August 1, 2021
U.S. International Tax This Week for July 30
Ernst & Young's U.S. Tax This Week newsletter for the week ending July 30 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.
The White House and bipartisan Senate negotiators on 28 July announced that they had reached agreement on a $1.2 trillion infrastructure package, after talks had stalled earlier in the week. The Senate later that same day held a procedural vote (67-32) to move forward on a bipartisan infrastructure bill (HR 3684); 17 Republicans voted in favor.
The deal, which has the backing of President Biden, includes $550 billion in new federal spending, compared with the $578 billion figure initially agreed upon last month. Based on a fact sheet released by the White House, pay-fors would include repurposing COVID relief funds, drug rebate rule delay, and a cryptocurrency tax compliance measure, among other items.
Senate Majority Leader Chuck Schumer indicated that his goal remains to pass both the bipartisan infrastructure bill and a budget resolution before the Senate adjourns for the August recess. The Senate could vote on passage of the infrastructure bill this weekend or next week.
The Majority Leader on 29 July was also quoted as saying that Senate Democrats have the necessary 50 votes to move forward with a budget resolution, the first step in getting to a budget reconciliation bill this fall. Senate Budget Committee Chairman Bernie Sanders said: "As I understand it, next week we're going to have 50 votes in order to pass a $3.5 trillion budget resolution." The budget resolution would lay the groundwork for a much larger "human infrastructure" budget reconciliation bill in the fall that would be paid for with corporate tax increases and major international tax changes, among other areas. Although it appears Democrats have the votes to pass the budget resolution, a group of moderate Senators, including Kyrsten Sinema, have not committed to the size of the proposed package.
On 26 July, the United States (US) and United Kingdom (UK) competent authorities signed two arrangements regarding the interpretation of the terms "North American Free Trade Agreement (NAFTA)" and "resident of a Member State of the European Community" for purposes of the Limitation on Benefits (LOB) provision in the US-UK tax treaty. The first arrangement clarifies that the references to NAFTA in the LOB provision of the US-UK Treaty will be understood as references to the Protocol Replacing the North American Free Trade Agreement with the Agreement between the United States of America, the United Mexican States, and Canada (USMCA). The second arrangement clarifies that a "resident of a Member State of the European Community" continues to include a resident of the UK for purposes of the derivative benefits test in the LOB provision of the US-UK treaty.
The competent authorities of Switzerland and the US entered into a similar arrangement in June 2020 regarding the interpretation of the term NAFTA in the US-Switzerland Treaty.
A Treasury official this week was quoted as saying that final foreign tax credit regulations that will finalize proposed rules issued in the fall of 2020 will be released in two parts, with the first section expected to be released this year. The proposed regulations (REG-101657-20) on foreign tax credits provided rules that would fundamentally revamp how to determine the creditability of a foreign tax under IRC Section 901 by requiring a foreign tax to meet a jurisdictional-nexus requirement (which would generally deny a credit for certain extra-jurisdictional taxes). The initial release of the coming final regulations will contain the jurisdictional-nexus requirement, with certain other issues carved out for the second release.
Treasury and the Internal Revenue Service also reportedly will finalize this fall proposed regulations (REG-101828-19) under IRC Sections 951, 951A, and 958 that were issued in June 2019. The proposed regulationsprovided new guidance on the treatment of Global Intangible Low-taxed income (GILTI) and subpart F inclusions incurred through pass-through entities, as well as a GILTI high-tax exclusion.
The Treasury official was also quoted as saying that long-delayed previously taxed earnings and profits (PTEP) regulations are still at least several months from release. He again confirmed that the regulations will be issued in several separate packages. On 26 July, the OECD released the sixth batch of Stage 2 peer review reports on the implementation by Argentina, Chile, Colombia, Croatia, India, Latvia, Lithuania, South Africa of the BEPS Action 14 minimum standard on dispute resolution. The outcomes of the Stage 2 peer review process demonstrate overall positive changes across most of the assessed jurisdictions. For details, see EY Tax Alert 2021-1431.
Recent Tax Alerts
— Jul 27: Japan and Switzerland sign Tax Convention Protocol (Tax Alert 2021-1423)
Canada & Latin America
— Jul 27: Uruguayan tax authority extends due dates for certain taxpayers (Tax Alert 2021-1426)
— Jul 26: Colombia's Executive branch submits a new tax reform bill to Congress (Tax Alert 2021-1424)
— Jul 29: UK waives quarantine requirements for fully vaccinated individuals traveling to England from Europe and US effective August 2 (Tax Alert 2021-1437)
— Jul 29: Poland plans to simplify requirements for corporate income tax consolidation regime (Tax Alert 2021-1432)
— Jul 27: Poland announces plans to introduce an investment agreement for strategic investors (Tax Alert 2021-1422)
— Jul 23: German Ministry of Finance issues new guidance on financing structures (Tax Alert 2021-1417)
— Jul 23: German Ministry of Finance issues new Administrative Principles regarding transfer pricing (Tax Alert 2021-1415)
— Jul 23: Greece issues updated guidance on application of tax residency and permanent establishment rules during COVID-19 outbreak (Tax Alert 2021-1414)
— Jul 23: UK publishes draft legislation for Finance Bill 2022 (Tax Alert 2021-1404)
— Jul 29: OECD releases sixth batch of Stage 2 peer review reports on dispute resolution (Tax Alert 2021-1431)
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.