Read our article on the latest international tax and transfer pricing updates, guidance and proposals to date and more.

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U.S. international tax and transfer pricing update

Read our article for international tax and transfer pricing updates, guidance and proposals from late 2020 and 2021 to-date.

Over the past year, many government stimulus programs were enacted to help businesses and individuals combat the financial impact of the COVID-19 pandemic. Restaurants have been one of the hardest hit industry segments and should explore any and all avenues possible to subsidize efforts to keep the doors open and employees on the payroll. One of the subsidies enacted within the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March 2020 was the Employee Retention Credit (ERC). It was overshadowed by the Paycheck Protection Program (PPP) because the law at the time stated if your company received a PPP loan, it was not eligible to also claim the ERC. Therefore, many companies disregarded the ERC as the PPP loan was a more advantageous program. In December 2020 this dynamic changed. Under the Consolidated Appropriations Act, taxpayers are now able to receive a PPP loan and claim the ERC. What’s more, this change was made retroactive to all of 2020. This change of law, along with an easing of the eligibility requirements, opens the door for many restaurants to claim this valuable credit.  How is the credit determined in 2020? The credit is equal to 50% of qualified wages determined on an employee-by-employee basis and must be calculated separately for each quarter the company is eligible during 2020. The maximum wages allowed in 2020 for all quarters for each employee is $10,000, thus allowing for a maximum credit of $5,000 per employee. Eligible wages generally include payroll and employer paid health plan expenses. A company may not, however, claim the credit on wages that were paid using a PPP loan that was forgiven or wages that were used to determine other payroll tax credits such as WOTC and FFCRA credits. There are many detailed considerations and calculations, including interplay with PPP funds, which need to be made. Restaurants should consult with their tax advisor for assistance to maximize their ERC.
I got a PPP loan, how much will my credit be? As can be seen in the example, the credit available to restaurants can be a meaningful portion of total payroll for the year in addition to the PPP loan that was received. This is because of two traits common among many restaurants during 2020:  Government orders forced most restaurants to limit in-store dining throughout the majority of the year. In many cases, the restaurant business would therefore qualify for the ERC as being “partially suspended” for the duration of the order [1]. Since PPP loans were designed to cover only 2.5 months of wages, there are sufficient wages remaining to also claim the ERC.  Many restaurant employees earn less than $10,000 per year. Therefore, a high percentage of the business total payroll costs qualify for the credit.  What are the eligibility requirements? To qualify, businesses must meet one or more of certain eligibility requirements, including a substantial decline in gross receipts and being suspended by a government order due to COVID-19. While generally obtainable to restaurants, these requirements must be reviewed thoroughly with an advisor to ensure the business is eligible.  How do I claim the credit? The credit is a payroll tax credit and is claimed on Form 941. Because all Forms 941 have been filed for 2020, eligible companies will need to adjust their quarterly payroll reports using Form 941-X to claim the credit.   What’s the impact on my income taxes? You do not need to claim the credit received as taxable income. However, the business must reduce the wage deduction on their income tax return by the amount of the credit received. If your income tax returns have already been filed, an amendment would be necessary.   Is this credit available in 2021? Yes! In fact, the credit is even higher in 2021. Businesses may claim a credit equal to 70% of qualified wages and the wage limits resets each quarter. The result is a maximum of $7,000 per employee per quarter for all of 2021. So, an employer could claim $7,000 per quarter or up to $28,000 per employee if they are eligible for all four quarters in 2021.  Once an afterthought, the ERC is now a valuable benefit to many restaurant owners. Although it requires detailed record keeping and careful calculation, the reward can help sustain your operations. Contact Baker Tilly’s Employee Retention Credit advisors for further guidance.
Resources: [1] Eligibility requirements should be reviewed thoroughly.  Safe harbor tests on gross receipts and other metrics may also apply.

One of the subsidies enacted within the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March 2020 was the Employee Retention Credit (ERC). Read this article to see how the credit is determined for your restaurant and if you qualify for it in 2021.

