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Spotlight

President Joe Biden this week offered a three-part plan to address US inflation, with the third leg of his plan calling for reducing the federal deficit through "common-sense reforms to the tax code."

According to the President: "We should level the international taxation playing field so companies no longer have an incentive to shift jobs and profits overseas. And we should end the outrageous unfairness in the tax code that allows a billionaire to pay lower rates than a teacher or firefighter."

Congress returns next week from the Memorial Day holiday with limited time to reach consensus on a pared down budget reconciliation bill before the August recess. The House is slated to be in session only six of the remaining weeks before it is scheduled to adjourn on 1 August; the Senate will adjourn on 8 August. With the House-passed Build Back Better (BBB) stalled, the path forward on a possible replacement is unclear given the host of major issues currently facing Congress.

Senator Joe Manchin has suggested he could accept a reconciliation bill that splits revenue from tax and prescription drug reform between deficit reduction and spending, probably mostly addressing climate change. Informal discussions on that package reportedly have begun between Senator Manchin and Senate Majority Leader Chuck Schumer. Senate Democrats will try to craft a BBB replacement that is expected to focus on reducing fossil fuel dependence, combating climate change and lowering inflation. There is speculation that a deal must come together by 4 July.

Representative Jared Golden and a bipartisan group of legislators introduced the Support Ukraine Through Our Tax Code Act in the House this week. The bill would deny US foreign tax credits and other tax benefits to companies that operate and pay taxes in Russia and Belarus. The bill text is available here; a summary of the legislation is available here.

A senior Treasury official this week was quoted as saying that the US supports excluding both reinsurance and asset management from the BEPS 2.0 Pillar One requirements. The official noted that, "this may come as a surprise," as the US originally opposed the carveout for regulated financial services.

The Organisation for Economic Co-operation and Development (OECD) on 27 May also issued a public consultation document titled "Pillar One — A Tax Certainty Framework for Amount A." A separate public consultation document, "Tax Certainty for Issues Related to Amount A" was released concurrently. The public consultation runs until 10 June.

According to an OECD press release, the Tax Certainty Framework for Amount A "guarantees certainty for in-scope groups over all aspects of the new rules, including the elimination of double taxation." This, the OECD claims, would eliminate the possibility of "uncoordinated compliance activity in potentially every jurisdiction where a group has revenues, as well as a complex and time-consuming process to eliminate the resulting double taxation."

OECD Secretary General Mathias Cormann said at the World Economic Summit in Davos last week that he is "quietly optimistic" about the success of the BEPS 2.0 global tax agreement and, while an ambitious timeline was set to keep pressure on, he suspects it is "most likely we will end up with a practical implementation from 2024 onwards," a year later than nations had previously targeted.