Mr. Cope monitors the development of U.S. tax law daily through postings on government websites, daily tax publications, monthly tax journals, tax newsletters, tax conferences and meetings of professionals organizations in New York and Washington. Each month he publishes the Tax Insights Blog, which describes and analyzes significant U.S. tax developments (e.g., judicial decisions, regulations, proposed tax legislation) having cross-border tax consequences. The blog's content should be of interest to U.S. businesses with foreign operations and businesses headquarted outside the United States with U.S. investments or U.S. operations.
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Proposed Regulations Eliminate Foreign Goodwill Exception for Outbound Business Transfers
Proposed regulations published on September 15, 2015 would significantly change a key rule concerning how the incorporation of a foreign branch of a U.S. corporation is taxed. Under regulations issued in 1986 a branch of a U.S. corporation that conducts an active trade or business outside the United States may be incorporated in a foreign corporation and the foreign goodwill associated with that active trade or business may be transferred to the foreign corporation free of U.S. tax. These new proposed regulations seek to expand U.S. taxing jurisdiction by making the transfer of such foreign goodwill and going concern value taxable. In the preamble to the proposed regulations, the Treasury and the IRS state that allowing foreign goodwill to be transferred tax-free would be “inconsistent with the policies of section 367 and sound tax administration.”