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July 26, 2020

Americas Tax Policy: This Week in Tax Policy News for July 24

This week (July 27-31)

Congress: The Senate and House are in session, with the focus on the next coronavirus bill. On Tuesday, the House will not be in session as members pay respect to Congressman John Lewis while he lies in state.

The Senate Finance Committee holds two hearings on the medical supply chain and a hearing on WTO reform.

Last week (July 20-24)

Coronavirus (COVID-19): Senate Majority Leader Mitch McConnell's (R-KY) proposal for a next coronavirus bill won't be released until at least Monday, after a July 23 rollout was scuttled as discussions with the White House and other Republicans continued. "The Administration has requested additional time to review the fine details," Senator McConnell said, "but we will be laying down this proposal early next week. We have an agreement in principle on the shape of this package." The form of the rollout is unclear, but the GOP plan could begin as a series of bills rather than a single package. The delay followed negotiations mostly among Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows and Senate Republicans. Some of the difficulty was attributed to the vast number of ideas for how to respond to the coronavirus situation and concerns among senators that they will be left out of leadership-driven negotiations. A payroll tax cut is no longer part of the discussion, with Secretary Mnuchin saying it would not deliver money fast enough. Tax and other provisions currently expected to be in the Republican package include:

  • additional stimulus checks that Secretary Mnuchin said would be proposed at the same CARES Act amount — $1,200 per individual, $2,400 for couples, $500 for each qualifying dependent;
  • a proposal by second-ranking Senate Republican John Thune (R-SD) and Senator Sherrod Brown (D-OH) to hold companies and their employees harmless from state taxes if employees are working away from their usual place of employment during 2020;
  • the proposal by Senator Rob Portman (R-OH) and Rep. Tom Rice (R-SC) to provide a refundable tax credit against payroll taxes for 50% of the costs incurred by the business for COVID-19 testing, personal protection equipment (PPE), disinfecting, extra cleaning, and reconfiguring workspaces (which has per-employee dollar limits);
  • a "turbocharged tax incentive" for hiring, according to Mnuchin, though the details are unclear; and
  • some extension of the unemployment benefits add-on, with the New York Times reporting that the Administration proposes for workers to receive "70% of their previous salary in combined state and federal benefits — which works out to an average of about $200 per week in federal benefits for a typical worker."

Timing: Secretary Mnuchin and Chief of Staff Meadows earlier in the week said the goal was to get a $1 trillion coronavirus relief package through Congress by July 31, which was widely observed to be optimistic and faced skepticism even from Senator McConnell. Secretary Mnuchin subsequently suggested a stopgap measure to only extend expanded unemployment benefits past July 31 as other aspects of relief are negotiated, though the idea was dismissed on Capitol Hill given the enormity of the crisis. "This terrible virus is still with us. It kills more Americans every day," Senator McConnell said. House Speaker Nancy Pelosi (D-CA) said, "We cannot piecemeal this," and both she and Senate Democratic leader Chuck Schumer (D-NY) repeated that Republicans need to have something down on paper before negotiations can begin in earnest. Mnuchin and Meadows met with Pelosi and Schumer this week but were said to have provided only a broad outline of what Republicans are proposing. Asked whether the bill can be completed by the end of next week as the Administration aims, the Speaker said, "Well, depending on what they come up with." She previously threatened to delay or cancel the August congressional recess (scheduled to begin August 3 in the House and August 10 in the Senate) if a deal is elusive.

Deficit concerns: Some Republicans are still wary of providing additional virus-related funding due to deficit concerns. Sen. Ron Johnson (R-WI) said this week, "I am not going to authorize a dime until I understand what we've done … I don't think at this point in time, in the next three weeks, (we can) quickly rush through another trillion dollars of spending. I just don't see the need for it." He subsequently published a Wall Street Journal op-ed on the issue, and a WSJ editorial criticized the emerging proposal, particularly stimulus payments and expanded unemployment benefits.

