President Obama released a $4.5 trillion FY 2017 Budget on 9 February, continuing his call for business tax reform that would impose a 19% minimum tax on the foreign earnings of US-based multinational corporations and a 14% one-time tax on previously untaxed foreign income. The 19% minimum tax is part of a reform of the international tax rules that would repeal the current system of tax deferral for undistributed non-subpart F income of foreign subsidiaries of US corporations, for years after 2016.

The international tax portion of the Budget is essentially the same as in last year's Budget. Because the Subpart F active financing exception was made permanent under the 2015 year-end legislation, it is not included. The Budget also calls for making permanent the CFC-to-CFC look-though rule, which was only extended for five years as part of last year's tax extenders bill. An ITS Alert on the President's proposed international provisions provides details.

The President's eighth and final Budget is not expected to receive substantive consideration on Capitol Hill given the presidential election and the possibility for change in control of the Senate.

This week Treasury Secretary Jacob Lew testified before the two Congressional tax-writing committees on the President's fiscal 2017 budget proposal. Lew challenged Congress to prioritize substantive tax reform, but he emphasized the importance of passing legislation immediately to curb inversions. Reactions from committee members were mixed, with some members expressing skepticism as to the most effective way to halt inversions. Senate Finance Committee Chair Orrin G. Hatch, R-Utah, reiterated that his committee is working on a corporate integration measure that might hinder companies moving abroad. House Ways and Means Committee Chair Kevin Brady, R-Texas, asserted that international tax reform needs to be approached comprehensively — rather than in a piecemeal fashion — and that he was encouraged to hear Lew express a similar view.

During a cross-border mergers and acquisitions panel discussion at the Practising Law Institute conference in New York on 9 February, John Merrick, special counsel to the IRS associate chief counsel (international), defended the third-country rule in the anti-inversion guidance issued in September (Notice 2015-79, 2015-49 IRB 775 (Doc 2015-25653)). He reportedly stated that there is almost always a tax motive for choosing a third-party parent jurisdiction. Merrick also indicated that the regulations contemplated by the guidance would be issued within months, although he declined to be more specific about the timing. On the controversial proposed regulations (REG-139483-13 (Doc 2015-20706)), also issued in September, that would eliminate the foreign goodwill exception for purposes of recognizing gain upon outbound transfers of intangibles, Merrick noted that the legislative history is more ambiguous than many had believed.

Marjorie Rollinson has been named the new IRS associate chief counsel (international), to replace Steven Musher, who will retire on March 31 from the IRS. Rollinson previously served as the national director of international tax services at EY, before joining the IRS in 2013 as IRS deputy associate chief counsel (international-technical). Practitioners widely praised the appointment and welcomed the news.