May 22, 2022
U.S. International Tax This Week for May 20
Ernst & Young's U.S. Tax This Week newsletter for the week ending May 20 is now available. Prepared by Ernst & Young's National Tax Department in Washington, D.C., this weekly update summarizes important news, cases, and other developments in U.S. taxation.
House Speaker Nancy Pelosi on 18 May was quoted as saying she hopes to pass a competitiveness bill before the Fourth of July holiday. The day before, House Majority Leader Steny Hoyer said the goal is to reach the "essence of an agreement moving forward before the end of May and to pass a bill by the end of June." One impediment to including tax provisions in the competitiveness conference agreement — such as a delay in the 2017 Tax Cuts and Jobs Act's IRC Section 174 five-year amortization requirement to preserve research and development expensing that was in effect prior to this year — is concern over addressing business tax relief without also including social spending, such as the expanded Child Tax Credit.
On 12 May, Senate Finance Committee Chairman Ron Wyden and Senate Finance Committee Member Rob Portman released proposed legislation (S. 4218) that would disallow foreign tax credits for taxes paid to Russia or Belarus, and further disallow certain other US tax benefits. The Support Ukraine Through Our Tax Code Act closely follows the discussion draft released on 7 April, with some important clarifications that center on the definition of persons in scope.
The US is considering changes to the foreign tax credit regulations that could be a combination of new rules, clarifications to the existing final regulations that Treasury issued in December 2021 as well as other guidance that includes examples to illustrate how the regulations are intended to apply to certain taxes, according to a senior Treasury official this week.
A senior Internal Revenue Service (IRS) official also recently was quoted as saying that proposed IRC Section 1256 regulations on foreign currency contracts will be released in the coming weeks. The new rules will "address clarifications of [Section] 1256 and the definition of a [Section] 1256 contract." Rules on IRC Section 987, disposition of investment in US real property, will follow those proposed regulations.
Another IRS official said the IRS plans to issue new IRC Section 382 proposed regulations on computing built-in gains and losses following an ownership change, instead of finalizing the 2019 proposed regulations. The official was quoted as saying that the IRS would issue a notice and review the comments before issuing another regulation package, adding "the re-proposal gives us a little bit more flexibility to be a little broader in what we want to approach."
The IRS has issued an interesting generic legal advice memorandum (GLAM) that addresses the allocation and apportionment of deferred compensation expense (DCE) for foreign derived intangible income (FDII) deductions. More specifically, the GLAM (AM 2022-001) addressed how to properly allocate and apportion DCE under the IRC Section 861 regulations for calculating a taxpayer's FDII deduction. Reversing previous guidance, the IRS concluded that DCE deductions should be allocated to FDII for the tax years in which the deferred compensation vests and is delivered, even if the deferred compensation is based on employees' service in years before FDII was in effect.
The IRS stated that the GLAM reflects "the reconsidered advice" of the Office of Associate Chief Counsel (International) and that GLAM 2009-001 is obsolete. The IRS also went further and said the analysis not only applied to the fact pattern in the memo but "may apply to deductions other than compensation that may be seen as relating to an earlier period, such as a warranty payment resulting in a deduction allowable in 2018 that was incurred in respect of a product sold in an earlier year."
A Treasury official this week acknowledged that there is taxpayer interest in the development of dispute resolution mechanisms in the BEPS 2.0 global anti-base-erosion (GloBE) context, but that negotiations are not yet taking place. Instead, the official said, "We are exploring what can be done with existing tools — bilateral treaties, competent authority agreements — as well as whether other tools are needed."
An OECD official this week also provided an update on the BEPS 2.0 project, saying the organization is working on various areas of the GloBE implementation framework, including rule coordination, a new peer review process to determine compliance with Pillar Two, tax administration coordination mechanisms and safe harbors.
EY Guides, Surveys, and Reports
EY's 2020-21 Worldwide Transfer Pricing Guide now available
The EY Worldwide Transfer Pricing Reference Guide 2020-21, is a publication designed to help international tax executives identify transfer pricing rules, practices and approaches. These must be understood for a company to carry out both transfer pricing compliance and planning activities in the base erosion and profit shifting (BEPS) era. The information included in the EY Worldwide Transfer Pricing Reference Guide 2020-21 covers 131 jurisdictions.
Banking and finance: How to realize the full potential of your tax and finance function (May 23)
During this EY Webcast, Ernst & Young professionals will discuss key banking and insurance results from our 2022 Global Tax and Finance Operations Survey. As tax and finance functions face unprecedented times, firms that embrace the fluidity of change will experience sustainable growth and a competitive edge.
BorderCrossings (May 25)
During this EY Webcast, Ernst & Young professionals will discuss issues arising from transactions and global economic developments impacting domestic transfer pricing (TP). Panelists will also review the latest state tax administrative approaches to resolving TP disputes, such as state advanced pricing agreement initiatives, as well as recent case law and legislative proposals – highlighting controversy considerations for multicorporate businesses.
Domestic tax quarterly webcast series: A focus on state tax matters (June 2)
During this second quarter EY Webcast, Ernst & Young professionals will discuss important state tax policy developments, as well as international tax policy developments that could affect state and local taxes.
The indirect tax technology journey: Now. Next. Beyond. (June 9)
During this EY Webcast, Ernst & Young professionals will share insights into how market-leading organizations are using technology to adapt to new legislation and market trends, and to effectively transform tax operations. This webcast will focus on leading practices for global indirect tax technology selection and implementation.
Recent Tax Alerts
Canada & Latin America
— May 18: Canada's proposed federal investment tax credit for carbon capture, utilization and storage discussed (Tax Alert 2022-0797)
— May 18: Canada's temporary expansion of immediate expensing incentive discussed (Tax Alert 2022-0796)
— May 16: Argentina announces new temporary residence permits for digital nomads (Tax Alert 2022-0782)
— May 19: European Parliament approves five elements of “Fit for 55” climate package, including a more ambitious EU Carbon Border Adjustment Mechanism (Tax Alert 2022-0801)
— May 18: Switzerland eliminates import customs duties on industrial goods as of 1 January 2024 (Tax Alert 2022-0795)
— May 17: Turkey publishes Communique on inflation adjustment for revaluation purposes (Tax Alert 2022-0790)
— May 17: Turkey publishes Communique regarding one-point corporation tax rate reduction on certain income generated from manufacturing and exportation (Tax Alert 2022-0789)
— May 17: Australia's federal election 2022 and immigration policy discussed (Tax Alert 2022-0791)
— May 18: The Latest on BEPS and Beyond for May 2022 (Tax Alert 2022-0792)
— May 16: OECD releases public consultation document on Regulated Financial Services Exclusion under Amount A for Pillar One (Tax Alert 2022-0777)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2022-21||Internal Revenue Bulletin of May 23, 2022|
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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.