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Interview for the Great Beat Debate Part II 1/17/2019https://advance.lexis.com/documentprint/documentprintclick/?pdmfid=1001091&crid=b62dae0c-fbd3-4515-9d02-4287e6c6b95b&ecomp=vsd1k&...https://advance.lexis.com/documentprint/documentprintclick/?pdmfid=1001091&crid=b62dae0c-fbd3-4515-9d02-4287e6c6b95b&ecomp=vsd1k&prid=118aa82...1/4Lexis Advance®TaxDocument: Treaty Override, Other BEAT Questions Up For Debate At...Treaty Override, Other BEAT Questions Up For Debate At ABA,2019 Law360 16­125 January 16, 2019

Coverage of my views on the Base Erosion Anti-abuse tax BEAT Markup, Treaty Issues Scheduled For Debate At ABA By Molly Moses · October 2, 2018, 5:47 PM EDT With several questions unsettled for the new base erosion and anti-abuse tax, transfer pricing experts at the upcoming American Bar Association Section of Taxation meeting will explore issues such as how the provision applies to intercompany service charges bearing a markup. https://dlbjbjzgnk95t.cloudfront.net/1088000/1088558/eaa8df6d3b074900a0bf371b43d34b61cf444c76-2094652fd347485db4127d9fd2db1df7_wcup_2026_host_reaction_soccer_66910_5451x3690.jpg One topic to be discussed this week by panelists at an American Bar Association tax section meeting in Atlanta is how the base erosion and anti-abuse tax interacts with tax treaties. (AP) BEAT, set forth in new Section 59A https://www.law360.com/images/lexis_advance/kb-icon-red.pngof the Tax Cuts and Jobs Act https://www.law360.com/images/lexis_advance/kb-icon-red.png, limits deductions on payments by a U.S. company to its foreign related parties to ensure it doesn’t reduce its U.S. taxable income to less than 10 percent. The tax targets payments by large U.S. companies whose base erosion percentage — basically, foreign payments divided by deductions — is 3 percent or higher. While services charged at cost are exempt from the tax, those including a markup aren’t. For the latter, it’s not clear whether just the marked-up portion or the entire charge goes into the minimum tax calculation. The panel on BEAT, scheduled for Friday at the ABA meeting in Atlanta, will present the best arguments for each interpretation, as well as consider two other questions: whether the Internal Revenue Service can address the character of a BEAT payment through an advance pricing agreement, and whether the unfavorable treatment of foreign tax credits under BEAT prevails over treaty provisions. Question 1: Does a Service Markup Taint the Whole Payment? Under a strict reading of the Section 59A, when services bear a markup, the entire charge must be included in the minimum tax calculation. Many practitioners dispute that interpretation, arguing that under a more sensible reading, just the markup portion of the charge should go into the minimum tax calculation, while the cost portion remains exempt. Section 59A(d)(5) allows an exception for some services if the services are eligible to be charged at cost under the “services cost method” in the Section 482 regulations and the amount “constitutes the total services cost with no markup component.” In materials prepared ahead of their session, the panelists described a taxpayer that doesn’t elect the services cost method and pays a foreign affiliate $100 for services plus a 5 percent markup. If the markup in fact taints the entire transaction, the company in this situation has to choose between paying a “plus” and being subject to BEAT, or paying no markup — which avoids BEAT but puts it at risk of a transfer pricing adjustment from the foreign country. The provision affects a large portion of multinational entities with intercompany service transactions, the ABA panelists said. Companies often outsource back-office services such as call centers to foreign subsidiaries in, for example, India — and those jurisdictions expect to be paid cost plus a markup. Barbara J. Mantegani of Mantegani Tax PLLC in McLean, Virginia, said a literal interpretation of the law — that a markup taints the entire payment — would cause the tax to have a huge impact. “I don’t know of a single large multinational that doesn’t have some sort of markup on their back-office service costs,” she told Law360. William H. Byrnes IV, a professor at Texas A&M University School of Law, agreed. Given that such a reading would discourage companies from paying a markup to foreign subsidiaries, he said, that interpretation is “picking a fight with a lot of foreign countries.” Estimates from the Big Four accounting firms have pegged the number of affected companies between 8,000 and 10,000, he noted. Then again, a literal interpretation is almost certainly what the U.S. intended, according to William Seeger at the University of Texas at Arlington. “Of course the whole charge would be subject to BEAT,” he said, given that the markup-only reading “is antithetical to the government’s interests.” Question 2: Can an APA