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Sustain your restaurant operations with Employee Retention Credit

Authored by Paul Dillon, Christine Faris, Michelle Hobbs, Mike Schiavo and Michael Wronsky Both houses of Congress have now passed the American Rescue Plan Act of 2021 (the Act). In the process, the Senate made several substantive changes to the version the House passed at the end of February. The Act now heads to the White House where President Biden is expected to sign it into law prior to March 14, when unemployment benefits are set to expire.  Notable changes by the Senate include expansion of the employee retention credit (ERC), additional restrictions on executive compensation deduction limitations for public companies, tax exclusions for a portion of unemployment benefits, and a faster phaseout for the income threshold for individual tax rebates.  Key provisions Employee retention credit The ERC is extended to apply to qualified wages paid by eligible employers through Dec. 31, 2021. Beginning after June 30, 2021, the credit is expanded to apply to recovery startup businesses, defined as employers that began operations after Feb. 15, 2020, with average gross receipts of $1 million or less, and have not experienced a full or partial suspension or significant decline in gross receipts for the calendar quarter. Additionally, “severely financially distressed” employers, with gross receipts for a calendar quarter that have declined by more than 90% from the same calendar quarter in 2019, can claim the ERC on any wages paid to employees during the calendar quarter. The credit also becomes refundable against the Medicare tax after June 30, 2021. Paycheck Protection Program The Act further expands the PPP to include certain internet publishing organizations (NAICS code 519130) and increases program funding another $7.25 billion. The Act also creates new eligibility for certain not-for-profit organizations with not more than 300 employees and that spend less than $1 million or 15% of receipts and expenses on lobbying activities. In addition, charitable organizations can be eligible for PPP loans if they employ 500 or fewer employees per physical location.  Individual tax rebates The Act provides rebate checks of $1,400 per individual (including dependents) based on their adjusted gross income (AGI) reported on their 2019 tax return (or 2020 return, if filed). However, the final version accelerates the phase-out range of taxpayers no longer eligible for the direct payments.   Eligible individuals mean any individual other than nonresident aliens or individuals who are a dependent of another taxpayer at the beginning of the year. Trusts and estates are also ineligible. Restaurant Revitalization Fund The Act establishes the Restaurant Revitalization Fund. Through this program, the Small Business Administration (SBA) will provide grants to restaurants, food trucks, bars, brewpubs and other eligible entities to cover payroll, rent, utilities, food costs and other expenses essential to operations. Entities with more than 20 locations, publicly traded companies and entities that have applications pending under the grants for shuttered venue operators program are not eligible. Of the $28.6 billion appropriated for this program, $5 billion is earmarked for businesses with gross receipts of $500,000 or less. Further, during the initial 21-day period of the program, the Act directs the SBA to prioritize grants to small businesses owned by women, veterans, and socially and economically disadvantaged small businesses. Grants received under this program are exempt from federal income tax, and expenses paid with the funds are deductible.  Child tax credit and dependent care benefits enhancements The Act increases the child tax credit to $3,000 per qualifying child ($3,600 in the case of children under the age of 6 as of the close of the tax year) and makes it refundable for 2021. The increased credit over the $2,000 available under prior law would phase out at AGI levels of $150,000 for joint filers, $112,500 for head of household and $75,000 for all other taxpayers. The AGI phase-out levels for the $2,000 previously available credit remain the same ($400,000 for joint filers, $200,000 for all others). The Act additionally instructs the Treasury Department to establish a program under which taxpayers will receive periodic advance payments that in total equal 50% of the estimated credit they are entitled for the year. Paid leave payroll tax credits extensions Originally provided for by the Families First Coronavirus Response Act, the payroll tax credits for providing paid sick and family leave are extended through Sept. 30, 2021. Additionally, effective for calendar quarters beginning after March 31, 2021, the limit on wages that can be taken into account for computing the family leave credit with respect to all calendar quarters in total increases to $12,000 from $10,000, and the 10-day limit on the emergency paid sick leave credit resets. In other words, if, as of the end of the first calendar quarter of 2021, an employer reaches both of these respective limits for a given employee, the employer would be able to claim an additional family leave credit up to $2,000 of qualified family leave wages plus an emergency paid sick leave credit up to 10 days for qualified sick leave wages paid to that same employee during the second and third quarters of 2021.  