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March 28, 2021

U.S. International Tax This Week for March 26

Ernst & Young's U.S. International Tax This Week newsletter for the week ending March 26 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 Senate Finance Committee on 25 March held an international tax hearing that highlighted the opposing positions of congressional Democrats, who favor a dramatic overhaul of the international tax provisions in the Tax Cuts and Jobs Act (TCJA), and congressional Republicans and the business community. Democrats generally voiced support for raising revenue by changing the global intangible low-taxed income (GILTI) provisions, the base erosion and anti-abuse tax (BEAT), and the foreign derived intangible income (FDII) rules. Democratic witnesses made the case for international tax changes to fund priorities such as infrastructure and other proposals in President Joe Biden's Build Back Better plan, and made the argument that the TCJA created incentives for US companies to move tangible assets and jobs outside the United States. Other witnesses and Republican committee members suggested there is no need to change the provisions.

The committee hearing underscored fundamental disagreement over US international tax policy. Finance Committee Chairman Ron Wyden made clear in his closing remarks that he has always supported tax reform that would tax the foreign earnings of US companies at the full US rate, while the TCJA represented an effort to move to a more territorial system in which the US largely does not tax the active foreign earnings of US global companies. The hearing also focused on whether FDII is indeed an effective export incentive, and whether the BEAT is doing enough to prevent erosion of the US tax base.

Ahead of the hearing, the staff of the Congressional Joint Committee on Taxation (JCT) released a document that discussed the legal and economic background of US taxation of cross-border activity, with particular attention on provisions newly enacted or substantially revised in the TCJA. In an opening statement at the international hearing, Chairman Wyden called the JCT report "jaw-dropping" for finding that the TCJA reduced the average US tax rate paid by the largest US corporations by more than half. (The JCT document also summarized international efforts to address tax challenges of the digitalization of the economy and the implications for the United States.)

Chairman Wyden said that in the coming days, he along with Senators Sherrod Brown and Mark Warner, will release a framework for international taxation that would reverse TCJA provisions for US-based multinationals who "must pay a fair share," reward companies that invest and create good-paying jobs in the US, and stop rewarding companies that ship jobs and factories overseas.

On the international front, according to an initial list posted on the Organisation for Economic Co-operation and Development's (OECD) website, the US and 18 other jurisdictions will participate in the Forum on Tax Administration's (FTA) International Compliance Assurance Programme (ICAP). ICAP is a voluntary joint risk assessment initiative that is designed to stem the flow of issues into mutual agreement procedures. The OECD describes ICAP as providing "coordinated risk assessment of large MNE groups by tax administrations … using a group's Country-by-Country reports, master file, local files and other transfer pricing information." The FTA in February 2021 released a new ICAP handbook that provides details regarding the program. A list of frequently asked questions for multinational enterprise groups is also available.

The IRS this week released a practice unit (IRC 965 Transition Tax Overview) on the IRC Section 965 transition tax. Practice unit materials serve as job aids and training materials for IRS staff and provide helpful insight into how the IRS may interpret various areas of taxation. The practice unit materials are a great resource for a quick refresh on the provisions and issues that may arise.

Upcoming Webcasts

Why the tax controversy department of the future should be built now (April 8)
During this Thought Center Webcast, Ernst & Young professionals will discuss concerns about the efficacy of untested dispute resolution processes related to potential new ways to tax cross-border activity may add to future risks.

ASEAN-6 panel discussions: Integrated regional value chains – Part 1: Consumer products and medical technology (April 20)
During this EY Webcast, Ernst & Young professionals will be hosting sector-focused discussions to explore answers to many open questions. Guest panelists from government investment agencies in key ASEAN countries will be sharing insights on individual country strengths and how complementary segments of a value chain can be optimized across multiple ASEAN locations.

ASEAN-6 panel discussions: Integrated regional value chains – Part 2: Electronics and automotive (April 27)
During this EY Webcast, guest panelists from government investment agencies in key ASEAN countries will be sharing insights on individual country strengths and how complementary segments of a value chain can be optimized across multiple ASEAN locations.

Recent Tax Alerts

Canada & Latin America

— Mar 25: Ontario budget 2021-22 discussed (Tax Alert 2021-0621)

— Mar 23: Argentina enacts tax incentives and voluntary disclosure program to promote construction and access to housing (Tax Alert 2021-0612)

— Mar 23: Costa Rica's Ministry of Foreign Trade and Ministry of Finance issue regulations for registering for the free trade zone regime and as a Customs Public Service Assistant (Tax Alert 2021-0611)

— Mar 22: Curaçao publishes guidelines on territorial tax system (Tax Alert 2021-0601)

— Mar 19: Commission of Experts on Tax Expenditures/Benefits issues recommendations for the Colombian tax system (Tax Alert 2021-0593)


— Mar 26: German Government agrees on draft bill introducing “check-the-box” elections for partnerships and further changes (Tax Alert 2021-0629)

— Mar 26: Luxembourg | Protocol to Double Tax Treaty with Russia has entered into force (Tax Alert 2021-0626)

— Mar 26: Spanish Supreme Court issues favorable decisions on reclaims by non-Spanish sovereign funds (Tax Alert 2021-0624)

— Mar 25: Luxembourg updates Mutual Agreement Procedure (Tax Alert 2021-0620)

— Mar 24: EU adopts tax transparency rules for digital platforms (DAC7) (Tax Alert 2021-0614)

— Mar 23: Greece’s Tax Authority issues guidance on COVID-19 and Transfer Pricing (Tax Alert 2021-0609)

— Mar 23: Irish Department of Finance releases public consultation on application of the Authorised OECD Approach in Ireland (Tax Alert 2021-0604)

— Mar 19: Cyprus approves legislation to implement Mandatory Disclosure Rules (Tax Alert 2021-0594)

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.