March 14, 2021
U.S. International Tax This Week for March 12
Ernst & Young's U.S. International Tax This Week newsletter for the week ending March 12 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.
President Joe Biden on 11 March signed into law the $1.9 trillion American Rescue Plan Act of 2021 (H.R. 1319) COVID-19 stimulus/relief package. The Senate passed the bill on 6 March and the House approved the Senate-amended version of the legislation on 10 March.
The legislation includes provisions on taxes, health care, unemployment benefits, direct payments, state and local funding and other issues. About half of the $1.9 trillion bill comprises revenue provisions that fall under jurisdiction of the congressional tax-writing committees, and over half of that is attributable to direct payments of $1,400 and an advanceable child tax credit expansion that takes the form of periodic payments from the Internal Revenue Service (IRS). The final bill also includes repeal of the IRC Section 864(f) worldwide interest expense allocation election.
The IRS Office of Fraud Enforcement has begun a new initiative focused on financial crime and fraud that involves virtual currency. The initiative, Operation Hidden Treasure, "is basically an umbrella operation for all of our virtual currency omitted-income cases," according to the director of the Office. Another IRS official explained that Operation Hidden Treasure "is all about finding, tracing, and attributing crypto to U.S. taxpayer[s]." She added that taxpayers should be aware that virtual currency transactions are not anonymous.
The IRS Advance Pricing and Mutual Agreement Program (APMA) is seeing "questionable treatment of COVID-related costs," according to the APMA director. He told a recent Federal Bar Association virtual conference that APMA is seeing taxpayers classifying costs as nonoperating items to improve the controlled party's operating profitability for purposes of a comparable profits method or transactional net margin method analysis, which may result in a compensating adjustment. He also said taxpayers with an advance pricing agreement nearing the end of its term are raising COVID-related issues prematurely, which may complicate bilateral competent authority negotiations.
Another IRS official said the US is also seeing taxpayers invoking force majeure to terminate arrangements. "If there is reason to believe that unrelated parties in the same circumstances would not invoke force majeure, it raises questions," the official said.
Taxpayers should be cautious when taking non-conventional transfer pricing positions as a result of COVID-19. Although many of these issues have not yet been challenged, the recent comments by the APMA director make it clear that they are on the IRS's radar. EY Tax Alert 2021-0519 has details.
An Organisation for Economic Co-operation and Development (OECD) official this week was quoted as saying there is a possibility for two simplification measures to be adopted as part of a future BEPS 2.0 Pillar Two agreement, targeted for mid-2021. Pillar Two calls for the introduction of global minimum tax rules which include income inclusion rules and an undertaxed payments rule (referred to collectively as the Global Anti-Base Erosion (GloBE) rules) and a subject-to-tax rule.
According to the official, one proposed simplification would allow in-scope multinational enterprises to use their country-by-country report data to compute their jurisdictional effective tax rates for purposes of the global minimum rules. The second proposal would provide a de minimis profit exclusion, under which a jurisdiction would be excluded if the multinational has less than 2.5%, or €100,000 of an in-scope multinational enterprise's profits.
A third administrative guidance option has also been proposed — which is favored by many taxpayers — that would create a so-called "angel list" of jurisdictions identified as low-risk jurisdictions with appropriate tax bases and tax rates. An in-scope multinational enterprise operating in a listed jurisdiction would be assumed to have an effective tax rate higher than the minimum threshold. The OECD official noted that this third simplification proposal has received a mixed reaction in Working Party 11 (Aggressive Tax Planning), however, because of the political issues surrounding the proposal.
The Platform for Collaboration on Tax (PCT) — a joint initiative of the International Monetary Fund, OECD, United Nations and World Bank Group — this week issued the final version of their Toolkit on Tax Treaty Negotiations. The toolkit is aimed at helping developing countries in regard to their tax treaty negotiations. Five other PCT toolkits are available here.
Latin America ‘nearshoring’ webcast series: Costa Rica session (March 16)
During this Thought Center Webcast, Ernst & Young professionals will provide information and help answer questions about nearshoring in Costa Rica.
Foreign bank account reporting (FBAR) (March 17)
FBAR impacts virtually every US organization with an international footprint, along with numerous individuals for both personal and company accounts. Please join EY professionals on this Thought Center Webcast as we discuss successful approaches for practically applying the rules while avoiding common missteps.
Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (March 19)
During this Thought Center Webcast, Ernst & Young professionals will provide updates on: (i) US economy, elections and tax policy; (ii) Breaking developments; and (iii) What’s happening at the IRS.
EY Tax.Tech™ webcast series (March 24)
Digital transformation has been on the Tax agenda for a while. In the wake of the global pandemic, it’s now squarely at the top of the to-do list and a fundamental prerequisite for resilient business solutions. In this Thought Center Webcast, we will focus on the very important aspect of data management and intelligent automation.
Recent Tax Alerts
— Mar 08: US suspends punitive tariffs on UK- and EU-origin goods for four-month period (Tax Alert 2021-0515)
— Mar 05: US Court of International Trade Decision questions first sale principle applicability to Chinese- and Vietnamese-origin goods (Tax Alert 2021-0499)
— Mar 10: India's reduced threshold for e-invoicing applies from 1 April 2021 (Tax Alert 2021-0527)
— Mar 09: Indian Supreme Court rules on taxability of software payments (Tax Alert 2021-0523)
— Mar 08: Hong Kong announces 2021/22 Budget (Tax Alert 2021-0514)
Canada & Latin America
— Mar 10: Ecuador issues immigration guidelines related to COVID-19 (Tax Alert 2021-0534)
— Mar 08: Brazil would increase social contribution tax by five percentage points for insurance companies, banks and other financial services entities (Tax Alert 2021-0517)
— Mar 05: Brazilian Senate approves three new treaties for the avoidance of double taxation (Tax Alert 2021-0500)
— Mar 05: Yukon budget 2021-22 discussed (Tax Alert 2021-0496)
— Mar 11: OECD releases guidance on combatting professional enablers in tax and other financial crimes (Tax Alert 2021-0540)
— Mar 11: PE Watch | Latest developments and trends, March 2021 (Tax Alert 2021-0537)
— Mar 11: Spanish Council of Ministers approves implementation of ATAD 2 (Tax Alert 2021-0536)
— Mar 08: OECD releases Qatar Stage 1 peer review report on implementation of Action 14 minimum standard (Tax Alert 2021-0512)
— Mar 05: OECD issues report to G20 finance ministers and Central Bank governors and hosts webcast on the outcomes of the G20 meeting and other tax developments (Tax Alert 2021-0506)
— Mar 05: The Netherlands starts consultation on unilaterally addressing transfer pricing mismatches (Tax Alert 2021-0493)
— Mar 09: Qatar issues additional guidance on transfer pricing reporting requirements (Tax Alert 2021-0521)
— Mar 09: Trade Watch | Issue 1 2021 (Tax Alert 2021-0520)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-10||Internal Revenue Bulletin of March 8, 2021|
| ||2021-11||Internal Revenue Bulletin of March 15, 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.