January 9, 2022
U.S. International Tax This Week for January 7
Ernst & Young's U.S. Tax This Week newsletter for the week ending January 7 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.
As Congress returns to Washington, the $1.7 trillion Build Back Better Act (BBBA, H.R. 5376) social spending package, paid for with proposed international, corporate, and individual tax increases, faces an uncertain path following Senator Joe Manchin's announcement before the holidays that he would not support the BBBA in its current form. The focus now is on what provisions may be dropped to satisfy Senator Manchin, as well as other challenges to Senate passage.
Senate Majority Leader Chuck Schumer told his caucus in a 3 January "Dear Colleague" letter that the Senate would turn to voting rights legislation and reforming the filibuster rule in the near term, making no mention of the Build Back Better Act. Any potential Senate action on BBBA looks to be at least weeks away, with the press quoting Senate Democratic aides as saying the legislation may be delayed perhaps until at least March with major revisions necessary.
Senator Manchin confirmed this week that he is not currently engaged in any negotiations with the Biden Administration or Senate Democratic leadership in regard to the proposed BBBA.
Senator Manchin also said he was interested in bipartisan legislation, adding: "Our country is divided and I don't intend to do anything that divides our country anymore." Negotiations between President Joe Biden and Senator Joe Manchin reportedly will not resume until after a "cooling off" period. According to a Democratic Senator who attended a caucus meeting on 4 January: "We all acknowledge … we need to give a little distance to Manchin and Biden on this so they can come back together and try again."
Treasury and the Internal Revenue Service on 28 December 2021 released final regulations (T.D. 9959) that significantly restrict the ability to credit certain foreign taxes. The final regulations address a wide range of topics, including the definition of a foreign income tax, the disallowance of a credit or deduction for certain foreign income taxes, the allocation and apportionment of foreign income taxes, when foreign income taxes accrue, and related rules under the Internal Revenue Code. The final regulations follow the proposed regulations, published on 12 November 2020, but include several notable changes.
Among other things, the final regulations overhaul the requirements that a foreign tax must satisfy to be claimed as a credit. The most significant change is that a foreign tax must satisfy a new "attribution requirement" (known as the "jurisdictional nexus requirement" under the proposed regulations) for the tax to be creditable under IRC Sections 901 or 903. Under the attribution requirement, foreign taxes are not generally creditable unless the foreign tax law requires a sufficient nexus between the foreign country and the taxpayer's activities or investments. For example, a foreign tax may satisfy the attribution requirement if its sourcing rules are reasonably similar to US sourcing rules.
The final regulations also defer application of the attribution requirement to Puerto Rico's expanded effectively-connected-income regime and excise tax on certain goods and services. An EY webcast is scheduled for 13 January.
On 30 December 2021, the IRS released final regulations (TD 9961) that provide guidance on the elimination of and pending transition away from the use of certain interbank offered rates (IBOR), including the London interbank offered rate (LIBOR), in certain financial contracts, including debt instruments, derivatives, and other contracts. The final regulations address whether a modification of the terms of a contract to replace an existing IBOR with a new reference rate results in a taxable event and the realization of income, deduction, gain, or loss.
The final regulations adopt, with certain changes, proposed regulations issued by Treasury on 9 October 2019, and incorporate, where relevant, additional guidance regarding recommended fallback language in certain financial contracts issued in Revenue Procedure 2020-44 on 9 October 2020. Although the final regulations share many of the same fundamental rules as the proposed regulations, the structure of the final regulations differs significantly from the proposed regulations and is primarily intended to simplify the operative rules.
The final regulations, principally contained in Treas. Reg. Section 1.1001-6, apply to any modification of the terms of a contract that occurs on or after 7 March 2022. A taxpayer may choose to apply the final regulations to modifications of the terms of a contract prior to the applicability date, provided that the taxpayer and all related parties apply the final regulations to all modifications of the terms of contracts that occur before that date.
Publication of all currency and term variants of LIBOR (with the exception of certain US$ LIBOR tenors, and certain "synthetic" British sterling and Japanese yen LIBORs) ceased publication immediately following 31 December 2021. The publication of the overnight, 1-month, 3-month, 6-month, and 12-month US$ LIBOR is scheduled to cease immediately following 30 June 2023, and the publication of the "synthetic" LIBORs will continue until the end of 2022.
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.
Supply chain and tax challenges for manufacturers in Mexico (January 19)
The global economy is undergoing significant supply chain disruption, creating new challenges for multinationals with manufacturing operations in Mexico. Mexico’s 2022 tax reform could also affect these manufacturers. As such, companies may wish to explore manufacturing alternatives in Mexico that could yield new operating and tax efficiencies. During this EY Webcast, Ernst & Young professionals will address these issues.
Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (January 21)
During this EY Webcast, Ernst & Young panelists will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS.
Recent Tax Alerts
— Jan 05: US DOS announces authorization to waive in-person interview requirement for certain nonimmigrant visa applicants effective through December 31, 2022 (Tax Alert 2022-0012)
— Jan 05: New US-Malta competent authority arrangement confirms meaning of 'pension fund' for tax treaty purposes (Tax Alert 2022-0010)
— Jan 06: Singapore enacts Income Tax (Amendment) Act 2021 (Tax Alert 2022-0023)
— Jan 06: Individuals applying to obtain or renew immigration passes in Singapore must be fully vaccinated against COVID-19 as of February 2022 (Tax Alert 2022-0021)
Canada & Latin America
— Jan 06: Peru publishes thin capitalization regulations (Tax Alert 2022-0025)
— Jan 06: Paraguayan Tax Authority creates registry of authorized local transfer pricing professionals (Tax Alert 2022-0022)
— Jan 06: Costa Rica's Ministry of Treasury and Ministry of Foreign Trade modify the procedure that free trade zone companies must follow to sell goods to the local market (Tax Alert 2022-0020)
— Jan 05: Costa Rica's Tax Authority publishes new Income Tax Law Regulation (Tax Alert 2022-0019)
— Jan 04: Costa Rica's Tax Authority publishes the income tax brackets for tax year 2022 (Tax Alert 2022-0006)
— Jan 04: Peru's President enacts various tax measures (Tax Alert 2022-0005)
— Jan 03: Peru enacts law allowing the President to enact various tax measures (Tax Alert 2022-0004)
— Jan 03: Ecuador's new tax reform repeals exemption for interest paid on Government debt (Tax Alert 2022-0002)
— Dec 23: Canada's Bill C-2 receives Royal Assent; public company dividend restriction and amendment to executive compensation repayment rule introduced (Tax Alert 2021-2317)
— Jan 06: Spanish Tax Authorities deny withholding tax exemption on interest payments to EU residents based on GAAR (Tax Alert 2022-0024)
— Jan 05: UK to launch permanent, digital Right to Work checking process in April 2022 (Tax Alert 2022-0011)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of December 20, 2021
|Internal Revenue Bulletin of December 27, 2021
|Internal Revenue Bulletin of January 3, 2022
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.