Today, the IRS published the “Prepared Remarks of Commissioner Douglas Shulman before the 22nd Annual George Washington University International Tax Conference.” You can read the whole speech here.
But for those of you who don’t have the time to read the 2703 word speech, here’s a summary:
Shulman started out with an update on three facets of international tax that he discussed last year: transfer pricing, hybrid structures and withholding taxes.
Okay, I know what you’re thinking: what the heck is transfer pricing? Transfer pricing is a complicated area of tax law involving international transactions among multinational corporations. Basically, what concerns the IRS is when these multinational taxpayers make inconsistent tax claims with respect to the same transactions.
Shulman agreed that the IRS often took too long to resolve transfer pricing issues and that the IRS was (gasp) inconsistent with respect to these issues. As a result, he announced that the IRS has established a Transfer Pricing Practice within their large and mid-sized business operating division to help out with communications and consistency.
A second important focus for the IRS was the use of hybrid structures in international tax planning. Hybrid structures allow taxpayers to take advantage of losses incurred in foreign affiliates and still claim certain US benefits – in other words, the best of both worlds. All of the losses, none of the tax. To achieve these results, these structures can be set up in many different forms and have a number of tiers. Shulman believes that with respect to these structures, the “underlying purpose is to either exclude income from taxation or obtain double deductions/credits in various jurisdictions.” He stressed that the IRS is in the process of litigating several cases on this very issue.
The final issue that Shulman discussed was withholding taxes for compliance by commercial banks, hedge funds, and other taxpayers. Quite frankly, it didn’t sound like the IRS had a lot to add here. They are “developing tools” to help their examiners identify transactions in which withholding applies. Um, so, they’re working on it.
He went on to discuss the current administration’s commitment to enforcing US tax laws with respect to international transactions. This meant a quick mention of the Foreign Account Tax Compliance Act of 2009; a modified version of FACTA was passed in the House yesterday as part of the Tax Extenders Act of 2009. It also meant a lengthy congratulatory chat about the IRS’ success with UBS and more “hurrahs” over the unexpected level of response from the voluntary disclosure program.
Shulman was pleased to note that there is evidence of increased due diligence by tax professionals to report offshore accounts and income generated abroad. That, of course, led to a discussion about the Global High Wealth Industry Group.
The Commish ended with a few remarks on corporate governance, risk and transparency.
