January 30, 2022
U.S. International Tax This Week for January 28
Ernst & Young's U.S. International Tax This Week newsletter for the week ending January 28 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.
Senator Joe Manchin said during an interview on 27 January that he is in discussions with Democrats regarding a new version of the Build Back Better Act (BBBA). He said: "There's a lot of conversation going on now. They've been reaching out." The Senator said that while he is open to negotiations, he also pointed to inflation in saying he "wants to be realistic." Senator Manchin's comments came amid rising concerns of double taxation if Congress fails to enact changes to the global intangible low-taxed income (GILTI) rules and countries adopt the rules under the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two.
A senior Treasury official this week indirectly addressed the point, saying that the Administration remains "confident that many of the top priorities will ultimately be enacted," noting in particular reform of the GILTI regime and boosting Internal Revenue Service (IRS) funding by $80 billion over 10 years. Speaking at a virtual meeting of the New York State Bar Association Tax Section on 25 January, the official said the BBBA's international tax proposals would allow the US to conform to the OECD BEPS 2.0 Pillar Two agreement, which she described as "one of the biggest accomplishments of the entire Treasury Department and the administration to date." The official added there is no backup plan to meet US obligations under Pillar Two if the BBBA international provisions are not enacted. "We are really confident Build Back Better will move forward … and this is a very key portion of that agenda," the official said.
In regard to the BEPS 2.0 project, 17 Republican members of the House Ways and Means Committee on 19 January wrote to Treasury Secretary Janet Yellen warning that Congressional consent is necessary in order for Pillar One and Pillar Two to have US domestic effect. The committee members wrote that both pillars implicate "core Congressional revenue-raising powers" and therefore "implementing legislation is required for either pillar to have domestic legal effect." The letter goes on to say: "It is extremely troubling that the Administration has made promises to the world without sufficient bipartisan, bicameral consultation."
Treasury on the 24 January finalized regulations (TD 9960) that require an aggregate approach to determine the subpart F inclusion for a controlled foreign corporation (CFC) owned by a domestic partnership. Under this approach, a partner of a domestic partnership would have a subpart F inclusion from the indirectly-owned CFC if the partner itself were a US shareholder of the underlying CFC. This aggregate approach is consistent with the treatment of a domestic partnership for GILTI inclusion purposes. The aggregate approach does not, however, apply for IRC Section 1248 purposes or when determining whether: (i) a US person is a US shareholder; or (ii) a foreign corporation is a CFC.
Treasury also issued accompanying proposed regulations (REG-118250-20) that would extend the aggregate approach to domestic partnerships that own an interest in a passive foreign investment company (PFIC). The proposed extension would have the following consequences:
- A domestic partnership would no longer be treated as a PFIC shareholder for purposes of making qualified electing fund (QEF) or mark-to-market (MTM) elections, recognizing QEF inclusions or MTM amounts, or filing Forms 8621.
- A partner of a domestic partnership, rather than the domestic partnership, would be required to make a QEF election, and the partner would have to notify its partnership to assist it with information reporting and basis tracking in the QEF stock.
- Domestic partnerships would be treated as aggregates for purposes of applying the CFC-PFIC overlap rule under IRC Section 1297(d).
The final regulations generally apply to tax years of a foreign corporation beginning on or after the date that the regulations are filed with the Federal Register (e.g., 2023 for calendar-year taxpayers). Domestic partnerships may apply the final rules in their entirety to tax years of a foreign corporation beginning after 2017, subject to certain consistency requirements. The proposed regulations generally would apply prospectively to tax years beginning on or after the date the rules are adopted as final regulations.
An OECD official on 25 January was quoted as saying that the organization is developing a BEPS 2.0 Pillar Two corporate minimum tax implementation framework that would utilize the peer review process to determine if a country's existing tax provisions are compliant with the new BEPS rules. The official indicated the implementation framework would address administration, compliance and coordination in regard to topics associated with Pillar Two, including identifying the existence of a qualified income inclusion rule (IIR) and undertaxed payments rule (UTPR) as well as minimum domestic taxes.
The official said: "We could envisage that that process will take place through some kind of peer review process whereby those countries that were involved in implementing these rules would assess the legislation of others to determine whether they are comfortable that these rules do, in fact, meet the criteria that they have agreed." According to the official, the results would be forwarded to tax administrations and multinational groups to determine those countries that have qualified global anti-base erosion (GLOBE) rules. The implementation framework is expected to be released sometime in 2022, the official said.
Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (February 4)
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.
How to respond to the continued evolution of hybrid work (February 8)
During this EY Webcast, Ernst & Young professionals will discuss hybrid working and how organizations are moving forward in the complicated world of travel disruption, vaccine requirements, changing government policies and fluctuating return-to-office plans.
International tax talk quarterly series…With the EY Global Tax Desk Network (February 8)
The European Commission recently published a legislative proposal for a directive to tackle the misuse of shell entities in the European Union (UNSHELL/ATAD 3). This EY Webcast will address how implementation of these new requirements could affect businesses. At a high level, the webcast will also consider the impact these provisions are likely to have in other regions with respect to similar anti-abuse rules and reporting requirements, as well as these countries’ responses to increased tax transparency in recent years.
What India’s 2022-23 Budget could mean for its economy (February 9)
Join us for this EY Webcast, during which our senior EY tax and policy professionals will help decode the fine print of the 2022-23 India Budget, covering the macroeconomic and policy announcements, direct tax proposals and indirect tax proposals.
EY Guides and Publications
Asean Mobility Spotlight (January 2022)
In this edition of the Asean Mobility Spotlight, we highlight the measures introduced by governments in the Asean region to support businesses and employees through the pandemic as well as provide guidance to the required year-end reporting obligations applicable for selected Asean jurisdictions.
Recent Tax Alerts
— Jan 27: Kenya publishes Common Reporting Standards regulations (Tax Alert 2022-0153)
— Jan 25: Hong Kong introduces new e-Visa (Tax Alert 2022-0140)
Canada & Latin America
— Jan 27: Recent Access to Information and Privacy request regarding Express Entry into Canada discussed (Tax Alert 2022-0156)
— Jan 26: New Alberta Immigration Nominee Program introduced (Tax Alert 2022-0149)
— Jan 26: Peru's President modifies rules for enacting tax exemptions and tax benefits (Tax Alert 2022-0148)
— Jan 26: Brazil lifts its prohibition on air travel from Botswana, Eswatini, Lesotho, Namibia, South Africa and Zimbabwe (Tax Alert 2022-0145)
— Jan 24: Quebec introduces new flexibility to the Temporary Foreign Worker Program (Tax Alert 2022-0133)
— Jan 24: Canada introduces new travel restrictions for unvaccinated foreign nationals (Tax Alert 2022-0132)
— Jan 27: Cyprus Tax Authority issues Frequently Asked Questions on loans financed by debt (Tax Alert 2022-0154)
— Jan 27: Algeria’s 2022 Finance Act introduces new tax measures (Tax Alert 2022-0151)
— Jan 27: OECD releases eighth batch of Stage 2 peer review reports on dispute resolution (Tax Alert 2022-0150)
— Jan 26: Romania permits Digital nomads to extend their stay beyond 90 days (Tax Alert 2022-0146)
— Jan 21: OECD publishes 2022 Transfer Pricing Guidelines (Tax Alert 2022-0126)
— Jan 21: The Latest on BEPS and Beyond | A 2021 review (Tax Alert 2022-0121)
— Jan 25: Australia relaxes border and visa restrictions to address skill shortage (Tax Alert 2022-0139)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of January 24, 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:
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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.