The Treasury Department often publishes reports on areas of tax law, addressing issues that are of current concern. Such reports are useful as an indication as to what legislation may be coming. Of course, just because the Treasury Department has a concern in an area does not mean that legislation will always follow, or that Congress will enact that legislation.
A recent report highlights three areas of concern in the international tax arena. These are:
EARNINGS STRIPPING. Treasury is concerned that U.S. corporations owned by foreign persons, that undergo "inversion transactions" to insert a foreign holding company in a low or no tax jurisdiction, may be engaged in excess stripping of earnings from the U.S. through excessive interest payments. The study recommends that tax forms be modified to require more information about earnings stripping.
TRANSFER PRICING. Treasury believes certain areas of its transfer pricing rules require modernization or revision. More particularly, it is interested in addressing contributions for which arm's length consideration must be provided as a condition to entering into a cost sharing arrangement, and completing revisions to the related-party services regulations, as well as some additional other areas.
TAX TREATIES. Treasury is concerned that persons who are not residents of treaty jurisdictions continue to improperly gain benefits from the U.S. treaty network as to those treaties that do not have adequate limitations of benefits provisions (provisions that limit treaty benefits to residents of the treaty countries).
Report to the Congress on Earnings Stripping, Transfer Pricing and U.S. Income Tax Treaties, Nov. 28, 2007