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U.S. Tax Review: GLOBE and Nexus Rules, Final FTC Reg Comments, and Priority Guidance Plan Updates

Posted on Apr. 4, 2022
Julia Ushakova-Stein
Larissa Neumann

Larissa Neumann and Julia Ushakova-Stein are with Fenwick & West LLP in Mountain View, California.

In this installment of U.S. Tax Review, Neumann and Ushakova-Stein examine the latest developments in the Whirlpool, Mann Construction, and Aptargroup cases; various OECD updates, including the global anti-base-erosion model rules, as well as the draft rules and the public consultation on nexus and revenue sourcing; comments on the final foreign tax credit regulations; IRS letter rulings on a qualified electing fund election, obligations in registered form, and a cross-border restructuring; and updates to the 2021-2022 priority guidance plan.

Whirlpool Rehearing Denied

The Sixth Circuit denied March 2 Whirlpool Corp.’s motion for an en banc rehearing after its appeal was rejected on December 6, 2021.1 The Sixth Circuit in its December 2021 decision2 determined that a Whirlpool Luxembourg subsidiary had foreign base company sales income under section 954 as a result of sales of appliances to Whirlpool’s U.S. parent and Mexican controlled foreign corporations, which then distributed the appliances to customers, although a strong dissent disagreed.

Numerous amici curiae were in support of Whirlpool, including the Silicon Valley Tax Directors Group, and urged the Sixth Circuit to review the case en banc. The amicus brief stated, “By minting a new interpretation of section 954(d)(2) — one that shuts out application of the regulations — the panel majority sows confusion in an already complex area of international tax law.”

The three-judge panel determined that the issues raised by Whirlpool in its January 20 petition “were fully considered upon the original submission and decision of the cases.” Judge John Nalbandian, the author of the dissent, would grant a rehearing, but when the petition was circulated to the full court, no judge requested a vote for a rehearing en banc.

Sixth Circuit’s APA Decision

On March 3 the Sixth Circuit in Mann Construction Inc.3 reversed a May 2021 decision by the U.S. District Court for the Eastern District of Michigan and held that the IRS did not comply with the Administrative Procedure Act (APA) when issuing Notice 2007-83, 2007-2 C.B. 960, addressing listed transactions.

This notice designates certain employee-benefit plans featuring cash-value life insurance policies as listed transactions. From 2013 to 2017, Mann Construction established an employee-benefit trust that paid the premiums on a cash-value life insurance policy benefiting its two founders. Neither the individuals nor the company reported this arrangement to the IRS as a listed transaction.

The IRS concluded that this structure fit the description identified in Notice 2007-83 and imposed penalties on the company and both of its shareholders for failure to disclose. The company and the shareholders challenged the validity of the notice and penalties on the grounds that the notice failed to comply with the notice and comment requirements of the APA; constituted unauthorized agency action; was arbitrary and capricious; and even if it were valid, the arrangement at issue did not fall within its scope.

The three-judge panel ruled in favor of the taxpayer on the first issue and did not address the remaining three issues. The court stated that before an agency may promulgate a regulation that has the force of law, it must publish a notice about the proposed rule, allow the public to comment on the rule, and, after considering the comments, make appropriate changes and include in the final rule a “concise general statement of” its contents. Courts must “set aside” agency actions that fail to follow these requirements.

The IRS did not follow these notice and comment procedures when it issued Notice 2007-83. It offered two explanations for declining to follow the process: Notice 2007-83 is merely an interpretive rule (which does not require notice and comment) as opposed to a legislative rule (which does require notice and comment); and, even if the notice were a legislative rule, Congress exempted the IRS from the APA’s requirements regarding these disclosure rules.

The court stated that legislative rules have the “force and effect of law”; interpretive rules do not. It further provided that legislative rules impose new rights or duties and change the legal status of regulated parties; interpretive rules articulate what an agency thinks a statute means or remind parties of preexisting duties. When rulemaking carries out an express delegation of authority from Congress to an agency, it usually leads to legislative rules; interpretive rules merely clarify the requirements that Congress has already put in place.

The court ruled that this notice was a legislative rule because it has the force and effect of law. The court provides that the notice defines a set of transactions that taxpayers must report, and that duty did not arise from a statute or a notice and comment rule. Taxpayers had no obligation to provide information regarding this type of transaction before the notice. The court further states that obeying these new duties can “involve significant time and expense,” and failure to comply comes with the risk of penalties and criminal sanctions, all characteristics of legislative rules.

The court stated that the notice also stems from an express and binding delegation of rulemaking power. Congress tasked the IRS with determining by regulations how taxpayers must make returns or statements and the information they must provide to the IRS when doing so under section 6011(a). In identifying a new type of transaction purportedly satisfying these demands, Notice 2007-83 purports to carry out this congressional delegation.

The IRS argued that the notice merely interprets the term “tax avoidance transaction” in section 6707A. However, the court found that the government’s argument overlooks the reality that the relevant statutory terms are not self-defining. As a result, the court found that the notice is a legislative rule and is thus subject to the notice and comment requirements.

Importantly, the court further found that Congress did not exempt the IRS from the APA’s requirements, which must be express. The court looked to the relevant code provisions and determined that the statutes do not say anything, expressly or otherwise, that modifies the baseline procedure for rulemaking established by the APA. Congress also did not expressly displace those requirements by creating a new procedure for the regulations under the relevant code sections. The opinion also provided that legislative history standing alone cannot supply the “express,” “plain,” or “clear” direction needed to show that Congress modified the APA’s procedures in this area.

As a result, the court ruled that Notice 2007-83 did not satisfy the notice and comment procedures for promulgating legislative rules under the APA. The entire notice was thus invalid.

FTC Source Case

In Aptargroup Inc.,4 the Tax Court held March 16 that a U.S. corporation had to use the same method in the apportionment of interest expense for foreign tax credit purposes that its CFC used in apportioning its interest expense.

Parent (P), a U.S. corporation, claimed an FTC under section 901. In allocating and apportioning interest expense as part of the section 904 limitation calculation, P used the asset method, under which it characterized its CFC stock. However, the CFC apportioned interest expense under the modified gross income method. Thus, P did not use the same method that the CFC used for interest expense apportionment.

To compute the FTC limitation, the taxpayer must determine the source for its gross income under the section 861 sourcing regulations. After determining the source of the gross income, the taxpayer must allocate each loss, expense, and other deduction (collectively, expenses) to a class of gross income and then, if necessary, apportion the expense within the class of gross income between (or among) a statutory grouping and a residual grouping.

Special rules exist for allocation and apportionment of interest expense in reg. section 1.861-9T, as effective from July 16, 2014, to December 7, 2016, which cover the years at issue.

Under reg. section 1.861-9T(f)(3), domestic corporations must use the asset method, but CFCs are permitted to choose either the asset method or the modified gross income method, subject to certain consistency requirements.

The court pointed to the relevant version of reg. section 1.861-9T(f)(3)(iv), which provided: “Pursuant to [reg. section 1.861-12T(c)(2)], the stock of a controlled foreign corporation shall be characterized in the hands of any United States shareholder using the same method that the controlled foreign corporation uses to apportion its interest expense.” This is the consistency requirement.

The taxpayer argued that the reference to reg. section 1.861-12T(c)(2) in reg. section 1.861-9T(f)(3)(iv) created an exception to the consistency requirement. The Tax Court disagreed. The Tax Court did not read the reference to reg. section 1.861-12T in reg. section 1.861-9T(f)(3)(iv) as limiting the application of the consistency requirement but rather as providing supplemental rules. The court held that the consistency requirement of reg. section 1.861-9T(f)(3)(iv) does not depend on whether reg. section 1.861-12T applies.

The Tax Court held that P’s position is inconsistent with the proper application of reg. section 1.861-9T(f)(3)(iv), which requires the U.S. shareholder of a CFC to allocate and apportion its interest expense using the same method that the CFC used to allocate and apportion its interest expense.


On March 14 the OECD released a commentary to the global anti-base-erosion (GLOBE) model rules, providing further clarification of specific terms, intended outcomes, and applications. The GLOBE model rules are designed to ensure large multinational enterprises pay a minimum level of tax of 15 percent on the income arising in each jurisdiction where they operate. A jurisdiction that joins the common approach is not required to adopt the GLOBE rules, but if it chooses to do so, it agrees to implement and administer them in a way that is consistent with the outcome provided under the GLOBE rules and the commentary on the GLOBE rules (including the agreement as to rule order).

The GLOBE rules apply a system of top-up taxes that brings the total amount of taxes paid on an MNE’s excess profit in a jurisdiction up to the minimum rate of 15 percent. The top-up tax applies to the excess profits calculated on a jurisdictional basis and only applies to the extent those profits are subject to tax in a given year below the minimum rate. Rather than a typical direct tax on income, the tax imposed under the GLOBE rules is closer in design to an international alternative minimum tax.

The GLOBE rules will apply to the constituent entities of an MNE group that meets the consolidated revenue threshold of at least €750 million in at least two of the four prior fiscal years. This is the same monetary threshold that is used for country-by-country reporting. Note that consolidated revenue for the current year (that is, the tested fiscal year) is not factored into the four-year calculation. The threshold scope rules help for smaller groups, purely domestic groups, and new groups to be unaffected by the GLOBE rules.

For example, in year 1, A Co and B Co are incorporated and form the AB Group, which has consolidated revenue of more than €750 million each year. The AB Group is not within the scope of the GLOBE rules in years 1 and 2, but it is within scope in year 3.

Whether two or more entities form a group is based on an accounting consolidation test. A group will be an MNE group if it has one or more entities or permanent establishments located in a jurisdiction other than the ultimate parent entity (UPE) jurisdiction. A PE that is a constituent entity is treated as a separate constituent entity from the main entity and any other PEs of such entity.

