USA Law and Practice Contributed by: Devon M Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
The basic rule is that the IRS generally has three years after a return is filed to “assess” tax and begin any court proceeding, though numerous exceptions exist that provide more time for the IRS (ie, six years or longer). For example, the IRS has six years to audit a return if a taxpayer omitted more than USD5,000 in income attributable to specified foreign financial assets and, notably, no time limits apply in situations where a taxpayer either failed to file or fraudulently filed tax returns. The filing of a tax return is generally the event that triggers the running of the statute of limitations on assessments. Once a tax assessment is made, the IRS generally has ten years to collect an assessed liability (subject to certain extensions). 9. BEPS 9.1 Adoption of BEPS Recommendations The OECD BEPS project has been continuously evolv - ing to develop an agreement on a two-pillar approach to help address tax avoidance, and ensure coherence of international tax rules and a more transparent tax landscape. Pillar One, which applies to large multi - nationals, will reallocate certain amounts of taxable income to certain impacted jurisdictions, resulting in a change in effective tax rate and cash tax obligations, as well as impacting on transfer pricing arrangements. Pillar Two, in contrast, aims to ensure that income is taxed at an appropriate rate and has several mecha - nisms to ensure that tax is paid. In 2017, the USA enacted legislation generally intend - ed to be consistent with the recommendations in the two final reports under Action 2 of the BEPS project. This legislation, and the tax regulations issued there - under, generally neutralise double non-taxation effects of: • inbound dividends involving hybrid arrangements, by either denying a participation exemption or requiring domestic inclusion (depending on wheth - er the hybrid dividend is received by a domestic corporation or a CFC); and • outbound deductible interest or royalty payments that produce a deduction/no inclusion outcome owing to hybridity by disallowing such deduction.
In addition, the USA enacted the BEAT, which targets base erosion by imposing additional tax on certain large US corporations that make deductible pay - ments to foreign related parties. Such additional tax is designed as a 10% minimum tax (scheduled to increase to 12.5% in 2025) imposed on modified tax - able income. The USA also enacted a limitation on the deductibility of interest expense (which, very generally, is limited to 30% of EBITDA) and country-by-country reporting consistent with the BEPS recommendations, and has the limitation on benefits article in most of its income tax treaties. Finally, it should be noted that the USA recently enacted a new 15% corporate minimum tax based on financial statement income (see 1.4 Appli- cable Corporate and Individual Tax Rates ). The USA is still working on finalising tax regulations under the various tax provisions enacted in 2017, many of which are consistent with the BEPS recom - mendations. More recent legislative proposals (gener - ally modifying the provisions introduced in 2017 and/ or aligning with the minimum tax and undertaxed profits rules under Pillar Two of BEPS) have not been adopted. It is worth noting that, in the context of Pillar Two’s implementation guidance, following the USA’s agreement with the G7 countries to exempt US com - panies from key aspects of Pillar Two (eg, the under - taxed profits rules and the income inclusion rule), the OECD issued a “Side-by-Side Package”. This pack - age includes a number of items, including a side-by- side regime that may effectively shield US-based mul - tinational companies from the application of the global minimum tax rules (eg, the income inclusion rule and the undertaxed profits rule) beginning in 2026. 9.2 Government Policy and Objectives Approach While the USA generally agrees that the issues addressed by BEPS (both as related to Pillars One and Two) should be remedied (which, as discussed in this chapter, the USA has taken great strides towards implementing – see 9.1 Adoption of BEPS Recom- mendations ), the implementation of Pillar Two in the USA remains stalled. Passage of law to align the US international tax regime with Pillar Two appears unlike - ly, especially given President Trump’s Executive Order
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