Determine the Character of a BEAT Payment? The Advance Pricing and Mutual Agreement Program, or APMA, which began life as the Advance Pricing Agreement Program, was created to work out companies’ transfer pricing allocations in advance of an audit. The IRS guidance on APAs, set forth in Revenue Procedure 2015-41 https://www.law360.com/images/lexis_advance/kb-icon-red.png, defines “coverable issues” as those arising under Section 482, the transfer pricing statute; other issues “for whose resolution transfer pricing principles are relevant,” which can include double-tax matters subject to consideration by the U.S. competent authority; and “ancillary issues.” Mantegani said the character of a BEAT payment is likely beyond the scope of an APA. “APA deals with the amount of the actual intercompany payment,” Mantegani said. “Whether it’s excluded from BEAT is another matter.” But Seeger said that with the emphasis on multinational companies’ tax planning in recent years, APAs have “gone away from the silo and negotiating a single issue to a more holistic approach.” Just as different transfer pricing issues can’t be treated separately in an APA, transfer pricing can’t be hived off from BEAT where the provisions interact, he asserted. “You can’t silo APA issues,” he said. “You can’t say, ‘Don’t look at my transfer pricing for tangibles or services; I’m just here to do my [intellectual property] migration.’” Seeger also made the point that companies don’t usually focus on service transactions in seeking to minimize their taxes. “From my experience, the planning and litigiousness and controversy are always around intangibles,” he said. “It’s quite rare for there to be controversy around intercompany service charges.” Mantegani said that while most BEAT questions are unlikely to be eligible for coverage in an APA, the process might be invoked in the rare case where treaty issues arise. “The only way I can see it happening is if there were some sort of situation where taxpayers were double-taxed in a way that is covered in a treaty,” she said. “If you get some sort of reduced treaty rate” for a payment, “that might create issues with nondiscrimination” and activate the treaty, Mantegani said. Question 3: Does BEAT Override Treaties? In some cases, a U.S. treaty would allow a company to take a deduction for a payment to a foreign affiliate or a foreign tax credit for taxes paid in a treaty country, but BEAT wouldn’t. In cases where the BEAT provision conflicts with a U.S. treaty provision, it isn’t entirely clear which one prevails, the panelists said. On the one hand, courts are generally disinclined to find conflicts between a statute and a treaty and would be unlikely to hold that a domestic provision overrides a treaty “absent clear congressional intent in the statute or legislative history to override the treaties,” the ABA materials said. Also, Tom Barthold, chief of staff of the Joint Committee on Taxation, specifically said during hearings on the legislation that BEAT isn’t a treaty override, the panelists noted. But, they acknowledged, some case law supports the notion that whichever provision was enacted later — the treaty or the statute — prevails, and the TCJA is more recent than any U.S. treaty. In the same vein, the materials said, allowing treaties to overcome BEAT would thwart the purpose of the provision, which is to protect the U.S. tax base. According to David Rosenbloom of Caplin & Drysdale Chtd., BEAT doesn’t override tax treaties. While Congress “said almost nothing about treaties,” what it did say in Section 59A is telling. The section says that payments subject to full withholding would be allowed as full deductions, and it cross-referenced the former Section 163(j), which stated that if payments are partially taxable they would be partially allowable. Rosenbloom also drew an inference from the former alternative minimum tax, considered by Congress and the courts following its enactment in the Tax Reform Act of 1986. The 1986 tax act “had a lot of stuff that conflicted with treaties,” he recalled, but the AMT was assumed by Congress and the courts to be covered by treaties. In an August 2018 paper written with Fadi Shaheen, an associate professor at Rutgers Law School, Rosenbloom said BEAT is substantially similar to the AMT. Rosenbloom and Fadi pointed to Cook v. U.S., in which the U.S. Supreme Court held that treaty overrides are not favored — and further that for a later statute to override a treaty, “Congress must express a clear intention to do so.” Congress expressed no such explicit intent in the TCJA, they said, and considering Barthold’s statements, the legislative history indicates an intention not to override the treaty. A subsequent paper by Reuven S. Avi-Yonah of the University of Michigan Law School and Bret Wells of the University of Houston Law Center challenged that view, citing language in the Senate report that supports the “later