William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

Byrnes & Bloink’s TaxFacts Intelligence (September 24, 2020)

Posted by William Byrnes on September 24, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: A couple of COVID-related updates from the IRS. First, we have some guidance on the refundable FFCRA employment tax credits. We also some additional leeway is given on mid-year changes to 401(k), which again may be important if employers have seen the contribution patterns for their plans shift dramatically and are now concerned about being about pass nondiscrimination testing for the year. Both of these are fairly technical issues but may be important issues for employers as we approach the end of the year.

Employers Beware: IRS Guidance on Recapture of Excess FFCRA Employment Tax Credits

The IRS released rules providing for the recapture of refundable employment tax credits under CARES and FFCRA. Form 7200 now allows employees to claim advance payments of any amounts remaining. However, the IRS guidance makes clear that employers are required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due on their employment tax returns. For more information on the credits, visit Tax Facts Online. Read More

Understanding IRS Relief for Safe-Harbor 401(k) Plans

In Notice 2020-52, the IRS provided relief allowing certain safe harbor plans to institute mid-year amendments to reduce or suspend safe harbor contributions. Safe harbor plans generally require employer matching contributions in exchange for exemption from the onerous 401(k) nondiscrimination testing rules. Even when employers are permitted to make changes mid-year, they must provide notice at least 30 days in advance. Under the IRS relief, the IRS clarified that contributions for highly-compensated employees are not safe harbor contributions–so they can always be reduced or suspended. The Notice also allows plan amendments reducing or suspending safe harbor contributions to non-highly compensated employees so long as they are made by August 31, 2020. To learn more about safe harbor plans, visit Tax Facts Online. Read More

Appeals Court Blesses Trump-Era Short-Term Health Insurance Plans

The D.C. Circuit Court of Appeals upheld the joint rule released by the DOL, Treasury and HHS that relaxed restrictions on short-term limited-duration insurance (STLDI) health plans. These plans are not required to satisfy the ACA requirements, including those that govern minimum essential health coverage. For more information on STLDI, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 21, 2020)

Posted by William Byrnes on September 21, 2020


Texas A&M University School of Law’s online wealth and international tax risk management graduate curricula for industry professionals has attracted over 160 enrollment this fall semester. Apply now for courses that begin January 11 spring semester. See the international tax course list by > weekly topic here. <

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: One complication to the FFCRA and FMLA leave changes introduced by the CARES Act is the issue of W-2 reporting. While it’s not front-and-center in everyone’s mind right now, reporting season will come around again before you know it and the IRS has new guidance about how those types of leave should appear on an employee’s W-2. We also see updates on the Section 199A deduction for REIT shareholders and Premium Tax Credit-Related Inflation Adjustments for 2021.

IRS Provides Guidance on W-2 Reporting of FFCRA Paid Sick Leave and Expanded FMLA Leave

The Families First Coronavirus Response Act (FFCRA) requires smaller employers (under 500 employees) to provide paid sick leave and expanded FMLA leave for COVID-19-related reasons. IRS guidance requires W-2 reporting of those payments that provides important clarity for self-employed taxpayers. Self-employed taxpayers can claim a tax credit for FFCRA sick leave amounts. If they receive any FFCRA pay as an employee, they must reduce their credit amount by the amount paid by the employee. Because of this, employers are required to separately state the paid leave portion of employee compensation on their Form W-2, in Box 14. The employer can also report the FFCRA pay on a separate statement included with the employee’s W-2 for 2020. If the W-2 is provided electronically, the separate statement must be provided in the same manner and at the same time. For more information, visit Tax Facts Online. Read More

IRS Final Rules Confirm: RIC Shareholders Receiving REIT Dividends Qualify for 199A Deduction

The IRS released final rules that allow dividends that a RIC shareholder receives from a REIT to qualify for the Section 199A deduction. These REIT dividends qualify for conduit treatment–so they are treated as though the shareholder received them directly. On the other hand, the treatment of qualified PTP income remains uncertain. The law itself states that directly received PTP income is eligible for the 20% deduction, but the IRS has not permitted similar conduit treatment for PTP income. This uncertainty could encourage more investors to invest directly in the PTP. For more information on the treatment of REIT dividends and PTP income in calculating the Section 199A deduction, visit Tax Facts Online. Read More

IRS Releases Premium Tax Credit-Related Inflation Adjustments for 2021

The IRS has released the Affordable Care Act (ACA) premium tax credit-related inflation-adjusted numbers for use in 2021. In 2021, the percentage used to determine whether an individual is eligible for employer-sponsored health insurance that is affordable is 9.83 percent (up from 9.78 percent in 2020). This means that if the individual is required to contribute more than 9.83 percent of his or her household income toward health insurance in 2021, he or she may be eligible for premium tax credit assistance. For more information on determining when health coverage is deemed affordable for ACA purposes, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence (September 17, 2020)

Posted by William Byrnes on September 17, 2020


Texas A&M University School of Law’s online wealth management, international tax risk management, and general risk management graduate curricula for industry professionals has attracted over 160 enrolled for fall semester. Apply now for courses that begin January 11. 

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The big news this week: COVID hardship distributions for qualified plans was one of the headline features of the CARES Act, but Notice 2020-50 was recently released and deals with COVID distributions from nonqualified plans as well. Given the wide variety of nonqualified plans this could present some significant planning opportunities. We also see updates on excess parachute payments and proposed regs that would allow HRAs to reimburse expenses for concierge care, which is an increasingly popular option for many individuals and families..

IRS Guidance Sheds Light on Nonqualified Plan Election Rules

IRS Notice 2020-50 provided substantial guidance on the treatment of coronavirus-related distributions for both qualified and nonqualified plan purposes. With respect to Section 409A and nonqualified plans, the IRS confirmed that such a distribution would be treated as a hardship distribution. This allows nonqualified deferred compensation plans to amend their terms to allow either (1) automatic suspension of the individual’s deferral elections throughout 2020 or (2) the right for qualified individuals to elect to suspend their deferral elections during 2020. For more information on hardship and nonqualified deferred compensation plans, visit Tax Facts Online. Read More

Proposed IRS Regs Clarify Definition of “Excess Parachute Payment” for Tax-Exempt Tax Rules

Tax-exempt entities are subject to a 21 percent tax on excess compensation and excess parachute payments under the 2017 tax reform legislation. The IRS has proposed regulations clarifying that certain payments are exempt from the definition. However, amounts paid by the organization itself, a predecessor or related organization may also be included in the calculation. For more information on the new rules, visit Tax Facts Online. Read More

IRS Proposed Regs Allow HRA Reimbursement for Concierge Care

The IRS proposed regulations on direct primary care arrangements impact the medical expense deduction, availability of HRA reimbursements and eligibility for HSA participation. Under the regulations, a direct primary care arrangement could be used for medical care or medical insurance and could also be reimbursed from an HRA. However, individuals covered by these arrangements would lose eligibility to contribute to an HSA under most circumstances. For more information on the types of expenses that HRAs can cover, visit Tax Facts Online. Read More

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Wealth Management | Tagged: , , , | Leave a Comment »

Leaked OECD Pillar 1 and 2 Blueprints for download

Posted by William Byrnes on September 4, 2020


OECD Leaked Pillar 1 Blue Print (pp 227)

OECD Pillar 2 Leaked Blue Print (pp 257)

This note contains a draft report on the Blueprint of the Pillar One solution expected to be delivered in October. It is distributed to the delegates of the Inclusive Framework for comments. Delegates are invited to coordinate with their teams (delegates in the TFDE and relevant working parties) to provide one consolidated set of comments per jurisdiction.

In response to repeated requests for simplifications from Inclusive Framework members, a number of simplification features were developed and discussed at the last Steering Group meeting in July and subsequently presented to the working parties. These features, which have been included in this Blueprint, have implications across different building blocks (e.g. revenue thresholds,  segmentation and profit allocation).

The draft Blueprint reflects consensus views that emerged from this work as much as possible, but recognises that certain issues, both technical and political, are still pending. There are some elements (e.g. quanta and profitability thresholds) where Inclusive Framework members will make a final decision only as part of an overall political agreement. Chapter 1 contains the executive summary of the Blueprint, and the subsequent chapters describe in more detail each building block (chapters 2 to 10). In addition, a process map illustrating how the new taxing right (Amount A) will apply in practice is provided in Annex A.

 

10 reasons to apply for Texas A&M International Tax — request a brochure here https://info.law.tamu.edu/international-tax  (or apply online https://law.tamu.edu/distance-education/prospective-students/llm-mjur-application)

  1. International Tax courses are limited to 15 students.  Many have 9 – 12 for maximum interaction with the professors and each other in real-time Zoom discussion.  No one is ‘left out’. Everyone has a substantial weekly learning experience.
  2. Courses meet twice weekly on Zoom for 90 minutes (or more) to discuss the case study and the weekly issues, and then students in teams (generally of three) roll play the case study representing a stakeholder interest assigned by the professor/s in the second meeting, ending with a recap discussion of the case study. See an example case study moot on YouTube 
  3. Courses include original authored reading and study materials, original case studies, links to the robust tax library for current articles, analytical materials, and technology/data providers.
  4. Courses include weekly instructor video-lectures and/or audio podcasts.
  5. Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.)
  6. The founder Professor William Byrnes is the pioneer of Online Learning for Legal Education, having initiated the original version of this program in 1994 (see his LinkedIn Group of 27,000+ member network of former students, book subscribers, webinar attendees, and career contacts).
  7. The founder Professor William Byrnes is a leading international tax author with 10 annual treatises published by Lexis and Wolters Kluwer, and three Tax Facts titles by National Underwriter.
  8. Join the Texas A&M Aggie former student network of 500,000+ to open career and social doors (and watch Saturday SEC football games).
  9. 160+ current graduate enrollment for risk management, tax-risk management, and wealth management program.
  10. All students have access to Lexis, Westlaw, Bloomberg Law, Cheetah (formerly Kluwer-CCH), IBFD, Tax Analysts, S&P, BvD-Moodys, Thomson, OECD Library, and hundreds of other information resource providers (check out our university virtual libraries here and here)

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

FALL 2020 Semester (starts Aug 24 and ends Nov 30) 

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights
    • Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation
    • Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation
    • Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application
    • Week 5: Sept 20 Tax Jurisdiction of Entities
    • Week 6: Sept 27 U.S. Tax Reform / Pillar II
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management & Domestic Systems (Inbound) (meet Tuesdays and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 national tax systems in general and inbound diagnostic Dr. Susana Bokobo, former global tax policy director Repsol
    • Week 2 Aug 30 Manuel Tron Mexico as an inbound diagnostic case study (President Emeritus, International Fiscal Association)
    • Week 3 Sept 6 Elis Prendergast (KPMG)
    • Week 4 Sept 13 Carson Le (KPMG)
    • Week 5 Sept 20 Dr. Maji Rhee (Waseda) Japan/Korea as inbound case studies
    • Week 6 Sept 27 Domestic Compliance Risk Matrix Hafiz Choudhury
    • Week 7 capstone of tax data analytics and technology for inbound domestic tax risk management

International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Tax of Business Income (PE, Nexus)
    • Week 2 Oct 18 Tax of Investment Income
    • Week 3: Oct 25 Taxation of Services and Employment Income (including DST)
    • Week 4: Nov 1 Double Taxation and Tax Credits
    • Week 5: Nov 8 Tax Accounting
    • Week 6: Nov 15 Introduction to Management of Tax and Data
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Manufacturing I Dr. Niraja Srinivasan Pillar 1 (Dell Global Tax)
    • Week 2 Oct 18 Manufacturing II (DEMPE & Supply Chain) Niraja Srinivasan
    • Week 3 Oct 25 Manufacturing III (Customs) Niraja Srinivasan
    • Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)
    • Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 7 capstone of tax data analytics and technology for global tax risk management

additional spring and summer courses include: 

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data           Transfer Pricing Risk Management: Intangibles and Services

E.U. Tax Risk Management                                                                                                 U.S. Tax Risk Management

FATCA, CRS, and AEoI (Law, Data, Systems)                                                                    International Tax Risk Management I (Data, Analytics & Technology)   

VAT                                                                                                                                      Customs

 

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Team Based International Tax Case Studies Start August 24th – Apply to Join

Posted by William Byrnes on August 3, 2020


10 reasons to apply for Texas A&M International Tax — request a brochure here https://info.law.tamu.edu/international-tax  (or apply online https://law.tamu.edu/distance-education/prospective-students/llm-mjur-application)

  1. International Tax courses are limited to 15 students.  Many have 9 – 12 for maximum interaction with the professors and each other in real-time Zoom discussion.  No one is ‘left out’. Everyone has a substantial weekly learning experience.
  2. Courses meet twice weekly on Zoom for 90 minutes (or more) to discuss the case study and the weekly issues, and then students in teams (generally of three) roll play the case study representing a stakeholder interest assigned by the professor/s in the second meeting, ending with a recap discussion of the case study. See an example case study moot on YouTube 
  3. Courses include original authored reading and study materials, original case studies, links to the robust tax library for current articles, analytical materials, and technology/data providers.
  4. Courses include weekly instructor video-lectures and/or audio podcasts.
  5. Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.)
  6. The founder Professor William Byrnes is the pioneer of Online Learning for Legal Education, having initiated the original version of this program in 1994 (see his LinkedIn Group of 27,000+ member network of former students, book subscribers, webinar attendees, and career contacts).
  7. The founder Professor William Byrnes is a leading international tax author with 10 annual treatises published by Lexis and Wolters Kluwer, and three Tax Facts titles by National Underwriter.
  8. Join the Texas A&M Aggie former student network of 500,000+ to open career and social doors (and watch Saturday SEC football games).
  9. 160+ current graduate enrollment for risk management, tax-risk management, and wealth management program.
  10. All students have access to Lexis, Westlaw, Bloomberg Law, Cheetah (formerly Kluwer-CCH), IBFD, Tax Analysts, S&P, BvD-Moodys, Thomson, OECD Library, and hundreds of other information resource providers (check out our university virtual libraries here and here)

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

FALL 2020 Semester (starts Aug 24 and ends Nov 30) 

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights
    • Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation
    • Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation
    • Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application
    • Week 5: Sept 20 Tax Jurisdiction of Entities
    • Week 6: Sept 27 U.S. Tax Reform / Pillar II
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management & Domestic Systems (Inbound) (meet Tuesdays and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 national tax systems in general and inbound diagnostic Dr. Susana Bokobo, former global tax policy director Repsol
    • Week 2 Aug 30 Manuel Tron Mexico as an inbound diagnostic case study (President Emeritus, International Fiscal Association)
    • Week 3 Sept 6 Elis Prendergast (KPMG)
    • Week 4 Sept 13 Carson Le (KPMG)
    • Week 5 Sept 20 Dr. Maji Rhee (Waseda) Japan/Korea as inbound case studies
    • Week 6 Sept 27 Domestic Compliance Risk Matrix Hafiz Choudhury
    • Week 7 capstone of tax data analytics and technology for inbound domestic tax risk management

International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Tax of Business Income (PE, Nexus)
    • Week 2 Oct 18 Tax of Investment Income
    • Week 3: Oct 25 Taxation of Services and Employment Income (including DST)
    • Week 4: Nov 1 Double Taxation and Tax Credits
    • Week 5: Nov 8 Tax Accounting
    • Week 6: Nov 15 Introduction to Management of Tax and Data
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Manufacturing I Dr. Niraja Srinivasan Pillar 1 (Dell Global Tax)
    • Week 2 Oct 18 Manufacturing II (DEMPE & Supply Chain) Niraja Srinivasan
    • Week 3 Oct 25 Manufacturing III (Customs) Niraja Srinivasan
    • Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)
    • Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 7 capstone of tax data analytics and technology for global tax risk management

additional spring and summer courses include: 

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data           Transfer Pricing Risk Management: Intangibles and Services

E.U. Tax Risk Management                                                                                                 U.S. Tax Risk Management

FATCA, CRS, and AEoI (Law, Data, Systems)                                                                    International Tax Risk Management I (Data, Analytics & Technology)   

VAT                                                                                                                                      Customs

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Byrnes & Bloink’s TaxFacts Intelligence Weekly (Wednesday July 22, 2020)

Posted by William Byrnes on July 22, 2020


Texas A&M University School of Law has launched its online international tax risk management graduate curricula for industry professionals.  Apply now for courses that begin August 23: International Tax Risk Management, Data, and Analytics; International Tax & Tax Treaties (complete list here

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

 

The big news this week is the DOL’s new rules on fiduciary exemptions for rollover transactions. This plus the SEC’s Reg BI is starting to fill in the gaps for fiduciary rules since the DOL’s original Obama-era fiduciary rules were mostly invalidated through litigation. We also see new rules for COVID-related distributions and loans from qualified plans.

DOL Fiduciary Exemption: Application to Rollover Transactions

The new DOL proposed exemption for fiduciary advice specifically applies to rollover advice, assuming the circumstances qualify under the five-part test for determining whether the advisor is an investment advice fiduciary. However, the DOL commentary included with the proposed exemption makes clear that not every rollover triggers investment advice fiduciary status. For more information, visit Tax Facts Online. Read More

New Regs on Tax-Exempt Excise Tax Create Exceptions for Certain Individuals Performing Limited Services

To encourage continued volunteer work and avoid double-taxation, the proposed regulations contain some useful exceptions. An individual will not be subject to the 21 percent excise tax if the limited hours exception or non-exempt funds exception applies. For more information on the new exceptions, visit Tax Facts Online. Read More

Expanded Eligibility for CARES Act Retirement Distribution and Loan Relief
The IRS has expanded the list of individuals who qualify under the expanded distribution and loan rules to include anyone whose pay was reduced due to COVID-19 (regardless of whether hours were reduced or whether the individual was laid off). If a taxpayer was planning to start a new job and the start date was pushed back (or the offer was rescinded entirely) due to COVID-19, that taxpayer also qualifies for relief. Further, if a spouse or member of the plan participant’s household has suffered an enumerated impact, the participant becomes eligible for the expanded retirement account access. For more information, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation | Tagged: | Leave a Comment »

EU General Court of Justice invalidates the adequacy of the protection provided by the EU-US Data Protection Shield

Posted by William Byrnes on July 21, 2020


The Court of Justice invalidates Decision 2016/1250 on the adequacy of the protection provided by the EU-US Data Protection Shield However, it considers that Commission Decision 2010/87 on standard contractual clauses for the transfer of personal data to processors established in third countries is valid. The General Data Protection Regulation (‘the GDPR’) provides that the transfer of such data to a third country may, in principle, take place only if the third country in question ensures an adequate level of data protection. According to the GDPR, the Commission may find that a third country ensures, by reason of its domestic law or its international commitments, an adequate level of protection. In the absence of an adequacy decision, such transfer may take place only if the personal data exporter established in the EU has provided appropriate safeguards, which may arise, in particular, from standard data protection clauses adopted by the Commission, and if data subjects have enforceable rights and effective legal remedies. Furthermore, the GDPR details the conditions under which such a transfer may take place in the absence of an adequacy decision or appropriate safeguards.

Maximillian Schrems, an Austrian national residing in Austria, has been a Facebook user since 2008. As in the case of other users residing in the European Union, some or all of Mr Schrems’s personal data is transferred by Facebook Ireland to servers belonging to Facebook Inc. that are located in the United States, where it undergoes processing. Mr Schrems lodged a complaint with the Irish supervisory authority seeking, in essence, to prohibit those transfers. He claimed that the law and practices in the United States do not offer sufficient protection against access by the public authorities to the data transferred to that country. That complaint was rejected on the ground, inter alia, that, in Decision 2000/5205 (‘the Safe Harbour Decision’), the Commission had found that the United States ensured an adequate level of protection. In a judgment delivered on 6 October 2015, the Court of Justice, before which the High Court (Ireland) had referred questions for a preliminary ruling, declared that decision invalid (‘the Schrems I judgment’).

Following the Schrems I judgment and the subsequent annulment by the referring court of the decision rejecting Mr Schrems’s complaint, the Irish supervisory authority asked Mr Schrems to reformulate his complaint in the light of the declaration by the Court that Decision 2000/520 was invalid. In his reformulated complaint, Mr Schrems claims that the United States does not offer sufficient protection of data transferred to that country. He seeks the suspension or prohibition of future transfers of his personal data from the EU to the United States, which Facebook Ireland now carries out pursuant to the standard data protection clauses set out in the Annex to Decision 2010/87. Taking the view that the outcome of Mr Schrems’s complaint depends, in particular, on the validity of Decision 2010/87, the Irish supervisory authority brought proceedings before the High Court in order for it to refer questions to the Court of Justice for a preliminary ruling. After the initiation of those proceedings, the Commission adopted Decision 2016/1250 on the adequacy of the protection provided by the EU-U.S. Privacy Shield (‘the Privacy Shield Decision’).

By its request for a preliminary ruling, the referring court asks the Court of Justice whether the GDPR applies to transfers of personal data pursuant to the standard data protection clauses in Decision 2010/87, what level of protection is required by the GDPR in connection with such a transfer, and what obligations are incumbent on supervisory authorities in those circumstances. The High Court also raises the question of the validity both of Decision 2010/87 and of Decision 2016/1250.

In today’s judgment, the Court of Justice finds that examination of Decision 2010/87 in the light of the Charter of Fundamental Rights has disclosed nothing to affect the validity of that decision. However, the Court declares Decision 2016/1250 invalid.

The Court considers, first of all, that EU law, and in particular the GDPR, applies to the transfer of personal data for commercial purposes by an economic operator established in a Member State to another economic operator established in a third country, even if, at the time of that transfer or thereafter, that data may be processed by the authorities of the third country in question for the purposes of public security, defence and State security. The Court adds that this type of data processing by the authorities of a third country cannot preclude such a transfer from the scope of the GDPR.

Regarding the level of protection required in respect of such a transfer, the Court holds that the requirements laid down for such purposes by the GDPR concerning appropriate safeguards, enforceable rights and effective legal remedies must be interpreted as meaning that data subjects those personal data are transferred to a third country pursuant to standard data protection clauses must be afforded a level of protection essentially equivalent to that guaranteed within the EU by the GDPR, read in the light of the Charter. In those circumstances, the Court specifies that the assessment of that level of protection must take into consideration both the contractual clauses agreed between the data exporter established in the EU and the recipient of the transfer established in the third country concerned and, as regards any access by the public authorities of that third country to the data transferred, the relevant aspects of the legal system of that third country.

Regarding the supervisory authorities’ obligations in connection with such a transfer, the Court holds that, unless there is a valid Commission adequacy decision, those competent supervisory authorities are required to suspend or prohibit a transfer of personal data to a third country where they take the view, in the light of all the circumstances of that transfer, that the standard data protection clauses are not or cannot be complied with in that country and that the protection of the data transferred that is required by EU law cannot be ensured by other means, where the data exporter established in the EU has not itself suspended or put an end to such a transfer.

Next, the Court examines the validity of Decision 2010/87. The Court considers that the validity of that decision is not called into question by the mere fact that the standard data protection clauses in  that decision do not, given that they are contractual in nature, bind the authorities of the third country to which data may be transferred. However, that validity, the Court adds, depends on whether the decision includes effective mechanisms that make it possible, in practice, to ensure compliance with the level of protection required by EU law and that transfers of personal data pursuant to such clauses are suspended or prohibited in the event of the breach of such clauses or it being impossible to honour them. The Court finds that Decision 2010/87 establishes such mechanisms. In that regard, the Court points out, in particular, that that decision imposes an obligation on a data exporter and the recipient of the data to verify, prior to any transfer, whether that level of protection is respected in the third country concerned and that the decision requires the recipient to inform the data exporter of any inability to comply with the standard data protection clauses, the latter then being, in turn, obliged to suspend the transfer of data and/or to terminate the contract with the former.

Lastly, the Court examines the validity of Decision 2016/1250 in the light of the requirements arising from the GDPR, read in the light of the provisions of the Charter guaranteeing respect for private and family life, personal data protection and the right to effective judicial protection. In that regard, the Court notes that that decision enshrines the position, as did Decision 2000/520, that the requirements of US national security, public interest and law enforcement have primacy, thus condoning interference with the fundamental rights of persons whose data are transferred to that third country. In the view of the Court, the limitations on the protection of personal data arising from the domestic law of the United States on the access and use by US public authorities of such data transferred from the European Union to that third country, which the Commission assessed in Decision 2016/1250, are not circumscribed in a way that satisfies requirements that are essentially equivalent to those required under EU law, by the principle of proportionality, in so far as the surveillance programmes based on those provisions are not limited to what is strictly necessary. On the basis of the findings made in that decision, the Court pointed out that, in respect of certain surveillance programmes, those provisions do not indicate any limitations on the power they confer to implement those programmes, or the existence of guarantees for potentially targeted non-US persons. The Court adds that, although those provisions lay down requirements with which the US authorities must comply when implementing the surveillance programmes in question, the provisions do not grant data subjects actionable rights before the courts against the US authorities.

As regards the requirement of judicial protection, the Court holds that, contrary to the view taken by the Commission in Decision 2016/1250, the Ombudsperson mechanism referred to in that  decision does not provide data subjects with any cause of action before a body which offers guarantees substantially equivalent to those required by EU law, such as to ensure both the
independence of the Ombudsperson provided for by that mechanism and the existence of rules empowering the Ombudsperson to adopt decisions that are binding on the US intelligence services. On all those grounds, the Court declares Decision 2016/1250 invalid.

JUDGMENT OF THE COURT (Grand Chamber) 16 July 2020 (*)

In Case C‑311/18,

REQUEST for a preliminary ruling under Article 267 TFEU from the High Court (Ireland), made by decision of 4 May 2018, received at the Court on 9 May 2018, in the proceedings

Data Protection Commissioner v Facebook Ireland Ltd, Maximillian Schrems, intervening parties: The United States of America, Electronic Privacy Information Centre, BSA Business Software Alliance Inc.Digitaleurope,

EDPS Statement following the Court of Justice ruling in Case C-311/18 Data Protection Commissioner v Facebook Ireland Ltd and Maximilian Schrems (“Schrems II”)

he EDPS welcomes that the Court of Justice of the European Union, in its landmark Grand Chamber judgment of 16 July 2020reaffirmed the importance of maintaining a high level of protection of personal data transferred from the European Union to third countries. The EDPS will continue to strive, as a member of the European Data Protection Board (EDPB), to achieve the necessary coherent approach among the European supervisory authorities in the implementation of the EU framework for international transfers of personal data.

This is the second time in almost 5 years that a European Commission adequacy decision concerning the United States is invalidated by the Court. In its judgement, the Court confirmed the criticisms of the Privacy Shield repeatedly expressed by the EDPS and the EDPB. European supervisory authorities will advise the Commission on any future adequacy decisions, in line with the interpretation of the General Data Protection Regulation (GDPR) provided by the Court.

In the meantime, particularly since the entry into force of the GDPR, a growing number of data protection and privacy laws have been adopted worldwide, including the new Convention 108+ adopted by the Council of Europe. The protection of personal data requires actionable rights for everyone, including before independent courts. It is more than a “European” fundamental right – it is a fundamental right widely recognised around the globe. Against this background, the EDPS trusts that the United States will deploy all possible efforts and means to move towards a comprehensive data protection and privacy legal framework, which genuinely meets the requirements for adequate safeguards reaffirmed by the Court.

The EDPS notes that the Court, while in principle confirming the validity of Standard Contractual Clauses (SCC), provided welcomed clarifications regarding the responsibilities of controllers and European DPAs to take into account the risks linked to the access to personal data by the public authorities of third countries. European supervisory authorities have the duty to diligently enforce the applicable data protection legislation and, where appropriate, to suspend or prohibit transfers of data to a third country. As the supervisory authority of the EU institutions, bodies, offices and agencies, the EDPS is carefully analysing the consequences of the judgment on the contracts concluded by EU institutions, bodies, offices and agencies. The example of the recent EDPS’ own-initiative investigation into European institutions’ use of Microsoft products and services confirms the importance of this challenge.

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10 reasons to apply for Texas A&M International Tax Risk Management

Posted by William Byrnes on July 16, 2020


— request a brochure https://info.law.tamu.edu/international-tax  

  1. International Tax courses are limited to 15 students. Many have 9 – 12 for maximum interaction with the professors and each other in real-time Zoom discussions. No one is ‘left out’. Everyone has a substantial weekly learning experience.
  2. Courses meet twice weekly on Zoom for 90 minutes (or more) to discuss the case study and the weekly issues, and then students in teams (generally of three) roll play the case study representing a stakeholder interest assigned by the professor/s in the second meeting, ending with a recap discussion of the case study. See an example weekly case study moot on YouTube 
  3. Courses include bespoke authored textbooks and study materials and original case studies by the faculty.
  4. Courses include bespoke authored weekly video-lectures and/or audio podcasts by the faculty.
  5. All students have access to Lexis, Westlaw, Bloomberg LawCheetah (formerly Kluwer-CCH), IBFDTax AnalystsS&PBvD-MoodysThomsonOECD Library, and hundreds of other information resource providers (check out our university virtual libraries here and here)
  6. Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.)
  7. The founder Professor William Byrnes is the pioneer of Online Learning for Legal Education, having initiated the original version of this program in 1994 (see his LinkedIn Group of 27,000+ member network of former students, book subscribers, webinar attendees, and career contacts).
  8. The founder Professor William Byrnes is a leading international tax author with 10 annual treatises published by Lexis and Wolters Kluwer, and three Tax Facts titles by National Underwriter. See his list of publications and over 1,100 media tax articles here.
  9. Join the Texas A&M Aggie former student network of 500,000+ to open career and social doors (and watch Saturday SEC football games) with Aggie Clubs throughout 100 countries in major cities.
  10. 160+ graduate students currently enrolled for risk management, tax-risk management, and wealth management program, many with 10+ years experience, to build your career network today.

 

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

 

International Tax & Tax Treaties I: Residency                                                                    International Tax & Tax Treaties I: Source    

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data           Transfer Pricing Risk Management: Intangibles and Services

E.U. Tax Risk Management                                                                                                 U.S. Tax Risk Management

FATCA, CRS, and AEoI (Law, Data, Systems)                                                                     International Tax Risk Management & Domestic Systems (Inbound)

International Tax Risk Management I (Data, Analytics & Technology)                         International Tax Risk Management II (Data, Analytics & Technology)

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Byrnes & Bloink’s TaxFacts Intelligence Special Edition for July 15, 2020 – Tax Filing and Tax Payments Due Today

Posted by William Byrnes on July 15, 2020


Texas A&M University School of Law has launched its online international tax risk management graduate curricula for industry professionals.  Apply now for courses that begin August 23: International Tax Risk Management, Data, and Analytics; International Tax & Tax Treaties (complete list here

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

 

Back in April we sent out a special newsletter detailing all of the COVID-related tax changes that we had made to Tax Facts Online content up to that point. Not surprisingly, we have continued to see significant changes since then. This week we’re back with a second special newsletter detailing the changes that we have seen since April. Below are all of the changes made that are related to the Families First Coronavirus Response Act, the CARES Act (including the PPP program), and various regulations from the IRS and DOL. As always, log into Tax Facts Online for the full text of these updates and many others.

Families First Coronavirus Response Act: FFCRA Exemption for Very Small Business Clients

Generally, business owners with fewer than 50 employees can claim an exemption from the paid sick leave and expanded FMLA law if they can show that payment would jeopardize their business as a going concern. DOL FAQ have provided new details, which substantially narrow the availability of the exemption. To qualify, the employee must be taking leave to care for children because of COVID-19 and must satisfy one of three possible criteria to demonstrate that paid leave would jeopardize the business. The three conditions are: (1) providing leave would result in the small business expenses and financial obligations exceeding available business revenues, causing the business to stop operating at minimal capacity, (2) absence of the employee requesting leave would result in a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or (3) there are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee requesting paid leave, and these labor or services are needed for the small business to operate at a minimal capacity. For more information on the FFCRA paid leave requirements, visit Tax Facts Online. Read More

Families First Coronavirus Response Act: DOL FAQ Clarify Concurrent Use of FFCRA Leave

The FFCRA implemented a new paid sick leave law and expanded FMLA leave options for employees impacted by COVID-19. Many employers have independent policies in place that provide employees with leave options, and the DOL regulations raised questions about when the employer can require the employee to use that leave prior to, or concurrently with, FFCRA leave. Employers cannot require employees to use leave concurrently during the first two weeks of paid sick leave for non-childcare related reasons. Employers can, under some circumstances, require use of employee leave concurrently with expanded FMLA leave for childcare reasons. Employers are only eligible for tax credits with respect to leave paid out under the new law. If the employer requires the employee to use otherwise available employer-paid leave, the tax credit is unavailable with respect to that portion of the employee’s pay. For more information, visit Tax Facts Online. Read More

Families First Coronavirus Response Act: Employee Rights after FFCRA Leave

Employers are generally prohibited from retaliating against employees to take paid sick leave or expanded FMLA leave under the FFCRA. However, the law does not protect employees from layoffs or furloughs undertaken for other reasons, such as the general economic downturn. Exceptions exist for key employees and very small employers with fewer than 25 employees. The exception allows employers to refuse returning the employee to work in the same position if the employee took leave for childcare-related reasons, and all four of the following hardship conditions exist: (1) the position no longer exists due to economic or operating conditions that affect employment and due to COVID-19 related reasons during the period of leave; (2) the employer makes reasonable efforts to restore the employee to the same or an equivalent position; (3) the employer makes reasonable efforts to contact the employee if an equivalent position becomes available; and (4) the employer continues to make reasonable efforts to contact the employee for one year beginning either on the date the leave related to COVID-19 reasons concludes, or the date 12 weeks after the leave began, whichever is earlier. For more information on the FFCRA, visit Tax Facts Online. Read More

Families First Coronavirus Response Act: Moving to Reopen, Employers Begin Evaluating FFCRA Leave Provisions

Now that many more employers are beginning to evaluate whether to reopen as governments relax restrictions, those who have been closed for upwards of two months will have to evaluate whether they must provide paid leave under the FFCRA as COVID-19 continues to spread. The FFCRA paid sick leave and expanded FMLA provisions only applied to employers who continued to operate in the wake of the pandemic–employees who were simply laid off or furloughed were required to seek unemployment benefits. Upon first glance, the new paid leave requirements under the FFCRA seem to provide 12 weeks of paid time off for most small business employees. However, the benefit triggers differ depending on whether the employee is claiming (1) 80 hours paid sick leave or (2) expanded relief under the FMLA. For more information on the benefit triggers, visit Tax Facts Online. Read More

Families First Coronavirus Response Act and CARES Act: Qualifying Healthcare Expenses Eligible for Tax Credits Even for Furloughed Employees

The FFCRA and CARES Act each provide tax credits for employers who continue to pay employee wages through 2020. The amount of wages paid also includes qualifying health expenses that the employer pays on the employee’s behalf. Qualifying health expenses are amounts paid by the employer to maintain a group health plan if the amounts would be excluded from employees’ income under IRC Section 106(a). These expenses should generally be prorated between employees and based on the periods of coverage relating to the payment of wages. Health insurance plans, prescription drug plans, dental and vision plans, health FSAs, HRAs and most employee assistance plans should all qualify. Additionally, the IRS has confirmed that employers can claim the tax credits for qualified healthcare expenses, regardless of whether the employee is paid qualified wages during the same timeframe. As a result, employers who have furloughed employees, but continue to cover healthcare expenses, can claim a tax credit for those expenses. For more information, visit Tax Facts Online. Read More

CARES Act: Telehealth Coverage and HDHP/HSA Eligibility

In response to the evolving COVID-19 pandemic, the CARES Act further expands the pre-deductible services high deductible health plans (HDHPs) may offer. HDHPs are now permitted to cover the cost of telehealth services without cost to participants before the HDHP deductible has been satisfied. HDHPs providing telehealth coverage do not jeopardize their status as HDHPs. Plan members similarly retain the right to fund HSAs after taking advantage of cost-free telehealth services. Under normal rules, HDHPs cannot waive costs for anything other than certain preventative services without jeopardizing HDHP status. Remote health services can be provided under a safe harbor rule through December 31, 2021. For more information on the HDHP qualification rules, visit Tax Facts Online. Read More

CARES Act: Bonus Depreciation Fix, Amended Returns for Partnerships

The CARES Act provided retroactive relief to partnerships on multiple fronts, including by fixing the so-called “retail glitch” to allow businesses to take advantage of 100% bonus depreciation on qualified improvement property through 2022. Existing law may have prevented partnerships from filing amended Forms 1065 and Schedules K-1. Instead, partnerships would have been required to file an administrative adjustment request, so that partners would not have received relief until filing returns for the current tax year. Revenue Procedure 2020-23 allows partnerships to file amended returns and issue revised Schedules K-1 for 2018 and 2019 to take advantage of retroactive CARES Act relief (and, absent further guidance, even if they are not taking advantage of CARES Act relief). The relief applies for 2018 and 2019 as long as the original Forms 1065 and Schedules K-1 were filed/issued before April 13, 2020 (the date Rev. Proc. 2020-23 was released). Partnerships can file amended Form 1065 and Schedule K-1 (electronically or by mail), by checking the Form 1065 “amended return” box and writing “FILED PURSUANT TO REV PROC 2020-23” at the top. The same statement must be included in a statement attached to amended Schedules K-1 sent to partners. The amended returns must be filed/furnished to partners by September 30, 2020. For more information, visit Tax Facts Online. Read More

CARES Act: IRS Guidance on Business Interest Elections

The IRS gives businesses substantial flexibility in making and revoking elections related to business interest expense deductions under the CARES Act. A taxpayer may elect under Section 163(j)(10)(A)(iii) not to apply the 50 percent ATI limitation for a 2019 or 2020 taxable year (2020 only for partnerships). A taxpayer permitted to make the election makes the election not to apply the 50 percent ATI limitation by timely filing a federal income tax return or Form 1065 (or amendments) using the 30 percent ATI limitation. No formal statement is required to make the election. The taxpayer can then later revoke that election by filing an amended return or form. Similarly, to use 2019 ATI for 2020, the taxpayer merely files using 2019 ATI (and can then later revoke that election by filing a timely amended return or form). For more information, visit Tax Facts Online. Read More

CARES Act: IRS Allows Corporations to Use Prior Year AMT Credits Retroactively
The 2017 Tax Act generally repealed the corporate AMT, but also permitted corporations to continue claiming a minimum credit for prior year AMT paid. The credit can generally be carried forward to offset corporate tax liability in a later year. The CARES Act eliminates certain limitations that applied to the carryover provision, so that corporations can claim refunds for their unused AMT credits for the first tax year that began in 2018 (i.e., the corporation can take the entire amount of the refundable credit for 2018). The corporation must submit the application for refund before December 31, 2020 and, for convenience, the IRS has institutes a fax procedure for both AMT credit and NOL refund purposes. For more information, visit Tax Facts Online. Read More

CARES Act: Relief for Qualified Plan Loans
The CARES Act relaxed the rules to provide relief for qualified plan participants with existing plan loans. If a participant had an existing plan loan with a repayment obligation falling between March 27 and December 31, 2020, that repayment obligation was extended for one year. Any subsequent repayment obligations are to be adjusted to reflect this extension. For plan participants who are “qualifying individuals,” the plan loan limits were increased to the greater of $100,000 or 100% of the vested balance in the participant’s account. For more information, visit Tax Facts Online. Read More

CARES Act: Expanded Charitable Donation Deduction for 2020
The CARES Act made several changes designed to encourage charitable giving during the COVID-19 outbreak. For the 2020 tax year, the CARES Act amended IRC Section 62(a), allowing taxpayers to reduce adjusted gross income (AGI) by $300 worth of charitable contributions made in 2020 even if they do not itemize. Under normal circumstances, taxpayers are only permitted to deduct cash contributions to charity to the extent those donations do not exceed 60% of AGI (10% for corporations). The CARES Act lifts the 60% AGI limit for 2020. Cash contributions to public charities and certain private foundations in 2020 are not subject to the AGI limit. Individual taxpayers can offset their income for 2020 up to the full amount of their AGI, and additional charitable contributions can be carried over to offset income in a later year (the amounts are not refundable). The corporate AGI limit was raised to 25% (excess contributions also carry over to subsequent tax years). For more information, visit Tax Facts Online. Read More

CARES Act: IRS Releases Initial Q&A on Qualified Plan Loan & Distribution Provisions
The IRS released the first Q&A in what is likely to be a series of guidance on the CARES Act retirement-related provisions. One overarching issue is the IRS confirmation that plan sponsors can rely upon past guidance issued in response to Hurricane Katrina in 2005 and the RMD waiver in 2009 for help implementing the CARES Act provisions. Under initial guidance, individuals are only eligible for COVID-19 related distributions or loans if they themselves are impacted (qualification cannot currently be based on a spouse or dependent’s job loss). The Q&A also clarifies that increased loan limits are currently available between March 27, 2020 and September 22, 2020. Further, the guidance confirms that the loan and distribution relief is optional for plan sponsors–and sponsors can elect to adopt one provision and not another (including the loan repayment option). For more information on the CARES Act loan provisions, visit Tax Facts Online. Read More

