
IRS Proposes Comprehensive Updates to Previously Taxed Earnings and Profits Rules | Image Source: Pexels.com
WASHINGTON, D.C., December 6, 2024 – The U.S. Department of Treasury and IRS ​have published long-standing draft regulations on ​the income and ​benefits of foreign corporations, marking the first major update of ​these rules since 1965. This detailed guide, which covers more than 300 pages, provides detailed addresses ​to sections 959 and 961 of ​the ​Code and provides clarification on the complexities arising from the ​Taxation and Employment Act, ​2017.
The proposed ​Regulations are intended to address both old ​and new issues, such as the ​tax treatment ​of foreign associations with controlled stocks ​of foreign companies (CFCs). The current rules do not provide for these ​companies based on section 961, which could result ​in double taxation of the sale of shares. The new Regulation proposes resources and is therefore particularly ​relevant to the partners ​of investment associations and similar entities. ​However, they also pose administrative ​challenges to taxpayers responsible for managing the ​detailed records of the PET accounts and related section 961 bases.
One of the main features of ​the proposed ​rules is the requirement for taxpayers to allocate ​PCEP to various ​shares, ownership chains and shareholders of a consolidated group. While this provides clarity, it could significantly increase the burden of compliance. ​The rules also ​specify several effective dates: some provisions ​apply retroactively to fiscal years ​ending after December ​14, 2018, while others will have a potential effect on the realization. Contributors may choose early application if consistent ​treatment is maintained and if there are open legal years.
The timing of ​regulation coincides with major political changes in Washington. Congress Republicans and the new Trump administration are discussing the use of fiscal reconciliation to promote their legislative priorities, including ​fiscal reforms. According to the reports, the Leader of ​the Majority in the ​Senate, John ​Thune, proposed two reconciliation bills, with tax matters being deferred to ​future legislation. However, the Chair of the House’s ​Media and ​March Committee, Jason Smith, criticized the plan, ​calling for tax reforms to be given priority.
Meanwhile, President-elect Trump has ​proposed key officials to ​establish the financial ​program of his administration. Former MP Billy Long was appointed next IRS Commissioner, ​highlighting ​plans to replace ​current Commissioner Danny Werfel. In addition, Michael Falkender ​was appointed Assistant Secretary ​of the Treasury. These appointments should influence the direction of U.S. tax ​policy in ​the next ​administration.
In another case, the Cyprus Tax Department announced progress in its bilateral agreement with the United States competent authority for the exchange ​of country reports. ​This agreement, which entered into force on 1 January 2024, ​describes the mechanisms applicable to Cypriot entities with the US parent companies. In the financial years ending 31 December 2023, Cypriot entities are required to submit CbC reports at the local level, even though such reports have already ​been submitted to the United States.
The proposed Treasury and IRS regulations on PTEP underline the need for companies to remain vigilant in monitoring legislative and regulatory changes. As policy makers continue to discuss broader fiscal reforms, the ​timing and completion of ​these standards remain uncertain, leaving taxpayers with crucial decisions on early adoption and compliance planning.