The operating mechanics for the top-up tax are the income inclusion rule (IIR) and the renamed undertaxed profits rule (UTPR), which was previously called the undertaxed payments rule.

The IIR is the primary rule that is applied to the parent entity’s allocable share of top-up tax. The IIR incorporates a top-down approach, which ensures priority in the application of the IIR is given to the parent entity at the highest point in the ownership chain. Under this approach, an intermediate parent entity shall not apply the IIR if it is controlled by another parent entity further up the ownership chain that is subject to a qualified IIR. However, the top-down approach has some exceptions (for example, split-ownership rules). To avoid double taxation in these cases, the IIR includes an offset mechanism that allows the parent entity to reduce the top-up tax otherwise payable under the IIR if that tax is taken into account by another parent entity.

The UTPR operates as a backstop to the IIR, applying only in specific circumstances in which the top-up tax is not taken into account under an IIR. Taken together, the IIR and UTPR have the goal of providing a systematic solution to ensure all in-scope MNE groups pay a minimum level of tax on their profits in excess of a routine return in the jurisdictions in which they operate. It is expected that, in most cases, either the low-taxed constituent entities will be wholly owned by another constituent entity that is subject to a qualified IIR (and the UTPR will not apply), or their shares will be wholly owned by other constituent entities that are not subject to an IIR (and the UTPR will apply).

Under the UTPR, the constituent entities of an MNE group shall be denied a deduction for otherwise deductible expenses (or be subject to an equivalent adjustment under domestic law) in an amount sufficient to result in the constituent entities located in the UTPR jurisdiction having an additional cash tax expense equal to the UTPR top-up tax amount allocated to that jurisdiction.

The GLOBE rules use the entity’s financial accounting net income or loss as the starting point for determining GLOBE income or loss and effective tax rate (ETR) because it provides a uniform measure of income that can be applied in all jurisdictions. Adjustments are made for permanent differences, PEs, and transparent entities.

The covered tax calculation determines the amount of taxes that are to be associated with the GLOBE income or loss for purposes of calculating the ETR, which in turn feeds into the top-up tax calculation. The first step in the covered tax calculation takes the current taxes determined for the constituent entity for the fiscal year and then adjusts this amount to arrive at that entity’s adjusted covered taxes. These adjustments include those based on the principles of deferred tax accounting to address differences in the timing of the recognition of income and expense. There are also mechanisms designed to ensure that certain cross-border taxes (such as CFC taxes) are appropriately allocated to the jurisdiction where the income arises. Also, there are mechanisms for dealing with post-filing adjustments for local tax liability changes.

There are specific steps to be taken in determining the amount of top-up tax of each low-taxed constituent entity. First, a constituent entity aggregates its net income and adjusted covered taxes with those of other constituent entities located in the same jurisdiction to determine the ETR and top-up tax percentage for each jurisdiction. If that jurisdiction is a low-tax jurisdiction, then the substance-based income exclusion is applied to the total GLOBE income in the jurisdiction to determine the excess profits in that jurisdiction. The top-up tax percentage is then applied to such excess profits to determine the top-up tax for each low-tax jurisdiction. The final step is then to allocate such jurisdictional top-up taxes to the constituent entities in the low-tax jurisdiction.

The ETR for a jurisdiction is equal to the sum of the adjusted covered taxes of each constituent entity located in the jurisdiction for the fiscal year divided by the net GLOBE income of the jurisdiction.

The top-up tax percentage for a jurisdiction is equal to the percentage point excess of the minimum rate over the ETR determined for the jurisdiction. For instance, assume a jurisdiction where the ETR is 8.18 percent, and the top-up tax percentage is equal to 6.82 percent (15 percent - 8.18 percent). If the ETR equals or exceeds the minimum rate, there is no top-up tax percentage for the jurisdiction, and none of the constituent entities located in the jurisdiction will be considered low-taxed constituent entities.

The policy rationale behind a formulaic, substance-based carveout based on payroll and tangible assets is to exclude a fixed return for substantive activities within a jurisdiction from the application of the GLOBE rules. The payroll carveout subtracts from the net GLOBE income of a jurisdiction a fixed return on activities performed in that jurisdiction calculated by reference to the constituent entity’s employment costs. The tangible asset carveout subtracts from the net GLOBE income of a jurisdiction a fixed return on the carrying value of eligible tangible assets located in that jurisdiction.

The consequences of a transfer of part or all the controlling interests, or a transfer of assets and liabilities, of a target constituent entity are addressed through a number of specific rules. These rules include specific rules for the application of the consolidated revenue threshold to MNE groups after a merger or demerger. They further provide for the apportionment of the target’s GLOBE income and covered taxes and the value of deferred tax assets and deferred tax liabilities between the seller and purchaser as well as rules for calculating the tax base of the assets and liabilities of the target entity. There are also special rules for joint ventures that bring the MNE group’s share of the joint venture income into scope of the GLOBE rules and special rules for multi-parented MNE groups.

For example, in fiscal years 1 to 4, A Co and B Co (located in different jurisdictions) were single entities, and A Co reported revenue of €600 million, and B Co reported revenue of €400 million in each of those years. In fiscal year 5, A Co acquires B Co, creating a group and an MNE group that reports a consolidated revenue of €1 billion. In this case, the recently formed AB Group is required to apply the GLOBE rules in year 5 (that is, the tested fiscal year) because its combined revenue met the €750 million threshold in at least two of the prior four fiscal years.

There are specific rules that apply to tax neutrality and distribution regimes. These rules include special rules for reducing the GLOBE income of UPEs that are tax-transparent entities or subject to a deductible dividend regime and whose owners are subject to taxation above the minimum rate on the UPE’s GLOBE income. The rules also contain special rules for the computation of the ETR of a controlled investment entity and special rules related to distribution tax systems.

The model rules also discuss administration, compliance, safe harbors, and transition rules. The GLOBE information return is a return in a standardized template form that provides a tax administration with the information it needs to evaluate the correctness of a constituent entity’s tax liability under the GLOBE rules. The effect of the GLOBE safe harbor would be to exempt the MNE group from the need to compute the jurisdictional ETR and allow a tax administration to deem the top-up tax for the constituent entities located in the safe harbor jurisdiction to be zero for a fiscal year when the MNE group can demonstrate that those constituent entities meet the requirements of the GLOBE safe harbor.

The monetary thresholds under the GLOBE rules are set in euros. However, some jurisdictions that implement the GLOBE rules may face legal or practical impediments to using a foreign currency when setting their own monetary thresholds under domestic legislation. In these cases, the local currency threshold must be updated every year, and there must be provisions to ensure that any such differences do not result in outcomes that are inconsistent with the common approach.

OECD Nexus Sourcing Rules

On February 4 the OECD released the draft rules for nexus and revenue sourcing under the pillar 1 amount A. Amount A introduces a new taxing right over a portion of the profit of large and highly profitable enterprises (covered groups) for jurisdictions in which goods or services are supplied or consumers are located (market jurisdictions). The nexus rule applies solely to determine whether a jurisdiction qualifies for profit reallocation under amount A and will not alter the nexus for any other tax or nontax purpose.

The Task Force on the Digital Economy, a subsidiary body of the inclusive framework, was charged with developing the multilateral convention and model rules for domestic legislation for amount A. The model rules, once finalized, will reflect the substantive agreement of the members and will serve as the basis for the multilateral convention. The model rules are only a template — jurisdictions will be free to adapt them to reflect their own constitutional law, legal systems, and domestic considerations.

The model rules will consist of different titles. The recently released draft rules contain the sections on nexus and revenue sourcing (which are currently Title 4).

To determine whether a covered group satisfies the nexus test, it will have to apply the sourcing rules for the type of revenue: finished goods, components, services, intangible property, real property, government grants, and non-customer revenues.

The revenue sourcing rules identify the market jurisdiction based on a range of possible indicators or based on allocation keys. The use of allocation keys recognizes that in some circumstances, the commercial reality is such that (particularly for third-party distribution arrangements, components, certain services, and intangible property) it will be challenging and sometimes impossible for a covered group to source revenue to the defined market jurisdiction based on transactional data despite reasonable efforts. As a last resort, in very specific cases, a backstop rule is provided to ensure that no revenue shall be unsourced.

Nexus Test

The nexus test is satisfied if the revenues arising in a market jurisdiction in accordance with the source rules are equal to or greater than €1 million for jurisdictions with annual GDP equal to or greater than €40 billion and €250,000 for jurisdictions with annual GDP of less than €40 billion. Revenue is defined as revenue derived from third parties. The revenue threshold is denominated in a single currency, and the Task Force on the Digital Economy notes that this raises a number of coordination issues related to currency fluctuations.

Source Rules

Revenues must be sourced on a transaction-by-transaction basis or as otherwise provided by Schedule A. This means that for each item that generates revenue, the covered group must determine where that revenue item should be sourced. The transaction is the item that generates income (for example, the individual item of inventory or the clicks on an online advertisement); it does not mean the invoice (which could contain multiple items charged at different prices).

It further means that if there are different items or services contained on one invoice or contract and goods or services are sold in different jurisdictions on that one invoice or contract, then the allocation of the revenue must be in proportion to the revenue earned in each market rather than an equal split. As such, if the contract specifies different prices for the different locations, then these pricing differences must be taken into account.

However, parts of the revenue sourcing rules recognize that, despite best efforts, a covered group may not be able to isolate the source for every transaction (for example, tail-end revenue, components, business-to-business (B2B) services), and in such cases, an allocation key is provided.

In these cases, there is no information about the sale to any given market, and so there can be no information on how much the item was sold for in a specified market. The allocation key applies to the remaining portion of revenue that cannot be sourced at a transaction level.

However, given the way that the macroeconomic proxies are calculated, they do reflect differences in economies and in that sense are a proxy for pricing differences that would have been taken into account on a transactional level if the data had been available.