CARES Act: Calculating Qualified Plan Loans and the One-Year Look-back Rule

The CARES Act allows plan sponsors to double the qualified plan loan limit for qualified individuals. Plan loans made between March 27, 2020 and September 23, 2020 are limited to the lesser of (1) $100,000 or (2) 100% of the participant’s vested account balance. Despite this, even if the individual is qualified, plan sponsors must remain aware of the one-year look-back rule. IN reality, the $100,000 limit is reduced by the excess of the employee’s highest outstanding plan loan balance during the one-year period ending on the day before the loan is made, over the employee’s outstanding balance of any plan loan on the date the loan is made (this calculation also includes loans from any other plans maintained by the employer or member of a controlled group). For more information on the qualified plan loan rules, visit Tax Facts Online. Read More

CARES Act: IRS Waives Physical Presence Requirement for Spousal Consent to Participant Benefit Elections

IRC Section 417 generally requires spousal consent to a waiver of a qualified joint and survivor annuity (QJSA), which includes the waiver of a QJSA as part of a participant’s request for a plan distribution or a plan loan (the availability of which were expanded under the CARES Act). The spousal consent must generally be witnessed by a plan representative or notary public in person (the physical presence requirement). Notice 2020-42 provides relief in permitting remote electronic notarization executed via live auto-video technology that satisfies any state-level requirements that apply to a notary public. The relief in Notice 2020-42 applies to any participant election that requires a signature to be witnessed in the physical presence of a plan representative or notary in 2020. For more information on spousal consent requirements, visit Tax Facts Online. Read More

CARES Act: IRS Expands RMD Waiver Relief for 2020

The CARES Act waived all RMD requirements for 2020. Despite this, the law was enacted after some taxpayers had already taken their 2020 RMDs early in the year. For those who took RMDs very early in the year, the 60-day rollover period had already expired. In response, the IRS announced that anyone who took a 2020 RMD is eligible to roll the funds back into their account penalty-free. The 60-day rollover period was extended through August 31, 2020, so clients still have only a limited amount of time in which to act. Further, the rollover does not count toward the otherwise applicable “one rollover per 12-month period” rule or the restriction on rollovers for inherited IRAs. For more information on the RMD rules, visit Tax Facts Online. Read More

Payroll Protection Program: Defining “Payroll Costs” for PPP

Taxpayers with fewer than 500 employees are eligible for new “payroll protection loans” administered via the Small Business Administration. In general, the loans may be forgiven (and amounts excluded from income for tax purposes) if used to cover payroll costs, which are defined in the CARES Act to include the sum of (A) payments of any compensation with respect to employees that is (1) salary, wage, commission, or similar compensation, (2) payment of cash tip or equivalent, (3) payment for vacation, parental, family, medical, or sick leave, (4) allowance for dismissal or separation, (5) payment required for the provisions of group health care benefits, including insurance premiums, (6) payment of any retirement benefit or (7) payment of State or local tax assessed on the compensation of employees; and (B) the sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation that is not more than $100,000 in one year, as prorated for the covered period. Payroll costs exclude (1) compensation of an individual employee over $100,000 per year, as prorated for the covered period, (2) taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period, (3) any compensation of an employee whose principal place of residence is outside of the United States, (4) qualified sick leave wages for which a credit is allowed under the FFCRA or (5) qualified family leave wages for which a credit is allowed under the FFCRA. For more information, visit Tax Facts Online. Read More

Payroll Protection Program: The Finer Points of PPP Loan Forgiveness

Loan forgiveness offers powerful assistance to those small businesses who were actually able to receive Paycheck Protection Program loan funds. However, loan forgiveness is not without its costs. While amounts forgiven will not be included in income under the usual cancellation of indebtedness rules, business owners may not be entitled to their typical business deductions either. Notice 2020-32 clarifies that otherwise allowable deductions are disallowed if the payment of the expense (1) results in loan forgiveness under the PPP loan program and (2) the income associated with the loan forgiveness is excluded from income under CARES Act Section 1106(i). Although legislation proposed in Congress may change this result, small business clients should pay close attention to the potential future tax impact of loan forgiveness. For more information on implications of loan forgiveness, visit Tax Facts Online. Read More

Payroll Protection Program: Guidance on PPP Eligibility

The Treasury has updated its guidance related to the CARES Act Paycheck Protection Program (PPP) loan forgiveness requirements. The Treasury now notes that most companies with adequate sources of alternative liquidity are likely not eligible for the program. In order to qualify for the loans, PPP borrowers are now required to provide a good faith certification stating that current economic conditions and uncertainty make the loan necessary to support ongoing operations. While Treasury calls out public companies with substantial market value and access to the capital markets specifically, the guidance could also impact businesses who have adequate alternative liquidity to support operations. PPP borrowers who find they cannot make the certification in good faith are permitted to return the funds. For more information on the PPP loan rules, visit Tax Facts Online. Read More

Payroll Protection Program: Increased Flexibility for PPP Recipients

PPP loan forgiveness is determined based on how the small business client spent the loan proceeds. Under the PPPFA, at least 60% of the loan must be used for payroll costs (this 60% threshold was reduced from 75% under the CARES Act). Under the terms of the CARES Act, amounts used to cover eligible expenses could be forgiven if used during the eight-week period following the loan origination date. The PPPFA extended the eight-week period to 24 weeks from the date the lender made the first loan payment to the small business owner. Unless Congress acts again, the funds must all be spent by December 31, 2020 in order to be eligible for forgiveness. The amount forgiven can also be reduced if the employer made certain staffing cuts or cut employee compensation levels. The PPPFA gives employers until December 31, 2020 to bring workers back to work/restore wage levels and continue to qualify for loan forgiveness (extended from prior law, which set the deadline at June 30)). Read More

IRS, DOL Announce Extension of COBRA Election Period

Under normal circumstances, an individual has 60 days from the date when a COBRA qualifying event occurs to elect COBRA coverage (or make a new COBRA election). In light of the COVID-19 outbreak, the IRS and DOL have announced an extension of this 60-day window. The 60-day election window is essentially paused for relevant time periods that include March 1, 2020. The clock is stopped and will not resume until the end of the “outbreak period”. The outbreak period is defined as the window of time beginning March 1, 2020 and ending 60 days after the date that the COVID-19 national emergency is declared ended. The 45-day payment clock and 30-day grace period for late COBRA payments are also paused. For more information on the COBRA election rules, visit Tax Facts Online. Read More

DOL Releases New COBRA Notice in Light of Growing Employment Litigation

The DOL released a revised COBRA general notice and election notice on May 1, 2020, in response to increasing furloughs and layoffs in the wake of COVID-19–and a growing risk of employment litigation. Employers are not required to post the new notices, but may wish to in light of the evolving situation. These new notices add information about how Medicare eligibility impacts COBRA eligibility (highlighting the fact that COBRA coverage is usually secondary to Medicare). Employers who use the model notices are deemed to comply with COBRA notice requirements. For more information on COBRA coverage election requirements and COVID-19, visit Tax Facts Online. Read More

IRS Provides Relief for Cafeteria Plan Participants in Response to COVID-19

Under normal circumstances, cafeteria plans are not permitted to allow participants to make mid-year election changes except in limited situations. Notice 2020-29 permits employees to allow certain mid-year elections made during calendar year 2020 that would otherwise be impermissible, including changes to salary reduction contribution elections. The guidance also allows participants to revoke (or make) an election with respect to health and dependent care FSAs on a prospective basis during 2020 to respond to changing needs during the COVID-19 pandemic. Further, the guidance clarifies that the relief for high deductible health plans (HDHPs) and expenses related to COVID-19 (regarding an exemption for telehealth services) may be applied retroactively to January 1, 2020. For more information on the mid-year election rules for cafeteria plans, visit Tax Facts Online. Read More

IRS Makes Temporary & Permanent Changes to the FSA Grace Period Rules

IRS Notice 2020-33 and Notice 2020-29, released concurrently, provides relief with respect to unused funds in a flexible spending account. Under Notice 2020-29, if an employee has unused amounts remaining in a health FSA or a dependent care assistance program at the end of a grace period (or plan year) ending in 2020, a cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses incurred through December 31, 2020. Notice 2020-33 makes a change to the carryover rules that apply to health FSAs, so that the amount that can be carried over to the following year will equal 20 percent of the maximum inflation-indexed salary reduction amount under Section 125 (increasing the carryover amount from $500 to $550 for 2020). For more information on the rules governing health FSAs, visit Tax Facts Online. Read More

Treasury Allows Tax Credit for Employers Paying Health Expenses of Furloughed Workers

Clearing up confusion (and revising initial guidance), the Treasury has announced that if an employer continues to pay an employee’s health insurance costs during a furlough period, the employer is entitled to claim a tax credit with respect to those expenses. This is the case even if the employer is not currently paying the employee’s wages. The employee retention credit is generally equal to up to 50% of the employee wages and certain other qualifying expenses. For more information on the employee retention tax credit, visit Tax Facts Online. Read More

Required Business Expense Reimbursement in the Age of COVID-19

Some employers are now permitting employees to work from home–while others are requiring it. In some jurisdictions (California and Illinois, for example) employers are required to reimburse employees for employment expenses. This may create the need for employers to reimburse employees for the cost of maintaining a home office. Further, the FLSA does not permit an employer to require an employee to pay for business expenses if doing so would reduce the employee’s earnings to below the minimum wage. However, simply providing cash reimbursement may generate additional taxable income for the employee. The miscellaneous itemized deduction for expenses incurred in the “trade or business of being an employee” was suspended for 2018-2025. Employers may instead wish to consider a program where the employer leases or purchases the required equipment for the employee’s use. For more information on the impact of reimbursing business expenses, visit Tax Facts Online. Read More

Dependent Care FSAs Provide Flexibility in the Face of a Pandemic

With so many employees working from home–and scrambling to find childcare options as businesses begin to reopen–many employees rethinking contributions to dependent care FSAs. The rules governing changes to dependent care FSA contributions are more flexible than health FSAs. Employees are permitted to make mid-year changes in pre-tax contributions if their circumstances relating to the need for dependent care changes. Employees can reduce their contributions if they are working from home and do not need childcare, or can increase the contributions when they return to work and need to provide for increased childcare costs. Further, employees who have been furloughed and laid off might want to ask whether their plan contains a spend-down feature. These features are optional, but allow former employees to seek reimbursement for dependent care expenses incurred through the end of the tax year (even if their employment has been terminated). Employers have the option of adding a spend-down feature at any time. For more information on dependent care FSAs, visit Tax Facts Online. Read More

IRS Provides Relief for Employee Donations of Unused Sick, Vacation & PTO

The IRS has provided relief so that employees can forgo sick, vacation or personal leave because of the COVID-19 pandemic without adverse tax consequences. Under the guidance, an employer can make cash payments to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo. Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income. Therefore, taxable income will not be increased, but the employee cannot claim a deduction for the leave donated to their employer. Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the respective requirements of either section. For more information on the charitable contributions, visit Tax Facts Online. Read More

Home Office Deductions in the Age of Covid-19

With so many taxpayers working from home—some indefinitely—do to Covid-19, many are likely wondering whether they can deduct their home office expenses. In short, traditional W-2 employees cannot deduct their home office expenses regardless of whether they would otherwise qualify for the deduction. The 2017 tax reform legislation eliminated this deduction for 2018-2025. Self-employed taxpayers can deduct expenses associated with maintaining a home office if the office is used regularly and exclusively as the taxpayer’s principal place of business (if the office is within the dwelling unit). A home office deduction is permitted for self-employed taxpayers with separate structures if the office/workspace is used “in connection with” the trade or business. For more information on the home office deduction, visit Tax Facts Online. Read More

 

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Ireland and Apple Win State Aid Case! EU General Court Annuls Commission State Aid Decision Irish Tax Rulings Discriminated in Favor of Apple

Posted by William Byrnes on July 15, 2020


This State Aid case will be analyzed and included in the annual update of 4th Edition of Practical Guide to U.S. Transfer Pricing. The next supplement will contain 50 chapters of 2,000 pages of technical, jurisprudence, and regulatory analysis to advise clients from a tax risk management perspective and to mitigate controversy. Order a copy here: https://store.lexisnexis.com/products/practical-guide-to-us-transfer-pricing-skuusSku60720

Scroll down to paragraph 241-245 for the application of arm’s length to the Irish branches, paras 255-309, and then paragraph 322 for the analysis of the application of the TNMM transfer pricing method

(ii) Whether the Commission correctly applied the Authorised OECD Approach in its primary line of reasoning

241    Ireland and ASI and AOE submit, in essence, that the Commission’s primary line of reasoning is inconsistent with the Authorised OECD Approach, inasmuch as the Commission considered that the profits relating to the Apple Group’s IP licences should necessarily have been allocated to the Irish branches of ASI and AOE, in so far as the executives of ASI and AOE did not perform active or critical functions with regard to the management of those licences.

242    In that regard, it should be borne in mind that, in accordance with the Authorised OECD Approach…, the aim of the analysis in the first step is to identify the assets, functions and risks that must be allocated to the permanent establishment of a company on the basis of the activities actually performed by that company. It is true that the analysis in that first step cannot be carried out in an abstract manner that ignores the activities and functions performed within the company as a whole. However, the fact that the Authorised OECD Approach requires an analysis of the functions actually performed within the permanent establishment is at odds with the approach adopted by the Commission consisting, first, in identifying the functions performed by the company as a whole without conducting a more detailed analysis of the functions actually performed by the branches and, second, in presuming that the functions had been performed by the permanent establishment when those functions could not be allocated to the head office of the company itself.

243    In its primary line of reasoning the Commission considered, in essence, that the profits of ASI and AOE relating to the Apple Group’s IP (which, according to the Commission’s line of argument, represented a very significant part of the total profit of those two companies) had to be allocated to the Irish branches in so far as ASI and AOE had no employees capable of managing that IP outside those branches, without, however, establishing that the Irish branches had performed those management functions.

244    Accordingly, as Ireland and ASI and AOE rightly argue, the approach followed by the Commission in its primary line of reasoning is inconsistent with the Authorised OECD Approach.

245    In those circumstances, as is rightly argued by Ireland and ASI and AOE …, it must be found that the Commission erred in its application, in its primary line of reasoning, of the functional and factual analysis of the activities performed by the branches of ASI and AOE, on which the application of section 25 of the TCA 97 by the Irish tax authorities is based and which corresponds, in essence, to the analysis provided for by the Authorised OECD Approach.

(1)    Strategic decision-making within the Apple Group

298    Ireland and ASI and AOE claim that the ‘centre of gravity’ of the Apple Group’s activities was in Cupertino and not in Ireland. All strategic decisions, in particular those concerning the design and development of the Apple Group’s products, were taken, in accordance with an overall business strategy covering the group as a whole, in Cupertino. That centrally decided strategy was implemented by the companies of the group, which include ASI and AOE, which acted through their management bodies, much like any other company, according to the rules of company law applicable to them.

299    In that regard, it should be noted, in particular, that ASI and AOE submitted evidence, in the administrative procedure and in support of their pleadings in the present instance, on the centralised nature of the strategic decisions within the Apple Group taken by directors in Cupertino and then implemented subsequently by the various entities of the group, such as ASI and AOE. Those centralised procedures concern, inter alia, pricing, accounting decisions, financing and treasury and cover all of the international activities of the Apple Group that would have been decided centrally under the direction of the parent company, Apple Inc.

300    More specifically, with regard to decisions in the field of R&D — which is, in particular, the functional area behind the Apple Group’s IP — ASI and AOE provided evidence showing that decisions relating to the development of the products which were then to be marketed by, inter alia, ASI and AOE, and concerning the R&D strategy which was to be followed by, inter alia, ASI and AOE had been taken and implemented by executives of the group based in Cupertino. It is also apparent from that evidence that the strategies relating to new product launches and, in particular, the organisation of distribution on the European markets in the months leading up to the proposed launch date had been managed at the Apple-Group level by, inter alia, the Executive Team under the direction of the Chief Executive Officer in Cupertino.

301    In addition, it is apparent from the file that contracts with third-party original equipment manufacturers (‘OEMs’), which were responsible for the manufacture of a large proportion of the products sold by ASI, were negotiated and signed by the parent company, Apple Inc., and ASI through their respective directors, either directly or by power of attorney. ASI and AOE also submitted evidence regarding the negotiations and the signing of contracts with customers, such as telecommunications operators, which were responsible for a significant proportion of the retail sales of Apple-branded products, in particular mobile phones. It is apparent from that evidence that the negotiations in question were led by directors of the Apple Group and that the contracts were signed on behalf of the Apple Group by Apple Inc. and ASI through their respective directors, either directly or by power of attorney.

302    Consequently, in so far as it has been established that the strategic decisions — in particular those concerning the development of the Apple Group’s products underlying the Apple Group’s IP — were taken in Cupertino on behalf of the Apple Group as a whole, the Commission erred when it concluded that the Apple Group’s IP was necessarily managed by the Irish branches of ASI and AOE, which held the licences for that IP.

(2)    Decision-making by ASI and AOE

303    With regard to ASI and AOE’s ability to take decisions concerning their essential functions through their management bodies, the Commission itself accepted that those companies had boards of directors which held regular meetings during the relevant period, and reproduced extracts from the minutes of those meetings confirming that fact in Tables 4 and 5 of the contested decision.

304    The fact that the minutes of the board meetings do not give details of the decisions concerning the management of the Apple Group’s IP licences, of the cost-sharing agreement and of important business decisions does not mean that those decisions were not taken.

305    The summary nature of the extracts from the minutes reproduced by the Commission in Tables 4 and 5 of the contested decision is sufficient to allow the reader to understand how the company’s key decisions in each tax year, such as approval of the annual accounts, were taken and recorded in the relevant board minutes.

306    The resolutions of the boards of directors which were recorded in those minutes covered regularly (that is to say, several times a year), inter alia, the payment of dividends, the approval of directors’ reports and the appointment and resignation of directors. In addition, less frequently, those resolutions concerned the establishment of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing bank accounts, overseeing relations with governments and public bodies, carrying out audits, taking out insurance, hiring, purchasing and selling assets, taking delivery of goods and dealing with commercial contracts. Moreover, it is apparent from those minutes that individual directors were granted very wide managerial powers.

307    In addition, with regard to the cost-sharing agreement, it is apparent from the information submitted by ASI and AOE that the various versions of that agreement in existence during the relevant period were signed by members of the respective boards of directors of those companies in Cupertino.

308    Moreover, according to the detailed information provided by ASI and AOE, it is the case for both ASI and AOE that, among ASI’s 14 directors and AOE’s 8 directors on their respective boards for each tax year during the period when the contested tax rulings were in force, there was only one director who was based in Ireland.

309    Consequently, the Commission erred when it considered that ASI and AOE, through their management bodies, in particular their boards of directors, did not have the ability to perform the essential functions of the companies in question by, where appropriate, delegating their powers to individual executives who were not members of the Irish branches’ staff.

(d)    Conclusions concerning the activities within the Apple Group

310    It is apparent from the foregoing considerations that, in the present instance, the Commission has not succeeded in showing that, in the light, first, of the activities and functions actually performed by the Irish branches of ASI and AOE and, second, of the strategic decisions taken and implemented outside of those branches, the Apple Group’s IP licences should have been allocated to those Irish branches when determining the annual chargeable profits of ASI and AOE in Ireland.

The EU General Court of Justice press release described its decision as follows: In 2016 the Commission adopted a decision concerning two tax rulings issued by the Irish tax authorities (Irish Revenue) on 29 January 1991 and 23 May 2007 in favor of Apple Sales International (ASI) and Apple Operations Europe (AOE), which were companies incorporated in Ireland but not tax resident in Ireland. The contested tax rulings endorsed the methods used by ASI and AOE to determine their chargeable profits in Ireland, relating to the trading activity of their respective Irish branches. The 1991 tax ruling remained in force until 2007, when it was replaced by the 2007 tax ruling. The 2007 tax ruling then remained in force until Apple’s new business structure was implemented in Ireland in 2014.

By its decision, the Commission considered that the tax rulings in question constituted State aid unlawfully put into effect by Ireland. The aid was declared incompatible with the internal market.
The Commission demanded the recovery of the aid in question. According to the Commission’s calculations, Ireland had granted Apple 13 billion euro in unlawful tax advantages.

By today’s judgment, the General Court annuls the contested decision because the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU. According to the General Court, the Commission was wrong to declare that ASI and AOE had been granted a selective economic advantage and, by extension, State aid.

The General Court endorses the Commission’s assessments relating to normal taxation under the Irish tax law applicable in the present instance, in particular having regard to the tools developed
within the OECD, such as the arm’s length principle, in order to check whether the level of chargeable profits endorsed by the Irish tax authorities corresponds to that which would have been obtained under market conditions.

However, the General Court considers that the Commission incorrectly concluded, in its primary line of reasoning, that the Irish tax authorities had granted ASI and AOE an advantage as a result of not having allocated the Apple Group intellectual property licences held by ASI and AOE, and, consequently, all of ASI and AOE’s trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. According to the General Court, the Commission should have shown that that income represented the value of the activities actually carried out by the Irish branches themselves, in view of, inter alia, the activities and functions actually performed by the Irish branches of ASI and AOE, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other.

In addition, the General Court considers that the Commission did not succeed in demonstrating, in its subsidiary line of reasoning, methodological errors in the contested tax rulings which would
have led to a reduction in ASI and AOE’s chargeable profits in Ireland. Although the General Court regrets the incomplete and occasionally inconsistent nature of the contested tax rulings, the defects identified by the Commission are not, in themselves, sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU.

Furthermore, the General Court considers that the Commission did not prove, in its alternative line of reasoning, that the contested tax rulings were the result of discretion exercised by
the Irish tax authorities and that, accordingly, ASI and AOE had been granted a selective advantage.

The most relevant parts excerpted from the EU General Court’s decision follow [Apple State Aid CJEU decision 15 July 2020

2.      ASI and AOE

(a)    Company structure

3        Within the Apple Group, Apple Operations International is a fully owned subsidiary of Apple Inc. Apple Operations International fully owns the subsidiary Apple Operations Europe (AOE), which in turn fully owns the subsidiary Apple Sales International (ASI). ASI and AOE are both companies incorporated in Ireland, but are not tax resident in Ireland.

4        As stated in recitals 113 to 115 of the contested decision, a significant number of members of the boards of directors of AOE and ASI were directors employed by Apple Inc. and based in Cupertino. Excerpts from resolutions and minutes from annual general meetings and board meetings of ASI and AOE are reproduced in recital 115 (Tables 4 and 5) of that decision. The resolutions of the boards of directors concerned, inter alia, on a regular basis, the payment of dividends, the approval of directors’ reports, and the appointment and resignation of directors. Less frequently, those resolutions concerned the incorporation of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing banking, relationships with governments and other public offices, audits, insurance, renting, purchase and sale of assets, taking delivery of goods, and commercial contracts.

(b)    The cost-sharing agreement

5        Apple Inc., on the one hand, and ASI and AOE, on the other, were bound by a cost-sharing agreement (‘the cost-sharing agreement’). The shared costs concerned, inter alia, the research and development (R&D) of technology incorporated in the Apple Group’s products. The initial cost-sharing agreement was signed in December 1980. The parties to that agreement were Apple Inc. (then Apple Computer Inc.) and AOE (then Apple Computer Ltd (ACL)). In 1999, ASI (then Apple Computer International) became a party to that agreement. During the period relevant to the investigation referred to in the contested decision, various amendments were made to the cost-sharing agreement, in order in particular to take into account changes in the applicable regulatory framework.

6        Under that agreement, the parties agreed to share the costs and the risks associated with the R&D concerning intangibles following development activities connected with the Apple Group’s products and services. The parties also agreed that Apple Inc. remained the official legal owner of the cost-shared intangibles, including the Apple Group’s intellectual property (‘IP’) rights. In addition, Apple Inc. granted ASI and AOE royalty-free licences enabling those companies, inter alia, to manufacture and sell the products concerned in the territory that had been assigned to them, that is to say, the world apart from North and South America. Furthermore, the parties to the agreement were required to bear the risks resulting from that agreement, the main risk being the obligation to pay the development costs relating to the Apple Group’s IP rights.

(c)    The marketing services agreement

7        In 2008, ASI concluded a marketing services agreement with Apple Inc., in connection with which Apple Inc. undertook to provide marketing services to ASI, including the creation, development and production of marketing strategies, programmes and advertising campaigns. ASI undertook to remunerate Apple Inc. for those services by payment of a fee corresponding to a percentage of the ‘reasonable costs incurred’ by Apple Inc. in relation to those services, plus a mark-up.

3.      The Irish branches

8        ASI and AOE set up Irish branches. AOE also had a branch in Singapore, which ceased its activities in 2009.

9        ASI’s Irish branch is responsible for, inter alia, carrying out procurement, sales and distribution activities associated with the sale of Apple-branded products to related parties and third-party customers in the regions covering Europe, the Middle East, India and Africa (EMEIA) and the Asia-Pacific region (APAC). Key functions within that branch include the procurement of Apple-branded finished products from third-party and related-party manufacturers, distribution activities associated with the sale of products to related parties in the EMEIA and APAC regions and with the sale of products to third-party customers in the EMEIA region, online sales, logistics operations, and operating an after-sales service. The European Commission stated (recital 55 of the contested decision) that many activities associated with distribution in the EMEIA region were carried out by related parties under service contracts.

10      AOE’s Irish branch is responsible for the manufacture and assembly of a specialised range of computer products in Ireland such as iMac desktops, MacBook laptops and other computer accessories, which it supplies to related parties for the EMEIA region. Key functions within that branch include production planning and scheduling, process engineering, production and operations, quality assurance and quality control, and refurbishing operations.

B.      The contested tax rulings

11      The Irish tax authorities adopted advance tax decisions, known as ‘tax rulings’, in relation to certain taxpayers who had made requests to that effect. By letters of 29 January 1991 and 23 May 2007 (collectively, ‘the contested tax rulings’), the Irish tax authorities indicated their agreement with the proposals made by the Apple Group’s representatives concerning the chargeable profits of ASI and AOE in Ireland. Those rulings are described in recitals 59 to 62 of the contested decision.

1.      The 1991 tax ruling

(a)    The tax base of ACL, AOE’s predecessor

12      By letter of 12 October 1990, addressed to the Irish tax authorities, the Apple Group’s tax advisors described ACL’s operations in Ireland, indicating the functions performed by its Irish branch established in Cork (Ireland). In addition, it was stated that the branch was the owner of the assets relating to the manufacturing activities, but that AOE retained ownership of the materials used, works in progress and finished products.

13      Following the letter from the Apple Group’s representatives to the Irish tax authorities of 16 January 1991 and the response from those authorities of 24 January 1991, those authorities confirmed, by letter of 29 January 1991, the terms proposed by the Apple Group, as described below. Thus, pursuant to those terms, confirmed by the Irish tax authorities, ACL’s chargeable profit in Ireland, relating to income from its Irish branch, was calculated on the basis of the following elements:

–        65% of that branch’s operating costs up to an annual amount of [confidential](1) and 20% of its operating costs in excess of [confidential];

–        if the overall profit of ACL’s Irish branch was less than the figure obtained using that formula, that lower figure was to be used to determine the branch’s net profit;

–        the operating costs to be taken into consideration for that calculation were to include all operating expenses, excluding materials for resale and cost-share for intangibles charged from companies affiliated with the Apple Group;

–        a capital allowance could be claimed, provided it did not exceed by [confidential] the depreciation charged in the relevant accounts.

(b)    The tax base of ACAL, ASI’s predecessor

14      By letter of 2 January 1991, the Apple Group’s tax advisors informed the Irish tax authorities of the existence of a new company, Apple Computer Accessories Ltd (ACAL), the Irish branch of which was described as being responsible for sourcing products intended for export from Irish manufacturers.

15      On 16 January 1991 the Apple Group’s representatives sent a letter to the Irish tax authorities summarising the terms of the agreement which had been concluded during a meeting between that group and those authorities on 3 January 1991 as regards ACAL’s chargeable profit. According to that letter, the calculation of the branch’s profit had to be based on a margin of 12.5% of operating costs (excluding materials for resale).

16      By letter of 29 January 1991, the Irish tax authorities confirmed the terms of the agreement as expressed in the letter of 16 January 1991.

2.      The 2007 tax ruling

17      By letter of 16 May 2007 addressed to the Irish tax authorities, the Apple Group’s tax advisors summarised their proposal for revising the method for determining the tax base of the Irish branches of ASI and AOE.

18      Regarding the Irish branch of ASI (the successor to Apple Computer International, itself the successor to ACAL), it was proposed that the chargeable profit to be allocated to that branch correspond to [confidential of its operating costs, excluding costs such as sums invoiced from affiliated companies within the Apple Group and material costs.

19      Regarding AOE’s Irish branch, the chargeable profit was to correspond to the sum of, on the one hand, an amount corresponding to [confidential] of the branch’s operating costs, excluding costs such as the sums invoiced from affiliated companies within the Apple Group and material costs, and, on the other, an amount corresponding to the IP return for the manufacturing process technology developed by that branch, namely [confidential] of that branch’s turnover. A deduction was to be allowed in respect of capital allowances for plant and buildings ‘computed and allowed in the normal manner’.

20      It was proposed that the terms of the future agreement enter into force with effect from 1 October 2007 for both branches, that those terms be applicable for five years if the circumstances remained unchanged, and that they be subsequently renewed on an annual basis. It was also stated that the agreement could be applied to any new entities that might be created or transformed within the Apple Group, provided their activities corresponded to those carried out by AOE, namely manufacturing in Ireland, and by ASI, namely activities not connected with manufacturing, such as sales and services in general.

21      By letter of 23 May 2007, the Irish tax authorities confirmed their agreement with all the proposals set out in the letter of 16 May 2007. That agreement was applied until the 2014 tax year.

2.      Identification of the reference framework and assessments concerning normal taxation under Irish law (part of the first and second pleas in law in Case T778/16 and first, second and fifth pleas in law in Case T892/16)

(a)    Reference framework

140    In recitals 227 to 243 of the contested decision, the Commission stated that the relevant reference framework for its analysis of whether there was a selective advantage was the ordinary rules of taxation of corporate profit under the Irish corporate tax system, which have as their intrinsic objective the taxation of profit of all companies subject to tax in that Member State.

141    The Commission considered that that reference framework included both non-integrated and integrated companies because Irish corporation tax does not distinguish between those companies.

142    In addition, the Commission considered that even though resident and non-resident companies were taxed on different sources of income, in the light of the intrinsic objective of those rules, namely the taxation of profit of all companies subject to tax in Ireland, both types of company were in a comparable factual and legal situation. Consequently, those rules included section 25 of the TCA 97, which therefore could not be considered to constitute a separate reference framework in itself.

143    Ireland and ASI and AOE contest that definition of the reference framework and claim, in essence, that the relevant reference framework in the present instance is section 25 of the TCA 97, a separate charging provision applicable specifically to non-resident companies which are not in a situation comparable to that of resident companies. In addition, according to Ireland and ASI and AOE, the matter of whether an undertaking is integrated or non-integrated is not the issue in the present instance; instead, the issue is the taxation of non-resident companies.

144    It should be noted that, when analysing tax measures in the context of Article 107(1) TFEU, the determination of the reference framework is relevant for examining both the advantage condition and the selectivity condition.

145    As has been noted in paragraph 110 above, in the case of tax measures, the very existence of an advantage can be established only by comparison with so-called ‘normal’ taxation. It is precisely that so-called ‘normal’ taxation that is established by the reference framework.

146    In addition, in order to classify a domestic tax measure as selective, it is necessary to begin by identifying and examining the ordinary or normal tax regime applicable in the Member State concerned (judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

147    Moreover, the Court of Justice has confirmed its case-law according to which it is sufficient, in order to establish the selectivity of a measure that derogates from an ordinary tax system, to demonstrate that that measure benefits certain operators and not others, although all those operators are in an objectively comparable situation in the light of the objective pursued by the ordinary tax system (judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 76).

148    Indeed, while it is not always necessary, in order for it to be established that a tax measure is selective, that it should derogate from an ordinary tax system, the fact that it can be so characterised is highly relevant in that regard where the effect of that measure is that two categories of operators are distinguished and are subject, a priori, to different treatment, namely those who fall within the scope of the derogating measure and those who continue to fall within the scope of the ordinary tax system, although those two categories are in a comparable situation in the light of the objective pursued by that system (judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 77).

149    In addition, the Court of Justice has held that the legislative means used are not a decisive element for the purpose of determining the reference framework (judgment of 28 June 2018, Lowell Financial Services v Commission, C‑219/16 P, not published, EU:C:2018:508, paragraphs 94 and 95).

150    It is apparent from case-law that it is the rules of taxation to which the recipient of the measure that is regarded as constituting State aid is subject that form the reference framework. It is also apparent from case-law that the substantive scope of the reference framework can be defined only in relation to the measure that is regarded as constituting State aid. Therefore, the purpose of the measures at issue and the legal framework of which they form part must be taken into consideration when determining the reference framework.

151    Moreover, the Commission explained its interpretation of the concept of reference framework in the notice on the notion of State aid as referred to in Article 107(1) TFEU (OJ 2016 C 262, p. 1). Although that notice cannot bind the Court, it may nevertheless serve as a useful source of guidance (see, to that effect and by analogy, judgment of 26 July 2017, Czech Republic v Commission, C‑696/15 P, EU:C:2017:595, paragraph 53).

152    Paragraph 133 of the notice referred to in paragraph 151 above states, inter alia, that the reference system is composed of a consistent set of rules that generally apply — on the basis of objective criteria — to all undertakings falling within its scope as defined by its objective. Typically, those rules define not only the scope of the system, but also the conditions under which the system applies, the rights and obligations of undertakings that are subject to it and the technicalities of the way in which it functions.

153    Therefore, it is in the light of the foregoing considerations that the Court must assess whether the Commission correctly identified the relevant reference framework for examining the selectivity of the contested tax rulings.

154    In the present instance, upon reading the contested tax rulings, as described in paragraphs 11 to 21 above, it is clear that they were issued in order to allow ASI and AOE to determine their chargeable profits in Ireland for the purposes of corporation tax in that Member State.

155    Accordingly, the contested tax rulings form part of the general Irish corporation tax regime, the objective of which is to tax the chargeable profits of companies carrying on activities in Ireland, be they resident or non-resident, integrated or stand-alone.

156    It must be noted that, under that general Irish regime, according to the description — which is not contested by the parties — set out in recital 71 of the contested decision, corporation tax in Ireland is charged on the profits of companies (section 21(1) of the TCA 97). In addition, Ireland applies a different rate to trading income, non-trading income and capital gains. Section 21 of the TCA 97 sets the general rate of corporation tax at 12.5%. That rate applies to the trading income of companies taxed under the TCA 97, while non-trading income is taxed at a rate of 25% and capital gains are taxed at a rate of 33%. However, capital gains on disposals of certain shareholdings are subject to an exemption.

157    Moreover, as is stated in recital 72 of the contested decision, under section 26 of the TCA 97, resident companies are subject to corporation tax calculated on the basis of their worldwide profits and capital gains, excluding most distributions received from other companies resident in Ireland.

158    Lastly, under section 25 of the TCA 97, the wording of which is set out in recital 73 of the contested decision, a non-resident company is not to be within the charge to corporation tax unless it carries on a trade in Ireland through a branch or agency. If it does so, that company is to be taxed on all of its trading income arising directly or indirectly from the branch or agency and from the property or rights used by or held by or for the branch or agency as well as on capital gains attributable to the branch or agency.

159    Under section 25(1) of the TCA 97, non-resident companies are not to be taxed in Ireland unless they carry on a trade there through a branch or agency; if they do so, they must pay corporation tax on all of their chargeable profits. Section 25(2)(a) of the TCA 97 defines chargeable profits as any trading income arising directly or indirectly through or from the branch or agency, and any income from property or rights used by, or held by or for, the branch or agency.

160    Therefore, although the first part of the first sentence of section 25(1) of the TCA 97 could be understood as establishing a derogation from the normal taxation regime in favour of non-resident companies, the second part of that sentence makes that regime applicable to non-resident companies carrying on a trade in Ireland through a branch, which must pay corporation tax on all of their chargeable profits. Thus, in accordance with that provision, those companies are also subject to the conditions for the application of corporation tax.

161    When seen from that perspective, resident and non-resident companies carrying on a trade in Ireland through a branch are in a comparable situation in the light of the objective pursued by that regime, namely the taxation of chargeable profits. The fact that the latter’s chargeable profits are specifically defined in section 25(2)(a) of the TCA 97 does not establish that section as the reference framework; rather, that provision is the legislative means used for the purpose of applying corporation tax to that category of company. As is apparent from the case-law cited in paragraphs 148 and 149 above, the fact that, pursuant to those legislative means, one category of company is treated differently as compared with other companies does not mean that those two categories of company are not in a comparable situation in the light of the objective pursued by that regime.

162    Therefore, the provisions concerning the chargeable profits of companies that are not resident in Ireland laid down in section 25 of the TCA 97 cannot in themselves constitute a specific regime that is separate from the ordinary rules. That provision in isolation is insufficient for the purpose of consistently applying corporation tax to those non-resident companies.

163    In those circumstances, it is appropriate to consider that the Commission did not err when it concluded that the reference framework in the present instance was the ordinary rules of taxation of corporate profit in Ireland, the intrinsic objective of which was the taxation of profit of all companies subject to tax in that Member State, and, consequently, that that framework included the provisions applicable to non-resident companies laid down in section 25 of the TCA 97.

164    Therefore, the complaints raised by Ireland and ASI and AOE concerning the reference framework defined in the contested decision must be rejected.

165    In view of the reference framework defined in the contested decision, namely the ordinary rules of taxation of corporate profit, which include, in particular, the provisions of section 25 of the TCA 97, it is necessary to analyse the complaints raised by Ireland and ASI and AOE regarding the Commission’s interpretation of those provisions.

(b)    The Commission’s assessments concerning the normal taxation of profits under Irish tax law

166    In the contested decision (in particular in recitals 319 to 321 of that decision), as part of its primary line of reasoning, the Commission maintained that the fact that the Irish branches of ASI and AOE were not allocated the profits derived from the Apple Group IP licences held by ASI and AOE meant that the determination of the annual chargeable profits of ASI and AOE in Ireland departed from a reliable approximation of a market-based outcome in line with the arm’s length principle, with the result that the amount that would otherwise have been payable by ASI and AOE as corporation tax in Ireland was reduced.

167    The Commission’s analysis in this regard is based on the consideration, outlined in recitals 244 to 263 of the contested decision, that the application of section 25 of the TCA 97 for the purpose of allocating profits to a branch required the application of a profit allocation method which, under Article 107(1) TFEU, had to be based on the arm’s length principle. In addition, in recital 272 of the contested decision, the Commission referred to the Authorised OECD Approach when it stated that the profits to be allocated to a branch were the profits that that branch would have earned at arm’s length if it had been a separate and independent enterprise engaged in identical or similar activities under identical or similar conditions, taking into account the functions performed, the assets used, and the risks assumed by the company through its branch.

168    Ireland and ASI and AOE contest each element of the reasoning described in paragraphs 166 and 167 above.

169    First, Ireland and ASI and AOE take issue with the Commission’s application of section 25 of the TCA 97 in connection with its primary line of reasoning in so far as it complained, in essence, that the Irish tax authorities had not required all of ASI and AOE’s profits to be allocated to their Irish branches.

170    Secondly, Ireland and ASI and AOE dispute that Article 107 TFEU gives rise to an arm’s length principle as relied on by the Commission in its reasoning and, consequently, argue that no such principle is applicable in Ireland.

171    Thirdly, Ireland and ASI and AOE submit that the Authorised OECD Approach does not apply to Irish tax law. They argue that, in any event, even if it were assumed that the Authorised OECD Approach could be applied in the present instance, the Commission was wrong to conclude, on the basis of that approach, that the profits relating to the Apple Group IP licences held by ASI and AOE should have been allocated to their Irish branches.

172    Therefore, it is necessary to examine, first, the complaints raised by Ireland and ASI and AOE concerning the application of section 25 of the TCA 97, then, the matter of whether the Commission was entitled to rely on an arm’s length principle arising from Article 107 TFEU in its analysis and, lastly, the application in the present instance of the Authorised OECD Approach.

(1)    Application of section 25 of the TCA 97 (part of the second plea in law in Case T778/16 and of the first plea in law in Case T892/16)

173    In the present instance, it is not in dispute that:

–        ASI and AOE are companies that are incorporated in Ireland but which are not considered to be tax resident in Ireland, as the Commission acknowledged in recital 50 of the contested decision;

–        section 25 of the TCA 97 contains provisions that apply specifically to non-resident companies under which, where a non-resident company carries on a trade in Ireland through a branch, that company is to be taxed, inter alia, on all of its trading income arising directly or indirectly from the branch;

–        the non-resident companies ASI and AOE carried on a trade in Ireland through their respective branches.

174    Therefore, it is necessary to analyse whether the Commission was entitled to consider that, under section 25 of the TCA 97, when determining ASI and AOE’s profits in Ireland, the Irish tax authorities should have allocated the Apple Group’s IP licences to the Irish branches of those two companies.

175    Under Irish tax law, and in particular under section 25 of the TCA 97, in the case of non-resident companies carrying on their trade in Ireland through a branch, only the profits derived from trade directly or indirectly attributable to that Irish branch, on the one hand, and all income from property or rights used by, or held by or for, the branch, on the other, are taxable.

176    It is true, as the Commission correctly points out and as Ireland and ASI and AOE acknowledge, that section 25 of the TCA 97 does not lay down any specific method enabling it to be established which profits are directly or indirectly attributable to the Irish branches of non-resident companies and makes no reference to the arm’s length principle for the purposes of that attribution.

