The prosed regulations containing “GILTI high-tax exclusion” may provide a relief to U.S. taxpayers subject to the Section 951A GILTI inclusion.  As mentioned in our newsletter dated August 2, 2019 (http://www.kyjcpa.com/news-updates/dodging-gilti-bullet/ ), many taxpayers with foreign subsidiaries are faced with significant tax liabilities and compliance burdens due to the newly enacted Section 951A GILTI tax (Global Intangible Low-Taxed Income tax).

The proposed GILTI high-tax exclusion regulations, if finalized, would generally allow taxpayers to make an election to exclude items of income of its controlled foreign corporations (CFCs) that would otherwise be part of the GILTI inclusion. The exception would apply if the items are subject to foreign income tax at an effective rate that is greater than the 90% of the maximum U.S. corporate income tax rate.  Currently, U.S. corporate income tax rate is 21%.  Therefore, if CFCs items of income is subject to foreign tax at an effective tax rate exceeding 18.9%, the GILTI inclusion may be avoided by making this election.  In other words, the GILTI high-tax exclusion may provide some benefit to those taxpayers operating in highly taxed jurisdictions.

The GILTI high-tax exclusion is proposed to apply to taxable years beginning on or after the date final regulations are published.  As a result, the regulations would not be available until 2020 for calendar-year taxpayers.

특수관계자 간에 거래를 할 시에 이에 대한 가격을 정하는 방법을 이전가격 (transfer pricing)이라고 한다. 이러한 이전가격을 통해 기업별 나라별로 소득과 손실이 이전될 수 있기 때문에 과세당국에서는 이와 같은 가격의 정당성에 대해 문제를 제기 할 수 있다.

미국 세법 482조(IRC 482)에 따라, 미국 재무부는  특수관계자 간의 거래에 대해서 이전가격을 통한 해외로의 과세소득이전 및 조세 회피를 방지하기 위해 미국법인에 적정소득을 반영시킬 권한이 있다. 연방세법상 적정소득을 정의하기 위해서는 정상가격기준(arm’s-length standard)을 사용한다.

이전가격에 대한 연구는 특수관계자 간의 거래가 있을 시에는 이루어져야 한다. 이와 같은 거래에는 상품, 서비스, 유무형자산 및 금융거래 등이 포함된다. 이와 같은 거래는 정상가격기준으로 이루어져야 하며, 미국연방규정집(Code of Federal Regulations 혹은 “CFR”) CFR §1.6662-6(d)에는 이러한 이전가격에 대한 연구에 대하여 추후에 이전가격 조정이 발생했을 경우 페널티를 피할 수 있는 10가지의 요건사항을 설명하고 있다.

정상가격기준을 찾기 위해서는 각 사업체의 상황과 여건에 따라 가장 믿을 만한(most reliable) 방법을 사용하여야 한다. 연방세법에서는 가장 믿을 만한 방법을 명확하게 규정하지는 않았으며 또한 한가지 방법이 필연적으로 다른 방법들보다 믿을 만하다고 여겨지지도 않는다.

일반적으로 많이 쓰이는 방법은 특수관계자가 아닌 기업들 간의 거래에 대한 결과와 특수관계자 간의 거래에 대한 결과를 비교하는 방법이다. 이와 같은 비교를 할 때에는 우선 회사의 기능적 분석을 통하여서 회사의 비교군 회사들을 선정하게 된다. 후에, 비교군 회사와의 재무정보(마진 및 재무비율 등)를 비교하여 회사의 거래에 대한 결과가 정상가격기준을 충족하는지를 판단하게 된다. 이 때, 각 회사간의 특성을 고려하여 CFR § 1.482-1(d)(3)에 따라 조정을 하게 된다.

미국의 대기업 및 국제기업을 담당하는 Large Business & International Unit (“LB&I”)는 이전가격에 대한 준수여부를 집중세부조사 항목에 추가하여, 대기업 및 국제기업이 IRS에 감사를 받게 될 시에 이전가격의 연구에 대한 질문을 받게 된다. 이전가격연구는 매년 시장 및 산업추세를 반영하기 위하여 업데이트가 되어야 하며 이 문서는 3년에서 6년간 보관이 되어야 한다.

Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. It allocates profits (or losses) amongst business entities and/or countries, and therefore tax authorities may contest them.

Section 482 of the Internal Revenue Code (“IRC”) of 1986 (“Section 482 Regulations”) outlines the regulatory guidance for intercompany transactions among members of common ownership or control. Section 482 allows the United States (“U.S.”) Treasury to prevent the evasion of taxes or to reflect the appropriate income of U.S. members. The basis to ensure that the intercompany transfer price for goods, services and intangible property clearly reflect income for U.S. Federal Tax purposes in the Section 482 Regulations is the arm’s-length standard.

Transfer pricing documentation must be maintained in any case of two or more organizations, trades, or businesses owned or controlled directly or indirectly by the same interest, with controlled transactions between these related entities. Controlled transactions may include tangible property, intangible property, loans, and/or services to or from foreign affiliates in exchange for payment. These transactions must be at a price that is consistent with an arm’s length price. CFR § 1.6662-6(d) outlines the ten transfer pricing documentation requirements and the penalty regime that may be imposed for large transfer pricing adjustments.

The arm’s length result of a controlled transaction must be determined under the method that, under the facts and circumstances, provides the most reliable measure of an arm’s length result. There is no strict priority of methods, and no method will invariably be considered to be more reliable than others.

Data based on the results of transactions between unrelated parties provides the most objective basis for determining whether results of a controlled transaction are arm’s length. First, a company conducts a functional analysis to determine what kind of comparables to use. After conducting a functional analysis, the company compares its financial results(such as margin or financial ratios) with others without controlled transactions. The relative reliability of a method based on the results of transactions between unrelated parties depends on the degree of comparability between the controlled transaction or taxpayers and the uncontrolled comparables, taking into account the factors described in CFR § 1.482-1(d)(3).

IRS LB&I Division announced the approval of transfer pricing compliance campaign. Hence, if a large business and international entity is audited by IRS, IRS agent will inquire regarding transfer pricing compliance. Transfer pricing documentation should be updated annually to account for normal business and market developments. Retention of transfer pricing documents is three to six years from the filing date of the associated tax return.

2019년 8월 15일에 미국 재무 회계 기준위원회(“FASB”)에서 회계기준 업데이트 제안(“proposed ASU”)을 발표함에 따라, 비 상장 기업들이 몇몇 새로운 회계기준을 적용하는 데에 조금 더 시간이 주어질 것으로 예상된다. 이에 해당하는 회계기준은 1. 기대신용손실(“CECL”), 2. 리스(Leases), 그리고 위험관리회계(Hedging)이다. FASB는 이해관계자들이 관련 proposed ASU에 대해 검토하고 의견을 제시하는 데에 2019년 9월 16까지 시간을 제공했다.

2014년 이후로, FASB는 수익인식기준(ASC 606), 리스(ASC 842), 위험관리회계(ASC 815), 금융상품 - 신용손실(ASC 326) 등 여러가지 주요한 회계기준 업데이트를 발표해왔다. 이와 같은 변화는 상장기업들에게도 큰 변화와 어려움을 야기하지만, 이와 같은 어려움은 작은 기업들 및 비상장 기업에게 더욱 더 큰 부담으로 다가온다. 이와 같은 어려움을 돕기 위하여, FASB는 큰 상장기업을 하나의 양동이(bucket one)로 묶고, 기타 사업체들을 두 번째 양동이(bucket two)로 묶는2개의 양동이 (two bucket)이라는 접근방법을 제시한다.

이와 같은 접근방법에 따라서, 주요한 회계기준 업데이트는 첫 번째 양동이에 해당하는 사업체들에게 먼저 적용된다. 미국 증권거래위원회(“SEC”)에 보고를 하는 회사들이 이에 해당되며, 단 SEC가 지정하는 소규모기업특례적용회사(“SRC”)는 제외된다. 기타 사업체들(앞서 제외된 SRC, 기타 상장기업, 비상장기업, 비영리 단체 등)은 두 번째 양동이로 분류되며, 이에 따라 주요한 회계기준 업데이트에 대한 적용을 첫 번째 양동이의 적용기준부터 2년 후로 미룰 수 있게 된다. 일반적으로, 기존과 마찬가지로 회계기준 업데이트에 대한 조기적용은 모든 사업체들에게 허락될 것으로 보인다.

