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United States:
Taxation of foreign subsidiaries' pension arrangements
In 1997, the US Inland Revenue Service (IRS) published draft proposals to tax surplus funds held in the pension plans of subsidiaries of US corporations. These proposals - the section 671 regulations - complement the section 404A regulations which govern the maximum tax contributions (or allocations to book reserved plans) to foreign subsidiaries' pension plans for which US corporations may claim US tax relief. Despite the 404A legislation being passed over 20 years ago, the detailed regulations describing exactly how it should operate are still in draft, and these draft regulations are unclear and controversial in many respects.
The latest development - if one can call it this - is that both the section 404A and section 671 regulations have disappeared from the IRS' list of priority regulations to be finalised. Definitive clarification of US law on these issues therefore is unlikely for the foreseeable future.
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