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July 4, 2021

U.S. International Tax This Week for July 2

Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 2 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 Organisation for Economic Co-operation and Development (OECD) on 1 July issued a Statement announcing that 130 of the 139-member Inclusive Framework on Base Erosion and Profit Shifting (BEPS) endorsed a high-level agreement on a two-pillar solution to address the tax challenges arising from the digitalization of the economy. The agreement, two years in the making, describes agreed components with respect to both elements of the BEPS 2.0 project: Pillar One on revisions to nexus and profit allocation rules and Pillar Two on new global minimum tax rules. The Statement further indicates that remaining issues and a detailed implementation plan will be finalized by October 2021.

The G20 Finance Ministers are scheduled to consider the outcome of the Inclusive Framework meeting at their meeting in Venice on 9-10 July 2021.

The scope of the Pillar One rules is to be multinational entities (MNEs) with global turnover above €20 billion and profitability (i.e., profit before tax/revenue) above 10%. Exclusions are provided for the extractive and regulated financial services industries. The Statement notes that the turnover threshold may be reduced to €10 billion, contingent on successful implementation of the new rules including tax certainty. For in-scope MNEs, between 20-30% of residual profit, which is defined as profit in excess of 10% of revenue, would be allocated to market jurisdictions where there is nexus.

Countries that have adopted digital sales taxes are committing to eliminate those levies when the new rules under Pillar One are applicable.

The Statement describes Pillar Two as having two elements. The Global Anti-Base Erosion (GloBE) rules are a set of interlocking rules: an Income Inclusion Rule (IIR) that allows parent entities to impose a top-up tax on low-taxed income of a constituent entity, and the Undertaxed Payments Rule (UTPR) that denies deductions or requires an equivalent adjustment for low-tax income that has not been subject to tax under an IIR. The Subject to Tax Rule (STTR) allows jurisdictions to impose a withholding tax on certain related-party payments that are taxed at a low adjusted nominal rate. Although the STTR is described second, it would apply before the GloBE rules and thus take priority over those rules.

The GloBE rules would apply to MNEs with total consolidated group revenue of at least €750 million in the immediately preceding fiscal year. Countries would be free to apply the IIR to MNEs that are tax resident within their jurisdiction, however, even if this threshold is not met. According to the Statement, the minimum tax rate for purposes of the IIR and the UTPR would be at least 15%.

Because the Pillar Two rules are to apply on a jurisdictional basis, consideration will be given to the conditions under which the US Global Intangible Low-Taxed Income (GILTI) regime will co-exist with the GloBE rules, in order to ensure a level playing field. The endorsement of Pillar Two is a major win for the Biden Administration, which has been pushing for a global agreement, in part, to buttress support in Congress for its proposals to dramatically toughen the GILTI rules.

Treasury Secretary Janet Yellen released a statement saying, in part, “Today’s agreement by 130 countries representing more than 90 percent of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end. In its place, America will enter a competition that we can win; one judged on the skill of our workers and the strength of our infrastructure. We have a chance now to build a global and domestic tax system that lets American workers and businesses compete and win in the world economy.”

Ireland and Hungary were among the nine Inclusive Framework members that did not join in the agreement.

Treasury and the IRS on 30 June issued early draft instructions for amended Schedules K-2 (Partners’ Distributive Share Items – International) and K-3 (Partner’s Share of income, Deductions, Credits – International) for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). This week’s drafts of the instructions offer a preview of what is coming before final versions are issued. The new Schedules K-2 and K-3 were released on 3 and 4 June 2021. 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.

Upcoming Webcasts

Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (July 16)
During this Thought Center Webcast, Ernst & Young professionals will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS.

Tax risk and controversy for companies operating in Asia-Pacific (July 26)
During this EY Webcast, Ernst & Young professionals will review key findings of the 2021 EY Tax risk and controversy survey and discuss why companies operating in Asia-Pacific should build their Tax Controversy Department of the Future without delay.

Recent Tax Alerts

United States

— Jun 30: USCIS extends flexibility for responding to agency requests (Tax Alert 2021-1284)


— Jun 30: South Sudan implements an electronic tax system (Tax Alert 2021-1280)

— Jun 25: Tanzania’s Parliament passes Finance Bill, 2021 (Tax Alert 2021-1261)


— Jun 30: Vietnam launches COVID-19 Vaccine Passport Pilot Program in July 2021 (Tax Alert 2021-1285)

Canada & Latin America

— Jul 01: EY publication highlights 2021 Q2 tax policy developments across the Americas (Tax Alert 2021-1295)

— Jun 30: Argentina's automatic extensions of expiring/expired immigration documents to come to an end (Tax Alert 2021-1294)

— Jun 30: Uruguay expands COVID-19 tax relief measures (Tax Alert 2021-1293)

— Jun 30: New entry rules for Venezuelan nationals, maritime crew and individuals who recovered from COVID-19 (Tax Alert 2021-1283)

— Jun 25: Brazilian Government proposes changes to corporate income tax system as second phase of comprehensive tax reform (Tax Alert 2021-1270)

— Jun 25: Argentina issues new transfer pricing regulations (Tax Alert 2021-1269)

— Jun 25: Brazilian Congress approves five-percentage-point increase to the social contribution tax for banks, insurance companies and other financial services entities (Tax Alert 2021-1268)

— Jun 25: Venezuelans granted further permission to enter and depart Colombia with expired passports; several administrative deadlines extended (Tax Alert 2021-1264)

— Jun 23: Canada's quarantine and travel restriction updates for CoPR holders provided (Tax Alert 2021-1248)


— Jun 30: Trade Watch | Issue 2 2021 (Tax Alert 2021-1291)

— Jun 30: Polish Ministry of Finance publishes decree deferring certain provisions of the new withholding tax reform to 31 December 2021 (Tax Alert 2021-1287)

— Jun 30: OECD publishes international exchange framework and optional module for Model Reporting Rules for sellers in the sharing economy (Tax Alert 2021-1286)

— Jun 30: Danish Supreme Court denies refund of dividend withholding tax to nonresident investment funds (Tax Alert 2021-1279)

— Jun 30: Denmark publishes draft bill relaxing transfer pricing documentation requirements in relation to domestic controlled transactions (Tax Alert 2021-1278)

— Jun 17: New trade agreement between UK and Australia includes multiple immigration provisions (Tax Alert 2021-1213)


— Jun 29: Australian Taxation Office issues draft tax ruling expanding scope of royalty withholding tax on software related payments (Tax Alert 2021-1274)

Recent Newsletters

Washington Dispatch
   Highlights of this edition include:


  • Bipartisan infrastructure deal reached, but road to passage uncertain
  • House passes corporate disclosure package requiring CbC tax reporting for multinationals
  • Biden Administration’s proposed 15% minimum tax could come with requirement to disclose book-tax differences

Treasury and IRS news

  • IRS announces plans to amend BEAT regarding qualified derivative payment reporting
  • US taxpayers should consider certain tax provisions with respect to bitcoin following recent legislation in El Salvador

Digital Taxation

  • USTR announces 25% punitive tariffs on six countries in response to DSTs; suspends tariffs for 180 days

OECD developments

  • G7 leaders affirm commitment to global tax changes under BEPS 2.0
  • G7 Finance Ministers express strong support for global tax changes under BEPS 2.0
  • OECD publishes model rules for information exchange for digital platforms

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.