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Spotlight

The future of any budget reconciliation bill this year remains in doubt as Congress closes in on the August recess. Late last week, President Joe Biden issued a statement in which he called on Congress to pass a prescription drug bill immediately and indicated he would take executive action to address climate change if Congress does not act. The White House statement was in response to Senator Joe Manchin indicating that he would not support a budget reconciliation bill that includes climate change and tax increases (including international tax changes) at this time, following the latest high US inflation report. Senator Manchin said he would support a prescription drug bill, however. Senator Manchin reportedly left open the possibility of his support for passage of a broader reconciliation bill in September, but only if economic conditions ease.

Notwithstanding the new budget reconciliation landscape following Senator Manchin's announcement, some top Democrats are not ruling out a reconciliation bill with climate policies and tax increases. Senate Finance Committee Chairman Ron Wyden released a statement on 18 July saying, in part: "Conversations on clean energy must continue to preserve our options to move forward. Nearly all of the clean energy credits have already expired, and it will be difficult to extend them at the end of the year." The press reported this week that Democrats are expected to move on prescription drug and Affordable Care Act subsidies before the August recess. There remains some hope in the Democratic caucus that if US inflation eases, there may yet be a possibility to enact climate provisions.

Senator Manchin also threw a wrench in regard to the Organisation for Economic Co-operation and Development (OECD)-led global tax agreement, when he said he took Global Intangible Low-Taxed Income (GILTI) changes that would bring it in line with the Base Erosion and Profit Shifting (BEPS) Pillar Two 15% minimum tax off the table during recent reconciliation negotiations. While Senator Manchin said he agreed with a 15% minimum corporate tax, US inflation was too high to risk raising taxes at this time. He suggested he would look to August's inflation numbers before making a final decision on the matter. The White House meanwhile this week played down fears that the OECD global tax agreement was in jeopardy.

Treasury officially announced that the US on 8 July notified Hungary that it was terminating the US-Hungary tax treaty. According to the announcement, the treaty termination will be effective on 8 January 2023. Treaty termination provisions provide that the convention will cease to have effect with regard to withholding on 1 January 2024, and with respect to tax periods beginning on or after 1 January 2024.