Fractional Taxation: IRS Releases Technical Advice Addressing the 10% Securities Rule Applicable to Foreign Bank Branches
27 June 2013
Mayer Brown Legal Update
On June 24, 2013, the IRS released a Technical Advice Memorandum (TAM) addressing whether income from certain securities was eligible for the advantage of the rule for “10% securities” in the hands of a US branch of a non-US bank. The rule is beneficial to most US bank branches because it limits the amount of interest and gain on the security that is taxable in the United States. The positions presented in the TAM are counterintuitive – the IRS argued for application of the rule for 10% securities and the taxpayer argued for full U.S. taxation of the income from the securities. (It appears that the taxpayer was not disadvantaged by the full inclusion of the interest due to loss carryforwards.) The IRS’s reasoning in the TAM creates planning opportunities for US branches of non-US banks. The attached Mayer Brown White Paper, prepared by Mark Leeds of New York Office, with the assistance of Sarah Berman of Macquarie Bank Ltd., explains this new IRS Memorandum.