June 12, 2022
U.S. International Tax This Week for June 10
Ernst & Young's U.S. International Tax This Week newsletter for the week ending June 10 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.
Senator Joe Manchin told a national news organization on 6 June that a deal on a slimmed-down reconciliation bill that he has been discussing with Senate Majority Leader Chuck Schumer is not close at hand. Senator Manchin was quoted as saying that climate and energy issues are far from being resolved, adding “there’s no deal.” Senator Manchin suggested “the administration is having a hard time and the climate people are having a hard time coming to agreement” on energy and climate provisions, and repeated earlier comments that Medicare prescription drug negotiation and price caps are an “easy one for us to do.”
Treasury Secretary Janet Yellen touched on the BEPS 2.0 Pillar One project during a 7 June Senate Finance Committee budget hearing. Asked about the implementation and magnitude of Pillar One, Secretary Yellen said it would have a small revenue impact, positive or negative, depending on details that still must be worked out. With regard to the multilateral agreement to implement Pillar One, the Treasury Secretary said, “the ratification requires Congress’s approval, I think there’s no doubt about it, but the form that that needs to take is still to be determined.”
A senior Treasury official this week also addressed the various allocation options that could be applied for Controlled Foreign Corporation taxes if the US global intangible low-taxed income (GILTI) regime is deemed to be a qualified regime under BEPS 2.0 Pillar Two: the issue being how to determine where the foreign taxes are attributed for purposes of computing a minimum tax rate. The official was quoted as saying there are two basic options that could be applied — a tracing method to determine income, expenses, and taxes for each entity per country, or the use of safe harbors. He suggested that the final approach is more likely to be a hybrid approach of those two methods.
The official said: “… it's probably going to turn on what the other jurisdictions that are implementing the GLOBE rules need to be able to verify the allocation . . . to get comfortable that the minimum tax rate is being paid in each jurisdiction. So that would probably suggest this can be a hybrid of the two [approaches].”
Secretary Yellen also discussed the final foreign tax credit (FTC) regulations that were released in December 2021 at this week’s Senate Finance Committee budget hearing. The Treasury Secretary said that she would be willing to work with Congress with regard to concerns about the final FTC rules, but said that she did not think the effective date of the regulations will be delayed, as requested by a number of companies. Addressing whether a one-year delay in the regulations was warranted, Secretary Yellen said the regulations are very important to protect critical interests of the US, and the fundamental principle is that the US should allow a credit for foreign taxes only where the foreign taxing jurisdiction has the primary right to tax the income. A senator on the committee noted that Treasury is poised to make changes to the cost recovery and royalty withholding parts of the rules, but not as to creditability regarding withholding taxes on services. Changes to the final regulations could apply retroactively, Secretary Yellen said.
An Internal Revenue Service official this week also confirmed the US’s inclination against delaying the effective date of the FTC regulations. He added that there are no plans to issue a white list of countries with permissible regimes.
In a letter to the Treasury Secretary dated 3 June, a group of 28 Chief Financial Officers wrote in regard to the final FTC regulations: “foreign withholding taxes for many service payments and royalties are not creditable under the Final Regulations. The inability to claim a tax credit for these withholding taxes provides a tax incentive for U.S. companies to provide services and develop patents and other intellectual property in a foreign country rather than in the United States to avoid double taxation. This could result in the loss of valuable U.S. jobs...”
Competent Authority procedures in cross-border controversy in the Americas (June 15)
During this EY Webcast, Ernst & Young professionals will discuss trends and developments in Advance Pricing Agreements (APAs) and Mutual Agreement Procedure (MAP) in selected jurisdictions in the Americas.
Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments (June 17)
During this EY Webcast, Ernst & Young professionals will discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change. Panelists will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS.
What to know about the growing global demands for tax governance (June 20)
During this EY Webcast, Ernst & Young professionals will discuss the growing need for companies to demonstrate higher levels of tax governance.
How to navigate global TP controversy in life sciences — US focus (June 22)
During this EY Webcast, Ernst & Young professionals will explore life sciences transfer pricing controversy trends and developments in the US. Our team of life sciences and transfer pricing specialists will discuss and share their perspectives on emerging trends and hot topics relevant to this market.
BorderCrossings (June 30)
During this EY Webcast, Ernst & Young professionals will discuss the current scope and framework of the Pillar One and Pillar Two proposals, the impact on multinationals, a US legislative update on related matters, and next steps.
Recent Tax Alerts
— May 31: DHS announces procedures for Afghan Temporary Protected Status applications and offers Special Student Relief for Afghan F-1 students (Tax Alert 2022-0855)
Canada & Latin America
— Jun 07: Uruguay extends deadline for submitting large economic projects to application council to December 31, 2023 (Tax Alert 2022-0887)
— Jun 07: Uruguay extends period for performing promoted investments under Decree No. 329/016 to December 31, 2023 (Tax Alert 2022-0886)
— Jun 06: Uruguay extends deadline for nonresident individuals to submit affidavit to withholding agents to prove nonresident status (Tax Alert 2022-0880)
— Jun 02: EY Canada's Tax Matters @ EY for June 2022 (Tax Alert 2022-0863)
— Jun 02: Nunavut budget 2022-23 discussed (Tax Alert 2022-0862)
— May 31: Recent updates to Quebec immigration discussed (Tax Alert 2022-0856)
— Jun 07: OECD releases public consultation documents on tax certainty under Amount A for Pillar One (Tax Alert 2022-0888)
— Jun 06: Spain deposits notifications of completion of its internal procedures for entry into effect of the MLI (Tax Alert 2022-0878)
— Jun 01: The Netherlands announces 30% facility cap (Tax Alert 2022-0860)
— Jun 01: Spain tightens rules for taxation of long-term incentives under special tax regime for inbound employees (Tax Alert 2022-0859)
— Jun 01: Ireland launches consultation on Pillar Two implementation (Tax Alert 2022-0857)
— May 31: European Union to implement Entry and Exit System (EES) and European Travel Information and Authorisation System (ETIAS) (Tax Alert 2022-0852)
— May 26: UK announces new 25% energy profits levy (Tax Alert 2022-0846)
— May 26: Norway proposes changes to VAT rules on e-commerce (Tax Alert 2022-0845)
— Jun 07: UAE implements Comprehensive Economic Partnership Agreement with India related to imports (Tax Alert 2022-0882)
— Jun 02: Turkey introduces continuous reporting requirement of certain information for property listings published on the internet (Tax Alert 2022-0861)
— Jun 07: New Zealand Inland Revenue Officials consult on domestic adoption of OECD Pillar Two (Tax Alert 2022-0881)
— May 31: Australia's immigration policy as of July 1 discussed (Tax Alert 2022-0853)
Highlights of this edition include:
- Budget reconciliation remains stalled, but with some behind-the-scenes talks
- More US FTC guidance coming
- US government officials offer update on future international projects
- IRS GLAM addresses allocating and apportioning 'deferred compensation expense' for FDII deductions
- Changes to QI withholding agreement rules expand QI withholding and reporting responsibilities
- OECD officials offer BEPS 2.0 update
- OECD releases public consultation document on Regulated Financial Services Exclusion under Amount A for Pillar One
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of June 13, 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.