April 10, 2022
Americas Tax Policy: This Week in Tax Policy for April 8
This week (April 11-15)
Congress: The House and Senate are out for two weeks for their spring break/Easter recess, and plan to be busy upon returning. Senate Majority Leader Chuck Schumer (D-NY) said April 7, "it has been a very busy April; it has been a very busy March work period, and when we come back in May, it is going to be very busy again. We have a whole lot to do." The agenda is expected to include the America COMPETES/USICA competitiveness bill and a $10b COVID package, and Senator Schumer has said he is interested in reviving budget reconciliation talks. Also expected are votes on President Biden's four Fed nominees - Jerome Powell, Lael Brainard, Philip Jefferson, and Lisa Cook — in late April. The next Senate vote will be on Monday, April 25 (5:30 p.m.) on a procedural vote on the Brainard nomination.
This Week in Tax Policy won't be published while Congress is away, but WCEY Alerts will be issued as events warrant.
Last week (April 4-8)
Reconciliation: There continues to be speculation — and mixed signals — about a post-Build Back Better Act reconciliation bill, with some senators saying a package needs to come together by Memorial Day. Politico Morning Tax cited as complicating factors differences between Senators Kyrsten Sinema's (D-AZ) and Joe Manchin's (D-WV) tax positions — Sinema is against tax rate increases, which left the House-passed BBBA funded with provisions like a corporate minimum tax and high-income surcharge — uncertainty over whether both Manchin and Sinema want an agreement, and whether the White House will get more involved to shepherd a deal across the finish line. Axios had a less-than-optimistic report, saying: Senator Sinema has told donors a path to revival is unlikely; "no one's reached out to Sinema about the contours of the slimmed-down deal;" and she is saying "most of her focus is on the $10 billion COVID-19 relief bill, the so-called China competition legislation" and the Electoral Reform Act. Amid rumblings about reviving budget reconciliation talks, a Wall Street Journal editorial said: "Democrats say they're going to make one more major effort to pass President Biden's Build Back Better plan, despite soaring inflation and the end of the Covid emergency. The mooted deal seems to involve a giant tax increase, half-a-trillion dollars in green-energy subsidies, and perhaps more social spending. This is a bad idea with especially bad timing given economic uncertainty as interest rates rise. And look no further than Mr. Biden's recent budget to see why. He is proposing $2.5 trillion in new taxes that would give the U.S. the highest or near-highest tax rates in the developed world."
Global tax: The European Union, with France in the Presidency, couldn't garner the necessary unanimous support for its Pillar Two minimum tax directive, calling for implementation at the end of 2023, during the April 5 ECOFIN meeting, with Poland objecting. "The Polish revenue chief said that despite amendments, Warsaw still had concerns that the minimum tax could enter into force without the new rules preventing big multinationals from booking profits in the most favourable countries," Reuters reported. French Finance Minister Bruno Le Maire said it would be back on the agenda at the next meeting, which is set for May 24.
The Wall Street Journal reported Poland's deputy finance minister as saying, "We strongly believe that we should be mindful of placing an additional burden on European businesses without ensuring the digital giants are fully taxed." The directive was amended before the previous meeting to include a statement confirming the commitment of all Member States to the ongoing process on Pillar One, but Poland continues to maintain that a statement of intent is not strong enough. Le Maire said in the report, "A legally binding link is not possible."
House and Senate Republican tax-writers issued a statement saying trouble in the EU doesn't bode well for implementation elsewhere.
An EY Alert, "EU Finance Ministers continue negotiations to adopt Pillar Two Directive in light of Poland's remaining objection," is available here.
Competitiveness: Members of what will be a very large conference committee on the House America COMPETES Act (H.R. 4521) and Senate-passed USICA (S. 1260) competitiveness bills were announced April 7 and include the chairmen and ranking members of the House and Senate tax-writing committees, which have jurisdiction over trade issues and a related Health Care Tax Credit in the House bill for health insurance costs of those eligible for Trade Adjustment Assistance (TAA). The House bill's trade and other provisions, including on climate change, are not supported by Republicans, and are expected to be omitted because the final bill must pass with Republican votes in the Senate, which could have the upper hand in the conference. Formal conference committees have been rare in recent years. The House and Senate more typically exchange bills without such a process, and the last major policy conference committee of note was the TCJA. "The last notable negotiation was during Donald Trump's presidency on the 2017 GOP tax cut. And that was really Republicans negotiating with Republicans. This current bill is wide open," Punchbowl reported. Both bills include $52 billion in CHIPS Act funding.
Russia: The same day that Congress cleared bills suspending normal trade relations with Russia and banning Russian oil imports, April 7, Senate Finance Committee Chairman Ron Wyden (D-OR) and Senator Rob Portman (R-OH) released a discussion draft of legislation to disallow foreign tax credits and other tax benefits for companies that pay taxes to the Russian government, and for sanctioned individuals. "The tax code already disallows lower tax rates and foreign tax credits for companies paying taxes to countries with rogue regimes," they said. "Our commonsense proposal simply adds Russia and Belarus to that list." Thirty days after becoming law, tax code section 901(j) would apply to Russia and Belarus, then any income taxes paid or accrued to Russia or Belarus, and attributable to the period after section 901(j) applies, would be ineligible as a foreign tax credit. Further, under section 952(a)(5), income derived by a CFC from countries subject to the section 901(j) is automatically treated as subpart F income, subject to the 21% corporate rate, and losses cannot be used to offset other income earned as global intangible low-taxed income (GILTI). Transition relief is provided to companies that have exited or are in the process of exiting the countries. Comments are due April 21.
IRS: The Senate Finance Committee IRS budget and filing season hearing with IRS Commissioner Chuck Rettig April 7 included discussion of the tax return backlog — specifically, what is currently exacerbating the issue and what can be done to help — and ability of constituents to speak to agency representatives on the phone. Many of the issues stem from the lack of technological modernization within current IRS systems, and Commissioner Rettig stated that the FY2023 budget request could provide funds to improve taxpayer services and modernize systems. Commissioner Rettig said the President's Budget calls for 85% telephone level of service but that depends on adequate funding. Senator Bill Cassidy (R-LA) said he wants his bill (S. 2583) to make penalty-free withdrawals from retirement accounts automatic after the President issues a disaster declaration to be part of retirement legislation that may move through the Committee. Asked about the tax gap, Rettig said IRS will release the 2014–2016 figures as well as projections for 2019 this summer.
Digital assets: On April 7, Treasury Secretary Janet Yellen delivered remarks on digital assets policy, saying in part: "taxpayers should receive the same type of tax reporting on digital asset transactions that they receive for transactions in stocks and bonds, so that they have the information they need to report their income to the IRS. Under the Executive Order, we will work to make sure consumers, investors, and businesses have adequate protections from fraud and theft, privacy and data breaches, and unfair and abusive practices."