April 3, 2022
U.S. International Tax This Week for April 1
Ernst & Young's U.S. International Tax This Week newsletter for the week ending April 1 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.
The Biden Administration released the FY2023 Budget on 28 March, including major tax proposals, some of which were previously floated by the Administration or congressional Democrats and others that are new. Treasury also released the General Explanation (Green Book), available here. The Budget folds most of the House-passed Build Back Better Act (BBBA) into the baseline and assumes it has been enacted.
The Budget continues to call for tax provisions that fell out of the House-passed BBBA due to opposition in Congress, including raising the corporate tax rate to 28% and increasing the top marginal income tax rate (to 39.6%) for high earners, among other provisions.
The Budget includes seven proposals that focus on reforming business and international taxation that are estimated to raise $1.628 trillion over 10 years.
The Budget proposal to increase the 21% corporate rate to 28% would consequently increase the global intangible low-taxed income (GILTI) rate in tandem. The corporate and GILTI rate increases would apply to tax years beginning after 31 December 2022. For an earlier tax year ending after 31 December 2022, a blended corporate rate would apply equal to 21% plus 7% multiplied by the portion of the tax year that takes place in the 2023 calendar year.
Another Administration proposal would repeal the base erosion and anti-abuse tax (BEAT), as modified by the BBBA, and replace it with an undertaxed payment rule (UTPR) that is consistent with the UTPR described in the Organisation for Economic Co-operation and Development (OECD) Pillar Two Model Rules, including a global annual revenue threshold ($850 million), de minimis exclusions and allocation among jurisdictions. Further, a US domestic minimum top-up tax would be part of the rules to protect US revenues from the imposition of UTPR by other countries. The proposal to repeal the BEAT and replace it with the UTPR would be effective for tax years beginning after 31 December 2023.
A proposal for a new incentive to bring jobs to the US would provide a new general business credit. It would equal 10% of the eligible expenses paid or incurred in connection with onshoring a US trade or business that is linked to reducing or eliminating a trade or business or line of business currently conducted outside the US or starting up, expanding, or otherwise moving the same trade or business within the US, to the extent that this action results in an increase in US jobs. The proposal would be effective for expenses paid or incurred after the date of enactment.
Other budget proposals to reform business and international taxation include:
- Disallowing stepped-up basis of a partnership's non-distributed property to a related partner until the property is disposed. The proposal would be effective for partnership tax years beginning after 31 December 2022.
- Conforming the definition of control to test the ownership of at least 80% of the total voting power and at least 80% of the total value of a corporation's stock. The proposal would be effective for transactions occurring after 31 December 2022.
- Permit taxpayers to retroactively elect, in certain circumstances, to treat a passive foreign investment company (PFIC) as a qualified electing fund without Internal Revenue Service consent, generally applicable upon the date of enactment.
- Require IRC Section 6038 reporting for each foreign "taxable unit" to facilitate the BBBA's proposals for country-by-country GILTI and foreign tax credit rules, applicable beginning after 31 December 2022, and to annual accounting periods of foreign business entities ending with or within those tax years.
An EY Tax Alert provides details on these and other budget proposals.
The Senate Foreign Relations Committee on 29 March approved the long-delayed US-Chile income tax treaty. The proposed treaty next goes to the full Senate which must give its advice and consent to ratification. The Chilean Government in 2015 undertook the steps necessary for the treaty to be approved in Chile. The treaty will enter into force when all applicable approval procedures in the United States and Chile have been satisfied. The Foreign Relations Committee approval was subject to two reservations concerning the BEAT and Article 23 (Relief from Double Taxation). The reservation concerning BEAT clarifies that the treaty shall not prevent the imposition of BEAT under IRC Section 59A. No date has been set for full Senate action.
The OECD expects to hold a public consultation on the crypto-asset reporting framework by the end of May after the close of a public consultation on 20 April. The plan, according to an OECD official this week, would be to finalize work on the framework by this fall in time for an October 2022 G-20 leaders' summit.
Multi-hub operating models in the context of global developments and tax reforms (April 6)
Global business trends including digital or technology-driven transformation, growth in direct-to-consumer models, hybrid working models and resilient supply chain initiatives are challenging traditional highly centralized single entrepreneur tax models. During this EY Webcast, Ernst & Young professionals will discuss the impact of global business trends on multi-hub operating models.
What key trends are shaping the future of cross-border controversy (April 7)
During this EY Webcast, Ernst & Young professionals will address various cross-border controversy topics and feature insights from EY professionals from around the globe.
Indirect tax considerations of digital assets, Web3 and the metaverse (April 13)
Join our EY team of tax professionals for the first in a series of discussions focused on the evolving digital landscape of blockchain technology, digital assets, Web 3.0 applications and how those items may converge in a metaverse ecosystem. During this 75-minute EY Webcast, we will discuss this evolving landscape through a state & local and indirect tax lens.
EY Guides and Publications
EY's Worldwide VAT, GST and Sales Tax Guide 2022
While greatly accelerating the pace of all their tax legislation, the world's governments continue to rely heavily on indirect taxes as an invaluable source of revenue. As a result, there is increased risk that taxpayers will be caught unprepared, making a current, detailed guide like EY's Worldwide VAT, GST and Sales Tax Guide all the more valuable. The guide is available for download here.
The outlook for global tax policy and controversy in 2022
The fiscal challenges facing governments today are shared; the globalization and digitalization of the economy, climate change and the ongoing repercussions of the COVID-19 pandemic remain top of mind around the globe. How governments are responding to these and other challenges is addressed in this article, with observations by EY Tax professionals in 68 jurisdictions gathered in the annual EY Tax Policy and Controversy Outlook survey at the end of 2021. This article (with reports for all 68 jurisdiction) identifies and examines the trends and areas of divergence found in the contributors' projections for 2022, at the global, regional and individual jurisdiction levels.
Recent Tax Alerts
— Mar 31: FY2023 Budget includes new details on international tax proposals (Tax Alert 2022-0514)
— Mar 28: USTR announces 232 tariff agreement with the United Kingdom, reinstates some China Section 301 product exclusions (Tax Alert 2022-0488)
— Mar 29: Vietnam relaxes several COVID-19-related entry requirements (Tax Alert 2022-0492)
Canada & Latin America
— Mar 31: Colombia and Luxembourg sign double tax treaty (Tax Alert 2022-0510)
— Mar 30: Nova Scotia budget 2022-23 discussed (Tax Alert 2022-0502)
— Mar 30: OECD releases IT-format to support exchange of tax information on digital platforms (Tax Alert 2022-0500)
— Mar 25: Luxembourg Tax Authorities update XSD schema to allow submission of corrective MDR reports (Tax Alert 2022-0485)
— Mar 31: Turkey proposes new tax bill (Tax Alert 2022-0505)
— Mar 31: Australia issues 2022 - 23 Federal Budget (Tax Alert 2022-0508)
— Mar 29: Australia restores pathway to permanent residence for certain skilled temporary migrants (Tax Alert 2022-0491)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2022-14||Internal Revenue Bulletin of April 4, 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.