October 31, 2021
U.S. International Tax This Week for October 29
Ernst & Young's U.S. International Tax This Week newsletter for the week ending October 29 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.
President Biden on 28 October announced a new budget reconciliation framework that outlines the Democrats' $1.75 trillion package, which was followed hours later by the legislative text. The rewrite of the Build Back Better Act (H.R. 5376) — which originally was proposed at $3.5 trillion — is essentially a stripped-down version of the House bill from September with new revenue offsets reflecting Senator Kyrsten Sinema's opposition to tax rate increases.
A White House press release states that the package is "fully paid for and will reduce the deficit" through various tax provisions, including a 15% corporate alternative minimum tax on corporate profits and a 15% global minimum tax. The framework also includes a surcharge on high income individuals, estates and trusts (5% on modified adjusted gross income above $10 million and an additional 3% tax on modified adjusted gross income above $25 million) and an overhaul of tax administration.
The revamped budget reconciliation bill does not include a number of social spending programs, such as paid family and medical leave due to opposition from centrist Democrats. It also does not include free community college, a program aimed at pushing utilities to generate more clean energy, nor a series of top marginal corporate or individual tax rate increases. The package also left out a recently proposed tax on billionaires' unrealized gains, due to concerns raised by Senator Joe Manchin and other Democrats.
The tax items in the coming budget reconciliation bill are not completely settled. Senate Finance Committee Chairman Ron Wyden said: "This is not done," adding that the Administration "acknowledged that there is more work to do."
International tax changes remain in the package and the global intangible low-taxed income (GILTI) rate would increase to 15% with a country-by-country application of the GILTI regime. The revised bill reduces the IRC Section 250 deduction for foreign-derived intangible income (FDII) to 24.8% and GILTI to 28.5%, yielding a 15% GILTI rate and a 15.8% FDII rate, with changes effective for tax years beginning after 31 December 2022. The bill would permit the carryforward of excess foreign tax credits with respect to the GILTI category to five succeeding tax years for taxes paid or accrued in tax years beginning after 31 December 2022 and before 1 January 2031. For tax years beginning after 31 December 2030, the carryforward period for excess GILTI category taxes would be 10 years.
The new Biden framework calls for "imposing a penalty rate on any foreign corporations based in countries that do not" abide by the OECD agreement, and in the House bill the Base Erosion and Anti-Abuse Tax (BEAT) rate has been increased to 12.5% in 2023, 15% in 2024, and 18% in 2025 and later. The tax press is quoting a House Democratic staffer as saying that the Biden Administration's "Stopping Harmful Inversions and Ending low-tax Developments" (SHIELD) proposal has been dropped, with changes to BEAT proposed instead.
The revised bill retains the proposal to add IRC Section 163(n) to limit the interest deduction of certain domestic corporations that are members in an international financial reporting group to the "allowable percentage" of 110% of the net interest expense. The revised bill, however, removes the five-year carryforward limitation for interest expense disallowed under IRC Sections 163(j) or (n) that was originally proposed under IRC Section 163(o)(2). New regulatory authority was also granted to address certain items of income and expense under subpart F, taxpayers with interests in fiscally transparent entities, and potential adjustments to interest income and expense. The revised proposal applies to tax years beginning after 31 December 2022.
In terms of a timeline, there appears to be growing consensus among Democrats to work to get both the reconciliation bill and infrastructure done in short order. Senate Majority Leader Chuck Schumer reportedly told Democratic members they have about a week to negotiate things back in or out of the reconciliation framework released on 28 October. Senator Sinema released an optimistic statement about the framework and Senator Manchin indicated he would support a $1.75 trillion package, but refused to say he if he supports the latest budget framework.
The indirect tax technology journey: Now. Next. Beyond (November 3)
During this EY Webcast, Ernst & Young professionals will share insights into how market-leading organizations are using technology to adapt to new legislation and market trends, and to effectively transform tax operations.
Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments (November 5)
During this EY Webcast, Ernst & Young professionals will discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change. Panelists will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS.
International tax talk quarterly series with the EY Global Tax Desk Network (November 9)
During this EY Webcast, panelists from Europe, Latin America and the Asia-Pacific region, will discuss the following: (i) Recent EU tax legislative changes affecting intragroup transactions and holding, financing and intellectual property arrangements; (ii) Key changes under the proposed Latin-America tax reform in Brazil and Mexico; (iii) Trends, developments and the potential impact of global tax reform in the Asia-Pacific region; and (iv) Foreign tax considerations in preparing for proposed US legislative changes, with a focus on developments that may require action by December 31, 2021.
Recent Tax Alerts
— Oct 26: US issues Presidential Proclamation regarding new air travel rules (Tax Alert 2021-1951)
— Oct 28: Nigeria issues list of approved COVID-19 vaccines; removes Brazil, South Africa and Turkey from red list (Tax Alert 2021-1968)
— Oct 28: Ghana Revenue Authority issues Practice Notes on certain provisions of the VAT Act (Tax Alert 2021-1964)
— Oct 26: Nigeria implements new, updated policies for inbound travelers (Tax Alert 2021-1950)
— Oct 26: Kenya | Action required for LIBOR transition (Tax Alert 2021-1941)
— Oct 28: Indian tax authorities may be preparing to enforce GST and EL compliance on payments to US universities for online courses (Tax Alert 2021-1973)
— Oct 28: India implements new policies for inbound travelers (Tax Alert 2021-1970)
— Oct 28: China implements new requirements for Official Invitation (PU) letters sponsored by companies based in Beijing (Tax Alert 2021-1967)
— Oct 27: OECD releases People’s Republic of China Stage 2 peer review report on implementation of Action 14 minimum standard (Tax Alert 2021-1960)
— Oct 22: Thailand publishes mandatory requirements for Thai transfer pricing documentation (Tax Alert 2021-1923)
Canada & Latin America
— Oct 28: Argentine Government extends the promotional regime for industrial entities located in Tierra del Fuego, Antarctica and Southern Atlantic Islands (Tax Alert 2021-1974)
— Oct 28: Paraguayan tax authority issues new transfer pricing rules (Tax Alert 2021-1972)
— Oct 28: Paraguayan Government modifies transfer pricing provisions related to the exportation of certain commodities (Tax Alert 2021-1969)
— Oct 28: OECD releases Brazil Stage 2 peer review report on implementation of Action 14 minimum standard (Tax Alert 2021-1965)
— Oct 25: Costa Rica's Ministry of Finance increases taxes on packaged non-alcoholic beverages and 'toilet' soap (Tax Alert 2021-1943)
— Oct 25: Costa Rica's Economic Affairs Commission of the Legislative Assembly approves reform of General Customs Law (Tax Alert 2021-1942)
— Oct 22: Peruvian Tax Court establishes guidelines that entities must meet to qualify as beneficial owners under Peru-Chile income tax treaty (Tax Alert 2021-1927)
— Oct 28: UK Chancellor delivers second Budget of 2021 (Tax Alert 2021-1971)
— Oct 28: Italy issues Law Decree with urgent tax measures including voluntary disclosure for R&D tax credit (Tax Alert 2021-1962)
— Oct 27: Italian Government approves 2022 Budget document and proposes postponement of Italy's Sugar Tax and Plastic Tax to 2023 (Tax Alert 2021-1959)
— Oct 26: Portugal proposes changes to VAT law (Tax Alert 2021-1948)
— Oct 26: Six-country Joint Statement on transitional approach to existing unilateral measures during period before Pillar One is in effect (Tax Alert 2021-1945)
— Oct 25: OECD releases outcomes of fourth phase of peer reviews on BEPS Action 13 (Tax Alert 2021-1939)
— Oct 25: OECD releases seventh batch of Stage 2 peer review reports on dispute resolution (Tax Alert 2021-1938)
— Oct 25: United Nations launches MAP and Tax Dispute Resolution Handbook (Tax Alert 2021-1932)
— Oct 25: Italy issues Law Decree on new patent box regime (Tax Alert 2021-1929)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2021-43||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:
— 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.