이미 몇몇 회계기준은 큰 상장기업에게 적용이 되었기 때문에 이러한 회계기준의 적용날짜는 바뀌지 않았지만, 비상장기업 및 기타 사업체들의 경우 새로운 회계기준을 적용하는 데에 필요한 교육 및 준비과정을 하는 데에 조금 더 시간이 주어지게 될 것으로 보인다.

자세한 내용은 아래의 링크에서 확인할 수 있다.

<<https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173176157&acceptedDisclaimer=true>>

On August 15, 2019, the Financial Accounting Standards Board (“FASB”) issued a proposed Accounting Standards Update (“ASU”) that would grant private companies (along with not-for-profit organizations, and certain small public companies) additional time to implement new FASB standards on 1. current expected credit losses, 2. leases, and 3. hedging. Stakeholders are encouraged to review and provide comment on the proposed ASU by September 16, 2019.

Since 2014, FASB has issued several major Accounting Standards Updates, such as ASC 606 - Revenue Recognition, ASC 842 - Leases, ASC 815 - Derivatives and Hedging, ASC 326 - Financial Instruments – Credit Losses, etc. Although large public business entities may also encounter difficulties in transitioning to a new standard, the challenges are magnified for smaller public business entities and nonpublic business entities. In response to those issues and requests to defer certain major updates, FASB developed a philosophy to extend and simplify how effective dates are staggered between larger public companies (bucket one) and all other entities (bucket two).

Under this philosophy, a major update would first be effective for bucket-one entities—entities that are Securities and Exchange Commission (SEC) filers, excluding entities eligible to be smaller reporting companies (SRCs) under the SEC’s definition. All other entities, including entities eligible to be SRCs, all other public business entities, and all nonpublic business entities (private companies, not-for-profit organizations, and employee benefit plans) would compose bucket two. For those entities, it is anticipated that the FASB will consider requiring an effective date staggered at least two years after bucket one for major updates. Generally, it is expected that early application would continue to be permitted for all entities.

Because some of the new standards are already effective for bucket one entities, the Board retained the effective date for those entities, but private and all other entities now have more time to improve their processes and entire business approach related to the new standards as they perform the new implementation.

For more information, please refer to the Proposed Accounting Standards Update:

<<https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173176157&acceptedDisclaimer=true>>

Things to Consider Before Filing Return for Corporate Taxpayers!

As we are approaching the extended due date of 2018 income tax returns, here are some reminders of key considerations that could potentially reduce tax liabilities:

Monetization of AMT Credit

Corporations are no longer subject to the Alternative Minimum Tax (“AMT”) under the new tax law.  However, many corporations have paid in AMT in the past and may have AMT credit carryforwards that is refundable starting in 2018 through 2022. 50% of the corporation’s AMT credit carryforwards are refundable in 2018. If your company was subject to AMT in the past, you should explore this opportunity to monetize AMT credits carryforwards.

Bonus Depreciation

Bonus depreciation percentage has increased from 50% to 100% for qualifying property acquired and placed in service during 2018 through 2022.  Generally, the 100% write-off applies to depreciable business assets with recovery period of 20 years or less that are placed in service in the U.S.A.

FDII Benefit

One of the centerpieces of the President Trump’s tax reform was to create a more tax-efficient environment and to make the U.S tax system competitive with other tax regimes around the word.  As part of this reform, Congress added Internal Revenue Code (IRC) Section 250 “Foreign-Derived Intangible Income” (FDII) deduction which provides an incentive to domestic corporations in the form of a lower tax rate on income derived from foreign market.

Under Section 250, U.S. corporations are entitled to a preferential rate reduction from 21% to 13.15% on income derived from foreign market.  This preferential rate applies to the qualifying income from 2018 through 2025, and then slightly increased to 16.4% thereafter.

Minimization of GILTI Tax

Global Intangible Low-Taxed Income (“GILTI”) is a new category of foreign income that must be added to the US taxpayers’ taxable income each year effective January 1, 2018.  In a nutshell, it is a tax on foreign subsidiaries’ earnings that exceeds 10 percent return on their investment in hard assets (such as fixed assets used for operation).  Under the GILTI tax regime, foreign subsidiaries’ income in excess of their 10% return on hard asset investment is considered as income attributable to the US intangibles, and US tax is imposed on such excess income each year.

