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Treasury releases final and proposed Section 958 regulations

November 2020


Treasury and the IRS, on September 21, released final regulations (the Final Regulations) and proposed regulations (the 2020 Proposed Regulations) regarding the downward attribution rules under Section 958 in light of the repeal of Section 958(b)(4) as part of the 2017 tax reform legislation (the Act). 

The Final Regulations finalize with modifications, previously proposed regulations published on October 2, 2019 (the 2019 Proposed Regulations) and affect US persons that have ownership interests in, or that make or receive payments to or from, certain foreign corporations. The Final Regulations generally apply on or after October 1, 2019.

The 2020 Proposed Regulations modify the ownership attribution rules for outbound transfers of stock or securities of a domestic corporation under Section 367(a), and narrow the scope of foreign corporations that are treated as controlled foreign corporations (CFCs) for purposes of the look-through rule under Section 954(c)(6). The 2020 Proposed Regulations generally apply (i) with respect to Section 367(a), to transfers occurring on or after September 21, 2020, and (ii) with respect to Section 954(c)(6), to payments or accruals made during tax years of foreign corporations ending on or after September 21, 2020, as described below.

The takeaway

The Final Regulations and the 2020 Proposed Regulations address issues arising from the repeal of Section 958(b)(4) in various contexts, including related-party payments within foreign-parented groups, sourcing income from ocean, space, and international communications activities, outbound stock transfers, PFICs, and others.  Taxpayers should review their structures for potential impacts from the repeal of Section 958(b)(4) and evaluate whether the Final Regulations affect, or the 2020 Proposed Regulations could affect, those impacts. 

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Doug McHoney

International Tax Services Co-Leader, PwC US

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