It seems that one of our favorite topics is back in the news: the sourcing of guarantee fees. As reported in today’s Tax Notes, Robert Driscoll, withholding technical advisor for LMSB, was recently quoted as saying that guarantee fees might not be considered U.S.-source income if the guarantor is a qualified resident of a treaty country. Amy S. Elliott, “Guarantee Fees May Not Be U.S.-Source if Guarantor Resides in Treaty Country, Official Says,” 2010 TNT 215-4 (Nov. 8, 2010). According to the article, discussions within the IRS National Office have suggested that guarantee fees would probably fall under the “other income” article of the relevant treaty and thus would not be considered U.S.-source income in most cases. Id.
Posted tagged ‘guarantee’
The House of Representatives passed, and the President signed into law, H.R. 1586, the “FAA Air Transportation Modernization and Safety Improvement Act,” which curiously became the chosen vehicle for Congress and the Administration to provide assistance to states with budget shortfalls while paying for that assistance with changes in a number of international tax provisions. Text of the final bill is available here; pdf is here. See here for our prior summary of the relevant international tax provisions.
Although the changes are largely similar to what was proposed in earlier legislation, it appears that Congress eliminated a number of earlier proposals from the final bill, including the limitation on distributions in leveraged spin-offs and the repeal of the “boot dividend” rule. Of particular note, Congress eliminated the new sourcing rule that would have treated guarantee fees as U.S.-source income. Earlier this year, the Tax Court held that guarantee fees paid by a U.S. company to its Mexican parent were properly treated as non-U.S. source income and therefore not subject to U.S. withholding taxes. Container Corp. v. Comm’r, 134 T.C. No. 5 (2010). Our prior discussion of the Tax Court opinion is here, with additional commentary here. It remains to be seen whether the removal of this provision reflects a permanent abandonment of the proposal or whether it will reappear in one of the several other legislative vehicles floating through Congress.
By David Shakow
If you haven’t memorized the 433 pages of the latest version of the American Jobs and Closing Tax Loopholes Act of 2010 (undoubtedly named to allow for the euphonious acronym, AJACTLA), you are denying yourself a unique treat. (To get the true flavor, don’t forget the fifteen pages of amendments included with the House passage of the bill on May 28.) We will allow others to give you a full rundown of the 206 sections of the bill and content ourselves with a summary of the highlights.