TEI--Treasury Department Office Of Tax Policy liaison meeting minutes.

March 1, 2012

On March 1,2012, a delegation from Tax Executives Institute met with Emily McMahon, Acting Assistant Secretary for Tax Policy, and other officials of the Treasury Department's Office of Tax Policy. The following minutes were prepared by Tax Executives. Although reviewed by the Office of Tax Policy, they have not been formally approved by the Department. The agenda for the meeting was published in the January-February 2012 issue of The Tax Executive and on TEI's website.

Acting Assistant Secretary for Tax Policy Emily McMahon welcomed TEI President David M. Penney and the other members of the delegation from Tax Executives Institute to the liaison meeting. Mr. Penney thanked Ms. McMahon for the opportunity to meet with her and other personnel from the Treasury's Office of Tax Policy.

Pending Legislation

1. Administration's FY 2013 Tax and Budget Proposals

   1. Tax Incentives for Locating Jobs and Business Activity in the United States and Removal of Tax Deductions for Shipping Jobs Overseas

      Referring to the Administration's proposal to disallow deductions for expenses incurred by U.S. companies in connection with outsourcing a U.S. trade or business, Mr. Bernard said the denial of deductions seems at odds with the foundational principle that the federal corporate income tax is generally a net income tax. In addition, he asked, what is a U.S. company for purposes of the proposal (e.g., does it include foreign companies with U.S. operations?); when would a U.S. business be deemed to have outsourced; what constitutes the loss of a "U.S. job"; and how would the proposal once implemented be administered.

      Ms. McMahon replied that the proposal generally would apply to all U.S. taxpayers regardless of ownership, but that its exact application (e.g., to offshore operations controlled by U.S. taxpayers) remains to be worked out. Mr. Mazur acknowledged that the proposal involves difficult "line-drawing"; in the simplest case, it would apply to moving manufacturing equipment from the United States overseas and would clearly not apply where a U.S. taxpayer has the same operations in the United States and overseas and merely expands its overseas operations.

      Mr. Silbiger noted that if the United States were in a recession that results in a domestic business contraction while overseas operations were expanding, the proposal might apply even though there was no intention to "offshore" U.S. jobs. Mr. Mazur acknowledged the concern, adding that a similar issue may arise within a single industry. He said the Administration will work with the tax-writing committees to ensure the proposal meets its policy goals while avoiding unintended consequences.

      Mr. Macfarlane said it would be unclear in as many as 90 percent of the situations whether and how the proposal would apply; for example, how would it apply to temporary U.S. job losses? Mr. Mazur stated that the Administration intends the proposal to apply only to permanent job losses, but acknowledged the measurement of such losses remains an open question. He added that the tax credit for "insourcing" U.S. jobs presents the same measurement and administrative issues, so the problem is symmetrical under the proposal.

   2. Current Taxation of Excess Returns Associated with Transfers of Intangibles Offshore

      Ms. Wielenga referred to the Administration's proposal to create a new category of income under subpart F for excess returns connected with or benefitting from the transfer of U.S. intangible property overseas. She observed that senior executives often ask how the proposal would apply to their company's operations and how excess returns would be identified. Mr. Caballero answered that the proposal is essentially the same as last year; it is intended to broadly apply to outbound intangible transfers in whatever form (e.g., sales, cost-sharing, licenses, etc.). In respect of how to identify an excess return, the question is whether the income earned can be tied back to the exploitation of the transferred intangible.

      Noting that the proposal covers any outbound intangible transfer no matter how long ago they took place, Ms. Wielenga asked if there would be a cutoff date for such transfers. Mr. Caballero acknowledged that the proposal does reach pre-enactment outbound transfers, and that no cutoff date for prior intangible transfers is provided. Apropos the proposal's application being based on the effective tax rate paid in the foreign jurisdiction, Mr. Macfar lane asked whether the rate would be calculated under U.S. or foreign tax principles, noting there may be timing differences that decrease or increase the effective rate. Mr. Caballero responded that the administration appreciates the concern about differing tax bases, and may consider averaging the effective rate over several years; he noted, however, that such an averaging approach would complicate the proposal.

   3. Extension of Section 338(h)(16) to Certain Asset...