177    Nevertheless, it is clear that section 25 of the TCA 97 relates only to the profits derived from trade that the Irish branches have carried on themselves and excludes profits derived from trade carried on by other parts of the non-resident company in question.

178    Ireland and ASI and AOE submit that that taxation mechanism precludes, in principle, an approach in which the entirety of the non-resident company’s profits are examined and, to the extent that those profits cannot be allocated to other parts of that company, are allocated by default to the Irish branches (an ‘exclusion’ approach).

179    In that regard, Ireland and ASI and AOE rely on the opinion of an expert in Irish law, the relevance of which is not contested as such by the Commission. According to that opinion, when determining the chargeable profits of non-resident companies carrying on a trade in Ireland through their Irish branches, the relevant analysis for the application of section 25 of the TCA 97 must cover the actual activities of those Irish branches and the value of the activities actually carried out by the branches themselves. That opinion is based, inter alia, on the judgment of the High Court, Ireland, in S. Murphy (Inspector of Taxes) v. Dataproducts (Dub.) Ltd. [1988] I. R. 10 note 4507 (‘the judgment in Dataproducts’). The judgment in Dataproducts was also relied on as precedent both in support of the arguments of Ireland and Apple Inc. during the administrative procedure and in support of the arguments of Ireland and ASI and AOE in the present dispute.

180    It is apparent from the judgment in Dataproducts that the profits derived from property that is controlled by a non-resident company cannot be regarded as such as being profits attributable to the Irish branch of that company even if that property has been made available to that branch.

181    Similarly, it is apparent from that judgment that property belonging to a company that is not resident in Ireland and controlled by the executives of that company, who are also not resident in Ireland, cannot be allocated to that company’s Irish branch, even if that property is made available to that branch. In so far as the staff and directors of the Irish branch did not have control of the property in question, the income from that property could not be attributed to that branch for the purposes of taxation in Ireland. That remains the case even where it is only the Irish branch that has employees and physical property and the non-resident company has no physical property, employees or business activities other than those of the Irish branch. The non-resident company with no employees was considered to control that property through its management bodies.

182    Therefore, it is clear from the judgment in Dataproducts that the question that is relevant when determining the profits of the branch is whether the Irish branch has control of that property.

183    In the present instance, as has been stated in paragraphs 37 to 40 above, in its primary line of reasoning the Commission contended, in essence, that where the profits from trading activity were derived from the Apple Group’s IP, the licences for which were held by ASI and AOE, those profits should have been allocated to the Irish branches in so far as those companies had no physical presence or employees outside those branches and, therefore, were unable to control those licences.

184    In the light of the judgment in Dataproducts, when determining which profits are attributable to the Irish branch of a company that is not tax resident for the purposes of section 25 of the TCA 97, the property held by that company cannot be allocated to the Irish branch if it has not been established that that property is actually controlled by that branch. In addition, it is apparent from that judgment that the fact that the non-resident company has neither employees nor any physical presence outside the Irish branch is not in itself a decisive factor preventing the conclusion that it is that company which controls that property.

185    If the Apple Group IP licences held by ASI and AOE were not controlled by the Irish branches, it would be wrong to allocate all of the income generated by the companies arising from those licences to those branches under section 25 of the TCA 97. Only the profit derived from the trading activity of the Irish branches, including that carried on on the basis of the Apple Group IP licences held by ASI and AOE, should be regarded as relating to the activities of those branches.

186    It follows from the foregoing that, when it considered that the Apple Group’s IP licences should have been allocated to the Irish branches in so far as ASI and AOE were regarded as having neither the employees nor the physical presence to manage them, the Commission allocated profits using an ‘exclusion’ approach, which is inconsistent with section 25 of the TCA 97. In its primary line of reasoning, the Commission did not attempt to show that the Irish branches of ASI and AOE had in fact controlled the Apple Group’s IP licences when it concluded that the Irish tax authorities should have allocated the Apple Group’s IP licences to those branches and that, consequently, under section 25 of the TCA 97, all of ASI and AOE’s trading income should have been regarded as arising from the activities of those branches.

187    In those circumstances, it should be held that, as Ireland and ASI and AOE rightly argue in their complaints in the second plea in law in Case T‑778/16 and in the first plea in law in Case T‑892/16, the Commission erred, in its primary line of reasoning, in its assessment of the provisions of Irish tax law relating to the taxation of the profits of companies that are not resident in Ireland but which carry on a trade there through a branch.

188    As the Commission’s primary line of reasoning is based on a series of assessments concerning the normal taxation of profits under Irish tax law, it is necessary to go on to examine the arguments raised by Ireland and ASI and AOE regarding the other inherent aspects of those assessments.

(2)    The arm’s length principle (part of the first and third pleas in law in Case T778/16 and of the first and second pleas in law in Case T892/16)

189    In essence, Ireland and ASI and AOE, supported in that regard by the Grand Duchy of Luxembourg, submit that the arm’s length principle is not part of Irish tax law and that no freestanding obligation to apply that principle emerges from Article 107 TFEU, any other provision of EU law, or the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416). Ireland submits that, in any event, the Commission itself applied the principle inconsistently in so far as it failed to take into consideration the economic reality, structure and particular features of the Apple Group.

190    The Commission, supported in that regard by the Republic of Poland and the EFTA Surveillance Authority, disputes those arguments and contends, in essence, that the method used to determine the chargeable profits under section 25 of the TCA 97 must produce a reliable approximation of a market-based outcome and, therefore, an approximation based on the arm’s length principle, which would have been applied by the Irish tax authorities in the past when applying double taxation treaties.

191    It is therefore necessary to examine, in the first place, whether the Commission was entitled to rely on the arm’s length principle in order to determine whether there was a selective advantage and, if so, in the second place, whether the Commission correctly applied that principle in its primary line of reasoning.

(i)    Whether the Commission was entitled to rely on the arm’s length principle in order to determine whether there was a selective advantage

192    First, it should be borne in mind that, in recitals 244 to 248 of the contested decision, the Commission maintained that, in so far as section 25 of the TCA 97 did not state how the chargeable profits of an Irish branch were to be determined, that provision had to be applied by using a profit allocation method.

193    Secondly, in recital 249 of the contested decision, the Commission stated that, according to the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), a reduction in the taxable base that resulted from a tax measure that enabled a taxpayer to employ transfer prices in intra-group transactions that did not resemble prices which would have been charged in conditions of free competition between independent undertakings negotiating under comparable circumstances at arm’s length conferred a selective advantage on that taxpayer for the purposes of Article 107(1) TFEU.

194    In addition, in recitals 251 and 252 of the contested decision, the Commission specified that the purpose of the arm’s length principle was to ensure that transactions between integrated group companies are treated for tax purposes by reference to the amount of profit that would have arisen if the same transactions had been carried out by non-integrated stand-alone companies. Otherwise, integrated group companies would benefit from favourable treatment under the ordinary rules of taxation. According to the Commission, in the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), the Court of Justice endorsed the arm’s length principle as a benchmark for establishing whether an integrated group company received a selective advantage for the purposes of Article 107(1) TFEU as a result of a tax measure that determined its transfer pricing and thus its taxable base.

195    Thirdly, in recital 255 of the contested decision, the Commission stated that the same principle applied to the internal dealings of different parts of a single integrated company, such as a branch that transacts with other parts of the company to which it belongs. According to the Commission, to ensure that a profit allocation method endorsed by a tax ruling does not confer a selective advantage on a non-resident company operating through a branch in Ireland, that method must generate a chargeable profit that is a reliable approximation of a market-based outcome in line with the arm’s length principle. In recital 256 of the contested decision, it added that it applied the arm’s length principle not as a basis for ‘imposing’ taxes that would otherwise not be due under the reference framework, but as a benchmark to verify whether the chargeable profit of a branch was determined in a manner that ensured that it was not granted favourable treatment as compared with non-integrated companies whose chargeable profits reflected prices negotiated at arm’s length on the market.

196    Fourthly, with regard to the legal basis of that principle, the Commission stated in recital 255 of the contested decision that it did not directly apply Article 7(2) or Article 9 of the OECD Model Tax Convention or the guidance provided by the OECD on profit allocation or transfer pricing, which were non-binding but which nonetheless constituted useful guidance on how to ensure that transfer pricing and profit allocation arrangements produce outcomes in line with market conditions.

197    In addition, in recital 257 of the contested decision, the Commission stated that the arm’s length principle that it applied was derived from Article 107(1) TFEU, as interpreted by the Court of Justice, which was binding on the Member States and from the scope of which national tax rules were not excluded. It noted that that principle therefore applied regardless of whether the Member State in question had incorporated that principle in its national legal system.

198    The Commission concluded from this, in recitals 258 and 259 of the contested decision, that, if it could be shown that the profit allocation methods endorsed in the contested tax rulings resulted in a chargeable profit for ASI and AOE in Ireland that departed from a reliable approximation of a market-based outcome in line with the arm’s length principle, those rulings had to be considered to confer a selective advantage, in so far as they had led to a lowering of the amount of corporation tax payable in Ireland as compared with non-integrated companies whose taxable base was determined by the profits they generated under market conditions.

199    It should be emphasised at the outset that, as is apparent from, inter alia, recitals 258 and 259 of the contested decision, referred to in paragraph 198 above, the Commission relied on the arm’s length principle in its analysis of whether the contested tax rulings gave rise to a selective advantage, in particular in its primary line of reasoning.

200    In addition, it should be borne in mind, as has been stated in paragraph 163 above, that the reference framework that was relevant for the analysis of the advantage condition in the present instance was the ordinary rules of taxation of corporate profit in Ireland, the intrinsic objective of which was the taxation of profit of all companies subject to tax in that Member State, and, consequently, that that reference framework included the provisions applicable to non-resident companies laid down in section 25 of the TCA 97.

201    It is therefore necessary to examine whether the Commission was entitled to use the arm’s length principle to analyse in, inter alia, its primary line of reasoning whether the allocation of profits to the Irish branches of ASI and AOE, as endorsed in the contested tax rulings, had conferred a selective advantage on those companies.

202    In the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Consequently, such a measure confers an economic advantage on its recipient where it mitigates the burdens normally included in the budget of an undertaking and, as a result, without being a subsidy in the strict meaning of the word, is similar in character and has the same effect (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22).

203    Accordingly, in order to determine whether there is a tax advantage, it is necessary to compare the recipient’s situation resulting from the application of the measure in question with its situation had the measure in question not been adopted (see, to that effect, judgment of 26 April 2018, Cellnex Telecom and Telecom Castilla-La Mancha v Commission, C‑91/17 P and C‑92/17 P, not published, EU:C:2018:284, paragraph 114) and had the normal rules of taxation been applied.

204    In the first place, it should be borne in mind that the dispute in the present instance centres around the taxation of companies that are not tax resident in Ireland and which carry on a trade in that State through their Irish branches. The issue therefore lies in determining what profits must be allocated to those branches for corporation tax purposes as part of ‘normal’ taxation, taking into account the normal rules of taxation applicable in the present instance, as referred to in paragraph 200 above, which include the provisions that apply to non-resident companies set out in section 25 of the TCA 97.

205    Therefore, the question that is relevant in the present instance is not linked to the prices of intra-group transactions within a group of undertakings, as was the situation in the case that gave rise to the judgment of 24 September 2019, Netherlands and Others v Commission (T‑760/15 and T‑636/16, EU:T:2019:669).

206    It is true that the allocation of profits to a branch of a company may lend itself to the application by analogy of the principles applicable to the prices of intra-group transactions within a group of undertakings. In the same way as the prices of intra-group transactions between companies integrated in a single group of undertakings are not determined under market conditions, the allocation of profits to a branch of a single company is not carried out under market conditions.

207    However, in order for those principles to be applied by analogy, it must be clear from national tax law that the profits derived from the activities of the branches of non-resident undertakings should be taxed as if they resulted from the economic activities of stand-alone undertakings operating under market conditions.

208    In that regard, in the second place, it should be borne in mind that, as has been stated in paragraph 161 above, from the perspective of the conditions for the application of the corporation tax regime in Ireland, under section 25 of the TCA 97, both resident companies, on the one hand, and non-resident companies carrying on a trade in Ireland through a branch, on the other, are in a comparable situation in the light of the objective pursued by that regime, namely taxing the chargeable profits of those companies, be they resident or non-resident.

209    In addition, as has been noted in paragraph 179 above, when determining the chargeable profits of non-resident companies carrying on a trade in Ireland through their Irish branches, the relevant analysis for the application of section 25 of the TCA 97 must cover the actual activities of those Irish branches and the value of the activities actually carried out by the branches themselves.

210    Moreover, it should be noted that, when questioned explicitly on this point in a written question put by the Court and orally at the hearing, Ireland confirmed that, for the purposes of the application of section 25 of the TCA 97, as referred to in paragraph 209 above, the value of the activities actually carried out by the branches is to be determined according to the value of that type of activity on the market.

211    Accordingly, under Irish tax law, the profit resulting from the trading activity of such a branch is to be taxed as if it were determined under market conditions.

212    In those circumstances, when the Commission examines, in connection with the power conferred on it by Article 107(1) TFEU, a tax measure concerning the chargeable profits of a non-resident company carrying on a trade in Ireland through a branch, it may compare the tax burden of such a non-resident company resulting from the application of that tax measure with the tax burden resulting from the application of the normal rules of taxation under national law to a resident company, placed in a comparable factual situation, carrying on its activities under market conditions.

213    Those findings are borne out, mutatis mutandis, by the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), as the Commission correctly pointed out in the contested decision. The case that gave rise to that judgment concerned Belgian tax law, which provided for integrated companies and stand-alone companies to be treated on equal terms. The Court of Justice recognised in paragraph 95 of that judgment the need to compare a regime of derogating aid with the ordinary rules ‘based on the difference between profits and outgoings of an undertaking carrying on its activities in conditions of free competition’.

214    Thus, although, through the tax measure concerning the chargeable profits of a non-resident company carrying on a trade in Ireland through a branch, national authorities have accepted a certain level of profit attributable to that branch, Article 107(1) TFEU allows the Commission to check whether that level of profit corresponds to the level that would have been obtained through carrying on that trade under market conditions, in order to determine whether there is, as a result, any mitigation of the burdens normally included in the budget of the undertaking concerned, thus conferring on that undertaking an advantage for the purposes of that provision. The arm’s length principle, as described by the Commission in the contested decision, is thus a tool enabling the Commission to make that determination in the exercise of its powers under Article 107(1) TFEU.

215    Moreover, the Commission rightly noted, in recital 256 of the contested decision, that the arm’s length principle served as a ‘benchmark’ for verifying whether the chargeable profit of a branch of a non-resident company was determined, for the purposes of corporation tax, in a manner that ensured that non-resident companies operating through a branch in Ireland were not granted favourable treatment as compared with resident stand-alone companies whose chargeable profits reflected prices negotiated at arm’s length on the market.

216    In the third place, it should also be stated that when the Commission uses that tool to check whether the chargeable profit of a non-resident company carrying on a trade in Ireland through a branch pursuant to a tax measure corresponds to a reliable approximation of a chargeable profit generated under market conditions, it can identify an advantage for the purposes of Article 107(1) TFEU only if the variation between the two comparables goes beyond the inaccuracies inherent in the methodology used to obtain that approximation.

217    In the fourth place, it is true, as Ireland and ASI and AOE submit, that when the contested tax rulings were issued in 1991 and 2007 respectively, the arm’s length principle had not been incorporated into Irish tax law either directly, notably by incorporating the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, adopted by the Committee on Fiscal Affairs of the OECD on 27 June 1995 and revised on 22 July 2010 (‘the OECD Transfer Pricing Guidelines’), or by incorporating the Authorised OECD Approach for the purposes of allocating profits to branches of non-resident companies.

218    Nevertheless, even though that principle had not been formally incorporated into Irish law, as has been stated in paragraphs 210 above, Ireland confirmed that the application of section 25 of the TCA 97 by the Irish tax authorities required the actual activities of the Irish branches in question to be identified and the value of those activities to be determined according to the market value of that type of activity.

219    In addition, it must be pointed out that it is apparent from the judgment of the High Court in Belville Holdings v. Cronin [1985] I. R. 465, which is relied on by the Commission in its written response to the questions put by the Court, and the scope of which was debated by the parties at the hearing, that, as early as 1984, it was the position of the Irish tax authorities that, where the declared value of a transaction between associated undertakings did not correspond to the value that would have been negotiated on the open market, that value had to be adjusted so that it did correspond to the market value. That approach, which was endorsed in principle by the High Court, involved adjustments equivalent to those proposed on the basis of the arm’s length principle, in particular in the OECD Transfer Pricing Guidelines.

220    Moreover, as the Commission rightly pointed out, the arm’s length principle was included in the double taxation treaties signed by Ireland with the United States of America and with the United Kingdom of Great Britain and Northern Ireland in order to resolve situations of potential double taxation. Thus, those treaties determine the profits that each State that is a party to those treaties may tax when a company established in one of those States carries on a trade in the other State through a permanent establishment. Therefore, it must be concluded that, at least in its bilateral relations with those States, Ireland agreed to apply the arm’s length principle in order to avoid taxpayers being subject to double taxation.

221    In the fifth place, as is correctly argued by Ireland and ASI and AOE, the Commission cannot, however, contend that there is a freestanding obligation to apply the arm’s length principle arising from Article 107 TFEU obliging Member States to apply that principle horizontally and in all areas of their national tax law.

222    In the absence of EU rules governing the matter, it falls within the competence of the Member States to designate bases of assessment and to spread the tax burden across the different factors of production and economic sectors (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraph 97).

223    Although it is true that this does not mean that each tax measure affecting, inter alia, the basis of assessment taken into account by the tax authorities is exempt from the application of Article 107 TFEU (see, to that effect, judgment of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, C‑106/09 P and C‑107/09 P, EU:C:2011:732, paragraphs 103 and 104), the fact remains that, at the current stage of development of EU law, the Commission does not have the power independently to determine what constitutes the ‘normal’ taxation of an integrated undertaking while disregarding the national rules of taxation.

224    Nevertheless, although so-called ‘normal’ taxation is to be determined according to the national tax rules and in spite of the fact that those rules must be used as a reference point when establishing the very existence of an advantage, the fact remains that, if those national rules provide that the branches of non-resident companies, as concerns the profits derived from those branches’ trading activity in Ireland, and resident companies are to be subject to the same conditions of taxation, Article 107(1) TFEU gives the Commission the right to check whether the level of profit allocated to the branches that has been accepted by the national authorities for the purpose of determining the chargeable profits of those non-resident companies corresponds to the level of profit that would have been obtained if that activity had been carried on under market conditions.

225    In those circumstances, it is necessary to reject the arguments of Ireland and ASI and AOE put forward in the first plea in law in Case T‑778/16 and in the first and second pleas in law in Case T‑892/16, inasmuch as they complain that, in the present instance, the Commission, in view of the Irish tax authorities’ application of section 25 of the TCA 97, checked, by reference to the arm’s length principle — which, according to the contested decision, the Commission used as a tool — whether the level of profit allocated to the branches for their trade in Ireland, as accepted in the contested tax rulings, corresponded to the level of profit that would have been obtained through carrying on that trade under market conditions.

(ii) Whether the Commission correctly applied the arm’s length principle in its primary line of reasoning

226    In Ireland’s third plea in law in Case T‑778/16, it claims that the Commission’s own application of the arm’s length principle in its primary line of reasoning was inconsistent because it failed to take into account the economic reality, structure and particular features of the Apple Group.

227    In that regard, it is appropriate to bear in mind what has been stated in paragraphs 209 and 210 above, namely that, when determining the chargeable profits of non-resident companies carrying on a trade in Ireland through their Irish branches, the relevant analysis for the application of section 25 of the TCA 97 must cover the actual activities of those branches and the market value of the activities actually carried out by the branches themselves.

228    In its primary line of reasoning, the Commission concluded that the Apple Group IP licences held by ASI and AOE should have been allocated to the Irish branches due to the lack of staff and physical presence of those two companies, without attempting to show that that allocation followed from the activities actually carried on by those Irish branches. In addition, the Commission inferred from that conclusion that all of the trading income of ASI and AOE should have been regarded as arising from the activities of the Irish branches without attempting to show that that income was representative of the value of the activities actually carried out by the branches themselves.

229    In those circumstances, it must be held that the arguments raised by Ireland in the third plea in law in Case T‑778/16, inasmuch as they contest the Commission’s conclusions in its primary line of reasoning based on the arm’s length principle, are well founded.

230    For the reasons set out in paragraph 188 above, it will be necessary to go on to examine the arguments raised by Ireland and ASI and AOE regarding the Commission’s assessments in its primary line of reasoning concerning the Authorised OECD Approach.

(3)    The Authorised OECD Approach (part of the second and fourth pleas in law in Case T778/16 and fifth plea in law in Case T892/16)

231    In essence, Ireland and ASI and AOE submit that the Authorised OECD Approach does not form part of the Irish tax system and, in particular, does not apply in the context of the taxation of non-resident companies provided for in section 25 of the TCA 97. That provision is not based on the Authorised OECD Approach. Moreover, Ireland and ASI and AOE submit that, even if it is assumed that the allocation of chargeable profits under section 25 of the TCA 97 should have been carried out in accordance with the Authorised OECD Approach, the Commission misapplied that approach inasmuch as it failed to examine the functions actually performed within the Irish branches of ASI and AOE.

232    It is therefore necessary to examine, in the first place, whether the Commission was entitled to rely on the Authorised OECD Approach when it verified whether there was a selective advantage and, if so, in the second place, whether the Commission correctly applied that approach in its primary line of reasoning.

(i)    Whether the Commission was entitled to rely on the Authorised OECD Approach

233    As has been stated in paragraph 202 above, in the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation, as this allows it to be verified whether those measures lead to a reduction in the tax burden on the recipients of the measures in question as compared with the burden that those recipients would normally have had to bear had the measures not been adopted.

234    Accordingly, it is Irish tax law that the Commission should have used for its comparison to verify whether the contested tax rulings had created an advantage and whether that advantage was selective.

235    As is apparent from the considerations set out in paragraph 195 above, the Commission explicitly stated in recital 255 of the contested decision that it did not directly apply Article 7(2) or Article 9 of the OECD Model Tax Convention or the guidance provided by the OECD on profit allocation or transfer pricing. Further, as has been pointed out in paragraph 217 above, the Authorised OECD Approach has not been incorporated into Irish tax law.

236    However, even though the Commission was entitled to observe that it cannot be formally bound by the principles developed within the OECD and, more specifically, by the Authorised OECD Approach, the fact remains that, in its primary line of reasoning, in particular in recitals 265 to 270 of the contested decision, it relied, in essence, on the Authorised OECD Approach when it considered that profit allocation within a company involved allocating assets, functions and risks among the various parts of that company. Moreover, the Commission itself refers directly to the Authorised OECD Approach when substantiating its considerations, for example in footnote 186 of the contested decision.

237    In that regard, it should be noted that the Authorised OECD Approach is an approach that is based on work carried out by groups of experts and which reflects international consensus regarding profit allocation to permanent establishments. It is, therefore, certainly of practical significance when interpreting questions relating to that profit allocation, as the Commission acknowledged in recital 79 of the contested decision.

238    Moreover, it should be borne in mind, as Ireland itself acknowledged in paragraph 123 of its application without being challenged in that regard by the Commission, that, when applying section 25 of the TCA 97 it is necessary to look at the facts and circumstances of the branches in Ireland, including the functions performed, the assets used and the risks assumed by the branches. In addition, it should also be borne in mind that, when questioned specifically on that point in a written question put by the Court and orally at the hearing, Ireland confirmed that, in order to determine the profits to be allocated to branches for the purposes of section 25 of the TCA 97, it was necessary to carry out an objective analysis of the facts that included, first, identifying the ‘activities’ performed by the branch, the assets it uses for its activities, including intangibles such as IP, and the related risks that it assumes and, second, determining the value of that type of activity on the market.

239    Contrary to what is claimed by Ireland in its arguments concerning the differences between section 25 of the TCA 97 and the Authorised OECD Approach, it is clear that there is essentially some overlap between the application of section 25 of the TCA 97 as described by Ireland and the functional and factual analysis conducted as part of the first step of the analysis proposed by the Authorised OECD Approach.

240    In those circumstances, the Commission cannot be criticised for having relied, in essence, on the Authorised OECD Approach when it considered that, for the purposes of applying section 25 of the TCA 97, the allocation of profits to the Irish branch of a non-resident company had to take into account the allocation of assets, functions and risks between the branch and the other parts of that company.

(ii) Whether the Commission correctly applied the Authorised OECD Approach in its primary line of reasoning

241    Ireland and ASI and AOE submit, in essence, that the Commission’s primary line of reasoning is inconsistent with the Authorised OECD Approach, inasmuch as the Commission considered that the profits relating to the Apple Group’s IP licences should necessarily have been allocated to the Irish branches of ASI and AOE, in so far as the executives of ASI and AOE did not perform active or critical functions with regard to the management of those licences.

242    In that regard, it should be borne in mind that, in accordance with the Authorised OECD Approach as described, inter alia, in recitals 88 and 89 of the contested decision, the aim of the analysis in the first step is to identify the assets, functions and risks that must be allocated to the permanent establishment of a company on the basis of the activities actually performed by that company. It is true that the analysis in that first step cannot be carried out in an abstract manner that ignores the activities and functions performed within the company as a whole. However, the fact that the Authorised OECD Approach requires an analysis of the functions actually performed within the permanent establishment is at odds with the approach adopted by the Commission consisting, first, in identifying the functions performed by the company as a whole without conducting a more detailed analysis of the functions actually performed by the branches and, second, in presuming that the functions had been performed by the permanent establishment when those functions could not be allocated to the head office of the company itself.

243    In its primary line of reasoning the Commission considered, in essence, that the profits of ASI and AOE relating to the Apple Group’s IP (which, according to the Commission’s line of argument, represented a very significant part of the total profit of those two companies) had to be allocated to the Irish branches in so far as ASI and AOE had no employees capable of managing that IP outside those branches, without, however, establishing that the Irish branches had performed those management functions.

244    Accordingly, as Ireland and ASI and AOE rightly argue, the approach followed by the Commission in its primary line of reasoning is inconsistent with the Authorised OECD Approach.

245    In those circumstances, as is rightly argued by Ireland and ASI and AOE in their complaints in the second and fourth pleas in law in Case T‑778/16 and in the fifth plea in law in Case T‑892/16, it must be found that the Commission erred in its application, in its primary line of reasoning, of the functional and factual analysis of the activities performed by the branches of ASI and AOE, on which the application of section 25 of the TCA 97 by the Irish tax authorities is based and which corresponds, in essence, to the analysis provided for by the Authorised OECD Approach.

(4)    Conclusions regarding the identification of the reference framework and the assessments of normal taxation under Irish law

246    In the light of the foregoing considerations, it must be found that the Commission did not err when it identified as the reference framework in the present instance the ordinary rules of taxation of corporate profit, which include, in particular, the provisions of section 25 of the TCA 97.

247    In addition, the Commission did not err when it relied on the arm’s length principle as a tool in order to check whether, in the application of section 25 of the TCA 97 by the Irish tax authorities, the level of profit allocated to the branches for their trading activity in Ireland as accepted in the contested tax rulings corresponded to the level of profit that would have been obtained by carrying on that trading activity under market conditions.

248    Moreover, the Commission cannot be criticised for having relied, in essence, on the Authorised OECD Approach when it considered that, for the purposes of applying section 25 of the TCA 97, the allocation of profits to the Irish branch of a non-resident company had to take into account the allocation of assets, functions and risks between the branch and the other parts of that company.

249    However, it must be found that, in its primary line of reasoning, the Commission made errors concerning the application of, first, section 25 of the TCA 97, as has been stated in paragraph 187 above, second, the arm’s length principle, as has been stated in paragraph 229 above, and, third, the Authorised OECD Approach, as has been stated in paragraphs 244 and 245 above. In those circumstances, it is appropriate to conclude that the Commission’s primary line of reasoning was based on erroneous assessments of normal taxation under the Irish tax law applicable in the present instance.

250    For the sake of completeness, it will, however, be necessary to go on to examine the complaints raised by Ireland and ASI and AOE regarding the Commission’s factual assessments concerning the activities within the Apple Group.

3.      The Commission’s assessments concerning the activities within the Apple Group (first plea in law in Case T778/16 and third and fourth pleas in law in Case T892/16)

251    As has been stated in paragraph 177 above, section 25 of the TCA 97 relates to the profits derived from trade that the Irish branches have carried on themselves. In addition, it should be borne in mind that, as has been stated in paragraph 238 above, when applying section 25 of the TCA 97, it is necessary to look at the facts and circumstances of the branches in Ireland, including the functions performed, the assets used and the risks assumed by the branches.

252    Moreover, the Commission itself emphasised in recitals 91 and 92 of the contested decision that, when dealing with the issue of the allocation of intangible property, such as IP, to permanent establishments, the Authorised OECD Approach relies on the concept of significant people functions related to the management of the property in question and decision-making, in particular with regard to the development of the intangible property.

253    It is therefore appropriate to examine the complaints raised by Ireland and ASI and AOE in the first plea in law in Case T‑778/16 and in the third and fourth pleas in law in Case T‑892/16 regarding the Commission’s factual assessments concerning the activities within the Apple Group.

254    Ireland and ASI and AOE submit, in essence, that the activities and functions performed by the Irish branches of ASI and AOE, identified by the Commission, represented only a tiny part of their economic activity and their profits and that, in any event, those activities and functions included neither management nor strategic decision-making concerning the development or marketing of the IP. Rather, Ireland and ASI and AOE submit that all strategic decisions, in particular those concerning product design and development, were taken following an overall commercial strategy determined in Cupertino and implemented by the two companies in question through their management bodies and, in any event, outside the Irish branches. Consequently, there is no justification for allocating the Apple Group’s IP licences to the Irish branches.

(a)    Activities of ASI’s Irish branch

255    As has been stated in paragraph 9 above, ASI’s Irish branch is responsible for, inter alia, carrying out procurement, sales and distribution activities associated with the sale of Apple-branded products to related parties and third-party customers in the areas covering the EMEIA and APAC regions.

256    In recitals 289 and 290 of the contested decision, the Commission referred to product quality control, R&D facilities management and business risk as being functions that necessarily had to be allocated to the Irish branches given that, outside those branches, ASI and AOE had no staff capable of carrying out those functions.

257    More specifically, the Commission emphasised that, in so far as the Irish branch of ASI was authorised to distribute Apple-branded products, its activities necessitated access to that brand, which was granted to ASI as a whole in the form of the Apple Group’s IP licences (recital 296 of the contested decision).

258    The Commission then asserted that ASI’s Irish branch performed a number of functions crucial for the development and maintenance of the Apple brand on the local market and for ensuring customer loyalty to that brand in that market. By way of example, it stated that ASI’s Irish branch had incurred local marketing costs directly with marketing service providers (recital 297 of the contested decision). In addition, ASI’s Irish branch was responsible for gathering and analysing regional data to estimate the expected demand forecast for Apple-branded products (recital 298 of the contested decision). Moreover, the Commission highlighted the fact that there were [confidential] full-time equivalent employees (‘FTEs’) categorised as R&D personnel based in Ireland (recital 300 of the contested decision).

259    First, with regard to the ‘exclusion’ approach to allocation adopted by the Commission in recitals 289 to 295 of the contested decision, which involved attributing to the Irish branches of ASI and AOE the quality control, R&D facilities management and business risk management functions solely on the basis that ASI and AOE had no staff outside their Irish branches, it is necessary to recall the considerations set out in paragraphs 243 and 244 above, which states that such an approach is inconsistent with Irish law and with the Authorised OECD Approach. The Commission did not succeed, by that reasoning, in showing that those functions had actually been carried out by the Irish branches.

260    In order to substantiate its assessment, the Commission relies on Exhibit B to the cost-sharing agreement as amended in 2009 which includes two tables, reproduced in Figures 8 and 9 of the contested decision (recital 122 of the contested decision), concerning all of the relevant functions relating to intangible property subject to the agreement in question and the related risks. Each of those functions and risks has an ‘x’ next to it in the columns for, respectively, Apple Inc. (identified as ‘Apple’) and ASI and AOE (identified collectively as ‘International Participant’), except for IP Registration and Defence, which is solely associated with Apple Inc.

261    In respect of the intangible property that is subject to the cost-sharing agreement, that is to say essentially all of the Apple Group’s IP, the functions listed in Exhibit B to that agreement cover R&D, quality control, forecasting, financial planning and analysis in relation to development activities, R&D facilities management, contracting with related parties or third parties in relation to development activities, contract administration in relation to development activities, selection, hiring and supervision of employees, contractors and subcontractors to perform development activities, IP registration and defence, and market development.

262    The risks listed in Exhibit B to the cost-sharing agreement relating to all of the Apple Group’s IP include, inter alia, product development risk, product quality risk, market development risk, product liability risk, fixed and tangible asset risk, IP protection and infringement risk, brand development and recognition risk, and risks related to changes in regulatory regimes.

263    As Apple Inc. claimed in the administrative procedure and as ASI and AOE have argued before the Court, it is apparent from the exhibit in question that it lists the functions that the parties to the cost-sharing agreement were authorised to perform and the associated risks that they might have been required to assume. However, the Commission provided no evidence to show that ASI or AOE, let alone their Irish branches, had actually performed any of those functions.

264    In addition, with regard to those functions and risks, the Commission contends that it is ‘clear’ that, with no employees outside their Irish branches, ASI and AOE would not have been able to monitor such risks. However, the Commission provides no evidence that demonstrates that the staff of the branches in question actually performed those functions and managed those risks.

265    Moreover, Ireland — supported in this regard by Apple Inc. in the administrative procedure and by ASI and AOE before the Court — claimed that ASI’s branch had had no staff until 2012, before which all of the staff had been employed by the Irish branch of AOE. That information is stated in recital 109 of the contested decision and was confirmed during the hearing. If the Commission’s argument that ASI would not have been able to perform such functions outside its branch given its lack of staff had to be followed, this would mean that, for a large part of the period covered by the Commission’s examination, ASI’s Irish branch, which also had no staff, would have been equally unable to perform those functions.

266    In the same vein, the Commission relies on the fact that ASI’s board of directors would not have been in a position to perform those functions or assume those risks purely through occasional board meetings. However, the Commission did not attempt to establish that the management bodies of the Irish branches of ASI and AOE had actually actively managed, on a day-to-day basis, all of the functions and risks relating to the Apple Group’s IP listed in Exhibit B to the cost-sharing agreement.

267    Lastly, it can be concluded that the activities and risks listed in Exhibit B to the cost-sharing agreement, mentioned in paragraphs 261 and 262 above are, in essence, all of the functions at the heart of the Apple Group’s business model, which is centred on the development of technological products. With regard, in particular, to the risks listed in Exhibit B, they can be regarded as key risks which are inherent to that business model. The Commission argues, in essence, that ASI’s Irish branch performed all of those functions and assumed all of those risks relating to the Apple Group’s activities outside North and South America without providing evidence of the actual performance of those functions or assumption of those risks by the branch in question. Given the extent of the Apple Group’s activities outside North and South America, which represent approximately 60% of the group’s turnover, the Commission’s assertion in that regard is not reasonable.

268    Secondly, with regard to the activities and functions that the Commission listed in recitals 296 to 300 of the contested decision as having actually been performed by ASI’s Irish branch, it should be noted that, in the present instance, none of those activities or functions, regardless of whether they are taken individually or as a whole, justifies allocating the Apple Group’s IP licences to that branch.

269    With regard to quality control, ASI and AOE claimed, without being challenged by the Commission on the point, that thousands of people around the world worked in the quality control function, while only one person was employed in that function in Ireland. In addition, they stated that those functions could even be outsourced through agreements with third-party manufacturers.

270    In that regard, it is clear that, in the absence of other evidence, it cannot be concluded from the fact that a function such as quality control is crucial for the reputation of the Apple brand, whose products were distributed by ASI’s Irish branch, that that function was necessarily performed by that branch.

271    As regards the management of risk exposure in connection with the branches’ normal activity, the Commission put forward only a single argument, in which it claimed that it was ‘clear’ that, in so far as ASI had no employees, it could not control and monitor commercial risks. In that regard, it is sufficient to refer to paragraph 266 above, according to which it was for the Commission to prove with specific evidence that the branches of ASI and AOE had performed the functions and assumed the risks that were allocated to them. Consequently, the Commission’s reasoning, far from leading to a clear result, is insufficient to prove that that type of function was actually performed by ASI’s Irish branch.

272    ASI and AOE claimed, without being challenged on the point by the Commission, that no one employed by the Irish branches was responsible for R&D facilities management.

273    With regard to the [confidential] FTEs categorised as employees in the R&D function, ASI and AOE provided detailed explanations regarding the specific tasks performed by those employees, namely ensuring products meet safety and environmental standards in the region [confidential], testing products to ensure they meet technical standards in the region [confidential], assisting a Cupertino-based team with software delivery [confidential], translating software into various languages of the region [confidential] and administrative support [confidential]. They argue that those activities are clearly support roles and, as important as they may be, they cannot be regarded as key functions that determine that the Apple Group’s IP licences should be allocated to the Irish branches in question.

274    With regard to the local marketing costs incurred directly with marketing service providers, the fact that ASI’s Irish branch incurred those costs does not mean that that branch is responsible for designing the marketing strategy itself. As ASI and AOE claim, without being challenged on the point by the Commission, ASI’s Irish branch had no staff assigned to the marketing function.

275    As for the activities involving gathering and analysing regional data, Ireland and ASI and AOE do not dispute that ASI and AOE were involved in such activities during the relevant period. However, as Ireland and ASI and AOE submit, without being challenged on the point by the Commission, those activities seem to have consisted of merely gathering data which was to be added to a database of worldwide scope. Those statistical data treatment activities seem to be support activities rather than activities that are essential for all of ASI’s trading activity. In any event, the fact that the Irish branches are responsible for gathering data is insufficient to justify allocating the Apple Group’s IP licences to those branches.

276    With regard to the activities relating to the AppleCare service, in recital 299 of the contested decision the Commission stated, on the basis of the ad hoc report submitted by Ireland, that these were after-sales support and repair services for Apple-branded products covering the entire EMEIA region, for which ASI’s Irish branch was responsible. The Commission considered that, in so far as the objective of that function was to ensure customer satisfaction, it had a direct link to the Apple brand.

277    In that regard, it is apparent from the ad hoc report submitted by Ireland, on which the Commission itself relied, that ASI’s Irish branch performed a number of so-called ‘execution’ functions, operating in accordance with the guidance and strategy decided in the United States, including some relating to the AppleCare service. As part of that service, the responsibilities of ASI’s Irish branch were described as being linked to the warranty and repair programmes for Apple-branded products, repair network management, and telephone support for customers. The tasks specifically performed by ASI’s branch were described as the collection of data on product failures and the monitoring of those failures and of returned products, which were sent to the analytics teams in the United States. The report also notes that ASI’s branch was responsible for managing suppliers of repair services, which were centrally approved by the Apple Group, and for distributing spare parts within the supplier network. That description matches the description in the ad hoc report submitted by Apple Inc. The Commission did not challenge that description of the tasks relating to the AppleCare service performed by ASI’s Irish branch.

278    At the hearing, ASI and AOE confirmed that AppleCare was a service provided by the Irish branch, which bore the costs of the infrastructure and staff connected with that service. That staff was, inter alia, responsible for answering questions from users of Apple-branded products through a call centre.

279    On the basis of the description of the AppleCare service given by Ireland and ASI and AOE, to which the Commission makes reference in the contested decision, it can be summarised as after-sales support for users of Apple-branded products, which includes the repair and exchange of defective products. The nature of the support service provided by the Irish branch involves assisting in the implementation of the warranty itself, for which ASI is responsible. Moreover, such an after-sales service is not linked to the design, development, manufacture or sale of the products themselves.

280    Although the quality of an after-sales service may have a significant impact on the perception of the brand and may be the impetus for product improvements, the fact that those activities were performed by ASI’s Irish branch does not necessarily mean that the Apple Group’s IP licences should be allocated to it. After-sales services are often outsourced without it being necessary to allocate the IP of the company in question to the external supplier in question.

281    Thirdly, the analysis of the activities of ASI’s Irish branch, including the functions assessed by the Commission as justifying the allocation of the Apple Group’s IP licences to that branch, indicates that they are routine functions performed in accordance with instructions from executives based in the United States which do not contribute significant added value to ASI’s activities taken as a whole. In that regard, it should be noted, in particular, that the ad hoc reports submitted by Apple Inc. and Ireland include a detailed analysis of the activities of ASI’s Irish branch. Those two reports concluded that those activities were routine and characterised them as supply, sale and distribution activities that were of limited risk. Although the Commission disputes the latter assessment, it has not, as such, challenged the description of those activities and functions provided by Ireland and Apple Inc.

282    Fourthly, the Commission argued that those activities and functions performed by ASI’s Irish branch necessitated access to the Apple brand. Although the activities of ASI’s Irish branch may have had an impact on the image and prestige of the Apple brand and it may even have been necessary to use the Apple Group’s IP in order to perform those activities, that access to and use of the brand by the branch could have been assured through licences specific to that branch’s needs without it being necessary to allocate all of the IP licences in question to that branch. Therefore, the Commission did not succeed in showing, through its arguments, that the Apple Group IP licences held by ASI had to be allocated to its branch.

