Cross-border Tax Talks

Whirlpool Appellate Decision:  A new standard for subpart F?

Doug McHoney (PwC's US International Tax Services Co-Leader) is joined by PwC Value Chain Transformation Specialist Tom Quinn. They discuss the Sixth Circuit Court of Appeals ruling to uphold the US Tax Court’s May 5, 2020 decision, and concluded that a CFC’s income ‘attributable to’ a branch, in this case a manufacturing branch, per se is foreign based company sales income (FBCSI) under the statute if a ‘substantial tax deferral effect’ is found. They specifically discuss the Maquilladora structure, FBCSI, a ‘substantial tax-deferral effect’, the Court’s interpretation of the branch rule, and future implications for other taxpayers.

Note: Since the recording of this podcast, the US Court of Appeals for the Sixth Circuit denied Whirlpool’s request for a rehearing. Whirlpool has 90 days from March 2, 2022, to petition for certiorari with the US Supreme Court.

Timestamps:

• 2:00 - Why is the Whirlpool case important to taxpayers?
• 4:30 - A Maquiladora is just one example of a procurement/supply chain structure. What does this mean from an operational and business perspective?
• 8:50 - With the context of how a Maquiladora works in Mexico, what are the other details as to how Luxemburg and Mexico treated Whirlpool’s income for tax purposes?
• 12:00 - A brief overview of foreign based company sales income.
• 13:00 - How does the branch rule work?
• 16:15 - As a refresher, how did the US Tax Court previously rule and what was their reasoning?
• 21:25 - Moving on to the appellate decision, what was the rationale of the Sixth circuit in rendering their decision?
• 25:00 - What did the dissent say?
• 27:00 - What does the statue actually say? How should taxpayers think about this decision moving forward?
• 30:20 - How might the Sixth Circuit’s decision apply to other structures outside of a maquiladora?
• 35:40 - In closing, what are some actions companies should consider taking today?

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