Subscribe to the Tax Headline RSS feed | Subscribe to the Tax Headline feed via EmailBNA INSIGHTS: Covered Asset Acquisition Proposal: Sanctioning International Double Taxation?
June 18, 2010 in Daily Tax Report · Leave a Comment
Proposed legislation in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213; hereinafter the “Bill”) would deny foreign tax credits related to certain “covered asset acquisitions.”
As discussed below, covered asset acquisitions involve the application of well-established U.S. tax rules that cause the purchase of interests in a legal entity (e.g., stock in a corporation) to be treated as a purchase of the entity’s assets for U.S. tax purposes. If the entity operates in a foreign jurisdiction, this treatment may differ from the tax treatment in the foreign jurisdiction. As a consequence, covered asset acquisitions could cause the effective tax rate for a given year to be higher from the U.S. tax perspective (that is, foreign income taxes paid in a given year over income from a U.S. tax perspective) than from the foreign jurisdiction’s perspective (that is, foreign income taxes paid in a given year over income from the foreign jurisdiction’s perspective).
For reasons that are not clear, the proposed legislation views the potential for such effective rate differences as a loophole that should result in the denial of foreign tax credits. This position appears contrary to long-standing U.S. international tax and income tax treaty policies.