283    After analysing the functions and activities performed by ASI’s Irish branch which the Commission had identified as justifying allocating the Apple Group IP licences held by ASI to that branch, it must be concluded that these are support activities for implementing policies and strategies designed and adopted outside of that branch, in particular with regard to the research, development and marketing of Apple-branded products.

284    In those circumstances, it must be concluded, as was argued by Ireland and ASI and AOE, that the Commission erred when it considered that the functions and activities performed by ASI’s Irish branch justified allocating the Apple Group’s IP licences and the income arising from those licences to that branch.

(b)    Activities of AOE’s Irish branch

285    As has been stated in paragraph 10 above, AOE’s Irish branch is responsible for the manufacture and assembly of iMac desktops, MacBook laptops and other computer accessories. Those activities take place in Ireland. It supplies its products to related parties within the Apple Group.

286    In recital 301 of the contested decision, the Commission stated that AOE’s Irish branch developed specific processes and manufacturing expertise and ensured quality assurance and quality control functions which were needed to preserve the value of the Apple brand.

287    In addition, in recitals 301 and 302 of the contested decision, the Commission stated that the costs covered by the cost-sharing agreement associated with that branch were taken into account in the 1991 tax ruling and that in the 2007 tax ruling [confidential] of its turnover had been allocated as IP return. On the basis of those factors, the Commission inferred that the Irish authorities should have concluded that AOE’s Irish branch was involved in IP development or in the management and control of the Apple Group’s IP licences.

288    First, the findings in paragraphs 259 to 272 above apply equally to AOE’s Irish branch, in so far as the Commission’s arguments concerning quality control, R&D facilities management and business risk management functions refer indiscriminately to ASI and AOE’s Irish branches.

289    Secondly, concerning, more specifically, the specific processes and manufacturing expertise, the parties agree that those functions were actually performed by AOE’s Irish branch. However, Ireland and ASI and AOE dispute the conclusions that the Commission draws from that fact.

290    In that regard, it should be noted that those specific processes and that expertise were developed by AOE’s Irish branch itself in the context of its manufacturing activities. Although those processes and that expertise may benefit from protection through certain IP rights, they are limited in scope and are specific to the activities performed by that Irish branch. Consequently, those processes and that expertise are insufficient to justify allocating all of the Apple Group’s IP licences to that branch.

291    Thirdly, as Ireland and ASI and AOE claim and the Commission acknowledges, the contested tax rulings took account of the contributions made by AOE’s Irish branch to the Apple Group’s IP.

292    First, in the 1991 tax ruling, as the Commission notes in recital 302 of the contested decision, the contribution made by AOE’s Irish branch to the costs associated with the cost-sharing agreement was included in the operating costs on the basis of which AOE’s chargeable profits were calculated. Consequently, part of AOE’s chargeable profits was deemed to be calculated by taking into account part of the Apple Group’s IP. However, the Commission has provided no evidence to substantiate its argument set out in recital 302 of the contested decision according to which, given that part of the costs relating to the Apple Group’s IP had been taken into account when AOE’s chargeable profits were calculated, the Irish tax authorities should have allocated all of the Apple Group’s IP licences to AOE’s Irish branch.

293    Second, in the 2007 tax ruling, the existence of IP specific to the manufacturing activities of AOE’s Irish branch and the corresponding remuneration were recognised expressly when the return on the IP developed by that branch was included in the formula for the calculation of AOE’s chargeable profits. In that regard, the Commission provided no evidence to substantiate its argument set out in recital 303 of the contested decision that, in the light of the remuneration relating to the IP developed by AOE’s Irish branch, that branch must have been involved in the development, management or control of the licences covering all of the Apple Group’s IP. The fact that remuneration for the IP developed specifically in the context of the manufacturing activities of AOE’s Irish branch was allocated to that branch does not mean that the licences covering all of the Apple Group’s IP must also be attributed to it.

294    Consequently, the Commission cannot base its conclusion that the profits from all of the Apple Group’s IP should have been allocated to AOE’s Irish branch solely on the involvement of that branch in the creation of specific processes and the development of expertise in the manufacture of the products for which it is responsible.

295    In those circumstances, it must be concluded, as Ireland and ASI and AOE argued, that the Commission erred when it considered that the functions and activities performed by AOE’s Irish branch justified allocating the Apple Group’s IP licences and the income arising from them to that branch.

(c)    Activities other than those of ASI and AOE’s branches

296    As has been stated in paragraphs 37 to 40 above, the Commission’s primary line of reasoning in the contested decision is based on the contention that the Apple Group IP licences held by ASI and AOE should have been allocated to their Irish branches because, aside from those branches, ASI and AOE had no physical presence and no employees capable of performing key functions and managing the licences in question, whereas the branches of ASI and AOE were the only part of those companies with a tangible presence and employees.

297    It is necessary to examine the arguments put forward by Ireland and ASI and AOE in which they contest the Commission’s contention and claim, in essence, that the Apple Group’s strategic decision-making was centralised in Cupertino and that ASI and AOE implemented those decisions through their management bodies without the Irish branches actively having taken part in that decision-making.

(1)    Strategic decision-making within the Apple Group

298    Ireland and ASI and AOE claim that the ‘centre of gravity’ of the Apple Group’s activities was in Cupertino and not in Ireland. All strategic decisions, in particular those concerning the design and development of the Apple Group’s products, were taken, in accordance with an overall business strategy covering the group as a whole, in Cupertino. That centrally decided strategy was implemented by the companies of the group, which include ASI and AOE, which acted through their management bodies, much like any other company, according to the rules of company law applicable to them.

299    In that regard, it should be noted, in particular, that ASI and AOE submitted evidence, in the administrative procedure and in support of their pleadings in the present instance, on the centralised nature of the strategic decisions within the Apple Group taken by directors in Cupertino and then implemented subsequently by the various entities of the group, such as ASI and AOE. Those centralised procedures concern, inter alia, pricing, accounting decisions, financing and treasury and cover all of the international activities of the Apple Group that would have been decided centrally under the direction of the parent company, Apple Inc.

300    More specifically, with regard to decisions in the field of R&D — which is, in particular, the functional area behind the Apple Group’s IP — ASI and AOE provided evidence showing that decisions relating to the development of the products which were then to be marketed by, inter alia, ASI and AOE, and concerning the R&D strategy which was to be followed by, inter alia, ASI and AOE had been taken and implemented by executives of the group based in Cupertino. It is also apparent from that evidence that the strategies relating to new product launches and, in particular, the organisation of distribution on the European markets in the months leading up to the proposed launch date had been managed at the Apple-Group level by, inter alia, the Executive Team under the direction of the Chief Executive Officer in Cupertino.

301    In addition, it is apparent from the file that contracts with third-party original equipment manufacturers (‘OEMs’), which were responsible for the manufacture of a large proportion of the products sold by ASI, were negotiated and signed by the parent company, Apple Inc., and ASI through their respective directors, either directly or by power of attorney. ASI and AOE also submitted evidence regarding the negotiations and the signing of contracts with customers, such as telecommunications operators, which were responsible for a significant proportion of the retail sales of Apple-branded products, in particular mobile phones. It is apparent from that evidence that the negotiations in question were led by directors of the Apple Group and that the contracts were signed on behalf of the Apple Group by Apple Inc. and ASI through their respective directors, either directly or by power of attorney.

302    Consequently, in so far as it has been established that the strategic decisions — in particular those concerning the development of the Apple Group’s products underlying the Apple Group’s IP — were taken in Cupertino on behalf of the Apple Group as a whole, the Commission erred when it concluded that the Apple Group’s IP was necessarily managed by the Irish branches of ASI and AOE, which held the licences for that IP.

(2)    Decision-making by ASI and AOE

303    With regard to ASI and AOE’s ability to take decisions concerning their essential functions through their management bodies, the Commission itself accepted that those companies had boards of directors which held regular meetings during the relevant period, and reproduced extracts from the minutes of those meetings confirming that fact in Tables 4 and 5 of the contested decision.

304    The fact that the minutes of the board meetings do not give details of the decisions concerning the management of the Apple Group’s IP licences, of the cost-sharing agreement and of important business decisions does not mean that those decisions were not taken.

305    The summary nature of the extracts from the minutes reproduced by the Commission in Tables 4 and 5 of the contested decision is sufficient to allow the reader to understand how the company’s key decisions in each tax year, such as approval of the annual accounts, were taken and recorded in the relevant board minutes.

306    The resolutions of the boards of directors which were recorded in those minutes covered regularly (that is to say, several times a year), inter alia, the payment of dividends, the approval of directors’ reports and the appointment and resignation of directors. In addition, less frequently, those resolutions concerned the establishment of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing bank accounts, overseeing relations with governments and public bodies, carrying out audits, taking out insurance, hiring, purchasing and selling assets, taking delivery of goods and dealing with commercial contracts. Moreover, it is apparent from those minutes that individual directors were granted very wide managerial powers.

307    In addition, with regard to the cost-sharing agreement, it is apparent from the information submitted by ASI and AOE that the various versions of that agreement in existence during the relevant period were signed by members of the respective boards of directors of those companies in Cupertino.

308    Moreover, according to the detailed information provided by ASI and AOE, it is the case for both ASI and AOE that, among ASI’s 14 directors and AOE’s 8 directors on their respective boards for each tax year during the period when the contested tax rulings were in force, there was only one director who was based in Ireland.

309    Consequently, the Commission erred when it considered that ASI and AOE, through their management bodies, in particular their boards of directors, did not have the ability to perform the essential functions of the companies in question by, where appropriate, delegating their powers to individual executives who were not members of the Irish branches’ staff.

(d)    Conclusions concerning the activities within the Apple Group

310    It is apparent from the foregoing considerations that, in the present instance, the Commission has not succeeded in showing that, in the light, first, of the activities and functions actually performed by the Irish branches of ASI and AOE and, second, of the strategic decisions taken and implemented outside of those branches, the Apple Group’s IP licences should have been allocated to those Irish branches when determining the annual chargeable profits of ASI and AOE in Ireland.

311    In those circumstances, it is necessary to uphold the complaints raised by Ireland in the first plea in law in Case T‑778/16 and by ASI and AOE in the third and fourth pleas in law in Case T‑892/16 regarding the Commission’s factual assessments concerning the activities of the Irish branches of ASI and AOE and the activities outside of those branches.

4.      Conclusion regarding the Commission’s assessment that there was a selective advantage on the basis of its primary line of reasoning

312    In the light of the findings in paragraph 249 above regarding the Commission’s erroneous assessments of normal taxation under the Irish tax law applicable in the present instance and the findings in paragraph 310 above regarding the Commission’s erroneous assessments of the activities within the Apple Group, it is necessary to uphold the pleas in law alleging that, in its primary line of reasoning, the Commission did not succeed in showing that, by issuing the contested tax rulings, the Irish tax authorities granted ASI and AOE an advantage for the purposes of Article 107(1) TFEU.

313    It is therefore not necessary to examine the pleas in law contesting the Commission’s assessments in its primary line of reasoning regarding the selectivity of the measures at issue and the lack of justification for them.

314    Therefore, it is appropriate to go on to examine the pleas in law submitted by Ireland and ASI and AOE contesting the assessments made by the Commission in connection with its subsidiary and alternative lines of reasoning in the contested decision.

E.      Pleas in law contesting the assessments made by the Commission in connection with its subsidiary line of reasoning (fourth plea in law in Case T778/16 and eighth plea in law in Case T892/16)

315    In connection with its subsidiary line of reasoning in the contested decision (recitals 325 to 360), the Commission contended that, even if the Irish tax authorities had been fully entitled to accept that the Apple Group IP licences held by ASI and AOE should not have been allocated to their Irish branches, the profit allocation methods endorsed in the contested tax rulings had nonetheless led to a result departing from a reliable approximation of a market-based outcome in line with the arm’s length principle, because those methods undervalued the annual chargeable profits of ASI and AOE in Ireland.

316    More specifically, in particular in recitals 328 to 330 of the contested decision, the Commission contended that the profit allocation methods endorsed in the contested tax rulings constituted one-sided profit allocation methods which resembled the transaction net margin method (‘the TNMM’) laid down by the OECD Transfer Pricing Guidelines.

317    According to the Commission, the profit allocation methods endorsed by the contested tax rulings were vitiated by errors resulting from (i) the choice of ASI and AOE’s Irish branches as the focus or ‘tested party’ in one-sided profit allocation methods (recitals 328 to 333 of the contested decision), (ii) the choice of the operating costs as the profit level indicator (recitals 334 to 345 of the contested decision), and (iii) the levels of return accepted (recitals 346 to 359 of the contested decision). According to the Commission, each of those errors entailed a reduction in the tax liability of those companies in Ireland as compared with non-integrated companies whose chargeable profits reflected prices negotiated at arm’s length on the market (recital 360 of the contested decision).

318    Thus, it must be held that all the assessments made by the Commission in connection with its subsidiary line of reasoning seek to establish the existence of an advantage that was granted to ASI and AOE because the profit allocation methods approved by the contested tax rulings had not led to arm’s length profits.

319    In that regard, it should be noted that the mere non-observance of methodological requirements, in particular in connection with the OECD Transfer Pricing Guidelines, is not a sufficient ground for concluding that the calculated profit is not a reliable approximation of a market-based outcome, let alone that the calculated profit is lower than the profit that should have been obtained if the method for determining transfer pricing had been correctly applied. Thus, merely stating that there has been a methodological error is not sufficient, in itself, to demonstrate that the tax measures at issue have conferred an advantage on the recipients of those measures. Indeed, the Commission must also demonstrate that the methodological errors that have been identified have led to a reduction in the chargeable profit and thus in the tax burden borne by those recipients, in the light of the tax burden which they would have borne pursuant to the normal rules of taxation under national law had the tax measures in question not been adopted.

320    It is in the light of the foregoing considerations that the arguments put forward by Ireland and by ASI and AOE regarding the Commission’s assessments as summarised in paragraphs 315 to 317 above must be analysed.

321    Ireland and ASI and AOE raise, first, complaints regarding the Commission’s assessments of the application of the TNMM and the fact that it relied on instruments developed within the OECD. Next, Ireland and ASI and AOE contest the three methodological errors specifically referred to by the Commission, namely those concerning the choice of ASI and AOE’s Irish branches as the ‘tested party’ for the profit allocation methods, the choice of the operating costs as the profit level indicator, and the levels of return accepted in the contested tax rulings.

1.      The assessment made regarding the profit allocation methods endorsed by the contested tax rulings in the light of the TNMM

322    The parties disagree, in essence, as to the extent to which the Commission was entitled to rely, for the purposes of its subsidiary line of reasoning, on the arm’s length principle, as laid down in the OECD Transfer Pricing Guidelines, to which the Authorised OECD Approach refers. More specifically, they disagree as to whether the Commission was entitled to use the TNMM, as laid down in, inter alia, those guidelines, in order to ascertain whether the profit allocation method endorsed by the contested tax rulings had led to ASI and AOE’s chargeable profits being lower than those of a company in a comparable situation.

323    In the first place, concerning the application of the Authorised OECD Approach, it is necessary to recall the considerations set out in paragraphs 233 to 245 above. Thus, in essence, although the Authorised OECD Approach has not been incorporated into Irish tax law, the way in which section 25 of the TCA 97 is applied by the Irish tax authorities overlaps, for the most part, with the analysis proposed by the Authorised OECD Approach. First, the application of section 25 of the TCA 97, as described by Ireland in its application and as confirmed by Ireland during the hearing, requires, first, an analysis of the functions performed, the assets used and the risks assumed by the branches, which, in essence, corresponds to the first step of the analysis proposed by the Authorised OECD Approach. Second, regarding the second step of that analysis, it should be borne in mind that the Authorised OECD Approach refers to the OECD Transfer Pricing Guidelines. In that regard, neither Ireland nor ASI and AOE have challenged the Commission’s assertion, set out in, inter alia, recital 265 of the contested decision, that the profit allocation methods approved by the contested tax rulings resembled the one-sided transfer pricing methods referred to in the OECD Transfer Pricing Guidelines, such as the TNMM.

324    In the second place, it should be noted that, in the context of the administrative procedure, Ireland and Apple Inc. submitted ad hoc reports, drawn up by their respective tax advisors, which specifically relied on the TNMM for the purpose of demonstrating that ASI and AOE’s chargeable profits in Ireland, which were declared in Ireland on the basis of the contested tax rulings, fell within an arm’s length range. Ireland and ASI and AOE cannot criticise the Commission for having relied on the Authorised OECD Approach or for having used the TNMM in connection with its subsidiary line of reasoning, when they themselves relied thereon in the context of the administrative procedure.

325    Having regard to the foregoing, the complaints regarding the use by the Commission of the TNMM, as laid down in, inter alia, the OECD Transfer Pricing Guidelines, in order to ascertain whether the profit allocation method endorsed by the contested tax rulings had led to a reduction in ASI and AOE’s tax liability must be rejected.

326    In those circumstances, it will be necessary to go on to examine Ireland and ASI and AOE’s arguments regarding the application by the Commission of the TNMM in connection with its subsidiary line of reasoning, in order to assess whether the Commission succeeded in demonstrating that the contested tax rulings had conferred an advantage on ASI and AOE.

327    In that regard, the parties disagree as regards the Commission’s statements relating to three errors in the profit allocation method endorsed by the contested tax rulings, concerning, first, the choice of the branches as tested parties, second, the choice of the operating costs as the profit level indicator and, third, the levels of return accepted.

2.      The choice of ASI and AOE’s Irish branches as the ‘tested party’ when applying the profit allocation methods

328    It should be borne in mind that, in recitals 328 to 333 of the contested decision, the Commission noted that, even assuming that the Apple Group’s IP licences had been correctly allocated to the head offices of ASI and AOE, those head offices had been unable to perform complex functions without any staff or physical presence. By contrast, according to the Commission, the Irish branches had performed IP-related functions that were crucial in building brand awareness and brand recognition in the EMEIA region. The Commission inferred from this that the Irish branches of ASI and AOE had been incorrectly chosen as tested parties.

329    In that regard, it should be noted that the TNMM constitutes a one-sided method of determining transfer pricing. It consists in determining, relative to an appropriate base, the net profit obtained by a taxpayer, namely the ‘tested party’, from a controlled transaction or from controlled transactions which are closely linked or continuous. In order to determine the appropriate base, it is necessary to choose a profit level indicator, such as costs, sales or assets. The net profit indicator obtained by the taxpayer from a controlled transaction must be determined by reference to the net profit indicator that the same taxpayer or an independent undertaking obtains from comparable transactions on the free market. The TNMM therefore requires the identification of a party to the transaction in respect of which an indicator is tested. This is the ‘tested party’.

330    In addition, according to the OECD Transfer Pricing Guidelines of 2010, to which the Commission makes reference in, inter alia, recitals 94 and 255 of the contested decision as useful guidance, and which are also relied on by the ad hoc reports submitted by Ireland and Apple Inc., the choice of tested party must be in line with the functional analysis of the transaction. Furthermore, it is stated that, as a general rule, the tested party is the party to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be identified. This will most often be the party that has the least complex functional analysis.

331    First, it should be emphasised that, in the contested decision, in particular recital 333 thereof, the Commission merely asserted that the error as to the determination of the entity to be tested had led to a decrease in ASI and AOE’s chargeable profit.

332    As has been stated in paragraph 319 above, the mere non-observance of methodological requirements when applying a profit allocation method is not a sufficient ground for concluding that the calculated profit is not a reliable approximation of a market-based outcome, let alone that the calculated profit is lower than the profit that should have been obtained if the method for determining transfer pricing had been correctly applied.

333    Accordingly, the mere statement by the Commission that there is a methodological error resulting from the choice of tested party in connection with the profit allocation methods used in respect of the Irish branches of ASI and AOE approved by the contested tax rulings, even assuming that error is established, is not sufficient, per se, to demonstrate that those tax rulings conferred an advantage on ASI and AOE. Indeed, the Commission would also have needed to demonstrate that such an error had led to a reduction in the chargeable profit of those two companies that they would not have obtained had those rulings not been issued. However, in the present instance, the Commission did not put forward evidence to prove that the choice of ASI and AOE’s Irish branches as tested parties had led to a reduction in the chargeable profit of those companies.

334    Secondly and in any event, it should be noted that in the context of the TNMM, it is necessary to choose a party to test beforehand, according to, in particular, the functions performed by that party, in order to be able subsequently to calculate the return in a transaction related to those functions. The fact that it is normally the party that performs the least complex functions that is chosen does not predetermine the functions that are actually performed by the chosen party or the way in which the return for the functions performed is established.

335    Indeed, the OECD Transfer Pricing Guidelines do not state which party to the transaction must be chosen, but recommend choosing the undertaking for which reliable data regarding the most closely comparable transactions can be found. It is then specified that this often means choosing the associated undertaking which is the least complex of the undertakings concerned by the transaction and which does not have any valuable intangibles or unique assets. It follows that those guidelines do not necessary require that the least complex entity be chosen, but that they simply advise choosing the entity for which the greatest amount of reliable data exists.

336    Thus, provided that the functions of the tested party have been correctly identified, and that the return for those functions has been correctly calculated, the fact that one party or another has been chosen as the tested party is irrelevant.

337    Thirdly, it should be borne in mind that the Commission based its subsidiary line of reasoning on the premiss that the Apple Group’s IP licences were correctly allocated to the head offices of ASI and AOE.

338    In that regard, as is correctly emphasised by Ireland and ASI and AOE, it should be noted that IP constitutes the key asset for an undertaking, such as the Apple Group, whose business model is essentially based on technological innovations. That IP may therefore be regarded, in the present instance, as a unique asset for the purposes of the OECD Transfer Pricing Guidelines.

339    However, as is apparent from the Authorised OECD Approach, in principle, in the case of an undertaking such as the Apple Group, the mere fact of one of the parties being the owner of the IP involves the performance of significant people functions in relation to that intangible, such as active decision-making as regards setting up the development programme giving rise to that IP and active management of that programme. Allocating the IP to a part of the undertaking may therefore be considered an indication that that part performs complex functions.

340    It follows that the Commission cannot claim, in its subsidiary line of reasoning, that the Apple Group’s IP was correctly allocated to the head offices of ASI and AOE and, at the same time, that it is the Irish branches of those two companies which performed the most complex functions in relation to that IP, without providing any evidence as to the actual performance of such complex functions by those branches.

341    By contrast, as has been stated in paragraphs 281 and 290 above, the Commission did not succeed in demonstrating in the present instance that those branches had actually performed functions and made crucial decisions in respect of the Apple Group’s IP, in particular as regards its design, creation and development.

342    Fourthly, it should be noted that the contested tax rulings are based on the descriptions of the functions performed by the Irish branches of ASI and AOE set out in the requests made by the Apple Group to the Irish tax authorities. As is apparent from recitals 54 to 57 of the contested decision, those functions consist in the procurement, sale and distribution of Apple-branded products to related parties and third-party customers in the EMEIA region (in the case of ASI’s branch) and in the manufacture and assembly of a specialised range of computer products in Ireland (in the case of AOE’s branch).

343    It must be pointed out that those functions may be regarded, prima facie, as easily identifiable and not particularly complex. In any event, they do not constitute unique and specific functions for which it is difficult to identify the comparables. On the contrary, these are common and relatively standard functions in commercial relations between undertakings.

344    It is true that the information submitted by the Apple Group to the Irish tax authorities prior to the issuing of the contested tax rulings was very concise on the subject of the functions, assets and risks of ASI and AOE’s Irish branches. The contested tax rulings were issued after the Apple Group’s tax advisors sent the Irish tax authorities some short letters in which they briefly described the activities of ASI and AOE’s branches and proposed a methodology for calculating the chargeable profits of those two companies in Ireland. The content of those exchanges is fairly vague and makes it apparent that the discussions between the Irish tax authorities and the Apple Group’s tax advisors at the two meetings held were decisive for the purpose of determining the chargeable profit of those companies, without there being any documented objective and detailed analysis regarding the functions of the branches and the assessment of those functions.

345    Thus, unlike the ad hoc reports that were submitted by Ireland and Apple Inc. ex post facto in the context of the administrative procedure, no profit allocation report or any additional information was provided to the Irish tax authorities prior to the issuing of the contested tax rulings.

346    Furthermore, as was confirmed at the hearing, the information concerning the activities of ASI and AOE’s Irish branches provided before the 1991 tax ruling were not significantly added to prior to the issuing of the 2007 tax ruling and were not subsequently updated.

347    That lack of evidence submitted to the Irish tax authorities concerning the functions actually performed by the Irish branches and the assessment of those functions for the purpose of determining the profit to be allocated to those branches may be regarded as a methodological defect in the application of section 25 of the TCA 97, which requires an analysis to be conducted at the outset regarding the functions performed, the assets used, and the risks assumed by the branches.

348    However, as regrettable as that methodological defect is, the Commission, in carrying out its State aid control under Article 107 TFEU, cannot, for its part, confine itself to stating that the choice of ASI and AOE’s Irish branches as the tested parties when applying the profit allocation method was incorrect, without proving that the functions actually performed by those branches constituted particularly complex or unique functions, or functions that were difficult to identify, so that the comparables for such a one-sided profit allocation method would not have been identifiable or reliable and, consequently, the resulting allocation would necessarily have been incorrect.

349    Furthermore and in any event, even assuming that such an error in the profit allocation method is established, as has been outlined in paragraphs 319 and 332 above, the Commission must prove that the profit allocation in question led to a mitigation of the tax burden of the companies in question as compared with the tax burden which they would have borne had the contested tax rulings not been issued, such that an advantage was actually granted.

350    However, the Commission has not submitted any evidence in connection with its subsidiary line of reasoning to demonstrate that such a methodological defect, resulting from the lack of information submitted to the Irish tax authorities, led to a reduction in the tax base of ASI and AOE as a result of the application of the contested tax rulings.

351    Having regard to the foregoing considerations, it is necessary to uphold the complaints raised by Ireland and by ASI and AOE regarding the Commission’s statements concerning the incorrect choice of ASI and AOE’s Irish branches as the tested parties when applying the profit allocation methods on which the contested tax rulings were based.

3.      The choice of the operating costs as the profit level indicator

352    As a preliminary point, it should be borne in mind that, in the contested tax rulings (see paragraphs 12 to 21 above), the chargeable profits of the Irish branches were calculated as a margin of the operating costs.

353    In recitals 334 to 345 of the contested decision, the Commission argued that, assuming that the Irish branches could have been regarded as the tested parties for the purposes of the one-sided profit allocation method, the choice of those branches’ operating costs as the profit level indicator was incorrect. According to the Commission, the profit level indicator in a one-sided profit allocation method must reflect the functions performed by the tested party, which was not the situation in the present instance. Indeed, the Commission contended that ASI’s sales, and not the operating costs of its Irish branch, were a better reflection of the activities carried on and the risks assumed by the Irish branch and thus of its contribution to ASI’s turnover.

354    Consequently, the Commission (recital 345 of the contested decision) concluded that, because of the use of the operating costs as the profit level indicator in the profit allocation method approved by the contested tax rulings, the chargeable profits of ASI and AOE in Ireland did not reflect a reliable approximation of a market-based outcome in line with the arm’s length principle. As a result, in its view, the Irish tax authorities had conferred a selective advantage on ASI and AOE as compared with non-integrated companies, whose chargeable profits reflected prices negotiated at arm’s length on the market.

(a)    The choice of the operating costs as the profit level indicator for the Irish branch of ASI

355    Regarding, specifically, the Irish branch of ASI (recital 336 of the contested decision), the Commission considered that it was inappropriate to rely on the operating costs, which would be ‘generally’ recommended for analysing the profits of low-risk distributors. It contended that the Irish branch of ASI was not such a distributor, in so far as that branch had assumed risks connected with turnover, warranties, and third-party contractors.

356    It should be noted at the outset that the Commission did not specifically state the source on which it was relying in order to make such an assertion. In addition, the use of the term ‘generally’ indicates that it was not ruling out the use of operating costs as a profit level indicator in certain situations.

357    Besides the fact that the argument presented by the Commission is imprecise, it should be noted that such an argument is not in line with the OECD Transfer Pricing Guidelines, on which the Commission relied in connection with its subsidiary line of reasoning, as is correctly argued by Ireland and ASI and AOE. It follows from paragraph 2.87 of those guidelines that the profit level indicator must be focused on the value of the functions of the tested party, taking account of its assets and its risks. Therefore, according to those guidelines, the choice of profit level indicator is not fixed for any type of function, provided that that indicator reflects the value of the function in question.

358    In any event, it is necessary to examine whether the Commission succeeded in demonstrating that the choice of the operating costs as the profit level indicator was not appropriate in the present instance and, in so far as the risks assumed by the branches must be taken into account, whether it was correct to conclude that the Irish branch of ASI had assumed risks connected with turnover, warranties, and third-party contractors.

(1)    The appropriate profit level indicator

359    In recitals 340 and 341 of the contested decision, the Commission contended that the choice of the operating costs as the profit level indicator was not appropriate, inasmuch as that choice did not properly reflect the risks assumed and the activities carried out by the Irish branch of ASI, and that sales would have been a more appropriate indicator. It contended that, for the same reasons, the Berry ratio used in the ad hoc reports submitted by Ireland and Apple Inc. was not suitable for determining an arm’s length return for the functions performed by that branch.

360    In the first place, it should be noted that the Commission bases its statements, in essence, on the argument that the Irish branch of ASI must be regarded as having assumed risks and performed functions relating to ASI’s operations, in so far as that company would have been unable to do so itself given its lack of staff and physical presence.

361    In that regard, it should be borne in mind that the considerations outlined, in connection with assessing the primary line of reasoning, in paragraph 259 above, according to which the allocation of functions, and thus profits, to a branch using an ‘exclusion’ approach is not in line with either Irish law or the Authorised OECD Approach, in so far as such an analysis does not enable it to be demonstrated that those functions were actually performed by the Irish branches.

362    Accordingly, in order to demonstrate that the choice of the operating costs of the Irish branch of ASI as the profit level indicator for that branch was incorrect, the Commission could not allocate the functions performed and risks assumed by ASI to its Irish branch without demonstrating that that branch had actually performed those functions and assumed those risks.

363    In the second place, it should be noted that, in recital 342 of the contested decision, the Commission itself refers to paragraph 2.87 of the OECD Transfer Pricing Guidelines. As has been noted in paragraph 357 above, both sales and operating costs may constitute an appropriate profit level indicator under those guidelines.

364    More specifically, it is stated in paragraph 2.87 of the OECD Transfer Pricing Guidelines that the choice of the profit level indicator should be relevant for the purpose of demonstrating the value of the functions of the tested party in the transaction under review, taking account of its assets and its risks.

365    However, the Commission, by stating, in recitals 337 and 338 of the contested decision, that the use of the operating costs as the profit level indicator does not reflect the risks connected with turnover, warranties, and products handled by third-party contractors and that the sales figure would be more appropriate as a profit level indicator, does not answer the question whether the operating costs suitably reflect the value contributed by the Irish branch of ASI in view of the functions, assets and risks assumed by that branch. Indeed, the Commission merely states that ASI’s sales would have been an appropriate profit level indicator without demonstrating why, in the present instance, the operating costs of its branch were not capable of reflecting the value which that branch had contributed to the company’s operations through the functions, risks and assets for which it had actually been responsible within that company.

366    In the third place, regarding the Berry ratio, it should be borne in mind that that ratio was used in the ad hoc reports submitted by Ireland and Apple Inc. as the profit level indicator in order to prove ex post facto that the profits allocated to ASI and AOE under the contested tax rulings fell within the arm’s length ranges.

367    However, in recital 340 of the contested decision, the Commission rejected the use of that ratio as a financial ratio for estimating the arm’s length remuneration in the present instance. The Commission contended that the situations in which the Berry ratio could be used according to the OECD Transfer Pricing Guidelines did not correspond to the situation of ASI’s Irish branch.

368    In that regard, it should be noted that, in paragraph 2.101 of the OECD Transfer Pricing Guidelines, to which the Commission refers in recital 342 of the contested decision, it is stated that, in order for the Berry ratio to be an appropriate means of testing the remuneration of a controlled transaction, it is necessary, first, that the value of the functions performed in the controlled transaction be proportional to the operating costs, second, that the value of the functions performed in the controlled transaction not be materially affected by the value of the products distributed, in other words, that it not be proportional to the turnover, and, third, that the taxpayer not perform, in the controlled transactions, any other significant function (for example, manufacturing) that should be remunerated using another method or another financial indicator.

369    First of all, it must be noted that, in the contested decision, the Commission did not argue that the value of the operating costs taken into account in the contested tax rulings was not proportional to the value of the functions performed by the Irish branch of ASI, as described in recitals 54 and 55 of the contested decision. It must be pointed out that the Commission has not put forward arguments or submitted evidence demonstrating that not all the costs that should have been regarded as operating costs were taken into consideration and that that failure to take those costs into consideration led to a selective advantage for ASI and AOE. Nor did it seek to demonstrate that the value allocated to the costs that had been taken into account was too low and that a selective advantage had resulted from it. Indeed, it merely contested the very principle of taking operating costs into account as a profit level indicator.

370    Next, it should be noted that there is no connection between the operating costs of the Irish branch of ASI and that company’s turnover. That lack of correlation was acknowledged by the Commission itself in recital 337 of the contested decision.

371    Lastly, it is necessary to recall the considerations set out in paragraphs 342 and 343 above concerning the non-complex and easily identifiable nature of the functions performed by the Irish branch of ASI. That branch, in essence, performed distribution functions. It was not responsible for manufacturing functions or other complex functions connected with, inter alia, technological development or IP.

372    Accordingly, contrary to the Commission’s assertions, the conditions for applying the Berry ratio, as stated in the OECD Transfer Pricing Guidelines, are satisfied in the case of ASI’s Irish branch.

373    Having regard to the foregoing considerations, it must be held that the Commission did not succeed in demonstrating that the choice of the operating costs was not appropriate as a profit level indicator for ASI’s Irish branch.

374    In any event, even assuming that it can be argued, as is asserted by the Commission in recital 336 of the contested decision, that operating costs cannot serve as a profit level indicator except for ‘low-risk’ distributors, it is necessary to assess whether the Irish tax authorities were entitled to consider that the Irish branch of ASI had not assumed the risks that, according to the Commission, should have been allocated to that branch.

(2)    The risk connected with turnover

375    In recital 337 of the contested decision, the Commission noted that ASI had assumed the risk connected with turnover and that, in so far as its head office had no staff to manage those risks, ‘it [had to] be assumed’ that the Irish branch had assumed those risks. It added that the choice of the operating costs did not reflect that risk, which was borne out by the fact that the operating costs had remained relatively stable during the reference period whereas the turnover had increased exponentially.

376    First of all, it must be pointed out that the Commission’s argument is based, according to the very wording of the contested decision, on an assumption.

377    Next, it should be noted that the Commission was not in a position to explain in the contested decision exactly what the risk connected with turnover was.

378    When it was questioned in that regard during the hearing, the Commission stated that that risk was rather an inventory risk, namely the risk that the products listed in ASI’s inventory, the distribution of which was ensured by the Irish branch, would remain unsold.

379    In order to support its argument that the Irish branch of ASI had assumed the risk connected with a potential decrease in ASI’s sales, the Commission merely allocated that risk using an exclusion approach, which, as has been stated in paragraphs 361 and 362 above, does not constitute a valid basis for allocation.

380    In addition, at the hearing, the Commission referred to Figure 9 of the contested decision (set out in recital 122 of that decision), which reproduces a table included in the cost-sharing agreement concerning the allocation of risks between Apple Inc., on the one hand, and ASI and AOE, on the other. As has been stated in paragraphs 263 to 268 and paragraph 271 above, that table compiles the list of risks which ASI could be called on to assume, but does not prove that those risks were actually borne by ASI. What is more, that table concerns ASI, and not its Irish branch.

381    By contrast, Apple Inc., ASI and AOE submitted, in the context of both the administrative procedure and the present action, evidence demonstrating that the framework agreements with the manufacturers of Apple-branded products (or OEMs) had been concluded centrally in respect of the Apple Group as a whole by Apple Inc. and ASI in the United States.

382    In addition, Apple Inc., ASI and AOE submitted evidence concerning other framework agreements, also concluded centrally in respect of the Apple Group as a whole, concluded with the main buyers of Apple-branded products, namely telecommunications operators, in particular in the EMEIA region.

383    Furthermore, Apple Inc., ASI and AOE submitted evidence concerning the international pricing policy for Apple-branded products, which is set centrally in respect of the Apple Group as a whole.

384    It must be pointed out that the evidence submitted shows that the Irish branch of ASI did not take part in negotiations relating to framework agreements or in the signing of such agreements, whether they be those concluded with the suppliers of the products it distributes, namely the OEMs, or those concluded with the customers to whom it distributes Apple-branded products, such as telecommunications operators. Indeed, that branch is not even mentioned in those agreements.

385    In addition, the evidence submitted shows that the Irish branch of ASI had no decision-making powers concerning supply (namely determining the products to be manufactured), demand (namely determining the customers to whom the products were to be sold), or the prices at which those Apple-branded products were sold, in particular in the EMEIA region, in so far as those elements were determined under the framework agreements.

386    Accordingly, as is correctly argued by ASI and AOE, the Irish branch of ASI cannot be allocated the risks inherent in products remaining unsold or a drop in demand, in so far as both supply and demand are determined centrally, outside that branch.

387    The evidence submitted confirms the role of ASI’s Irish branch that emerges from the ad hoc reports submitted by Ireland and Apple Inc., according to which that branch, as a distributor, was responsible for ensuring the flow of products between producers and customers and for gathering and communicating at group level information regarding supply and demand forecasts for the EMEIA region and regarding inventory levels. The fact that the Irish branch of ASI performed ‘monitoring’ functions for the EMEIA region does not mean that it is deemed to have assumed the economic risk that might have resulted from a decrease in ASI’s turnover in that region.

388    Lastly, concerning the assertion, set out in recital 337 of the contested decision, that ASI’s sales increased exponentially during the reference period whereas the operating costs of its Irish branch remained stable, it should be pointed out that that fact is more an indication of the limited impact of the activities carried out by the Irish branch of ASI on ASI’s trading activity as a whole.

389    In addition, such a fact is not sufficient, in itself, to call in question the choice of the operating costs as the profit level indicator. Indeed, the Commission established its line of reasoning without indicating the reason why an increase in ASI’s sales would have necessarily involved an increase in the profits to be allocated to its Irish branch.

390    Consequently, it must be held that the Commission did not succeed in demonstrating that the Irish branch of ASI was responsible for the risk connected with turnover.

(3)    The risk connected with product warranties

391    In recital 338 of the contested decision, the Commission stated that, in so far as ASI provided warranties for all the products sold in the EMEIA region and in so far as those warranties constituted its most significant liability, the risks relating thereto could not have been assumed by ASI, which had no staff, but, necessarily, by its Irish branch.

392    More specifically, the Commission contended, in recital 338 of the contested decision, that those risks constituted ASI’s most significant liability, which was transferred to Apple Distribution International (ADI), a company related to the Apple Group. The Commission referred, in that regard, to recital 135 of the contested decision, in which it is explained that ADI took over distribution activities in the EMEIA region on ASI’s behalf and that, to that end, under a protocol dated 23 April 2012, ADI assumed ASI’s liabilities, the most significant element of which was the provisions relating to product warranties.

393    First, those factual elements highlighted by the Commission bear witness to the fact that the warranties for Apple-branded products in the EMEIA region were assumed by ASI and that the provisions for those warranties were part of that company’s liabilities until 2012. However, that information does not, in itself, enable a connection to be established between the risks represented by those warranties granted by ASI, given material expression in the provisions set out in the liabilities of that company’s balance sheet, and its Irish branch. In addition, the Commission’s theory is not valid for the years after 2012, when those risks were transferred to ADI. However, the Commission did not confine its line of reasoning to the period prior to 2012.

394    Secondly, the risk connected with product warranties cannot be allocated to the Irish branch of ASI if that branch is not responsible, from an economic point of view, for claims invoking such a warranty. The Commission did not adduce evidence demonstrating that the Irish branch of ASI had assumed such a responsibility.

395    Thirdly, while it is not disputed that the Irish branch of ASI managed the AppleCare after-sales service, as has been noted in paragraphs 276 to 278 above, the functions performed by that branch in connection with that service are, however, of an ancillary nature in relation to the warranties themselves.

396    In order to challenge the Commission’s line of argument, Ireland and ASI and AOE rely on, inter alia, the ad hoc reports which they submitted and on which the Commission itself relied, which describe the activities of the Irish branches connected with warranties for Apple-branded products. According to those reports, the Irish branch of ASI was responsible, in connection with the AppleCare service, for, in essence:

–        gathering data regarding defective products;

–        managing the network of authorised third-party repairers;

–        distributing components for repair within that network;

–        managing the call centre.

397    Having regard to the ancillary nature of those functions, it may not be concluded, in the absence of other evidence, that the Irish branch of ASI bore the economic consequences connected with product warranties, as ASI and AOE confirmed during the hearing.

398    In addition, the fact relating to the significant number of employees assigned to the AppleCare service is not, in itself, decisive, in view of the fact that that service includes the call centre for the after-sales services, which is, naturally, a function that requires a large number of staff.

399    Furthermore, the Commission did not adduce other evidence demonstrating that the staff of ASI’s Irish branch would have been actively involved in adopting decisions significantly affecting the risks connected with warranties for Apple-branded products sold by ASI and that that branch was ultimately responsible for those risks, economically speaking, by virtue of those warranties.

