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In this issue: Tax developments ........................ 2 Other considerations .................. 10 Things we have our eyes on ........ 12 Appendix: Treaty changes ........... 14 Quarterly tax developments Things to know about this quarter’s tax developments and related US GAAP accounting implications Updated through 31 March 2019 Welcome to our March 2019 Quarterly tax developments Tax developments publication. This edition is updated for certain developments from 19 March 2019 through 31 March 2019. New Legislation enacted in the first quarter developments are designated Companies are required to account for the effects of changes in tax laws in the period the legislation is by a dagger (†) after the enacted. These changes are included in a company’s estimate of its annual effective tax rate in the first country name. interim period that includes the effective date of the rate change, but not earlier than the period that Once again, we describe certain includes the enactment date. If an interim change is significant, companies may need to estimate temporary tax developments previously differences as of the enactment date. summarized in Tax Alerts or other EY publications or Federal, state and territories identified by EY tax professionals Arkansas — On 26 February 2019, Arkansas enacted legislation adopting federal opportunity zone benefits or EY foreign member firms. for state income tax purposes. The benefits apply to projects in population census tracts located in Arkansas These developments may affect that are designated as qualified opportunity zones for federal tax purposes as of 1 January 2019. The your tax provision or estimated change is retroactively effective for tax years beginning on or after 1 January 2018. See the State and annual effective tax rate. Local Tax Weekly for 1 March 2019. We compile this information Kentucky† — On 26 March 2019, Kentucky enacted mandatory unitary combined reporting for tax years because we recognize that, for beginning on or after 1 January 2019. Other changes include: many companies, the most challenging aspect of • Requiring a “combined report” to include only US members of the combined group accounting for income taxes is identifying changes in tax law • Amending the definition of a “combined group” to include only corporations whose voting stock is and other events when they more than 50% owned, directly or indirectly, by common owners occur so the accounting can be Eliminating intercompany transactions from the computation of “combined income” reflected in the appropriate • period. However, this • Excluding from the computation of “combined income” a US corporation that earns 80% or more of its publication is not a income from foreign sources comprehensive list of all changes in tax law and other See Tax Alert 2019-0688, dated 3 April 2019. events that may affect income tax accounting. Virginia — On 15 February 2019, Virginia enacted legislation requiring companies to exclude global intangible low-taxed income (GILTI) from their Virginia income tax base. The legislation also allows We list EY publications that companies to deduct, for Virginia income tax purposes, 20% of business interest expenses denied as a you can access through our deduction for federal tax purposes. The change is effective for tax years beginning on or after 1 January Tax News Update website, if 2018. See the State and Local Tax Weekly for 15 February 2019. you are registered. Anyone interested in registering should Internal Revenue Code conformity contact Joan Osborne at The following chart lists the states that enacted legislation this quarter updating their date of conformity to [email protected]. the US Internal Revenue Code (IRC). The chart also includes the dates on which the new conformity date See our previous editions for was enacted and became effective. Additionally, it lists certain IRC provisions to which each state will not additional tax developments. conform, if applicable. Further information on a state’s IRC conformity can be found in the cited reference. State Enactment date Date of conformity Effective date Reference Idaho 4 February 2019 1 January 2019 1 January 2019 State and Local Tax Weekly for 15 February 2019 Kentucky† 26 March 2019 31 December 2017 1 January 2018 Tax Alert 2019-0688, (for tax years beginning dated 3 April 2019 1 January 2018 through 31 December 2018 only) 31 December 2018 (for tax years beginning on or after 1 January 2019, with some exceptions) † Indicates a new development. 