26 July 2020 Americas Tax Policy: This Week in Tax Policy News for July 24 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. 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:
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:
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.
"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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