Category Archives: News / Updates

Unilateral APA Application by Maquiladoras

Unilateral APA Application by Maquiladoras

The IRS announced in IR-2016-133 that US taxpayers with maquiladora operations in Mexico will not be exposed to double taxation if they enter into a unilateral advance pricing agreement (APA) with SAT through a “Fast Track” program introduced by SAT in October 2016.

Currently, the SAT has over 700 pending unilateral APA applications filed by maquiladoras covering tax years 2014 through 2018. The IRS and SAT entered into an agreement adopting the Fast Track program to timely address the current inventory of pending APA applications.

The new maquiladora framework is an election that SAT would offer to qualifying taxpayers with pending unilateral APA requests with the SAT. The program excludes (1) maquiladoras with annual revenue in excess of 1.2 billion pesos and (2) maquiladoras with a principal company located outside of the United States. The program offers the following options:

  • Qualifying taxpayers may elect to apply the new maquiladora framework in a unilateral APA with the SAT. Because the transfer pricing framework adopted under SAT’s program was discussed and agreed upon with the U.S. competent authority in advance, the transfer pricing results set forth in unilateral APAs executed between SAT and the maquiladora will be regarded as arm’s-length for US tax purpose.
  • Qualifying taxpayers that decline to elect to apply the new maquiladora framework may either:
    • Continue applying for a unilateral APA using traditional approach.
    • Use safe harbors provided in the 1999 agreement; or
    • File a request for a bilateral APA with the US and Mexican competent authorities.

It is expected that qualifying taxpayers with pending unilateral APA with the SAT will receive an election notice shortly (Unofficial source indicates that the SAT will contact the current APA representative or consultant first). The notice will include details on the steps the taxpayer must take regarding its pending unilateral APA request. Qualifying taxpayers should contact their APA representatives for further detail.


IRC Section 385 Final Regulations

IRC Section 385 Final Regulations

On October 13, 2016, IRS issued final and temporary regulations under 385 addressing the treatment of related party debt.  The final and temporary regulations treat as stock certain related-party interests that otherwise would be treated as indebtedness (the “Request Rule”) for federal tax purposes and established extensive contemptuous documentation requirement (the “Documentation Rule”) with respect to related-party indebtedness.  The Request Rule is effected April 4, 2016 and the Documentation Rule applies to debt instruments issued on or after January 1, 2018.  See our newsletter at for general overview of the regulations.

The final and temporary regulations retain much of what was previously proposed back in April but reflects certain modifications summarized below:

  • The final and temporary regulations apply to US indebtedness only. Initially, the regulations were drafted to be applied to all related-party debt instruments (both in-bound and out-bound), but the regulations were finalized to excludes foreign debts.
  • The final and temporary regulations eliminated bifurcation rule included in the proposal. Initially, the regulations were drafted to permit the IRS to characterize certain instruments as part debt and part stock, but this bifurcation rule was excluded from the final and temporary regulations.
  • The final and temporary regulations apply to disregarded entities and partnerships having interest in US corporations with related-party debt instruments.
  • The Documentation Rule applies to instruments issued on or after January 1, 2018 and is considered contemporary if completed by the due date of the return (including extension).

Note that the Documentation Rule apply to debt instruments issued by the expanded group with (1) publicly traded stocks, (2) total assets exceeding $100 million, or (3) total revenue exceeding $50 million.  Additionally, a related-party debt instrument will not be treated as stock if, when the debt is issued, the aggregate issue price of all other related-party debt instruments that would be treated as stock does not exceed $50 million.


CbC Reporting Final Regulation

CbC Reporting Final Regulation

IRS issued final regulation related to new country-by-country reporting requirements for ultimate parent entity of a multinational enterprise group (MNE) with revenue of $850M or more.  This new filing is required for tax years beginning on or after June 30, 2016.  So a calendar year taxpayer would be subject to the filing requirement (Form 8975 – the form is still under development)  with its 2017 tax return.  This new reporting requirement was implemented to confirm with the rules of the OECD’s action plan on BEPS.

An UME of a US MNE group is defined as a US business entity that controls a group of business entities, at least one of which is organized or tax resident outside of the US, that are required to consolidate their accounts for financial reporting purposes under US GAAP, or that would be required to consolidate their accounts if equity interests in the US business entity were publicly traded on a US security exchange market.  The regulation require an MNE group to report on a country-by-county basis income and taxes paid, and the business activity of foreign operations.

Please see the Internal Revenue Bulletin 2016-29 for additional detail.

California Competes Tax Credit

California Competes Tax Credit

The California Competes Tax Credit is a negotiated income tax credit program created to attract and retain businesses in California creating job opportunities and economic boost.  The credit is awarded through a two-phase competitive process and based on several factors including:

  • Number of full-time jobs created
  • Compensation paid to employees
  • Amount of new capital investment
  • Business economic impact

The California Competes Tax Credit applies to income tax owed to the Franchise Tax Board.  The credit is non-refundable.  If the credit allowed exceeds the tax due, the excess may be carried over to reduce the tax in the following year, and the succeeding five year if necessary, until exhausted.

Credit applications for the fiscal year 2016-2017 will be accepted:

  • January 2, 2017 through January 23, 2017 ($100 million credit available)
  • March 6, 2017 through March 27, 2017 ($68.3 million credit available)

If you are planning or considering to start or expand business in California, please contact us immediately and get your fair share of allocated government funds!