July 26, 2020
U.S. International Tax This Week for July 24
Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 24 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.
Treasury and the Internal Revenue Service (IRS) on 20 July issued eagerly-anticipated Global Intangible Low-taxed Income (GILTI) final regulations (TD 9902) and proposed regulations (REG-127732-19) that address the application of the high-tax exclusions from GILTI under IRC Section 951A(c)(2)(A)(i)(II) (the GILTI high-tax exclusion) and from subpart F income under IRC Section 954(b)(4) (the proposed subpart F high-tax exception), respectively.
The final GILTI high-tax exclusion generally is even less flexible, and more complex, than as proposed. Treasury retained the high threshold rate of foreign tax (under current law, 18.9%) and the election is "all or nothing" as it applies to all items of income of all controlled foreign corporations (CFCs) in which a taxpayer holds (or is deemed to hold) a majority equity interest. Further, the final regulations require an even more precise association of foreign taxes and items of income. In particular, the final regulations apply the exclusion separately to each of a CFC's "tested units" — with the effect that it is even less likely that many taxpayers will benefit from the final regulations. Among the few taxpayer-favorable modifications, however, a taxpayer may elect to apply the exclusion (or not) (i) annually and (ii) retroactively, to CFC tax years beginning after 31 December 2017.
With regard to the proposed regulations, under the current subpart F income high-tax exception, the effective foreign tax rate is calculated separately for individual items of subpart F income determined at the CFC level (e.g., foreign base company sales income and foreign base company services income). Further, the current exception gives taxpayers considerable flexibility: The election is available annually as to each "item" of income and is decoupled from the GILTI high-tax exclusion.
The proposed regulations would generally conform the subpart F income high-tax exception to the GILTI high-tax exclusion, also reducing its application. The proposed subpart F income exception, in other words, would apply separately to each tested unit of a CFC, rather than to individual items of subpart F income determined at the CFC level. The proposed regulations would combine, into a single "unitary" election, the subpart F income exception and the GILTI high-tax exclusion. That is, a taxpayer would be required to apply both of those regimes, or neither.
The proposed regulations would apply to CFC tax years beginning after the date on which final regulations are published.
For more background on the regulatory package, see EY Tax Alert 2020-1871.
An IRS official this week was quoted as saying that the US expects to release proposed regulations on previously taxed earnings and profits (PTEP) before the end of the year. The official said she expected the timeline − which has been pushed back several times − to hold despite "this year's very unique circumstances."
The G20 Finance Ministers met virtually 18-19 July, with the Base Erosion and Profit Shifting (BEPS) 2.0 project among the topics discussed. Two important documents were released: the annual OECD/G20 Inclusive Framework on BEPS Progress report to the G20 Finance Ministers on the work of the Inclusive Framework and the G20 Finance Ministers meeting communiqué. The Organisation for Economic Co-operation and Development (OECD) report, which reviews recent activity on the BEPS 2.0 project, indicates the OECD's intention to deliver detailed blueprints for both Pillars 1 and 2 in October 2020. This will provide an opportunity for stakeholder comment and serve as a basis for future agreement on final solutions in both areas. The G20 communiqué notes the plan for a report on the blueprints on each Pillar to be submitted to the next Finance Ministers meeting that is scheduled for mid-October 2020.
Speaking during an OECD webcast on 22 July, Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration said significant progress has been made on the BEPS 2.0 project, but he tamped down expectations that final agreement necessarily would be reached by the end of the year. Saint-Amans said, "I think we need to be realistic, and as much as I welcome the G-20 telling us they hope to have agreement by year-end … we have to recognize there are a number of pending issues." The OECD official also said that regardless of what is agreed to in October, there will still be need for the development of implementation rules as well as an opportunity for comment on the blueprints.
BorderCrossings ... With EY transfer pricing and tax professionals (July 30)
During this Thought Center Webcast, Stig Sollund, the Chair of the Transfer Pricing Subcommittee of the UN Committee of Experts on International Cooperation in Tax Matters, will help unpack the role the UN Manual plays and the significance of the recent revisions.