There are various strategies and planning ideas to avoid or reduce GILTI tax:  check-the-box election, section 78 gross up with deemed paid foreign tax credit, section 962 election for individual taxpayers, transfer pricing planning, sourcing foreign income to subsidiaries with substantial hard asset, and ownership restructure to disqualify as controlled foreign corporation.

Foreign Dividend Exemption

A full participation exemption is available under the new tax law which exempts certain foreign sourced dividends paid to 10 percent US corporate shareholders for federal income tax purposes.  If your company received a dividend from one of its foreign subsidiaries during the year, the company may be eligible for this exemption.

R&D Tax Credits

The Research and Development (R&D) tax credit, first introduced in 1981, is a government-sponsored tax incentive that rewards companies for conducting R&D activities in the United States.  This credit was implemented to incentivize innovation throughout the economy and to keep technical jobs here in the United States.

The benefit of the R&D tax credit could range from 14% to 20% of qualifying expenditures that could be used to offset the company’s tax liabilities.  In addition, many states have their own means of incentivizing in-state R&D activities.

WOTC

The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program and there is no limit on the number of individuals an employer can hire to qualify to claim the tax credit.

The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired.  The expiration of the WOTC credit has been extended until the end of 2020.

Dodging GILTI Bullet

해외 자회사를 둔 많은 납세자들이 새로 제정된 조항  951A GILTI tax 로 인해  세금부채와 컴플라이언스에 관련된 많은 어려움을 겪고있다. 새로 제정된 GILTI tax 에 익숙하지 않은 납세자들을 위해  이 규정이 해외 자회사를 둔 미국 납세자들에게 끼치는 영향과 고려해 볼 만한 절세 방안을 정리해 보았다.

GILTI 란, 2018년 1월  1일을 기준으로, 매년 미국 납세자들의 과세 소득에 포함되야하는 일종 해외 소득을 뜻한다. 쉽게 설명하자면, 유형 자산(오퍼레이션에 사용되는 고정자산 등)에 투자된 금액의 10%를 초과하는 수입을 벌어들이는 해외 자회사들에게 부과되는 세금이다.  이러한 새로 제정된 법 아래, 유형 자산에 투자된 금액의 10% 를 초과하는 해외 자회사들의 수입은 미국 무형 자산에 귀속되는 수입으로 간주되며, 그 초과된 만큼의 금액에 대한 미국 세금이 부과된다.

많은 다국적 기업들이 이미 GILTI에 관련된 세금을 최소화 시키기 위한 노력을 하고있고 절세방안을 이미 시행했고 시행하고있다. 예시로, 퀄컴(Qualcomm) 의경우,  GILTI와BEAT 세금을 피할 수 있는 구조 조정을 통하여2017년 4분기 기준을 기준으로 대략 $570 M에 상당하는 tax benefit을 보고한 바 있다.

GILTI 세금을 피하거나 줄일수있는 많은 전략과 계획 아이디어가 존재한다. 예를들면, check-the-box election, section 78 gross up with deemed paid foreign tax credit, section 962 election for individual taxpayers, transfer pricing planning, sourcing foreign income to subsidiaries with substantial hard asset, and ownership restructure to disqualify as controlled foreign corporation등이 존재한다.

GILTI에 대한 고충이 있다면 세법 전문가분들과 위와 같은 전략을 구상하며 상담할 것을 추천한다.

Dodging GILTI Bullet

Many taxpayers with foreign subsidiaries are faced with significant tax liabilities and compliance burdens due to the newly enacted section 951A GILTI tax (Global Intangible Low-Taxed Income tax).  For those of you who are not familiar with the GILTI tax regime, we will talk how the provision may impact the US taxpayers with foreign subsidiaries and some of the planning options that should be considered.

GILTI is a new category of foreign income that must be added to the US taxpayers’ taxable income each year effective January 1, 2018.  In a nutshell, it is a tax on foreign subsidiaries’ earnings that exceeds 10 percent return on their investment in hard assets (such as fixed assets used for operation).  Under the GILTI tax regime, foreign subsidiaries’ income in excess of their 10% return on hard asset investment is considered as income attributable to the US intangibles, and US tax is imposed on such excess income each year.

