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Online Home | Site Search | Tax News & Views |Treasury's Proposed Treatment of Foreign Hybrids Defended by LubrickFriday, March 13, 1998 OnLine The Clinton Administration is "on sound ground" in its interpretation of the Internal Revenue Code provisions on controlled foreign corporations in subpart F, Assistant Treasury Secretary Don Lubick (Tax Policy) told a lawyer’s meeting March 13, in his defense of Treasury’s hybrid proposals. In crafting subpart F, Congress "struck a balance" between the need for the U.S. tax code to help businesses remain competitive and the need to prevent the flight of capital from the United States, Lubick said, and the Treasury Department’s foreign-hybrid proposals further these goals. The Treasury’s guidance and legislative proposals on foreign hybrids would eliminate the use of artificial devices to avoid taxation, Lubick told the Federal Bar Association. |
New information will clarify stance Notice 98-11, issued in December 1997, prevents the use of hybrid entities that result in deductions for foreign tax purposes with respect to certain cross-border payments that do not generate subpart F income. Notice 98-5 restricts the use of the foreign tax credit in related transactions. The proposal in President Clinton’s fiscal year 1999 budget directs the Treasury to issue regulations clarifying the tax treatment of hybrids. Regulations on issues addressed under the two notices should be released by the Treasury Department in the short-term, Lubick said. "We are aware that some have criticized the vagueness" of the Treasury’s proposals, and "we intend to get out regulations in the near future" to clarify the situation, the assistant Treasury secretary said. The close examination of foreign hybrids should not be interpreted as an attack on deferral techniques, nor should it be viewed as an attempt to wrest control of legislative authority from Congress, Lubick said. Lubick also said no one should be surprised that the Treasury Department is reviewing the tax treatment of foreign hybrids because the check-the-box regulations warned that such action was planned. Lubick discussed Treasury’s proposal on foreign hybrids while defending other controversial items in the President’s fiscal 1999 budget: taxing exchanges of insurance contracts and reallocations of assets within variable insurance contracts; eliminating the valuation discounts for family-owned businesses: eliminating the Crummey rules; and freezing paired-share real estate investment trusts. Governors Form Internet Task Force: The National Governors’ Association formed an eight governor task force to help craft Internet tax policy and advance the NGA’s Internet tax legislation, which would prohibit new taxes on Internet access and simplify other taxes. The governors support a plan that prohibits any taxes on Internet access, simplifies
collection of sales tax, and eliminates duplicative or discriminatory taxes. The plan
encourages the growth of the Internet while preserving the states’ ability to provide
critical services to their citizens, the NGA said. |
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