January 10, 2021
U.S. International Tax This Week for January 8
Ernst & Young's U.S. Tax This Week newsletter for the week ending January 8 is now available. Prepared by Ernst & Young's National Tax Department in Washington, D.C., this weekly update summarizes important news, cases, and other developments in U.S. taxation.
The Georgia Senate runoff elections were won this week by Democrats Jon Ossoff and Raphael Warnock, giving Democrats control of the US Senate beginning later this month. With the Democratic and Republican parties split 50-50 in the Senate, Vice President-elect Kamala Harris will break ties, allowing major Democratic priorities like stimulus, climate change, and health care, potentially paid for with tax increases, to be brought up and passed in the House and Senate.
How President-elect Joe Biden will proceed with his stated intention to raise the statutory corporate income tax rate to pay for changes that can benefit middle-income Americans on "day one" of his presidency is unknown. Some Biden advisors and congressional Democrats have indicated the types of tax increases supported by Biden during the campaign would not be included as part of initial stimulus legislation, but instead would be used to offset the cost of changes in permanent policies. That could mean such tax increases might not take effect on 1 January 2021, but could be delayed, maybe until 2022.
During the campaign, Biden proposed improvements to US manufacturing through a 10% "Made in America" Tax Credit for investment in revitalizing factories and reshoring jobs, which has been paired with a 10% "offshoring" surtax on a US company's overseas production profits from sales back to the US — such income would be taxed at 30.8%. Biden also proposed combining a 28% corporate tax rate with a 21% tax rate on Global Intangible Low-Taxed Income (GILTI), proposed applying GILTI on a jurisdictional basis, rather than an aggregate basis as it currently applies, and repealing the GILTI relief for foreign profits relating to qualified tangible property.
A key question is whether Biden and congressional Democrats will simply push to modify GILTI, or whether additional changes to the Tax Cuts and Jobs Act's (TCJA) international tax reforms may be considered.
Beyond international tax, Biden has called for a "minimum corporate tax" of 15% applying to book income for companies with net income greater than US$100 million, which is seen as addressing concerns that some major corporations pay no taxes.
With respect to regulations, the Treasury Department on 6 January released additional final regulations (TD 9943) (the 2021 Final Regulations) with guidance on the business interest expense limitation under IRC Section 163(j) (the IRC Section 163(j) Limitation). The IRC Section 163(j) Limitation was modified in December 2017 by the TCJA, and in March 2020 by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The 2021 Final Regulations retain the same basic structure as the Proposed Regulations published in September 2020 (2020 Proposed Regulations) and include certain definitions and rules for applying the IRC Section 163(j) limitation to controlled foreign corporations and certain partnerships. The 2021 Final Regulations adopt (with some revisions), clarify and reserve on certain aspects of the 2020 Proposed Regulations.
The 2021 Final Regulations apply to tax years beginning on or after the date that is 60 days after the regulations are published in the Federal Register. The 2021 Final Regulations allow taxpayers to apply the rules retroactively, subject to certain requirements.
The US this week de-escalated tensions over France's enactment of a Digital Services Tax (DST), with the US Trade Representative (USTR) announcing on 7 January that it is suspending tariff action in the Section 301 investigation of the DST. The USTR in July 2020 announced the imposition of tariffs on selected French goods that were scheduled to go into effect on 6 January. According to a press release, the action was taken to enable a coordinated response for ongoing investigations of similar DSTs adopted or under consideration in 10 other jurisdictions.
The public consultation meeting on the Organisation for Economic Co-operation and Development (OECD) Pillar One and Two Blueprints will be held virtually on 14-15 January. The OECD this week announced that the Inclusive Framework on Base Erosion and Profit Shifting follow-up virtual meeting on 27-28 January will also be open to the public.
Tax in a Time of Global Disruption (January 12)
During this Thought Center Webcast, EY and the Tax Council Policy Institute cordially invite you to join a live, interactive webcast examining some of the challenges and opportunities that are ahead of us all as we navigate tax in 2021 and beyond.
Latin America ‘nearshoring’ webcast series: Mexico session (January 13)
During this Thought Center Webcast, Ernst & Young professionals will provide information and help answer questions about "nearshoring" (i.e., the transferring of a business operation to a nearby country from a more distant one) in Latin America. This latest session in the series will focus on Mexico.
Recent Tax Alerts
— Jan 05: USTR announces modifications to tariffs on EU goods under Section 301 including punitive tariffs on new items of French and German origin (Tax Alert 2021-0014)
— Jan 04: Egypt releases capital gains tax guidelines for nonresidents (Tax Alert 2021-0008)
— Dec 23: Egypt amends Unified Tax Procedures Law (Tax Alert 2020-2935)
Canada & Latin America
— Jan 07: Argentina's tax authorities launch the "Régimen IPF" service to ensure compliance with mandatory disclosure regime (Tax Alert 2021-0038)
— Jan 06: Peru approves and ratifies double tax treaty with Japan (Tax Alert 2021-0024)
— Jan 05: Argentina issues decree on the promotional regime for the knowledge-based economy (Tax Alert 2021-0018)
— Jan 07: Czech Republic approves changes in personal income tax rates and computation of employment income tax base (Tax Alert 2021-0036)
— Jan 06: Future social security coordination between the UK and EU discussed (Tax Alert 2021-0032)
— Jan 06: Spain approves State Budget Bill for 2021 (Tax Alert 2021-0026)
— Jan 05: UK Government announces approach to UK MDR post UK-EU Brexit Agreement (Tax Alert 2021-0016)
— Jan 05: Polish Ministry of Finance publishes decree deferring certain provisions of the new withholding tax reform to 30 June 2021 (Tax Alert 2021-0015)
— Jan 04: UK and EU reach trade agreement (Tax Alert 2021-0002)
— Dec 23: Luxembourg extends filing deadlines for tax returns (Tax Alert 2020-2934)
— Jan 04: Jordan tightens corporate income tax filing process as of 2021 (Tax Alert 2021-0007)
— Jan 06: Global labor and employment law strategic topics | December 2020 Edition (Tax Alert 2021-0020)
— Dec 23: OECD releases guidance on transfer pricing implications of COVID-19 pandemic (Tax Alert 2020-2936)
Highlights of this edition include:
- US Congress passes coronavirus stimulus and omnibus spending package that includes extension of CFC look-through
- IRS issues final and proposed PFIC regulations that provide mix of favorable and unfavorable provisions
- Final and proposed regulations on passive foreign investment companies have both favorable and unfavorable implications for insurance companies
- Treasury to focus on other international projects, tax treaties as TCJA guidance nears completion
- Treasury's FinCEN further extends certain signature authority reporting (FBAR, Form 114) over foreign financial accounts
Transfer Pricing News
- Transfer pricing enforcement remains priority even while TCJA provisions may negate adjustments
- IRS APMA seeing more queries on transfer pricing consequences of coronavirus pandemic
- OECD issues guidance on transfer pricing implications of COVID-19, hard- to-value intangibles
- OECD releases fourth peer review report on BEPS Action 5 on the Exchange of Information of Tax Rulings
- OECD's FTA hosts virtual meeting of tax administration leaders
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-01||Internal Revenue Bulletin of January 4, 2021|
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.