in time” rule. “Prior judicial efforts to find consistency between earlier and later statutes and treaties illustrate the difficulties of determining when application of the general later-in-time rule should result in giving effect only to the later provision,” the professors said, quoting from the Senate report. The report, they noted, goes on to state that “these difficulties cannot be permitted to obscure the fact that if an actual conflict does exist concerning a matter within the scope of both an earlier treaty and a later statute, as properly construed, the later statute prevails.” Rosenbloom, however, said interpreting the BEAT provision to override the treaty just because it is later in time is too simplistic. In reality, courts will try very hard to square the provisions, he said. Moreover, he contended, fears that the treaty will essentially gut BEAT are unfounded. “There’s a lot of variety in situations,” Rosenbloom said. “There are still plenty of situations where you would get deductions disallowed under the BEAT.” Byrnes, Mantegani and Seeger were listed as panelists for the session along with Martin A. Sullivan of Tax Analysts in Washington and Thomas A. Vidano of EY, also in Washington. The moderator was listed as Lisandra Ortiz of Miller & Chevalier in Washington. --Editing by Tim Ruel and Robert Rudinger.

Interview on piece for my Travel Abroad to Dublin/London; May 2019 International trade course goes abroad By Brian Lopez, The Shorthorn staff Oct 8, 2018 0 Facebook This spring, the international trade class will go abroad. Classes will be held on campus like a regular course, but later they will travel to London and Dublin from May 17 to May 28, 2019, professor William Seeger said in an email. Seeger will teach the class. Currently, there are 21 students registered for the course, Seeger said. The estimated cost will be $4,400, which is separate from tuition. The cost includes the round-trip airfare, housing, meals, local transportation, on-site support and cultural visits. What makes this course different and new is that the trip is tied in with the course, so to go on the trip a student must take the class, Seeger said. “The origins of this trip began with my interest in leading a trip abroad that was tied directly to a class that I would teach. The trip itself would have a theme, in this case, international business innovation, that would tie to the class,” he said. The trip will have two business visits and two university visits in each city. They will visit the University College Dublin in Ireland and Hult International Business School in London. The businesses they will visit are yet to be confirmed, Seeger said. “It’s not enough to study about business in a textbook setting; students need to combine what is in the textbook with an actual ‘live’ experience, applying textbook concepts,” he said. “The visits are intended to be dynamic, interactive workshops to push students out of their comfort zone.” Business students need to go abroad because it is likely they will work for major multi-national companies that will not necessarily be U.S. companies, Seeger said. “I think of this trip as an ‘internship,’ a learning laboratory. This trip is a simulation, a way for students to gain the proper mindset and, in turn, learn how to adapt to changes in their environment to remain relevant,” he said. For these trips, the College of Business provides students with scholarships. Jackie Fouse, who earned her bachelor’s, master’s and doctoral degrees at UTA, made a donation to the college which funds scholarships for trips abroad, senior associate dean Greg Frazier said in an email. Fouse spent many years as a senior executive abroad, and she holds the personal growth from experiencing other cultures in high regard, he said. This year, students will receive scholarships between $2,500 and $3,000, he said. “Through her generosity, Jackie wanted to encourage as many students as possible to experience other cultures and business environments,” Frazier said. To make these trips possible, a faculty member speaks to their department chairperson, who then makes the request to the dean for approval, he said. Tanya Smyth-Hogan, finance and economics junior, said in an email that she will be taking the class, and this will be her first study abroad trip. Smyth-Hogan said the cost is manageable, and she’ll be applying for the scholarships to lower the cost. This trip will be beneficial to her because she wants to better her understanding of international trade and foreign economies, she said. “I feel as though studying abroad not only takes you out of your comfort zone, but it forces you to adapt to the country you’re in,” she said. “In order to truly understand what we’re learning in school about international countries, it’s necessary to visit them.” @_BrianLopez10 news-editor.shorthorn@uta.edu

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