April 4, 2021
U.S. International Tax This Week for April 2
Ernst & Young's U.S. Tax This Week newsletter for the week ending April 2 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 on 31 March delivered a speech in Pittsburgh where he sketched out an ambitious $2 trillion-plus Build Back America infrastructure proposal. The President laid out his plans for the American Jobs Plan, which essentially provides for infrastructure investment over eight years extending to the power grid, electric vehicles and broadband, among other areas. Prior to the speech, the White House outlined the proposed package, indicating it would be paid for with tax increases that, for the most part, were outlined during the Presidential campaign, including raising the corporate tax rate and major changes to the Tax Cuts and Jobs Act (TCJA) international tax provisions.
Specific details of the tax increase proposals will likely be included in the President's FY 2022 budget plan, which is expected to be released later this spring. However, according to a White House fact sheet released on 31 March, the Made in America Tax Plan, proposed alongside the American Jobs Plan, would:
- Increase the corporate tax rate from 21% to 28%
- Increase the Global Intangible Low-taxed Income (GILTI) rate to 21%, calculated on a country-by-country basis, and eliminate the 10% return on tangible assets
- Encourage other countries to adopt strong minimum taxes on corporations
- "Deny[ies] deductions to foreign corporations on payments that could allow them to strip profits out of the United States if they are based in a country that does not adopt a strong minimum tax"
- "Further replace[s] an ineffective provision in the 2017 tax law that tried to stop foreign corporations from stripping profits out of the United States"
- Make it "harder for U.S. corporations to invert"
- Deny companies expense deductions for offshoring jobs and provide a credit for expenses for onshoring
- Eliminate the Foreign-derived Intangible Income (FDII) deduction
- Impose a 15% minimum tax on corporations based on "book income"
- Eliminate tax preferences for fossil fuels
- Strengthen business tax enforcement
According to the White House fact sheet, "If passed alongside President Biden's Made in America corporate tax plan, it [infrastructure plan] will be fully paid for within the next 15 years and reduce deficits in the years after."
The second part of the Build Back Better plan, the American Families Plan, focused on social spending like health care, childcare, and education, is expected to be detailed in the coming weeks, and will include additional tax proposals targeting individuals.
The Internal Revenue Service (IRS) in Announcement 2021-5 this week indicated that the US and Japan competent authorities had reached agreement on the US-Japan tax treaty arbitration process. The agreement implements the arbitration process in paragraphs 5, 6 and 7 of Article 25 of the 2003 US-Japan income tax treaty, as amended.
The IRS Advance Pricing and Mutual Agreement (APMA) Program issued the 22nd annual Advance Pricing Agreement (APA) report (the Report) on 23 March, in Announcement 2021-06. The Report discusses the APMA Program, including its activities and structure for calendar year 2020, and gives useful insights into the operation of the APA Program.
The number of APA filings remained the same in 2020 as in 2019, with taxpayers filing 121 APA requests each year. The total number of APAs concluded, however, increased from 120 to 127 and the median amount of time to finalize an APA decreased from 38.8 months in 2019 to 32.7 months in 2020.
On 26 March, the US Trade Representative (USTR) announced proposed punitive tariffs of 25% on goods from Austria, India, Italy, Spain, Turkey, and the United Kingdom with regard to each country's Digital Services Tax (DST). The proposed tariff amounts are directly tied to the amount of the DST that each country is estimated to collect from US companies. The USTR also provided a proposed list of impacted products per country and is asking for public comments due by 30 April.
The USTR also announced the termination of investigations under Section 301 of the Trade Act of 1974 regarding the proposed DSTs for Brazil, the Czech Republic, the European Union, and Indonesia, as those jurisdictions have not adopted or have not implemented their respective DST since the initiation of the investigations. EY Tax Alert 2021-0661 has details.
The USTR's announcement comes on the heels of signals by Treasury Secretary Janet Yellen on the US willingness to engage through the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 process. For the US, this commitment to multilateralism is not inconsistent with the USTR's taking steps to address DSTs imposed by countries outside of the OECD process. It is likely that resolution of this dispute will require a willingness of these countries to bring their DSTs in line with the OECD approach.