400    In those circumstances, it cannot be inferred from the fact that the Irish branch of ASI managed the AppleCare service that that branch assumed the risks connected with warranties for Apple-branded products.

(4)    The risks connected with the activities of third-party contractors

401    In recital 339 of the contested decision, the Commission contended that, in so far as ASI systematically outsourced its distribution function to third-party contractors outside Ireland, the total sales figure would have been a more appropriate profit level indicator, in view of the risk borne by the Irish branch in relation to products which were not handled in Ireland.

402    It should be noted at the outset that the response to the question as to what risk would have been created by the circumstance referred to in paragraph 401 above and how that risk would have been borne by the Irish branch of ASI is not clear from reading recital 339 of the contested decision. Such an assessment, which lends itself to diverging interpretations, cannot be accepted as validly supporting the Commission’s subsidiary line of reasoning.

403    In any event, when questioned on that point during the hearing, the Commission stated that the risk when ASI outsourced its distribution functions to third-party contractors while remaining the owner of those products was the same type of risk as that referred to in recital 337 of the contested decision, namely a risk connected with the possibility of a decrease in demand and the possibility of unsold products.

404    Accordingly, assuming that the risk referred to by the Commission in recital 339 of the contested decision can be understood as being the same type of risk as the risk connected with turnover identified in recital 337 of the contested decision, the same considerations as set out in paragraphs 376 to 390 above also apply to this type of risk, which has still not been shown to have been assumed by the Irish branch of ASI.

405    Furthermore, assuming such a risk exists, the mere fact that certain distribution activities have been outsourced to third-party contractors outside Ireland, cannot, without further information, support the argument that such a risk had to be allocated to the Irish branch of ASI.

406    Indeed, the fact that, following transactions with suppliers and customers negotiated and organised in the United States, the distribution of the products in question is handled outside Ireland by third-party contractors would rather strengthen the argument that the risks that could derive therefrom are not borne by the Irish branch of ASI.

407    It is apparent from the foregoing considerations that the Commission did not succeed in demonstrating that the risks identified in recitals 336, 337 and 339 of the contested decision had actually been borne by the Irish branch of ASI.

(b)    The choice of the operating costs as the profit level indicator  for the Irish branch of AOE

408    Regarding AOE, in recitals 343 and 344 of the contested decision, the Commission noted that, in view of the fact that AOE had no physical presence and had no employees capable of managing the risks outside its Irish branch, that branch had to be regarded as assuming all the risks, in particular those relating to inventories. In those circumstances, it considered that a profit level indicator including the total costs would have been more appropriate than the operating costs.

409    The Commission bases its arguments on the OECD Transfer Pricing Guidelines. However, it should be noted that, as has been stated in paragraph 357 above, those guidelines do not recommend the use of any particular profit level indicator, such as the total costs, and do not preclude the use of operating costs as a profit level indicator.

410    In addition, according to paragraph 2.93 of the OECD Transfer Pricing Guidelines, to which the Commission refers in recital 343 of the contested decision, ‘in applying a cost-based [TNMM], fully loaded costs are often used’. Accordingly, it is not inconceivable, in principle, that operating costs may constitute an appropriate profit level indicator.

411    Furthermore, the Commission’s argument that a profit level indicator including the total costs is better suited to a manufacturing company such as AOE cannot succeed in the present instance. Indeed, as has been stated in paragraph 12 above, it is AOE and not its Irish branch that has ownership of the materials used, works in progress and finished products. In so far as the total costs take into account the costs of all those elements, the use of the total costs as the profit level indicator does not seem, contrary to the Commission’s assertions, the most suitable way of reflecting the value of the functions actually performed by AOE’s Irish branch, taking into account in particular that branch’s assets.

412    In those circumstances, the Commission did not succeed in demonstrating that its recommended profit level indicator based on the total costs would be more appropriate in the present instance for the purpose of determining the arm’s length profits for the Irish branch of AOE.

(c)    Conclusions regarding the choice of the operating costs as the profit level indicator

413    Having regard to the foregoing considerations, it must be concluded that the Commission did not succeed in demonstrating, in the contested decision, that the choice of the operating costs of the Irish branches of ASI and AOE as the profit level indicator when applying a one-sided profit allocation method was inappropriate.

414    In addition and in any event, the Commission also did not submit evidence demonstrating that such a choice, as such, necessarily had to lead to the conclusion that the contested tax rulings had reduced ASI and AOE’s tax liability in Ireland.

415    In that regard, the Court finds that neither the exchanges preceding the issuing of the contested tax rulings, nor Ireland and ASI and AOE when questioned on that point in the context of the present proceedings, were able to provide a sufficient explanation of the reason for the inconsistencies detected in those rulings concerning the operating costs, used as the basis for calculating the chargeable profit of the branches in the 1991 tax ruling and which were no longer included as the basis for calculating the chargeable profit of the branches in the 2007 tax ruling.

416    However, even where there are inconsistencies which show defects in the methodology used to calculate the chargeable profits in the contested tax rulings, it is necessary to recall the considerations set out in paragraph 348 above, from which it follows that the Commission cannot confine itself to invoking a methodological error but must prove that an advantage has actually been granted, inasmuch as such an error has actually led to a reduction in the tax burden of the companies in question as compared to the burden which they would have borne had the normal rules of taxation been applied. However, it must also be specified that the Commission did not argue in the contested decision that the exclusion of certain categories of operating costs used as a basis for calculating the profit allocated to the branches of ASI and AOE had given rise to an advantage for the purposes of Article 107(1) TFEU.

417    Accordingly, the complaints raised by Ireland and by ASI and AOE in relation to the Commission’s statements regarding the methodological error relating to the choice of the operating costs as the profit level indicator for the Irish branches of ASI and AOE in connection with its subsidiary line of reasoning must be upheld.

4.      The levels of return accepted in the contested tax rulings

418    In recitals 346 to 359 of the contested decision, the Commission challenged the levels of return of ASI and AOE’s Irish branches accepted by the contested tax rulings, while noting that the Irish tax authorities had not been provided with any profit allocation reports or any other explanation by the Apple Group supporting the proposals made by that group that had led to the contested tax rulings.

419    First, concerning ASI, in recital 346 of the contested decision, the Commission noted that the 1991 tax ruling had accepted as the chargeable profit a 12.5% margin on the operating costs of its Irish branch, while the 2007 tax ruling had accepted a [confidential] margin.

420    Second, concerning AOE, in recital 347 of the contested decision, the Commission noted that the chargeable profit endorsed by the Irish tax authorities corresponded to [confidential] of the operating costs, a percentage which would have decreased to [confidential] if the chargeable profit had exceeded [confidential]. In the 2007 tax ruling, the chargeable profit corresponded to [confidential] of the branch’s operating costs, increased by a return of [confidential] of the turnover, in respect of the IP developed by AOE. In addition, it emphasised that AOE’s chargeable profit seemed to have been arrived at through negotiation and to have depended on employment considerations as was demonstrated by the taking into account of the need ‘not to prohibit the expansion of the Irish operations’ in the discussions preceding the issuing of the 1991 tax ruling.

421    It is apparent from recitals 348 and 349 of the contested decision that the explanations provided during the administrative procedure by Ireland and by Apple Inc. regarding the calculation of ASI and AOE’s chargeable profits did not convince the Commission. It considered that the returns accepted by the Irish tax authorities for the Irish branches of ASI and AOE had been based on significantly reduced profit margins, although there would not have been any economic rationale for a company to accept such low profits.

422    In particular, concerning the 2007 tax ruling, in recitals 350 to 359 of the contested decision, the Commission focused on the ex post reasoning set out in the ad hoc reports prepared by Ireland and the Apple Group’s respective tax advisors relating to the levels of return agreed for the Irish branches of ASI and AOE. According to the Commission, those reports had been based on a comparability study, the relevance of which was disputed on the ground that the products offered by the companies selected for comparability purposes were not comparable to the high-quality branded products offered by the Apple Group. More specifically, the Commission argued that the risks connected with warranties for high-end goods assumed by ASI were not comparable to those borne by the companies selected in the study for their products. In addition, it highlighted the fact that at least 3 companies out of the 52 selected were in a situation of compulsory liquidation.

423    Furthermore, in recitals 354 and 355 of the contested decision, the Commission, for the sake of completeness, nevertheless carried out its own assessment of the level of return which should have been allocated to ASI and AOE, using the same comparable companies reproduced in the ad hoc report submitted by Ireland but using as the profit level indicator the turnover (resulting from sales) for ASI and the total costs for AOE. Following that corrected analysis, the Commission came to the conclusion that the levels of return accepted in the contested tax rulings were excessively low.

424    Regarding ASI, in recital 355 of the contested decision, the Commission stated that, taking the sales of the companies chosen in the comparability study as the profit level indicator, in 2012, the average return was 3%, with an interquartile range of 1.3 to 4.5%. However, the Commission noted that the trading income allocated to the Irish branch of ASI for 2012 as chargeable profits under the 2007 tax ruling was around [confidential], that is, around [confidential] of ASI’s turnover in 2012. That return was almost 20 times lower than that obtained by the Commission in its corrected analysis.

425    Regarding AOE, in recital 357 of the contested decision, the Commission noted that its chargeable profit in 2012 had amounted to around [confidential] of the total costs of the Irish branch. That percentage fell within the interquartile range presented in the ad hoc reports submitted by Ireland and the Apple Group’s respective tax advisors and was close to the 25th percentile, which the tax advisors had considered to be the lower end of an arm’s length range. Thus, the Commission noted that, according to the ad hoc report submitted by Apple Inc., for the period from 2009 to 2011, the lower quartile mark-up on total costs would have been [confidential] with a median of [confidential] and, according to the ad hoc report submitted by Ireland, for the period from 2007 to 2011, the lower quartile mark-up on total costs would have been [confidential] (with a median of [confidential]).

426    However, in recitals 358 and 359 of the contested decision, the Commission specified that those reports could not support the ex post conclusion that the remuneration of the functions performed by the Irish branch of AOE was in line with the arm’s length principle. First of all, it called in question the comparability of the data in so far as no detailed analysis of the comparability of the business or cost structure of the companies selected had been provided. Next, it explained that the 25th percentile had been used as the lower end of the range, which corresponded to an overly broad approach, in particular having regard to the comparability concerns identified in the ad hoc reports in question. Lastly, the Commission noted that, in the ad hoc reports, the comparison had been carried out only in relation to manufacturing companies, whereas the Irish branch of AOE had also provided shared services to other companies from the Apple Group in the EMEIA region, such as financial services, information systems and technology, and services relating to human resources.

427    On the basis of those statements, in recital 360 of the contested decision the Commission concluded that the contested tax rulings had approved a remuneration which the Irish branches would not have accepted, from the perspective of their own profitability, if they had been separate and independent undertakings carrying on identical or similar activities under identical or similar conditions.

428    The parties disagree both as to the existence and as to the impact of the errors identified by the Commission as regards the levels of return accepted by the contested tax rulings and the ex post validation thereof proposed in the ad hoc reports prepared by Ireland and the Apple Group’s respective tax advisors.

(a)    The remuneration of the Irish branches of ASI and AOE endorsed by the 1991 tax ruling

429    In the first place, the Commission complains that the Irish tax authorities accepted, in the contested tax rulings, the levels of return for the Irish branches of ASI and AOE without such levels of return being substantiated by any reports.

430    First, it should be noted that Ireland and ASI and AOE argue that, at the time the contested tax rulings were issued, the submission of a profit allocation report was not required under the applicable Irish tax law, which has not been contested by the Commission.

431    Second, it should be noted that the Commission’s complaint relates to an error of methodology (or a lack thereof), in so far as it concerns defects in the method for calculating the chargeable profits endorsed by the contested tax rulings, resulting from a lack of profit allocation reports.

432    It is true that the explanations provided by the Apple Group to the Irish tax authorities as justification for the proposed levels of return, as reproduced in recital 64 of the contested decision, were brief. The Apple Group asserted that the proposed levels were above a mark-up of 15%, which would ordinarily have been achieved by a ‘cost center’, but below a mark-up of 100%, which could be common in the pharmaceutical industry, which was not comparable to the IT sector. In addition, it should be borne in mind that the Apple Group acknowledged before the Irish tax authorities that its proposal was not based on any scientific grounds, but that it considered that such a proposal resulted in a sufficiently high amount of chargeable profits.

433    In that regard, the Court notes that neither the exchanges preceding the issuing of the contested tax rulings nor Ireland and ASI and AOE when questioned on that point in the context of the present proceedings were able to provide a sufficient explanation of the exact reason for the indicators and figures used to calculate the chargeable profits of ASI and AOE. Thus, there is no concrete and contemporary piece of evidence explaining the reasons for the level of the percentages of the operating costs accepted in the contested tax rulings, let alone for the changes in those percentages over time.

434    However, it must be pointed out that, apart from raising the issue of the lack of profit allocation reports, the Commission did not conduct its analysis in such a way as to demonstrate that, as a result of that calculation, the tax actually paid by ASI and AOE on the basis of the contested tax rulings was less than that which should have been paid under the normal rules of taxation, had the contested tax rulings not been issued.

435    Thus, for the same reasons as those set out in paragraph 332 above, the mere finding of an error as regards the methodology leading to the calculation of the profits to be allocated to the branches is not sufficient to demonstrate that the contested tax rulings conferred an advantage on ASI and AOE.

436    In the second place, the Commission complained that the Irish tax authorities had accepted, without justification, a threshold for AOE’s chargeable profits, namely [confidential], beyond which the chargeable profits no longer corresponded to 65% of the Irish branch’s operating costs, but to [confidential] of those costs. According to the Commission, a rational economic operator would not accept lower returns and forgo a part of its profits, if its operating costs were increasing, which indicated an increase in the volume of its activities, even if those returns were sufficient to cover its costs and achieve a certain level of profit.

437    The Commission argued that that threshold constituted tax relief which had been granted on the basis of criteria unrelated to the tax system, such as employment considerations, and that, accordingly, it was deemed to confer a selective advantage.

438    In that regard, Apple Inc. claimed, in its observations following the Opening Decision, that that departure was justified by the fact that the incremental fixed investment necessary for expansion was greater at the start of operations than when those operations were ongoing. Furthermore, in the responses to the written questions from the Court, ASI and AOE confirmed that the threshold of [confidential] had never been reached and that, accordingly, the second, lower percentage had never been used for the purpose of calculating AOE’s chargeable profits. The Commission has not contested that information.

439    In the first place, it should be noted that, while it is true that it has been held that, if the competent authorities have a broad discretion to determine, inter alia, the conditions under which the financial assistance is provided on the basis of criteria unrelated to the tax system, such as maintaining employment, the exercise of that discretion may be regarded as giving rise to a selective measure (judgment of 18 July 2013, P, C‑6/12, EU:C:2013:525, paragraph 27), the fact remains that, in order to determine whether State measures may constitute State aid, regard must primarily be had to the effects of those measures on the undertakings favoured (see judgment of 13 September 2010, Greece and Others v Commission, T‑415/05, T‑416/05 and T‑423/05, EU:T:2010:386, paragraph 212 and the case-law cited).

440    In any event, the mere allusion, during the exchanges between the Irish tax authorities and the Apple Group preceding the 1991 tax ruling, to the fact that the Apple Group was one of the largest employers in the region where the Irish branches of ASI and AOE were established does not prove that ASI and AOE’s chargeable profits were determined on the basis of employment-related issues. Indeed, it is apparent from the report of the exchange in question, reproduced in recital 64 of the contested decision, that the allusion to employees of the Apple Group in the region in question was made to provide information regarding the background to and expansion of the group’s operations in the region and not to provide consideration for the proposal regarding the allocation of the profits to the Irish branches in question.

441    Thus, in the absence of other evidence, the Commission cannot argue that the tax ruling in question was issued as consideration for the potential creation of jobs in the region.

442    In the second place, it should be noted that the threshold in question was never reached and that, accordingly, the profits of AOE’s Irish branch were never allocated on the basis of the lower percentage provided for by the 1991 tax ruling.

443    Indeed, AOE’s turnover significantly decreased between the period preceding the 1991 tax ruling, namely USD 751 million in 1989, as stated in recital 64 of the contested decision, and 2006, the last year in which the 1991 tax ruling was applied, namely USD 359 million, as stated in recital 97 of the contested decision.

444    Therefore, even assuming that the Commission’s assertions regarding a lack of justification from an economic perspective for the threshold laid down by that ruling are proved, it cannot argue that an advantage was granted as a result of the inclusion of a threshold in the 1991 tax ruling, when such a mechanism was not actually implemented.

445    In the third place, even if the Commission’s argument were to be understood as meaning that the levels of return accepted by the Irish tax authorities were too low for the functions performed by the branches, in view of the assets and risks relating to those functions, that argument cannot succeed without other evidence.

446    The Commission’s subsidiary line of reasoning is based on the premiss that the Irish tax authorities could have correctly allocated the Apple Group’s IP licences to the head offices, which, according to the OECD Transfer Pricing Guidelines, implies the performance of complex or unique functions. However, as can be seen from the conclusions expressed in paragraph 348 above, the Commission did not succeed in demonstrating that the Irish branches of ASI and AOE had performed the most complex functions.

447    In addition, particularly as regards ASI, the Commission bases its reasoning on the consideration that the Irish branch assumed very significant risks in relation to the Apple Group’s activities. However, as can be seen from the conclusions expressed in paragraph 407 above, the Commission did not succeed in demonstrating that those risks had actually been borne by the Irish branch of ASI.

448    Accordingly, in the absence of other evidence, the Commission did not succeed in demonstrating that the levels of return established under the 1991 tax ruling had been too low to remunerate the functions actually performed by the Irish branches of ASI and AOE, in view of their assets and their risks.

(b)    The remuneration of the Irish branches of ASI and AOE endorsed by the 2007 tax ruling

449    Besides the complaint relating to the lack of a profit allocation report in support of the 2007 tax ruling, which has been set aside for the same reasons as those set out in paragraphs 430 to 435 above, the Commission challenged the remuneration of the Irish branches of ASI and AOE, in the form of the profits allocated to those branches, under the 2007 tax ruling, by contesting the ad hoc reports submitted by Ireland and Apple Inc. in order to provide ex post evidence of the fact that those profits fell within arm’s length ranges. In particular, the Commission called in question the reliability of the ad hoc reports submitted by Ireland and Apple Inc. because the companies chosen for the comparability study on which those reports were based were not comparable to ASI and AOE.

(1)    The choice of the companies used in the comparability studies

450    In the contested decision, the Commission noted, inter alia, two errors concerning the comparability of the companies chosen in the comparability study with the Irish branch of ASI. First, in recital 350 of the contested decision, the Commission stated that it was not possible to identify the companies chosen in the ad hoc report submitted by Apple Inc. Second, in recital 351 of the contested decision, the Commission emphasised that the selection of the comparable companies in the comparability study had not taken account of the fact that, unlike those companies, the Apple Group sold high-quality branded products and positioned its products as such on the market. In that regard, the Commission noted that, although ASI was responsible for warranties on the products sold which, in the case of high-quality branded products, presented a very high risk, the comparable companies used were not exposed to such a risk.

451    Concerning the comparability with the Irish branch of AOE, the Commission noted (in recital 359 of the contested decision) that the ad hoc report submitted by Ireland had taken into account only manufacturing companies, whereas AOE also provided shared services to other companies from the Apple Group in the EMEIA region, such as financial services, information systems and technology, and services relating to human resources.

452    It should be noted at the outset that, even assuming that the errors identified by the Commission regarding the ad hoc reports submitted by Ireland and Apple Inc. ex post facto are proved and that they invalidate the conclusions in those reports, the Commission could not infer therefrom that the contested tax rulings had led to a reduction in ASI and AOE’s tax liability in Ireland.

453    Those reports were submitted by Ireland and Apple Inc. in order to demonstrate ex post facto that the profits allocated to the Irish branches of ASI and AOE under the contested tax rulings fell within arm’s length ranges. The submission of those ad hoc reports by Ireland and Apple Inc. cannot alter the burden of proof concerning the existence of an advantage in the present instance, which rests with the Commission, as recalled in paragraph 100 above.

454    In any case, it is necessary to examine whether the defects identified by the Commission in the ad hoc reports submitted by Ireland and Apple Inc. are proved and may invalidate the conclusions in those reports.

455    First, it should be noted, as Ireland and ASI and AOE correctly submit, that analysing transfer pricing is not an exact science and it is not possible to check for exact results as to what is considered to be an arm’s length level. In that regard, it is necessary to recall paragraph 1.13 of the OECD Transfer Pricing Guidelines, which states that the objective of determining transfer pricing is ‘to find a reasonable estimate of an arm’s length outcome based on reliable information’ and that ‘transfer pricing is not an exact science but does require the exercise of judgment on the part of both the tax administration and taxpayer’.

456    Secondly, concerning the undertakings chosen for the comparability study serving as the basis for the ad hoc report submitted by Apple Inc., ASI and AOE submit that, during the administrative procedure, Apple Inc. asked the Commission several times for its observations regarding that ad hoc report, without any specific question regarding the data from the comparability study being raised. The Commission does not dispute those arguments. In addition, in the present action ASI and AOE have submitted the data used for that ad hoc report, stating that they were taken from the same database as was used in the ad hoc report submitted by Ireland. The Commission has not raised any further specific objections with regard to the ad hoc report submitted by Apple Inc.

457    Thirdly, in so far as the Commission challenged the use, with regard to the two ad hoc reports submitted by Ireland and Apple Inc., of a comparability study, which was based on a search in a database containing comparable data, the following points should be noted.

458    First of all, in so far as the Commission’s complaints must be understood as challenging the use of a database containing comparable data as such, they cannot succeed. Indeed, without the support of a database, it would not be possible to carry out, in connection with the second step in the one-sided profit allocation method, a comparability study that enables the profits to be regarded as arm’s length profits to be estimated, which presupposes that it is possible to make such an estimate using comparable companies.

459    However, the Commission did not provide evidence to support excluding, as such, the use of databases drawn up by specialised independent companies, such as the database that was used in the ad hoc reports submitted by Ireland and Apple Inc. As is correctly argued by Ireland and ASI and AOE, those databases are created using the Statistical Classification of Economic Activities in the European Community (NACE) and, in the absence of evidence demonstrating defects which invalidate those databases, they constitute an empirical basis for carrying out the comparability studies.

460    Next, regarding the Commission’s arguments contesting the comparability of the companies chosen for the comparability study, concerning the Irish branch of ASI, it should be noted that the Commission merely relied on the same arguments as it had raised regarding the choice of the operating costs as the profit level indicator, namely that ASI was responsible for warranties on sold products and that it assumed a significant risk in respect of high-end products handled by third-party subcontractors, whereas the companies chosen did not assume those kinds of significant risks and therefore were not comparable. However, for the same reasons as those expressed in paragraphs 391 to 402 above, those arguments must be rejected.

461    In addition, as has been stated by Ireland and ASI and AOE, it should be noted that, in so far as, as concluded in paragraph 413 above, operating costs could not be ruled out as a profit level indicator in the present instance, the high-quality nature of the brand would have no significant impact on comparability in the present instance. Indeed, as ASI and AOE correctly submit, the fact that a company distributes high-quality branded products cannot necessarily have an impact on its operating costs as compared to the operating costs which it would have to bear if it distributed lower-quality products. This has been demonstrated in the present instance by the fact, acknowledged by the Commission itself in recital 337 of the contested decision, that the operating costs of the Irish branch of ASI had remained relatively stable in relation to the exponential increase in ASI’s sales.

462    Regarding the reservations as to the comparability of the manufacturing companies chosen in connection with the comparability study with regard to the Irish branch of AOE, because of the ancillary functions which that branch would have performed in addition to manufacturing activities, it should be noted that those ancillary functions are not representative of all the functions performed by that branch, as is correctly argued by Ireland and ASI and AOE. In that regard, those parties rely in particular on the analysis of the activities of AOE’s Irish branch in the ad hoc reports submitted by them, which, on that specific point, was not contested by the Commission.

463    Lastly, regarding the fact, referred to by the Commission, that 3 of the 52 companies chosen for the comparability study have become companies in liquidation, such reservations cannot affect the reliability of that study as a whole. In addition, those companies were put into compulsory liquidation after the tax years in respect of which the study was conducted. Furthermore, contrary to the Commission’s assertions, it does not appear, in view of the considerations set out in paragraph 455 above, that 3 companies, out of the 52 targeted in the study in question, represents a significant proportion liable to distort the outcome of the comparability study.

464    In those circumstances, it must be concluded that the Commission did not succeed in calling in question the reliability of the comparability studies on which the ad hoc reports submitted by Ireland and Apple Inc. are based and, accordingly, in establishing that those reports are not reliable.

(2)    The corrected comparability analysis conducted by the Commission

465    It should be noted that, in recitals 353 to 356 of the contested decision, the Commission conducted its own comparability analysis, which may be designated as ‘the corrected comparability analysis’.

466    In its corrected comparability analysis, the Commission sought to assess whether the remuneration for the Irish branches of ASI and AOE as endorsed by the contested tax rulings fell within arm’s length ranges.

467    In the first place, concerning the Irish branch of ASI, the Commission used the data from the companies selected in the ad hoc report submitted by Ireland, taking the Irish branch of ASI as the tested party and the sales as the profit level indicator. Those data were reproduced in Figure 13, set out in recital 354 of the contested decision. The Commission thus compared the profits allocated to the Irish branch of ASI in relation to ASI’s sales with the median return on sales of the companies selected in the ad hoc report submitted by Ireland, for the years 2007 to 2011.

468    It should be noted at the outset that it is true that the Commission’s approach, consisting in comparing the results of its own analysis, on the one hand, and ASI’s chargeable profits under the contested tax rulings, on the other, could have enabled it, in principle, to demonstrate the existence of a selective advantage.

469    However, the conclusions of the corrected comparability analysis conducted by the Commission cannot invalidate the conclusions of the ad hoc reports submitted by Ireland and Apple Inc., according to which the profits of the Irish branches of ASI and AOE, determined pursuant to the contested tax rulings, fell within arm’s length ranges.

470    First of all, it must be pointed out that the Commission’s corrected comparability analysis relies on sales as a profit level indicator for the purpose of applying the TNMM. However, as is apparent from the considerations expressed in paragraphs 402 and 412 above, it has not been demonstrated that the use of the operating costs as the profit level indicator was inappropriate in the present instance. In addition, it has not been demonstrated that the use of sales would have been more appropriate.

471    Next, it should be borne in mind that the analysis conducted by the Commission in connection with its subsidiary line of reasoning is based on the premiss that, in essence, the functions performed by the Irish branch of ASI were of a complex nature and were decisive for the success of the Apple brand and, accordingly, of ASI’s trading activity. In addition, according to the Commission, that branch had assumed significant risks in relation to ASI’s activities. However, as has been concluded in paragraphs 348 and 407 above, the Commission did not succeed in demonstrating that the Irish branch of ASI had performed complex functions and assumed those significant risks.

472    Lastly, in recitals 353 to 355 of the contested decision, the Commission sought to assess the median return on sales of comparable undertakings against the median return on ASI’s sales, as a function of the profit allocated to its Irish branch under the 2007 tax ruling. However, that approach is not in line with either the Authorised OECD Approach or section 25 of the TCA 97, in so far as the return on ASI’s sales cannot reflect, in the case of its Irish branch, the value of the functions actually performed by that branch, for the following reasons.

473    First, as stated in paragraphs 384 and 385 above, the distribution functions guaranteed by the Irish branch of ASI consisted in the procurement, sale and distribution of Apple-branded products under framework agreements negotiated outside that branch. Accordingly, the added value contributed by the Irish branch of ASI cannot be grasped by examining the return on ASI’s sales.

474    Second, the functions actually performed by the Irish branch of ASI did not have a decisive impact on either the Apple Group’s IP or the Apple brand, as has been stated in paragraph 341 above. Those two factors are intrinsically linked and may be brought together under the Apple brand designating high-quality products, which was regarded by the Commission itself in recital 351 of the contested decision as decisively affecting the value of ASI’s sales. For this reason, the return on ASI’s sales does not provide a realistic image of the actual contribution of its Irish branch to those sales.

475    In those circumstances, the conclusions of the corrected comparability analysis conducted by the Commission concerning the remuneration of ASI’s Irish branch, an analysis which used sales as a profit level indicator, cannot invalidate the conclusions of the ad hoc reports submitted by Ireland and Apple Inc., which used the operating costs as the profit level indicator.

476    In the second place, concerning AOE’s remuneration, as the Commission itself noted in recital 357 of the contested decision, the results of the comparability analysis used by the Commission, as summarised in paragraph 425 above, show that the profits allocated to the Irish branch of AOE in Ireland under the contested tax rulings fell within ranges which could be regarded as being arm’s length ranges.

477    Accordingly, the results of the analysis conducted by the Commission, in essence, confirm the conclusions derived from the ad hoc reports submitted by Ireland and by Apple Inc., according to which the profits allocated to the Irish branch of AOE fell within arm’s length ranges. In that regard, it should be noted, in the light of the considerations expressed in paragraph 455 above regarding the transfer pricing analyses, that the fact that those results fall more towards the lower end of an arm’s length range cannot invalidate those results.

478    Having regard to the foregoing considerations, the complaints raised by Ireland and by ASI and AOE in respect of the Commission’s statements regarding the methodological error relating to the levels of return accepted in the contested tax rulings must be upheld.

5.      Conclusions regarding the assessments made by the Commission in connection with its subsidiary line of reasoning

479    The findings made above concerning the defects in the methods for calculating the chargeable profits of ASI and AOE demonstrate the incomplete and occasionally inconsistent nature of the contested tax rulings. However, in themselves, those circumstances are not sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU.

480    Indeed, the Commission did not succeed in demonstrating that the methodological errors to which it had referred with regard to the profit allocation methods endorsed by the contested tax rulings, consisting in the choice of the Irish branches as tested parties (paragraph 351 above), the choice of the operating costs as the profit level indicator (paragraph 417 above), and the levels of return accepted by the contested tax rulings (paragraph 478 above) had led to a reduction in ASI and AOE’s chargeable profits in Ireland. Accordingly, it did not succeed in demonstrating that those rulings had granted those companies an advantage.

481    In those circumstances, the pleas in law relied on by Ireland and by ASI and AOE, alleging that, in connection with its subsidiary line of reasoning, the Commission has not succeeded in demonstrating the existence of an advantage in the present instance for the purposes of Article 107(1) TFEU must be upheld.

F.      Pleas in law contesting the assessments made by the Commission in connection with its alternative line of reasoning (fifth plea in law in Case T778/16 and ninth plea in law in Case T892/16)

482    The Commission set out its alternative line of reasoning in recitals 369 to 403 of the contested decision, which is divided into two alternative parts.

483    In the first place, in recitals 369 to 378 of the contested decision, the Commission contended that the arm’s length principle was inherent in the application of section 25 of the TCA 97 and that, in so far as the contested tax rulings derogated from that principle, they conferred a selective advantage on ASI and AOE in the form of a reduction of their taxable base.

484    In the second place, in recitals 379 to 403 of the contested decision, the Commission contended that, even assuming that the application of section 25 of the TCA 97 was not governed by the arm’s length principle, the contested tax rulings still had to be regarded as granting ASI and AOE a selective advantage in so far as those rulings were the result of the discretion exercised by the Irish tax authorities.

485    Ireland and ASI and AOE contest, in essence, the assessments made by the Commission in both parts of the alternative line of reasoning.

1.      First part of the Commission’s alternative line of reasoning

486    In the first part of its alternative line of reasoning, the Commission considered that the contested tax rulings derogated from section 25 of the TCA 97, on the ground that the arm’s length principle was inherent in that section (recital 377 of the contested decision). The Commission then referred to its subsidiary line of reasoning, in which it considered that the contested tax rulings did not allow a reliable approximation of a market-based outcome in line with the arm’s length principle to be calculated and, therefore, concluded that those rulings had granted ASI and AOE a selective advantage (recital 378 of the contested decision).

487    In that regard, it is sufficient to note that, in so far as the first part of the Commission’s alternative line of reasoning is based on statements that it made in its subsidiary line of reasoning and that, as has been found in paragraph 481 above, the Commission cannot rely on that reasoning in order to conclude that there was an advantage in the present instance, it must be held that the Commission is equally unable to rely on the first part of its alternative line of reasoning in order to conclude that there was a selective advantage in the present instance.

488    In those circumstances, it must be concluded that, in the first part of the alternative line of reasoning, the Commission did not succeed in demonstrating that the contested tax rulings had granted ASI and AOE a selective advantage.

2.      Second part of the Commission’s alternative line of reasoning

489    In the second part of its alternative line of reasoning, the Commission contends that, even assuming that the application of section 25 of the TCA 97 was not governed by the arm’s length principle, the contested tax rulings still conferred a selective advantage on ASI and AOE in so far as those rulings were issued by the Irish tax authorities on a discretionary basis.

490    First, the Commission maintained that it had shown in its primary and subsidiary lines of reasoning that the contested tax rulings had endorsed profit allocation methods that resulted in a reduction in the chargeable profits of ASI and AOE in Ireland and that conferred an economic advantage for the purposes of Article 107(1) TFEU.

491    Second the Commission stated that, in so far as section 25 of the TCA 97 does not lay down any objective criteria for the allocation of profits among the various parts of a single non-resident company, the Irish tax authorities’ discretion in applying that provision is not based on objective criteria related to the tax system, which means that it can be presumed that the contested tax rulings are selective. In addition, the Commission examined 11 tax rulings that had been sent to it by Ireland and observed that those rulings contained a number of discrepancies, on the basis of which it considered that the Irish tax authorities’ practice concerning tax rulings was discretionary as no consistent criterion was used to determine the profits to be allocated to the Irish branches of non-resident companies for the purpose of applying section 25 of the TCA 97.

492    The Commission concluded from the above that the contested tax rulings had been issued on the basis of the Irish tax authorities’ discretion in the absence of objective criteria related to the tax system and that, therefore, those rulings had to be considered to confer a selective advantage on ASI and AOE for the purposes of Article 107(1) TFEU.

493    With regard to the conclusions reached by the Commission, first, it should be noted that, in so far as the Commission did not succeed in showing that there was an advantage through its primary and subsidiary lines of reasoning, it cannot, solely through its alternative line of reasoning as described above, show that there is a selective advantage in the present instance. Even assuming that it were established that the tax authorities had discretion, the existence of such discretion does not necessarily mean that it was used to reduce the tax liability of the recipient of the tax ruling as compared with the liability to which that recipient would normally have been subject.

494    Therefore, the Commission’s alternative line of reasoning is insufficient to establish the existence of State aid for the purposes of Article 107(1) TFEU.

495    Second and in any case, the Commission did not succeed in showing that the Irish tax authorities had exercised a broad discretion in the present instance.

496    It is necessary to recall the case-law stating that, in order to establish the selective nature of a tax advantage, it is not necessary for the competent national authorities to have the discretionary power to grant the benefit of that measure. However, the existence of such discretion may be such as to enable those authorities to favour certain undertakings or the production of certain goods to the detriment of others, in particular where the competent authorities have the discretionary power to determine the beneficiaries and the conditions of the measure granted on the basis of criteria unrelated to the tax system (judgment of 25 July 2018, Commission v Spain and Others, C‑128/16 P, EU:C:2018:591, paragraph 55).

497    It is clear that, in recital 381 of the contested decision, the Commission limited itself to stating that Ireland had not identified any objective standard for allocating the profits of a non-resident company for the purpose of applying section 25 of the TCA 97. In that same recital, it concluded directly from the above that ‘this would mean that [the Irish tax authorities’] discretion in applying that provision [was] not based on objective criteria related to the tax system, which [gave] rise to a presumption of a selective advantage’.

498    As has been pointed out in paragraphs 238 and 239 above, in order to apply section 25 of the TCA 97, it is necessary to carry out an objective analysis of the facts that includes, first, identifying the activities performed by the branch, the assets it uses for its functions and the related risks that it assumes and, second, determining the value of that type of activity on the market. Such an analysis corresponds, in essence, to the analysis proposed by the Authorised OECD Approach.

499    Consequently, the Commission cannot argue that the Irish tax authorities’ application of section 25 of the TCA 97 did not involve the use of any consistent criterion in order to determine the profits to be allocated to the Irish branches of non-resident companies.

500    It is true that, in the present instance, the Irish tax authorities’ application of section 25 of the TCA 97 in the contested tax rulings was insufficiently documented. As has been stated in paragraphs 347 and 433 above, the information and evidence in support of that application were very concise. That lack of documented analysis is indeed a regrettable methodological defect in the calculation of ASI and AOE’s chargeable profits, endorsed in the contested tax rulings. However, such a defect is, in itself, insufficient to show that the contested tax rulings were the result of a broad discretion exercised by the Irish tax authorities.

501    Third, the 11 tax rulings concerning the allocation of profits to the Irish branches of non-resident companies examined by the Commission in recitals 385 to 395 of the contested decision are not of such a kind as to show that the Irish tax authorities have a broad discretion which leads to the recipient companies being given favourable treatment as compared with other companies in a comparable situation.

502    As is apparent from recitals 385 to 395 of the contested decision, each of those 11 tax rulings relates to companies with entirely different activities. As the Commission itself noted in recital 88 of the contested decision, the allocation of profits among several associated companies depends on the functions performed, the risks assumed and the assets used by each company. It should therefore be concluded that the 11 tax rulings approve different profit allocation methods simply because the situations of the taxpayers are different. Therefore, the fact that those different situations were taken into account when the rulings in question were issued does not in any way show that the Irish tax authorities had any discretion.

503    It follows from the foregoing considerations that the Commission cannot rely on the second part of its alternative line of reasoning in order to conclude that there was a selective advantage in the present instance.

504    Consequently, the pleas in law relied on by Ireland and ASI and AOE alleging that, in its alternative line of reasoning, the Commission did not succeed in showing that there was a selective advantage in the present instance for the purposes of Article 107(1) TFEU must be upheld, without there being any need to examine the complaints alleging breaches of essential procedural requirements and of the right to be heard raised by ASI and AOE regarding the Commission’s assessments in its alternative line of reasoning.

G.      Conclusions regarding the Commission’s assessment concerning the existence of a selective advantage

505    In view of the conclusions set out in paragraphs 312, 481 and 504 above, in which the Court finds that the pleas in law relied on by Ireland and ASI and AOE against the assessments made by the Commission in connection with its primary, subsidiary and alternative lines of reasoning must be upheld, it must be concluded that the Commission did not succeed in showing, in the present instance, that, by issuing the contested tax rulings, the Irish tax authorities had granted ASI and AOE a selective advantage for the purposes of Article 107(1) TFEU.

506    In that regard, it should be borne in mind that, although, according to the settled case-law cited in paragraph 100 above, the Commission may classify a tax measure as State aid, it may do so only in so far as the conditions for such a classification are satisfied.

507    In the present instance, as the Commission did not succeed in showing to the requisite legal standard that there was a selective advantage for the purposes of Article 107(1) TFEU, the contested decision must be annulled in its entirety without it being necessary to examine the other pleas in law raised by Ireland and ASI and AOE.

10 reasons to apply for Texas A&M International Tax Risk Management — request a brochure https://info.law.tamu.edu/international-tax  

  1. International Tax courses are limited to 15 students. Many have 9 – 12 for maximum interaction with the professors and each other in real-time Zoom discussions. No one is ‘left out’. Everyone has a substantial weekly learning experience.
  2. Courses meet twice weekly on Zoom for 90 minutes (or more) to discuss the case study and the weekly issues, and then students in teams (generally of three) roll play the case study representing a stakeholder interest assigned by the professor/s in the second meeting, ending with a recap discussion of the case study. See an example weekly case study moot on YouTube 
  3. Courses include original authored textbooks and study materials and original case studies by the faculty.
  4. Courses include original authored weekly video-lectures and/or audio podcasts by the faculty.
  5. All students have access to Lexis, Westlaw, Bloomberg LawCheetah (formerly Kluwer-CCH), IBFDTax AnalystsS&PBvD-MoodysThomsonOECD Library, and hundreds of other information resource providers (check out our university virtual libraries here and here)
  6. Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.)
  7. The founder Professor William Byrnes is the pioneer of Online Learning for Legal Education, having initiated the original version of this program in 1994 (see his LinkedIn Group of 27,000+ member network of former students, book subscribers, webinar attendees, and career contacts).
  8. The founder Professor William Byrnes is a leading international tax author with 10 annual treatises published by Lexis and Wolters Kluwer, and three Tax Facts titles by National Underwriter. See his list of publications and over 1,100 media tax articles here.
  9. Join the Texas A&M Aggie former student network of 500,000+ to open career and social doors (and watch Saturday SEC football games) with Aggie Clubs throughout 100 countries in major cities.
  10. 160+ graduate students currently enrolled for risk management, tax-risk management, and wealth management program, many with 10+ years experience, to build your career network today.

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

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Byrnes & Bloink’s TaxFacts Intelligence Weekly (Monday July 12, 2020)

Posted by William Byrnes on July 12, 2020


Texas A&M University School of Law has launched its online international tax risk management graduate curricula for industry professionals.  Apply now for courses that begin August 23: International Tax Risk Management, Data, and Analytics; International Tax & Tax Treaties (complete list here

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

This week we analyze the DOL’s new prohibited transactions exemption for fiduciaries, the DOL’s clarification of which parents are eligible for the FFCRA during the summer school recess when children are normally at home, and Congress’ new exemption for PPP Loan Forgiveness.

