Close
Close

IRS provides guidance on tax rate disparity test under Section 954(d)(2) regulations

RFP
Tax Hot TopicsTax Hot Topics
In a generic legal advice memorandum (GLAM) (AM 2015-002), the IRS Office of Chief Counsel addressed the proper application of the tax rate disparity test under Treas. Reg. Sec. 1.954-3(b)(1)(i)(b). The memorandum provides that, with respect to sales income derived in connection with property manufactured by a controlled foreign corporation (CFC) or a branch of the CFC, the regulations determine whether there is a tax rate disparity by comparing what the effective rate of tax (ERT) was on the sales income in the sales jurisdiction (the “actual ERT”) with what the ERT would have been on the sales income if the sales had occurred in the manufacturing jurisdiction (the “hypothetical ERT”).  AM 2015-002 illustrates this calculation by applying the tax disparity test to a hypothetical set of facts.   

 

 

Tax professional standards statement
This document supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax professional to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this document is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.