Taxability of student loan forgiveness Student loans forgiven after Dec. 31, 2020, and before Jan. 1, 2026, can be excluded from gross income except in certain circumstances. The Act does not itself include student debt forgiveness, but it could be a sign that potential legislation may be on the horizon. Unemployment benefits The federal unemployment subsidy remains at $300 per week and is further extended through Sept. 6, 2021. For taxpayers with AGI of less than $150,000, the first $10,200 of unemployment benefits received in 2020 will not be subject to income tax (in the case of a joint return, the first $10,200 received by each spouse). Election to allocate interest expense worldwide repealed The Act repeals a provision allowing U.S. affiliated groups to elect to allocate and apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. Section 864(f) was enacted as part of the American Jobs Creation Act of 2004, but its implementation has been deferred several times. This section is relevant in computing the foreign tax credit limitation, which is based on the amount of taxable income from foreign sources and the allocation and apportionment of deductions between U.S.- and foreign-source gross income from different limitation categories. Allocating and apportioning interest expense on a worldwide basis would generally result in increasing the ability to use foreign tax credits. Executive compensation deductibility limitations  The Act expands the executive compensation deduction, which is limited to $1 million each for the highest paid executives at public companies. The limitation will now apply to the CEO, CFO and the next five highest-paid employees. Currently, this limit applies to the CEO, CFO and the top three highest-paid employees.  The purpose of this provision is to offset the costs of providing funding relief to financially struggling multiemployer and single-employer pension plans as described below. It is effective for tax years beginning after 2026.  Excess business loss limitation First enacted in the Tax Cuts and Jobs Act (TCJA), the limitation of certain current trade or business losses of noncorporate taxpayers was extended through 2026. Indexed for inflation, the TCJA placed a $250,000 ($500,000 for married filing joint taxpayers) limit on using these losses originally through 2025. The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended the limitation for the 2018, 2019 and 2020 tax years. Pension plan relief The Act contains provisions to assist troubled multiemployer pension plans as well as single-employer pension plans. Multiemployer plans – The Act creates a special program to allow the Pension Benefit Guaranty Corporation (PBGC) upon application by plan sponsors to make direct cash payments to financially troubled pension plans to ensure they remain solvent. Applications must be submitted by Dec. 31, 2025. Single-employer plans – The Act provides that shortfall amortization bases for plan years beginning in 2019 and 2020 would be reduced to zero. For plan years beginning after Dec. 31, 2019, all shortfalls would be amortized over 15 years rather than seven years under current law. Cost-of-living adjustment freeze for qualified retirement plans The Act contains provisions to freeze cost-of-living adjustments for certain annual limitations beginning after Dec. 31, 2030. The 2030 dollar amount would remain in effect until further notice. Defined benefit plans – The limitation on annual benefits Defined contribution plans – The limitation on contributions and other additions Compensation – The limitation on the annual compensation taken into account under the plan  The freeze on the cost-of-living adjustments described above would not apply in the case of a plan maintained by one or more collective bargaining agreements.  The freeze on cost-of-living adjustments applicable to benefits, contributions and compensation is designed to: Raise revenue and help offset the cost of the multiemployer plan reforms. Fill a budget hole in the 10-year scoring window. The freeze may also serve to foreshadow future legislative proposals to cut back on tax incentives for retirement plans as revenue raisers to offset the cost of other policy proposals. Expanded 1099 reporting The Act expands the 1099 reporting threshold for third-party settlement organizations to $600 annually with no fixed number of transactions from $20,000 and 200 transactions per payee under current law. This provision would be effective for transactions after Dec. 31, 2021. This provision is intended to capture more of the money earned by independent contractors in so-called “gig economy” jobs. This will primarily affect companies like eBay, Airbnb, Amazon, but the final rules and ensuing guidance will need to be reviewed to see how expansive this change may be.   We encourage you to reach out to your Baker Tilly adviser regarding how any of the above may affect your tax situation. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The fifth federal COVID-19 relief bill is moving on to be signed by the president. The massive bill includes extensions to the employee retention credit, unemployment benefits, PPP qualification parameters among other programs, and it establishes a revitalization fund for restaurants.