Beyond the pandemic: Building a future proof payroll operation (August 12)
During this Thought Center Webcast, Ernst & Young professionals discuss the challenges faced by payroll operations in today’s disruptive environment, the opportunities for transformation, and actions you can take to navigate the landscape and plan for beyond.
Recent Tax Alerts
— Jul 23: South Africa's Constitutional Court addresses tax-deductible allowance for future expenditure on contracts (Tax Alert 2020-1888)
— Jul 23: Tanzania issues new transfer pricing guidelines (Tax Alert 2020-1884)
— Jul 17: East African Community implements trade and duty changes (Tax Alert 2020-1823)
Canada & Latin America
— Jul 23: Costa Rican tax authorities delay VAT collection on cross-border digital services until October 1 (Tax Alert 2020-1876)
— Jul 23: Canada redesigns and extends the Canada Emergency Wage Subsidy (CEWS 2.0) (Tax Alert 2020-1874)
— Jul 21: Brazilian Government proposes new federal VAT as first phase of comprehensive tax reform (Tax Alert 2020-1860)
— Jul 17: The Dominican Republic's tax administration publishes General Norm 04-2020 to implement Law 46-20 on Transparency and Equity Revaluation (Tax Alert 2020-1832)
— Jul 23: Dutch Government issues Decree with tax authorities' guidance on reportable cross-border arrangements (Tax Alert 2020-1887)
— Jul 23: UK Tax Authority publishes Mandatory Disclosure Regime Guidance (Tax Alert 2020-1885)
— Jul 22: UK Government publishes draft clauses for Finance Bill 2020-21 alongside new tax consultations (Tax Alert 2020-1870)
— Jul 22: European Council adopts conclusions on recovery plan and EU budget for 2021-2027, including agreement on introduction of new taxes (Tax Alert 2020-1869)
— Jul 22: Russia proposes amendments to Tax Code regarding international taxation (Tax Alert 2020-1867)
— Jul 22: Russia proposes draft bill limiting VAT exemption for foreign entities licensing software and databases (Tax Alert 2020-1866)
— Jul 22: France extends Mandatory Disclosure Rules reporting deadlines for six months (Tax Alert 2020-1862)
— Jul 22: Italy publishes decree regarding consumption tax on lubricating oils and preparations (Tax Alert 2020-1861)
— Jul 20: Hungary extends MDR reporting deadlines for six months (Tax Alert 2020-1847)
— Jul 20: Cyprus introduces changes regarding taxation of intangible assets (Tax Alert 2020-1846)
— Jul 20: European Commission publishes action plan for fair and simple taxation: A detailed review (Tax Alert 2020-1845)
— Jul 20: European Commission publishes communication on intensifying the work on tax transparency and harmful tax competition by means of advocating Tax Good Governance in the EU and beyond (Tax Alert 2020-1844)
— Jul 20: European Commission proposes revision of Directive on administrative cooperation (Tax Alert 2020-1843)
— Jul 17: Italy's Supreme Court recognizes beneficial ownership of a Luxembourg sub-holding in light of CJEU Danish Cases (Tax Alert 2020-1833)
— Jul 21: Updates provided regarding entry of experts into Israel (Tax Alert 2020-1856)
— Jul 23: Australia Jobkeeper 2.0 – wage subsidy extended with modified entitlements and eligibility tests (Tax Alert 2020-1886)
— Jul 22: G20 Finance Ministers and Central Bank Governors' meeting communiqué reiterates commitment to addressing the tax challenges of digitalization of the economy (Tax Alert 2020-1868)
— Jul 21: The latest on BEPS and Beyond for July 2020 (Tax Alert 2020-1857)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2020-30||Internal Revenue Bulletin of July 20, 2020|
| ||2020-31||Internal Revenue Bulletin of July 27, 2020|
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.