President Obama’s Fiscal Year 2014 Revenue Proposals: Proposals Relating to International Taxation

Sullivan & Cromwell LLP - April 15, 2013

On April 10, 2013, the Obama Administration (the “Administration”) released the General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals (commonly known as the “Green Book”). Although the Green Book does not include proposed statutory language, the Green Book contains some explanations of the Administration’s fiscal year 2014 revenue proposals. This memorandum discusses key aspects of the Green Book relating to international taxation that we anticipate may be of interest to our clients. We will be distributing separate memoranda addressing Green Book proposals relating to (1) domestic business taxation, and (2) individual, retirement plans, and estate and gift taxation, both of which may be obtained by following the instructions at the end of this memorandum.

The Green Book’s international proposals would make significant changes in existing law. The proposals relating to international taxation include:

  • exempting foreign pension funds from the application of the Foreign Investment in Real Property Tax Act (FIRPTA);
  • deferring interest deductions related to deferred foreign income;
  • determining foreign tax credit pools on an aggregate basis;
  • currently taxing some types of income from intangible property transferred to offshore related parties and clarifying (or broadening) the definition of intangible property;
  • disallowing deductions for non-taxed reinsurance premiums paid to offshore affiliates;
  • limiting earnings stripping by expatriated entities;
  • modifying the foreign tax credit rules for dual capacity taxpayers;
  • taxing some gain from the sale of a partnership interest as effectively connected to a U.S. trade or business and requiring withholding in certain circumstances;
  • taxing certain leveraged distributions from related foreign corporations;
  • placing additional limits on the use of foreign tax credits in the case of certain asset acquisitions; and
  • removing foreign taxes from the foreign tax pool in the case of certain domestic shareholder corporations when earnings are eliminated from a foreign subsidiary.