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June 21, 2020

Americas Tax Policy: This Week in Tax Policy News for June 19

This Week (June 22 - 26)

Congress: The Senate is adjourned until 3 p.m. on Monday, June 22, and will vote on a judicial nomination at 5:30 p.m. A procedural vote on S. 3985, the GOP police reform bill, is expected later in the week. The House will vote on the Democratic police reform bill later in the week.

Last Week (June 15 - 19)

BEPS 2.0: In a letter to European counterparts dated June 12, Treasury Secretary Steven Mnuchin called for a pause in OECD negotiations to develop a new regime for taxing local profits of global companies under Pillar 1 of the BEPS 2.0 project, saying talks had reached an "impasse" because the US position that Pillar 1 of the project be implemented on a safe harbor basis has been rejected. The Secretary also said the phased approach for implementing Pillar 1 that has been the subject of recent discussions is a misguided rush and the pandemic means this is a bad time to sort out such complex issues. "Attempting to rush such difficult negotiations is a distraction from far more important matters," he said. "This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from COVID-19." Secretary Mnuchin said nations were "much closer to an agreement" on the Pillar 2 minimum tax element of the plan than Pillar 1, and because it does not present the same challenges "the United States fully supports bringing those negotiations to a successful conclusion this year."

Trade angle: The issue has a trade angle because the US has wielded the threat of tariffs against nations that unilaterally pursue digital services taxes (DSTs). The news of Mnuchin's letter broke June 17 during a Ways & Means trade hearing and, with the letter not yet circulated and only a Financial Times story to go on, members asked USTR Bob Lighthizer for details. He said OECD negotiations "were not making headway on Pillar 1, which is the most important pillar in there. The other people getting together and deciding they're going to take action against the United States without our acquiescence is something that's not acceptable." While there's still "room for a negotiated settlement," Lighthizer said "the Secretary made the decision that rather than having them go off on their own, he would just say we're no longer involved in the negotiations." He gave a similar statement at the Finance Committee, saying the US must "show our strength;" Secretary Mnuchin said essentially 'If you all think you are going to get a consensus around taxing our companies unfairly, we are not going to be a part of it;' and it is not the end of the process of working out a solution.

Reaction from Europe: Pascal Saint-Amans, the head of the tax policy center at the OECD who noted last month that technology companies were doing well in the crisis economy, told a French newspaper the US backing away from the talks is "a very bad message. All the more so because digital companies have benefited, as a whole, from this health crisis." Politico circulated his comments, including him saying, "What is at stake is nothing less than achieving more tax justice." He also said it is hard to imagine concluding a multilateral agreement before the US presidential election. "After the November election, anything is possible. Whether Donald Trump or Joe Biden is elected," Saint-Amans said. He added Washington was keen to sign a deal on Pillar 2, which introduces a minimum level of taxation, by the original October deadline. According to Saint-Amans, the US does not want a decision on the first pillar, which determines how to tax digital activities, before 2021. Reuters reported European officials pushing back on the action and vowing to proceed with DSTs if an OECD agreement proves elusive, with French Finance Minister Bruno Le Maire saying he and officials from the UK, Italy, and Spain jointly responded to the letter, which he labeled "a provocation towards all the partners at the OECD when we were centimetres away from a deal on the taxation of digital giants."

Reaction from Congress: Members of both parties in Congress have consistently supported Treasury on the BEPS 2.0 effort. A statement from Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) said in part: "We strongly encourage OECD member countries to abandon plans for digital services taxes on U.S. businesses and to continue working toward an agreement on a more realistic timeline given the COVID-19 crisis. We support Treasury continuing to negotiate on these important issues and urge the Inclusive Framework to find areas of consensus that do not unfairly target and discriminate against U.S. companies." House Ways & Means Committee Ranking Member Kevin Brady (R-TX) said: "I agree with Secretary Mnuchin that this is not the time to be imposing a punitive new tax on mainly U.S. companies-which also erodes America's tax base, making it more difficult to meet the long-term needs of our country as we recover from COVID-19 … It would be a mistake for foreign governments to impose taxes unilaterally that target American companies."

