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September 2, 2021

U.S. International Tax This Week for September 2

Ernst & Young's U.S. International Tax This Week newsletter for the week ending September 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 FY 2022 Budget resolution that has now passed both the Senate and the House 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 continue over a period of days. The ultimate size of the proposed $3.5 trillion reconciliation bill remains unclear at this time, with the amount of investments ultimately dictating the amount of pay-fors, including expected tax increases.

The House returns from the August recess on 20 September. The Senate returns to Washington on 13 September.

In a recent Chief Counsel Advice Memorandum (CCA 202132009), the Internal Revenue Service (IRS) concluded that an affiliated group's joint and several liability for the payment of a branded prescription drug fee is not solely determinative in deciding whether the remitting member may exclude any reimbursement of the fee from its gross income. The IRS provided several factors that should be considered in determining whether the remitting member benefits from the payment of the fee and, therefore, may not exclude the reimbursement from its gross income.

The taxpayer is a US corporation and member of an affiliated group that develops, manufactures and distributes branded drugs and other medical care products. The foreign members of the group manufacture the drugs and own the intellectual property related to the branded drugs. Under an intercompany agreement with the foreign members, the taxpayer distributes the drugs in the United States and receives a fixed profit margin resulting from the sales. The taxpayer's transfer pricing method allocates excess profits or losses beyond the specified operating profit margin to the foreign members.

The five-factor test articulated in the CCA is helpful because it provides insight as to how the IRS may analyze intracompany reimbursements. The five-factor test does not articulate new principles; instead, it distills authorities from the reimbursement doctrine, capital contribution principles, and direct-and-proximate-benefit principles on which taxpayers rely when analyzing reimbursement payments. Although the CCA focused on whether a reimbursement was includible in gross income, the five-factor test may also be helpful in determining whether the reimbursing party or the party receiving the reimbursement may claim a deduction for the reimbursed expense.

The US and France recently signed a joint statement on the spontaneous exchange of country-by-country reports for fiscal years beginning in 2020 and 2021. The exchange will be based on Article 27 of the 1994 US-France income tax treaty, as amended by protocols signed in 2004 and 2009.

Upcoming Webcast

Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (September 10)
During this Thought Center Webcast, Ernst & Young professionals will discuss about operating the tax function in this time of National Emergency created by the COVID-19 virus.

Recent Tax Alerts

United States

— Aug 27: USCIS requires COVID-19 vaccinations for applicants applying for adjustment of status or refugee status (Tax Alert 2021-1579)

— Aug 11: United States: Adjustment of Status Application is updated to include SSN request (Tax Alert 2021-1500)


— Sep 01: Mainland China simplifies application procedures for unilateral advance pricing arrangements (Tax Alert 2021-1594)

— Aug 31: Thailand's VAT to remain at 7% for an additional two years (Tax Alert 2021-1585)

— 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)

— Aug 19: Malaysia announces multiple immigration policy changes (Tax Alert 2021-1534)

Canada & Latin America

— Aug 19: Peru announces new immigration policies for Resident Visa and Temporary Visa holders (Tax Alert 2021-1535)


— 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)


— Sep 01: Australian Treasury releases revised draft law on Corporate Collective Investment Vehicle regime (Tax Alert 2021-1593)


— Sep 01: Global labor and employment law strategic topics | July 2021 Edition 2 (Tax Alert 2021-1595)

Recent Newsletters

Washington Dispatch
   Highlights of this edition include:


  • Infrastructure legislation, FY’22 budget resolution move forward
  • Senate Finance Committee Chairman, members release international tax discussion draft
  • Finance Committee Chairman introduces bill that would change tax treatment of financial derivative transactions
  • Senate-passed infrastructure bill would impose information-reporting requirements on sales of cryptocurrency, other digital assets

IRS news

  • IRS extends to 1 January 2023, applicability date for W/H on certain transfers, distributions related to PTP interests
  • US, Germany agree on exchange of CbC reports

Transfer pricing news

  • Amgen intends to challenge $3.6b tax deficiency

OECD developments

  • OECD releases 2021 update on peer review of preferential tax regimes
  • OECD releases corporate tax statistics publication (third edition), including anonymized and aggregated CbC report statistics

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.