The allocation of the revenue is at an itemized level, which necessitates access to the initial transaction record to answer the sourcing rule; the covered group is not required to retain that data on every item.

Revenues must be sourced according to the transaction category based on its predominant character. The character is determined by reference to the substance of the transaction irrespective of legal form. A transaction that does not fit within any category shall be sourced according to the most analogous category.

A covered group must source all revenues using a reliable method based on the covered group’s specific facts and circumstances. Reliable method is a defined term meaning a method that identifies where revenues arise using a reliable indicator or an allocation key. Examples will be drafted on what is considered reliable information — for example, a billing address may not be a reliable indicator because it might designate a procuring entity only and not the place of use.

The indicator must meet one or more of the following reliability tests:

  • the indicator is relied upon by the covered group for commercial purposes or to fulfill legal, regulatory, or other related obligations;

  • the indicator is verified by information provided to the covered group by a third party that has collected the information pursuant to its own commercial, legal, regulatory, or other obligations;

  • that indicator and one or more other indicators included in the sourcing rule identify the same jurisdiction; or

  • the indicator is verified in another manner that is functionally equivalent.

“Another reliable indicator” is information other than the enumerated indicators above.

An allocation key may only be used if it is permitted in the relevant revenue sourcing rule — that is, if the covered group demonstrates that it has taken reasonable steps to identify a reliable indicator and has concluded that no reliable indicator is available.

Sale of Goods

Finished goods sold to a final customer are sourced to the place of the delivery. Indicators include the delivery address of the final customer and the place of the retail storefront selling to the final customer. There are special rules for sales through an independent distributor.

The sale of digital goods is sourced in accordance with the business-to-consumer (B2C) service rules (if the final customer is a consumer) or in accordance with the B2B service rules (if the final customer is a business), unless the sale is of a digital good that is a component.

The sale of components is sourced to the place of delivery to the final customer of the finished good into which the component is incorporated.


Location-specific services that are connected to tangible property and services performed at the location of the customer are sourced to the place of performance of the service.

Advertising services are sourced to the location of the viewer of the online advertisement, and indicators include user profile information, geolocation of the device of the viewer, and the IP address of the device of the viewer.

Advertising services other than online advertising services are sourced to the place of display or reception of the advertisement. Indicators include:

  • for advertisements displayed on a billboard or at another fixed site, the location of the billboard or other fixed site where the advertisement is displayed;

  • for advertisements displayed in newspapers, magazines, journals, or other publications, the place where the publication is circulated or expected to be circulated;

  • for advertisements displayed on television or broadcast on radio, the place where the television or radio programming is received or expected to be received; and

  • the information included in the contract or other commercial documentation on the place where the advertisement will be displayed or received.

Online intermediation services that facilitate the sale or purchase of tangible goods, digital goods, or digital services are sourced half to the location of the purchaser and half to the location of the seller. Indicators for the seller include the billing address of the seller or the user profile information of the seller. Indicators for the purchaser include:

  • the delivery address of the purchaser, in the case of a purchase of tangible goods;

  • the billing address of the purchaser;

  • the user profile information of the purchaser;

  • the geolocation of the device of the purchaser through which the purchase of the tangible goods, digital goods, or digital services is made; and

  • the IP address of the device of the purchaser through which the purchase of the tangible goods, digital goods, or digital services is made.

Online intermediation services that facilitate the sale or purchase of offline services are sourced half to the location of the purchaser and half to the place where the service is performed.

Passenger transport services are sourced to the place of destination. Cargo transport services are sourced to the place of origin or the place of destination.

Customer reward programs are sourced to the percentage share of active members whose location is in that jurisdiction.

The provision of financing services are sourced in accordance with the B2C service rules (if the borrower is a consumer) or in accordance with the B2B service rules (if the borrower is a business).

B2C services are sourced to the location of the consumer. Location of customer indicators for non-internet services include the billing address of the consumer and the place of the international dialing code associated with the consumer’s telephone. Indicators for the location of the customer for internet services include user profile information, billing address, the geolocation and the IP address of the consumer device, and information reported to the covered group by the reseller on the location of the consumer.

B2B services are sourced to the place of use of the service. Indicators of place of use include information reported to the covered group by the business customer on the place of use of the service and the place identified in the contract or other commercial documentation as the place where the service will be used by the business customer. To the extent that no reliable indicator is available if the business customer is not a large business customer, the place of incorporation of the UPE of the business customer is deemed to be a reliable indicator. If the business customer is a large business customer, the head count allocation key is used. There are also reseller rules.

Intangible Property

Revenues derived from a transaction for the licensing, sale, or other alienation of intangible property are sourced to the place of use of the service supported by the intangible property or the place of use of the intangible property by final customers in all other cases.

User data is sourced to the location of the user associated with the data.

Real Property

Real property is sourced to the location of the real property.


The OECD also invited public comments on the draft rules for nexus and revenue sourcing under pillar 1’s amount A. On February 22 the OECD published the 63 public comments received from trade associations, companies, and firms from various jurisdictions. We summarize some of them below.


Amazon focused its comments on B2B services, in particular for cloud service providers. The company argued that global allocation keys should be based on consumption data or a similar proxy when no reliable indicator is available; information collected for indirect tax or other regulatory or commercial purposes should be considered a reliable indicator; and allocation keys should be based on economic indicators, not head count. Amazon believes that IP address and other geolocation data is unreliable.

Amazon also pointed out that taxpayers should not be required to research customer-specific data or request additional information from the customer, as it is unreliable, burdensome, strains commercial relationships, and violates privacy expectations.

Further, Amazon indicated that sourcing on a transaction-by-transaction basis is unduly burdensome and would be costly.

Asia Internet Coalition

The Asia Internet Coalition stressed that the transaction-by-transaction approach proposed by the OECD is the most concerning issue. It also argued that companies should not be required to request information from third parties and that the rules should not require different methods depending on the type of customer. Ultimately, the organization recommends relying on VAT indicators whenever possible and implementing a transition period of at least two years.


The Association of International Certified Professional Accountants (AICPA) recommends that any rules extending taxation nexus should be clear, measurable, predictable, and applied consistently and neutrally across all industries and business models, and across all jurisdictions. It emphasized that all unilateral actions must be repealed and that all participants must agree to adopt and fully implement the consensus rules to ensure that all income is properly taxed only once. To resolve any controversy and ensure prompt resolution, all participants must include compulsory and practical mechanisms in their treaties and other bilateral agreements, such as mandatory binding arbitration.


The Association of German Chambers of Commerce and Industry (DIHK) suggested that the new allocation process should be based on relevant data available from existing systems and that requiring any new data collecting systems would overstrain companies. DIHK further argued that the transaction-by-transaction approach would be extremely costly and take a lot of time.


Business at OECD (BIAC) is an international business network with a global membership of over 7 million companies. It argued that companies should be able to use data that they possess in the ordinary course of business (including as part of regulatory reporting requirements) and should not be required to request information from third parties. Head count of customers, and any other metric that requires customers to provide taxpayers their nonpublic business data, is inappropriate.

Further, having a robust dispute prevention process and standardized rules is critical to ensure that pillar 1 is adopted uniformly across jurisdictions.

BIAC suggests providing the ability to electively use either the OECD allocation keys or a proxy allocation key that is based on published data sources that are from the government, academic sources, or the industry. Also, there should be an opt-in election to use allocation keys on a business unit, product line, or similar level to source revenues.

To avoid duplication of compliance requirements, limit unnecessary costs, and reduce needless disputes, there should be a safe harbor for any method that establishes location in a similar manner as required for any other tax compliance purpose.

BIAC recommends an expert panel that could discuss specific issues and treatments to ensure interpretations are reasonable and consistent.

Business Roundtable

The Business Roundtable noted that the draft model rules on revenue sourcing are not at all clear or simple to understand. There are many defined categories of revenue and other defined terms, and each definition gives rise to questions of interpretation and line-drawing. Moreover, some of the defined terms incorporate other defined terms in a way that cannot be reconciled with the stand-alone definition of the incorporated term. Also, sometimes a word that is a defined term when capitalized (for example, “Location”) is used without being capitalized, raising the question of whether the latter’s meaning was intended to be consistent with the defined term.

Further, the draft rules would require an enormous amount of time and effort for governments to administer and for in-scope businesses to comply with them. The consultation document asserts that MNEs would not have to collect any information beyond what they already collect in the ordinary course of business, but the draft rules call that statement into question. Even if it is true, the Business Roundtable argues that the draft rules would require in-scope businesses to analyze and manage the information in new and very burdensome ways.

The nexus threshold test should be raised to require that revenues of a covered group arising in a jurisdiction be equal to or greater than €10 million, indexed for inflation using an index from a company’s home country jurisdiction.

The Business Roundtable emphasized that the most concerning and impractical element is the transaction-by-transaction basis, which requires a sub-invoice analysis. Requiring ratios based on every type of monetization approach separately is also unrealistically burdensome.

The draft definition of reliable indicator makes it unclear whether VAT (or other indirect tax) indicators qualify as reliable indicators. Also, the stated reliable indicators for particular types of revenue require information a company must request from its customers solely for purposes of complying with these model sourcing rules, instead of information a company would typically collect in the ordinary course of business. The definition should be amended to make it clearer that indicators a company already relies upon for other tax compliance obligations (for example, VAT on electronically supplied services supplied to consumers, or compliance with the U.S. foreign-derived intangible income regime) will be reliable indicators for purposes of the sourcing rules.

Regarding advertising services, the Business Roundtable listed concerns about the granularity and amount of data required and the systems in place to track click-by-click or impression-by-impression data. Companies should be permitted to use the location data that is available in the ordinary course of business (for example, device location, IP address location, location based on a combination of indicators/multifactor). There should be a safe harbor for any method that establishes impression location for any other tax compliance purpose.