DOL Unveils New Prohibited Transaction Exemption (PTE) for Fiduciaries

The DOL has released its long-awaited follow-up to the 5th Circuit’s vacation of its 2016 fiduciary rule. The DOL proposed a new class exemption that grants relief for financial advisors and institutions who provide investment advice (including retirement-related advice) if the terms of the PTE are satisfied. Generally, fiduciaries who receive certain forms of commission with respect to investment advice can run afoul of the prohibited transaction rules unless an exemption applies. For more information on the new exemption, visit Tax Facts Online. Read More

DOL Clarifies FFCRA Eligibility for Parents Who Lack Summer Childcare

FFCRA leave is generally available to parents who cannot work because of childcare needs when the child’s usual place of care or school is closed or unavailable due to COVID-19. Now that schools are closed for summer, many have questioned their eligibility based on cancellations for summer camps, summer enrichment programs or other childcare alternatives. The DOL has clarified its original guidance to provide that an employee’s mere interest in a summer program that was cancelled is insufficient to establish FFCRA eligibility. For more information, visit Tax Facts Online. Read More

Congress Creates New Exemption to Preserve PPP Loan Forgiveness

PPPFA created an exemption to preserve loan forgiveness eligibility in the face of the reality that some employees may not be available or willing to return to work. Employers will not be subject to a proportionate reduction in loan forgiveness based on reductions that occur under either of two scenarios during February 15, 2020 and December 31, 2020. For more information, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Byrnes & Bloink’s TaxFacts Intelligence Weekly (Friday July 9, 2020)

Posted by William Byrnes on July 10, 2020


Texas A&M University School of Law has launched its online international tax risk management graduate curricula for industry professionals.

Apply now for courses that begin August 23: International Tax Risk Management, Data, and Analytics; International Tax & Tax Treaties (complete list here

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Hope everyone had a great 4th last weekend! This week we analyze more CARES Act developments in the form of an extension of the RMD waiver to cover all of 2020. This potentially helps account holders who took RMDs prior to the passage of the CARES Act. We also see new proposed regs that define “real property” for the purposes of 1031 exchanges, as well extended deadlines related to opportunity zones.

New Regs Define Real Property for 1031 Exchanges

The 2017 tax reform legislation limited the availability of Section 1031 exchanges to exchanges of real property. Despite this, the important term “real property” had never actually been defined for 1031 purposes. The proposed regulations adopt a new definition of real property and make clear that each separate asset involved in a transaction must be analyzed independently to determine whether it qualifies. For more information on these definitions, visit Tax Facts Online. Read More

IRS Expands RMD Waiver Relief for All of 2020

Despite this, the law was enacted after some taxpayers had already taken their 2020 RMDs early in the year. For those who took RMDs very early in the year, the sixty-day rollover period had already expired. In response, the IRS announced that anyone who took a 2020 RMD is eligible to roll the funds back into their account penalty-free. The sixty-day rollover period was extended through August 31, 2020, so clients still have only a limited period of time in which to act. Further, the rollover does not count toward the otherwise applicable “one rollover per twelve-month period” rule or the restriction on rollovers for inherited IRAs. For more information on the RMD rules, visit Tax Facts Online. Read More

Key Deadlines for Opportunity Zone Investments Extended
As is the case with many deadlines this spring and summer, the IRS has extended several key deadlines that apply to opportunity zone investments. For taxpayers whose last day of the 180-day investment period within which to make a QOZF investment was on or after April 1, 2020 and before December 31, 2020, the last day of the 180-day period is extended to December 31, 2020. QOFs that failed to satisfy the 90 percent investment rule for a period ending on or after April 1, 2020 and on or before December 31, 2020 will not be subject to a penalty (i.e., the failure is disregarded). Similarly, the 30-month substantial improvement period for tangible property that is used prior to being acquired is suspended between April 1, 2020 and December 31, 2020. For more information on opportunity zones and extended deadlines, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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International Tax Risk Management, Data Analytics, and Technology – Team Based Case Studies – Apply Now for August Start

Posted by William Byrnes on July 6, 2020


10 reasons to apply for Texas A&M International Tax — request a brochure here https://info.law.tamu.edu/international-tax  (or apply online https://law.tamu.edu/distance-education/prospective-students/llm-mjur-application)

  1. International Tax courses are limited to 15 students.  Many have 9 – 12 for maximum interaction with the professors and each other in real-time Zoom discussion.  No one is ‘left out’. Everyone has a substantial weekly learning experience.
  2. Courses meet twice weekly on Zoom for 90 minutes (or more) to discuss the case study and the weekly issues, and then students in teams (generally of three) roll play the case study representing a stakeholder interest assigned by the professor/s in the second meeting, ending with a recap discussion of the case study. See an example case study moot on YouTube 
  3. Courses include original authored reading and study materials, original case studies, links to the robust tax library for current articles, analytical materials, and technology/data providers.
  4. Courses include weekly instructor video-lectures and/or audio podcasts.
  5. Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.)
  6. The founder Professor William Byrnes is the pioneer of Online Learning for Legal Education, having initiated the original version of this program in 1994 (see his LinkedIn Group of 27,000+ member network of former students, book subscribers, webinar attendees, and career contacts).
  7. The founder Professor William Byrnes is a leading international tax author with 10 annual treatises published by Lexis and Wolters Kluwer, and three Tax Facts titles by National Underwriter.
  8. Join the Texas A&M Aggie former student network of 500,000+ to open career and social doors (and watch Saturday SEC football games).
  9. 160+ current graduate enrollment for risk management, tax-risk management, and wealth management program.
  10. All students have access to Lexis, Westlaw, Bloomberg Law, Cheetah (formerly Kluwer-CCH), IBFD, Tax Analysts, S&P, BvD-Moodys, Thomson, OECD Library, and hundreds of other information resource providers (check out our university virtual libraries here and here)

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

FALL 2020 Semester (starts Aug 23 and ends Nov 30) 

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights
    • Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation
    • Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation
    • Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application
    • Week 5: Sept 20 Tax Jurisdiction of Entities
    • Week 6: Sept 27 U.S. Tax Reform / Pillar II
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management & Domestic Systems (Inbound) (meet Tuesdays and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Aug 23 national tax systems in general and inbound diagnostic Dr. Susana Bokobo, former global tax policy director Repsol
    • Week 2 Aug 30 Manuel Tron Mexico as an inbound diagnostic case study (President Emeritus, International Fiscal Association)
    • Week 3 Sept 6 Elis Prendergast (KPMG)
    • Week 4 Sept 13 Carson Le (KPMG)
    • Week 5 Sept 20 Dr. Maji Rhee (Waseda) Japan/Korea as inbound case studies
    • Week 6 Sept 27 Domestic Compliance Risk Matrix Hafiz Choudhury
    • Week 7 capstone of tax data analytics and technology for inbound domestic tax risk management

International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Tax of Business Income (PE, Nexus)
    • Week 2 Oct 18 Tax of Investment Income
    • Week 3: Oct 25 Taxation of Services and Employment Income (including DST)
    • Week 4: Nov 1 Double Taxation and Tax Credits
    • Week 5: Nov 8 Tax Accounting
    • Week 6: Nov 15 Introduction to Management of Tax and Data
    • Week 7 capstone of tax data analytics and technology

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 Oct 11 Manufacturing I Dr. Niraja Srinivasan Pillar 1 (Dell Global Tax)
    • Week 2 Oct 18 Manufacturing II (DEMPE & Supply Chain) Niraja
    • Week 3 Oct 25 Manufacturing III (Customs) Niraja
    • Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)
    • Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
    • Week 7 capstone of tax data analytics and technology for global tax risk management

SPRING 2021 (Jan 10 – April 26, 2020 repeats 2021)

U.S. Tax Risk Management (Data, Analytics & Technology) 3 credits (meet Tuesdays and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 January 10, 2021 Outbound / FDII Melissa Muhammad (IRS LB&I)
    • Week 2 January 17, 2021 Inbound / BEAT Melissa Muhammad
    • Week 3 January 24, 2021 [check the box] Form 1120 Documentation: Neelu Mehrotra: EY
    • Week 4 January 31, 2021 [Subpart F & GILTI, PTEP ] Form 5471 Documentation: Neelu Mehrotra: EY
    • Week 5 February 7, 2021 M&A or topic and Neelu Mehrotra: EY
    • Week 6 February 14, 2021 FTCs; wrap-up: Melissa Muhammad 
    • Week 7 Capstone of tax data analytics and technology for U.S. tax risk management

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data (William Byrnes) (meet Monday and Friday at 8am Central Daylight Dallas time zone)

    • Week 1 January 10 Arm’s Length Standard (v Formulary Approach) Dr. Bruno Da Silva & William Byrnes
    • Week 2 Jan 17 CUP & Comparables  Dr. Lorraine Eden
    • Week 3 Jan 24 Cost Plus & Resale Minus  Dr. George Salis
    • Week 4 Feb 31: Comparable Profits Method & TNMM Dr. George Salis
    • Week 5 Feb 7 Profit Split Dr. George Salis
    • Week 6 Feb 14 Best Method Dr. Lorraine Eden 

E.U. Tax Risk Management 3 credits (meet Tuesdays and Sunday at 8am Central Daylight Dallas time zone)

    • Week 1 February 28, 2021 General Framework & Fundamental Freedoms
    • Week 2 March 7, 2021 P/S + Interest / Royalty
    • Week 3 March 21, 2021 M&A directive
    • Week 4 March 28, 2021 Cross-Border Losses – Dr. Bruno Da Silva
    • Week 5 April 4, 2021 Free Movement of Capital (investment funds) Dr. Bruno Da Silva
    • Week 6 April 11, 2021 ATAD, DAC 6, Abuse – Dr. Bruno da Silva
    • Week 7 capstone of tax data analytics and technology for E.U. tax risk management 

Transfer Pricing Risk Management: Intangibles and Services (William Byrnes) (meet Monday and Friday at 8am Central Daylight Dallas time zone)

SUMMER 2020 (May 18 through June 30, 2020 – repeats 2021)

FATCA, CRS, and AEoI (Law, Data, Systems): 3 credits (meet 8:00am Wednesday and Sunday Central Daylight Dallas time zone)

    • Week 1. May 18: FATCA, CRS, and EU: nationality, residency, data sharing: Dr. Bruno Da Silva (Loyens & Loeff) dasilva.brunoaniceto@gmail.com.
    • Week 2. May 25: FATCA/CRS and the Asset Management Industry, intermediaries: Denise Hintzke (Deloitte) dhintzke@deloitte.com
    • Week 3. June 1: FATCA Withholding Compliance, overlap with QI: Denise Hintzke (Deloitte)
    • Week 4. June 8: Documentation FATCA v CRS: Melissa Muhammad (IRS LB&I) melissamuhammadesq@gmail.com
    • Week 5. June 15: FATCA IGAs & CRS Risk Management Melissa Muhammad melissamuhammadesq@gmail.com
    • Week 6. June 23: Financial Institutions Systems And Data: Haydon Perryman (Bank of America, UBS, Barclays, RBS and Lloyds) haydon@haydonperryman.com
    • Week 7 capstone for both Summer courses: “Tax Technology and the future of Tax Departments” Dr. Debora Correa Talutto debora.talutto@veritas.com 

International Tax Risk Management I (Data, Analytics & Technology) 3 credits (meet Tuesday at 8am and Sunday at 9:30am Central Daylight Dallas time zone)

    • Week 1. May 18: General tax risk management approach Dr. Knut Olsen   knut.tax@gmail.com
    • Week 2. May 25: BEPS: Dr. Bruno Da Silva (Loyens & Loeff).
    • Week 3. June 1: CbCR & Analytics David Deputy, Vertex david.deputy@vertexinc.com
    • Week 4. June 8: LOB / PPT / MLI: Dr. Bruno da Silva (Loyens & Loeff)
    • Week 5. June 15: Future of Analytics & Technology – Risk Management Perspective: Dr. Paula de Witte
    • Week 6. June 23: Interest (thin cap, EBIDTA), Debt/Equity Melissa Muhammad (IRS LB&I) melissamuhammadesq@gmail.com
    • Week 7 capstone for both Summer courses: “Tax Technology and the future of Tax Departments” Dr. Debora Correa Talutto debora.talutto@veritas.com

Additional courses include VAT and Customs.  20 additional courses to select from in Risk Management and Wealth Management overlapping curriculum – check out those courses and professors: 

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Byrnes & Bloink’s TaxFacts Intelligence Weekly (Friday June 26, 2020)

Posted by William Byrnes on June 26, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university, ranked in the top 20 universities by the Wall Street Journal / Times Higher Education university rankings, and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

 

This week the new ERISA E-disclosure safe harbor was finalized, we have some news on GRATs, and some additional COVID-related updates pertaining to PTO donations and the always loved (but often misunderstood!) home office deduction. How goes the home office for you, dear reader?

DOL Finalizes E-Disclosure Safe Harbor

The DOL finalized its e-disclosure safe harbor proposal, allowing electronic distribution of notices and disclosures required by ERISA. Under the safe harbor documents, retirement plans can deliver documents electronically by posting required documents on the plan sponsor’s website and furnishing notice of internet availability to participants via email. The sponsor can also send the documents directly via email to plan participants, whether in an attachment or in the body of the email. For more information on the new e-disclosure safe harbor, visit Tax Facts Online. Read More

9th Circuit Affirms GRAT Included in Decedent’s Estate

The Ninth Circuit recently confirmed that a decedent’s estate included the value of a grantor retained annuity trust because the decedent received annuity payments up until the date of her death. The decedent in this case died before the GRAT terminated, meaning that there was no actual transfer of the trust property. She had created the GRAT structure to transfer interests in a family business to her daughters, receiving a $302,529 annuity payment annually for 15 years. The business generated enough income so that the value of the partnership interest was not decreased by the monthly annuity payments. Under IRC Section 2036(a), because the decedent was still enjoying the economic benefit of the property at death, the entire value was included in her gross estate. The court rejected the argument that the value should be excluded because the statute does not specifically list “annuities” as property that may be pulled into the estate. For more information on the use of GRATs, visit Tax Facts Online. Read More

Home Office Deductions in the Age of Covid-19

With so many taxpayers working from home–some indefinitely–do to Covid-19, many are likely wondering whether they can deduct their home office expenses. In short, traditional W-2 employees cannot deduct their home office expenses regardless of whether they would otherwise qualify for the deduction. The 2017 tax reform legislation eliminated this deduction for 2018-2025. Self-employed taxpayers can deduct expenses associated with maintaining a home office if the office is used regularly and exclusively as the taxpayer’s principal place of business (if the office is within the dwelling unit). A home office deduction is permitted for self-employed taxpayers with separate structures if the office/workspace is used “in connection with” the trade or business. For more information on the home office deduction, visit Tax Facts Online. Read More

IRS Provides Relief for Employee Donations of Unused Sick, Vacation & PTO

The IRS has provided relief so that employees can forgo sick, vacation or personal leave because of the COVID-19 pandemic without adverse tax consequences. Under the guidance, an employer can make cash payments to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo. Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income. For more information on the charitable contributions, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Tax Facts’ COVID Weekly by William Byrnes and Robert Bloink (June 22, 2020)

Posted by William Byrnes on June 23, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Yes, there are new PPP Rules that allow a lot more flexibility in qualifying for forgiveness. But this week we also have a number of new rules on employee benefits and compensation issues, including a Supreme Court decision on a defined benefits case.

Increased Flexibility for PPP Recipients

PPP loan forgiveness is determined based on how the small business client spent the loan proceeds. Under the PPPFA, at least 60 percent of the loan must be used for payroll costs (this 60 percent threshold was reduced from 75 percent under the CARES Act The PPPFA extended the eight-week period to twenty-four weeks from the date the lender made the first loan payment to the small business owner. Unless Congress acts again, the funds must all be spent by December 31, 2020 in order to be eligible for forgiveness. The amount forgiven can also be reduced if the employer made certain staffing cuts or cut employee compensation levels. The PPPFA gives employers until December 31, 2020 to bring workers back to work/restore wage levels and continue to qualify for loan forgiveness (extended from prior law, which set the deadline at June 30)). Read More

U.S. Supreme Court: DB Participants Lack Standing to Sue Fiduciaries When Payments are Unaffected

The U.S. Supreme Court has now ruled that ERISA-governed defined benefit plan participants lack standing to sue plan fiduciaries in situations where the participants’ own payments were not impacted. In this case, the plaintiffs sued alleging mismanagement of plan funds and self-dealing. However, the plaintiffs’ own fixed pension payments continued to be paid (the plan in this case was overfunded). The Court held that because the plaintiffs would not be impacted financially by the outcome of the case, they lacked standing to sue under Article III of the U.S. constitution. For more information on DB plan funding requirements, visit Tax Facts Online. Read More

New Foreign Earned Income Exclusion Rules

The bona fide residence test and physical presence test generally provide specific time requirements that apply to individuals claiming a tax exclusion for foreign-earned income. An otherwise qualified individual may still exclude foreign earned income for the period in which the individual was actually present in the foreign country even if the individual fails to meet the time requirements. For more information, visit Tax Facts Online. Read More

IRS Waives Physical Presence Requirement for Spousal Consent to Participant Benefit Elections

IRC Section 417 generally requires spousal consent to a waiver of a qualified joint and survivor annuity (QJSA), which includes the waiver of a QJSA as part of a participant’s request for a plan distribution or a plan loan (the availability of which were expanded under the CARES Act). The spousal consent must generally be witnessed by a plan representative or a notary public in person (the physical presence requirement). Notice 2020-42 provides relief in permitting remote electronic notarization executed via live auto-video technology that satisfies any state-level requirements that apply to a notary public. For more information on spousal consent requirements, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , | Leave a Comment »

Tax Facts’ COVID Weekly by William Byrnes and Robert Bloink (June 15, 2020)

Posted by William Byrnes on June 17, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

This week’s updates are primarily focused on employee benefits issues that have taken a turn during the COVID 19 era. First, dependent care FSAs can play an increasingly important role for employees who are facing dependent care costs that may be drastically different than what they had anticipated when they were considering their benefit elections in late 2019. New rules allow for mid-year changes to those elections. Also, employers who continue to pay for healthcare coverage for furloughed employees may be able to take advantage of certain tax credits. All this and more and your weekly Tax Facts Online updates!

New PPP Guidance

The Treasury has updated its guidance related to the CARES Act Paycheck Protection Program (PPP) loan forgiveness requirements. The Treasury now notes that most companies with adequate sources of alternative liquidity are likely not eligible for the program. In order to qualify for the loans, PPP borrowers are now required to provide a good faith certification stating that current economic conditions and uncertainty make the loan necessary to support ongoing operations. PPP borrowers who find they cannot make the certification in good faith are permitted to return the funds. For more information on the PPP loan rules, visit Tax Facts Online. Read More

Required Business Expense Reimbursement in the Age of COVID-19

Some employers are now permitting employees to work from home–while others are requiring it. In some jurisdictions (California and Illinois, for example) employers are required to reimburse employees for employment expenses. This may create the need for employers to reimburse employees for the cost of maintaining a home office. Further, the FLSA does not permit an employer to require an employee to pay for business expenses if doing so would reduce the employee’s earnings to below the minimum wage. For more information on the impact of reimbursing business expenses, visit Tax Facts Online. Read More

New Proposed Regs on UBTI Calculations for VEBAs and SUBs

The IRS proposed regulations address the treatment of unrelated business taxable income (UBTI) for certain tax-exempt entities, including VEBAs and SUBs. UBTI is income generated from an activity unrelated to the tax-exempt purpose of the entity. For more information, visit Tax Facts Online. Read More

 

Byrnes & Bloink’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.

  • all Tax Facts books
  • Tax Facts Intelligence weekly newsletters
  • weekly strategy articles for client advisory
  • weekly transcribed debate discussion for client soft-skill discussion
  • among other weekly client advisory critical updates

Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

Tax Facts’ COVID Weekly by William Byrnes and Robert Bloink (June 8, 2020)

Posted by William Byrnes on June 8, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
This week we have new Treasury Guidance on the PPP loan forgiveness requirements. This guidance seems to be primarily aimed at the issue of the “necessity” of the loan, which continues to be somewhat murky. We also have updates on business expense reimbursement, which is an issue that has become more important with employees working from home and changing the pattern of their business expenditures.
New PPP Guidance

The Treasury has updated its guidance related to the CARES Act Paycheck Protection Program (PPP) loan forgiveness requirements. The Treasury now notes that most companies with adequate sources of alternative liquidity are likely not eligible for the program. In order to qualify for the loans, PPP borrowers are now required to provide a good faith certification stating that current economic conditions and uncertainty make the loan necessary to support ongoing operations. PPP borrowers who find they cannot make the certification in good faith are permitted to return the funds. For more information on the PPP loan rules, visit Tax Facts Online. Read More

Required Business Expense Reimbursement in the Age of COVID-19

Some employers are now permitting employees to work from home–while others are requiring it. In some jurisdictions (California and Illinois, for example) employers are required to reimburse employees for employment expenses. This may create the need for employers to reimburse employees for the cost of maintaining a home office. Further, the FLSA does not permit an employer to require an employee to pay for business expenses if doing so would reduce the employee’s earnings to below the minimum wage. For more information on the impact of reimbursing business expenses, visit Tax Facts Online. Read More

New Proposed Regs on UBTI Calculations for VEBAs and SUBs

The IRS proposed regulations address the treatment of unrelated business taxable income (UBTI) for certain tax-exempt entities, including VEBAs and SUBs. UBTI is income generated from an activity unrelated to the tax-exempt purpose of the entity. For more information, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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COVID Weekly by William Byrnes and Robert Bloink (Friday May 29, 2020)

Posted by William Byrnes on May 28, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals.

Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk)

Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
This week we have more information about the CARES Act, including details on qualified plan loans and health expenses paid by employers for furloughed workers. We also have the annual updates to the HSA numbers that will be in effect for 2021. How was your Memorial Day?
Calculating CARES Act Qualified Plan Loans & The One-Year Look-back Rule

The CARES Act allows plan sponsors to double the qualified plan loan limit for qualified individuals. Plan loans made between March 27, 2020 and September 23, 2020 are limited to the lesser of (1) $100,000 or (2) 100% of the participant’s vested account balance. Despite this, even if the individual is qualified, plan sponsors must remain aware of the one-year look-back rule For more information on the qualified plan loan rules, visit Tax Facts Online. Read More

2021 HSA Inflation-Adjustments

The IRS has released Revenue Procedure 2020-32 with the 2021 inflation adjusted amounts for taxpayers who contribute to health savings accounts (HSAs). For more information on the contribution limits that apply to HSAs, visit Tax Facts Online. Read More

Treasury Allows Tax Credit for Health Expenses of Furloughed Workers

Clearing up confusion (and revising initial guidance), the Treasury has announced that if an employer continues to pay an employee’s health insurance costs during a furlough period, the employer is entitled to claim a tax credit with respect to those expenses. This is the case even if the employer is not currently paying the employee’s wages. For more information on the employee retention tax credit, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-087
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Posted in Tax Policy, Taxation | Tagged: , | Leave a Comment »

TaxFacts Covid-19 Weekly by William Byrnes and Robert Bloink (Friday May 22, 2020)

Posted by William Byrnes on May 22, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for fall courses that begin in August: Enterprise Risk Analytics; Information Security Risk Management; Terrorism Risk Management; International Tax Risk Management, Data, and Analytics II; International Tax & Tax Treaties I and II; Securities Regulation; Investment & Portfolio Management; Financial Innovation (and Risk) Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
This week brings two updates that may affect employee benefits. The first is that mid-year changes to cafeteria plan elections are permissible. This includes FSA and dependent care accounts, which may be important as both healthcare and childcare expenditures for many people are wildly different than what they had anticipated at the end of 2019. The IRS also made some temporary FSA changes permanent. Finally in some non-COVID updates (yes there is some!), the IRS released proposed rules that change how some administrative expenses incurred by trusts and estates can be deducted.
IRS Provides Relief for Cafeteria Plan Participants in Response to COVID-19

Under normal circumstances, cafeteria plans are not permitted to allow participants to make mid-year election changes except in limited situations. Notice 2020-29 permits employees to allow certain mid-year elections made during calendar year 2020 that would otherwise be impermissible, including changes to salary reduction contribution elections. For more information on the mid-year election rules for cafeteria plans, visit Tax Facts Online. Read More

IRS Makes Temporary & Permanent Changes to the FSA Grace Period Rules

IRS Notice 2020-33 and Notice 2020-29, released concurrently, provides relief with respect to unused funds in a flexible spending account. Under Notice 2020-29, if an employee has unused amounts remaining in a health FSA or a dependent care assistance program at the end of a grace period (or plan year) ending in 2020, a cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses incurred through December 31, 2020. Notice 2020-33 makes a change to the carryover rules that apply to health FSAs, so that the amount that can be carried over to the following year will equal 20 percent of the maximum inflation-indexed salary reduction amount under Section 125 (increasing the carryover amount from $500 to $550 for 2020). For more information on the rules governing health FSAs, visit Tax Facts Online. Read More

IRS Proposes Rules Allowing Deduction of Administrative Fees for Trusts & Estates

The IRS has released proposed regulations that would permit the deduction for certain administrative fees incurred by trusts and estates (including the S portion of an ESBT). The guidance addresses the treatment of these expenses in light of the suspension of all miscellaneous itemized deductions for 2018-2025 under the 2017 tax reform legislation. For more information on the tax treatment of trusts and estates, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Tax Policy, Taxation, Wealth Management | Tagged: , , | Leave a Comment »

TaxFacts Covid-19 Intelligence Weekly by William Byrnes and Robert Bloink (May 18, 2020)

Posted by William Byrnes on May 18, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

The devil is in the details, but where exactly? This week we are starting to see how the broad changes in the recent spate of COVID-19 legislation will be administered. We have new notices on loan forgiveness procedures (did you get your PPP loan yet?), COBRA and Medicare, and FFCRA paid leave issues.

The Finer Points of PPP Loan Forgiveness

Loan forgiveness offers powerful assistance to those small businesses who were actually able to receive Paycheck Protection Program loan funds. However, loan forgiveness is not without its costs. While amounts forgiven will not be included in income under the usual cancellation of indebtedness rules, business owners may not be entitled to their typical business deductions either. Notice 2020-32 clarifies that otherwise allowable deductions are disallowed if the payment of the expense (1) results in loan forgiveness under the PPP loan program and (2) the income associated with the loan forgiveness is excluded from income under CARES Act Section 1106(i). For more information on implications of loan forgiveness, visit Tax Facts Online. Read More

New Q&A on CARES Act Qualified Plan Loans & Distributions

The IRS released the first Q&A in what is likely to be a series of guidance on the CARES Act retirement-related provisions. One overarching issue is the IRS confirmation that plan sponsors can rely upon past guidance issued in response to Hurricane Katrina in 2005 and the RMD waiver in 2009 for help implementing the CARES Act provisions. Under initial guidance, individuals are only eligible for COVID-19 related distributions or loans if they themselves are impacted (qualification cannot currently be based on a spouse or dependent’s job loss). The Q&A also clarifies that increased loan limits are currently available between March 27, 2020 and September 22, 2020. Further, the guidance confirms that the loan and distribution relief is optional for plan sponsors–and sponsors can elect to adopt one provision and not another (including the loan repayment option). For more information on the CARES Act loan provisions, visit Tax Facts Online. Read More

New COBRA Notice in Light of Growing Employment Litigation

The DOL released a revised COBRA general notice and election notice on May 1, 2020, in response to increasing furloughs and layoffs in the wake of COVID-19–and a growing risk of employment litigation. Employers are not required to post the new notices, but may wish to in light of the evolving situation. These new notices add information about how Medicare eligibility impacts COBRA eligibility (highlighting the fact that COBRA coverage is usually secondary to Medicare). Employers who use the model notices are deemed to comply with COBRA notice requirements. For more information on COBRA coverage election requirements and COVID-19, visit Tax Facts Online. Read More

Moving to Reopen, Employers Begin Evaluating FFCRA Leave Provisions

Now that many more employers are beginning to evaluate whether to reopen as governments relax restrictions, those who have been closed for upwards of two months will have to evaluate whether they must provide paid leave under the FFCRA as COVID-19 continues to spread. The FFCRA paid sick leave and expanded FMLA provisions only applied to employers who continued to operate in the wake of the pandemic–employees who were simply laid off or furloughed were required to seek unemployment benefits. Upon first glance, the new paid leave requirements under the FFCRA seem to provide 12 weeks of paid time off for most small business employees. However, the benefit triggers differ depending on whether the employee is claiming (1) 80 hours paid sick leave or (2) expanded relief under the FMLA. For more information on the benefit triggers, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Tax Policy, Taxation | Tagged: , , | Leave a Comment »

Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for May 7, 2020

Posted by William Byrnes on May 7, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

 Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.

Some interesting updates this week. We already knew that NOLs could be applied retroactively under the CARES Act, but now it seems that corporate AMT credits (remember those?) can be, as well.

Also, the last item on extending the COBRA election period might end up being a big deal. Importantly, the election period (the period that you have to decide whether to take the COBRA benefits) has been extended for an unknown amount of time. There has always been a risk of “moral hazard” with the election period since you can wait to see if you need the coverage before making the decision to commit to paying the premiums. However, that risk seemed low when the election period had a hard cut-off at sixty days. Now the election period is extended to sixty days after the end of the COVID-19 national emergency, which doesn’t seem to be likely to occur anytime soon. It will be interesting to see how group health carriers react to this change.

CARES Act Provides NOL Relief for Struggling Businesses

The CARES Act allows corporations to carry back net operating losses (NOLs) incurred in 2018, 2019, and 2020 for five years (excluding offset to untaxed foreign earnings transition tax). Post-tax reform, these NOLs could only be carried forward. For tax years beginning prior to January 1, 2021, businesses can offset 100% of taxable income with NOL carryovers and carrybacks (the 80% taxable income limitation was lifted). With respect to partnerships and pass-through entities, the CARES Act amended the effective date for the new excess business loss rules created by the 2017 tax reform legislation. The new rules will only apply beginning in 2021 (rather than 2018). Pass-through taxpayers who have filed a return reflecting excess business losses will presumably be entitled to refund by filing an amended return, absent guidance to the contrary. For more information, visit Tax Facts Online. Read More

CARES Act Permits Penalty-Free Payroll Tax Deferral for Employers

The CARES Act allows both employers and independent contractors to defer payment of employer payroll taxes without penalty. Importantly, employers with fewer than 500 employees are entitled to withhold payroll taxes as an advance repayment of the tax credit for paid sick leave and expanded FMLA leave under the FFCRA. Under the CARES Act payroll tax deferral, employers are permitted to defer the employer portion of the payroll tax on wages paid through December 31, 2020 for up to two years. Payroll taxes are generally due in two installments under CARES: 50% by December 31, 2021 and the remaining 50% by December 31, 2022. Economic hardship is presumed, meaning the employer does not have to produce documentation establishing that COVID-19 impacted the business. Payroll tax deferral options apparently apply to all employers, regardless of size. However, employers who have loans forgiven under the CARES Act Payroll Protection Loan program are not eligible for the deferral. For more information, visit Tax Facts Online. Read More

CARES Act Employee Retention Tax Credit

The CARES Act creates a new refundable tax credit designed to help employers who retain employees during the COVID-19 health crisis. The credit is taken against employment taxes and is equal to 50% of the first $10,000 of qualified wages paid to the employee. The credit is available for calendar quarters where either (1) operations were either fully or partially suspended because of a government-issued order relating to COVID-19 or (2) the business’ gross receipts declined by more than 50% when compared to the same calendar quarter in 2019. For more information, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Covid-19 Stimulus: Are Tax Credits or SBA Loan Forgiveness Better for a Small Business After IRS Denies Tax Deductions If Loan Forgiven (Notice 2020-32)?

Posted by William Byrnes on May 3, 2020


 

Professor William Byrnes of Texas A&M’s School of Law discusses the IRS’ Notice 2020-32 (issued April 30, 2020) denying tax deductions for payroll and other operational expenses for small business owners that take advantage of the tax-free loan forgiveness program (PPP) of the SBA. William Byrnes then presents an example when a small business may be better off using the combined Employee Retention Tax Credit (CARES Act), the Families First Act Tax Credit, and the deferral of payment of payroll tax instead of the SBA loan forgiveness.

See my article below this post for additional analysis: The IRS Just Issued Notice Denying Deductions for PPP Loan Forgiveness and Its Dead Wrong

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Byrnes & Bloink’s Covid-19 TaxFacts Weekly of April 30, 2020 (Special Notice – IRS Just Issued Notice Denying Deductions for PPP Loan Forgiveness and Its Dead Wrong)

Posted by William Byrnes on April 30, 2020


           Prof. William H. Byrnes

The IRS released on April 30th Notice 2020-32 wherein the IRS interprets general tax law principles to deny business deductions (under Internal Revenue Code Section 162) for the wage and related expenses when the business takes advantage of the SBA’s PPP loan forgiveness.

The IRS Notice is a wrong interpretation of how CARES Section 1106 (see below) and by implication, Internal Revenue Code Section 108 (discharge of indebtedness), works, as well as how Congress intends CARES to work. Congress clearly intends CARES’ SBA loan proceeds to ameliorate Covid-19s damage to small business’ earnings (and thus mitigate the Covid-19 economic recession) by pushing cash flow into, and through, small business.

The IRS is approaching this issue from a perspective that exempting from income the discharge of debt of small businesses and also allowing a deduction for the wage expenses is a ‘double benefit’ and double benefits are not allowed.  Yet, this is exactly what many tax credits allow – a double benefit created from deducting the expenses that generate the tax credit.  A small business that uses the maximum Sick Leave tax credit of $5,110 (Families First Act) and the $5,000 employee retention tax credit for CARES (these two tax credits may be combined) will receive the $10,110 refundable tax credit excluded from gross income AND ALSO a deduction from the small business owner’s gross income (albeit this deduction is reduced by $5,000 to reflect the Employee Retention credit amount yet no reduction is required for the Families First tax credits) which is worth the small business owner’s tax rate – federally either 37% or 29.6%. with the extra Section 199A 20% deduction for business income (see some of Robert and my Tax Facts Intelligence articles on 199A and Covid-19 at ThinkAdvisor).  In New York or California, states with high personal income tax rates, the business expenses deduction is worth more than say, Texas or Florida that do not tax personal income.

So the IRS Notice creates discrimination for many small businesses in favor of the $10,110 refundable tax credits of Families First and CARES in relation to the SBA PPP Loans. Most of the House and Senate certainly did not intend to ‘give with one hand and take back with the other’ regarding the SBA Loans.  Had Notice 2020-32 been published before the additional SBA funding, Congress would have been forced to take a stance on what it intended. Now we must wait until the next relief bill for Congress to confront this issue.

The IRS cites IRC Section 265 for its argument to deny the deduction for the CARES Act’s SBA PPP forgiven amount. The IRS contends that the CARES Act Section 1106 creates a “class of exempt income”.  Section 265 denies business income deductions under Section 162 when the income in question falls into a class of exempt income. But if CARES creates a class of income, then that class is of ‘debt income’ and debt is excludable from gross income.  The IRS’ erroneous interpretation can be stretched that all business deductions should be denied by Section 265 when those expenses are funded by debt income. Even the interest payments on the SBA loans should not be deductible based on this approach.

CARES Act Section 1106‘s Loan Forgiveness exclusion from income is in the same vein as Section 108’s exclusion from income for discharged debt.  Section 108 does not create a class of income for purposes of Section 265. Administratively it would be very burdensome for the IRS to reach back to open tax years and clawback deductions for expenses funded by the discharged debt. Congress knows how to deny tax allowances when it intends to do so because Congress included denying certain allowance items in Section 108, but not a denial of tax deductions.  Congress included proportional reduction of net operating loss, of general business tax credits (under Section 38), among other items, relative to the amount of loan forgiveness to overall income that generated the tax allowances.

CARES ACT Section 1106 states “(i) TAXABILITY.—For purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in subsection(b) shall be excluded from gross income.”

Section 108 states “(a) Exclusion from gross income (1) In general Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if …”.

Statutorily speaking, why did Congress specifically include that the SBA loan forgiveness is exempt from gross income if Congress intended that the deductions would be disallowed?  Based on the IRS’ logic, if Congress had not included the exclusion then the expenditure for wages would be deductible and would offset the discharged debt, a washout.  So Congress did not need to do anything to achieve the result that the IRS claims that Congress intended by doing something.

Take an example of a New York business.*  Should a New York business choose SBA loan forgiveness or the sick leave plus employee retention tax credits? (Note New York’s decoupling whereby New York has chosen to deny some of the relief of the CARES Act may impact the analysis but I am leaving that aside).  For a business with, by example, 100 employees, a combined $10,000 credit (rounding down) per employee is worth $1,000,000 of tax-exempt tax credit. To generate the $10,000 of tax credit, the business had to pay at least $15,000 in wages, so $1.5 million in wages for the 100 employees.  At the combined federal rate of 37% and New York highest rate of 8.82%, the wage expense generates a deduction of $458,200 (because the wage deduction must be reduced for the $5,000 of Employee Retention tax). But the employer also paid 06.2% social security tax and 01.45% medicare tax, a combined 07.65% which provides an additional $76,500 deduction (again excluding the Employee Retention tax credit portion). The deduction probably exaggerates the Covid-19 loss for the year that may, pursuant to the new NOL provision for CARES, be clawed back from the previous tax years because the Tax Cuts and Jobs Act is suspended for 2020 losses. Combined benefit of $1,534,700 for the business.

An SBA PPP loan forgiveness for the wage amount of $1.5 million is worth exactly that, $1.5 million. Wage deduction lost.  Thus, in this scenario, the tax credits may generate more net benefit than the SBA Loan. And if the IRS argument for Section 265 is carried out, then the interest expense on the SBA loan must be denied, which I estimate will be in the neighborhood of $52,500 until forgiven (maybe the interest will be returned vt the SBA to mitigate the disparity caused by the IRS – I am unclear if the SBA can forgive the interest as well).

What if a small business is insolvent which is just an accounting definition of debt exceeding asset?  Generally, a small business with the SBA loan is going to be insolvent.  Cash flow is king so the issue of asset book insolvency is not actually relevant to running the business.  But for Section 108 it allows exemption from gross income the amount of canceled debt as well as the deduction for the expenses financed by the canceled debt.  Perhaps then, any small business seeking the SBA loan forgiveness needs to obtain an accountant’s letter of business insolvency to trump Notice 2020-32 then file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness?

Insolvency calculation:
Total liabilities immediately before the discharge – FMV of total assets* before the discharge = Extent to which the taxpayer is insolvent
(Assets includes bankruptcy exempt assets e.g. retirement account and interest in a pension plan).

And because the tax credits can be captured from the Employer’s Social Security portion of the payroll tax, while the cash flowing of the payroll is still an issue, it is less of an issue, albeit the payroll tax on the $1.5 million is just under $80,000 so not significant. However, the business may request an advance refund of the tax credits as the business spends the wages (Form 7200, Advance Payment of Employer Credits Due to COVID-19). Thus, with the advance tax credit refund, the cash flow challenge is addressed. Regardless, the small business may obtain the CARES Act SBA Small Business Interruption Loan – just not the loan forgiveness that eliminates the deductions according to the IRS.

While tax credits are difficult for taxpayers but the SBA loan process is certainly not straight forward and neither is the forgiveness process, for those businesses that managed to obtain the SBA PPP loans.  Depending on the size of the loan and the business’ 2020 wages, the SBA loan may not be more beneficial than the tax credits, or at least, not substantially more.

Thank goodness that the calculations necessary to determine which path is better for the small business will require expensive advice from a tax advisor.  Congress certainly intended that CARES is to ameliorate (the temporarily) lost tax advisory fees resulting from the push back of the tax filing season, right?

May 1 at 3:00 pm CARES Act Webinar – Small Business Incentives – Register w/ the Tarrant County Bar Association
William Byrnes and Neal Newman, Texas A&M School of Law
– SBA PPP, Obtaining Loan, Tax-Free Forgiveness, Tax Deduction Expenses?
– Employee Retention Tax Credit and Payroll Tax Deferral?

* I’m simplifying the numbers, factors, and how tax is determined to represent the broader point. One factor is by example the potential Section 199A deduction of 20% of qualifying business income.  This factor may impact the outcome of the calculation if, by example, a business would generate positive qualfied business income instead of a loss because of the SBA PPP loan forgiveness exemption from income without corresponding deductions. In such a case, the additional 20% deduction would need to be added to the business’ benefit column.  However, I think that most businesses will suffer a 2020 loss year with or without SBA loan forgiveness because of loss of revenues from late February through the 3rd quarter.

On May 1st my esteemed colleague, Low Income Tax Clinic Director Professor Bob Probasco, a 30-year tax litigator veteran, responded as follows: You have a valid argument.  But from the perspective of a tax litigator, rather than an academic – predicting what will happen rather than what the result should be – I’m not sure it’s that clear.

The analogy to § 108 discharge of indebtedness is not exact and could be distinguished by a court.  The link between the § 108 and the specific deductions that were “funded” by the indebtedness is not as clear as the link between CARES § 1106 and the specific expenditures required to qualify for the discharge.  Most discharges of indebtedness, outside CARES, are not motivated by the specific use made of the loaned funds, are they?