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Congress passes latest round of stimulus legislation

Authored by Paul Dillon, Christine Faris, Michelle Hobbs and Michael Wronsky By the end of February, the House of Representatives is expected to pass the American Rescue Plan Act of 2021 (the Act), a combination of several bills making up the fifth stimulus legislation package designed to provide further economic relief from the continuing COVID-19 pandemic. The Senate is expected to begin discussions the first week of March when it is likely the legislation will be modified and sent back to the House. While the Act contains an increase of the minimum wage to $15 per hour, this provision was deemed to violate the Senate reconciliation rules. Additionally, other elements of the Act may not have unanimous support of all Democratic senators.  Both chambers of Congress are using budget reconciliation to pass the Act. In the Senate, this means the Act is not subject to filibuster and only a simple majority is needed to pass it. Therefore, ratification can occur without any Republican votes if no Democratic senator dissents. The final bill is expected to be signed into law by President Biden shortly after passage by both chambers. From a tax perspective, what is not included in the Act is perhaps as important as what is included. The Act contains no tax increases, including those that had been outlined in President Biden’s campaign proposals. At this time, individual, corporate and capital gains rates are unchanged, and no adjustments were made to the estate and gift tax regime. During a CNBC interview earlier this month, Treasury Secretary Janet Yellen said any tax increases sought by the Biden administration would be introduced gradually, suggesting these would come later in 2021 as part of a larger legislative package and be phased in slowly. Meanwhile, the Act does include several tax provisions such as an extension of the employee retention credit, another round of individual tax rebates and enhancements to the child tax credit. Notable nontax provisions include modifications to the Paycheck Protection Program (PPP), an increase to and continuation of the federal unemployment subsidy as well as funding for primary school and higher education institutions, and vaccine distribution.  Key provisions Employee retention credit The refundable quarterly payroll tax credit, designed to assist employers experiencing full or partial suspensions or significant declines in gross receipts in keeping employees on their payroll, was extended to apply to qualified wages paid through Dec. 31, 2021. Beginning after June 30, 2021, the credit will become a refundable payroll tax credit against the Medicare tax, otherwise known as the hospital insurance tax. Paycheck Protection Program The Act further expands the PPP to include certain internet publishing organizations (NAICS code 519130) and increases program funding another $7.25 billion. The Act also creates new eligibility for certain not-for-profit organizations with not more than 300 employees and spend less than $1 million or 15% of receipts and expenses on lobbying activities. In addition, charitable organizations can be eligible for PPP loans if they employ 500 or fewer employees per physical location. Finally, the SBA affiliation rules will no longer apply to not-for-profit organizations.  Individual tax rebates The Act provides rebate checks of $1,400 per individual (including dependents) based on their adjusted gross income (AGI) reported on their 2019 tax return (or 2020 return, if filed). Payment amounts will begin to phase out for single filers with AGI of $75,000 or higher ($150,000 for joint, $112,500 for head-of-household filers).  EIDL grants and other loan proceeds Under the Act, Economic Injury Disaster Loan (EIDL) grants as well as restaurant revitalization grants would be exempt from federal income tax. Further, similar to forgiven PPP loans, these exclusions from taxable income would not result in a loss of tax deductions for expenses funded by those grants. Child tax credit and dependent care benefits enhancements The Act increases the child tax credit to $3,000 per qualifying child ($3,600 in the case of children under age 6 as of the close of the tax year) and makes it refundable for 2021. The increased credit over the $2,000 available under prior law would phase out at AGI levels of $150,000 for joint filers, $112,500 for head of household, and $75,000 for all other taxpayers. The AGI phase out levels for the $2,000 previously available credit remain the same ($400,000 for joint filers, $200,000 for all others). The Act additionally instructs the Treasury Department to establish a program under which taxpayers will receive monthly advance payments of the credit they are due, from July through December 2021. Paid leave payroll tax credits extensions Originally provided for by the Families First Coronavirus Response Act, the payroll tax credits for providing paid sick and family leave are extended through Sept. 30, 2021. Additionally, effective for calendar quarters beginning after March 31, 2021, the limit on wages that can be taken into account for computing the family leave credit with respect to all calendar quarters in total increases to $12,000 from $10,000, and the 10-day limit on the emergency paid sick leave credit has been reset. In other words, if, as of the end of the first calendar quarter of 2021, an employer reached both of these respective limits for a given employee, they would be able to claim the family leave credit on up to an additional $2,000 of qualified family leave wages and another 10 days of the emergency paid sick leave credit for qualified sick leave wages paid to that same employee during the second and third quarters of 2021.  Unemployment benefits The federal unemployment subsidy increases to $400 per week from $300 and is further extended through Aug. 29, 2021.  Election to allocate interest expense worldwide repealed The Act repeals a provision allowing U.S. affiliated groups to elect to allocate and apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. Section 864(f) was enacted as part of the American Jobs Creation Act of 2004, but its implementation has been deferred several times. This section is relevant in computing the foreign tax credit limitation, which is based on the amount of taxable income from foreign sources and the allocation and apportionment of deductions between U.S.- and foreign-source gross income from different limitation categories. Allocating and apportioning interest expense on a worldwide basis would generally result in increasing the ability to use foreign tax credits. Pension plan relief The Act contains provisions to assist troubled multiemployer pension plans as well as single-employer pension plans. Multiemployer plans – The Act creates a special program to allow the Pension Benefit Guaranty Corporation (PBGC) upon application by plan sponsors to make direct cash payments to financially troubled pension plans to ensure they remain solvent. Applications must be submitted by Dec. 31, 2025. Single-employer plans – The Act provides that shortfall amortization bases for plan years beginning in 2019 and 2020 would be reduced to zero. For plan years beginning after Dec. 31, 2019, all shortfalls would be amortized over 15 years rather than seven years under current law. Cost-of-living adjustment freeze for qualified retirement plans The Act contains provisions to freeze cost-of-living adjustments for certain annual limitations beginning after Dec. 31, 2030. The 2030 dollar amount would remain in effect until further notice. Defined benefit plans – The limitation on annual benefits Defined contribution plans – The limitation on contributions and other additions Compensation – The limitation on the annual compensation taken into account under the plan    The freeze on the cost-of-living adjustments described above would not apply in the case of a plan maintained by one or more collective bargaining agreements.   For more information about how these issues may affect you, connect with your Baker Tilly tax professional.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The House passed the fifth federal COVID-19 relief bill. Carrying a hefty price tag – $1.9 trillion – and facing an uphill battle as it moves to the Senate.