Ways & Means bills: Although unclear as to whether they would make it into the next COVID response bill, House Ways & Means Committee Republican members July 23 unveiled bills to:

  • repeal the requirement to amortize R&D costs beginning in 2022 (Rep. Ron Estes, R-KS);
  • make permanent TCJA's full expensing provisions and provide businesses an opportunity to deduct certain expenses in the tax year in which they occur (H.R. 7734, Rep. Jodey Arrington, R-TX);
  • double the R&D credit (H.R. 7766, Rep. Jackie Walorski, R-IN);
  • lower the tax rate on the income from the domestic manufacturing and sales of active pharmaceutical ingredients (API) and medical countermeasures (H.R. 7767, Rep. Brad Wenstrup, R-OH); and
  • allow US companies to bring back their IP developed offshore without any immediate U.S. tax cost (H.R. 7749, Rep. Darin LaHood, R-IL).

GILTI HTE: Final regulations (TD 9902) and proposed regulations (REG-127732-19) released July 20 address the application of the high-tax exclusions from global intangible low-taxed income (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 elective GILTI high-tax exclusion allows taxpayers to exclude from their GILTI inclusion items of a controlled foreign corporation's (CFC) gross tested income subject to a high effective rate of foreign tax. The final regulations adopt the threshold rate of foreign tax of 18.9% (i.e., 90% of the highest domestic corporate tax rate under current law) to determine whether an item is subject to "high tax." This exclusion applies at the level of each "tested unit" of a CFC. The proposed subpart F income high-tax exception would conform that exception to the final GILTI high-tax exclusion. If finalized as proposed, a single election would be available to apply both the GILTI high-tax exclusion and the subpart F income high-tax exception. EY Tax Alert 2020-1871 provides additional details.

Global tax: The G20 Finance Ministers met virtually July 18-19, with the Base Erosion and Profit Shifting (BEPS) 2.0 project among the topics discussed. The OECD/Inclusive Framework report to the G20 indicated the 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 July 22, 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-led negotiations among 137 countries continue to seek to develop a global solution that would avoid unilateral implementation of digital services taxes (DSTs).

UK DST: Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) released a statement regarding the UK DST taking effect: "Unilaterally imposing a discriminatory tax that unfairly targets U.S. businesses damages efforts to achieve a multilateral solution and unnecessarily complicates the path forward for a U.S.-U.K. trade deal. In the course of its ongoing investigation under Section 301 of the 1974 Trade Act, the United States Trade Representative should explore all available options to respond appropriately. The U.K should reconsider this punitive action against its ally."

Interest deductibility: UC-Irvine tax professor and former Senate Finance Committee tax counsel Victor Fleischer is in a Financial Times Head to Head feature on the tax deductibility of business interest payments, saying in part that it encourages more borrowing than would occur without it.

Regulations watch: Still awaiting release areFinal Rules Regarding the Business Interest Limitation Under Section 163(j) [TCJA] and Proposed Rules on the Limitation on Deduction for Business Interest Expense [TCJA]. Still under review by OMB's OIRA are a Final Rule on Limitation on Deduction for Dividends Received From Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception [TCJA] and a Proposed Rule Coordinating Application of Certain Regulations Under Sections 245A and 951A [TCJA]. OIRA this week completed its review of carried interest proposed rules under Section 1061.

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


Section 951A (Global Intangible Low-Taxed Income - GILTI) 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 (TD 9898)

Final rules, May 28, 2020


Deduction for Foreign-Derived Intangible Income (FDII) and GILTI (TD 9901)

Final rules, July 15, 2020


Guidance Under Sections 951A and 954 Regarding Income Subject to a High Rate of Foreign Tax (TD 9902)

Final rules, July 23, 2020


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

Proposed rules, December 28, 2018

February 26, 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

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, 2020

August 3, 2020

Tax on Excess Tax-Exempt Organization Executive Compensation

Proposed rules, June 11, 2020

August 10, 2020

Statutory Limitations on Like-Kind Exchanges

Proposed rules, June 12, 2020

August 11, 2020

Qualified Transportation Fringe, Transportation and Commuting Expenses under Section 274

Proposed rules, June 23, 2020

August 24, 2020

Consolidated Net Operating Losses

Proposed rules, July 8, 2020

August 31, 2020

Guidance Under Section 954(b)(4) Regarding Income Subject to a High Rate of Foreign Tax (REG-127732-19)

Proposed rules, July 23, 2020

September 21, 2020


"John was easy to get along with and easy to deal with. He never got too carried away with himself and who he was. He was a very common, decent guy. Just the essence of decency. The essence of honesty. The essence of integrity. The essence of virtue." — Rep. Danny K. Davis (D-IL) on the late Rep. John Lewis (D-GA)


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