December 19, 2021
U.S. International Tax This Week for December 17
Ernst & Young's U.S. Tax This Week newsletter for the week ending December 17 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.
It would appear, based on press reports, that the proposed Build Back Better Act (BBBA) will not pass the Senate this year. In a written statement referring to the BBBA, the White House said: "We will advance this work together over the days and weeks ahead; [Senate Majority] Leader Schumer and I are determined to see the bill successfully on the floor as early as possible." No new timeline or deadline has been offered as to when the Senate may take up the BBBA.
Earlier, on 11 December, Senate Finance Committee Chair Ron Wyden released updated text of the Finance Committee's title of the Build Back Better Act. The updated text largely retains the international tax proposals from the version of the BBBA passed by the House but includes some significant technical changes to these rules. Among other things, consistent with the House bill, the committee proposal would implement a new 15% corporate alternative minimum tax based on book income for companies that report over $1 billion in profits to shareholders. The latest proposal introduces new adjustments, however, for determining a taxpayer's adjusted financial statement income (the base to which the 15% rate would apply). Some other highlights in the committee's proposed bill include the following:
- The committee proposal retains the basic structure of IRC Section 163(n) from the House bill, limiting deductions for net interest expense of a specified domestic corporation (SDC) to 110% of its net interest expense multiplied by the allowable percentage. Unlike prior iterations of IRC Section 163(n), however, the committee proposal would permit taxpayers to elect to alter how the SDC's allocable share of the international financial reporting group's book net interest expense (a component of the allowable percentage) is computed.
- The committee proposal also retains, with no substantive modifications, the House bill's overhaul of the global intangible low-taxed income (GILTI) rules that would, among other things, require a US shareholder to compute its GILTI amount on a country-by-country basis. It further retains the House bill's changes to the subpart F income regime to generally limit foreign base company sales and services income rules to transactions involving a US tax resident, directly or by way of a branch or pass-through entity.
- In regard to dividends from a foreign corporation, the House bill would have limited the IRC Section 245A deduction to dividends received from controlled foreign corporates (CFCs), whereas current law allows the deduction for dividends received from "specified 10%-owned foreign corporations" (STFCs). The committee proposal, in contrast, would allow an IRC Section 245A deduction for dividends from STFCs that are not CFCs but would reduce the amount of that deduction from 100% of dividends received to 65% of dividends received.
- In the foreign tax credit (FTC) area, the committee proposal retains, with limited technical corrections, the House bill's modifications to the FTC rules, including a country-by-country FTC limitation for each separate category, the repeal of the foreign branch category, a GILTI category carryforward, a limitation on the allocation of expenses to the GILTI category for purposes of the FTC limitation, and other changes.
- The committee retains the general Base Erosion and Anti-abuse framework of IRC Section 59A of the House bill, but would further modify the provision as it relates to cost of goods sold and payments with respect to inventory.
An EY Tax Alert on these and other committee changes is available.
On the regulations front, the first portion of final FTC regulations have cleared the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) and returned to Treasury for final review, according to the OIRA website. A Treasury official earlier was quoted as saying the US hopes to release the regulatory package, which reportedly runs about 400 pages, before the end of the year. A second set of final FTC regulations are expected to be released sometime in 2022.
The OIRA website also indicates that OIRA received final regulations on interbank offered rates (IBORS) for review on 14 December. The final regulations provide guidance on the tax aspects of the phased elimination of IBORs in the US and abroad. The regulations will address whether changes to a debt instrument as a result of the elimination of the relevant IBOR is a Section 1001 realization event for federal tax purposes.
The OECD announced on its website that the OECD will be releasing the Global Anti-Base Erosion Model Rules under Pillar Two on 20 December. The eagerly anticipated model rules have been delayed and were originally set for release at the end of November.
BEPS 2.0: Focus on Pillar Two (January 12)
During this EY Webcast, Ernst & Young professionals will discuss the key elements of the Pillar Two model rules, highlighting what is new with this latest release. They also will share perspectives on how the European Union and other jurisdictions plan to incorporate these model rules into domestic law.
Private Equity and Private Capital - Navigating transformative global and US legislative change (January 18)
During this EY Webcast, Ernst & Young professionals will discuss recent global private equity (PE) industry trends and the outlook for US and international legislative and regulatory changes relevant to PE and alternative funds, transactions and portfolio companies.
Recent Tax Alerts
— Dec 15: Armenian National Assembly ratifies law introducing concept of electronic services in the Tax Code (Tax Alert 2021-2246)
— Dec 10: Philippines introduces new Philippines Economic Zone Authority (PEZA) visa (Tax Alert 2021-2220)
— Dec 10: Singapore announces changes to COVID-19 tax and Central Provident Fund support measures for individuals and employers for Year of Assessment 2022 (Tax Alert 2021-2219)
Canada & Latin America
— Dec 15: Costa Rica enacted a law to promote investment in and development of international film productions in Costa Rica (Tax Alert 2021-2257)
— Dec 15: Costa Rica's Tax Authority published the list of industries and economic activities that it will consider as a criterion for selecting taxpayers for tax audits (Tax Alert 2021-2249)
— Dec 15: Canada delivers its Economic and Fiscal Update 2021 (Tax Alert 2021-2247)
— Dec 10: Brazil introduces new quarantine requirement for unvaccinated travelers, lifts prohibition on entry by land for fully vaccinated travelers (Tax Alert 2021-2231)
— Dec 15: UK issues consultation on regulations to implement OECD mandatory disclosure rules (Tax Alert 2021-2254)
— Dec 14: France implements automatic reverse charge for import VAT as of 1 January 2022 (Tax Alert 2021-2241)
— Dec 13: Cyprus Finance Minister announces Government’s plan for tax reform in 2022 (Tax Alert 2021-2238)
— Dec 10: Poland publishes statistics on MDR information submitted between January 2019 and September 2021 (Tax Alert 2021-2230)
— Dec 10: Belgium's double tax treaty with Netherlands now subject to MLI (Tax Alert 2021-2229)
— Dec 10: Recent Israeli developments regarding 'Trapped Earnings,' changes to Preferred Enterprise regime require year end analysis (Tax Alert 2021-2225)
— Dec 15: Trade Watch | Issue 3 2021 (Tax Alert 2021-2252)
— Dec 10: PE Watch | Latest developments and trends, December 2021 (Tax Alert 2021-2215)
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.