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July 25, 2021

U.S. International Tax This Week for July 23

Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 23 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 this week failed to meet Majority Leader Chuck Schumer's initial deadlines for action on the $1.2 trillion bipartisan infrastructure proposal and a framework for a $3.5 trillion budget reconciliation bill. Senate Republicans on 21 July voted down an initial procedural vote on the yet-to-be-finalized bipartisan infrastructure bill, saying it was premature as details had not been resolved. The group of Senators negotiating the infrastructure bill sent a letter to the Senate Majority Leader saying they expect to be able to move forward on an infrastructure bill early next week.

Senate Democrats also did not have the support of all 50 members needed to pass a budget resolution allowing for a $3.5 trillion budget reconciliation bill that the Majority Leader hoped to nail down this week, according to Budget Committee Chairman Bernie Sanders. Senator Sanders said that a budget resolution vote could take place "by early August." Congressional Democrats plan to use budget reconciliation to pass a "human infrastructure" bill that will center on health care, climate, and caregiving, generally to be paid for by corporate tax increases, taxes on capital income, and taxes on the wealthy.

The Internal Revenue Service (IRS) Office of Chief Counsel recently released a generic legal advice memorandum (GLAM) that addresses cost sharing agreements (CSAs) and the inclusion of stock-based compensation (SBC) costs. More specifically, the GLAM (AM 2021-004) provides the IRS's views on the treatment of SBC costs in cost sharing agreements that include a "reverse claw-back" provision, but do not share SBC costs (non-SBC CS agreements). The IRS asserted that it can make certain allocations to make the cost sharing transactions consistent with an arm's-length result. The IRS discussed how to treat those allocations for SBC costs and the timing of the adjustments.

This GLAM is the second significant IRS administrative guidance concerning CSAs with SBC since the 2019 Ninth Circuit decision overturning the Tax Court in Altera v. Commissioner. The GLAM highlights the IRS's approach to CSAs that do not share SBC costs, and contain a reverse claw-back provision. The IRS's positions in the GLAM suggest that the IRS will likely continue to strongly pursue SBC inclusions under the 2003 SBC regulation. In addition, the GLAM shows that the IRS intends to make SBC adjustments in the years in which the intangible development costs were incurred, regardless of the language contained in taxpayers' reverse claw-back provisions, and will revert to enforcing the terms of a reverse claw-back provision only if a year-by-year adjustment is unavailable.

While the GLAM may be relevant in evaluating the likelihood the IRS may challenge a taxpayer's treatment of SBCs, it is not precedential authority for determining the level of comfort supporting a taxpayer's inclusion of SBC costs based on its facts and circumstances.

The Organisation for Economic Co-operation and Development (OECD) reportedly plans to complete work on a multilateral convention and model domestic legislation by the close of 2021 or early next year in order for countries to begin to implement BEPS 2.0 Pillar One and Pillar Two in 2023. Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy, made the comment during an OECD podcast on 16 July. Saint-Amans said that the G20 Finance Ministers made clear that action must be taken quickly on implementation while there is political momentum.

He said during the podcast that Pillar One will shift $100 billion of profit from low-tax jurisdictions to jurisdictions "where the clients are," whereas Pillar Two (global corporate minimum tax) will generate $150 billion in revenue per year.

Upcoming Webcasts

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.

Brazil: Proposed tax reform could significantly impact corporations with operations in Brazil (July 27)
The second phase of Brazil’s comprehensive tax reform proposes significant changes to the corporate income tax system. These changes, which were part of a bill introduced in late June, include reducing the corporate income tax rate, establishing a withholding tax on dividends and strengthening the rules on the disguised distribution of profits. If approved this year, the proposed changes will be effective as of January 2022, leaving taxpayers limited time to prepare. Register for this Thought Center Webcast.

BorderCrossings . . . With EY transfer pricing and tax professionals (July 29)
During this Thought Center Webcast, Ernst & Young professionals will help you stay informed and able to adopt a more proactive stance in developing and defending your transfer pricing policies and practices.

Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (July 30)
During this Thought Center Webcast, Ernst & Young professionals will discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change.

The indirect tax technology journey: Now. Next. Beyond. (August 5)
During this Thought Center Webcast, Ernst & Young professionals will share insights into how market-leading organizations are using technology to adapt to new legislation and market trends, and to effectively transform tax operations.

Recent Tax Alerts


— Jul 12: South Korea launches pilot project 'Electronic Travel Authorization' for visa-free entry for foreign nationals; official launch in September 2021 (Tax Alert 2021-1328)

— Jul 12: India releases significant international travel announcements (Tax Alert 2021-1327)

Canada & Latin America

— Jul 20: Ecuador issues oil and gas policy and reduces customs tariffs (Tax Alert 2021-1392)

— Jul 20: Colombia enacts law modifying the tax incentives applicable to renewable energy projects (Tax Alert 2021-1388)

— Jul 15: Peru implements new, stricter requirements for residence visa applications (Tax Alert 2021-1364)

— Jul 13: Brazil announces new entry rules for Venezuelan nationals, maritime crew and individuals who recovered from COVID-19 (Tax Alert 2021-1349)


— Jul 23: UK publishes draft legislation for Finance Bill 2022 (Tax Alert 2021-1404)

— Jul 22: Gibraltar issues Budget 2021 (Tax Alert 2021-1401)

— Jul 21: Ireland launches public consultation on OECD International Tax Proposals (Tax Alert 2021-1397)

— Jul 21: The Latest on BEPS and Beyond for July 2021 (Tax Alert 2021-1391)

— Jul 20: Georgia imposes VAT on foreign suppliers of digital services (Tax Alert 2021-1387)

— Jul 16: Spain approves Anti-Tax Fraud Law (Tax Alert 2021-1373)

— Jul 16: Spain | EU ETFs no longer qualify for traspasos regime (Tax Alert 2021-1372)

— Jul 16: Ireland’s Department of Finance opens consultation on EU ATAD Interest Limitation Rule and Anti-Reverse Hybrid Rule effective 1 January 2022 (Tax Alert 2021-1366)

— Jul 16: Germany enacts EU ATAD Implementation Law including anti-hybrid rules (Tax Alert 2021-1363)

— Jul 16: European Commission proposes legislative package including environmental tax measures to support EU climate ambitions (Tax Alert 2021-1362)

IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2021-30Internal Revenue Bulletin of July 26, 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.