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House expected to advance latest round of stimulus legislation

As 2020 comes to an end, significant U.S. international tax legislation is being released.

U.S. international tax update

The new net operating loss (NOL) carryback rules in the Coronavirus Aid, Relief, and Economic Security (CARES) Act can potentially affect numerous U.S. international tax provisions in relation to U.S. taxpayer’s tax filings on its overseas operations. Below, we discuss various issues involving the interaction of the CARES Act NOLs with the so-called “repatriation tax” of section 965(a); U.S. shareholders with controlled foreign corporations (CFCs) that generated global intangible low-tax income (GILTI) (potentially also taking advantage of foreign taxes paid by their CFCs as foreign tax credits and/or availing themselves of the GILTI section 250 deduction); foreign-derived intangible income (FDII); and taxpayers that were subject to the base erosion and anti-abuse tax (BEAT).  In the case of the section 965(a) repatriation tax, the IRS issued guidance on the application of the changes to the NOL rules of section 172 brought about by the CARES Act. Understanding this guidance and modeling the impact of any NOL carryback is key for clients to optimize the intended tax result.  Separately, the IRS also issued three revenue procedures that may provide relief from potential tax obligations resulting from COVID-19. Rev. Proc. 2020-20 applies to nonresident aliens stranded in the United States that, because of certain related travel restrictions, may become resident here. Rev. Proc. 2020-27 provides guidance to U.S. individuals seeking to qualify under section 911 that left their foreign residences during a certain period of time due to COVID-19. Rev. Proc. 2020-30 includes U.S. trade or business/permanent establishment issues and dual consolidated loss relief guidance due to travel restrictions.  Guidance on the interaction of CARES Act NOL carryback rules and section 965 repatriation tax Background The CARES Act amended section 172(b)(1) to allow taxpayers to carry back any NOL arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021 (applicable NOLs), to each of the five taxable years preceding the taxable year in which the NOL arises (the carryback period). This is potentially taxpayer favorable in that applicable NOLs may offset income taxed at a higher marginal tax rate than is in effect today. However, the CARES Act also amended section 172(b)(1) to provide that if an applicable NOL is carried back to a repatriation tax year, the taxpayer will be treated as having made the election under section 965(n). As such, the taxpayer will be required to exclude the section 965(a) inclusion amount in determining its NOL deduction. In other words, applicable NOLs carried back to a repatriation tax year will not reduce any section 965(a) inclusion tax liability. Taxpayers can make certain elections in order to tailor the CARES Act’s NOL carryback provisions to provide the most tax-efficient result.  Rev. Proc. 2020-24 In April, the IRS issued Rev. Proc. 2020-24, providing guidance on NOL carryback election provisions introduced in the CARES Act. For taxpayers to elect how to use an applicable NOL, the revenue procedure provides three alternatives: Election to waive the NOL carryback period for an applicable NOL 
– Made no later than the due date (including extensions) for filing the taxpayer’s federal income tax return for the first taxable year ending after March 27, 2020
– Made by attaching separate statement to its return for each taxable year it intends to make the election   Election to exclude from the carryback period any taxable year in which the taxpayer has a section 965(a) inclusion 
–  Made no later than the due date (including extensions) for filing the taxpayer's federal income tax return for the first taxable year ending after March 27, 2020
– An NOL arising in a taxable year beginning after Dec. 31, 2019, and before Jan. 1, 2021, must make the election no later than the due date (including extensions) for filing the taxpayer's federal income tax return for the taxable year in which the NOL arises 