For B2C/B2B services, the organization argued that VAT indicators would be the best approach to sourcing revenue. It is overly complicated to distinguish between consumers, non-large business customers, and large business customers. It may not be possible to discern whether a customer acquires a service for personal purposes rather than for commercial or professional purposes. In some instances, the same customer may acquire the services for both personal and business purposes. Covered groups may have millions of customers and may not have the ability to see the CbC reporting obligations of customers. Customer-provided head count should not be required. Regarding B2B cloud services, companies may have limited or no data available on the location where a customer uses B2B cloud services.

Sales of tangible property to distributors (B2B sales) should be based on location data of final customers that companies obtain in the ordinary course of business, such as warranty registrations or electronic activations. Companies may not be able to join this location data with revenue data because, for example, this data may not be consumed by billing systems in the ordinary course of business. In that case, companies should be able to use this location data to compute an overall location ratio that can be applied with respect to all B2B sales at the company level instead of the customer level.

The allocation key for tail-end revenues addresses cases in which a taxpayer is unable to gather reliable data about some sales. Companies at the scale that are in scope for amount A cannot develop systems for every product in existence without incurring extremely disproportionate costs. Companies should be able to use the customer’s billing address as a reliable indicator for amounts that represent 10 percent or less of the company’s total revenues from third parties, without first having to consider alternative methods of establishing a relevant location.

The Business Roundtable also argued that clarification is needed for the licensing of intellectual property embodied in merchandise marketing. For example, a motion picture studio may license certain copyrights (characters, names, likenesses, and so forth) to a third-party merchandiser to produce and sell promotional products as part of the marketing of the motion picture being distributed by the studio. In the circumstance in which the covered group is not making the sale of the promotional products directly, there is no “reasonable indicator” available, and the sourcing of the license fee revenue should be determined using the global allocation key.

Harris Horoviz

Harris Horoviz (an Israeli firm) raised a number of interesting questions. What is the interaction and credit mechanism between the amount A sourcing and nexus proposals, amount B, pillar 2, VAT/goods and services tax, and sales taxes? Will there be a dispute resolution procedure binding on multinationals and governments, such as an international tax tribunal system? Will these proposed model rules override the existing OECD multilateral instrument and bilateral tax treaties? How will data security work?

International Chamber of Commerce

The International Chamber of Commerce (ICC) provided a number of apt general and specific comments. It argued that the requirement to identify the location of the end-user, or determine the place of delivery of the finished good, is impractical. Businesses often sell products to intermediaries and do not have insight or access to information related to the onward sale and destination/location of the goods to the final consumer. This could also breach competition law. An optional method using a suitable allocation key would be appropriate.

ICC members are of the view that practical difficulties could be foreseen in examining revenues on a transaction-by-transaction basis and introducing an internal control framework to demonstrate that the method is reliable. In this respect, MNEs would likely need to establish new systems to track revenues, which would be onerous in terms of administrative complexity as well as additional costs incurred. There is a strong likelihood that many MNEs will not be in a position to implement the rules within the time frame envisaged. ICC suggests that to counter these challenges, the model rules should point out that nexus should be established by taking into consideration pricing variation between markets, which underpins the stated objective for the transaction-by-transaction rule. The ways to achieve this should be left to the MNEs based on the specificities of their activities.

Allocating global profits based on market-related revenues results not only in disregarding the product mix differences between markets/regions but also in the product lifecycle for goods in different markets. The proposed revenue sourcing rules bring significant distortions regarding the appropriate distribution of amount A because of the departure from existing business processes and the creation of new reporting obligations.

The ICC also suggested further consideration of the related complexity for particular industries in determining the source for revenues from IP or research and development payments/milestones in product development. Clarification on how to determine the source of such payments would be needed.

Further information is required on the method to be applied to determine which countries will have to surrender revenue for purposes of the proposed revenue sourcing rules as well as which countries will have to surrender their residual profits to the market jurisdictions under the amount A reallocation. ICC stressed that further clarity is required as to how pillar 1 will interact with pillar 2 (that is, the order of rule application, elimination of double taxation, and so forth).

Information Technology Industry Council

The Information Technology Industry Council (ITI) expressed serious concerns with the complexity and administrability of the draft model rules, particularly the broad reliance on transaction-by-transaction sourcing and the approaches to sourcing revenues from advertisement services, components, and B2C and B2B services. The ITI presented recommendations for simplifying these approaches.

ITI echoed other commentators in arguing that companies should be able to use data that they acquire in the ordinary course of business and should not be required to request information from third parties.

Further, companies should not be required to build out expensive, time-consuming systems and processes without other business value simply to source transactions for purposes of amount A. Requiring companies to review contractual data for transactions or customers is unreasonable.

The transaction-by-transaction approach is fundamentally unworkable, and ITI encourages taking a systems approach or an approach that incorporates statistical sampling or aggregate market data to better balance accuracy with compliance costs. A de minimis rule should be added to source the revenues of the de minimis revenue stream in the same proportion as the revenues of the primary business line.

The rules should clarify that companies should be able to rely on any reliable indicator without the need to demonstrate that such an indicator is the best indicator.

ITI also suggested that companies should be able to use billing addresses for amounts that represent 10 percent or less of the company’s total revenues from third parties, without first having to consider alternative methods of establishing a relevant location. Also, they should be permitted to prorate adjustments to revenue that are not recorded for specific customers using a reasonable method, such as by revenue or product, depending on how these adjustments are recorded in the ordinary course of business.

While the “sold to” information is the most verifiable information the component manufacturer receives from a third party regarding the use of its product, at a minimum, the component manufacturer should only be responsible for having information about the third party from which it directly derives revenues.

ITI recommends that, to avoid the duplication of compliance requirements, limit unnecessary costs, and reduce needless disputes, there should be a safe harbor for any method that establishes impression location in a similar manner as required for any other tax compliance purpose. The model rules should clarify that if there are multiple reliable indicators, the taxpayer has the option to choose among them.

There should also be a safe harbor for any method that establishes access location in a similar manner as required for any other tax compliance purpose.


The Mexican Internet Association (AIMX) provided high-level feedback and comments more specifically for pillar 1 sourcing.

AIMX stressed that the rules must have zero impact on the effective competition between companies in each jurisdiction or domestic market. The tax obligations must avoid a negative impact on competition conditions. Also, it is important to keep in mind the participation/involvement of local authorities in matters of telecommunications, taxes, trade, and market competition so that they jointly establish measures to protect trade and the development of the digital economy.

The revenue sourcing rules warrant a two-year transition period in which an MNE should be able to rely upon its existing systems and information for sourcing and should be a “best efforts” approach. No system changes should be required until an MNE has received confirmation of an agreement of the MNE facts to the model sourcing rules.

For revenue level to trigger nexus, companies should have €10 million in revenue in any jurisdiction (not €1 million).

The policy design should take into consideration scalability of amount A; there are significant doubts about scalability to smaller companies. At a minimum, the OECD should monitor implementation of the initial 100 companies and reevaluate the necessity to expand to a broader group of companies.

The analysis should be at the customer level by legal entity (not sub-invoice, transaction-by-transaction as proposed) and rely on information already available.

The model rules should specify that VAT indicators can be acceptable as a reliable indicator for all B2B customers (including large business customers), as they are relied upon for commercial purposes.

AIMX argued that it is overly complicated to distinguish between consumers, non-large business customers, and large business customers. It may not be possible to discern whether a customer acquires a good or service for a personal purpose rather than for commercial or professional purposes. In some instances, the same customer may acquire goods and services for personal and commercial or professional purposes. Covered groups may have thousands or millions of customers and may not have the ability to discern the CbC reporting obligations of customers (public financial data may not exist or be readily available to a covered group).

Linking contracting parties to their parent company may not be possible (that is, an affiliate in a jurisdiction may operate under a name unrelated to that of its parent). The contracting employee of the business customer may not have access to the relevant information or may have valid business reasons for not wanting to share this type of information with the covered group.

AIMX pointed out that businesses broadly urge that any rule be limited to information already collected in the ordinary course of business and should not require additional information from customers. Both businesses and tax authorities benefit from reduced complexity, disputes, and risk of double taxation. Given this, it would be useful to include the option to covered groups to use an allocation key that can achieve both a balance between accuracy and administrability.

AIMX recommends that the global allocation key be such an allocation key. Companies need some way to have certainty before creating complex systems and processes for this data.


The Nestlé letter states that the company is aligned with and supportive of the comments provided by business associations such as Swiss Holdings and BIAC.

Nestlé emphasized that the rules should be grounded in commercial reality, including realistic assumptions of available data sources, compliance costs, and feasibility to adapt commercial contracts with third parties. Economic distortions caused by differences in the treatment between different business and organizational models should, as much as possible, be prevented or resolved by the rules. The final design should balance simplicity with the robustness of the outcomes.

Nestlé noted that the very short time frame to provide comments, and the fact that the detailed commentary to the rules is not yet available, means providing a comprehensive and detailed set of comments is not possible.

The key difficulty of revenue sourcing is that businesses transacting with other businesses, and not with the final consumer, do not necessarily know and cannot prove in which jurisdictions their finished goods, or the finished goods their components or ingredients are part of, are being sold to the final consumer.

Nestlé noted that a sales-type tax may be a better solution for allocating more taxing rights to a consumer market. However, if such type of taxation is not desirable, the solution should recognize that practical solutions to tracing should be provided in a way that limits the instances in which the taxpayer needs to rely on third-party data.

Nestlé is of the opinion that the revenue sourcing rules and the marketing and distribution safe harbor (MDSH) need to be assessed together. For simplification purposes, it would be very welcome if the MDSH could be applied as early as possible in the process — for example, when defining the scope of the revenues to be sourced — and to use it as an indicator that finished goods sold and distributed in a market jurisdiction are ultimately sold to consumers in that market jurisdiction. Excluding markets that are already receiving sufficient residual profits prevents the need to go through the burdensome revenue sourcing exercise for these revenues.

