Whirlpool Decision: the Tax Court analyzes 'branch rules'

Doug McHoney (PwC's US International Tax Services Leader) and Tom Quinn (a Partner in PwC's International Tax Services practice specializing in Value Chain Transformation) analyze the US Tax Court's recently issued decision in Whirlpool v. Commissioner. Doug and Tom discuss: the facts and organizational structure; the basic structure of Mexican maquiladoras; the importance of Luxembourg's permanent establishment (PE) rules in Whirlpool; the intricacies of the Section 954(d) 'branch rules,' including a discussion on Foreign Base Company Sales Income (FBCSI) and how 'check-the-box' elections interplay with the branch rules; the judge's rationale in the Whirlpool opinion; the difficulties in classifying inter-company transactions as 'sales' or 'activities'; the importance of policy considerations - in addition to technical analysis - during tax planning; the importance of transfer pricing principles in Whirlpool, with a focus on the necessity of inter-company documentation; how the Whirlpool decision might have been interpreted post-TCJA; and final takeaways for taxpayers in light of the Whirlpool decision.