An election under the second alternative to exclude all section 965 years from the carryback period for an NOL allows a taxpayer to disregard repatriation tax years when applying an NOL to the carryback period. Excluding such years may result in a refundable overpayment or a credit for any of the remaining years in the carryback period to which the NOL is applied. A taxpayer who makes this election must include all repatriation tax years for purposes of counting the five taxable years in the carryback period for the NOL.  Guidance for elections under the CARES Act to waive any carryback period; to reduce any carryback period; or to revoke any election made under section 172(b) to waive any carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017. FAQ about carrybacks of NOLs for taxpayers who have had section 965 inclusions The IRS issued frequently asked questions (FAQ) on its website that further describe the interaction of the NOL carryback rules to taxpayers that had a section 965 inclusion and the procedures for making the elections described above. The FAQ clarifies certain questions regarding the application of Rev. Proc. 2020-24 such as:  Taxpayers may file an election to either waive the entire carryback period or to exclude all of section 965 years from the carryback period;  The statements that taxpayers use to make the elections (i.e., either a Form 1139, Corporation Application for Tentative Refund, or Form 1045, Application for Tentative Refund, applying the NOL to a taxable year in the carryback period); and  The due dates for filing such statements.  Issues to consider when carrying back applicable NOLs  In deciding which year to carry back an NOL, taxpayers should bear in mind the potential impact of the following points: An election to waive the carryback period altogether might make sense where there is a trade-off with foreign tax credits which might go unutilized over a 10-year carryforward period; Any overpayment of tax created through reduction of “without section 965” income must be applied to pay down any remaining installments of transition tax liability payable over an eight-year installment period where a section 965(h) election had been made before any cash refund can be processed; An NOL carryback to a FDII or GILTI tax year could result in a reduction of the section 250 deduction where the sum of FDII and GILTI exceeds taxable income (before taking any section 250 deduction, and after being adjusted for the NOL carryback) for that tax year;  The effect of any NOL deduction on a taxpayer’s BEAT base erosion percentage; and/or The impact on interest deductions under section 163(j) on calculated BEAT liability. Again, careful and detailed modeling may be required to obtain the best tax result from carrying back applicable NOLs to offset taxable income. Other COVID-19-related international tax guidance  Rev. Proc. 2020-20  The IRS issued Rev. Proc. 2020-20 in mid-April and notes that alien individuals who are not lawful permanent residents (i.e., “green card” holders) and who meet the substantial presence test by virtue of being present in the United States for a certain period of time are generally treated as U.S. residents for that year. The revenue procedure provides relief to some nonresident individuals who would not have been in the U.S. in 2020 long enough to be considered resident aliens, if not for COVID-19 emergency travel disruptions.  Relief may be achieved by excluding up to 60 consecutive days spent in the U.S. starting on or after Feb. 1, 2020, and on or before April 1, 2020 (with the specific start date to be chosen by each individual) under the substantial presence test’s medical exception provision. Rev. Proc. 2020-20 also provides procedures for individuals to exclude certain days present in the U.S. in order to claim tax treaty benefits for dependent personal services income.  Rev. Proc. 2020-27  Section 911(a) allows individuals to claim the foreign earned income and housing costs exclusion if certain requirements (including being resident in a foreign country for a certain period) are satisfied. Rev. Proc. 2020-27 provides relief to individuals that reasonably expected to qualify for the section 911 exclusions that left:  China on or after Dec. 1, 2019;  Another foreign country on or after Feb. 1, 2020 But on or before July 15, 2020, if the individual otherwise establishes he or she would have met the ordinarily applicable qualified individual eligibility requirements but for a “COVID-19 emergency.” Rev. Proc. 2020-30 On May 7, 2020, the IRS released Rev. Proc. 2020-30 to address the application of COVID-19 travel restrictions (such as transportation disruptions, shelter-in-place orders, quarantines, etc.) on foreign branches. According to the revenue procedure, certain activities conducted in a foreign country for 60 consecutive calendar days in 2020 by individuals temporarily present there due to travel disruptions will not be taken into account for purposes of determining whether a domestic corporation has a foreign branch separate unit. As a result, such activities will not give rise to a foreign branch separate unit under section 1503(d) and the taxpayer will not have an obligation to file a Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). Transfer pricing Due to COVID-19, many international businesses are experiencing — or anticipating — negative impacts to their global supply chain. Disruptions to businesses’ supply chains may have unexpected or unintended tax consequences related to additional expenses or decreases in revenue. Some taxpayers with intercompany transactions may incur extraordinary expenses due to necessary reactions to the new market conditions. These extraordinary expenses should be analyzed to see if they should be treated differently for tax purposes, both from a domestic and foreign perspective. Taxpayers with intercompany transactions should revisit their transfer pricing strategies and pricing arrangements due to COVID-19’s influence on their global business. View more insights from our guide to tax planning during and after COVID-19
For more information, please visit our Coronavirus Resource Center.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

