By Julie Martin, MNE Tax
The US’s foreign-derived intangibles income (FDII) tax rules are being scrutinized by the OECD’s Forum on Harmful Tax Practices (FHTP) to determine if it is a harmful tax regime, the US delegate to the FHTP has confirmed.
Speaking in Washington February 14 at a Tax Council Policy Institute conference, Gary Scanlon, an Attorney-Advisor in Treasury’s Office of the International Tax Counsel, said that the US FDII regime, enacted in the 2017 US tax reform, has been identified as a preferential tax regime triggering the FHTP review process.
As one of the 128 member countries of the “Inclusive Framework on BEPS,” the US has agreed to be bound by the OECD/G20 Base Erosion profit shifting (BEPS) Action 5 minimum standards relating to preferential tax regimes that can facilitate BEPS. As a Framework member, the US has also agreed to be peer-reviewed on whether the agreed-to BEPS minimum standards are actually being implemented in the US. These peer reviews are carried out by the FHTP.
Scanlon said that US has defended its tax regime in writing to the FHTP but that all proceedings are now “in a holding pattern” awaiting the US’s issuance of the FDII regulations.
“When we have regs out we will have a formal review [and] a fuller discussion,” he said.
The US’s view is that the FDII rules are out of scope and that they must be read in concert with the US’s global low-taxed intangible income (GILTI) provisions, which were enacted at the same time.
“We think that you have to look at FDII in the context of GILTI — as a single system — and that the entire work that the FHTP and Action 5 is meant to address are regimes that base erode other countries. We don’t see this as a regime that base erodes of other countries, just more of a regime that stops our country from being base eroded,” Scanlon said.
Scanlon said that FDII and GILTI work together to take tax out of the equation when considering the location of intellectual property.
“We believe a lot of the IP is being developed by folks in white lab coats here in the US and we would like that IP to remain where it is created and not be drawn out of the US by reason of tax considerations,” Scanlon said.
Julie Martin
Julie Martin is the founder of MNE Tax. She edits the publication and regularly contributes articles on new developments in cross-border business taxation.
Julie has worked as a tax journalist and editor for more than 13 years. Prior to that, she worked as an in-house tax attorney in New York. She also holds an LLM in taxation from New York University School of Law.
Julie can be reached at [email protected].
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