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May 9, 2021

U.S. International Tax This Week for May 7

Ernst & Young's U.S. International Tax This Week newsletter for the week ending May 7 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.


Congress was mostly out this week and the current focus in Washington is whether a bipartisan compromise can be struck between President Joe Biden's $2 trillion-plus infrastructure proposal and the $568 billion alternative proposed by senators including Environment & Public Works Ranking Member Shelley Moore Capito, who is expected to lead a group to the White House when the Senate is back in session the week of 10 May. A WCEY Alert breaks down the various possibilities.

The debate is also focused on how to pay for the various proposed plans — infrastructure and family plans — that will go before Congress. Treasury Secretary Janet Yellen this week indicated that the Administration's ambitious spending proposals may not have to be fully offset by increasing taxes on corporations and wealthy individuals. The Treasury Secretary was quoted as saying on 4 May: "We can run deficits, but they need to be relatively contained over time to have a sustainable fiscal path." She added that the US has the "fiscal space" for increased deficits due to continuing low interest rates. The next day, President Biden appeared to stick with his tax proposals, stating during a news conference on 5 May, "I'm willing to compromise, but I'm not willing to not pay for what we're talking about. I'm not willing to deficit-spend." The President indicated during a speech on 6 May that a corporate tax rate of between 25% and 28% might be acceptable to the Administration.

Treasury and the Internal Revenue Service (IRS) on 30 April released updated early drafts of new Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). The schedules are meant to provide greater clarity for partners and shareholders to compute their US income tax liability with regard to items of international tax relevance, including deductions and credits. The early release drafts of Schedules K-2 and K-3 provide a preview of what is coming in the final versions; early drafts of instructions are expected this summer.

An IRS release indicated that the Treasury Department and the IRS took into account comments received with respect to prior drafts of Schedules K-2 and K-3 for Form 1065, (released in July 2020), and changes were made as appropriate.

The Organisation for Economic Co-operation and Development (OECD) is considering how to roll back various unilateral digital taxes as the summer deadline for reaching a deal on the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar One and Pillar Two proposals moves closer. Pascal Saint-Amans, the Director of the OECD's Centre for Tax Policy and Administration, this week was quoted as saying the organization will provide a framework of objective criteria by October 2021 to identify unilateral measures that are incompatible with Pillar One.

Saint-Amans said, "we are confident that this is not too difficult a task," suggesting that there may be a list of offending regimes, although the framework will also ensure that countries do not introduce new digital taxes in the future. The framework is also reported to include a peer review mechanism to ensure that countries fulfill their commitments to withdraw relevant measures.

Saint-Amans further said that he expected there will be "significant agreement" reached on the BEPS 2.0 project at the G-20 and Central Bank Governors meeting on 8-9 July. But he cautioned that a final package that includes certain technical details, including an implementation plan that includes removal of unilateral digital services taxes — "and maybe some others" — also may not be completely ready until October.

On the topic of cryptocurrency, Saint-Amans indicated that the OECD will publish updated common reporting standard (CRS) rules that address cryptoassets sometime in early 2022. Officials earlier had said an implementation package for a new cryptoasset framework would be delivered to the G20 later in 2021. Saint-Amans said the project, which is being delayed due to the focus on BEPS 2.0, is critical to avoid a "new black hole[s] emerging."

Upcoming Webcasts

Global tax developments impacting the Asia-Pacific region: what you need to know (May 18)
During this Thought Center Webcast, Ernst & Young professionals across the region will highlight recent tax trends and important developments, including increased tax controversy and mitigation considerations, from country and regional perspectives.

Work from anywhere: How do we re-envisage our future after the unimaginable? (May 19)
During this EY Webcast, Ernst & Young professionals will highlight the journey of four organizations during this complicated year. Learn how they each reimagined how and where work gets done. Each panelist will share a unique point of view on the success and challenges of the past year, including a look ahead.

A taxpayer’s guide to the International Compliance Assurance Programme (ICAP) (May 20)
During this EY Webcast, Ernst & Young professionals along with the Organisation for Economic Cooperation and Development (OECD) will discuss the recently announced third phase of ICAP.

Recent Tax Alerts

United States

— May 06: United States restricts entry from India (Tax Alert 2021-0915)


— May 04: Gabon postpones transfer pricing documentation filing deadline (Tax Alert 2021-0907)

Canada & Latin America

— May 06: EY Canada's Tax Matters @ EY for May 2021 (Tax Alert 2021-0923)

— May 06: Ontario's new Expression of Interest (EOI) system for OINP streams now open (Tax Alert 2021-0916)

— May 05: Bolivia's Congress discusses bill that would impose VAT on digital services provided from abroad (Tax Alert 2021-0913)

— May 05: Argentine federal tax authorities issue procedure for registering real estate projects for the promotional regime for construction and access to housing (Tax Alert 2021-0909)


— May 06: Danish Government proposes new rules to align dividend taxation with EU law (Tax Alert 2021-0921)

— May 06: The UK and India sign Memorandum of Understanding on new mobility and migration partnership (Tax Alert 2021-0917)

IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2021-19Internal Revenue Bulletin of May 10, 2021

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.