This week (July 4-8)

Congress in: The Senate and House are in session following the July 4th holiday.

Section 385 briefing: A briefing on Section 385 proposed regulations between congressional tax-writing committee members and Treasury officials is set for July 6. The comment period for the regulations ends the following day.

Last week (June 27-July 1)

Tax reform Blueprint: While the House was in recess for the week, reaction to the Republican Blueprint for tax reform released on June 24 continued. The Ways and Means Committee posted collections of statements from Republican lawmakers, both on and off the Committee, and outside groups and publications praising the Blueprint. Committee Member Rep. Devin Nunes (R-CA), whose American Business Competitiveness Act (H.R. 4377) influenced the document, said, "Measures like full expensing for business investment and the move toward a territorial tax system are exactly what the U.S. needs to create jobs, encourage start-up businesses, end the exodus of U.S. companies abroad, and regain our competitive edge." Not all reaction has been positive, however. House Democratic Leader Nancy Pelosi (D-CA) released a statement saying, "Once again, Republicans are planning to hand massive tax giveaways to millionaires and billionaires on the backs of hard-working American families." Ways and Means Ranking Member Sander Levin (D-MI) said the Blueprint is "long on rhetoric and short on important details. But its general direction is clear: huge, unpaid for tax cuts mostly directed to the wealthy." He also said it is unclear how the provisions in the Blueprint work together "in any manner of fiscal responsibility," relying heavily on dynamic scoring to achieve revenue neutrality. Tax Notes published additional comments made by Ways and Means Committee Chairman Kevin Brady (R-TX) following the release of the document explaining that there is no dynamic score "because we have not finished the Blueprint." There is no legislative text for the Blueprint and no revenue estimate.

CTJ on Blueprint: Citizens for Tax Justice June 29 released an analysis of the House Republican Blueprint on tax reform stating that the plan would:

— add $4 trillion to the national debt over a decade;

— overwhelmingly benefit the top 1% of taxpayers while resulting in a net loss for the bottom 95% of taxpayers; and

— slash corporate tax collections by at least half.

Section 385 regulations: A Joint Committee on Taxation (JCT) member briefing and discussion of issues related to the Treasury's Section 385 proposed debt-equity regulations has been set for July 6 at 2:30 p.m. The briefing was announced by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ways and Means Committee Chairman Brady — JCT Chairman and Vice Chairman, respectively — and all members of both committees are invited to participate. A notice said the briefing is closed to the public. Mark Mazur, Assistant Secretary of the Treasury for Tax Policy, and Robert Stack, Deputy Assistant Secretary for International Tax Affairs, will be present at the briefing, the notice said.

News of the briefing followed a June 28 letter from all Ways and Means Committee Republicans to Treasury Secretary Jack Lew to express "grave concerns" over the potential impact of proposed regulations under Section 385 and to request that the public comment period be extended until at least October 5, from the current July 7 deadline. The lawmakers expressed concern about the broad applicability of the regulations to a wide array of ordinary business transactions, "creating unacceptably high levels of uncertainty and adverse collateral consequences for non-tax motivated business activity." They said Treasury should, at a minimum, "withdraw any provisions currently included within the proposed regulations that would significantly impact capital structuring and ordinary business transactions/operations." Democratic Members sent their own letter to Lew June 22. Press reports June 28 cited a Treasury Department statement saying the comment period will not be extended: "Treasury will follow the normal 90-day comment period on the proposed earnings stripping regulations, and we will carefully consider all comments before finalizing the rules as swiftly as possible."

In the Senate, Finance Committee Ranking Member Ron Wyden (D-OR) released the following statement on the Section 385 regulations: "As I have said before, only Congress can cure the inversion virus by overhauling the tax code. In the meantime we can't sit idly by while companies move their headquarters overseas and expect hard working Americans to pick up the tab. Policymakers need to take necessary steps to protect the tax base while not causing unintended harm. For that reason, I have been talking with taxpayers, my colleagues on the Committee and Secretary Lew to ensure that the cure for the virus isn't worse than the disease. Treasury is working hard to strike the right balance."

Country-by-country reporting: Final Regulations (TD 9773) on country-by-country (CbC) reporting were published by the IRS on June 29 and "apply to reporting periods of ultimate parent entities of US multinational enterprise (MNE) groups that begin on or after the first day of the tax year of the ultimate parent entity that begins on or after" June 30, 2016. The Final Regulations require CbC reporting by the ultimate parent entity of a US MNE group with annual revenue of $850 million or more for the immediately preceding reporting period. The required reporting must contain information, on a country-by-country basis, related to the US MNE group's income and taxes paid, together with certain indicators of the location of economic activity within the US MNE group. Some countries have implemented CbC reporting for years beginning January 1, 2016. Because of the mismatch in applicability dates, there was a concern that constituent entities of US MNE groups may be subject to reporting requirements in foreign jurisdictions under a secondary reporting mechanism. To address this issue, the preamble to the Final Regulations states that Treasury and the IRS intend to allow ultimate parent entities of US MNE groups to file CbC reports for reporting periods that begin on or after January 1, 2016, but before the applicable date of the Final Regulations, under a procedure to be provided in separate, forthcoming guidance. In addition, the Preamble states that the Treasury Department is working to ensure that foreign jurisdictions implementing CbC reporting requirements will not require constituent entities of US MNE groups to file a CbC report with the foreign jurisdiction if the US MNE group files a CbC report with the IRS under this procedure and the CbC report is exchanged with that foreign jurisdiction under a competent authority arrangement. Also June 29, the OECD released additional guidance aimed at the consistent implementation of CbC reporting under Action 13 of the BEPS project. The OECD guidance refers to voluntary filing by the ultimate parent entity that some countries are contemplating, including the US, for periods commencing after January 1, 2016, and refers to this voluntary filing as "parent surrogate filing." The OECD guidance recommends that, where surrogate filing (including parent surrogate filing) is available, no local filing obligation would be required. An EY Tax Alert has details.

Non-controversial Senate bills: Senate Finance Committee Chairman Hatch and Ranking Member Wyden have set criteria for non-controversial and bipartisan legislation that can be processed through the Committee. "Our sincere hope is that we can continue making meaningful changes with much more frequency and efficiency," the Senators said in a June 24 Dear Colleague letter. It said such bills should:

— be in the Finance Committee's jurisdiction;

— be non-controversial, as determined by the Chairman and Ranking Member, and have strong bipartisan support in the Committee and in the Senate;

— have little or no budgetary impact;

— address subject matter that has been thoroughly reviewed by the Committee, and have received official technical assistance from the appropriate agency; and

— not be opposed by leadership of either party in the Senate, or the White House.

Similar criteria were set ahead of a February 11, 2015, markup during which the Committee reported out 17 miscellaneous tax bills, some of which were enacted in the year-end tax bill.

Quote of the Week

"We will make America the best place in the world to start a business, hire workers, and open a factory. This includes massive tax reform to lift the crushing burdens on American workers and businesses. We will also get rid of wasteful rules and regulations which are destroying our job creation capacity. Many people think that these regulations are an even greater impediment than the fact that we are one of the highest taxed nations in the world." — Donald Trump, presumptive Republican presidential nominee, June 28 speech in Monessen, PA

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