Nestlé also provided a summary of how the rules could affect its business and commercial operations.

The company also suggested that simplifications should revolve around the following notions:

  • Revenue sourcing obligations should as much as possible be excluded for jurisdictions for which amount A likely will not have to be allocated (including entities engaged in primarily local sales activities for which it can be established that sufficient residual profits are already allocated and taxed in the market jurisdiction) and jurisdictions where sales of the finished goods are not likely to take place.

  • Revenue sourcing should only be applied to the activities that form the core commercial activities of the group. Non-core transactions should be excluded from revenue sourcing.

  • In identifying the market jurisdiction, the rebuttable presumption should be that the market jurisdiction is the jurisdiction where the independent third party is located (to which the goods/components are sold). This assumption can be rebutted if it is established that the third-party distributor sells a material part of the goods/finished products to or in another jurisdiction.

  • A key question is also how a taxpayer selling through third-party intermediaries in the supply chain can prove that sufficient profits are left in the market jurisdiction, particularly if this company does not know which parties are operating in the market jurisdiction and how. To balance the burden on this taxpayer subject to pillar 1, it should be sufficient for the taxpayer to prove that it has allowed the independent third party to which it sells its components, ingredients, intermediate products, or finished products to generate sufficient profits to ensure that appropriate residual profits flow through the supply chain to the market jurisdiction. This cascading approach would also be in line with approaches to other types of taxes in accordance with which goods or transactions need to be followed/sourced through the supply chain. If this approach would be taken, the responsibility to allocate such residual profit to the market jurisdiction could be deemed to be transferred to the independent third party — for example, in situations in which this party is also subject to pillar 1 rules or would be subject to these rules if it would meet the required revenue threshold.

National Foreign Trade Council

The National Foreign Trade Council (NFTC) provided general comments and specific comments on the revenue sourcing rules.

To the extent complex revenue sourcing rules requiring transaction-by-transaction analyses are maintained, the revenue threshold in the nexus test is far too low; a threshold of at least €10 million would be more appropriate.

NFTC recommends that the revenue sourcing rules be based on information already collected and maintained and also recommends reconsidering the transaction-by-transaction approach.

To the extent the reliable indicator approach is maintained, the guidance should provide that a covered group’s selection of a reliable indicator is presumptively correct. Covered groups should be permitted to apply a reliable indicator to a sample of transactions, or use other statistical methods, to determine how to source the aggregate revenues derived from specific transaction types.

NFTC urged the drafters to consider permitting a covered group to use an allocation key based on publicly available information on an elective or safe harbor basis to limit compliance and tax administration costs in all cases and not only as a backstop to the reliable indicator approach. For example, rules could be provided to allow a covered group to use allocation keys to source (1) all revenues; (2) revenues from particular categories of transactions (or business lines); or (3) revenues from jurisdictions other than its largest markets (for example, jurisdictions other than the covered group’s largest five markets, or other than the largest markets making up more than 50 percent of revenue).

Further, NFTC argued the sourcing of revenues for sales of finished goods through independent distributors to the location of delivery of finished goods to the final customer creates significant complexity. Consideration should be given to loosening (or eliminating) the caveats on the use of the location of the independent distributor as a reliable indicator, permitting the use of the location of delivery by the covered group (for example, delivery address of the independent distributor), or permitting the use of allocation keys based on publicly available information on a safe harbor or elective basis.

The sourcing of revenues from the sale of components to the location of delivery of finished goods incorporating the components to the final customer creates the same challenges and complexities as those posed by the sourcing rules governing the sales of finished goods to independent distributors. Consideration should also be given to permitting the use of allocation keys based on publicly available information on a safe harbor or elective basis. Sourcing rules that do not distinguish between components and finished goods but instead rely on information a covered group is likely to collect about its goods in the ordinary course of business (for example, place of delivery to an independent distributor or manufacturer) would reduce the need to categorize goods.

NFTC also suggested that consideration should be given to permitting the use of sampling or simplifying conventions, the use of methods that establish click or impression location for commercial or other regulatory purposes, or the use of allocation keys.

The proposed revenue sourcing rules for B2C and B2B services, which operate as the default rules for the sourcing of revenues from the provision of services and digital goods not subject to more specific rules, are unduly complex and should be reconsidered. NFTC explicitly recommends incorporating VAT indicators into the rules for sourcing revenue.


Siemens noted that the draft rules seek to broaden the ambit of pillar 1. Specifically, all revenue must now be classified under one of seven transaction types or applicable sub-types, meaning there is no longer any revenue that could be considered out of scope. The broadened scope of the draft rules now applies to Siemens’s non-core business. According to the company, the fact that the general nature of the sourcing rules remains unchanged (that is, each transaction type must be sourced according to individual indicators versus using a general rule for all transaction types) represents a major challenge.

It also describes the conceptual issues with revenue categorization.

According to Siemens, meaningful revenue categorization may not always be possible. For practical reasons, MNEs must often take an aggregated approach to revenue categorization. As such, it may not always be feasible or practical to do this using a transaction-by-transaction approach. Bundled transactions are already highly relevant today and will likely be more prevalent in the future. Despite additional guidance, the topic of revenue categorization will likely be subject to intense scrutiny by tax authorities.

Definitions are also often ambiguous. For example, how should an MNE reliably distinguish between finished products and components? Several products may fall into both categories at the same time, depending on the stage of the value chain being analyzed.

Further, revenue categories often overlap. Revenue categorization and the differentiations within one revenue category appear to be arbitrary to some extent. For example, why is there a separate category for digital goods if they follow the same rationale as services?

For components, revenue should be sourced based on the place of delivery to the final customer of the finished good into which the component is incorporated. In business reality, the value chain toward a finished good does often include several intermediary stages and multiple independent partners outside the multinational group. As such, MNEs like Siemens may not know the location of the independent partners’ finished goods. To be able to apply this indicator, MNEs would have to track the whole value chain of their components — including all independent partners involved. This is impossible given the complex value chains of an MNE like Siemens and would ultimately require a dedicated reporting/automatic information exchange system across all companies worldwide.

Determining the place of use of software is possible in some cases (for example, newer software developed using modern tools and protocols) but impossible in the case of old/legacy software. For the purpose of pillar 1, it would be necessary to link this location/use data to the respective revenue/sales data, which is not occurring within Siemens. The issue is further exacerbated with the rapid rise of digital distribution of software and software-as-a-service products, which make it impractical to track the place of use of every license sold, given the obvious privacy concerns. Another issue is that many customers install software on a central server (global floating software licenses), used by end-customers globally. In such cases, a separate agreement with the customer would be required to ensure a dedicated reporting by the customer.

As for some other transaction types, the IP address is referred to as one of the reliable indicators. In B2B situations, the IP address is rarely gathered. It can be considered a technically meaningless piece of information given that customers do typically access the internet via a VPN. Given that the IP address is considered reliable in the draft rules, Siemens notes it would have to build up a systematic archive of such data for pillar 1 purposes to avoid the impression that it did not take reasonable steps to apply a reliable indicator.

Silicon Valley Tax Directors Group

The Silicon Valley Tax Directors Group (SVTDG) provided a number of specific recommendations.

For each source rule that includes reliable indicators based on information obtainable only from third parties and not collected in the taxpayer’s ordinary course of business, SVTDG recommends that taxpayers be allowed to use available information they collect about their direct customer as another reliable indicator unless tax authorities can clearly establish that use of that indicator will produce a result inconsistent with the sourcing rule for a material portion of the relevant revenues (that is, at least 20 percent).

SVTDG also recommends an advance early certainty process or another pre-clearance mechanism for sourcing methods. The organization also recommends a “soft landing” enforcement policy under which no jurisdiction would challenge a taxpayer’s choice of sourcing method for any period prior to the first tax year beginning at least 12 months after an alternative method was determined appropriate through an early certainty process determination, provided the taxpayer’s method was not manifestly unreasonable.

In lieu of requiring groups to source their revenues on a transaction-by-transaction basis, SVTDG recommended other reasonable and more workable approaches, possibly including customer-by-customer sourcing or sourcing based upon statistical sampling.

The reliable indicator requirements should only apply if the taxpayer seeks to use another reliable indicator and not when the taxpayer uses one of the enumerated indicators. The commentary should confirm that an indicator used by the taxpayer to satisfy tax requirements relevant to determinations other than amount A determinations satisfies the reliability test in Schedule A, Part 2(3)(b)(i), regarding indicators “relied upon by the Covered Group for commercial purposes or to fulfill legal, regulatory, or other related obligations.” Also, the commentary should confirm a taxpayer may select any of the enumerated reliable indicators to apply in identifying the source jurisdiction under the relevant rule, without concern that a jurisdiction could challenge that choice on the grounds that the jurisdiction preferred another enumerated indicator.

SVTDG recommends more extensive guidance on the issues around distinguishing one category of revenues from another, particularly in relation to the critical issue of distinguishing finished goods from components.

The number of obligations imposed on taxpayers should be minimized, take into account commercial realities, and be primarily limited to information already collected by taxpayers in the ordinary course of business.

The allocation keys must be potentially applicable to all jurisdictions and should in no event be limited only to participating jurisdictions.

SVTDG stressed that the multilateral convention must include a firm obligation for contracting parties to adhere fully to the model rules and commentary, as well as robust enforcement mechanisms to reinforce that obligation.

Finally, a covered group with a de minimis secondary revenue stream in a category of revenue different from the group’s primary business lines should be allowed to source the revenue from that de minimis stream in the same proportion that the rest of the group’s revenues are sourced.

