Articles

Volume 37 Number 10 Friday, October 10, 2008

Temporary Regulations Deny Foreign Tax Credits for Amounts Paid Pursuant to “Structured Passive Investment Arrangements” by Caren S. Shein, Esq.* KPMG LLP Washington, D.C. In 2007, the IRS and Treasury Department fired a new salvo in their continuing battle to shut down what they view as foreign tax credit abuses, in the form of proposed regulations that would have modified the noncompulsory payment rule. The proposed regulations would have denied foreign tax credits in transactions that, in their view, produce inappropriate economic benefits, in part, through use of the U.S. foreign tax credit. 1 The 2007 proposed regulations would have provided guidance regarding when a payment of foreign tax may be viewed as “noncompulsory” within the meaning of Regs. §1.901-2(e)(5), and thus not creditable, in two situations: foreign loss-sharing regimes and structured passive investment arrangements (SPIAs). Late last year, the IRS and Treasury Department issued Notice 2007-95, which announced that the proposed change to Regs. §1.901-2(e)(5) relating to loss-sharing regimes may lead to inappropriate results in certain cases, and thus severed that section of the proposed regulations for reconsideration. 2

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Addressing Foreign Plan Issues Under §409A by Sandra W. Cohen, Esq.* Osler, Hoskin & Harcourt LLP New York, New York Deferred compensation is under review with a penetrating microscope in the United States. Employers, employees, tax practitioners, and the IRS are scrutinizing compensation arrangements to see if they meet the very broad definition of “deferred compensation” under §409A, which became generally effective for amounts deferred after December 31, 2004.1 If they do, then the arrangements must meet a strict set of payment timing rules under §409A or face harsh penalties. Although these rules are already in effect for plan operations, the deadline for compliance with the written requirements of §409A is December 31, 2008.

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CANADA-U.S. INVESTMENT: Canadian Tax Perspective

Cross-Border Reimbursement of Stock Option Benefits by Tania W. Ng, Esq. Osler, Hoskin & Harcourt LLP Toronto, Canada Companies often grant stock options to their employees as part of the compensation for providing services. An employee stock option plan may allow employees to acquire shares of the company at favorable rates, though they are generally subject to certain conditions and restrictions. Stock options have the effect of aligning the interests of the company and its shareholders with the interests of its employees. At times, stock option plans can be a key component in a company's strategy to recruit and maintain top talent for its operations, particularly in the context of multinational enterprises, where stock options of a parent company are often granted to employees of foreign subsidiaries.1

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