Exclusive Q&A on Corporate Tax with Devon M. Bodoh
Have there been any recent regulatory changes or interesting developments?
On November 19, 2015, the US Treasury Department (the “Treasury”) issued Notice 2015-79, describing regulations that the Treasury intends to issue concerning inversion transactions. Specifically, Notice 2015-79 describes regulations that would, when issued, (i) limit the ability of a US corporation (or partnership) to successfully invert, (ii) limit the benefits of certain post-inversion restructuring transactions. Notice 2015-79 also clarifies certain matters in Notice 2014-52, which similarly describes regulations that the Treasury intends to issue concerning inversion transactions. In general, regulations issued pursuant to Notice 2015-79 would be retroactively effective for transactions completed on or after November 19, 2015.
The Protecting Americans from Tax Hikes (“PATH”) Act was enacted in December 2015. The PATH Act made permanent or extended the applicability of certain provisions of the US Internal Revenue Code that had expired after December 31, 2014. The PATH Act also introduced several new provisions, including a provision intended to limit the ability of a corporation to elect status as a real estate investment trust following a spin-off.
How can you determine whether something is considered to be acceptable tax planning, avoidance, aggressive tax avoidance or evasion?
Acceptable tax planning must have solid legal and factual footing. This means working within with the US Internal Revenue Code, Treasury Regulations, administrative guidance, and meeting compliance and reporting requirements. It requires an understanding of judicial interpretation of specific provisions, general principles of tax law, and the legislative purpose behind the statute. It also requires knowing the relevant facts. Taking unnecessary risks, assuming key facts, concealing information, or working outside accepted interpretations of the law: all of these actions will start you down the road of avoidance, aggressive tax avoidance, or evasion.
Generally, informants must provide the US Internal Revenue Service (the “IRS”) with specific and credible information that a taxpayer has violated the tax laws. Provided certain thresholds are met (generally relating to the amounts in dispute), the informant can receive between 15 and 30 percent of the amount collected by the IRS as the result of an administrative or judicial action, depending on the extent to which the informant contributed to such action. There are no other limits on the amount of the award. Even if the thresholds are not met, the IRS may still grant an award, at its discretion. The IRS will generally protect an informant’s identity, but in some situations the informant’s identity must be disclosed (e.g., as a witness in judicial proceedings).
What are the main tax risks and challenges when conducting cross-border M&A?
Cross-border M&A involves a lot of moving parts. The relevant jurisdictions may provide different treatment to entities and shareholders. Although this can be beneficial, it can be difficult finding the right balance between competing legal systems. This balance must not only take into account the immediate transaction, but also the possibility of future restructuring and planning.
Cross-border M&A and, more generally, international taxation have become significant action items for many countries and organizations (e.g., the OECD’s BEPS Project, the EU’s state aid cases). In the US, for example, inversion transactions have been the subject of administrative guidance (e.g., Notice 2015-79 and Notice 2014-52) aimed at making it harder to invert and to engage in post-inversion restructuring transactions. This uncertain environment can make both clients and practitioners hesitant to engage in certain transactions.
At a time when the pace of global recovery is becoming more country-specific, do you believe that close scrutiny of economic data in key markets is increasingly important?
Yes. Investors need to rely on accurate information. Analysis cannot stop at the jurisdiction where the investment is being made. Rather, the analysis has to include industry and key markets, both regional and global. Even if the global recovery is becoming more country-specific, the economic fortunes of the key markets may have profound global effects. Close scrutiny of economic data will allow investors to learn and understand (i) the cause of the slow-down, (ii) the effectiveness of the government’s actions to boost growth, (iii) the temporal nature of the slow-down, and (iv) the effect of the abovementioned factors in other jurisdictions and markets.
Can you outline any R&D incentives in your jurisdiction?
Very generally, the US Internal Revenue Code provides a deduction for research or experimental expenditures. The expenditures eligible for the deduction can be general in nature or project-specific, provided that they are incurred in connection with the taxpayer’s trade or business.
Additionally taxpayers may claim a credit for certain research or experimental expenditures (the “R&D Credit”). The R&D Credit expired at the end of 2014, but was made permanent by the PATH Act.
Devon M. Bodoh is the leader of KPMG International’s Global Complex Transactions group. In addition, Mr. Bodoh is the Principal-in-Charge of KPMG US’s Washington National Tax International M&A Group and the Principal-in-Charge of KPMG US’s Latin America Markets, Tax. Mr. Bodoh is on KPMG’s global leadership group for International Tax and Deal Advisory (M&A) Tax.
Mr. Bodoh advises clients on cross border mergers, acquisitions, inversions, spin-offs, other divisive strategies, restructurings, bankruptcy and non-bankruptcy workouts, the use of net operating losses, foreign tax credits, deficits and other tax attributes, and consolidated return matters.
Devon can be contacted on +1 202-533-5681 or by email at email@example.com