Swiss Holdings

Swiss Holdings recommends more reliance on allocation keys and a domestic business exemption covering revenues without cross-border connections. The company also recommends higher thresholds for having a Nexus, including multiyear considerations and the introduction of materiality thresholds.

It urged the usage of already existing data from the financial systems of the MNE that can be reconciled with the consolidated financial statements without asking for a completely new data set that does not yet exist and disrupting relationships with customers, in particular in the area of B2B industries. Information gathering should be stopped at the level of sales from the MNE to third parties, whatever the role of the third party is. There should be transition periods for implementation allowing simplification measures until final rules get enforced.

Technology Industries of Finland

Technology Industries of Finland highlighted the need for additional simplification of the nexus and sourcing rules to minimize the administrative costs and burden. The organization expressed particular concerns about sourcing rules for B2B services and components business, and the lack of legal certainty in the sourcing rules applying on a transaction-by-transaction basis. Businesses must not be required to create systems to collect data that they do not currently capture.

Technology Industries of Finland further argued that it is not clear based on the model rules how requested data should be obtained and verified and how data quality should be ensured. Customers may not be required or permitted to provide this data under their commercial terms and existing privacy rules. As a result, many businesses may need to consider modifications to how they contract with unrelated counterparties. Businesses should not be required to obtain additional information from customers or third parties that they do not already hold in the ordinary course of business.

U.S. Council for International Business

The U.S. Council for International Business (USCIB) pointed out that the largest MNEs in the world would not be able to meet the requirements in the rules, overall, today or in the foreseeable future. In many cases, applicable laws and commercial contracts will preclude covered groups from obtaining information. Significant time and cost would be involved in establishing the financial systems necessary to meet the documentation requirements. The level of detail that the sourcing rules require would be disruptive to the commercial practice of covered groups and is sure to entail significant and unique costs.

Further, the proposed bifurcated nexus thresholds of €1 million and €250,000 should be increased, considering the complexity of these sourcing rules. The nexus threshold should be established at a level of at least €10 million and indexed for inflation using the index in the covered group’s home country jurisdiction. Further consideration should be given to the use of an easy-to-administer allocation key for low-revenue jurisdictions, if not on a wider scale. Allocation keys could be elective.

USCIB argues that the proposed sourcing rules are complex, introduce significant subjectivity in application, and will be challenging to apply across companies and different product areas, which will certainly have different data sets.

The organization also expressed concerns that jurisdictions could use and freely adopt these rules, which raises the very real possibility that pillar 1 could become a patchwork of rules similar to digital services taxes.

Before pillar 1 is expanded beyond the original scope to cover additional companies, the drafters should conduct a public cost-benefit study of the utility of incremental revenue sourcing requirements, including consideration of how best to leverage the facts-and-circumstances-based sourcing rules for a broader set of taxpayers.

If the proposed approach to B2B services is retained, statistical sampling should be available for establishing whether a customer is a large business customer and, if so, the jurisdiction of its UPE.

There are many situations in which transaction-specific data identifying the precise location of a final consumer or the employees of a business customer is simply not attainable.

USCIB pointed out that the rules identify about 25 different categories of transactions, each with its own rules for determining the source of the revenue from such transactions. However, the policy rationale is not readily apparent from the rules, for both the precise delineation of the categories and the corresponding sourcing rules.

USCIB acknowledged the flexibility the consultation document provides on possible methods and urged the drafters to seek simpler and more administrable ones. The rules should be clarified to make clear that covered groups can rely on any listed indicator.

A reliable indicator (including one applied using sampling or other statistical methods to estimate the sourcing of a large population of transactions) meeting the criteria outlined in the rules should not be subject to challenge by tax authorities who prefer a different reliable indicator. The rules should be clarified such that a covered group’s chosen method raises a rebuttable presumption of correctness and sets, if any, a high evidentiary bar for the interested tax authorities to challenge.

The rules should allow covered groups to elect to use as a reliable method an allocation key that is based on published data sources that are from the government, academic sources, or the industry.

The final model rules should clarify that covered groups may make reasonable assumptions in applying the regional allocation key.

The final model rules should not impose penalties on any MNE that makes a good-faith effort to comply with the revenue sourcing rules. If tail-end revenue exceeds 5 percent, a more reasonable approach would be to allocate 5 percent of revenue according to the low-income country allocation key and the remainder according to either the regional allocation key or the global allocation key, whichever is more appropriate under the circumstances.

In the case of online advertising revenue earned by targeting ads at users of an online platform, internal proxies should be permitted to source revenue to the location of users where such proxies can be expected to approximate the same result as a transaction-by-transaction approach. In many cases, such a proxy could leverage information the company uses internally for management reporting purposes. Moreover, this would give companies flexibility to build a framework for sourcing revenue that will work in the long run. This would be a much more workable and durable solution than requiring a transaction-by-transaction analysis.

USCIB also argued that the rules should not have any requirement related to obtaining customer head count.

MNEs should be permitted to use their judgment as to whether a reliable indicator exists. If not, MNEs should be permitted to apply the aggregate head count allocation key or an alternative allocation key that considers the information available to the MNE.

To the extent that location data is not available using a method covered by the safe harbor, companies should be able to establish location using the billing address for which the margin for inaccuracy is very small.

USCIB Letter on Pillar 1 and 2

On February 22 the USCIB submitted excellent comments to the U.S. Treasury Department expressing concerns and recommendations for the pillar 1 and 2 project.

The USCIB stressed the importance of preserving a principled approach to the arm’s-length standard. It noted that unilateral measures that depart from the arm’s-length principle subject companies to substantial uncertainty, double taxation, disproportionate compliance costs, and barriers to free and fair trade.

Unilateral taxes conflict with long-standing norms that taxable income attributable to a particular jurisdiction should align with the economic value resulting from functions performed, assets held, and risks borne in that jurisdiction. USCIB emphasized that the proposed MDSH and amount B will contribute to stabilizing the international tax framework only if they are firmly based on the fundamentals of the arm’s-length principle.

USCIB strongly recommends that the separate yet interrelated roles of amount A, the MDSH, and amount B be clearly defined and delineated. Residence or production jurisdictions ceding taxing rights to an agreed amount of residual profit under amount A should be able to insist that market jurisdictions adhere to the arm’s-length principle for routine activities.

Amount A should be the sole mechanism for allocating residual profit on a basis other than the presence of actual assets, functions, and risks in the market jurisdiction. Amount A should be the only element of the pillar 1 agreement that departs from the arm’s-length principle.

Amount B, on the other hand, should be firmly based on the arm’s-length principle. A key purpose is to reduce the administrative burden on taxpayers and tax administrations caused by transfer pricing disputes regarding profits attributable to routine marketing and distribution operations. USCIB also supports a broader application of amount B to all market country functions, as long as its design remains anchored in the arm’s-length principle.

The role of the MDSH is to avoid double taxation of residual profits in the market jurisdiction. When an MNE group is already compensating its actual market jurisdiction subsidiary or branch for all in-country activities that support the sales taxed in that jurisdiction, or is paying local withholding taxes, amount A should be reduced to minimize double market jurisdiction taxation on the group’s residual profit.

USCIB also pointed out that withholding taxes imposed by source countries should be taken into account when calculating amount A to avoid double taxation. Since amount A is designed to be an allocation of residual profit earned from functions, assets, and risks located outside the market jurisdiction — and because withholding taxes impose tax on profits arising from those functions, assets, and risks — withholding taxes should be deemed to be imposed on residual profits.

In the letter, USCIB outlines five different options for the mechanics of the MDSH and strongly recommends Option 1. Under this option, MDSH reduces the amount A allocation only if locally reported profits on marketing and distribution activities exceed a 2.5 percent return on sales in that market jurisdiction. The 2.5 percent return on sale number is based on benchmark data provided by KPMG LLP. The definition of marketing and distribution activities should be broad. This simple approach does not require an agreement on amount B to implement the MDSH. Establishing an MDSH based on a fixed return on sales creates a simple and certain rule that is broadly tied to the arm’s-length principle.5

OECD Transfer Pricing Profiles

The OECD recently updated its transfer pricing country profiles to include six more jurisdictions. The new country profiles provide information on domestic legislation regarding key transfer pricing principles, including the arm’s-length principle, transfer pricing methods and documentation, comparability analysis, intangible property, intragroup services, cost contribution agreements, administrative approaches to avoiding and resolving disputes, safe harbors, and other implementation measures. The six new reports are for Honduras, Iceland, Jamaica, Papua New Guinea, Senegal, and Ukraine. There are now 67 reports.

The OECD also updated 16 country profiles, including the United States, the United Kingdom, Brazil, Canada, China, and Israel. The U.S. update states that as of January 2021, the following seven U.S.-ratified and in-force treaties have adopted the authorized OECD approach to the attribution of profits to PEs: Belgium, Bulgaria, Canada, Germany, Iceland, Japan, and the United Kingdom. The authorized OECD approach attributes profit to different PEs of a single legal entity by treating them as separate enterprises.6

Correction of Final Subpart F Regs

The IRS and Treasury released corrections to the final subpart F regulations (T.D. 9960) on February 22, February 24, and March 11.7 The corrections change an incorrect reference in an example from “note receivable” to “account receivable”; update incorrect year references in an example in the preamble when discussing situations in which a fiscal-year U.S. shareholder partnership with U.S. shareholder partners has a different tax year than its CFC and U.S. shareholder partners; revise an incorrect RIN reference, and update an incorrect heading from a reference to the passive foreign investment company rules to the section 958 rules on determining stock ownership.

Comments on Final FTC Regs


On February 28 USCIB submitted comments to Treasury expressing concerns about the final FTC regulations (T.D. 9959).

It requested that the effective date be delayed by at least one year. According to the organization, the final regulations departed from the proposed regulations in many material respects and will require a CbC analysis of foreign law. Few, if any, tax departments have the resources necessary to digest the substantial changes in time to properly report in 2022.