Coronavirus (COVID-19): Republicans have made clear by now they don't want to start negotiations on a next coronavirus relief package until the week of July 20 after the Senate returns from the Independence Day recess — the House has committee work days during the two weeks the Senate is gone — despite entreaties from Democrats, whose priorities were outlined in the HEROES Act approved by the House in mid-May. House Speaker Nancy Pelosi (D-CA) June 18 urged her members to insist on enactment of a next bill immediately, saying while Republican senators want a pause in relief, "the virus doesn't pause, unemployment doesn't pause, hunger doesn't pause — and neither should we." As the virus has proved persistent in parts of the nation, she said, "We pray for a vaccine and a cure but are months away from such relief from COVID-19. We do have testing, tracing, treatment and isolation to curb the spread of the virus and have a moral responsibility to engage in such practices." A story in the June 19 Washington Post said White House trade adviser Peter Navarro may not have been speaking on behalf of the entire Administration when he said President Trump wants a $2 trillion package. The story said, "At this point, there is not a concrete White House proposal, in part because different economic advisers keep floating different — and at times contrasting — ideas," and a final decision has not been made whether to support an infrastructure package, state and local government funding, more stimulus checks, and delaying the tax filing deadline beyond July 15. The President and Administration officials have consistently talked about wanting a payroll tax cut and tax benefits for restaurants, entertainment, sports, and tourism.

SRM hearing. Democrats used the June 18 House Ways and Means Select Revenue Measures Subcommittee hearing on COVID-19 tax relief to argue for the HEROES Act, particularly enhancements to the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC). Some witnesses said uncertainty over whether schools will open in the fall, and related issues of teacher jobs and childcare, make clear the need for more relief. Republicans argued that previous relief directed at employers also benefits workers and discussed a bill (Reps. LaHood and Murphy) to provide a tax credit for office cleaning and a forthcoming proposal (Rep. Rice) to provide businesses a tax incentive for testing, PPE, and reconfiguring workplaces. Witness Kyle Pomerleau of the American Enterprise Institute (AEI) said Congress could look at TCJA provisions for relief, like changing the phase-down of bonus depreciation after 2022 and amortization of R&D expense requirement beginning in 2022. Rep. Drew Ferguson (R-GA) said American intellectual property (IP) must be protected and asked whether it would be beneficial to consider proposals making repatriation of IP possible and more advantageous. Pomerleau noted the Tax Cuts & Jobs Act (TCJA) provisions on amortization of R&D expense beginning in 2022, foreign-derived intangible income (FDII), and global intangible low-taxed income (GILTI). Lawmakers could address improving effectiveness of those provisions, he said.

Thune "mobile workforce" bill. One proposal eyed for inclusion in a next round is second-ranking Senate Republican John Thune (R-SD) and Senator Sherrod Brown's (D-OH) updated mobile workforce bill, now called the Remote and Mobile Worker Relief Act (S. 3995), which was introduced June 18 with additional special waivers relating to the pandemic. Like the previous version, the new bill exempts employers from withholding state income tax and workers from filing returns in another state if they work there for 30 or fewer days a year, but newly provides that rules for determining worker presence won't apply for 2020 to take into consideration the effect that the pandemic has had on workers who are working from home in states different from their normal office locations, in addition to a 90-day threshold for healthcare workers.

Estes on R&D. Rep. Ron Estes (R-KS) published an op-ed in The Hill newspaper on the R&D issue, saying: "Unfortunately, the negotiations process in Congress resulted in some key provisions in the TCJA being phased out. In the case of R&D, full expensing was allowed through the end of 2021. However, starting in 2022, businesses will be required to spread out or amortize R&D expenses over a period of five years for domestic R&D or 15 years for foreign R&D. This spreading out of expenses will significantly diminish the near-term value and likelihood of research investments, making us the only developed country requiring R&D expenditure amortization."

Charitable deduction. The Wall Street Journal reported increasing support for Senators Jeanne Shaheen (D-NH) and James Lankford's (R-OK) proposal to increase the CARES Act $300 charitable deduction, regardless of whether taxpayers itemize their deductions, to 1/3 of the standard deduction: to up to $4,000 for an individuals and $8,000 for married couples for the remainder of 2020.

Cruz bill. Senator Ted Cruz (R-TX) June 16 introduced the Work Safe Act to provide tax credits to businesses that test employees for COVID-19 every week in states where the infection rates are above the national average.

