As we wrap up October, you can view all of the topics we discussed over the last month and take a look at the upcoming tax controversy events where our lawyers will be speaking in November.

Upcoming Tax Controversy Activities in November:

November 10, 2017: Robin Greenhouse and Kevin Spencer are presenting “Alternative IRS Dispute Resolution Techniques” at TEI BW Chapter Tax Education Day.

November 16, 2017: Britt Haxton, Kristen Hazel, Justin Jesse, Alexander Lee, John Lutz, Sandra McGill, David Noren, Barry Quirke, Andrew Roberson and Mark Thomas are speaking at the TEI International Tax Forum, and covering evolution of hybrid mismatch rules base erosion and profit shifting (BEPS), planning for tax reform, disclosures for global tax strategies, planning for 2018 and beyond, and the call for substance.

On June 9, 2016, the US Tax Court released its opinion in Medtronic, Inc. and Consolidated Subsidiaries v. Commissioner. The Internal Revenue Service had taken issue with the transfer pricing of transactions between Medtronic, Inc. and its Puerto Rican manufacturing arm under §482 of the Internal Revenue Code. Finding the IRS’s application of the comparable profits method (CPM) to the transactions arbitrary and capricious, and taking issue as well with the taxpayer’s comparable uncontrolled transaction (CUT) methodology, the court ultimately made its own decision as to arm’s-length pricing, arriving at new allocations by making adjustments to the taxpayer’s original CUT approach.

Read the full Tax Management International Journal article.

© 2016 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc.

The UK Government has recently confirmed that it will be introducing a new cap on interest deductibility. Under the new rule, the ability of groups to obtain tax relief for interest will be limited by reference to a ratio of their net interest expense to EBITDA. The new rule will apply from 1 April 2017, leaving affected groups with very little time in which to consider its impact and to refinance their existing arrangements.

In the latest issue of McDermott’s newsletter International News, covering international tax topics of interest, we have published an article discussing the proposed rule. Read the full article here.

The ABA recently issued comments to the IRS and Treasury regarding the new temporary regulations issued in TD 9738 concerning the aggregation of controlled transactions, under Section 482, which broaden (“clarify”) the scope of intangible value, to include “all the value provided” from a controlled transaction, and such other transactions that may occur before, during or after, that are so interrelated, as to require aggregate consideration. See attached. While the IRS does not explicitly mention goodwill or going concern—except by reference in one example—the regulations are intended to sweep in the consideration of any goodwill, including synergy, value that may relate to such transactions.

Given the inherent difficulty, and the persistent controversy, as exhibited in the past (i.e., the Veritas and Amazon cases) and as certainly more is yet to come (BEPS) in attempting to determine the value of intangibles generally, let alone goodwill, for the sake of good tax administration, the IRS would do well to provide more concrete/ explicit definitions, or at least boundaries, as to what or when this “extra” value may, or may not, be likely to apply.

This broader scope of consideration is now likely to make it easier for the IRS to recast transactions on economic substance or realistic alternatives grounds, leading to more controversy and disputes, not just with taxpayers, but with foreign governments as well.