Discussion:Mid Quarter Convention Foreign Branch Assets
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Discussion Forum Index --> Tax Questions --> Mid Quarter Convention Foreign Branch Assets
| 14 June 2007 | |
| One of my clients is a US entity with two domestic subs and a foreign branch in China. The China branch placed a substantial amount of MACRS property in the last quarter of the year. The amount of MACRS property exceeded 40% of the total property placed during the year by the whole group so mid quarter convention is required.
I checked Reg. 1.168(d)-1(b)(5)(i) and it says the following: "In the case of a consolidated group (as defined in section 1.1502-1(h)), all members of the group that are included on the consolidated return are treated as one taxpayer for purposes of applying the 40-percent test. Thus, the depreciable bases of all property placed in service by members of a consolidated group during a consolidated return year are taken into account (unless otherwise excluded) in applying the 40-percent test to determine whether the mid quarter convention applies to property placed in service by the members during the consolidated return year. The 40-percent test is applied separately to the depreciable bases of property placed in service by any member of an affiliated group that is not included in a consolidated return for the taxable year in which the property is placed in service." The language does not specify what is excluded (I would believe non-MACRS property). My question is: can anyone confirm whether assets located in foreign countries (ie: foreign branch in China) that are owned by members of the US consolidated group fall into the mid quarter convention rules? | |
| 15 June 2007 | |
| I have not seen this before, so I am only giving an opinion and in my opinion, I would say yes it would be. Since the foreign corporation is a BRANCH of a US corporation, then essentially it is the US corporation operating in the foreign country and the assets of all the controlled groups would be considered to be one and the same.
Do you have any access to the International Tax Review? If you have a membership, then this would be a great question to ask. I think they also have a trial subscription.... | |
| 16 June 2007 | |
| Thanks for the reply.
My concern is that foreign assets use ADS to depreciate. By definition, mid quarter convention applies to MACRS property only. So if ADS is defined as part of MACRS, then I think the foreign assets should also be pulled in to calculate the MQ 40% test. I have never heard of International Tax Review. Would you please provide some more information? Can you give me a web link? | |
| 16 June 2007 | |
| www.internationaltaxreview.com
Makes sense to me but I certainly don't have the authority to answer that one. :) | |
| 17 June 2007 | |
| A foreign subsidiary generally cannot be join in the filing of a consolidated return with its parent, unless the subsidiary qualifies as a “subsidiary formed to comply with foreign law.” The 40% test would ordinarily be applied separately to any subsidiary not filing a consolidated return.
I am not sure why you feel that a corporation using ADS is not subject to the mid-quarter convention rule. The code provides otherwise. See Internal Revenue Code § 168(g)(2)(B). | |
| 18 June 2007 | |
| Riley, my client has a foreign branch, not foreign subs.
I was thinking since ADS is similar to straight line depreciation, it may be excluded from MACRS. I consulted around the last few days and concluded that ADS is part of MACRS and the foreign branch assets should be included for the 40% test. | |
