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February 6, 2022

Americas Tax Policy: This Week in Tax Policy for February 4

This week (February 7-11)

Congress: The House and Senate are both in session the week of February 7. The House is out the following week, creating the expectation they could vote on a continuing resolution next week ahead of the expiration of current funding on February 18. House Majority Leader Steny Hoyer (D-MD) February 4 wouldn't divulge whether that is the plan, saying only, "We are hopeful that something will come forward next week in the form of an omnibus." Top Democratic and Republican appropriators have been meeting regarding an agreement on discretionary spending levels for defense and non-defense spending as well as policy riders, and those issues remain outstanding.

Ways & Means: The House Ways and Means Oversight Subcommittee announced a "Hearing with the National Taxpayer Advocate on Challenges Facing Taxpayers" on Tuesday, February 8, 2022 (at 2:00 p.m.).

Check out the latest edition of Washington Council EY's podcast, DC Dynamics ! In Episode 8: "Which way is up?" host Ray Beeman interviews Rebecca Burch to examine the intersection of US and international tax policy; specifically, how the US and US-based multinational companies will be treated under the OECD two-pillared global tax agreement, which is very connected to the currently stalled BBBA.

Last week (January 31-February 4)

Reconciliation update: Senator Joe Manchin (D-WV) this week restated in several ways that a wholly new spending and tax bill must be constructed following the apparent demise of the House-passed Build Back Better Act (BBBA). He said February 1 that the BBBA from mid-December is dead — "If we're talking about the whole big package, that's gone" — and "whatever we come up with" will be a different bill. Manchin, who other Democrats concede will largely shape the bill, called for "fixing the tax code" in a February 3 NBC story, but hasn't publicly specified what BBBA tax provisions he supports or opposes. Roll Call reported that Senator Manchin "offered two broad areas he'll expect to be in any bill: a 'fair and equitable' tax code that makes sure 'everybody [pays] their fair share and especially the wealthy,' and provisions that address drug costs." (The story noted that the absence of Senator Ben Ray Luján (D-NM) leaves Democrats without a 50th vote for the time being.) There is also no current sense of how much revenue such a bill would require and what tax provisions would be retained or dropped from the BBBA.

With regard to timing, Senator Manchin wants government funding and election reform bills done prior to the post-BBBA rebuilding effort. Those items combined with an expected effort to reconcile differences between the House-passed America COMPETES Act competitiveness bill and the Senate-passed USICA competitiveness bills within 30 days add up to a full February agenda and raise questions over whether there will be much opportunity for progress on a post-BBBA new climate/social spending/tax bill this month, though some discussions have begun. The end of February also brings the target date President Biden has set for announcing his selection of a Supreme Court nominee who would be subject to the Senate confirmation process, then the State of the Union Address March 1, and release of the Administration's FY2023 budget and "Greenbook" of tax proposals at some point. So it appears that serious efforts to develop a new version of the BBBA will be put off to after all that activity is completed.

Tax implications: The longer the next incarnation of the BBBA takes, the greater the chances there could be pressure on Congress to extend tax provisions that expired December 31, 2021, many of which have extensions embedded in the BBBA. In limbo along with the fate of the post-BBBA bill are time-sensitive tax provisions embedded in the House-passed bill, including some energy tax extenders and delaying the TCJA cliff on IRC Section 174 R&D amortization. However, it remains unclear at what point supporters of extending those expired provisions will be ready to pivot to try to get them on to another legislative vehicle, and what that vehicle might be. The COMPETES Act passed by the House February 4 includes Trade Adjustment Assistance (TAA) and a tax provision to make permanent the Health Care Tax Credit for health insurance costs, raising some speculation about whether other tax provisions could be added down the line.

R&D amortization: The House-passed BBBA would delay the IRC Section 174 R&D amortization requirement until after 2025. In a statement in the February 3 Congressional Record, Ways & Means Committee member John Larson (D-CT) said, "If Congress fails to delay amortization before March 31st, the first quarter of 2022, businesses will be forced to act … A four-year delay of amortization is included in the House-passed Build Back Better legislation and the initial Senate substitute. I would have hoped we would already have addressed this issue, but while progress on that legislation awaits final disposition in the Senate, Congress must begin to consider whatever is the fastest path to enactment because time is of the essence. One option would be the two pieces of legislation designed to address China competition," including the COMPETES Act. He made a case for why the R&D provision fits into a competitiveness bill.

Politico February 1 reported on defense companies pushing for relief from the TCJA requirement for amortization of R&D expenses beginning this year. The story said, "Top U.S. defense companies are urging lawmakers to allow them to continue immediately writing off their research and development costs and preserve a generous tax benefit that's been on the books the past several years. But the outlook for a change in the law is murky now that Democrats' Build Back Better mega bill is on the ropes." Also, "If BBB can't be revived, House and Senate tax panels could rectify the tax issue in a standalone bill. Lawmakers could also include the change in a year-end package that renews expiring tax breaks and credits."

CAMT: Republicans don't support the spending or the tax increases under the BBBA and have taken particular aim at some provisions. In a February 2 letter, Senate Finance Committee Republicans enumerated concerns with the 15% corporate minimum tax proposal, including saying, "Because capital investments are treated differently for book and tax purposes, the proposal would impose a particularly burdensome tax on capital investment made by American manufacturers, energy companies, and other major job-creators."

Global tax: The Wall Street Journal February 3 reported on US business concerns that aspects of the Pillar Two model rules "would make domestic tax breaks less valuable for some U.S.-based companies, potentially limiting the effectiveness of incentives for research, exports and low-income housing" under rules that "let other countries impose taxes if multinational companies pay too little at home." The story said, "Under proposed rules, large companies could benefit from domestic tax breaks until their rates got down to 15%. Below that threshold, other countries could impose what is known as a 'top-up tax' on those companies and make up the difference."

OECD: The OECD announced the first wave of consultations on the global tax agreement's Pillar One rules, which in part would augment the arm's length transfer pricing rules with a new taxing rate including a formula for reallocating certain profits into market jurisdictions, known as Amount A. The consultation focused on nexus and sourcing for Amount A, and included the release of a public consultation document. Comments are due no later than February 18. "For Amount A of Pillar One, the Inclusive Framework is launching a public consultation that will occur in stages, by releasing Secretariat working documents on each building block to obtain feedback quickly and before the work is finalized," OECD said. "This approach, rather than waiting for a comprehensive document to be ready, will allow work to continue in parallel, in order to remain within the political timetable agreed in October 2021." OECD further announced:

  • for Amount B of Pillar One, a public consultation document will be issued in mid-2022, with a public consultation event to follow the comment period;
  • regarding Pillar Two, an Implementation Framework is being developed to facilitate the co-ordinated implementation of the GloBE rules and will address administrative and compliance issues, including the development of safe harbours, and a public consultation will be launched later this month, with a consultation event to follow in March; and
  • for the Subject to Tax Rule (STTR) of Pillar Two, the draft model provision and its commentary will be released in March 2022 with a defined set of questions set for input, and the multilateral instrument to facilitate the implementation of the STTR would also be released for comment at the same time.

Charities: Reps. Chellie Pingree (D-ME) and Tom Reed (R-NY) February 3 introduced the Accelerating Charitable Efforts (ACE) Act to ensure funds donated to donor-advised funds (DAFs) are made available to charities within a reasonable period of time and speed up donation timelines. Angus King (I-ME) and Chuck Grassley (R-IA) sponsor the Senate bill.


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