U. S. Treasury Raises Concern about Three International Tax Issues

In a recent report, the U. S. Treasury notified Congress that it was looking into three issues of concern involving international activity and related parties: "earnings-stripping" (paying deductible interest to related parties living in low or no-tax countries (sometimes referred to as "tax havens"); transfer-pricing (shifting income to related parties in tax havens) and misuse of tax treaties (one example: excessive reductions in taxes withheld). The key in all these appears to be related parties--could a stricter version of Section 318 be on the horizon or will the IRS simply target greater enforcement efforts. Once again, the "tax gap" beckons--this time, in the international arena.