While the IRS released several taxpayer-relief initiatives and programs, the agency is dealing with adapting its services for its employees who are working remotely, creating new challenges and lengthy delays.

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International taxation relief provisions

To ensure our clients currently doing business in Mexico or considering expanding to Mexico have broad knowledge of the Mexican government’s responses to COVID-19, we have put together a summary of key tax incentives and economic measures currently implemented, so you can identify any opportunities to help manage cash flow during these unprecedented times. Federal measures Suspension of activities The Tax Administration Service has announced the suspension of   deadlines from May 4 to 29, 2020, due to COVID-19. This measure applies to   all procedures that cannot be handled electronically, including   administrative appeals, ongoing tax audits and permits. This suspension does not apply to the filing of tax returns, notices   and reports, payment of taxes, levies and proceeds, tax refunds,   administrative law enforcement actions, customs procedures, and assistance to   taxpayers. Corporate Income Tax (CIT) No reductions,   extensions or deferrals have been granted. Value Added Tax (VAT) There will be no deferrals, reductions or reliefs. However,   accelerated VAT refunds and trade and customs facilitations are in place. Employer’s payments for Social Security Employers may defer some Social Security payments for up to 48   months, under prior agreement with the Mexican Institute of Social Security   (IMSS), and upon a 20% upfront payment for the employer quota and 100% of the   worker quota. No posting of a bond or other kind of guarantee is needed. The monthly interest rate ranges between 1.26% and 1.82%. The National Workers Housing Fund Institute (INFONAVIT) will give   small- and medium-sized enterprises (up to 250 employees) an extension for   the housing contributions corresponding to the second and third bimesters   (i.e., period of two months) until September 2020. State tax Local incentives for state taxes such as relief or deadline   extensions may be available in certain states. The range of measures includes   extensions to file and pay taxes and waivers on certain state taxes such as   wage tax, property tax, vehicle registration, hotel tax, etc. Financial support The Bank of Mexico has implemented measures to strengthen the credit   channels and provide liquidity to financial markets by lowering the interbank   interest rate to 6%. The Office of Treasury and Public Credit has announced jointly with   the National Insurance and Bonding Commission the possibility for insurance   entities to extend deadlines for payment of insurance premiums for up to 60   days. Temporary support from banks for natural and legal persons will   continue for the duration of the COVID-19 emergency. Personal tax The deadline for the submission of individual tax returns for FY2019   is extended until June 30. 2020. Expand section below to view state measures.
To learn how Baker Tilly can help you find the best ways to manage your business in Mexico, such as maximizing cash flow and managing credit risk, please contact us.
The information provided here is of a general nature and is not intended  to address the specific circumstances of any individual or entity. In  specific circumstances, the services of a professional should be sought.  Tax information, if any, contained in this communication was not  intended or written to be used by any person for the purpose of avoiding  penalties, nor should such information be construed as an opinion upon  which any person may rely. The intended recipients of this communication  and any attachments are not subject to any limitation on the disclosure  of the tax treatment or tax structure of any transaction or matter that  is the subject of this communication and any attachments.

To ensure our clients currently doing business in Mexico or considering expanding to Mexico have broad knowledge of the Mexican government’s responses to COVID-19, we have put together a summary of key tax incentives and economic measures currently implemented, so you can identify any opportunities to help manage cash flow during these unprecedented times.

