August 29, 2021
U.S. International Tax This Week for August 27
Ernst & Young's U.S. Tax This Week newsletter for the week ending August 27 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.
In a major development this week, members of the House of Representatives returned to Washington from their summer recess and adopted the Senate-passed FY 2022 budget resolution on 24 August. The action paves the way for a potentially $3.5 trillion package of Democratic priorities addressing "human infrastructure," paid for in part by tax increases and that can pass the Senate with a simple majority vote. The final House vote (220-212, along party lines) reflected a last minute agreement among House Democratic leadership and House Democratic moderates that called for a vote on the Senate-passed $1.2 trillion infrastructure bill by 27 September. The budget resolution includes reconciliation instructions to various committees to report provisions under their jurisdictions by 15 September, though there is no penalty for missing the deadline.
The House Ways and Means Committee will begin a markup the week of 6 September, which likely will last for a number of days. The ultimate size of the proposed $3.5 trillion reconciliation bill is unclear at this time, with the amount of investments ultimately dictating the amount of pay-fors, including tax increases. Four general areas are targeted for potential investment: healthcare, energy, care-giving and education, and low-income tax credits. Pay-fors being considered by Democrats include corporate and international tax changes, individual tax increases targeting wealthier individuals, health and climate provisions — the latter including a possible polluter import fee — and dynamic scoring, which counts the macroeconomic effects of long-term growth in revenue calculations.
The House returns from the August recess on 20 September. The Senate returns to Washington on 13 September.
Senate Finance Committee Chairman Ron Wyden and Senators Sherrod Brown and Mark Warner on 25 August released additional details regarding the international tax framework they made public in April. It focuses on changes to the 2017 Tax Cuts and Jobs Act's provisions on Global Intangible Low-taxed Income (GILTI), Foreign-derived Intangible Income (FDII), and the Base Erosion and Anti-abuse Tax (BEAT). The newly-released legislative text of the framework leaves some areas still uncertain, however, including the GILTI tax rate. The text also does not say how the BEAT might be changed to incorporate aspects of the Biden Administration's Stop Harmful Inversions and Ending Low-Tax Developments (SHIELD) proposal.
Proposed GILTI changes would:
- Repeal the exemption for qualified business asset investment (QBAI, which is intended to be roughly the value of offshore tangible assets)
- Increase the GILTI rate by an unspecified amount
- Use a "country-by-country" system for applying GILTI through dividing global income into two groups, low-tax and high-tax, with GILTI only applied to income from low-tax jurisdictions, while income from high-tax jurisdictions would remain subject to tax until repatriated
FDII changes would:
- Repeal the exemption for domestic QBAI
- Replace FDII's "deemed intangible income" with a new metric, "domestic innovation income," which would be research and development and worker training expenses
- Equalize the yet-to-be-determined FDII and GILTI rates
The proposed changes to BEAT would follow the original framework's proposal to give domestic business credits under IRC Section 38 full value, and would establish a second rate bracket applicable to "base erosion income," which is the excess of modified taxable income over taxable income. Regular taxable income, excluding base erosion income, would remain subject to the 10% rate in the BEAT equation.
The Internal Revenue Service (IRS) announced in Notice 2021-51 that it will amend the regulations under IRC Section 1446(a) and IRC Section 1446(f) to defer the applicability date of certain provisions by one year, to 1 January 2023. The affected provisions relate to withholding: (i) on transfers of interests in publicly traded partnerships (PTPs); (ii) on distributions made with respect to PTP interests; and (iii) by non-publicly traded partnerships on distributions to transferees who failed to withhold properly. Taxpayers may rely on the modified applicability dates immediately.
IRC Section 1446(f) is a collection mechanism for IRC Section 864(c)(8), which treats gain or loss from the disposition of an interest in a partnership that is engaged in a US trade or business by a nonresident alien individual or foreign corporation as effectively connected with the conduct of that US trade or business to the extent the gain or loss is allocable to the partnership's US business assets. The IRS released final regulations (TD 9926) under IRC Section 1446(f) in October 2020. The regulations originally were supposed to apply to withholding on certain transfers and distributions on and after 1 January 2022.
Recent Tax Alerts
— Aug 23: Singapore to open Vaccinated Travel Lane with Brunei and Germany; resumes issuance of entry approvals for vaccinated work pass holders (Tax Alert 2021-1542)
Canada & Latin America
— Aug 26: Dominican Republic enacts Law No. 163-21 promoting the trading of publicly-offered securities on the Dominican Republic Stock Exchange (Tax Alert 2021-1575)
— Aug 24: Canada's Distributed Investment Plans required to request certain investor information by October 15 (Tax Alert 2021-1558)
— Aug 24: Supreme Court of Canada rules that CCAA charges take priority (Tax Alert 2021-1557)
— Aug 23: Uruguay establishes tax incentives for investments in aeronautical infrastructure projects (Tax Alert 2021-1543)
— Aug 20: Uruguayan Tax Authority issues procedure for recovering corporate income tax and net wealth tax payments made from January to June 2021 (Tax Alert 2021-1547)
— Aug 20: Uruguayan Tax Authority extends due date for issuers of electronic receipts to submit information on invoicing software or electronic tax receipt processes (Tax Alert 2021-1546)
— Aug 26: Social security exempt third-country nationals may now obtain German work authorization as local hire specialists and skilled workers (Tax Alert 2021-1574)
— Aug 26: Swiss authorities release statement on application of Most Favored Nation clause in India-Swiss tax treaty (Tax Alert 2021-1570)
— Aug 23: OECD releases Colombia Stage 2 peer review report on implementation of Action 14 minimum standard (Tax Alert 2021-1551)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-34||Internal Revenue Bulletin of August 23, 2021|
| ||2021-35||Internal Revenue Bulletin of August 30, 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.