In a Tax Notes Today article, Patricia A. Brown, director of Miami Law's Graduate Program in Taxation, offered her assessment of some of the difficulties encountered by federal regulators as they finalize regulations to govern global dealing operations.
In proposing the regulations, the government was trying to put global dealing back into the general transfer pricing rubric, she told the online periodical. Brown, who worked on the proposals while at Treasury's Office of International Tax Counsel, said that the government's purpose in drafting the rules was to apply basic arm's-length principles to global dealing operations by allocating profits based on where value was added.
After studying the industry, Brown said, "We realized that there was really nothing that different about global dealing from any other transfer pricing problem."
"Global dealing operation" is shorthand for the global trading of financial instruments. Regulations proposed in 1998 defined the term as "the execution of customer transactions, including marketing, sales, pricing and risk management activities, in a particular financial product or line of financial products, in multiple tax jurisdictions and/or through multiple participants." Proprietary trading was not included, except for securities dealers.
In 1990, the Tax Notes Today article says, the Internal Revenue Service began examining the tax issues regarding global trading in financial instruments with a request for suggestions for "unilateral and multilateral measures that might be adopted to improve the existing rules." At that time, there were fundamental questions regarding global dealing that needed to be resolved. The chief concern was identifying an approach that would reduce the possibility of double taxation and achieve an appropriate allocation of profits.
Industry commentators have suggested changes to some details of the regulations, but the significant policy work is done, according to the Tax Notes Today article, written by Marie Sapirie. She suggests that the time may have arrived for Treasury to issue final regulations on the treatment of global dealing operations, which have been delayed several times over the past 20 years.
As an organizational matter, Treasury and the IRS appear more focused on transfer pricing – the IRS Large Business and International Division has a new transfer pricing director and a realigned team of international specialists. However, the article says, some of the same forces that have stalled guidance on global dealing in the past may still be at work today. The international tax lawyers at Treasury and the IRS have pressing work to do, Sapirie writes, regarding the 2013 effective date for the reporting provisions of the Foreign Account Tax Compliance Act requirements of the Hiring Incentives to Restore Employment Act of 2010.