Similarly, the analogy to tax credits allowed based on the same expenditures that are deducted does not involve exempt income.  In addition, those examples were more clearly intended by Congress.  You can argue that Congress intended to allow the deductions leading to a § 1106 discharge – but it’s an inference, not as clear as Congress explicitly specifying deduction A and credit B, or credit X and credit Y.  The primary purpose of the CARES Act program, and the main benefit to be derived, was the loan foregiveness itself – pre-tax, rather than tax benefit.  Concluding that the income from the foregiveness would not be taxable gives some support for an inference that they intended to allow the deductions as well, but they didn’t actually say that.

The arguments from a policy perspective are stronger, but I’m not sure that would overcome the language of the statute.  Courts tend to interpret the language of the Code literally, and deviate with judicial doctrines like substance over form and economic substance that benefit the government rather than the taxpayer.

As a practitioner, I could have very comfortably argued either side of the question prior to the Notice.  The Notice is going to make the argument for deduction slightly harder.  It could easily go either way in court, but my guess is that a court is at least slightly more likely to agree with the Notice than to allow deduction of those expenses.

           Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
Legislation that is drafted quickly often ends up needing a lot of regulatory and administrative interpretation to help taxpayers adopt the changes in the new rules, and the COVID tax changes are no different.We continue to see actions from the IRS and DOL to clarify the new provisions in COVID-19 legislation. This week those updates include new info on how to enact FFCRA leave (including what to do when employers have concurrent leave policies), the opportunity for partnerships to file amended returns to take advantage of the CARES Act Bonus depreciation fix, and additional flexibility for companies wrestling with the business interest expense deduction under the CARES Act.
 

DOL FAQ Clarify Concurrent Use of FFCRA Leave

The FFCRA implemented a new paid sick leave law and expanded FMLA leave options for employees impacted by COVID-19. Many employers have independent policies in place that provide employees with leave options, and the DOL regulations raised questions about when the employer can require the employee to use that leave prior to, or concurrently with, FFCRA leave. Employers cannot require employees to concurrently use leave during the first two weeks of paid sick leave for non-childcare related reasons. Employers can, under some circumstances, require use of employee leave concurrently with expanded FMLA leave for childcare reasons. Employers are only eligible for tax credits with respect to leave paid out under the new law. If the employer requires the employee to use otherwise available employer-paid leave, the tax credit is unavailable with respect to that portion of the employee’s pay. For more information, visit Tax Facts Online. Read More

Employee Rights After FFCRA Leave

Employers are generally prohibited from retaliating against employees to take paid sick leave or expanded FMLA leave under the FFCRA. However, the law does not protect employees from layoffs or furloughs undertaken for other reasons, such as the general economic downturn. Exceptions exist for key employees and very small employers with fewer than 25 employees. For more information on the exceptions to the FFCRA rules, visit Tax Facts Online. Read More

CARES Act Bonus Depreciation Fix: Amended Returns for Partnerships

The CARES Act provided retroactive relief to partnerships on multiple fronts, including by fixing the so-called “retail glitch” to allow businesses to take advantage of 100% bonus depreciation on qualified improvement property through 2022. Existing law may have prevented partnerships from filing amended Forms 1065 and Schedules K-1. Instead, partnerships would have been required to file an administrative adjustment request, so that partners would not have received relief until filing returns for the current tax year. Revenue Procedure 2020-23 allows partnerships to file amended returns and issue revised Schedules K-1 for 2018 and 2019 to take advantage of retroactive CARES Act relief (and, absent further guidance, even if they are not taking advantage of CARES Act relief). For more information, visit Tax Facts Online. Read More

IRS Guidance on CARES Act Business Interest Elections

The IRS gives businesses substantial flexibility in making and revoking elections related to business interest expense deduction under the CARES Act. For more information about the choices that are available related to the business interest expense deduction, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Register for May 18th Start of Int’l Tax Risk Management (Data, Analytics & Technology) or FATCA/CRS/AEoI Compliance summer courses w/ Zoom

Posted by William Byrnes on April 27, 2020


Texas A&M International Tax Brochure: https://law.tamu.edu/distance-education/international-tax

  • Join the Texas A&M Aggie alumn network of 500,000+ strong to open doors (and appreciate SEC football).
  • 150+ current graduate enrollment for risk, tax risk, and wealth management curriculum.
  • Experience real-world case studies by industry leaders through an interdisciplinary approach to team learning.
  • Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.).

Texas A&M, annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

SUMMER 2020 (May 18 through June 30) (register now)

FATCA, CRS, AEoI, Systems and Data3 credits (meet 8:00am Wednesday and 9am Sunday Central Daylight Dallas time zone)

  • Week 1. May 18: FATCA, CRS, and EU: nationality, residency, data sharing: Dr. Bruno Da Silva (Loyens & Loeff) and William Byrnes (TAMU).
  • Week 2. May 25: FATCA/CRS and the Asset Management Industry, intermediaries: Denise Hintzke (Deloitte)
  • Week 3. June 1: FATCA Withholding Compliance, overlap with QI: Denise Hintzke (Deloitte)
  • Week 4. June 8: Documentation FATCA v CRS: Melissa Muhammad (IRS LB&I)
  • Week 5. June 15: FATCA IGAs & CRS Risk Management Melissa Muhammad
  • Week 6. June 23: Financial Institutions Systems And Data: Haydon Perryman (Bank of America, UBS, Barclays, RBS and Lloyds)
  • Week 7 capstone for both Summer courses: “Tax Technology and the future of Tax Departments” Dr. Debora Correa Talutto

International Tax Risk Management I (Data, Analytics & Technology) 3 credits (meet Tuesday and Friday at 8:00am Central Daylight Dallas time zone)

  • Week 1. May 18: General tax risk management approach Dr. Knut Olsen
  • Week 2. May 25: BEPS: Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU).
  • Week 3. June 1: CbCR & Analytics David Deputy, Vertex
  • Week 4. June 8: LOB / PPT / MLI: Dr. Bruno da Silva (Loyens & Loeff)
  • Week 5. June 15: Future of Analytics & Technology from a Risk Management Perspective: Dr. Paula de Witte
  • Week 6. June 23: Interest (thin cap, EBIDTA), Debt/Equity Melissa Muhammad (IRS LB&I)
  • Week 7 capstone for both Summer courses: “Tax Technology and the future of Tax Departments” Dr. Debora Correa Talutto

FALL 2020 (Aug 23 through Nov 23) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

Domestic Systems International Tax Risk Management

  • Week 1 Aug 23 maybe Brazil/Canda? (extractive) Oil & Gas ask Susana Bokobo, global tax policy director Repsol
  • Week 2 Aug 30 Mexico Aug 30 Mexico
  • Week 3 Sept 6 India (services)
  • Week 4 Sept 13 China (supply chain)
  • Week 5 Sept 20 Japan Dr. Maji Rhee (Waseda)
  • Week 6 Sept 27 Brazil

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

  • Week 1 Oct 11 Manufacturing I Niraja Srinivasan Pillar 1
  • Week 2 Oct 18 Manufacturing II (DEMPE & Supply Chain) Niraja
  • Week 3 Oct 25 Manufacturing III (Customs) Niraja
  • Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)
  • Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
  • Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

  • Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights
  • Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation
  • Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation
  • Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application
  • Week 5: Sept 20 Tax Jurisdiction of Entities
  • Week 6: Sept 27 Low Tax Risk: OECD Pillar II, C.F.C., U.S. Tax Reform (GILTI, BEAT) 

International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 8am Central Daylight Dallas time zone)

  • Week 1 Oct 11 Tax of Business Income (PE, Nexus)
  • Week 2 Oct 18 Tax of Investment Income
  • Week 3: Oct 25 Taxation of Services and Employment Income (including DST)
  • Week 4: Nov 1 Double Taxation and Tax Credits
  • Week 5: Nov 8 Tax Accounting
  • Week 6: Nov 15 Introduction to Management of Tax and Data
  • Capstone Nov 23: Groups Create Client Case Studies

SPRING 2021 (Jan 10 – April 26)

U.S. Tax Risk Management (Data, Analytics & Technology) 3 credits (Wednesday and Sunday at 8am Central Standard Dallas time zone)

  • Week 1 January 10, 2021 Outbound / FDII Melissa Muhammad (IRS LB&I)
  • Week 2 January 17, 2021 Inbound / BEAT Melissa Muhammad
  • Week 3 January 24, 2021 [check the box] Form 1120 Documentation: Neelu Mehrotra: EY
  • Week 4 January 31, 2021 [Subpart F & GILTI, PTEP ] Form 5471 Documentation: Neelu Mehrotra: EY
  • Week 5 February 7, 2021 M&A or topic and Neelu Mehrotra: EY
  • Week 6 February 14, 2021 FTCs; wrap-up: Melissa Muhammad 

E.U. International Risk Management 3 credits (Wednesday and Sunday at 9am Central Daylight Dallas time zone)

  • Week 1 February 28, 2021 General Framework & Fundamental Freedoms
  • Week 2 March 7, 2021 P/S + Interest / Royalty
  • Week 3 March 21, 2021 M&A directive
  • Week 4 March 28, 2021 Cross-Border Losses – Dr. Bruno Da Silva
  • Week 5 April 4, 2021 Free Movement of Capital (investment funds)
  • Week 6 April 11, 2021 ATAD, DAC 6, Abuse – Dr. Bruno da Silva
  • Capstone Week: Build a client case study, wrap up 

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data (William Byrnes course material professor)

  • Week 1 January 13 Arm’s Length Standard (v Formulary Approach) Dr. Bruno Da Silva William Byrnes
  • Week 2 Jan 20 CUP & Comparables  Dr. Lorraine Eden
  • Week 3 Jan 27 Cost Plus & Resale Minus  Dr. George Salis
  • Week 4 Feb 3: Comparable Profits Method & TNMM Dr. George Salis
  • Week 5 Feb 10 Profit Split Dr. George Salis
  • Week 6 Feb 17 Best Method Dr. Lorraine Eden 

Transfer Pricing Risk Management: Intangibles and Services (William Byrnes course material professor)

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Byrnes & Bloink’s Covid-19 TaxFacts Weekly of April 24, 2020

Posted by William Byrnes on April 23, 2020


           Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
More significant information about two of the most important changes to come out of the new legislation related to COVID-19.

The first update is an FAQ from the Department of Labor about the exemption from the expanded FMLA paid leave requirements for staff who are out of work for reasons related to a corona virus infection. The new law only applies to businesses with under 500 employees, but contains a vaguely-worded exemption for very small businesses with less than 50 employees and for whom the paid leave requirement would pose a hardship. While some commentators have thought that the exemption might be loosely interpreted to the point of being nearly automatic, the new FAQs require very small businesses to show particular kinds of challenges before the exemption applies.

We also have an update on the definition of “payroll costs” for small businesses applying for PPP loans. This definition is important because the calculation of those costs determine how large of a loan (which is potentially forgivable if certain requirements are met) the business is eligible for.

FFCRA Exemption for Very Small Business Clients

Generally, business owners with fewer than 50 employees can claim an exemption from the paid sick leave and expanded FMLA law if they can show that payment would jeopardize their business as a going concern. DOL FAQ have provided new details, which substantially narrow the availability of the exemption. For more information on the FFCRA paid leave requirements, visit Tax Facts Online. Read More

Telehealth Coverage and HDHP/HSA Eligibility

In response to the evolving COVID-19 pandemic, the CARES Act further expands the pre-deductible services high deductible health plans (HDHPs) may offer. HDHPs are now permitted to cover the cost of telehealth services without cost to participants before the HDHP deductible has been satisfied. For more information on the HDHP qualification rules, visit Tax Facts Online. Read More

Defining “Payroll Costs” for PPP

Taxpayers with fewer than 500 employees are eligible for new “payroll protection loans” administered via the Small Business Administration. In general, the loans may be forgiven (and amounts excluded from income for tax purposes) if used to cover payroll costs. For more information about how “payroll costs” are defined and calculated, visit Tax Facts Online. Read More

online financial planning & wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Wealth Management; Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I

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Byrnes & Bloink’s Covid-19 TaxFacts Special Edition of April 20, 2020

Posted by William Byrnes on April 20, 2020


           Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
Over the past few weeks Tax Facts has seen a tremendous number of updates that cover the new COVID-19 legislation and related administrative developments. Undoubtedly we will continue to see more of these updates in the weeks and months to come, but we thought now was good time to help our readers catch their breath a little bit by providing a summary of the changes that have been made. This special Tax Facts newsletter is intended to help you navigate through the entirety of the changes that have been made so that you can understand the full breadth of the new tax landscape.

These updates cover (1) the Families First Coronavirus Response Act, (2) the CARES Act, (3) IRS Notices related to the new legislation, and (4) newly released IRS and DOL FAQs that help taxpayers understand how the new rules will be implemented.
Take a look, and as always, check in with Tax Facts the absolute latest in the tax issues affecting insurance, investments, and employee benefits.

Families First Coronavirus Response Act: Paid Sick Leave Benefits for Small Business Employees

The Families First Coronavirus Response Act applies to private employers with fewer than 500 employees (and government employers), and makes several key changes to paid time off laws. The bill: (1) provides eighty hours’ additional paid sick leave for employees (pro-rated for part-time workers) and (2) expands FMLA protections. The additional paid sick leave is capped at $511 per day (total of $5,110) for employees who cannot go to work or telecommute because they (1) are experiencing COVID-19 symptoms and seeking a diagnosis, or (2) are subject to government-mandated quarantine or a recommendation to self-quarantine. The additional paid sick leave is capped at 2/3 of the employee’s pay rate, subject to a maximum of $200 per day or $2,000 total if the employee (1) is caring for or assisting someone subject to quarantine, (2) caring for a child whose school or care provider is unavailable or (3) experiencing “substantially similar conditions” specified by HHS. For more information on the family and medical leave tax credit available for business owners, visit Tax Facts Online. Read More

Families First Coronavirus Response Act: Tax Relief for Small Business Owners

The law contains a tax credit to help small business owners subject to the new paid sick leave and expanded FMLA requirements. The tax credit is computed each quarter, and allows as a credit (1) the amount of qualified paid sick leave wages paid in weeks 1-2, and (2) qualified FMLA wages paid (in the remaining ten weeks) during the quarter. The credit is taken against the employer portion of the Social Security tax. Amounts in excess of the employer Social Security taxes due will be refunded as a credit (in the same manner as though the employer had overpaid Social Security taxes during the quarter). The Act also provides a tax credit for qualified health plan expenses that are allocable to periods when the paid sick leave or family leave wages are paid. For more information on refundable tax credits, visit Tax Facts Online. Read More

CARES Act: RMDs Suspended for 2020, Penalty Waived for Coronavirus Distributions

The CARES Act suspended the required minimum distribution (RMD) rules for 2020–a suspension that applies to all 401(k), 403(b), and certain 457(b) deferred compensation plans maintained by the government, as well as IRAs. The law also contains a provision waiving the 10 percent early distribution penalty that applies to retirement account withdrawals. The relief generally mirrors the relief commonly granted in more localized natural disaster situations. The Act allows employees to take up to $100,000 in distributions from an employer-sponsored retirement plan (401(k), 403(b) or defined benefit plan) or an IRA without becoming subject to the penalty. Unless the participant elects otherwise, inclusion of the distribution in income is spread over three years, beginning with the tax year of distribution. The Act also provides a repayment option, where the participant has the option of repaying the distribution over the three-taxable year period beginning with the tax year of distribution. In this case, the distribution will be treated as an eligible rollover made in a trustee-to-trustee transfer within the sixty-day window. For more information on expanded access to retirement funds, visit Tax Facts Online. Read More

CARES Act: NOL Relief for Struggling Businesses

The CARES Act allows corporations to carry back net operating losses (NOLs) incurred in 2018, 2019, and 2020 for five years (excluding offset to untaxed foreign earnings transition tax). Post-tax reform, these NOLs could only be carried forward. For tax years beginning prior to January 1, 2021, businesses can offset 100% of taxable income with NOL carryovers and carrybacks (the 80 percent taxable income limitation was lifted). With respect to partnerships and pass-through entities, the CARES Act amended the effective date for the new excess business loss rules created by the 2017 tax reform legislation. The new rules will only apply beginning in 2021 (rather than 2018). Pass-through taxpayers who have filed a return reflecting excess business losses will presumably be entitled to refund by filing an amended return, absent guidance to the contrary. For more information, visit Tax Facts Online. Read More

CARES Act: Penalty-Free Payroll Tax Deferral for Employers

The CARES Act allows both employers and independent contractors to defer payment of employer payroll taxes without penalty. Importantly, employers with fewer than 500 employees are entitled to withhold payroll taxes as an advance repayment of the tax credit for paid sick leave and expanded FMLA leave under the FFCRA. Under the CARES Act payroll tax deferral, employers are permitted to defer the employer portion of the payroll tax on wages paid through December 31, 2020 for up to two years. Payroll taxes are generally due in two installments under CARES: 50 percent by December 31, 2021 and the remaining 50 percent by December 31, 2022. Economic hardship is presumed, meaning the employer does not have to produce documentation establishing that COVID-19 impacted the business. Payroll tax deferral options apparently apply to all employers, regardless of size. However, employers who have loans forgiven under the CARES Act Payroll Protection Loan program are not eligible for the deferral. For more information, visit Tax Facts Online. Read More

CARES Act: Employee Retention Tax Credit

The CARES Act creates a new refundable tax credit designed to help employers who retain employees during the COVID-19 health crisis. The credit is taken against employment taxes and is equal to 50 percent of the first $10,000 of qualified wages paid to the employee. The credit is available for calendar quarters where either (1) operations were either fully or partially suspended because of a government-issued order relating to COVID-19 or (2) the business’ gross receipts declined by more than 50 percent when compared to the same calendar quarter in 2019. For more information, visit Tax Facts Online. Read More

IRS Notice 2020-15: HDHPs Can Pay Coronavirus Costs

The IRS announced that high deductible health plans are permitted to cover the costs associated with the coronavirus. HDHPs can cover coronavirus-related testing and equipment needed to treat the virus. Generally, HDHPs are prohibited from covering certain non-specified expenses before the covered individual’s deductible has been met. Certain preventative care expenses are excepted from this rule. HDHPs will not jeopardize their status if they pay coronavirus-related expenses before the insured has met the deductible, and the insured will remain HSA-eligible. The guidance applies only to HSA-eligible HDHPs. For more information on the rules governing HDHPs, visit Tax Facts Online. Read More

IRS Notice 2020-18: 90-Day Extension of the Federal Tax Payment Deadline

In response to the coronavirus pandemic, the IRS has announced that it will extend the tax payment deadline from April 15, 2020 to July 15, 2020. Interest and penalties during this period will also be waived. The April 15 filing deadline was also extended to July 15, although in separate guidance. Individuals and pass-through business entities owing up to $1 million in federal tax are eligible for the relief, as are corporations owing up to $10 million in federal tax. Individuals who do not anticipate being able to file by July 15 should be aware of their option for requesting a six-month filing extension to October 15. The extension is available by filing Form 4868. For more information on federal tax filing requirements, visit Tax Facts Online. Read More

IRS Notice 2020-23: IRS Expands COVID-19 Extensions

Notice 2020-23 provides expanded relief for taxpayers with a filing or payment obligation arising after April 1, 2020 and before July 15, 2020. Specifically, deadlines are extended to July 15, 2020 for actions required with respect to (1) estate and trust income tax payments and return filings, (2) estate and generation-skipping transfer tax payments and return filings on Form 706 and related forms, (3) gift and generation-skipping transfer tax payments and return filings on Form 709 and related forms, (4) estate tax payments of principal or interest due as a result of an election made under IRC sections 6166, 6161, or 6163 and annual recertification requirements under section 6166. Similarly, taxpayers who faced deadlines with respect to Tax Court actions between April 1 and July 15 have their deadlines postponed until July 15. For more information, visit Tax Facts Online. Read More

IRS FAQ: COVID-19 Filing, Payment Extensions

The IRS FAQ clarifies that the filing and payment extensions (from April 15 to July 15) apply regardless of whether the taxpayer is actually sick or quarantined because of COVID-19. For fiscal year taxpayers with 2019 returns due April 15, the deadline is extended to July 15 regardless of whether April 15 is an original or extended filing deadline. Taxpayers facing filing or payment deadlines that are not April 15 must note that their deadlines have not generally been extended. The relief also does not apply to payroll or excise tax payments (deposit dates remain unchanged, but employers may be eligible for the new paid sick leave tax credit, see Tax Facts Q8550). Taxpayers do not have to do anything to take advantage of the extension—they simply file their returns and make required payments by the new July 15 deadline. Taxpayers who filed and schedule a payment for April 15 must, however, take action to reschedule their payment for July 15 if they wish (by contacting the credit or debit card company if the payment was scheduled directly with the card issuer). For more information, visit Tax Facts Online. Read More

DOL FAQ: Counting Employees for COVID-19 Paid Sick Leave & FMLA Expansion Purposes

A new DOL FAQ provides that an employer is subject to the expanded paid sick leave and FMLA rules if the employer has fewer than 500 full-time and part-time employees. Employees on leave and temporary employees should be included, while independent contractors are not included in the count. Each corporation is usually a single employer. When a corporation has an ownership interest in another corporation, the two are separate employers unless they are joint employers for Fair Labor Standards Act purposes. Joint employer status is based on a facts and circumstances analysis, and is generally the case when (1) one employer employs the employee, but another benefits from the work or (2) one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. For more information on the details provided by current DOL guidance, visit Tax Facts Online. Read More

DOL FAQ: Calculating Sick Pay for Part-Time and Variable Hour Workers Under the Families First Coronavirus Response Act

With respect to the FMLA extension, the rate of pay for part-time employees is based upon the number of hours they would normally be scheduled to work. For employees with variable schedules, pay is based upon a number equal to the average number of hours that the employee was scheduled per day over the 6-month period ending on the date on which the employee takes such leave, including hours for which the employee took leave of any type or (2) if the employee did not work over such period, the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work. As of now, the law provides that leave may not be carried over into 2021. For more information on the law’s requirements, visit Tax Facts Online. Read More

2020’s Weekly Updated Tax Facts Offers a Complete Web, App-Based, and Print Experience for Financial Advisors and Tax Professionals

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Byrnes & Bloink’s Covid-19 TaxFacts Weekly for April 17, 2020

Posted by William Byrnes on April 16, 2020


online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Wealth Management; Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

           Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
More on the COVID-19 legislation and related administrative guidance from the DOL. This week we have updates on business interest deductions, student loan payment info, and DOL guidance on the PTO that was mandated by the new legislation. Are you keeping up?

 

CARES Act: Business Interest Deduction Relief

The CARES Act increases the 30% of adjusted taxable income (ATI) limit on the business interest deduction (as imposed under the 2017 tax reform law) to 50% for corporations in 2019 and 2020. All entities (corporations and pass-throughs) can elect to use 2019 ATI instead of 2020 ATI in determining the 2020 business interest expense deduction, which could increase the business interest deduction for businesses who are likely to see reduced income levels in 2020. For more information, visit Tax Facts Online. Read More

CARES Act Offers Tax-Preferred Student Loan Repayment Assistance Option

The CARES Act includes a provision that gives employers a way to offer tax-preferred student loan repayment assistance to employees. The Act changes the definition of “educational assistance” in IRC Section 127 to also include employer payments to employees of student loan principal or interest. The payments must currently be made before January 1, 2021. The maximum benefit permitted is a $5,250 payment in 2020 (tax-free). For more information on the requirements for establishing a tax-preferred education assistance program, visit Tax Facts Online. Read More

DOL Guidance on Notice Requirements Related to Expanded COVID-19 Paid Time Off

The DOL has released a notice that all employers must conspicuously post to give employees information about federal relief efforts related to COVID-19. The DOL FAQ notes that when employees are working remotely, employers can email or mail the relevant notices. The notice must be provided to all current employees, but only must be provided in English absent future guidance (a Spanish language notice is available on the DOL website). For more information on the COVID-19 relief efforts, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Will New York’s businesses suffer because the state tax system rejected adopting the CARES Act tax reliefs?

Posted by William Byrnes on April 15, 2020


  • Deloitte covers New York’s new budget that purposefully ‘decouples’ from the CARES Act tax relief for New York based business and other states’ business that have income within New York.
  • BDO explains it here as well.
  • Pillsbury here.

Anything that improves the employment of tax professionals, I am for.  Thus, states with their own tax codes that do not correspond to the federal Internal Revenue Code, at least for my students and alumni, are OK by me.  Unless I own a business.  Then it’s maddeningly complex, and compliance expensive, to operate in several tax regimes.

Not saying that the CARES Act provisions made good tax policy sense.  But unless New York state (and city) has something better to offer, the Covid-19 meltdown does not seem like an opportune time to ‘stick it’ to Congress’ because Congress seems to enact ineffectual tax provisions. Not that the typical New York voter understands or cares about 163(j) relief or NOL. And arguably, most voters do not feel sympathy for the large business and investment partnership vehicles (at least until I remind them that it is their retirement accounts that own the majority of the publicly held businesses and investment vehicles, and thus they’ll be working a little longer than they hoped for).

New York based business in particular may come to understand when the CPA / tax advisor informs that on the federal return Covid-19 stimulus relief is allowable but not so on the NY state return. Some NY based businesses are going to feel that their state didn’t have their backs.  Other businesses that are large enough and able because of industry to relocate operations have time a plenty at this moment to think about such relocation.  (Texas will be open for business again soon).

Should a New York business look toward the SBA loan to the tax provisions like the employee retention tax credits? New York’s decoupling (where a state goes its own way) may impact the analysis.  In general, leaving aside the decoupling issue, for a business with by example 400 employees, a $5,000 credit per employee is worth $2,000,000 of tax-free tax credit that can be more beneficial than an SBA Loan.  The SBA loan is not straight forward and regardless, is not in general allowed for business above 500 employees.  The taxpayer must choose either one or the other – the PPP (forgivable employee retention) SBA loan or the employee retention tax credit.  For small employers with less than say 250 employees (not exactly ‘small’ in most American minds) the answer is probably the SBA loan.  But above 250, careful consideration and analyzing the benefits/outcomes of each program must be weighed.

For a business with by example 400 employees, a $5,000 credit per employee is worth $2,000,000 of tax-free tax credit that may be more beneficial than an SBA Loan depending on the ‘facts and circumstances’ of the business. The SBA loan is not straight forward and regardless, is not in general allowed for the business above 500 employees. The SBA loan is allowed, for the small businesses that qualify, for up to 2.5 times a business’ average monthly payroll costs, up to $10 million.  So by example, just to put some numbers to this statement, if a business has 400 employees, and each employee is paid $3,000 a month with benefits (basically 22 days a month at $15 / hour with full medical), the monthly payroll will be $1.2 million. 2.5 times is thus $3 million even. A forgiven tax-free $3 million is great.

The $5,000 worth of employee retention tax credit is only worth $2 million for the 400 employees, right?  Not necessarily.  Maybe but we need to work through the numbers of the business. Another way to look at the value of the tax credit is that it is worth the tax rate cost to generate the income for the taxpayer for which the tax credit offsets the tax due.  Say this taxpayer is a pass-through and pays an effective 33% (after the Internal Revenue Code Section 199A “20% deemed business income deduction” reduces the 37% highest rate, and factoring in the state tax burden).  So the taxpayer’s $2 million credit offsets the tax on $6 million income (assuming the state recognizes the credit).

So now another step in the potential analysis. Let’s say the business recovers and both businesses earn $6 million income.  The business with the SBA loan has $3 million taxfree after forgiveness plus $4 million aftertax, thus $7 million.  The tax credit business has $6 million tax-free. The tax credit company appears worse off but not by the initial $3 million SBA loan, right?  Many other factors are required for the analysis to weigh both paths.  The 2-year deferred payroll tax, whether the business will generate net earnings this year, the SBA additional forgiveness potential for non-employee expenses, whether the SBA loan money has already run out, how long to monetize the tax credits, .. these issues come to mind.

Watch the webinar below or the one forthcoming Thursday, April 16th (Register now for our webinar on Thursday, April 16, at 2:00 EDT)

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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Cost-Sharing Post TCJA | The Fiona Show sponsored by Crossborder AI Solution for Transfer Pricing

Posted by William Byrnes on April 14, 2020


Cost-sharing arrangements are subjective at best—even by transfer pricing standards. Over the years, major tech-companies like Xilinx, Amazon, Altera, and now Facebook, have all been victims of their own interpretations of cost-sharing regulations that have been written, re-written, modified, and in some cases, grandfathered to previous or even temporary versions. And that’s all not to even mention the Tax Cuts and Jobs Act. So, does the world have a right to be a little perplexed? We’d say so.

Listen to our recorded webinar in front of a live audience of transfer pricing counsel from large U.S. MNEs representing 10 major industries.  The webinar explores the mis-understood history of cost-sharing, the impact of Covid-19 on stress testing intra-group risk allocation amongst its global value chain, and the likely impact of the TCJA on future cost-sharing arrangements.

Episode 41: Cost-Sharing Post TCJA

Interested in tax risk management, technology, and analytics?  Check out what Texas A&M is doing this Summer International Tax Risk Management Summer Zoom Courses May 18 – July 3 interested in transfer pricing and tax risk management? Check out Texas A&M’s transfer pricing courses

 

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SBA Information on How Much Money, To Whom, to Which States

Posted by William Byrnes on April 14, 2020


Byrnes and Bloink analyze the SBA loans, Tax Credit, and Retirement Planning Impact for Small Business because of Covid-19 economic stimulus (Families First, CARES Acts, IRS Notices) on Thursday, April 16th (Register now webinar)

Texas A&M University School of Law has launched a Covid-19 expert response team.  Listen to Professor Neal Newman and William discussing the Covid-19 SBA forgiveness loans, deferral on paying the employer’s Social Security tax, and the Employee Retention Tax Credit (YouTube). Find the response team members from all disciplines here: Download Texas A&M Coronavirus_Experts

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation, Uncategorized | Tagged: , , | Leave a Comment »

SBA (Forgivable) Employee Retention Loan or Tax Credit for Employee Retention? Which is best for my business?

Posted by William Byrnes on April 14, 2020


The IRS provided concrete responses to the COVID-19 virus in the tax field. First, the IRS has now formally extended the income tax filing deadline for tax year 2019 to July 15, as well as the FBAR form, FATCA form, and several other reporting forms initially left out of the IRS extension. Because this is an extension of the actual filing deadline (not just an extension of time to pay owed taxes) it also pushes a number of related deadlines (e.g. for qualified plan contributions) back to July.  April 15ths Estimated Tax Payments for 2020 (the first one) is also postponed. But not the estimated tax payment due June 15th as of yet (I expect Treasury to postpone it as well.  September 15 and January 15, 2021 are the 3rd and 4th required estimated tax payments.

President Trump also signed the Families First Coronavirus Response Act, which creates a paid sick leave program and related tax credits for small businesses, as well as the CARES Act calling for forgivable SBA loans (without tax consequences) or a $5,000 tax credit per employee retained for medium and large size businesses.

Byrnes and Bloink comment from Tax Facts: For a business with by example 400 employees, a $5,000 credit per employee is worth $2,000,000 of tax-free tax credit that can be more beneficial than an SBA Loan.  The SBA loan is not straight forward and regardless, is not in general allowed for business above 500 employees.  The taxpayer must choose either one or the other – the PPP (forgivable employee retention) SBA loan or the employee retention tax credit.  For small employers with less than say 250 employees (not exactly ‘small’ in most American minds) the answer is probably the SBA loan.  But above 250, careful consideration and analyzing the benefits/outcomes of each program must be weighed. Watch the webinar below or the one forthcoming Thursday, April 16th (Register now for our webinar on Thursday, April 16, at 2:00 EDT)

Texas A&M University School of Law has launched a Covid-19 expert response team.  Find the response team members from all disciplines here: Download Texas A&M Coronavirus_Experts  Listen to Professor Neal Newman and William discussing the Covid-19 SBA forgiveness loans, deferral on paying the employer’s Social Security tax, and the Employee Retention Tax Credit (YouTube).

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Uncategorized | Leave a Comment »

Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for April 10, 2020

Posted by William Byrnes on April 10, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

 

 

           Prof. William H. Byrnes
        Robert Bloink, J.D., LL.M.
Today we have three big updates from the newly-passed CARES Act. The first allows NOLs for tax years 2018 through 2020 to be carried back five years. This give business who had NOLs and were waiting to carry them forward to future tax years to apply them to past years, potentially resulting in additional tax refunds. The other two updates relate to deferrals and tax credits for payroll taxes in 2020.
CARES Act Provides NOL Relief for Struggling Businesses

The CARES Act allows corporations to carry back net operating losses (NOLs) incurred in 2018, 2019, and 2020 for five years (excluding offset to untaxed foreign earnings transition tax). Post-tax reform, these NOLs could only be carried forward. For tax years beginning prior to January 1, 2021, businesses can offset 100% of taxable income with NOL carryovers and carrybacks (the 80% taxable income limitation was lifted). With respect to partnerships and pass-through entities, the CARES Act amended the effective date for the new excess business loss rules created by the 2017 tax reform legislation. The new rules will only apply beginning in 2021 (rather than 2018). Pass-through taxpayers who have filed a return reflecting excess business losses will presumably be entitled to refund by filing an amended return, absent guidance to the contrary. For more information, visit Tax Facts Online. Read More

CARES Act Permits Penalty-Free Payroll Tax Deferral for Employers

The CARES Act allows both employers and independent contractors to defer payment of employer payroll taxes without penalty. Importantly, employers with fewer than 500 employees are entitled to withhold payroll taxes as an advance repayment of the tax credit for paid sick leave and expanded FMLA leave under the FFCRA. Under the CARES Act payroll tax deferral, employers are permitted to defer the employer portion of the payroll tax on wages paid through December 31, 2020 for up to two years. Payroll taxes are generally due in two installments under CARES: 50% by December 31, 2021 and the remaining 50% by December 31, 2022. Economic hardship is presumed, meaning the employer does not have to produce documentation establishing that COVID-19 impacted the business. Payroll tax deferral options apparently apply to all employers, regardless of size. However, employers who have loans forgiven under the CARES Act Payroll Protection Loan program are not eligible for the deferral. For more information, visit Tax Facts Online. Read More

CARES Act Employee Retention Tax Credit

The CARES Act creates a new refundable tax credit designed to help employers who retain employees during the COVID-19 health crisis. The credit is taken against employment taxes and is equal to 50% of the first $10,000 of qualified wages paid to the employee. The credit is available for calendar quarters where either (1) operations were either fully or partially suspended because of a government-issued order relating to COVID-19 or (2) the business’ gross receipts declined by more than 50% when compared to the same calendar quarter in 2019. For more information, visit Tax Facts Online. Read More

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International Tax Risk Management Summer Zoom Courses May 18 – July 3

Posted by William Byrnes on April 10, 2020


Want to speak with Admissions or read the brochure? information – click here

FATCA, CRS, AEoI, Systems and Data: 3 credits (Zoom class 8am Wednesday and 9am Sunday Central Daylight Dallas time zone)

  • Week 1. May 18: FATCA, CRS, and EU: nationality, residency, data sharing: Dr. Bruno Da Silva (Loyens & Loeff)
  • Week 2. May 25: FATCA/CRS and the Asset Management Industry, intermediaries: Denise Hintzke (Deloitte)
  • Week 3. June 1: FATCA Withholding Compliance, overlap with QI: Denise Hintzke (Deloitte)
  • Week 4. June 8: Documentation FATCA v CRS: Danielle Nishida (KPMG) / Laurie Hatten-Boyd (KPMG)
  • Week 5. June 15: FATCA IGAs & CRS Risk Management Danielle Nishida (KPMG) or Laurie Hatten-Boyd (KPMG)
  • Week 6. June 23: Financial Institutions Systems And Data: Haydon Perryman (Bank of America, UBS, Barclays, RBS and Lloyds)

International Tax Risk Management I (Data, Analytics & Technology) 3 credits (meet Tuesday and Friday at 8am Central Daylight Dallas time zone) (tentative time)

  • Week 1. May 18: General tax risk management approach Dr. Knut Olsen
  • Week 2. May 25: BEPS: Dr. Bruno Da Silva (Loyens & Loeff).
  • Week 3. June 1: CbCR & Analytics David Deputy Vertex
  • Week 4. June 8: LOB / PPT / MLI: Dr. Bruno da Silva (Loyens & Loeff)
  • Week 5. June 15: Interest (thin cap, EBIDTA), Debt/Equity, Hybrids – TBD
  • Week 6. June 23: Future of Analytics & Technology from a Risk Management Perspective: Dr. Paula de Witte
  • Week 7 capstone for both Summer courses: “Tax Technology and the future of Tax Departments” Dr. Debora Correa Talutto

(Fall course) International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Tuesday and Friday at 9am Central Daylight Dallas time zone) (tentative time)

  • Week 1 Oct 11 Manufacturing Supply Chain Tax Risk Niraja Srinivasan
  • Week 2 Oct 18 Manufacturing Value Chain Tax Risk Niraja Srinivasan
  • Week 3 Oct 25 Manufacturing & Customs Risk Niraja Srinivasan
  • Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann 
  • Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann
  • Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann

FALL 2020 (Aug 23 through Nov 23) 3 credits (meet Tuesday and Friday at 9am Central Daylight Dallas time zone)

Domestic Tax Systems Risk Management

  • Week 1 Aug 23 Oil & Gas tax risk survey of country tax risk Susana Bokobo,
  • Week 2 Aug 30 Mexico Tax Risk
  • Week 3 Sept 6 India Tax Risk (services)
  • Week 4 Sept 13 China Tax Risk
  • Week 5 Sept 20 Japan Dr. Maji Rhee (Waseda) majirhee@waseda.jp
  • Week 6 Sept 27 Brazil Tax Risk

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Tuesday and Friday at 8am Central Daylight Dallas time zone)

  • Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights
  • Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation
  • Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation
  • Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application
  • Week 5: Sept 20 Tax Jurisdiction of Entities
  • Week 6: Sept 27 U.S. Tax Reform / Pillar II

International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Tuesday and Friday at 8am Central Daylight Dallas time zone)

  • Week 1 Oct 11 Tax of Business Income (PE, Nexus)
  • Week 2 Oct 18 Tax of Investment Income
  • Week 3: Oct 25 Taxation of Services and Employment Income (including DST)
  • Week 4: Nov 1 Double Taxation and Tax Credits
  • Week 5: Nov 8 Tax Accounting
  • Week 6: Nov 15 Introduction to Management of Tax and Data
  • Capstone Nov 23: Groups Create Client Case Studies

Why Texas A&M University School of Law? found out more by clicking here

  • Join the Aggie alumn network of 500,000+ strong that may open doors and help you elevate your career (and appreciate SEC football).
  • Experience real-world application through an interdisciplinary approach to teaching.
  • Degree options for all tax professionals — lawyers (Master of Laws, LL.M.) and accountants, economists, financial professionals (Master of Jurisprudence, M.Jur.).

Texas A&M, annual budget over $6 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

Ranked 11th “Best Public Colleges” Money’s Best Colleges Report, 2019

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Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for April 3, 2020

Posted by William Byrnes on April 3, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: Legal Risk Management; Intro to Risk Management; FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018).

                    Prof. William Byrnes
          Robert Bloink, J.D., LL.M.
Lots of CVOID-19 legislation in the updates this week. The IRS and DOL continue to release new guidance–and update existing guidance–at an unprecedented and fast pace. For the time being, clients and advisors alike should check the actual text of the guidance before taking concrete action to make sure they are operating under the most up-to-date rules.
IRS Releases FAQ on COVID-19 Filing, Payment Extensions

The IRS FAQ clarifies that the filing and payment extensions (from April 15 to July 15) apply regardless of whether the taxpayer is actually sick or quarantined because of COVID-19. For fiscal year taxpayers with 2019 returns due April 15, the deadline is extended to July 15 regardless of whether April 15 is an original or extended filing deadline. Taxpayers facing filing or payment deadlines that are not April 15 must note that their deadlines have not generally been extended. The relief also does not apply to payroll or excise tax payments (deposit dates remain unchanged, but employers may be eligible for the new paid sick leave tax credit, see Tax Facts Q8550). Taxpayers do not have to do anything to take advantage of the extension–they simply file their returns and make required payments by the new July 15 deadline. Taxpayers who filed and schedule a payment for April 15 must, however, take action to reschedule their payment for July 15 if they wish (by contacting the credit or debit card company if the payment was scheduled directly with the card issuer). For more information, visit Tax Facts Online. Read More

Counting Employees for COVID-19 Paid Sick Leave & FMLA Expansion Purposes

DOL FAQ provides that an employer is subject to the expanded paid sick leave and FMLA rules if the employer has fewer than 500 full-time and part-time employees. Employees on leave and temporary employees should be included, while independent contractors are not included in the count. Each corporation is usually a single employer. When a corporation has an ownership interest in another corporation, the two are separate employers unless they are joint employers for Fair Labor Standards Act purposes. Joint employer status is based on a facts and circumstances analysis, and is generally the case when (1) one employer employs the employee, but another benefits from the work or (2) one employer employs an employee for one set of hours in a workweek, and another employer employs the same employee for a separate set of hours in the same workweek. For more information on the details provided by current DOL guidance, visit Tax Facts Online. Read More

Calculating Sick Pay for Part-Time and Variable Hour Workers Under the Families First Coronavirus Response Act

With respect to the FMLA extension, the rate of pay for part-time employees is based upon the number of hours they would normally be scheduled to work. For employees with variable schedules, pay is based upon a number equal to the average number of hours that the employee was scheduled per day over the 6-month period ending on the date on which the employee takes such leave, including hours for which the employee took leave of any type or (2) if the employee did not work over such period, the reasonable expectation of the employee at the time of hiring of the average number of hours per day that the employee would normally be scheduled to work. As of now, the law provides that leave may not be carried over into 2021. For more information on the law’s requirements, visit Tax Facts Online. Read More

RMDs Suspended for 2020, Penalty Waived for Coronavirus Distributions

The CARES Act suspended the required minimum distribution (RMD) rules for 2020–a suspension that applies to all 401(k), 403(b), and certain 457(b) deferred compensation plans maintained by the government, as well as IRAs. The law also contains a provision waiving the 10% early distribution penalty that applies to retirement account withdrawals. The relief generally mirrors the relief commonly granted in more localized natural disaster situations. The Act allows employees to take up to $100,000 in distributions from an employer-sponsored retirement plan (401(k), 403(b) or defined benefit plan) or an IRA without becoming subject to the penalty. Unless the participant elects otherwise, inclusion of the distribution in income is spread over three years, beginning with the tax year of distribution. The Act also provides a repayment option, where the participant has the option of repaying the distribution over the three-taxable year period beginning with the tax year of distribution. In this case, the distribution will be treated as an eligible rollover made in a trustee-to-trustee transfer within the 60-day window. For more information on expanded access to retirement funds, visit Tax Facts Online. Read More

WEBINAR

Small Business Incentives Under the CARES Act:  Will it Help My Business?

