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BONUS PUBLICATION for
Using CCH® IntelliConnect to Conduct International Tax Research
International Tax Journal
(January – February 2016)
Published Bimonthly by CCH, a part of Wolters Kluwer
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INTERNATIONAL TAX JOURNAL
10028608-0190 ISSN 0097-7314 PUBLISHED BY
Subpart F: When Is Services Income Analyzed as Sales Income?
The Dutch Implementation of Country-by-Country Reporting
THE IRS ISSUES NEW CODE SEC. 956 REGULATIONS
NEW 871(M) REGULATIONS FINALIZE DIVIDEND-EQUIVALENT PAYMENT WITHHOLDING RULES FOR EQUITY DERIVATIVES
IRS PLANS TO ISSUE BUILT-IN GAIN, ALLOCATION REGULATIONS FOR TRANSFERS TO PARTNERSHIPS WITH RELATED FOREIGN PARTNERS
THE NEW GLOBAL FATCA: AN OVERVIEW OF THE OECD’S COMMON REPORTING STANDARD IN RELATION TO FATCA
INTERNATIONAL TAX JOURNAL V o L . 4 2 , N o . 1 J a N u a r y – F e b r u a r y 2 0 1 6
A Note From the editor-iN-ChieF Subpart F: When is Services income Analyzed as Sales income? By Lowell D. Yoder 3 ColumNS the Netherlands By Peter H.M. Flipsen and Jurgen J. van Beest 5 ArtiCleS the irS issues New Code Sec. 956 regulations By John D. McDonald, Stewart R. Lipeles and Samuel Pollack 9 New 871(m) regulations Finalize dividend-equivalent Payment Withholding rules for equity derivatives By David S. Miller and Jason Schwartz 17 irS Plans to issue Built-in Gain, Allocation regulations for transfers to Partnerships with related Foreign Partners By David Forst 29 the New Global FAtCA: An overview of the oeCds Common reporting Standard in relation to FAtCA By Eschrat Rahimi-Laridjani and Erika Hauser 31
InternatIonal tax Journal January–February 20162
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THE INTERNATIONAL TAX JOURNAL (USPS# 673-030) is published bimonthly by Wolters Kluwer, 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription inquiries should be directed to 4025 W. Peterson Ave., Chicago, IL 60646. Telephone: (800) 449-8114 Fax: (773) 866-3895. Email: firstname.lastname@example.org. PostMastEr: send address changes to JOURNAL OF INTERNATIONAL TAX, 4025 W. Peterson Ave., Chicago, ILLINOIS 60646. January–February 2016. Vol. 42, No. 1. Copyright ©2016 CCH Incorporated and its affiliates. All rights reserved. Photocopying or reproducing in any form in whole or in a violation of federal copyright law and is strictly forbidden without the publisher’s consent. No Claim is made to original governmental works: however, within this product or publication, the following are subject to Wolters Kluwer’s copyright: (1) the gathering, compilation, and arrangement of such governmental materials; (2) the magnetic translation and digital conversion of data, if applicable: (3) the historical, statutory, and other notes and references; and (4) the commentary and other materials.
