April 11, 2021
U.S. International Tax This Week for April 9
Ernst & Young's U.S. International Tax This Week newsletter for the week ending April 9 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 Treasury Department on 7 April released a 19-page report further explaining President Joe Biden's Made in America Tax Plan to complement last week's $2 trillion-plus Build Back America infrastructure proposal. The report provides additional details to last week's White House Fact Sheet with regard to a series of proposed corporate tax reforms to address profit shifting and offshoring incentives and to level the playing field between domestic and foreign corporations. The plan reportedly raises approximately $2.5 trillion over 15 years, which the Administration contends would fully offset the cost of its infrastructure proposals.
Among other things, the report describes repealing and replacing the Base Erosion and Anti-abuse Tax (BEAT) with the "SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments), which denies multinational corporations US tax deductions by reference to payments made to related parties that are subject to a low effective rate of tax. The low effective rate of tax would be defined by reference to the rate agreed upon in the multilateral agreement." The plan also calls for repealing the Foreign Derived Intangible Income (FDII) provision.
Although the latest report confirms the Administration's plan to raise the corporate tax rate to 28%, President Biden this week was quoted as saying he is willing to negotiate a lower corporate rate. The press is quoting Administration officials and others as saying that a 25% corporate tax rate may be closer to the rate included in a final infrastructure package. Senator Joe Manchin — a critical vote for any future infrastructure legislation — earlier said a 28% corporate rate is too high, and that he could support a 25% rate.
In what was billed as her first major speech since becoming Treasury Secretary, Janet Yellen on 5 April again called for a global minimum tax. A global minimum tax is the basis of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two proposal and has gotten a significant push by the Biden Administration and figures prominently in the Made in America Tax Plan. The Treasury Secretary has said that a global minimum tax is necessary to forestall a continuing "race to the bottom" which has resulted in countries unable to raise revenue to pay for necessary public services.
Senate Finance Committee Chairman Ron Wyden and Senators Sherrod Brown and Mark Warner on 5 April released "Overhauling International Taxation: A framework to invest in the American people by ensuring multinational corporations pay their fair share." The framework focuses on changes to the 2017 Tax Cuts and Jobs Act's (TCJA) Global Intangible Low-taxed Income (GILTI), FDII, and the BEAT international provisions. According to the authors, it aims to "reboot the international tax system" to better "focus on rewarding companies that invest in the U.S. and its workers, stop incentivizing corporations to shift jobs and investment abroad, and ensure that big corporations are paying their fair share."
A new "incentive to onshore research and management jobs" called for under the framework would provide relief from US expense allocation rules that currently impact the GILTI foreign tax credits. According to the framework, "expenses for research and management that actually occur in the U.S. should be treated as entirely domestic expenses, eliminating foreign tax credit penalties under GILTI and helping retain these activities in the U.S."
The nine-page document leaves several policy options undetermined, does not include legislative language, and in some ways suggests alternative approaches to the Made in America Tax Plan's international changes proposed by President Biden on 31 March.
The press is reporting that Treasury Secretary Yellen on 8 April presented an OECD BEPS 2.0 Pillar One proposal to the steering group of the Inclusive Framework on BEPS. Described as a "comprehensive scoping" idea, the proposal reportedly would be based on revenue and profitability to limit Pillar One's impact to a narrower group of multinational corporations. According to the reports, the Biden Administration is calling its comprehensive scoping proposal the "simplest and most principled of administrable option," noting it would eliminate the need for business line segmentation.
The US reportedly would be flexible with respect to nexus thresholds to address the concerns of developing countries. The proposal also includes a requirement for a "binding nonoptional dispute prevention and resolution process" as well as the need for a "precise definition of relevant unilateral actions."
Pascal Saint-Amans, OECD Director of the Center for Tax Policy and Administration, was optimistic about the latest US proposal. He was quoted as saying the proposal addresses concerns about complexity as well US opposition to limiting the effects of Pillar One to a narrow group of generally US-based multinationals, adding that it is "rebooting the negotiations."
The United Nations (UN) Subcommittee on Taxation of the Digital Economy on 6 April released a final updated draft of a new digital taxation article for the UN Model Treaty that would allow for source country taxation of revenue from certain digital services. New Article 12B (Income from Automated Digital Services) reportedly will be presented and approved for inclusion of the article in the UN Model Treaty later this month.
EY Guides and Publications
Biden tax proposals take shape amid uncertain outlook in Congress
This publication from Washington Council Ernst & Young provides a look at the rationale for tax changes, details and differences among plans, what the changes would pay for, and the outlook in Congress.
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
— Apr 02: Associate Chief Counsel (International) provides advice on federal tax classification of certain foreign entities (Tax Alert 2021-0697)
— Apr 06: Egypt to limit VAT input tax credit on paper invoices (Tax Alert 2021-0709)
— Apr 08: Singapore announces foreign manpower policy updates (Tax Alert 2021-0732)
Canada & Latin America
— Apr 08: Costa Rica's tax administration publishes resolution on Advance Pricing Agreements (Tax Alert 2021-0733)
— Apr 07: Peruvian Tax Court concludes income received by a silent partner in a silent partnership will be treated as dividends (Tax Alert 2021-0721)
— Apr 07: Saskatchewan budget 2021-22 discussed (Tax Alert 2021-0719)
— Apr 05: Canada Revenue Agency issues supplemental guidance on international income tax issues resulting from COVID-19 (Tax Alert 2021-0712)
— Apr 05: Quebec releases list of transactions for mandatory disclosure (Tax Alert 2021-0706)
— Apr 05: Uruguay allows certain companies to pay only 50% of their employer pension contributions in light of the COVID-19 pandemic (Tax Alert 2021-0705)
— Mar 26: Canada Revenue Agency outlines potential changes to RSU sourcing methodology (Tax Alert 2021-0642)
— Apr 08: PE Watch | Latest developments and trends, April 2021 (Tax Alert 2021-0729)
— Apr 08: Polish Supreme Court confirms findings of CJEU Danske Bank case are applicable to VAT settlements of Polish branches (Tax Alert 2021-0723)
— Apr 07: Spanish Council of Ministers approves MDR regulations (Tax Alert 2021-0718)
— Apr 06: UK issues new consultation on transfer pricing documentation (Tax Alert 2021-0715)
— Apr 05: Italy extends period for inbound tax regime applicable to individuals who moved tax residency in Italy before April 30, 2019 (Tax Alert 2021-0711)
— Apr 02: OECD publishes Arbitration Profiles of 30 countries under the MLI and a clarification regarding entry into effect (Tax Alert 2021-0690)
— Apr 02: Cyprus law to implement Mandatory Disclosure Rules enters into force (Tax Alert 2021-0694)
— Apr 05: Turkey proposes increase in corporation tax rate (Tax Alert 2021-0707)
Highlights of this edition include: Legislation
- President Biden lays out $2 trillion infrastructure plan to be paid for with tax increases
- Senate Finance Committee holds international tax hearing
- Congressional Democrats introduce international tax legislation
- President Biden signs $1.9 trillion American Rescue Plan Act of 2021
Treasury and IRS news
- IRS says assumption of reinsurance agreement does not result in base erosion payments
- IRS opens initiative on virtual currency
Transfer pricing news
- IRS APMA program director discusses taxpayers’ treatment of COVID-related costs
- IRS APMA Program releases annual APA update
- OECD official floats BEPS 2.0 Pillar Two simplification
- OECD publishes jurisdictions currently participating in the International Compliance Assurance Programme
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of April 5,2021
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.