Infrastructure: House Democrats June 18 unveiled their $1.5 trillion infrastructure proposal (The Moving Forward Act, H.R. 2) that is slated to come to the floor before the July 4 recess and includes a Ways and Means portion that addresses financing issues like permanently reinstating Build America Bonds, reinstating advanced refunding, and increasing and expanding the issuance of Private Activity Bonds. The foundation of the package is the nearly $500 billion/5 years surface transportation portion approved by the House Transportation & Infrastructure Committee June 18. The description of the broader proposal largely tracks the Moving Forward framework released in January. In addition to financing provisions, the bill would make permanent and expand the New Markets Tax Credit and temporarily increase the Historic Tax Credit program for all projects, permanently expand the credit for small projects, and eliminate rules that prevent access for non-profits, including public schools. Ways & Means Committee Chairman Richard Neal (D-MA) highlighted other provisions including "programs to combat climate change by deploying green energy technologies to help reduce greenhouse gas emissions" and "create new green, good-paying union jobs." He also said the Committee proposed a massive expansion of the Low-Income Housing Tax Credit. The plan doesn't include revenue-raising provisions, which Chairman Neal said must be the subject of bipartisan negotiations. He previously called for White House buy-in before proposing any pay-fors. The current highway authorization expires September 30 and Senate Republicans have a much smaller bill and have resisted efforts for a large infrastructure package. Prior to reports the White House was undecided on the issue, Bloomberg reported the Trump administration "is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world's largest economy back to life," addressing traditional infrastructure work, like roads and bridges, but also 5G wireless infrastructure and rural broadband.

Election notes: The proximity of the presidential election, presumptive Democratic nominee Joe Biden's increasing poll numbers in battleground states, and new fundraising totals has put renewed attention on Biden's tax proposals, most of which were rolled out in scattershot fashion late in 2019. (Biden was leading 50-38 in a Fox News poll reported on June 18 and the campaign reported an $81 million take in May after lagging far behind President Trump in campaign contributions.) AEI June 15 said Biden's proposals would raise federal revenue by $3.8 trillion over the next decade (2021-30). The June 17 Washington Post reported that "some Democrats want to see more detailed economic proposals from Biden," who with advisers is assembling new ideas they plan to unveil soon. "In the coming weeks, we will lay out some new proposals around both accelerating the return of jobs and the creation of millions of new jobs, through a combination of pulling forward the investments he's already committed to very early on in his first term and scaling them up," Jake Sullivan, a top policy adviser, said. The plans will involve new investments in manufacturing and innovation, bringing back supply chains, investing in infrastructure, and education, he said. Senator Amy Klobuchar (D-MN) withdrew from consideration to be Biden's running mate, saying on MSNBC she told him "I think this is a moment to put a woman of color on that ticket, and there are so many incredibly qualified women." Biden is aiming for August 1 to reach a decision.

Fringe Transportation, Commuting Expenses: On June 19, IRS issued proposed regulations addressing the elimination of the deduction under section 274 for expenses related to certain transportation and commuting benefits provided by employers in taxable years beginning after December 31, 2017.

OIRA regulations: Two highly anticipated regulatory projects have been listed as under review by the Office of Management and Budget Office of Information and Regulatory Affairs (OIRA):

  • Final Rules Regarding Business Interest Limitation Under IRC Section 163(j) [TCJA] and Proposed Rules on the Limitation on Deduction for Business Interest Expense [TCJA] (received June 15); and
  • Final Rules Regarding the Global Intangible Low-Taxed Income High Tax Exclusion [TCJA] and a related Proposed Rule Under IRC Section 954(b)(4) (Rules for High-Taxed Subpart F Income) and IRC Section 964 (Rules for Determining the Earnings and Profits of a Foreign Corporation) [TCJA] (received June 16).

Still listed as under review are a final rule on Domestic Production Activities Deduction for Specified Agricultural or Horticultural Cooperatives [TCJA] and carried interest regulations.

OIRA reported its review of final regulations under IRC Section 250 related to FDII and GILTI completed on June 12 and designated "consistent with change," which Tax Notes noted is for "regulations that are generally approved but subject to some substantive changes during the review process." Review of a proposed rule on Consolidated Net Operating Losses [TCJA] was completed June 18.

Regulations watch: Below is a timeline for guidance projects released by the IRS related to the TCJA.