2 | Quarterly tax developments Updated through 31 March 2019 State Enactment date Date of conformity Effective date Reference South Dakota 5 February 2019 1 January 2019 1 July 2019 State and Local Tax Weekly (for bank franchise tax) for 8 February 2019 Virginia 15 February 2019 31 December 2018 1 January 2018 State and Local Tax Weekly (with exceptions) for 15 February 2019 West Virginia 27 February 2019 31 December 2018 Retroactive to the State and Local Tax Weekly effective date for 1 March 2019 of the relevant federal provision International Brazil — On 4 January 2019, Brazil enacted legislation extending the 31 December 2018 deadline for companies with projects focused on the north and northeastern regions of the country to apply for tax incentives, including a 75% reduction in corporate income tax. The new deadline is 31 December 2023. See Tax Alert 2019-0084, dated 10 January 2019. Denmark — On 31 January 2019, Denmark enacted legislation exempting from tax the dividends that foreign investors receive from certain Danish mutual investment companies if the Danish companies pay a 15% tax on the dividends they receive from their Danish equity holdings. The exemption also applies to dividends that a Danish feeder fund in a fund-of-funds structure receives from a Danish master fund if the master fund pays a 15% tax on dividends it receives from the Danish equities it holds. A 27% withholding tax still applies, however, to dividends distributed to foreign investors, which must file refund claims to recover the Danish withholding tax. The change is effective from 1 March 2019. See Tax Alert 2019-0353, dated 13 February 2019. Hong Kong* — On 1 March 2019, Hong Kong enacted legislation allowing companies to elect to treat unrealized profits and losses on financial instruments as taxable profits or losses. The change applies to tax years ending on or after 1 April 2018. Also on 1 March 2019, Hong Kong enacted legislation exempting income from private collective investment funds from tax. The change is effective 1 April 2019. See Tax Alert 2019-0514, dated 11 March 2019. Japan† – On 27 March 2019, Japan enacted legislation further limiting interest expense deductions under its earnings stripping rules. The change applies to tax years beginning on or after 1 April 2020. Other changes include: • Broadening the scope of intangible assets subject to transfer pricing rules and adding a new transfer pricing methodology (applies to tax years beginning on or after 1 April 2020 and to calendar years beginning in 2021) • Adding exceptions to the application of the controlled foreign corporation (CFC) rules • Increasing the amount of the research and development credit that companies may claim against their corporate income tax liability Unless otherwise indicated, the changes are effective for tax years beginning after 1 April 2019. See Tax Alert 2019-0664, dated 1 April 2019. Portugal — On 28 January 2019, Portugal enacted legislation establishing a real estate investment trust (REIT) regime. The new law exempts REITS from tax on investment income (e.g., dividends, interest), rental income and capital gains. It also allows REITs to carry losses forward for five years but limits the usage of those losses to 70% of taxable income. Other changes include: • Subjecting REIT income distributed to Portuguese corporate investors to the 21% corporate income tax rate (plus state and local surcharges, if applicable) • Subjecting distributions made by REITs to foreign corporate investors to a 10% withholding tax (higher rates of 25%/35% may apply in certain cases) The changes are effective 1 February 2019. See Tax Alert 2019-0386, dated 18 February 2019. * A Tax Alert on this development is not available. † Indicates a new development. 3 | Quarterly tax developments Updated through 31 March 2019 United Kingdom†* — On 12 February 2019, the United Kingdom (UK) enacted a 20% tax on income that certain foreign companies derive by using intangible property to generate UK sales of goods and services. The law includes some exemptions from the tax, as well as an anti-avoidance rule and a formula for apportioning income between the UK and other countries. The tax applies beginning 6 April 2019, but anti-avoidance rules apply beginning 29 October 2018. Other enacted measures include: • Permitting companies to amortize goodwill for tax purposes at a rate of 6.5% per year in relation to certain business acquisitions of eligible intellectual property (IP) (effective 1 April 2019) and changing the intangible assets de-grouping rules (effective 7 November 2018) • Allowing companies to depreciate over 50 years their tax basis in buildings constructed under contracts entered on or after 29 October 2018 • Applying a special regime to the taxation of gains from direct and indirect disposals of UK property by nonresident collective investment vehicles (effective 6 April 2019) • Modifying the UK CFC rules (effective 1 January 2019) and the UK hybrid rules (effective beginning either 1 January 2019 or 1 January 2020) to comply with the Anti-Tax Avoidance Directive (ATAD) of the European Union (EU) Legislation effective in the first quarter Federal, state and territories Alaska — Effective 1 January 2019, public utilities must use an equally weighted, three-factor formula to apportion income to the state, unless specified otherwise. The change was enacted 13 July 2018. See the State and Local Tax Weekly for 27 July 2018. Colorado* — For tax years beginning on or after 1 January 2019, companies must apportion certain income to Colorado using market-based sourcing.

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