Tuesday & Wednesday, January 28‐29, 2020 Hya� Regency Columbus, Columbus, Ohio Workshop Z International Taxation … & Challenges for Multinational Companies after ‘Weathering the Storm’ of Changes in the Tax Cuts and Jobs Act of 2017 Tuesday, January 28, 2020 4:15 p.m. to 5:15 p.m.
Biographical Information Paul R. Caja, Vice President Taxation, MTD Products Inc P.O. Box 368022, Cleveland, Ohio 44136-9722 paul.caja@mtdproducts.com 330.558.3304 Paul has over thirty years of tax experience, with the most recent serving as Vice-President of Taxes with MTD Products Inc, a large privately held manufacturer of outdoor power equipment based in Ohio. As Vice-president he is responsible for the oversight of the worldwide tax function of the Company. These responsibilities encompass all tax compliance, including transfer pricing, financial reporting and tax strategy and development. Prior to joining MTD Products Paul spent the majority of his career with the public accounting firms of Ernst & Young, LLC and PwC, LLC. Paul managed a variety of SEC and privately held accounts. His experience ranges from running a significant outsource engagement to overseeing the financial provisions on large SEC clients. Paul has significant experience in compliance, planning and financial reporting as it relates to state and local, federal and international taxes. Paul has also served as the Federal Tax Manager for American Greetings, Inc. Paul is a certified public accountant and a member of the American Institute of Certified Public Accountants as well as the Cleveland chapter of the Tax Executives Institute. Paul received his Bachelors of Science in Accounting from Indiana University and he received his Masters of Taxation from Akron University. Todd Behrend, Principal, International Income Tax Ryan LLC, 271 17th St. NW Ste. 2000, Atlanta, GA 30363-6213 todd.behrend@ryan.com 404-682-1210 Mobile: 404-247-6146 Todd is a leader in Ryan’s international tax practice and has advised US and foreign-based multinationals for over 30 years as a partner with the national accounting firms and with Ryan. Todd has extensive experience in advising clients around the world with a focus on tax savings and optimization in the US and many foreign countries, including Canada, Germany, India, Mexico and many others. Todd is a frequent speaker on international tax and transfer pricing matters both in the US and overseas. Since joining Ryan in 2010, Todd has developed the firm’s international tax and transfer pricing practices with a focus on tax savings and refund reviews in the US and around the world. This has substantially expanded since the enactment of US tax reform in 2017. Todd is a graduate of the University of California at Davis B.S. in Managerial Economics and is a CPA in the State of Georgia. Todd is also a board member for the International Fiscal Association in addition to several privately held companies. Nicholas Mowbray, Attorney, Baker Hostetler, LLP 1050 Connecticut Ave. NW, Washington, DC V 202-861-1704 FAX: 202-861-1783 nmowbray@bakerlaw.com Nicholas Mowbray focuses his practice on U.S. and international tax matters. Nicholas regularly advises clients on ways to enhance the tax efficiency of commercial transactions and operating structures, while also counseling clients in restructurings, acquisitions, joint ventures and dispositions. His work across industries includes advising clients in the areas of asset management, banking, insurance, oil and gas, digital platforms, life sciences and consumer products. Prior to joining the firm, Nicholas spent more than six years in public accounting, working in both Chicago and London. Education: LL.M., Taxation, Northwestern University School of Law, 2014, with honors J.D., Chicago- Kent College of Law, Illinois Institute of Technology, 2010; Student Bar Association, Vice President and B.A., University of Michigan, 2006.
Opportunities and Challenges for Multinational Companies after “Weathering the Storm” of Changes in the 2017 TCJA 29 th Annual Ohio Business Tax Conference January 28, 2020
PANELISTS Todd Behrend Paul Caja Principal VP – Taxation Ryan LLC MTD Products Inc Atlanta, GA Valley City, OH todd.behrend@ryan.com pcaja@mtdproducts.com Nicholas Mowbray Attorney BakerHostetler Washington, DC nmowbray@bakerlaw.com 2
AGENDA How to optimize the impact of Section 965 calculations by amending prior year returns Transfer Pricing in the new rate environment – examples of issues and opportunities Opportunities to plan within the GILTI rules to reduce US tax (including an overview of the GILTI high-tax exception) How to optimize Mexican structures under the new rules and rates IRS Priority Guidance Plans – International Q&A 3
OPTIMIZE SECTION 965 It is widely recognized that compliance with the Section 965 toll tax calculation was extremely challenging for all multinational companies Guidance was limited The timeframe was limited The information was not always available and had not been prepared in a properly detailed way in the past The rules were extremely complex and when guidance was provided, it was very late For these reasons, all companies filed their returns knowing that some elements of their toll tax calculations were likely wrong or incomplete Companies have also undergone foreign tax audits that have changed their pre-2017 liabilities that could positively impact their US taxes in the last 10 years, including 2017 Accordingly , there could be substantial benefits to amending your 2017 federal return without the constraint of time pressure and more available information and guidance 4
OPTIMIZE SECTION 965 What are the benefits of amending 2017 and earlier years? As companies consider how they might amend prior year returns due to the impact of foreign audits that have since closed or are about to close, a substantial opportunity exists to amend multiple prior years and 2017 to: Take FTC’s in a prior year at a 35% rate instead of the reduced Section 965 rates Scrub E&P calculations • The IRS has said that auditing these calculations will be a priority • Many companies have reserves in place due to the challenges of compliance in 2018 • A scrub would provide either a determination that refunds are due or much more certainty as to any exposures from the original filing. Review foreign tax returns and tax pools including ensuring the correct use of foreign exchange rates 5
OPTIMIZE SECTION 965 What are some of the opportunities we have seen? Detailed review of foreign tax returns • Understanding the actual taxes paid, the conversion of the taxes into the pool at the correct exchange rate as well as the amount of creditable taxes for US purposes • Translating the foreign returns can be very important in come countries such as Italy • Over time, the accounting for income taxes is not always “trued-up” correctly after local audits, etc and the pools can be materially understated • These analyses can yield an increase to the taxes in the pool as well as a decrease in the E&P E&P scrub • In addition to tax adjustments to E&P, are there any other adjustments that could have been made to the foreign E&P ? • We have seen issues with CFC’s with a small loss whose taxes were kept out of the pool. If certain adjustments are made, the CFC’s E&P could become positive and all taxes would become eligible credits for Section 965 6
OPTIMIZE SECTION 965 Opportunities (cont.): Subpart F • Scrubbing the E&P and tax pools in prior years could enable additional FTC’s to be claimed in a prior year against 35% income instead of the reduced rates of Section 965 if the Company had actual or Subpart F dividends in those years ODL /OFL • Many companies have struggled to properly recreate their ODL’s if they had domestic losses in 2008-2010, for example. This is an area that can provide meaningful foreign source income if it was not carefully tracked in prior years. General basket Carryforward • Many companies had excess credits for various reasons that they could not use against their 965 liability due to OFL’s, etc » This This is now an asset to be optimized going forward against future low-taxed general basket income such as subpart F, 863(b), etc. 7
TRANSFER PRICING ISSUES & OPPORTUNITIES What should companies be considering for their transfer pricing with the new rules with a lower federal rate and the DRD on foreign dividends? For decades, the general rule of international tax planning was that it was almost always more beneficial to earn a dollar of profit in the foreign country than in the US The US rate was 35% plus state and all countries were lower than that by 2015 This put US companies generally in conflict with the IRS and on the same side as the foreign tax authorities when it came to transfer pricing disputes After 2017, this dynamic has switched with most jurisdictions around the world having a higher corporate income tax rate than the US 8
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