California FTB IPM addresses sourcing asset management fees, other topics

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August 2019

Overview

The California Franchise Tax Board (FTB) on July 19, held its fourth Interested Parties Meeting (IPM) to discuss proposed amendments to the market-based sourcing rules under California Code of Regulations, title 18 (CCR), Section 25136-2. Proposed changes of note for asset managers include guidance on sourcing asset management fees with the introduction of a ‘beneficial owner’ definition, the re-introduction of asset management examples, and a new ‘value of interest’ management fee assignment methodology. Other items of note include updates for the sourcing of intangible income and a refinement of the reasonable approximation provisions.

The FTB’s published discussion topics and explanations relating to the IPM were insightful in that the FTB set forth its reasoning for the various changes. One key aspect of the proposed rules that remains outstanding is the effective date. While there is placeholder language in the draft regulation, the FTB indicated at the IPM that the effective date remains an open point.

The takeaway

Written comments related to the draft language may be submitted by September 19, 2019. The FTB often takes into consideration comments from the business community, and many of the current rules are a result of such feedback. The FTB left open the possibility that it would hold another IPM depending on the materiality of changes to the proposed amendments.

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Caragh DeLuca

Partner, PwC US

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