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28 June 2019

U.S. International Tax This Week for June 28

Ernst & Young's U.S. International Tax This Week newsletter for the week ending June 28 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

The Senate Foreign Relations Committee on 25 June, approved by voice vote protocols amending US tax treaties with Japan, Luxembourg, Spain and Switzerland. The four protocols are among agreements that have been awaiting action in the Senate for nearly a decade and held up over Committee member Rand Paul’s concerns over information sharing provisions. Senator Paul reportedly offered an amendment to the Spain protocol to require a higher standard for information sharing, which was rejected.

No timetable regarding Senate consideration is available. The Senate is out of session next week for the US Independence Day recess. Following the vote, Foreign Relations Committee Chairman Jim Risch was quoted as saying he would be “very surprised” if the Senate adjourned for the August recess without approving the protocols. Senate Majority Leader Mitch McConnell reportedly highlighted the tax agreements during a floor speech on 25 June, calling them “extremely important” to a number of businesses.

The Committee did not act on new tax treaties with Hungary, Chile and Poland, which may require reservations to account for enactment of the Tax Cut and Job Act’s Base Erosion and Anti-abuse Tax (BEAT) in 2017. The protocols approved by the committee are more narrow in scope and unaffected by the BEAT, so no reservations were required for them.

Senate Finance Committee Chairman Chuck Grassley and ranking member Ron Wyden this week urged Treasury Secretary Steven Mnuchin to intensify efforts to convince France not to enact a unilateral digital services tax while the Organisation for Economic Co-operation and Development continues efforts to find a multilateral solution to the digital taxation conundrum. In a 24 June letter to the Secretary, the senators called on the Administration to “consider all available tools under US law to address such targeted, discriminatory taxation,” including the imposition of IRC Section 891. That provision allows for the doubling of rates of tax on citizens and corporations of certain foreign countries if the President finds that US citizens or corporations are being subjected to discriminatory or extraterritorial taxes. The US’s position is that various proposed unilateral digital taxes under consideration are targeted at US companies operating overseas.

A senior IRS official this week was quoted as saying that the proposed effective date for the “high taxed exclusion” in the proposed Global Intangible Low-taxed Income (GILTI) regulations was meant to provide taxpayers with the opportunity to assess how it would operate in practice. The proposed GILTI regulations would generally allow taxpayers to elect a narrow “high-tax exception” that would exclude from a US shareholder’s GILTI inclusion items of income of its controlled foreign corporations that would otherwise be part of the GILTI inclusion. The exception would apply if the items are subject to foreign income tax at an effective rate that is greater than 90% of the maximum income tax rate under IRC Section 11 (currently 21%, so a foreign effective tax rate greater than 18.9%). The proposed GILTI regulations, which were released alongside the final GILTI regulations on 14 June, would apply prospectively to tax years of a foreign corporation beginning on or after the date final regulations are published in the Federal Register.

The official was quoted as saying the proposed GILTI regulations would be finalized “pretty expeditiously.”

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EY Publications

EY's 2019 Global Oil and Gas Tax Guide
EY's Global Oil and Gas Tax Guide, attached below,summarizes the oil and gas corporate tax regimes in 86 countries and also provides a directory of EY oil and gas tax and legal contacts.

EY's 2019 Worldwide Corporate Tax Guide
Governments worldwide continue to reform their tax codes at a historically rapid rate. Taxpayers need a current guide, such as EY's Worldwide Corporate Tax Guide, in such a shifting tax landscape, especially if they are contemplating new markets.

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Upcoming Webcasts

The “new normal” for US business tax compliance: Putting new rules into practice for tax year 2018 filings (July 11)
During this Thought Center Webcast, Ernst & Young professionals will provide practical guidance and tips as it relates to readiness, preparation, and filing of your organization’s tax year 2018 federal and state returns.

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Recent Tax Alerts

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Canada & Latin America

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Recent Newsletters

Washington Dispatch
   Highlights of this edition include:

Treasury and IRS news

— Temporary and proposed DRD regulations reflect GILTI-centric view of international tax rules enacted under TCJA

— US government issues final and proposed GILTI and subpart F regulations, include favorable and unfavorable provisions for taxpayers

— IRS issues proposed regulations under IRC Sections 954 and 958; important consequences for subpart F and GILTI regimes, among other provisions

— IRS releases proposed regulations on FIRPTA tax exception for qualified foreign pension funds’ gain/loss attributable to certain interests in US real property

Transfer pricing news

— Ninth Circuit panel reverses Tax Court opinion in Altera, holding stock-based compensation to be a compensable cost under IRC Section 482

— IRS LB&I withdraws CSA directive

Treaty news

— US Senate Foreign Relations Committee reports out tax protocols to treaties with Japan, Luxembourg, Spain and Switzerland

OECD news

— OECD workplan envisions global agreement on new rules for taxing multinational enterprises

— G20 Finance Ministers and Central Bank Governors welcome progress on addressing tax challenges from digitalization, reiterate commitment to final solution by 2020

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2019-26Internal Revenue Bulletin of June 24, 2019

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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: 2019-1188

 

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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