks proactively. New APA Filling Procedures in the US In April 2023, the Director of the IRS Treaty and Transfer Pricing Operations (“TPPO”) issued to the division employees a memorandum titled “Interim Guidance on Review and Acceptance of Advance Pricing Agreement (APA) Submissions.” This memorandum details a new process in which taxpayers may engage before filing for an APA, which can be time-consuming and costly. Under this new approach, the IRS will review the taxpayer’s APA request and, based on the review, will recommend the taxpayer to either move forward with applying for the APA or suggest alternative solutions, including the International Compliance Assurance Programme

(“ICAP”) or joint audit procedures. The IRS is expected to soon release the highly anticipated revised APA revenue procedure. ICAP Alternative to an APA Procedure The OECD ICAP was launched as a voluntary risk assessment and assurance program that helps MNEs obtain increased certainty over their transfer pricing and other international tax issues. The first roll-out of ICAP was announced in December 2020, following two pilots initiated in 2018 and 2019. OECD ICAP’s primary goals include being a faster and clearer route to multilateral tax certainty for MNEs and an effective and collaborative alternative to dispute resolution to reduce the inventory of Mutually Agreed Procedure (“MAP”) cases. It also aspires to prevent unnecessary tax disputes while using tax authority resources efficiently. The IRS showed its support for this alternative option soon after the OECD adopted the ICAP alternative. The IRS provided additional guidance recommending that taxpayers start with an initial consultation before submitting the application package, which typically includes the MNE Group’s most recent country-by-country report (“CbCR”), master file, transfer pricing reports, and financial statements.

The IRS will review all transfer pricing transactions in which the United States is a counterparty, even if the jurisdiction in which the counterparty is located is not participating in the ICAP 9 . In general, “the IRS anticipates that the learnings from ICAP will facilitate more efficient dispute resolution On February 9, 2023, the Tax Court provided its ruling in the transfer pricing case between 3M and the IRS, with the IRS emerging victorious. The primary issue centered on a 2006 Brazilian industrial property law that prevented the payment of select royalties by a Brazilian subsidiary of 3M to its US parent. As a result, the IRS determined that 3M in Brazil made an underpayment of royalties to its US parent. The IRS determined that the royalty payment should be increased by USD 23.65 million to become consistent with the arm’s length standard. The adjustment determined by the IRS did not reflect the legal restrictions borne by 3M in Brazil. Given the size of the adjustment and the presence of local legal regulations, it is anticipated that this decision will be appealed to the US Court of Appeals for the Eighth Circuit. processes outside of ICAP.” 2023 CASE LAW UPDATE 3M v. Commissioner

8The latest guidance of July 2023 covers: 1. Additional administrative guidelines on: i. Currency Conversion Rules; ii. Tax Credits; iii. Substance Base Income Exclusion (SBIE); iv. Qualifying Domestic Minimum Top-up Tax (QDMTT); v. QDMTT Safe Harbor and vi. Transitional UTPR Safe Harbor; 2. GloBE Information Return; 3. Subject to Tax Rules (STTR) and 4. Implementation Support Measures. 9Excludes transactions that are a part of pending APAs and completed bilateral APAs.

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