USCIB also requested that Treasury further analyze the collateral effect of the regulations on financial reporting and the likelihood of inconsistent positions being taken regarding creditability.

Also, USCIB recommends the development of a “per se” list of taxes by country that are creditable or non-creditable to achieve consistency and tax certainty.


NFTC also submitted comments to Treasury on March 3 expressing concerns about the final FTC regulations.

NFTC requested that Treasury reconsider several aspects of the regulations that will result in double taxation in circumstances that seem unintended or underappreciated and will further destabilize the fundamental international tax rules and jeopardize the ability of U.S. companies to compete.

The letter focuses on the three most significant aspects:

  • the source-based attribution rules for withholding taxes on royalties, service fees, and capital gains;

  • the attribution rules for taxes imposed on residents, particularly the reference to arm’s-length principles; and

  • the cost recovery rules for income taxes, particularly the per se list of significant costs and expenses.

For the first issue, NFTC recommended that traditional withholding taxes imposed on royalties and service fees paid by residents of the country imposing the tax and deductible against the income tax imposed by that country should remain creditable. Also, withholding taxes permitted and treated as covered taxes under a U.S. tax treaty should be per se creditable regardless of whether they are paid by a U.S. company or a foreign subsidiary thereof.

The final regulations would not permit a credit for a foreign country’s corporate income taxes that rely on non-arm’s-length principles to determine the allocation of income or deductions to its residents. The final regulations throw into doubt the creditability of long-standing income taxes that rely on fixed margins or other criteria to determine taxable income.

Surprisingly, the treaty coordination rule may provide little relief, even for income taxes permitted under U.S. tax treaties. Virtually all U.S. tax treaties provide for an indirect tax credit for income taxes covered by the treaty and imposed on profits out of which dividends are paid to U.S. companies. The final regulations do not directly address the application of these provisions on the operation of the global intangible low-taxed income FTC rules, remarkably throwing into doubt the creditability of corporate income taxes imposed by U.S. treaty partners and permitted under U.S. tax treaties. It appears possible that a U.S. company operating through a disregarded entity in a treaty country would be able to credit income taxes imposed on that entity but may not be able to credit the same income tax imposed on a subsidiary. This incongruity is difficult to defend.

NFTC recommends that corporate income taxes imposed on residents should remain creditable regardless of conformity with the arm’s-length standard, and the prior law cost recovery rules should be reinstated. To the extent Treasury wishes to discourage profit allocations that exceed those resulting from an application of the arm’s-length standard, regulations could provide that any tax on income in excess of the income that would result from an application of the arm’s-length standard be treated as a separate levy that is not creditable.

To the extent the prior law cost recovery rules were perceived as difficult for the IRS to administer, the NFTC urged Treasury to consider treating income taxes treated as covered taxes under U.S. tax treaties as per se creditable regardless of whether they are paid by a U.S. company or a foreign subsidiary thereof and adopting the definition of taxes on income from the OECD’s pillar 2 work and adding to that definition top-up taxes permitted under pillar 2. Regardless of other changes, taxes imposed under international initiatives to which the United States has committed clearly should be creditable.

NFTC also requested a delay of at least one year to permit companies time to comply with the reporting requirements. It noted that a delay will provide more clarity on how the rules will interact with the OECD rules.

Alliance for Competitive Taxation

The Alliance for Competitive Taxation also submitted a letter February 24 stating that the final FTC regulations go beyond their original intent to address DSTs and should be withdrawn immediately.

According to the organization, the final regulations will cause a material amount of double taxation, create perverse incentives to shift activities and jobs from the United States, encourage the development and ownership of IP outside the United States, and create enormous uncertainty. The rules create an unfair advantage for foreign competitors and are inconsistent with the OECD/G-20 two-pillar agreement. Further, they took effect only three days after they were released for calendar-year taxpayers.

Also, the final regulations violate the spirit of U.S. tax treaties and call into significant question whether the United States will continue to allow a credit for taxes paid by foreign subsidiaries whose income is subject to U.S. taxation under the subpart F and GILTI regimes. In effect, if foreign governments fail to change their tax laws to mimic the U.S. income tax system, global U.S. companies may suffer double taxation notwithstanding U.S. treaty commitments.

The Alliance for Competitive Taxation provided an appendix with examples of common business transactions that would be subject to double taxation under the final regulations. In the examples, a domestic corporation USP wholly owns a CFC organized under the laws of Country X, which does not have a tax treaty with the United States. CFC pays local country tax, and USP recognizes a GILTI inclusion. CFC also pays USP a royalty for the use of IP and a services payment. Country X imposes withholding taxes on both payments. Country X’s sourcing provisions source the royalty payment based on residence of the payer and source the services payment based on location of the recipient of the services.

The cost recovery requirement necessitates taxpayers to analyze if foreign law disallowance rules are consistent with the principles of the United States, requiring knowledge of local law that neither the taxpayer nor the IRS will possess. The cost recovery requirement creates a cliff effect in determining whether a tax is creditable.

For example, if Country X permits the recovery of significant costs and expenses attributable to gross receipts included in the Country X tax base but limits the recovery of royalty expense paid to related persons based on a reasonable measure of the CFC’s taxable income, there is uncertainty as to whether the cost recovery requirement can be met because there generally is no analogous disallowance for royalty expense under U.S. law.

Even if the United States has a treaty with the foreign country that explicitly provides that a foreign tax is an income tax under the double taxation article, the treaty may not apply unless the U.S. company (not one of its foreign subsidiaries) paid the tax. For example, if the United States had a treaty with Country X, the treaty may not apply to permit an FTC for taxes paid by the CFC for purposes of determining USP’s GILTI tax liability because the foreign subsidiary of the U.S. company is the payer of such foreign taxes. If Country X has a disallowance provision that violates the cost recovery requirement, a treaty between the United States and Country X may not apply to treat the foreign corporate tax paid by the CFC as creditable because USP did not pay the Country X tax on the CFC’s operating income.

The foreign withholding tax on gross income from the royalty is sourced under Country X law to the residence of the payer, which departs from the U.S. sourcing rule. Accordingly, it appears the Country X withholding tax on the royalty would not be a creditable tax for U.S. federal income tax purposes (even if the IP were used exclusively within Country X).

A similar issue arises regarding payments for services performed outside the taxing jurisdiction. The withholding tax on the payment is not creditable by USP because the sourcing rules for services between Country X and the United States differ.

If Country X levies a tax on CFC based on a formulary basis (rather than on an arm’s-length basis), a question arises as to whether the tax can meet the attribution requirement. The taxpayer must analyze whether the formulaic approach taken by Country X is consistent with the arm’s-length principles in the U.S. regulations. While the ultimate allocation of income, gain, deduction, or loss may be similar to the allocation of each item under arm’s-length principles, because Country X uses a different allocation method, there is inherent uncertainty as to whether the tax imposed by Country X can satisfy the attribution requirement.

IRS Letter Rulings

Retroactive QEF Election Allowed

The IRS released a November 23, 2021, letter ruling (LTR 202207001) granting a taxpayer’s request for commissioner’s consent to make a retroactive qualified electing fund election under section 1295(b) and reg. section 1.1295-3(f). A U.S. person invested in a foreign corporation but was unaware that it was a PFIC as defined in section 1297(a). The U.S. person used a competent international tax adviser to prepare and file their U.S. income tax returns.

In the second year of holding the foreign company’s stock, its management company informed the U.S. person that the foreign company had been a PFIC starting with the first year and that it elected to be treated as a partnership for U.S. federal income tax purposes during the second year. The U.S. person’s tax advisers did not advise on the availability of a QEF election. The U.S. person sold the interest in the foreign corporation during the third year of ownership. At that time, a new tax adviser informed the U.S. person of the PFIC rules and making a QEF election.

A QEF election may be made for a tax year at any time on or before the due date (determined with regard to extensions) for filing the return for the tax year. The election may be made after the due date if the shareholder failed to make an election by the due date because the shareholder reasonably believed the company was not a PFIC and the shareholder obtained the commissioner’s consent. Here, the U.S. person requested the commissioner’s consent to make a QEF election retroactive to the first year of their ownership of the foreign corporation.

The ruling provided that the U.S. person met the requirements in reg. section 1.1295-3(f) to request a retroactive QEF election, including:

  • the shareholder reasonably relied on a qualified tax professional;

  • granting consent will not prejudice the interests of the U.S. government;

  • the request is made before an IRS representative raises upon audit the PFIC status of the company for any tax year of the shareholder; and

  • the shareholder satisfies the procedural requirements of reg. section 1.1295-3(f)(4).

The ruling provides that under a closing agreement, the U.S. person paid an amount sufficient to eliminate any prejudice to the U.S. government as a consequence of the U.S. person’s inability to file amended returns. The U.S. person also agreed to file an amended return for each of the subsequent tax years affected by the retroactive election. Further, the PFIC status of the foreign corporation had not been questioned by the IRS on audit for any of the tax years at issue. As a result, the request was granted.

Obligations in Registered Form

The IRS ruled that interests held in a partnership are evidence of interests in a similar pooled fund and will be considered obligations in registered form (see LTRs 202210018, 202210019, and 202210020).

In the December 13, 2021, rulings, the taxpayer partnership represented that it will use the capital contributions of its members for the principal purpose of acquiring beneficial interests in a trust that acquires and holds loans secured by real estate located in the United States (the Trust). The partnership taxpayer represents that beneficial interests in the Trust are passthrough certificates, as defined in reg. section 1.163-5T(d)(1), and are in registered form, as defined in reg. section 5f.103-1(c)(1).