Tuesday, April 7, 2020, 12:00 noon – 1:00 p.m. Central

Learn how the CARES Act affects your business.

Texas A&M Law faculty experts share practical, fact-based information regarding how the CARES Act is affecting those of us in Texas in this free webinar.

 

  • Access to and eligibility for loans for small businesses
  • Implications for payroll tax payments and employee tax credits

Presenters:

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Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for March 26, 2020

Posted by William Byrnes on March 26, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

            William H. Byrnes, J.D.
        Robert Bloink, J.D., LL.M.
Today we are seeing our first concrete responses to the COVID-19 virus in the tax field. First, the IRS has now formally extended the income tax filing deadline for tax year 2019 to July 15. Because this is an extension of the actual filing deadline (not just an extension of time to pay owed taxes) it also pushes a number of related deadlines (e.g. for qualified plan contributions) back to July. President Trump also signed the Families First Coronavirus Response Act, which creates a paid sick leave program and related tax credits for small businesses.

 

Avoid Confusion Over IRS 90-Day Extension of the Federal Tax Payment Deadline

In response to the coronavirus pandemic, the IRS has announced that it will extend the tax payment deadline from April 15, 2020 to July 15, 2020. Interest and penalties during this period will also be waived. The April 15 filing deadline was also extended to July 15, although in separate guidance. Individuals and pass-through business entities owing up to $1 million in federal tax are eligible for the relief, as are corporations owing up to $10 million in federal tax. Individuals who do not anticipate being able to file by July 15 should be aware of their option for requesting a six-month filing extension to October 15. The extension is available by filing Form 4868. For more information on federal tax filing requirements, visit Tax Facts Online. Read More

Coronavirus Act Creates Paid Sick Leave Benefits for Small Business Employees

The Families First Coronavirus Response Act applies to private employers with fewer than 500 employees (and government employers), and makes several key changes to paid time off laws. The bill: (1) provides 80 hours’ additional paid sick leave for employees (pro-rated for part-time workers) and (2) expands FMLA protections. The additional paid sick leave is capped at $511 per day (total of $5,110) for employees who cannot go to work or telecommute because they (1) are experiencing COVID-19 symptoms and seeking a diagnosis, or (2) are subject to government-mandated quarantine or a recommendation to self-quarantine. The additional paid sick leave is capped at 2/3 of the employee’s pay rate, subject to a maximum of $200 per day or $2,000 total if the employee (1) is caring for or assisting someone subject to quarantine, (2) caring for a child whose school or care provider is unavailable or (3) experiencing “substantially similar conditions” specified by HHS. For more information on the family and medical leave tax credit available for business owners, visit Tax Facts Online. Read More

Coronavirus Response Act: Tax Relief for Small Business Owners

The law contains a tax credit to help small business owners subject to the new paid sick leave and expanded FMLA requirements. The tax credit is computed each quarter, and allows as a credit (1) the amount of qualified paid sick leave wages paid in weeks 1-2, and (2) qualified FMLA wages paid (in the remaining 10 weeks) during the quarter. The credit is taken against the employer portion of the Social Security tax. Amounts in excess of the employer Social Security taxes due will be refunded as a credit (in the same manner as though the employer had overpaid Social Security taxes during the quarter). The Act also provides a tax credit for qualified health plan expenses that are allocable to periods when the paid sick leave or family leave wages are paid. For more information on refundable tax credits, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Tax Policy | Tagged: , | Leave a Comment »

text of final Covid-19 Senate Bill “Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’.

Posted by William Byrnes on March 25, 2020


2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Professor William Byrnes and Robert Bloink provide for subscribers weekly analysis of tax issues that impact wealth managers and financial planners. Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Final Covid-19 Text of Bill for Senate Vote [PDF Link] Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’.

Tax and Benefits sections of Final Bill described below by Senate Finance Committee (March 25, 2020)

DIVISION A – KEEPING WORKERS PAID AND EMPLOYED, HEALTH CARE SYSTEM ENHANCEMENTS, AND ECONOMIC STABILIZATION

TITLE II—ASSISTANCE FOR AMERICAN WORKERS, FAMILIES, AND BUSINESSES

Subtitle A—Unemployment Insurance Provisions

Section 2101. Short Title
This title is called the Relief for Workers Affected by Coronavirus Act

Section 2102. Pandemic Unemployment Assistance
This section creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payment to those not traditionally eligible for
unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.

Section 2103. Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations
This section provides payment to states to reimburse nonprofits, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020 to pay
unemployment benefits.

Section 2104. Emergency Increase in Unemployment Compensation Benefits
This section provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.

Section 2105. Temporary Full Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week
This section provides funding to pay the cost of the first week of unemployment benefits through December 31, 2020 for states that choose to pay recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.

Section 2106. Emergency State Staffing Flexibility
This section provides states with temporary, limited flexibility to hire temporary staff, rehire former staff, or take other steps to quickly process unemployment claims.

Section 2107. Pandemic Emergency Unemployment Compensation
This section provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of state unemployment benefits are no longer available.

Section 2108. Temporary Financing of Short-Time Compensation Payments in States with Programs in Law
This section provides funding to support “short-time compensation” programs, where employers reduce employee hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit. This provision would pay 100 percent of the costs they incur in providing this short-time compensation through December 31, 2020.

Section 2109. Temporary Financing of Short-Time Compensation Agreements
This section provides funding to support states which begin “short-time compensation” programs. This provision would pay 50 percent of the costs that a state incurs in providing short-time compensation through December 31, 2020.

Section 2110. Grants for Short-Time Compensation Programs
This section provides $100 million in grants to states that enact “short-time compensation” programs to help them implement and administer these programs.

Section 2111. Assistance and Guidance in Implementing Programs
This section requires the Department of Labor to disseminate model legislative language for states, provide technical assistance, and establish reporting requirements related to “shorttime compensation” programs.

Section 2112. Waiver of the 7-day Waiting Period for Benefits under the Railroad Unemployment Insurance Act
This section temporarily eliminates the 7-day waiting period for railroad unemployment insurance benefits through December 31, 2020 (to make this program consistent with the change made in unemployment benefits for states through the same period in an earlier section of this subtitle).

Section 2113. Enhanced Benefits under the Railroad Unemployment Insurance Act
This section provides an additional $600 per week payment to each recipient of railroad unemployment insurance or Pandemic Unemployment Assistance for up to four months (to make this program consistent with the change made in unemployment benefits for states in an earlier section of this subtitle).

Section 2114. Extended Unemployment under the Railroad Unemployment Insurance Act
This section provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of regular unemployment benefits are no longer available (to make this program consistent with the change made in unemployment benefits for states in an earlier section of this subtitle).

Section 2115. Funding for the Department of Labor Office of Inspector General for Oversight of Unemployment Provisions
This section provides the Department of Labor’s Inspector General with $25 million to carry out audits, investigations, and other oversight of the provisions of this subtitle.

Section 2116. Implementation
This section gives the Secretary of Labor the ability to issue operating instructions or other guidance as necessary in order to implement this subtitle, as well as allows the Department of Labor to waive Paperwork Reduction Act requirements, speeding up their ability to gather necessary information from states.

Subtitle B – Rebates and Other Individual Provisions

Section 2201. 2020 recovery rebates for individuals
All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.

For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as IRS will use a taxpayer’s 2019 tax return if filed, or in the
alternative their 2018 return. This includes many low-income individuals who file a tax return in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.

Section 2202. Special rules for use of retirement funds
Consistent with previous disaster-related relief, the provision waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.

A coronavirus-related distribution is a one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

Section 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts
The provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to
individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.

Section 2204. Allowance of partial above the line deduction for charitable contributions
The provision encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Section 2205. Modification of limitations on charitable contributions during 2020
The provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50-percent of
adjusted gross income limitation is suspended for 2020. For corporations, the 10-percent limitation is increased to 25 percent of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent. Section 2206. Exclusion for certain employer payments of student loans The provision enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021.

Subtitle C – Business Provisions

Section 2301. Employee retention credit for employers subject to closure due to COVID-19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Section 2302. Delay of payment of employer payroll taxes
The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.

Section 2303. Modifications for net operating losses
The provision relaxes the limitations on a company’s use of losses. Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

Section 2304. Modification of limitation on losses for taxpayers other than corporations
The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.

Section 2305. Modification of credit for prior year minimum tax liability of corporations
The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.

Section 2306. Modification of limitation on business interest
The provision temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.

Section 2307. Technical amendment regarding qualified improvement property
The provision enables businesses, especially in the hospitality industry, to write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.

Section 2308. Temporary exception from excise tax for alcohol used to produce hand sanitizer
The provision waives the federal excise tax on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020

 

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Byrnes & Bloink’s TaxFacts Intelligence Weekly for March 19, 2020

Posted by William Byrnes on March 20, 2020


2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Editor’s Note: New rulings from the IRS help clarify that COVID-19 expenses can be paid by HDHPs (before the deductible has been met) and FSAs can pay for genetic testing when the information is intended to be provided to a medical professional for treatment purposes. Note that the decision on genetic testing comes in the form of a PLR that addresses some rather unique facts, so it may not be very broadly applicable. We also have a new (and regrettably timely) ruling on worthless securities.
IRS Announces HDHPs Can Pay Coronavirus Costs

The IRS announced that high deductible health plans are permitted to cover the costs associated with the coronavirus. HDHPs can cover coronavirus-related testing and equipment needed to treat the virus. Generally, HDHPs are prohibited from covering certain non-specified expenses before the covered individual’s deductible has been met. Certain preventative care expenses are excepted from this rule. HDHPs will not jeopardize their status if they pay coronavirus-related expenses before the insured has met the deductible, and the insured will remain HSA-eligible. The guidance applies only to HSA-eligible HDHPs. For more information on the rules governing HDHPs, visit Tax Facts Online. Read More

Tax Court Rules on Deduction

The Tax Court held that a worthless securities deduction may be permitted even if the entity that issued the securities still held some value. In a complex case involving a number of rounds of financing over several years, the court found it was reasonable to believe that a junior interest may be worthless if there are not funds to pay currently, or anticipated in the future, the senior interests. For more information on the worthless securities deduction, visit Tax Facts Online. Read More

IRS Finds Health FSA Can Reimburse a Portion of Ancestry Genetic Testing

In a private letter ruling (applicable only to the taxpayer requesting the ruling), the IRS found that a portion of the ancestry genetic test could be reimbursed by the health FSA. In the redacted PLR, the IRS discussed whether the genetic testing service could be classified as medical care. The taxpayer’s goal was to provide genetic information to their healthcare provider, but it was impossible to purchase the genetic information without also purchasing the ancestry services. The IRS found that portions of the testing may be considered medical care, although ancestry reports could not be classified as reimbursable medical care. The IRS directed the taxpayer to use a “reasonable method” to allocate between medical and non-medical services. For more information on health FSAs, visit Tax Facts Online. Read More

Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

 

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SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)

Posted by William Byrnes on March 17, 2020


SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for a small business. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
  • SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending

  • The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
  • SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities.
  • SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

See §121.201   What size standards has SBA identified by North American Industry Classification System codes?

The size standards described in this section apply to all SBA programs unless otherwise specified in this part. The size standards themselves are expressed either in the number of employees or annual receipts in millions of dollars unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small.  By example, a hotel that does not exceed $35 million gross revenue is a small business whereas a B&B Inn or a full-service restaurant may not exceed $8 million in revenue.

Even tax law firms can qualify for SBA loans. The office of lawyers that do not exceed $12 million in revenue is a “small” law firm. But tax preparation services? Allowed up to $22 million in revenue.

For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov(link sends e-mail).

Posted in Financial, Wealth Management | Tagged: , , , | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (March 16, 2020)

Posted by William Byrnes on March 16, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

Editor’s Note: Reconciliation abounds! You need to reconcile your advance premium tax credit payments, the Supreme Court needs to reconcile the ACA without the individual mandate, and employers need to reconcile employee withholdings with the new regs.
Do you (or your clients) receive advance premium tax credit payments? If you haven’t squared them away with 2019 income levels that might delay the return. Also, with new withholding regs it’s a good idea for employers to take a second look at employee allowances.
Finally, the Supreme Court will (again) look at the constitutionality of the ACA. Recall that the last time this happened constitutionality hinged on Congress’ ability to tax, with Chief justice Roberts noting that the Aca was clearly tax legislation since the individual mandate penalty was implemented through the tax code. Now that the individual mandate has been repealed, how will the ACA fare under additional scrutiny? Tune in next year to find out!
And wash your hands!
Tax Season Tip: Failure to Reconcile Advance Premium Tax Credit Payments May Delay Returns

The IRS has released guidance reminding taxpayers who received advance payments of their premium tax credit throughout the year of their obligation to reconcile those payments with respect to their actual household income levels for 2019. Taxpayers have the option of choosing to have premium tax credits applied directly to their monthly insurance premiums. For more information on the premium tax credit, visit Tax Facts Online. Read More

Supreme Court to Once Again Consider ACA Viability

The U.S. Supreme Court has agreed to hear arguments and rule on the continued constitutionality of the Affordable Care Act. The Court may decide whether the remainder of the ACA is constitutional absent the individual mandate. Arguments in the case are set to be heard in October, after the election, and a decision is unlikely before 2021. For more information on the individual mandate, visit Tax Facts Online. Read More
Determining the Employer’s Obligations Under the New Proposed Withholding Regulations

The regulations are clear that the employer is not required to ascertain whether the withholding allowance claimed by the employee is greater than those to which the employee is actually entitled. However, the IRS (or published guidance) may direct an employer to submit employees’ withholding certificates (or the certificates relating to groups of employees) to the IRS. Further, the IRS may notify the employer that an employee is not entitled to claim more than a certain withholding allowance. For more information on the new withholding regulations, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation | Tagged: , | Leave a Comment »

What will be the impact of the 2017 Tax Cuts Act, Covid-19 (coronavirus), a Zombie Apocalypse, on Estimated Tax due by April 15?

Posted by William Byrnes on March 15, 2020


If a zombie apocalypse does not emanate from the illness known as Covid-19 caused by the coronavirus, then we still need to plan for our 2020 tax payments.  It is likely that taxpayers with business or investment income will be able to reduce the 2020 quarterly estimated tax payments that will be due April 15 this year, June 15, September 15, and January 15 of 2021.  Why?

2019 was a good income year for most taxpayers earning investment and business income.  But 2020 will likely be a depressed income year, maybe even a recession (for those not eaten by zombies). Thus, estimated tax payments to avoid a penalty, generally, 90% of the tax that is estimated to be due for 2020, should be much reduced from the 2019 level paid. (Contrarian investor taxpayers that shorted the market may actually need to make higher estimated taxpayers because the contrarians are likely to have a great capital gain year).

What are the changes enacted in the Tax Cuts and Jobs Act of 2017 that, because of the coronavirus, impact 2020’s estimated tax payments?

  • A taxpayer’s ability to reduce tax because of a net operating loss (“NOL”) in 2020 has been reduced by the TCJA. An NOL resulting in 2020 cannot be applied to taxes paid in the previous two-years of 2019 and 2018 to claw those taxes back.  Before the TCJA, the NOL “carry-back” of two-years was allowed.  NOLs may still be carried forward.  Excess NOL in 2020 may be used to reduce 2021’s income and thus tax due.

However, the TCJA even modifies how much NOL may be used to reduce 2020’s taxable income.  Starting in 2018, the TCJA modified the tax law on “excess business losses” by limiting losses from all types of business for noncorporate taxpayers. An “excess business loss” is the amount of a taxpayer’s total deductions from business income that exceeds a taxpayer’s “total gross income and capital gains from business plus $250,000 for an individual taxpayer or $500,000 for married taxpayers filing a joint return.”  Said another way, the business loss in 2020 is limited to a maximum of $250,000 for an individual taxpayer. Yet, the remainder does not evaporate like a vampire stabbed with a stake in the heart.  The remainder may be carried forward to 2021.  The remainder is called a “net operating loss” or NOL.

But the TCJA has another limitation for the carry forward of an NOL.  The NOL may only be used in 2021 to reduce the taxpayer’s taxable income by 80%.  The remainder NOL in 2021, if any, that resulted from 2020’s original loss and 2021’s limitation to just 80% of taxable income may again be carried forward, to 2022, yet again subject to the 80% of taxable income limitation.  The NOL may keep rolling forward indefinitely, subject to the 80% limitation until it is all used.

  • High net wealth taxpayers that generate gross receipts greater than $26 million may be subject to the TCJA’s limitation of interest expense for 2020. The TCJA included a rule that limits the amount of interest associated with a taxpayer’s business income when the taxpayer has on average annual gross receipts of more than $26 million since 2018.  The limitation does not apply to a taxpayer whose business income is generated from providing services as an employee, and a taxpayer that generates business income from real estate may elect not to have the limitation apply.

The amount of deductible business interest expense that is above a taxpayer’s business interest income is limited to 30% of the taxpayer’s adjusted taxable income (called “ATI”).  For 2020, ATI will probably be significantly lower than in 2019 and 2018. A taxpayer calculated ATI taking the year’s taxable income then reducing it by the business interest expense as if the limitation did not apply. The remaining amount is then further reduced by any net operating loss deduction; the 20% deemed deduction for qualified business income, any depreciation, amortization, or depletion deduction, and finally, any capital loss.  The business interest expense allowable for 2020 is 30% of that remainder.  The lost business income resulting from the coronavirus in 2020 may lead the remainder to be zero, and 30% of zero is zero.  Like the NOL above, the business interest expense if not usable in 2020 does not vanish. It carries forward to 2021 and each year thereafter, applying the same limitation rules each year.

  • Many taxpayers may end 2020 in a capital loss position if the stock market does not fully recover by December.  If a taxpayer’s capital losses are more than the year’s capital gains, then $3,000 of that loss may be deducted from the taxpayer’s 2020 regular income.  Remaining capital loss above the $3,000 may be carried forward to apply against 2021 income, and so on until used up.
  • The IRS may offer taxpayers more time beyond the April 15th deadline to file and pay 2019’s tax in 2020.  The filing and payment for 2019, and estimated tax for 2020, is due on or before April 15. But the IRS has indicated that it may extend that deadline.  A taxpayer may, regardless, file a request for a six-month extension on or before April 15, 2020, that is automatically granted if filed on time. But any tax owing for 2019 will still be due April 15, 2020, after which interest begins to be charged by the IRS to the taxpayer’s tax debt.   Check the IRS website here for whether, because of the coronavirus, it has extended the payment deadline beyond April 15, 2020.  Can the IRS extend the deadline, legally? Yes. Because Congress enacted a section of the Internal Revenue Code (our tax law) “§ 7508A” which is aptly named “Authority to postpone certain deadlines by reason of Presidentially declared disaster or terroristic or military actions”.  The President declared an official national emergency (see here).
  • Taxpayers are not required to exhaust the deductible required by a high-deductible health plan (called “HDHP”) before using the HDHP to pay for COVID-19 related testing and treatment.

I have four tax policy suggestions for Congress that it can include in a taxpayer coronavirus relief bill. I welcome acronym suggestions for this proposed bill’s name, especially a creative bill name whose acronym is “Zombie” or “Eat Brains”. The four tax relief suggestions that will mitigate damage caused by Covid-19 are:

Proposal 1 (stop medical bankruptcy): In 2020 the itemized deduction for medical expenses is reduced by 7.5% of a taxpayer’s AGI.  For 2020, I propose eliminating the 7.5% reduction of medical expenses attributed to the coronavirus or any 2020 flu (or zombie bite), such as hospitalization.  Medical diagnosis should suffice. Not going to be used by many people.  But the people who do use will really need it – those that do not awake as zombies that is.

Proposal 2 (stop restaurant bankruptcy): The administration proposes the suspension of the Social Security and Medicare payroll tax to jump-start consumer spending, presumably after the removal of quarantine orders to stay indoors or at least six feet away from each other. Not very targeted.  Someone like me may just shift the payroll tax relief and use it instead to upward adjust my 403(b) retirement savings for 2020, taking advantage of my full $19,500 contribution allowance for 2020 (and because I am 50 years old or older – add another $6,000 retirement ‘catchup’ to that $19,500 for a full $25,500),  Not only have I not spent the money to help the economy rebound, I have reduced my tax due for 2020 because my retirement contributions reduce my taxable income.  I have saved tax twice!! While I quite like that idea personally, I feel empathy for all the local restaurant owners who may go bankrupt unless I go out to eat at more local restaurants once I assured that 2020 was not the year of the zombie apocalypse.

A better-targeted proposal to save our nation’s local restaurants and the local farmers that supply them is to allow taxpayers an itemized deduction up to $1,000 for an individual and $2,000 for a married filing jointly 2020, beyond the standard deduction, of 100% of restaurant meals expense between June 1 and October 31, at U.S. restaurants with the last three years gross annual receipts averaging less than [$5 million – whatever is reasonable so that big chains are not included, Small Business Administration uses a maximum of $8 million for full-service restaurants (NAICS 722511)- I’m OK with that].  I know – many reasons not to do this, such as Americans will become hooked on eating out at local restaurants. Wait, why is that a bad thing?  And we will need to address the tax abusers who will order one slice of pizza and 20 bottles of wine, to go. So maybe the maximum meal receipt must be set at $100 per meal receipt per adult. That should allow plenty of food for a couple, and alcohol, and leave enough for the children to still have mac & cheese. Plus it requires ten different restaurant trips. Local restauranteurs and the local farmers can hold out hope that 2020 will not require filing for bankruptcy protection.  November is Thanksgiving when people eat out anyway, at least in the restaurants that have remained open.  By the way, I am purposely leaving business out of this.  Business has a 50% business meal deduction anyway. And my policy suggestion is about Americans being social and not talking business at the dinner table (and perhaps not politics either).

Proposal 3 (stop hotel bankruptcy): And let’s not forget about locally-owned hotels with average gross receipts below $8 million (SBA uses $35 million for hotels and $8 million for B&B Inns so maybe I am way off base with just $8 million – see NAICS subsector 721 Accomodation). A $500 itemized deduction for 2020 for a U.S. hotel stay (not Air BnB homes or apartments, actually licensed hotels/BnB Inns) for an individual or couple between June 1 and October 31. Might not buy a weekend at the Ritz but the Ritz probably exceeds the small business amount of revenue a year.  Is it sound tax policy? Huey Long (I’m from Louisiana) promised a chicken in every pot and a car in every yard.  I promise a get-a-way weekend at a small(ish) hotel.

Proposal 4 (keep employees employed): A tax credit (I am not sure the right amount, let the Labor Secretary decide, something around $5,000 an employee) to employers of less than 500 employees who do not reduce the monthly payroll of the employees, or fire any employees, between June 1 and September 30. October 1 employers start thinking about Christmas hiring for the shopping season.  I can imagine some mathematically-inclined employees thinking “I am going to walk into my boss’ office and projectile vomit because the cost of losing the tax credits for firing me is too high.” OK, so firing ‘for cause including projectile Zombie vomiting on the boss ‘ will be allowed without loss of the tax credit.  Now if a business wants to expand and hire a lot of employees up to 500 that’s great.  I propose that all employees employed and start fulltime work before June 1st qualify for a reduced $4,000 tax credit (basically $1,000 a month of employment for June through September).

These four proposals are enough to keep the economy, restaurants, hotels, and employees out of recession and bankruptcy.  But I have more proposals not currently part of the current bill, but common sense dictates should be (well, maybe not).  Why have we heard nothing from the House to encourage donations of toilet paper rolls to local shelters?   And why hotels and restaurants, but not spas?  I’ll leave it to the politicians (and lobbyists) to argue about.  Meanwhile, I look forward to receiving your comments while I set up my anti-zombie chicken wire barricade around the yard.

I’ll be covering these and related issues in my weekly Tax Facts Intelligence Newsletter.

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

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International Tax Risk Management case studies online Summer and Fall courses for 2020

Posted by William Byrnes on March 6, 2020


Want to join one of the case study teams for the international tax risk management courses taught live online, using Zoom, by industry’s recognized tax risk leaders and leading tax authors?  The courses are for tax attorneys, accountants, or economists and count toward the Texas A&M’s Master and LL.M. degrees in residence and online.

The class of a maximum of 18 students will be grouped into teams of 3 students each. The 6 teams meet using Zoom to prepare a weekly presentation to respond to a real-world post-BEPS client study. Then all teams meet twice together each week ‘in live session class’ via Zoom with the industry case study topic expert professor and the course professor, 9:00am – 10:30am Dallas Central time to discuss and present the case study solutions. Students are provided without charge the learning and textbook materials, videos with PPT, and podcasts, and granted access to a large online law & business/tax database library including Lexis, Bloomberg, IBFD, Kluwer/CCH, Thomson, BvD, S&P, among many other tax and financial data resources.

To apply for the international tax courses, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/international-tax  (applications require university transcripts delivered by May 15).

Strength of the Aggie Network: Texas A&M, annual budget over $6 billion (FY2020), is the largest U.S. public university, with the renown Aggie former students network exceeding 500,000 around the world, Texas A&M is 1 of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and 1 of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

SUMMER 2020 (May 18 through June 30)

FATCA, CRS, AEoI, Systems and Data: 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1. May 18: FATCA, CRS, and EU: nationality, residency, data sharing: Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU).

Week 2. May 25: FATCA/CRS and the Asset Management Industry, intermediaries: Denise Hintzke (Deloitte)

Week 3. June 1: FATCA Withholding Compliance, overlap with QI: Denise Hintzke (Deloitte)

Week 4. June 8: Documentation FATCA v CRS: Danielle Nishida (KPMG) / Laurie Hatten-Boyd (KPMG)

Week 5. June 15: Danielle Nishida (KPMG) or Laurie Hatten-Boyd (KPMG)

Week 6. June 23: Financial Institutions Systems And Data: Haydon Perryman (Bank of America, UBS, Barclays, RBS and Lloyds) 

International Tax Risk Management I (Data, Analytics & Technology) 3 credits (meet Tuesday and Friday at 9am Central Daylight Dallas time zone)

Week 1. May 18: BEPS: Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU).

Week 2. May 25: Interest (thin cap, EBIDTA):

Week 3. June 1: CbCR & Analytics David Deputy, Vertex

Week 4. June 8: LOB / PPT / MLI: Dr. Bruno da Silva (Loyens & Loeff)

Week 5. June 15: General tax risk management approach Dr. Knut Olsen

Week 6. June 23: Future of Analytics & Technology from a Risk Management Perspective: Dr. Paula de Witte 

FALL 2020 (Aug 23 through Nov 23) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Domestic Tax Systems Risk Management

Week 1 Aug 23 Canada (extractive)

Week 2 Aug 30 Mexico (manufacturing)

Week 3 Sept 6 India (services)

Week 4 Sept 13 China (supply chain)

Week 5 Sept 20 Japan Dr. Maji Rhee (Waseda) (comps and secret comps)

Week 6 Sept 27 UK (financial services) 

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Oct 11 Technology industry (Dell) Pillar 2 – CFC, GILTI, related

Week 2 Oct 18 Manufacture

Week 3 Oct 25 Oil & Gas

Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann

Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann   

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights

Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation

Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation

Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application

Week 5: Sept 20 Tax Jurisdiction of Entities

Week 6: Sept 27 Pillar 1 And 2 (Taxation of Digital; Min Effective Tax)

 International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Oct 11 Tax of Business Income

Week 2 Oct 18 Tax of Investment Income

Week 3: Oct 25 Taxation of Services and Employment Income

Week 4: Nov 1 Double Taxation and Tax Credits (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 5: Nov 8 Tax Accounting

Week 6: Nov 15 Introduction to Management of Tax and Data

Capstone Nov 23: Groups Create Client Case Studies

SPRING 2021 (Jan 10 – April 26)

U.S. Tax Risk Management (Data, Analytics & Technology) 3 credits (Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 1 January 10, 2021 Outbound / FDII Melissa Muhammad

Week 2 January 17, 2021 Inbound / BEAT Melissa Muhammad

Week 3 January 24, 2021 [check the box] Form 1120 Documentation: Neelu Mehrotra: EY

Week 4 January 31, 2021 [Subpart F & GILTI, PTEP ] Form 5471 Documentation: Neelu Mehrotra: EY

Week 5 February 7, 2021 M&A or topic and Neelu Mehrotra: EY

Week 6 February 14, 2021 FTCs; wrap-up: Melissa Muhammad 

E.U. International Risk Management 3 credits (Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 February 28, 2021 General Framework & Fundamental Freedoms

Week 2 March 7, 2021 P/S + Interest / Royalty

Week 3 March 21, 2021 M&A directive

Week 4 March 28, 2021 Cross-Border Losses – Dr. Bruno Da Silva

Week 5 April 4, 2021 Free Movement of Capital (investment funds)

Week 6 April 11, 2021 ATAD, DAC 6, Abuse – Dr. Bruno da Silva

Capstone Week: Build a client case study, wrap up 

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data (William Byrnes course material professor)

Week 1 January 13 Arm’s Length Standard (v Formulary Approach) Dr. Bruno Da Silva & William Byrnes

Week 2 Jan 20 CUP & Comparables  Dr. Lorraine Eden

Week 3 Jan 27 Cost Plus & Resale Minus  Dr. George Salis

Week 4 Feb 3: Comparable Profits Method & TNMM Dr. George Salis

Week 5 Feb 10 Profit Split Dr. George Salis

Week 6 Feb 17 Best Method Dr. Lorraine Eden 

Transfer Pricing Risk Management: Intangibles and Services (William Byrnes course material professor)

Week 1 March 2 Intangibles Royalty Rates CUT and CPM  Dr. Debora Correa Talutto

Week 2 March 16 CSA Intangibles Buy In/Out Dr. George Salis & William Byrnes

Week 3 March 23 Digital Business Unitary Apportionment Dr. Bruno Da Silva

Week 4 March 30 Digital Value Chain, Internet of Things Dr. Lorraine Eden

Week 5 April 6 U.S. v OECD v UN Manual case study Extractive Industries, Financing Hafiz Choudhury

Week 6 April 13 Restructuring the Business, Services case study Hafiz Choudhury

Capstone Hand-On Week with Financial databases April 20 – 26: Thomson OneSource, BvD (Moodys), and CrossBorder AI Solutions Dr. Debora Correa Talutto & William Byrnes

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Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (March 5, 2020)

Posted by William Byrnes on March 5, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

Editor’s Note: Litigation on breaches of fiduciary duties in qualified plans has increased dramatically in the past few years, and this week sees an interesting decision from the Supreme Court reducing the statute of limitations where the employee has actual knowledge of the breach. In contrast, the IRS indicates that there is no statute of limitations for employer ACA violations. For more on these topics and many others, log in to Tax Facts for the latest.
U.S. Supreme Court Rules on Statute of Limitations for Fiduciary Breach

The U.S. Supreme Court, in the widely watched Intel case, agreed with former employees that an employer cannot shorten the time period over which plan participants can sue by simply posting relevant information online or sending information in the mail. In most cases, plan participants have six years to bring a lawsuit for fiduciary breach. However, that window is shortened to three years from the date the participant had “actual knowledge” of the fiduciary violation. For more information on investment diversification requirements for 401(k)s, visit Tax Facts Online. Read More

IRS Releases Regs on Post-Reform Deduction for Business Meals and Entertainment

The IRS released regulations governing the post-tax reform treatment of the deduction for business meals and entertainment expenses. The regulations generally mirror guidance release in 2018 and 2019 on the deduction. As such, taxpayers may continue to deduct 50 percent of their business-related food and beverage expenses that are not lavish or extravagant. For more information on the post-reform deduction, visit Tax Facts Online. Read More

IRS: No Statute of Limitations on ACA Penalties for Large Employers

In usual scenarios, when a taxpayer files a return reporting certain information to the IRS, that filing triggers the start of a limitations period after which the IRS can no longer challenge the information in that return (generally, three years). However, the IRS has recently clarified that this rule does not apply with respect to ACA penalty taxes owed by applicable large employers—because there is no actual return that they file in order to report those taxes. This is the case despite the fact that ALEs have certain reporting obligations via annual Forms 1094-C and 1095-C. For more information on how penalties are assessed, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (Jan 31, 2020)

Posted by William Byrnes on January 31, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin late May  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

SECURE Act and Extenders Bill

As a part of the year-end budget package, Congress passed the long-awaited SECURE Act and also addressed the recently neglected extenders provisions. The SECURE Act contains a number of provisions that will impact nearly every American. Some of the highlights include:

·  Pushing the age when required minimum distributions (RMDs) from retirement accounts must begin from 70 1/2 to 72.
·  Permitting contributions to traditional retirement accounts at any age (previously, taxpayers were not permitted to contribute after age 71).
·  Limiting the value of inherited IRAs, so that most accounts inherited by non-spouse beneficiaries must now be distributed within 10 years (rather than over the lifetime of the beneficiary).
·  Increasing the retirement plan start-up credit for small businesses who offer a retirement savings option (to $5,000 per year or $5,500 if auto-enrollment provisions are included).
·  Expanding multiple employer plan (MEP) options so that unrelated employers can join together to offer retirement savings options to employees.
·  Requiring plans to provide annual lifetime income estimates to certain retirement plan participants.

The bill signed into law also extends many tax provisions, known as “extenders”, through the 2020 tax year. Some of those provisions include the Work Opportunity Credit, the new Family and Medical Leave Credit created by the 2017 tax reform legislation and the ability to treat mortgage insurance premiums as qualified residence interest for tax deduction purposes. Additionally, the bill lowers the medical expense threshold back to 7.5% through 2020. We will provide more information on the individual provisions of the SECURE Act and how the law will impact planning for clients as we move into 2020. For more information on the credits extended by the year-end spending bill, visit Tax Facts Online. Read More

Appeals Court Finds ACA Individual Mandate Unconstitutional

The Fifth Circuit Appeals Court ruled that the ACA individual mandate is unconstitutional. However, it declined to invalidate the entire law. Instead, the case was remanded back to the lower court for more detail on other aspects of the law, including the employer mandate that continues in effect. For more information on the individual mandate, visit Tax Facts Online. Read More

IRS Releases Proposed Regulations on TCJA Executive Compensation Deduction Limits

As a follow up to interim guidance released in August, 2018, the IRS has released proposed regulations that clarify the definitions of covered employee, publicly held corporation and applicable employee remuneration. For more information on the new limits that apply, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (Jan 30, 2020)

Posted by William Byrnes on January 30, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin late May  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

Editor’s Note:
A couple of interesting developments this week. The NAIC action towards creating a best interest standard for annuity sales follows moves by several states (most notably New York with its new Regulation 187) to create similar rules. While the NAIC has not yet taken any definitive action in this area, in the words of Bob Dylan “you don’t need a weatherman to know which way the wind blows.”

We also have more SECURE Act updates. The Act upped the penalties for anyone filing a Form 5500, and it has also expanded (again, following the 2017 tax reform law) the possible uses for 529 pans, making them an even more valuable planning tool.

NAIC Committee Votes to Pass Best Interest Standard for Annuity Sales

The Life Insurance and Annuities Committee of the National Association of Insurance Commissioners (NAIC) voted to pass a “best interest” standard that would apply to annuity sales. The NAIC standard would be contained in a model that could be passed by states to create a more uniform approach nationwide. The model law would focus on four key concepts: (1) duty of care, (2) disclosure obligations, (3) conflicts of interest and (4) documentation requirements. For more information on the factors that are important to determining whether an annuity is in a client’s best interest, visit Tax Facts Online. Read More

SECURE Act Increases Cost of Failing to File Form 5500

Form 5500 is a form that must be filed by most employers that offer an employee benefit plan subject to ERISA (exceptions do apply). The SECURE Act has significantly increased the penalties that the IRS may assess for failure to file (note that the DOL may also assess penalties. For more information on when a Form 5500 may be required, visit Tax Facts Online. Read More

SECURE Act Increases 529 Plan Value

The SECURE Act, which primarily impacts retirement-related provisions, also expands upon the permissible uses of Section 529 plan dollars to include apprenticeships and student loan payments. For more information on the use of 529 plan funds, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (Jan 29, 2020)

Posted by William Byrnes on January 29, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin late May  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

Editor’s Note:

Several interesting updates this week, including New Jersey’s unique approach to SALT taxes, which allows optional entity-level taxation for pass-throughs in exchange for individual tax credits to be distributed to the members. We also see a new IRS Gig Economy Tax Center and the elimination of the “one bad apple” rule for MEPs with the SECURE Act.

Did we see you at the Heckerling estate planning conference last week? It was a week of warm sunshine and hot (well, OK, at least interesting) tax and estate planning developments. Happy planning!

Latest in the SALT Cap Saga: New Jersey Passes Pass-through Entity Tax Workaround

In the latest in the ongoing SALT cap debate, New Jersey has passed a new law creating an optional entity-level tax for pass-through entities. The New Jersey law allows pass-through entities to elect taxation at the entity level. In exchange, the members are given a refundable gross income tax credit. For more information on the SALT cap, visit Tax Facts Online. Read More

IRS Announces New “Gig Economy” Tax Center

More workers than ever are working in the gig, or freelance, economy–whether full-time or simply to supplement regular income. To keep up with the growing gig industry, the IRS has developed a new tool to help gig workers better understand and comply with their tax obligations. Taxpayers can access the site through irs.gov. For more information on the self-employment tax, visit Tax Facts Online. Read More

SECURE Act Eliminates the “One Bad Apple” Rule for MEPs—With Conditions

The one bad apple rule presented one of the primary roadblocks for small business owners interested in the multiple employer plan (MEP) structure. The SECURE Act provides that if one employer’s actions would disqualify the plan, only that employer’s portion of the MEP will be disqualified. For more information, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

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Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (Jan 28, 2020)

Posted by William Byrnes on January 28, 2020


Texas A&M University School of Law has launched its International Tax online graduate curriculum for tax professionals. Apply now for Jan 13 – April 19 transfer pricing courses.  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for the inaugural cohort opportunity, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/international-tax

 

TAXFACTS

TaxFacts Intelligence Weekly

William H. Byrnes, J.D., LL.M. and Robert Bloink, J.D., LL.M.
Jan 09, 2020

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Editor’s Note: Mileage rates, UBTI for VEBAs, and 401(K)s for part-time employees under the SECURE Act

Vehicle-related reimbursement and deductions can be a big deal. Anyone who tracks mileage for work, medical, or charitable purposes is impacted by the changes in the IRS mileage rates, which have just been updated for 2020. We also have new UBTI rules for VEBAs, which were adopted in light of recent litigation. Finally, the SECURE Act mandates access to employer-sponsored 401(k)s to many part-time workers who could previously be excluded from participation. Learn what the new rules are, including how they impact nondiscrimination testing, with Tax Facts Online.

2020 IRS Business Standard Mileage Rates

In 2020, the optional standard mileage rate for using a car for business purposes will be 57.5 cents per mile driven for business purposes (the 2019 rate was 58 cents per mile). For more information on deducting business-related travel expenses, including medical and charitable mileage rates visit Tax Facts Online. Read More

IRS Regs Clarify UBTI Calculation for VEBAs and SUBs

The IRS has released regulations clarifying how voluntary employees’ beneficiary associations (VEBAs) and supplemental unemployment benefit trusts (SUBs) calculate unrelated business taxable income (UBTI) in light of recent litigation. For more information on the new rules and the related litigation, visit Tax Facts Online. Read More

SECURE Act Expands 401(k) Access for Long-Term, Part-Time Employees

Under the SECURE Act, employees who perform at least 500 hours of service for at least three consecutive years (and are at least 21 years old) must be allowed to participate in the employer-sponsored 401(k). These long-term, part-time employees may, however, be excluded from coverage and nondiscrimination testing requirements. For more information on 401(k) requirements, including detailed descriptions of the nondiscrimination testing requirements, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Taxation | Tagged: | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (Jan 2d, 2020)

Posted by William Byrnes on January 3, 2020


Texas A&M University School of Law has launched its International Tax online graduate curriculum for tax professionals. Apply now for Jan 13 – April 19 transfer pricing courses.  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for the inaugural cohort opportunity, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduat