October 24, 2021
U.S. International Tax This Week for October 22
Ernst & Young's U.S. Tax This Week newsletter for the week ending October 22 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.
Congress is back in session this week with negotiations continuing over how to shrink the $3.5 trillion-plus House reconciliation bill. It was reported late last week that Senator Kyrsten Sinema said both she and Senator Joe Manchin told President Joe Biden that they cannot guarantee their support for even a $2.1 trillion bill. Manchin raised concerns over the proposed expansion of Medicare and tuition-free community college; opposed new paid family and medical leave provisions; called for new benefits to be means-tested to limit the eligibility to those with lower incomes; and rejected calls by Democrats to include aggressive climate measures.
President Biden and White House officials continued to hold calls and meetings this week in support of his legislative agenda. President Biden met separately on 19 October with Senator Sinema, House progressives, and House and Senate moderates, and said reconciliation plans for free community college would be dropped, the expanded Child Tax Credit would be extended for only one additional year and means tested, homecare funding would be reduced from what was proposed, and paid leave benefits could be reduced to four weeks from 12. There has long been tension between dropping some items altogether, as moderates advocated, and clipping their duration, the approach favored by progressives.
Nailing down a topline spending number and an approach to cutting spending under the House bill will ultimately give lawmakers an indication of how much revenue needs to be raised — the Ways & Means bill proposed about $2.1 trillion in tax increases and Democrats are expecting to count revenue from drug pricing negotiation — and allow for decisions on what tax proposals will be included.
It has been reported that President Biden told moderates he does not want to leave for the G20 summit at the end of next week — it's being held in Rome 30-31 October — without reaching agreements with Congress. There is also the climate change summit in Glasgow beginning 31 October. House Democrats have set 31 October for a reconciliation deal that could draw sufficient support for a House vote on the Senate-passed infrastructure bill.
Though not in the House bill, an Internal Revenue Service (IRS) tax gap information reporting proposal for financial accounts with more than $10,000 in annual deposits or withdrawals was rolled out by Treasury in coordination with Senate Democrats on 19 October through a Treasury fact sheet and could be part of a final reconciliation deal. House Ways & Means Committee Chairman Richard Neal, who said during the Ways & Means reconciliation markup that he was working with Treasury on the issue, stopped short of a full endorsement 19 October, saying "the $10,000 figure is manageable" but that he wants to see more details.
On 21 October, Treasury released Joint Statement from United States, Austria, France, Italy, Spain and the United Kingdom, Regarding a Compromise on a Transitional Approach to Existing Unilateral Measures During the Interim Period Before Pillar 1 is in Effect. In summary, under the Unilateral Measures Compromise, Austria, France, Italy, Spain, and the United Kingdom have agreed to allow for a credit mechanism where some amount of the respective Digital Services Tax (DST) may offset the Pillar One tax liability. In recognition of the compromise, the US agreed to terminate trade actions under Section 301 against these countries. The US also committed not to impose further trade actions with respect to the existing DSTs imposed by these countries.
The parties will meet regularly to discuss progress implementing Pillar One and any implications that may have for the appropriate application of the agreement.
The IRS ruled in PLR 202140016 that a taxpayer can source gains or losses arising from certain commodity derivative hedging transactions (Commodity Derivatives) by reference to the source of gains or losses derived from the sale of the underlying inventory property being hedged. The IRS made its ruling by analogy to the inventory sourcing rules.
As support for its ruling, the IRS relied on the Supreme Court's characterization of similar commodity derivative transactions as an integral part of that taxpayer's business and concluded they were properly treated as surrogates for the taxpayer's stored inventory. See EY Tax Alert 2021-1893 for details.
The Platform for Collaboration on Tax (PCT), a joint initiative of the IMF, OECD, UN and the World Bank, enhanced its support to countries in the area of domestic resource mobilization during the COVID-19 pandemic, according to the Platform for Collaboration on Tax Progress Report 2021. The report, released on 20 October, highlights that the PCT Partners are committed to deepening their tax collaboration further with a revamped work program to help countries develop resilient tax systems and better fiscal policies in response to the crisis.
BEPS 2.0: Beyond 2021 (October 28)
During this EY Webcast, Ernst & Young professionals discuss BEPS 2.0 and taxation of the digitalized economy updates after the October OECD/G20 Inclusive Framework meeting and the G20 Finance Ministers and Central Bank Governors meeting.
BorderCrossings . . . With EY transfer pricing and tax professionals (October 28)
During this EY Webcast, Ernst & Young professionals will discuss frameworks for assessing and inventorying customer-related data and valuing them across a spectrum of business models (i.e., data-enabled and data-enhanced models). We will also examine fair market valuations of data and cybersecurity from a transfer pricing perspective.
Recent Tax Alerts
— Oct 20: Nigeria's Minister of Finance approves Tax Appeal Tribunal (Procedure) Rules, 2021 (Tax Alert 2021-1908)
— Oct 19: Uganda’s Value Added Tax (Designation of Withholding Agents) Notice 2020 has implications for newly announced agents (Tax Alert 2021-1895)
— Oct 20: Hong Kong reiterates its commitment to BEPS 2.0 project (Tax Alert 2021-1905)
— Oct 18: Thailand announces new, more lenient quarantine rules for travelers (Tax Alert 2021-1892)
— Oct 15: Malaysia announces multiple immigration policy changes (Tax Alert 2021-1885)
— Oct 15: Mainland China launches nationwide inspection of High and New Technology Enterprises (Tax Alert 2021-1881)
— Oct 15: Mainland China releases master plan for developing Guangdong-Macao In-depth Cooperation Zone (Tax Alert 2021-1880)
Canada & Latin America
— Oct 20: Double tax treaty concluded between Colombia and Italy will be effective January 1, 2022 (Tax Alert 2021-1910)
— Oct 20: Dominican Republic issues regulations on country-by-country reporting (Tax Alert 2021-1907)
— Oct 21: Italy issues draft legislation for new patent box regime (Tax Alert 2021-1911)
— Oct 18: United Kingdom's Migration Advisory Committee publishes report on Intra Company Transfer route (Tax Alert 2021-1891)
— Oct 20: The Latest on BEPS and Beyond | October 2021 edition (Tax Alert 2021-1900)
— Oct 15: G20 Finance Ministers endorse 8 October BEPS 2.0 statement and call for swift implementation to secure entry into effect in 2023 (Tax Alert 2021-1877)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of October 25, 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:
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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.