December 2018 / United States

On 14 December 2018, the US Treasury Department and the US Internal Revenue Service (IRS) issued Notice 2019-01 to announce their intention to release regulations addressing certain issues arising from the enactment of the Tax Cuts and Jobs Act (TCJA) with respect to foreign corporations with previously taxed earnings and profits (PTEP). Notice 2019-01 describes regulations that the Treasury Department and the IRS intend to issue, including:

• rules relating to the maintenance of PTEP in annual accounts and within certain groups;
• rules relating to the ordering of PTEP upon distribution and reclassification; and
• rules relating to the adjustment required when an income inclusion exceeds the earnings and profits of a foreign corporation.

It is expected that the regulations will apply to taxable years of US shareholders ending after 14 December 2018 (i.e. the date of release of Notice 2019-01) and to taxable years of foreign corporations ending with or within such taxable years. Notice 2019-01 will appear in the IRS Internal Revenue Bulletin (IRB) as part of 2019-03, dated 14 January 2019.

On 13 December 2018, the US Treasury Department and the US Internal Revenue Service (IRS) released proposed regulations (REG-104259-18) on the base erosion and anti-abuse tax (BEAT) under the new section 59A of the US Internal Revenue Code (IRC). The IRS issued a related News Release (IR-2018-250) dated 13 December 2018. IRC section 59A, enacted by the Tax Cuts and Jobs Act (TCJA), imposes a tax equal to the base erosion minimum tax amount (BEMTA) for certain taxpayers beginning in tax year 2018. When applicable, this tax is in addition to the taxpayer's regular tax liability. The new provision primarily affects corporate taxpayers with gross receipts averaging more than USD 500 million over a 3-year period that make deductible payments to foreign related parties. The proposed regulations provide guidance on the following:

• which taxpayers are subject to IRC section 59A;
• the determination of what is a base erosion payment;
• the method for calculating the BEMTA; and
• the required BEAT resulting from that calculation.