Proponents of enhanced environmental, social and governance (“ESG”) disclosure have identified corporate income tax as a relevant metric. While it is premature to predict how ESG standards in this regard will evolve, a key area of focus is tax arbitrage, including profit-shifting among jurisdictions. Boards should be aware of the possibility of detailed country-by-country public disclosure intended to reveal scenarios involving high profits in jurisdictions with little economic activity and low profits in jurisdictions where a company has a significant presence.
[On June 11th], the Internal Revenue Service promulgated regulations eliminating a structure that used a partnership to avoid corporate level tax on the disposition by a corporation of an appreciated asset, the so-called “May Company” structure. The structure had been targeted by regulations that were proposed in 1992, but its status had been uncertain in light of subsequent legislative developments and the IRS’s failure to finalize the 1992 proposed regulations. The new regulations, issued in temporary form, address transactions in which a corporation contributes an appreciated asset to a partnership, and the partnership acquires stock in the corporate partner. Economically, … Read more