Large, sophisticated multinational corporations served by big accounting firms already have been taking steps and utilized planning opportunities to avoid or minimize tax bills associated with the GILTI. For example, Qualcomm recorded approximately $570 million of tax benefit in Q4 2017 by implementing certain restructures to avoid GILTI and BEAT (Base Erosion & Anti-abuse Tax) taxes.

There are various strategies and planning ideas to avoid or reduce GILTI tax:  check-the-box election, section 78 gross up with deemed paid foreign tax credit, section 962 election for individual taxpayers, transfer pricing planning, sourcing foreign income to subsidiaries with substantial hard asset, and ownership restructure to disqualify as controlled foreign corporation.

Taxpayers with concerns related to GILTI tax should consult with their tax advisors and explore some of the strategies mentioned above.

캘리포니아의 2017 연방세법 개혁안의 부분적 적용 사항

2019년 7월1일, 캘리포니아 주지사는 2017 연방세법 개혁안을 부분적으로 적용하는 Assembly Bill 91법안을 승인했다. 연방세법의 적용은 2017 연방세법 개혁안의 특정 조항들에 국한되며, GILT, FDII, BEAT, 163(j) interest limitation등과 같은 국제적 조항에는 적용되지 않는다. 캘리포니아 주정부가 채택한 주요 조항은 다음과 같다:

• 영업 손실(net operation loss) 소급공제의 폐지. 2018년 12월 31일 이후 과세연도의 영업손실은 이월공제만 가능하며 소급공제 할 수 없다.
• 납세자의 California-only IRC section 338 조항 선택옵션 폐지. 특정 주식 인수는 California-only의 해당 조항에 따라 자산의 구입으로 분류될 수 있었으나, 새로운 법안은 위와 같은 California-only조항을 폐지한다.
• 파트너쉽의 소멸 (partnership technical termination) 조항을 폐지한다.
• 연방세법상의 초과 영업손실 제한(excess business loss limitation)을 2018년도 1월 1일자로 시작하는 과세연도부터 적용한다.
• 1031 동종자산 교환(like-kind exchange)의 적용이 부동산 거래로 제한한다.
• 소규모 비즈니스의 회계 방법에 있어 연방법에 따른 간소화 방식을 적용한다.

모든 주정부는 연방세법을 그들 각각의 주에 따른 세법 시스템으로 구체화하여 포함시키나, 그 방법은 다양하게 적용된다. 캘리포니아주는 연방세법의 특정 조항을 분리시키거나 따로 명시한 예외규정과 더불어 특정 시점에 존재한 조항들을 적용하는Static Conformity (or “fixed date”)주이다. 특별히 명시되지 않는 한, 일반적으로 캘리포니아주는 2015년 연방세법을 적용한다.

자세한 내용은 아래 링크에 명시되어 있다:

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB91

California’s Selective Conformity to Federal Tax Reform 2017

California governor signed Assembly Bill 91 into law on July 1, 2019, which selectively conforms California’s tax laws to the 2017 federal tax reform.  The federal tax conformity is limited to certain targeted provisions of the 2017 federal tax reform and does not conform to most of the international provisions (including GILTI, FDII, BEAT, 163(j) interest limitation and so on).  Following are some of the key provisions adopted by California:

• Repeal of net operating loss (NOL) carryback. NOL originated from taxable years beginning after December 31, 2018 can only be carried forward and cannot be carried back.

• Eliminated a taxpayer’s ability to make California-only IRC section 338 elections. Certain stock acquisitions could be treated as asset purchases for California only with a valid election.  However, the new bill eliminated such California-only elective provision.

• Repeal of the partnership technical termination provision.

• Adopted the federal excess business loss limitation for tax years beginning on or after January 1, 2018.

• Limited application of 1031 like-kind exchange to real property exchanges.

• Adopted the federal simplification of small business accounting methods.

Note that all states incorporate parts of the federal tax code into their own system of taxation, but how they do so vary widely.  California is a Static (or “fixed date”) conformity state which incorporates the federal IRC as it existed at a specific point in time with an exception to certain provisions specifically decoupled or specified.  Unless otherwise specified, California generally conforms to the 2015 federal tax law.

For additional detail, click the link below:

https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB91