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September 20, 2020

U.S. International Tax This Week for September 18

Ernst & Young's U.S. International Tax This Week newsletter for the week ending September 18 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.


The short congressional session in the lead-up to the 3 November election remains focused on bipartisan negotiations over the next coronavirus aid package and extending government funding and other expiring programs beyond the close of the 2020 fiscal year on 30 September. The two may be walled off from one another, as the Trump administration and House Democratic leadership have reportedly agreed to not attach coronavirus relief items to a continuing resolution (CR), which is the main must-pass bill confronting Congress. The planned CR is generally expected to extend until sometime in mid-December.

The terms of the coronavirus negotiations generally remain static. The Trump administration supports a $1.5 trillion package, Democrats want at least $2.2 trillion, and they disagree on the amount of funding in areas like unemployment benefits and additional funding for state and local governments. Neither side thus far seems willing to diverge far from their target amount.

Senate Republican leaders have stayed out of the direct coronavirus talks but have their own narrowly targeted, roughly $500 billion package supported by nearly all Republican members, even those with cost concerns over additional relief. House Speaker Nancy Pelosi has expressed little interest in such a pared-down plan, and Senate Democratic Leader Chuck Schumer has called the effort inadequate.

Democratic presidential nominee Joe Biden's campaign released a document on 17 September contrasting his tax proposals with the Tax Cuts and Jobs Act and President Trump's calling for a 15% capital gains rate. The document states Biden's commitment to requiring "corporations and the wealthiest Americans to finally pay their fair share;" to not asking "a single person making under $400,000 per year to pay a penny more in taxes;" and to enacting more than a dozen middle class tax cuts.

Tax increases listed include, among others, the following previously released Biden proposals (quoting):

  • Raising the corporate tax rate to 28%.
  • Requiring a true minimum tax on ALL foreign earnings of US companies located overseas so that we do our part to put an end to the global race to the bottom that rewards global tax havens. This will be 21% — TWICE the rate of the Trump offshoring tax rate and will apply to all income.
  • Imposing a tax penalty on corporations that ship jobs overseas in order to sell products back to America.
  • Imposing a 15% minimum tax on book income so that no corporation gets away with paying no taxes.

Turning to regulations, on 17 September, the Treasury Department and the Internal Revenue Service (IRS) released Notice 2020-73 (the Notice), announcing an intention to amend certain final regulations under IRC Section 987 and defer the applicability date of those, as well as other related regulations, by one year to taxable years beginning after 7 December 2021. Therefore, those regulations would apply to the tax year beginning on 1 January 2022 for calendar-year taxpayers. The Treasury Department and the IRS do not intend to amend the applicability date of Reg. Section 1.987-12 (rules related to the deferral of gains and losses in certain terminations of IRC Section 987 qualified business units). As a result, those rules generally remain applicable to events that occur on or after 6 January 2017.

A taxpayer generally may choose to apply those regulations to tax years beginning after 7 December 2016 and before the amended applicability date, provided the taxpayer consistently applies those regulations to such tax years. Taxpayers are permitted to rely on the Notice prior to the amendment of the regulations under IRC Section 987 as described in the Notice.

The G20/Organisation for Economic Co-operation and Development (OECD) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) will meet on 8-9 October, but agreement on Pillar 1 is unlikely, according to Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration. Saint-Amans said this week that considerable progress has been made on the Pillar 1 blueprint, but indicated that no agreement can be reached until after the November election. The OECD head was quoted as saying that if the process to reach agreement on Pillar 1 takes too much time, countries will act unilaterally.

Many countries have already initiated action to tax digital transactions and others are considering the move.

Saint-Amans also said he expects the Inclusive Framework on BEPS will settle on a Pillar 2 minimum tax rate of 12.5%, matching Ireland's corporate tax rate. He further reiterated earlier comments suggesting a future Pillar 3 should address the special considerations affecting lesser developed countries.

In her State of the Union address to the European Parliament on 16 September, European Commission (EC) President Ursula von der Leyen said the European Union will make every effort to effect a BEPS 2.0 agreement. But if no digital agreement is reached, the EC President said, "Europe will come forward with a proposal early next year."

Upcoming Webcasts

BorderCrossings... With EY transfer pricing and tax professionals (September 24)
During this Thought Center Webcast, Ernst & Young professionals will discuss the FDII deduction and associated issues to consider, with a focus on operating model and transfer pricing interactions.

Recent Tax Alerts

United States

— Sep 16: US replaces 10% punitive tariff on Canadian-origin aluminum with quota limits; Canada suspends contemplated countermeasures (Tax Alert 2020-2251)


— Sep 16: Ghana revises Communication Service Tax rate (Tax Alert 2020-2252)

— Sep 11: Mauritian Finance Minister issues new regulations on social contributions (Tax Alert 2020-2221)


— Sep 16: Malaysia updates service tax guide on digital services (Tax Alert 2020-2253)

— Sep 16: Singapore's Foreign Manpower Policy updates provided (Tax Alert 2020-2247)

— Sep 14: No mandatory quarantine requirement for experts visiting Vietnam for less than 14 days (Tax Alert 2020-2231)


— Sep 17: Poland publishes draft bill amending corporate income tax rules (Tax Alert 2020-2262)

— Sep 17: UK issues response on consultation on duty-free and tax-free goods carried by passengers (Tax Alert 2020-2260)

— Sep 17: Turkey increases special consumption tax rates on passenger cars (Tax Alert 2020-2259)

— Sep 17: Poland implements new VAT reporting requirements (Tax Alert 2020-2258)

— Sep 16: European Court of Justice rules value of free of charge supplied software should be added to customs value (Tax Alert 2020-2250)

— Sep 15: Turkey issues guidance on transfer pricing documentation requirements (Tax Alert 2020-2243)

— Sep 15: Sweden prepares to tax foreign employees with a Swedish economic employer (Tax Alert 2020-2241)

— Sep 15: The Netherlands publishes 2021 budget proposals (Tax Alert 2020-2240)

— Sep 14: UK secures first free trade agreement with Japan post Brexit (Tax Alert 2020-2228)


— Sep 15: The latest on BEPS and Beyond for September 2020 (Tax Alert 2020-2239)

IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2020-39Internal Revenue Bulletin of September 21, 2020

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.