United States : IRS updates annual list of international no-ruling areas

January 23, 2014

The US Internal Revenue Service (IRS) has issued Revenue Procedure 2014-7 with its updated list of international tax issues on which it will not accept applications for private letter rulings and determination letters.

Revenue Procedure 2014-7 includes two lists of international no-ruling areas, i.e., (i) areas in which rulings or determination letters will not be issued, and (ii) areas in which rulings or determination letters will “not ordinarily be issued.”

Inclusion of an item on the “not ordinarily be issued” list means that the IRS will not issue a private letter ruling or determination letter on the issue without unique and compelling reasons given by the taxpayer that would justify a ruling or determination letter.

Added to the 2014 list in the ordinarily no-ruling category is the treatment or effects of “hook equity,” as described in section 4.02(11) of Revenue Procedure 2014-3.

For this purpose, “hook equity” means an ownership interest in a business entity (such as stock in a corporation) that is held by another business entity in which at least 50% of the interests (by vote or value) in the latter entity are held directly or indirectly by the former entity.

However, if an entity, directly or indirectly, owns all of the equity interests in another entity, the equity interests in the latter entity are not hook equity.

In other respects, the 2014 lists track the 2013 lists, and include the following no-ruling and ordinarily no-ruling areas:

  • Whether a payment constitutes portfolio interest under section 871(h) of the US Internal Revenue Code (IRC) regarding the US tax exemption on certain portfolio interest received by non-resident foreign individuals
  • Whether a taxpayer is eligible to claim benefits under the limitation on benefits (LOB) provision of a US income tax treaty, except that the IRS may rule with regard to the legal interpretation of a particular provision within an LOB article
  • Whether a foreign individual is a resident or non-resident of the United States, except that the IRS may rule with regard to the legal interpretation of the applicable provisions of IRC section 7701(b) and the Treasury regulations thereunder
  • Issues that are the subject of a pending request for competent authority assistance under a US tax treaty
  • Whether a transferred corporation in a US outbound corporate reorganization that is subject to a gain recognition agreement (GRA) under Treasury regulation section 1.367(a)-8 has disposed of substantially all of its assets, which would constitute a triggering event for the GRA
  • Whether a foreign taxpayer is engaged in a trade or business in the United States, and whether income is effectively connected to a US trade or business
  • Whether a foreign taxpayer has a permanent establishment (PE) in the United States for purposes of a US income tax treaty, and whether income is attributable to a US PE
  • Whether a recipient of payments is, or has been, a resident of a country for purposes of a US income tax treaty, except that the IRS may rule with regard to whether a corporation representing that it is a resident of a country is a qualified resident thereof for purposes of branch profits tax under IRC section 884
  • Whether an entity is treated as fiscally transparent by a foreign jurisdiction for purposes of denying US treaty benefits for certain payments through a hybrid entity under IRC section 894(c) and the Treasury regulations thereunder
  • Whether a foreign levy meets the requirements of a creditable tax or in-lieu-of-tax in the United States for which a foreign tax credit may be claimed
  • Specified issues concerning conduit financing arrangements
  • Whether, in connection with an expatriation transaction under IRC section 7874, a foreign corporation completes the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation or substantially all of the properties constituting a trade or business of a domestic partnership

Revenue Procedure 2014-7 is effective from 2 January 2014.

It has been issued as part of the IRS’s annual series of revenue procedures for obtaining guidance from the IRS National Office with respect to the tax treatment of specific transactions.

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