The OECD this week announced that it has begun a consultation on the commentary to Article 9 (Associated Enterprises) of the OECD Model Tax Treaty. The 29 March OECD discussion draft includes proposed amendments to the commentary, and is largely focused on domestic laws deductibility of interest. According to an OECD statement, the project is "closely linked to the report Transfer Pricing Guidance on Financial Transactions published on 11 February 2020." The deadline for comments is 28 May.
India - Attracting foreign investment through trade, incentive and tax policy measures (April 15)
With its large consumer market, infrastructure investments and highly skilled labor force, India has historically attracted significant foreign investment. Ongoing global geopolitical trends and trade policies may accentuate opportunities for investment. India has also recently adopted significant policy measures to encourage economic activity. During this Thought Center Webcast, Ernst & Young professionals will analyze the impact of these recent developments.
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
— Mar 29: USTR proposes 25% punitive tariff on Austrian, Indian, Italian, Spanish, Turkish and UK origin goods in response to each country's DST; terminates investigations for Brazil, Czech Republic, EU and Indonesia (Tax Alert 2021-0661)
— Apr 01: Philippines enacts law reducing corporate income tax rates and rationalizing fiscal incentives (Tax Alert 2021-0679)
— Mar 30: Japan enacts 2021 tax reform bill (Tax Alert 2021-0670)
Canada & Latin America
— Apr 01: Argentina federal tax authorities issue regulations on the procedure for registering for promotional regime for knowledge-based economy (Tax Alert 2021-0683)
— Apr 01: EY Canada's Tax Matters @ EY for April 2021 (Tax Alert 2021-0680)
— Mar 29: Argentine Province of Buenos Aires issued regulations on turnover tax withholdings for nonresidents (Tax Alert 2021-0659)
— Mar 26: Canada Revenue Agency outlines potential changes to RSU sourcing methodology (Tax Alert 2021-0642)
— Mar 26: Nova Scotia budget 2021-22 discussed (Tax Alert 2021-0641)
— Mar 26: Québec budget 2021-22 discussed (Tax Alert 2021-0638)
— Apr 01: German Ministry of Finance publishes final MDR guidance (Tax Alert 2021-0682)
— Apr 01: The Netherlands starts consultation to better align legal entity and partnership classification rules with international tax standards (Tax Alert 2021-0677)
— Mar 31: Spanish Tax Authority further delays first reporting and payment of Financial Transaction Tax (Tax Alert 2021-0674)
— Mar 30: ECJ rules Polish VAT law on intra-Community acquisitions is contrary to EU VAT Directive and may result in refund of unduly paid interest (Tax Alert 2021-0669)
— Mar 29: Belgian Court of Appeal issues decisions on tax abuse – application of the CJEU Danish cases (Tax Alert 2021-0655)
— Mar 26: Dutch Government releases legislative proposal introducing withholding tax on dividend payments to low-taxed jurisdictions, hybrid entities or in certain abusive situations as of 2024 (Tax Alert 2021-0649)
— Mar 26: Polish Minister of Finance signs decree deferring deadline for settlement of 2020 CIT liability and filing of 2020 final CIT returns (Tax Alert 2021-0648)
— Mar 26: German Government agrees on draft ATAD implementation law (Tax Alert 2021-0640)
— Mar 26: Cyprus Tax Tribunal rules card payment systems services are VAT exempt (Tax Alert 2021-0635)
— 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 30: Saudi Arabia publishes special tax rules for Integrated Logistics Bonded Zone (Tax Alert 2021-0663)
— Mar 30: Qatar extends 2020 tax filing deadlines (Tax Alert 2021-0662)
— Mar 29: OECD Forum on Tax Administration publishes jurisdictions currently participating in the International Compliance Assurance Programme (ICAP) (Tax Alert 2021-0654)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-13||Internal Revenue Bulletin of March 29, 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.