March 21, 2021
U.S. International Tax This Week for March 19
Ernst & Young's U.S. Tax This Week newsletter for the week ending March 19 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.
President Joe Biden in an interview this week offered some thoughts on future US tax policy, saying he supports raising the corporate tax rate from 21% to 28%, and suggesting it would raise $800 billion over 10 years. The President said he also favored raising the top individual tax rate to 39.6%. The press this week quoted unnamed Administration sources as saying that a broad infrastructure and jobs package could include repeal of portions of the 2017 Tax Cuts and Jobs Act (TCJA) that benefitted corporations and wealthy individuals. Besides raising the corporate tax rate, the Administration reportedly is discussing reducing tax preferences for pass-through businesses, including limited liability companies and partnerships, as well as a higher capital gains tax rate for individuals earning more than $1 million annually.
President Biden is now expected to roll out his Build Back Better plan in an address to Congress sometime in mid-April. The President's fiscal year 2022 Budget proposal may be released at the end of April or in May, and likely with a Treasury green book detailing tax proposals. There are reports the Administration is considering various options for the forthcoming Build Back Better infrastructure-plus plan, including breaking it up into as many as three bills, with some moving in a bipartisan manner and others through budget reconciliation (requiring a simple majority in the Senate).
The Senate Finance Committee is holding hearings on various aspects of the Tax Code. The Committee held a hearing on 16 March titled, "Made in America: Effect of the U.S. Tax Code on Domestic Manufacturing," that focused largely on manufacturing incentives and TCJA changes scheduled to take effect beginning next year: for tax years after 31 December 2021, research and development expenditures are required to be capitalized and amortized ratably over a five-year period; beginning in 2022, the IRC Section 163(j) business interest deduction limit is calculated without depreciation and amortization (EBIT vs. EBITDA); and 100% expensing is phased down after 2022. The Finance Committee next will hold a hearing on 23 March to address the impact of US international tax policy on American jobs.
On 11 March, Rep. Lloyd Doggett and Senators Sheldon Whitehouse, Elizabeth Warren, et al., introduced the No Tax Breaks for Outsourcing Act (H.R. 1785/S. 714). Among other things, the bills would eliminate the deductions for Global Intangible Low-taxed Income (GILTI) and Foreign-derived Intangible Income (FDII); exclude certain high-taxed income from the GILTI computation (thereby denying excess foreign tax credits on that income); and eliminate the exclusion equal to 10% of certain qualified tangible property (the QBAI exclusion).
Rep. Doggett and Senator Whitehouse also introduced the Stop Tax Haven Abuse Act (H.R. 1786/S. 725) that includes changes to the Base Erosion and Anti-Abuse Tax (BEAT) to lower the applicability threshold to $100 million in gross receipts (as opposed to the current $500 million); include certain capitalized amounts as base erosion payments; and eliminate the 3% base erosion percentage gating threshold.
While the bills are not expected to pass in their current form, individual provisions are an indicator of current thinking by some House and Senate Democrats and could be included in some form in future legislation.
An IRS official this week was quoted as saying that guidance on general dividends received deduction rules under IRC Section 245A will not be released in the "near term," saying there is a "substantial amount of work that still needs to be done on the project."
There is progress on proposed regulations governing previously taxed earnings and profits (PTEP), and rules are expected to be released "in the near future," although reportedly are not imminent. The official added that the Biden Administration is currently establishing its guidance priorities, and therefore predicting release is difficult at this time. The PTEP regulations reportedly are expected to address timing of basis adjustments on mid-year distributions, tiered controlled foreign corporation transactions, and stock redemptions and partnership issues. The official also said the proposed PTEP regulations will cover interplay with the GILTI rules.
The IRS has updated its frequently asked questions (FAQs) for the Foreign Account Tax Compliance Act (FATCA). Specifically, updated FAQ 23 under General Compliance extends penalty relief for the 2020 and 2021 calendar years for withholding agents that withhold and report on Form 1042 and 1042-S by 15 September 2021 (for 2020) or 15 September 2022 (for 2021) a dividend-equivalent payment made with respect to a derivative referencing a partnership.
BorderCrossings ... With EY transfer pricing and tax professionals (March 25)
This Thought Center Webcast will feature an update on TP controversy in Israel from Ernst & Young LLP (US) and Ernst & Young (Israel) Ltd TP and International Tax professionals.
Recent Tax Alerts
— Mar 12: USCIS discontinues Form I-944, Declaration of Self-Sufficiency (Tax Alert 2021-0548)
— Mar 17: USCIS announces possible H-1B reconsiderations due to rescinded memos (Tax Alert 2021-0531)
Canada & Latin America
— Mar 18: Ontario to introduce an expression of interest system for the Ontario Immigration Nominee Program (Tax Alert 2021-0584)
— Mar 18: Canada temporarily expands post-graduation work permit program (Tax Alert 2021-0583)
— Mar 17: New Brunswick budget 2021-22 discussed (Tax Alert 2021-0574)
— Mar 16: Uruguayan tax authorities rule on which investments in real estate property are valid for a foreign individual to obtain tax residency (Tax Alert 2021-0573)
— Mar 16: Quebec's new pilot immigration programs discussed (Tax Alert 2021-0572)
— Mar 16: Argentine Government plans to send bill to Congress that would raise corporate income tax rates (Tax Alert 2021-0565)
— Mar 16: Ecuador's President issues regulations for the payment of income tax by microenterprises (Tax Alert 2021-0564)
— Mar 16: Ecuador's Tax Administration issues regulations on voluntary estimated income tax payments (Tax Alert 2021-0562)
— Mar 15: Uruguayan tax authorities rule taxpayer must remain in 'tax holiday' regime (Tax Alert 2021-0559)
— Mar 15: Prince Edward Island budget 2021-22 discussed (Tax Alert 2021-0557)
— Mar 15: Dominican Republic issues draft amendments to transfer pricing regulations (Tax Alert 2021-0555)
— Mar 18: Spain implements EU ATAD 2 | Detailed analysis (Tax Alert 2021-0579)
— Mar 18: Bulgaria may “deactivate” VAT registrations of UK businesses following Brexit (Tax Alert 2021-0578)
— Mar 18: EU Finance Ministers exchange views on digital taxation while the Commission announces it may introduce a digital levy separate from OECD’s Pillar One (Tax Alert 2021-0576)
— Mar 16: Liechtenstein's transition period for simplified application of participation exemption ends in 2021 and may require action (Tax Alert 2021-0561)
— Mar 15: Bahrain introduces Country-by-Country Reporting (Tax Alert 2021-0558)
— Mar 18: Australia introduces measures to remove Offshore Banking Unit regime (Tax Alert 2021-0577)
— Mar 16: The latest on BEPS and Beyond for March 2021 (Tax Alert 2021-0567)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-12||Internal Revenue Bulletin of March 22, 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.