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Manufacturing & Distribution Coronavirus Resources

Key tax measures implemented in Mexico due to COVID-19

During this uncertain time, Baker Tilly has been receiving many inquiries on employment best practices surrounding the COVID-19 outbreak. While this situation is fluid, we will continue to advise our clients with the latest information available. Overall, best practices dictate employers listen to employee concerns, support them and work to solve issues in this previously unknown environment. Many answers to the below FAQs may differ depending on which state(s) you operate in. If you have any specific questions or concerns, please do not hesitate to reach out directly to our consultants. Updated as of March 25, 2020 FAMILIES FIRST CORONAVIRUS RESPONSE ACT, H.R. 6201 On March 18, 2020, the Senate passed and President Trump signed into law the Families First Coronavirus Response Act (the Act). The Act has multiple components including, but not limited to: Emergency Family and Medical Leave Expansion Act The Act amends the Family and Medical Leave Act (FMLA) to require employers with fewer than 500 employees to provide paid public health emergency leave to certain employees through Dec. 31, 2020. Key provisions include: An employee must have been employed for at least 30 days. An employee is unable to work or telework due to a need for leave in order to care for a son or daughter under the age of 18 because the child’s school or place of care has been closed, or the childcare provider is unavailable due to an emergency declared by federal, state or local authority with respect to COVID-19. The first 10 days of leave may be unpaid and then paid leave is required and will be calculated at two-thirds the employee’s regular pay rate for the employee’s regularly scheduled hours, not to exceed $200 per day and $10,000 in total payment. Emergency paid sick leave  Private employers with fewer than 500 employees and public employers of any size must provide 80 hours of paid sick time to full-time employees who are unable to work or telework for specific reasons related to COVID-19. Part-time employees are entitled to paid sick leave based on their average hours worked over a two-week period. Key provisions include: The amount of hours is available immediately regardless of the employee’s length of employment. The maximum amounts payable depend on the reason for the absence. Employees who are: (1) subject to a quarantine or isolation order; (2) advised by a health provider to self-quarantine; or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate of pay, up to a maximum of $511 per day or $5,110 in total payment. Employees caring for an individual described in category (1), (2) or (3) above, caring for a son or daughter whose school is closed or childcare provider is unavailable, or experiencing a “substantially similar condition,” must receive two-thirds of their regular rate of pay, up to a maximum of $200 per day or $2,000 in total payment. Employers may exempt health care providers and emergency responders and the Department of Labor can issue regulations exempting businesses with fewer than 50 employees. The paid sick leave provision takes effect on April 1, 2020 and expires on Dec. 31, 2020. Health provisions Group health plans and insurers offering group or individual health insurance must cover COVID-19 diagnostic testing and must include services related to the administration of the test. Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The COVID-19 pandemic has brought a host of new challenges for employers as they learn to navigate through these troubled times. These frequently asked questions (FAQ) include more detailed information for employers on the Families First Coronavirus Response Act and topics such as workplace closures, remote work, unemployment and COBRA benefits, group health plan administration, among others. 

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Families First Coronavirus Response Act FAQ

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COVID-19 is profoundly affecting the global economy. Disruptions to global supply chains may have unexpected or unintended tax consequences related to additional expenses or decreases in revenue. Baker Tilly’s International Tax Specialists are well prepared to assist our clients with managing these disruptions and the effects they may have on their tax positions.

From a policy perspective, tax policies, legislative changes, and potential rate cuts could be introduced to alleviate the unintended consequences of the coronavirus’ impact on global taxation. COVID-19 may also create tax issues related to expat workers forced to come home or quarantined, as countries deal with this global pandemic.

Our international tax specialists are actively addressing pressing issues related to COVID-19 and can assist with advising on U.S.-based and local-country matters.

View the latest updates on tax and financial measures impacting Canadian businesses in the wake of COVID-19.

COVID-19 is profoundly affecting the global economy. Disruptions to global supply chains may have unexpected or unintended tax consequences related to additional expenses or decreases in revenue. Baker Tilly’s international tax specialists are well prepared to assist our clients with managing these disruptions and the effects they may have on their tax positions.

Baker Tilly’s international tax specialists understand global business needs and the importance of how domestic and overseas tax systems intersect. We effectively help manage your worldwide tax affairs.

Contributing to clients’ success by accelerating tax deductions, increasing tax credits, reducing cash taxes and mitigating risks

Baker Tilly’s tax team contributes to clients’ success by accelerating tax deductions, increasing tax credits, reducing cash taxes and mitigating risks.

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