Feature

Changing Global Tax Laws: What You Need to Know

November 11, 2015

In the turbulent world of tax, it’s vital to have an experienced copilot. With tax policy changes and reforms coming from every corner of the globe and cross-border government collaboration growing, we partner with you to anticipate new complex issues and devise strategies that advance your business.

Our work is both global and local, covering international and US tax exposures associated with corporate transactions as well as ongoing business operations at a local level. We rank in the top tier in Chambers USA for our tax controversy and tax planning services. Our tax controversy team delivers strategic, practical advice to clients involved in disputes with the IRS and state and local tax authorities. Our lawyers also assist clients proactively by identifying ways to address issues before they become problematic. We work hand-in-hand with our tax planning team to assist in transactional due diligence and to identify potential tax audit and controversy risk exposures, quickly developing strategies to address any issues.

Our work on partnerships and joint ventures is one of the strengths we pride ourselves on. Our team draws on deep roots in partnership taxation; Partners Bill McKee and Will Nelson published the first edition of Federal Taxation of Partnerships and Partners in 1977. Since then, this publication has become the leading treatise on partnership taxation—routinely consulted by tax planners and cited numerous times by courts. Today, our partnership tax lawyers regularly join our corporate and international tax lawyers in forming and operating complex multinational joint ventures that maximize global tax efficiency (learn more about our full roster of integrated tax capabilities).

For guidance on the impact of the new partnership audit regime resulting from recently passed budget legislation (including practical considerations with regard to your current partnership arrangements and new partnerships and joint ventures going forward), read our LawFlash “New Legislation Makes Sweeping Changes Impacting All Partnerships” prepared by tax partners Bill McKee, Will Nelson, Sheri Dillon, and Jennifer Breen.

One of the authors of the LawFlash, Sheri Dillon (a Washington, DC, partner who focuses on federal tax controversy and corporate tax planning matters), took some time to discuss our clients’ “top-of-mind” concerns, and how we assist.




With 2016 on the horizon, what are the top issues clients should be preparing for in the United States and globally?

Within the United States, the last quarter of 2015 has brought significant change with respect to the way the IRS will interact with our clients in the coming years. In September, the IRS Large Business and International Division (LB&I) announced major changes to how it will approach large and midsize businesses. LB&I is moving from reliance upon continuous audits of the largest taxpayers to a more nuanced approach to identifying and addressing compliance risks. Pursuant to this new approach, LB&I will develop and deploy “campaigns” to identify and address key compliance risks. The risk identification that drives this new approach will be largely based upon the use of data analytics drawn from a range of sources. Additionally, this month, President Barack Obama signed into law a bill containing provisions that completely overhaul the procedures for examining partnership returns and collecting resulting deficiencies. These new procedures will impact all partnerships, both large and small.

Globally, the Organization for Economic Cooperation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) action plan will likely have a major impact on multinational corporations. The OECD’s final recommendations were issued in October and comprised 15 different actions on issues such as transfer pricing and related documentation, country-by-country reporting, and cross-border dispute resolution. While the United States has yet to enact BEPS-related legislation, approximately 15 countries have done so already. With the increased reporting mandated by BEPS slated to start in 2017, clients will be spending 2016 preparing for this increased compliance burden.

Given the “sweeping” changes you describe in your recent Law Flash “New Legislation Makes Sweeping Changes Impacting All Partnerships,” what actions should clients be undertaking now?

It is important for our clients that utilize partnerships in their larger organizational structure to understand how this new regime will work. In essence, it limits who has the ability to participate in a partnership examination and makes the current partnership directly liable for any deficiencies, with specific mechanisms for shifting all or a portion of the liability to the specific partners who were partners during the years under examination. Existing partnerships will want to move quickly to review and amend their agreements in anticipation of the changes, and new partnerships will want to consider these rules in current drafting. Purchasers of interests in existing partnerships should consider the possible effect of these rules on their investments and structure the transaction accordingly.  

Given all of the changes at both the federal and global level, how are states reacting, and what will be the impact to our clients?

Similar to the issues faced by the taxing countries at an international level with BEPS, states and taxpayers are also facing situations within the United States where income may be shifted from one state to another through transfer pricing. In recent years, state taxing authorities have begun to take a closer look at transfer pricing at the state level. This can create headaches for a client that has reporting obligations in multiple states as they try to address the differences between separate entity states and combined reporting states and how each state approaches administrative adjustments. This year, the Multistate Tax Commission, an organization of state governments that work with taxpayers to administer tax laws, approved a draft design for the Arm’s Length Adjustment Service (ALAS), which will help states audit transfer pricing arrangements used by multijurisdictional enterprises. While this is still only a proposal, it highlights that the states are looking at this issue and indicates that changes will inevitably follow. Clients should give thought to their state transfer pricing, document the details of all intercompany transactions, and be prepared for more scrutiny on audit.



Accolades:

  • Ranked as a leading firm in Tax: Controversy and Tax: Corporate & Finance categories in Chambers USA (2015).
  • Shortlisted in the Tax – Tax Controversy category of The Legal 500's prestigious United States Awards.
  • Received the “Top Tier Firm” recognitions in Finance – Not-for-profit (nonprofit and tax exempt organizations) and Tax – Tax controversy of The Legal 500 US guide (2015).