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Advisory BoArd Editor-in-ChiEf
lowell d. yoder McDermott Will & Emery LLP Chicago, IL
unitEd statEs MEMBErs
reuven s. avi-yonah University of Michigan Law School Ann Arbor, MI
Barton Bassett Morgan Lewis Palo Alto, CA
J. Michael Cornett KPMG Washington, DC
Paolo M. dau McDermott Will & Emery LLP Palo Alto, CA
nicholas J. denovio Latham & Watkins LLP Washington, DC
tadd fowler The Procter & Gamble Company Cincinnati, OH
James P. fuller Fenwick & West LLP Palo Alto, CA
Marc J. gerson Miller & Chevalier Chartered Washington, DC
Peter a. glicklich Davies Ward Phillips & Vineberg LLP New York, NY
irwin halpern Deloitte Tax LLP Washington, DC
l. g. (Chip) harter PricewaterhouseCoopers LLP Washington, DC
harry (hal) J. hicks iii Skadden Arps Slate Meagher & Flom LLP Washington, DC
Patrick a. Jackman KPMG New York, NY
sam Kaywood Alston & Bird LLP Atlanta, GA
John P. Kennedy CVS Caremark Corporation Providence, RI
lawrence lokken University of Florida College of Law Gainesville, FL
Michael J. Miller Roberts & Holland LLP New York, NY
douglas Mchoney PricewaterhouseCoopers LLP Cincinnati, OH
James M. o’Brien Baker & McKenzie LLP Chicago, IL
Mark a. oates Baker & McKenzie LLP Chicago, IL
Edward C. osterberg, Jr. Mayer Brown Houston, TX
robert J. Peroni University of Texas Law School Austin, TX
Philip f. Postlewaite Northwestern University Law School Chicago, IL
James a. riedy McDermott Will & Emery LLP Washington, DC
steven surdell Ernst & Young LLP Chicago, IL
Philip tretiak Wells Fargo New York, NY
Peter h.M. flipsen Simmons & Simmons Rotterdam, The Netherlands
Bruno gouthiere CMS Bureau Francis LeFebvre Paris, France
James somerville A & L Goodbody Solicitors Dublin, Ireland
William h. Morris General Electric Company London, England
henri torrione Lenz & Staehelin Geneva, Switzerland
toshio Miyatake Adachi, Henderson, Miyatake & Fujita Tokyo, Japan
J. scott Wilkie Blake, Cassels & Graydon LLP Toronto, Ontario
Editor-in-ChiEf A N o t e F r o m t h e
LoweLL D. YoDer is a Partner in the Chicago office of McDermott Will & Emery LLP, and head of the U.S. & Inter- national Tax Practice Group.
JANuAry–FebruAry 2016 3©2016 CCH InCorporated and Its affIlIates. all rIgHts reserved.
Subpart F: When Is Services Income Analyzed as Sales Income? U.S. shareholders of a controlled foreign corporation (CFC) are required to include in their gross income the Subpart F income of the CFC. In relevant part, Subpart F income is defined as including certain sales and services income.1
Separate rules are provided for determining whether an item of sales income is Subpart F income or an item of services income is Subpart F income.2 Therefore, a particular item of income must first be characterized as sales income or as services income before applying the specific Subpart F income definitional category.3 For example, income from the sale of products is analyzed under the Subpart F sales income rules, whereas fees for the performance of certain functions for another person generally are analyzed under the Subpart F services income rules.
Code Sec. 954(d) contains a unique rule that requires analysis of certain services income as sales income. Subpart F sales income is defined as income “whether in the form of profits, commissions, fees, or otherwise” derived in connection with: 1. the purchase of personal property from a related person and its sale to any person, 2. the sale of personal property to any person on behalf of a related person, 3. the purchase of personal property from any person and its sale to a related person, or 4. the purchase of personal property from any person on behalf of a related person, where the property is manufactured outside, and sold for use outside, the CFC’s country of organization.4 The CFC would earn commissions or fees under sce- narios 2 and 4 from selling or purchasing property on behalf of another person. These fees are analyzed as sales income for Subpart F purposes5 but would be treated as services income for other purposes of the Code.6
From the above language of the Code it follows that for services income to be analyzed as sales income, the CFC must engage in the activities that it would engage in if it had actually sold property, or had actually purchased property, on its own account. When comparing scenarios 1 and 2, the CFC in both cases must engage in “the sale of personal property to any person,” and the only difference is that in scenario 1, the CFC takes ownership of the property from a related person, and in scenario 2, the CFC does not take ownership of the property. Similarly, when comparing scenarios 3 and 4, the CFC in both cases must engage in “the purchase of personal property from any person,” and the only difference is that in scenario 3, the CFC takes ownership of the property from another person and transfers it to a related person, and in scenario 4, the CFC does not take owner- ship of the property.
The legislative history confirms the intended scope of applying Code Sec. 954(d) to commiss