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11 November 2016

U.S. International Tax This Week for the Week Ending November 11

Ernst & Young's U.S. International Tax This Week newsletter for the week ending November 11 is now available. Prepared by Ernst & Young's International Tax Services group, this weekly update summarizes important news, cases, and other developments in international taxation.

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Spotlight

Republican Donald Trump upset Democrat Hillary Clinton to win the Presidency of the United States on 8 November, with Republicans maintaining control of both the House and Senate. The surprising election results have teed up comprehensive US tax reform as a clear priority for the new Republican President and the Republican Congress. A unified Republican Government makes the process of achieving significant tax reform much more manageable next year, in particular because House Speaker Paul Ryan (R-WI) during the campaign pledged to move such a plan in the form of so-called budget reconciliation legislation, which would require only a simple majority of senators to pass the plan, rather than the usual 60-vote majority.

Much of the groundwork has been laid through proposals and negotiations over the last three or four years on various key aspects of business tax reform, but Congressional Republican leaders and the new President will have to decide whether to push forward with legislation that embodies the House Republican Tax Reform Blueprint, or the outlines of a tax reform plan that President-elect Trump championed during the campaign. Among other things, the Trump plan calls for a 15% corporate tax rate, with the same rate imposed on pass-through entities. The President-elect also has said he supports a 10% tax rate on the deemed repatriation of previously untaxed foreign earnings of US companies.

House Speaker Ryan has said on multiple occasions that tax reform is his top priority. The Blueprint, the sixth and final plank of Ryan's "Better Way" campaign to provide policy alternatives, proposed a 20% statutory corporate tax rate, a 25% business tax rate for pass-through entities, a move toward a cash-flow consumption tax through immediate expensing for all businesses and elimination of deductibility of net interest expense. The Blueprint also proposes moving the US to a territorial international tax system, a border tax adjustment mechanism, and elimination of most business preferences except the research and development (R&D) tax credit and last in first out (LIFO).

The House Republican Blueprint further calls for a 8.75% tax rate on previously untaxed accumulated foreign earnings held in cash or cash equivalents, and a 3.5% tax rate on all other accumulated earnings, with tax liability payable over an eight-year period. This is the same tax treatment of accumulated foreign earnings called for under former House Ways and Means Committee Chairman Dave Camp's Tax Reform Act of 2014.

The Blueprint proposes a novel destination-basis tax system, under which border adjustments would exempt exports from tax while taxing imports, making the tax jurisdiction the location of consumption rather than production. Exempting exports from US tax and taxing imports regardless of where they are produced would eliminate incentives for US businesses to move or locate operations outside of the United States under a territorial tax system, according to the Blueprint. The drafters believe it would also eliminate the need for any new exemption or territorial tax system to be matched with a minimum tax or some other more conventional anti-base erosion measure, something that has vexed the business community during tax reform discussions.

House Ways and Means Republican tax staff are in the process of receiving feedback and building out the tax reform Blueprint by drafting detailed statutory language. The publicly expressed goal is to have that effort completed by the end of 2016 or early 2017. House Ways and Means Committee Chairman Kevin Brady (R-TX) was quoted as saying on 9 November that he thinks tax legislation will move within the first 100 days of Trump's presidency. A Washington Council Ernst & Young (WCEY) election Alert provides an overview of the 2016 election and its ramifications. A Global Tax Alert focuses on the potential for comprehensive tax reform.

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Tax Insights

Current status of legislation relating to US international tax rules (BNA)
This article, published in Tax Management International Journal, reports on significant bills introduced in the second session of the 114th Congress that would affect international provisions of the Internal Revenue Code.

A New Splitter: Expanding the Foreign Tax Credit Splitter rules (BNA)
This article, published in Tax Management International Journal, discusses Notice 2016-52, which expands the Foreign Tax Credit Splitter rules with respect to foreign initiated audit adjustments.

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Upcoming Webcasts

Global VAT compliance: Is your company keeping up with the recent changes and trends?
The global tax policy and tax administration landscape is shifting at a quick pace. Staying up to date and compliant with these changes is a significant challenge for any multinational company. During this Thought Center Webcast, a panel of EY indirect tax professionals will address the potential risk areas companies are facing with respect to VAT compliance obligations and share leading practices around optimization of VAT compliance processes.

BorderCrossings … With EY's transfer pricing and tax professionals
During this Thought Center Webcast, part of an ongoing monthly series, EY transfer pricing and tax professionals will help you stay informed and able to adopt a more proactive stance in developing and defending your transfer pricing policies and practices. This month we discuss what multinationals need to know about the final and temporary Section 385 debt-equity regulations for transfer pricing purposes.

BEPS impact on the automotive industry
Now that the OECD has formally released 15 recommendations for reorganizing global tax laws, attention is turning to the governments that are putting them into practice. In order to understand the impact of BEPS, OEMs and suppliers will need to reassess their organizations from top to bottom, including where they work, business and operational models, supply chain networks and IT systems. During this Thought Center Webcast, Ernst & Young professionals will evaluate BEPS implications for automotive multinational businesses.

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Recent Tax Alerts

United States

Africa

Asia

Canada & Latin America

— Nov 9: Honduras enacts new municipal tax amnesty program (Tax Alert 2016-1907)

Europe

— Nov 10: Italy reopens voluntary disclosure program (Tax Alert 2016-1920)

— Nov 9: Russian Tax Brief for October 2016 (Tax Alert 2016-1904)

— Nov 7: The latest on BEPS as of November 7 (Tax Alert 2016-1891)

— Nov 4: Uruguay expands investment promotion regimes (Tax Alert 2016-1877)

Oceania

Multinational

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2016-45Internal Revenue Bulletin of November 7, 2016

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Additional Resources

Ernst & Young Client Portal, the leading source for news, analysis, and reference materials for corporate tax professionals, has a variety of content of interest to international tax practitioners, including:

— International Tax Online Reference Service. Key information about, and important tax developments from, 56 foreign jurisdictions, including information on tax rates, interest rates and penalties, withholding, and filing dates.

— EY/Passport. EY/Passport is your guide to planning ventures in the global economy, offering a wealth of tax and business knowledge on more than 150 countries.

Because the matters covered herein are complicated, U.S. International Tax This Week should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.

Document ID: 2016-1930

 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

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