Federal Register Publication

Comment period end

Section 965 transition tax (TD 9846)

Final rules, February 5, 2019


Section 199A pass-through deduction (TD 9847)

Final rules, February 8, 2019


Section 956 inclusions for corporate US shareholders (TD 9859)

Final rules, May 23, 2019


Contributions in exchange for state or local tax credits (TD 9864)

Final rules, June 13, 2019


Guidance Related to Section 951A (Global Intangible Low-Taxed Income) and Related to Foreign Tax Credits (TD 9866)

Final rules, June 21, 2019


Bonus depreciation (TD 9874)

Final rules, September 24, 2019


Removal of Section 385 Documentation Regulations (TD 9880)

Final rules, November 4, 2019


Ownership Attribution for Purposes of Determining Whether a Person Is Related to a Controlled Foreign Corporation under section 954(d)(3) (TD 9883)

Final rules, November 19, 2019


Section 59A Base Erosion and Anti-Abuse Tax (TD 9885)

Final rules, December 6, 2019


Foreign Tax Credit (TD 9882)

Final rules, December 17, 2019


Investing in Qualified Opportunity Funds (TD 9889)

Final rules, January 13, 2020


Rules Regarding Certain Hybrid Arrangements (TD 9896)

Final rules, April 8, 2020


Treatment of Certain Interests in Corporations as Stock or Indebtedness (TD 9897)

Final rules, May 14, 2020


Guidance Under Section 6033 on Reporting Requirements of Exempt Organizations

Final rules, May 28, 2020


Section 163(j) Limitation on Deduction for Business Interest Expense (REG-106089-18)

Proposed rules, December 28, 2018

February 26, 2019

Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income (REG-104464-18)

Proposed rules, March 6, 2019

May 6, 2019

Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception (REG-106282-18)

Proposed and temporary regulations, June 18, 2019

September 16, 2019

GILTI regulations regarding gross income that is subject to a high rate of foreign tax (REG-101828-19)

Proposed rules, June 21, 2019

September 19, 2019

Determination of the Section 4968 Excise Tax Applicable to Certain Private Colleges and Universities (REG-106877-18)

Proposed rules, July 3, 2019

October 1, 2019

Guidance on Passive Foreign Investment Companies (REG-105474-18)

Proposed rules, July 11, 2019

September 9, 2019

Revenue recognition under IRC Section 451 (REG-104870-18, REG-104554-18)

Two sets of proposed rules, September 9, 2019

November 8, 2019

Bonus depreciation (REG-106808-19)

Proposed rules, September 24, 2019

November 25, 2019

Ownership attribution under Section 958 Including for purposes of determining status as CFC or US shareholder (REG-104223-18)

Proposed rules, October 2, 2019

December 2, 2019

Additional Rules Regarding Base Erosion and Anti-Abuse Tax (REG-112607-19)

Proposed rules, December 6, 2019

February 4, 2020

Allocation and Apportionment of Deductions and Foreign Taxes, etc. (REG-105495-19)

Proposed rules, December 17, 2019

February 18, 2020

Certain employee remuneration in excess of $1 million under Section 162(m) (REG-122180-18)

Proposed rules, December 20, 2019

February 18, 2020

Guidance Involving Hybrid Arrangements and the Allocation of Deductions Attributable to Certain Disqualified Payments Under Section 951A (Global Intangible Low-Taxed Income) (REG-106013-19)

Proposed rules, April 8, 2020

June 8, 2020

Unrelated Business Taxable Income Separately Computed for Each Trade or Business (REG-106864-18)

Proposed rules, April 24, 2020

June 23, 2020

Denial of Deduction for Certain Fines, Penalties, and Other Amounts (REG-104591-18)

Proposed rules, May 13, 2020

July 13, 2020

Credit for carbon oxide sequestration under section 45Q (REG-112339-19)

Proposed rules, June 2

August 3, 2020

Tax on Excess Tax-Exempt Organization Executive Compensation

Proposed rules, June 11

August 10, 2020

Statutory Limitations on Like-Kind Exchanges

Proposed rules, June 12

August 11, 2020

Qualified Transportation Fringe, Transportation and Commuting Expenses under Section 274

Proposed rules, set to be published June 23

60 days after June 23


"What Europe — and by the way, it's spreading beyond Europe — what they're doing is fundamentally unfair to American companies. They're picking on them because they're the best and because they're not their companies. But what I was going to say — when I used to sit in this room as a staff person, but it was a smaller room, Senator Long used to say famously, 'Don't tax you, don't tax me, tax the man behind the tree.' This is what everyone's doing. And unfortunately, we're the man behind the tree." - USTR Bob Lighthizer, June 17


Contact Information
For additional information concerning this Alert, please contact:
Ernst & Young's Center for Tax Policy
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