Tax Court Reversal: Rev. Proc. 99-32 A/C Receivable Are Not Section 965 Related-Party Debt

The Tax Court held in Analog Devices, 147 TC No. 15 (Nov 22, 2016), that an account receivable established to repatriate a transfer pricing adjustment under Rev. Proc. 99-32, 1999-2 CB 296, does not constitute related-party indebtedness (RPI) for purposes of the Section 965(b)(3) related-party debt...

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Bibliographic Details
Published in:Journal of International Taxation 2017-02, Vol.28 (2), p.18
Main Authors: Barton, Gregory, Connolly, Ward, Ossi, Gregory, Kazemi, Lili, O'Connor, Sean, Fischl, Alan, Collins, Marty, Lubkin, Greg
Format: Article
Language:English
Subjects:
Accounts receivable
Agreements
Dividends
Federal court decisions
Foreign subsidiaries
Income taxes
Internal Revenue Code
International taxation
Revenue procedures & rulings
State court decisions
Tax court decisions
Tax rates
Taxpayers
Transfer pricing
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Summary:The Tax Court held in Analog Devices, 147 TC No. 15 (Nov 22, 2016), that an account receivable established to repatriate a transfer pricing adjustment under Rev. Proc. 99-32, 1999-2 CB 296, does not constitute related-party indebtedness (RPI) for purposes of the Section 965(b)(3) related-party debt rule. Under that rule, the amount qualifying for the one-time Section 965 dividends- received deduction is reduced by increased RPI. The decision is a reversal of the court's position in BMC Software, Inc (BMC Software I), 141 TC 224 (2013), which itself was reversed by the Fifth Circuit, 780 F.3d 669 (CA-5, 2015). This decision will obviously be of benefit to companies that took advantage of the Section 965 repatriation incentive and also took (or plan to take) advantage of Rev. Proc. 99-32. In general, the practice of establishing and paying Rev. Proc. 99-32 receivables is becoming more common as taxpayers' transfer pricing arrangements are subject to increasingly intense scrutiny and adjustment by the IRS and other tax authorities.
ISSN:1049-6378