August 15, 2021
U.S. International Tax This Week for August 13
Ernst & Young's U.S. Tax This Week newsletter for the week ending August 13 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 Biden Administration's and Senate Democrats' two-track policy to pass infrastructure legislation and an FY2022 budget resolution before the August recess bore fruit this week. First, after months of negotiation, the Senate on 10 August approved (69-30) the Infrastructure Investment and Jobs Act (H.R. 3684), a bipartisan infrastructure package that would provide $550 billion in new spending that, combined with routinely authorized transportation funding, would cost $1 trillion over five years. The bill makes investments in roads and bridges, broadband, water, and power (paid for with unused COVID funds), IRS cryptocurrency reporting, pension smoothing, healthcare, and other provisions.
It is unclear how soon the House will act on the infrastructure bill given Speaker Nancy Pelosi's commitment to take up the infrastructure bill only after the Senate passes a reconciliation bill under the FY2022 budget resolution.
On 11 August, after a marathon 15-hour voting session, the Senate approved (50 to 49) the FY2022 budget resolution with reconciliation instructions (S. Con. Res. 14), clearing the way for the drafting of a $3.5 trillion package of Democratic priorities that can pass with a simple majority vote in the Senate. The resolution sets revenue and spending targets for a budget reconciliation bill but does not prescribe policy details. Those details will be worked out by various Senate and House Committees within the confines of their reconciliation instruction targets and will be developed over the coming weeks. Senate Majority Leader Chuck Schumer said, "The Budget Resolution provides a target date of September 15th to the committees to submit their reconciliation legislation. We will work towards this goal and meet, as a caucus, during the week of the 15th to review the bill."
A leadership notice sent to House members after the Senate budget vote indicated the House will interrupt its August recess to convene on 23 August to consider the Senate-passed budget resolution. The House reportedly will not take up the Senate-passed infrastructure bill in August when it returns, however.
A Democratic memo on reconciliation circulated in conjunction with the budget resolution said offsets envisioned to be developed by the Senate Finance Committee should address corporate and international tax reform; tax fairness for high-income individuals; IRS tax enforcement; health care savings; and a Carbon Polluter Import Fee. Finance Committee Chairman Ron Wyden also issued a statement on the options the Committee will consider when it begins to fill in the parameters of the budget resolution. "Our proposals will fall into four categories: multinational corporations, the wealthiest individuals, enforcement against wealthy tax cheats and savings from other programs." The Committee Chairman pointed to the Wyden-Brown-Warner international tax framework as among the proposals the committee would consider in the coming weeks.
On 5 August, Senate Finance Committee Chairman Wyden introduced the Modernization of Derivatives Act (MODA), which would change the tax treatment of financial derivative transactions. Senator Wyden has previously introduced similar bills.
The proposed legislation generally aims to replace many of the current statutes and regulations addressing the tax treatment of specific derivatives with a new regime that uses one timing rule, one character rule and one sourcing rule for all transactions. Under the proposed legislation, MODA would make the following changes to derivatives:
- Require annual mark-to-market accounting for all transactions
- Treat all gains or losses from derivatives and certain related assets as ordinary
- Determine the source of tax items based on the taxpayer's country of residence, incorporation or organization
- Introduce the Investment Hedging Units concept
See EY Tax Alert, US: Wyden bill would change tax treatment of financial derivative transactions, dated 12 August 2021 for details.
An IRS official this week commented on the new IRS campaign aimed at financial service entities engaged in a US trade or business that was announced in June. She said the campaign will take a broad exploratory approach, not targeting specific types of transactions, and indicated that audit coverage in this area has been rare in the past. The IRS is in the process of reviewing returns to determine those which will be audited.
Recent Tax Alerts
— Aug 10: East African Community implements tariff changes (Tax Alert 2021-1491)
— Aug 11: India proposes to remove retrospective applicability of indirect transfer tax regime (Tax Alert 2021-1499)
— Aug 11: Korea announces 2021 tax reform proposals (Tax Alert 2021-1497)
— Aug 09: Thailand’s application of VAT on digital services (e-services) provided by foreign operators will apply as of 1 September 2021 (Tax Alert 2021-1481)
— Aug 06: Australia's Refugee Talent pilot and international border update provided (Tax Alert 2021-1470)
— Aug 11: OECD releases corporate tax statistics publication (third edition), including anonymized and aggregated country-by-country report statistics (Tax Alert 2021-1502)
— Aug 11: OECD releases 2021 update on peer review of preferential tax regimes (Tax Alert 2021-1498)
Highlights of this edition include:
- White House, Senate negotiators reach agreement on $1.2 trillion infrastructure package
- OECD announces conceptual agreement in BEPS 2.0 project; endorsed by G20 Finance Ministers and Central Bank Governors
- Biden Administration expects increased IRS enforcement to generate more revenue
- US, UK competent authorities sign agreements re treaty LOB provision
- IRS memo addresses CSA and inclusion of stock-based compensation costs
- Treasury official provides international tax regulatory update
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-33||Internal Revenue Bulletin of August 16, 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.