Section 163(f)(1) disallows a deduction for interest on any registration-required obligation unless the obligation is in registered form. Section 163(f)(2)(A) defines the term “registration-required obligation” as any obligation (including any obligation issued by a governmental entity) other than an obligation that (1) is issued by a natural person; (2) is not of a type offered to the public; or (3) has a maturity (at issue) of not more than one year. Section 1.163-5T(d)(1) provides that a passthrough or participation certificate evidencing an interest in a pool of mortgage loans that is treated as a trust of which the grantor is the owner (or similar evidence of interest in a similar pooled fund or pooled trust treated as a grantor trust) (passthrough certificate) is considered to be a registration-required obligation under section 163(f)(2)(A) and reg. section 1.163-5(c) if the passthrough certificate is described in section 163(f)(2)(A) and reg. section 1.163-5(c), which apply to obligations issued to foreign persons without regard to whether any obligation held by the fund or trust to which the passthrough certificate relates is described there.

An obligation is generally in registered form under reg. section 5f.103-1(c)(1) if:

  • the obligation is registered as to both principal and any stated interest with the issuer (or its agent), and transfer of the obligation may be effected only by surrender of the old instrument and either the reissuance by the issuer of the old instrument to the new holder or the issuance by the issuer of a new instrument to the new holder;

  • the right to the principal of, and stated interest on, the obligation may be transferred only through a book entry system maintained by the issuer (or its agent) as described in reg. section 5f.103-1(c)(2); or

  • the obligation is registered as to both principal and any stated interest with the issuer (or its agent) and may be transferred through both methods described above.

Some of the partnership taxpayer’s members are non-U.S. persons and have the right to receive distributions of principal and interest. Reg. section 1.871-14(a) provides that no tax is imposed under various portions of sections 871 and 881 on any portfolio interest received by a foreign person, which is interest that is on an obligation that is in registered form. Reg. section 1.871-14(d)(1) provides that interest received on a passthrough certificate qualifies as portfolio interest if the interest is in registered form without regard to whether any obligation held by the fund or trust to which the passthrough certificate relates is described in reg. section 1.871-14(c)(1)(ii).

The rulings conclude that the interests in the taxpayer partnership are “similar evidence of interest in a similar pooled fund” within the meaning of reg. section 1.163-5T(d)(1) and that, if the requirements of reg. section 5f.103-1(c)(1) are satisfied, the interests in the partnership taxpayer will be considered obligations in registered form. This is because the partnership taxpayer principally holds beneficial interests in the Trust, the interests of which are passthrough certificates as defined in reg. section 1.163-5T(d)(1). The taxpayer’s agent maintains a book entry system in accordance with reg. section 5f.103-1(c)(2), and the right to receive distributions of principal and interest on the assets held by the taxpayer is transferable only through such book entry system.

Cross-Border Restructuring

On December 14, 2021, the IRS ruled in LTR 202210012 that no gain or loss must be recognized by the parent corporation and the distributing corporation on a section 355 distribution of a controlled foreign entity that was treated as a corporation for U.S. federal tax purposes after a series of transactions.

Specifically, the controlled foreign entity was indirectly owned through domestic entities that were part of a U.S. consolidated group, although the distributing entity was not part of the U.S. consolidated group. First, a number of these entities merged into their owners, resulting in section 332 liquidations, and the distributing entity loaned funds to the controlled entity. On the same day as, but after, the loan, the controlled entity distributed the loan proceeds to the distributing entity as a return of distributing’s investment in the shares of the controlled entity. Distributing then contributed the same amount to controlled, which controlled used to repay the loan owed to distributing. Then, controlled converted to a different type of entity under foreign law in a tax-free reorganization under section 368(a)(1)(F). Lastly, distributing made a pro rata distribution of all the outstanding shares of controlled to its disregarded entity owner, which further distributed all those shares to the U.S. parent in the group.

The taxpayer represented that no intercorporate debt will exist between distributing and controlled at the time of, or subsequent to, the distribution of controlled stock, except for amounts attributable to the cash pool, of which distributing is the leader and controlled is a member, and ordinary course receivables and payables.

For purposes of reg. section 1.367(b)-5(c), parent’s pre-distribution amount relating to distributing or controlled will not exceed parent’s post-distribution amount relating to both entities, or, if the pre-distribution amount does exceed the post-distribution amount, parent will reduce its basis or include an amount in income as a deemed dividend to the extent provided in reg. section 1.367(b)-5(c)(2).

The IRS ruled that no gain or loss is recognized on the distribution under section 355.

Importantly, the ruling states that the IRS has made no determination regarding whether the distribution (1) satisfies the business purpose requirement; (2) is used principally as a device for the distribution of earnings and profits; or (3) is part of a plan to gain control.

Priority Guidance Plan Update

On February 22 the IRS released the second-quarter update to the 2021-2022 priority guidance plan, which outlines priorities for Treasury and the IRS based on public input during the 12-month period from July 1, 2021, through June 30, 2022. The IRS completed 13 out of 193 projects by August 31, 2021. The second-quarter update includes 12 completed projects from September 1, 2021, through December 31, 2021, and the addition of 11 new projects not on the original release.

The general tax topics section of outstanding projects includes guidance on virtual currency and guidance regarding the application of the 60-month limitation under reg. section 301.7701-3(c)(1)(iv) on the redomiciliation of an entity.

The international topics section of outstanding projects includes regulations under sections 959 and 961 concerning previously taxed E&P under subpart F (Notice 2019-01, 2019-3 IRB 275, was published on January 7, 2019); guidance under section 954, including guidance regarding the use of foreign statement reserves for purposes of measuring qualified insurance income under section 954(i); and finalization of proposed regulations under sections 1297 and 1298 and subpart F, including coordination with the repeal of section 958(b)(4).

The inbound topics section of outstanding projects includes:

  • regulations under section 59A and under section 871(m), including non-delta-one transactions;

  • the finalization of regulations to treat hybrid instruments and certain tax-favored equity as financing transactions for purposes of reg. section 1.881-3 and under sections 897 and 1445 relating to changes in the Protecting Americans From Tax Hikes Act of 2015;

  • regulations concerning the participation exemption system for the taxation of foreign-source income and addressing the inbound transfer of intangible property subject to section 367(d);

  • the finalization of regulations under section 250 regarding electronically supplied services and the deduction for FDII and GILTI; and

  • modification of regulations under section 367 regarding certain triangular reorganizations involving one or more foreign corporations.

The update provides that the FTC project was completed with the filing of the final FTC regulations on December 28, 2021.

The transfer pricing topics section of outstanding projects includes:

  • an annual report on the advance pricing agreement program;

  • guidance updating Rev. Proc. 2015-41, 2015-35 IRB 263, providing the procedures for requesting and obtaining APAs and guidance on the administration of executed APAs;

  • regulations under sections 367 and 482, including regulations addressing the changes to sections 367(d) and 482;

  • regulations under section 482 addressing the effects of group membership (for example, passive association) in determining arm’s-length pricing, including financial transactions; and

  • regulations under section 482 further addressing certain aspects of the arm’s-length standard, including:

    • coordination of the best method rule with guidance on specified methods for different categories of transactions;

    • discretion to determine the allocation of risk based on the facts and circumstances of transactions and arrangements; and

    • periodic adjustments.

The sourcing and expense allocation topics section of outstanding projects has only regulations under section 861, including on the character and source of income arising in transactions involving IP and the provision of digital goods and services.

Other general international topics of outstanding projects include:

  • regulations relating to certain foreign currency contracts, including the definition of a foreign currency contract under section 1256(g)(2), in light of the decision in Wright;8

  • guidance under chapter 3 (sections 1441-1446) and chapter 4 (sections 1471-1474), including updates to the qualified intermediary withholding agreement (primarily relating to regulations under section 1446(a) and (f));

  • finalization of remaining portions of the regulations under chapter 3 (sections 1441-1464) and chapter 4 (sections 1471-1474), including provisions relating to withholding agent obligations under reg. sections 1.1461-1, -2; 1.1471-1 through -5; 1.1473-1; and 1.1474-1 and -2 (providing for the elimination of withholding on payments of gross proceeds; deferral of withholding on foreign passthrough payments; elimination of withholding on certain insurance premiums; and clarification of the definition of investment entity; as well as providing guidance concerning certain due diligence requirements of withholding agents and refunds and concerning credits of amounts withheld);

  • guidance under sections 6039F, 6048, and 6677 on foreign trust and large foreign gift reporting and regulations under sections 643(i) and 679 relating to certain transactions between U.S. persons and foreign trusts; and

  • guidance updating Rev. Proc. 2015-40, 2015-35 IRB 236, providing the procedures for requesting and obtaining assistance from the U.S. competent authority under U.S. tax treaties.


1 See James P. Fuller, Larissa Neumann, and Julia Ushakova-Stein, “U.S. Tax Review: Whirlpool, Coca-Cola, FTC Regs, DST Agreements, and Global Tax Reform,” Tax Notes Int’l, Jan. 3, 2022, p. 21.

2 Whirlpool Financial Corp. v. Commissioner, No. 20-1899 (2021).

3 Mann Construction Inc. v. United States, No. 21-1500 (2022).

4 Aptargroup Inc. v. Commissioner, 158 T.C. No. 4 (2022).

5 See Fuller and Neumann, “U.S. Tax Review: International Tax Reform, Reverse Clawbacks, and GILTI,” Tax Notes Int’l, Aug. 2, 2021, p. 569.

6 For prior coverage of the authorized OECD approach, see Fuller and Neumann, “U.S. Tax Review,” Tax Notes Int’l, May 7, 2018, p. 727; and Fuller and Neumann, “U.S. Tax Review,” Tax Notes Int’l, Aug. 7, 2017, p. 571.

7 See Neumann and Ushakova-Stein, “U.S. Tax Review: Final Subpart F and Proposed PFIC Regs,” Tax Notes Int’l, Mar. 7, 2022, p. 1117.

8 Wright v. Commissioner, 809 F.3d 877 (6th Cir. 2016).


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