This is the fifth in a series of Tax News Highlights articles covering international taxes and what companies need to consider during and after the current global pandemic.
The coronavirus (COVID-19) pandemic has caused significant travel disruptions, in many cases delaying individuals from being able to return to the U.S. from overseas work assignments. The most recent article in this series addressed relief related to individuals on international assignments affected by COVID-19-related travel restrictions. This article focuses on the potentially adverse U.S. tax reporting consequences for U.S. companies when employees unable to return to the U.S. due to COVID-19 travel restrictions are required to perform business activities that otherwise might not have created separate foreign branch reporting obligations under the U.S. international tax reporting rules.
On May 7, the IRS released Revenue Procedure 2020-30 to address temporary activity conducted in foreign countries by individuals due to travel restrictions and interruptions caused by COVID-19. The revenue procedure is intended to provide relief and address such disruptions for purposes of the dual consolidated loss rules under Section 1503(d) and Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs),” filing obligations.
The guidance specifically provides that certain temporary activities do not create a foreign branch separate unit (as defined by Treasury Regulation Section 1.1503(d)-1(b)(4)) for purposes of the dual consolidated loss rules. The guidance also provides that these temporary activities do not create a Form 8858 filing obligation because they do not create a foreign branch (as defined in Treasury Regulation Section 1.367(a)-6T(g)(1)) or a qualified business unit (as defined in Treasury Regulation Section 1.989(a)-1(b)(2)(ii)). Temporary activities under the guidance also do not create an obligation to file a Form 8858 for employees’ activities related to a controlled foreign corporation or a controlled foreign partnership.