Clark Armitage Speaks to Bloomberg BNA on Tax Overhaul's Impact on IRS Multinational Agreements

Hundreds of agreements between the IRS and U.S. multinational companies could be called into question if Congress adopts a sweeping proposal to convert the U.S. income tax into a tax on cash flow, according to tax practitioners.

Taxing cash flow rather than the traditional concept of income would overturn the current system of international taxation. The law change could also affect advance pricing agreements between taxpayers, the Internal Revenue Service and, often, foreign tax authorities that negotiate the pricing of assets for international tax purposes. The IRS finalized 86 such deals in 2016 alone, according to a recent report from the agency.

“There's very likely to be a governmental response,” said Clark Armitage of Caplin & Drysdale in Washington. “We have all of these APAs. What are we going to do about them?” Armitage discussed the issue with other practitioners at a tax conference at the University of San Diego on April 28.

Starting Over on APAs?

It isn't clear if the potential legal change would automatically negate the APAs, if the IRS would have to proactively cancel them, or whether the issue might have to be renegotiated or settled in court.

“If they defer to existing agreements as being sort of a situation whether they're going to continue or not, then it sort of becomes—on the taxpayer's side—on how to approach that,” Armitage said. The taxpayer would have to decide if they want to keep the agreement or not, he said—and if the IRS disagreed, decide how to either defend the agreement or get out of it by not meeting the “critical assumptions” used as a basis for the deal.

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Excerpt taken from the article “How Would U.S. Tax Overhaul Affect IRS Multinational Agreements” by Alex M. Parker for Bloomberg BNA.