March 16, 2022
What to expect in Washington (March 16)
Senate Majority Leader Chuck Schumer (D-NY) and Republican leader Mitch McConnell (R-KY) “have been discussing the contours for a formal conference negotiation to work out a final agreement on the” America COMPETES Act approved by the House in February and the United States Innovation and Competition Act (USICA) passed by the Senate in 2021, Punchbowl News reported. Senate aides said the aim is to begin a formal conference negotiation this work period, which ends on April 8 prior to a two-week spring break, and the story noted that it could take weeks more for a conference agreement to be struck, setting up potential floor action sometime in May or June.
The February 2021 Schumer-McConnell agreement governing certain procedures in the 50-50 split Senate addressed reporting bills from committees but not conference committees, which like standing committees typically have more members from the majority party. (For instance, the 2017 TCJA conference committee included eight Senate Republicans, who were in the majority at the time, and seven Democrats.) USICA was supported by 19 Senate Republicans but the COMPETES Act had one Democrat opposed and one Republican in favor. Both bills include $52 billion in CHIPS Act funding, but the House bill includes trade, climate, immigration, and other provisions criticized by Republicans. They both include funds to encourage emerging technologies but, as the Wall Street Journal has noted, “The Senate for its part focuses largely on encouraging cutting-edge technologies, such as artificial intelligence and quantum computing. The House, by contrast, wants to give more flexibility to federal science officials to decide which new ideas deserve to be jump-started.” Additionally, advocates for a modification to the IRC Section 174 R&D provision included in TCJA have focused on the USICA/COMPETES conference as an potential vehicle for a fix.
Global tax – The Inclusive Framework released its Commentary on the GloBE Rules under the BEPS 2.0 project, providing detailed technical guidance on the operation and intended outcomes under the rules. The commentary is 228 pages long and is accompanied by 50 pages of examples and addresses a host of issues. Among them, the commentary confirmed there could be top-up tax allocable under the Undertaxed Payments Rule (UTPR) when domestic income earned by a company in its headquarter jurisdiction has an effective tax rate as computed under the Model Rules that is below 15%, an outcome that has raised the ire of many US companies that make investments in US infrastructure and other projects that generate general business tax credits. Effectively, US companies facing this top up tax would be paying taxes in other countries because they utilized these tax credits.
OECD said the next step in work on the GloBE rules turns to development of the Implementation Framework, and Inclusive Framework members are seeking public input on the issues that should be addressed by April 11. A public consultation meeting is to be held virtually at the end of April.
Meanwhile, the European Union, with France in the Presidency, did not achieve unanimous support for its Pillar Two minimum tax proposal during an ECOFIN meeting March 15. A draft Directive was amended to delay implementation: member States would be required under revisions to the original draft to bring the Directive into force through their own laws and regulations by December 31, 2023, rather than the end of this year as the Inclusive Framework and the G20 finance ministers had previously agreed. The revised draft also aimed to address concerns of a few countries that Pillar One and Pillar Two are not being implemented at the same time by including a statement confirming the commitment of all Member States to the ongoing process on Pillar One. Still, “Malta, Poland and Sweden all rejected the bill on the table…” Politico reported. “Poland said a mere statement of intent wasn’t good enough, while Malta said the rules should be watered down some more. Swedish Finance Minister Mikael Damberg, after having consulted with his parliament, said it was ‘too early to agree,’ asking for more time.”
Banking - Sarah Bloom Raskin withdrew as President Biden’s nominee to be the Federal Reserve’s vice chair of supervision, Bloomberg reported. The withdrawal came a day after Senators Joe Manchin (D-WV) and Susan Collins (R-ME) said they couldn’t support her nomination. Votes on four other nominees, including on Fed Chairman Jerome Powell and Lael Brainard to be vice chair, are now expected this week.
Congress – The Senate March 15, by a 61-36 vote, confirmed Shalanda Young to be Director of the Office of Management and Budget (she has been acting director).
Ukrainian President Zelensky is set to deliver, virtually, a wartime address to a joint session of Congress today, “with a plea for more assistance…” Bloomberg reported.
Today (at 10:00 a.m.) is the Senate Finance Committee hearing, “Prescription Drug Price Inflation: An Urgent Need to Lower Drug Prices in Medicare.”
Tomorrow (at 10:00 a.m.), are the House Ways & Means Committee hearing, “Oversight Subcommittee Hearing with IRS Commissioner Rettig on the 2022 Filing Season;” and the Finance Committee hearing, “Examining Charitable Giving and Trends in the Nonprofit Sector.”
Friday, March 18 (12:00 p.m.) is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.