USA Law and Practice Contributed by: Devon M Bodoh, Joseph M. Pari and Blake D. Bitter, Weil, Gotshal & Manges LLP
9.7 Interest Deductibility and Territorial Tax Regime The USA does not have a territorial tax regime. That said, for tax years beginning on or after 1 January 2018, US international taxation has shifted to a more “hybrid” system that exempts some foreign-source income (foreign-source dividends and certain returns on foreign asset investments), but that currently taxes, at reduced rates, a much broader scope of previously deferred foreign profits (see 6.5 Controlled Foreign Corporation-Type Rules ) while also enacting new pro - visions (and regulations) designed to curtail certain types of base erosion payments. These include the following: • the BEAT (see 9.1 Adoption of BEPS Recommen- dations ); • anti-hybrid rules (see 2.5 Deduction of Interest ); • limitations on interest deductibility (see again 2.5 Deduction of Interest ); and the Debt Recast Rules (see 5.7 Restraints on Relat- ed-Party Borrowing ). 9.8 Controlled Foreign Corporation Reform The USA does not have a territorial tax regime (see 9.7 Interest Deductibility and Territorial Tax Regime ) and already has a CFC regime in place (see 6.5 Controlled Foreign Corporation-Type Rules ). 9.9 Anti-Avoidance Rules DTC limitation on benefit or anti-avoidance rules are not likely to have an impact. As discussed previously, most US income tax treaties already include a “limita - tion on benefits” article, and also contain various other anti-treaty shopping provisions (see 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices ). 9.10 Transfer Pricing and IP Taxation The transfer pricing changes introduced by BEPS are generally consistent with the US transfer pricing rules and regulations; however, they do diverge in some respects (see 4.6 Local Transfer Pricing Rules and OECD Standards ). For intellectual property, it is worth noting that the BEPS proposals place signifi - cantly more emphasis on the “economic ownership” of intangible assets, which contrasts with the US posi - tion that focuses more on “legal ownership”.
9.11 Country-by-Country Reporting and Transparency Provisions The authors are not currently in favour of such provi - sions. Although the USA issued tax regulations requir - ing country-by-country reporting by US multinational enterprises, the information the government obtains is strictly confidential and used solely for tax purposes. 9.12 Digital Economy Businesses A number of countries have reached an agreement with the USA as to the treatment of their existing DSTs, pending the implementation of Pillar One. This is known as the Unilateral Measures Compromise. This compromise, which was agreed upon by the USA, Austria, France, Italy, Spain, the United Kingdom, Turkey and India, covers the interim period between January 2022 and the earlier of either the date Pillar One formally takes effect or 31 December 2023. Notably, under the compromise, these countries can keep their existing DSTs in place until the implementa - tion of Pillar One; however, corporations (primarily US multinational corporations) that are subject to DSTs may receive a tax credit against future tax liabilities. While the USA had agreed to terminate certain puni - tive trade actions against such countries in light of the compromise, sentiments under the Trump adminis - tration have changed drastically from the prior Biden administration. It is possible that DSTs, in light of President Trump’s Executive Orders and the proposal of Section 899, could be an “extraterritorial” or “dis - criminatory” tax subject to US retaliation; however, the interaction of such retaliatory tax in light of the complex web of US tax treaties remains uncertain (see 9.3 International Tax ). 9.13 Approach to Digital Services Taxation The USA opposes unilateral action to tax digital pres - ence (see also 9.12 Digital Economy Businesses ). 9.14 Offshore IP Provisions Though such provisions have been introduced, much of the focus in the USA relates to “outbound” transfers of intellectual property, and as discussed previously, the use of intangible property (including transfers or licences of such intangible property) is subject to US transfer pricing principles and other provisions of the Code, which generally require the arm’s length stand -
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