David Rosenbloom Talks to Law360 on Transfer Pricing Issues to be Explored at ABA Conference

With several questions unsettled for the new base erosion and anti-abuse tax, transfer pricing experts at the upcoming American Bar Association Section of Taxation meeting will explore issues such as how the provision applies to intercompany service charges bearing a markup.

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According to David Rosenbloom of Caplin & Drysdale, Chtd., BEAT doesn’t override tax treaties. While Congress “said almost nothing about treaties,” what it did say in Section 59A is telling. The section says that payments subject to full withholding would be allowed as full deductions, and it cross-referenced the former Section 163(j), which stated that if payments are partially taxable they would be partially allowable.

Rosenbloom also drew an inference from the former alternative minimum tax, considered by Congress and the courts following its enactment in the Tax Reform Act of 1986. The 1986 tax act “had a lot of stuff that conflicted with treaties,” he recalled, but the AMT was assumed by Congress and the courts to be covered by treaties.

In an August 2018 paper written with Fadi Shaheen, an associate professor at Rutgers Law School, Rosenbloom said BEAT is substantially similar to the AMT.

Rosenbloom and Fadi pointed to Cook v. U.S., in which the U.S. Supreme Court held that treaty overrides are not favored — and further that for a later statute to override a treaty, “Congress must express a clear intention to do so.”

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Rosenbloom, however, said interpreting the BEAT provision to override the treaty just because it is later in time is too simplistic. In reality, courts will try very hard to square the provisions, he said.

Moreover, he contended, fears that the treaty will essentially gut BEAT are unfounded.

“There’s a lot of variety in situations,” Rosenbloom said. “There are still plenty of situations where you would get deductions disallowed under the BEAT.”

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Excerpt taken from the article “BEAT Markup, Treaty Issues Scheduled For Debate At ABA” by Molly Moses for Law360.