July 31, 2022
U.S. International Tax This Week for July 29
Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 29 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.
In a development that caught many by surprise, Senate Majority Leader Chuck Schumer, Senator Joe Manchin and President Joe Biden on 27 July announced a deal on a $740 billion reconciliation bill that includes climate/energy, health and tax components and achieves $300 billion in deficit reduction. The announcement followed Senator Manchin apparently backing away from talks over a broader bill two weeks ago. The plan is for the Senate to vote on the bill next week.
A joint release from Senators Schumer and Manchin said the bill, the Inflation Reduction Act of 2022, includes $369.75 billion in Energy Security and Climate Change programs and "will be fully paid for by closing tax loopholes on wealthy individuals and corporations." According to a separate Manchin release, tax increase proposals include "a domestic corporate minimum tax of 15 percent [to] be applied only to billion-dollar companies or larger ensuring that America's largest businesses are no longer able to operate for free in our economy." The agreement does not include proposed international tax changes.
A summary focused on "tax loopholes" said: "The corporate alternative minimum tax (AMT) proposal would impose a 15 percent minimum tax on adjusted financial statement income for corporations with profits in excess of $1 billion. Corporations would generally be eligible to claim net operating losses and tax credits against the AMT, and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15 percent of the corporation's adjusted financial statement income." The 15% corporate minimum tax would be effective for tax years beginning after 31 December 2022.
The Schumer-Manchin release said the revised legislative text has been submitted to the Parliamentarian for review and the full Senate will consider it next week. Health components have already been under the Parliamentarian's review. House Speaker Nancy Pelosi announced support for the proposal and the expectation is that the House, which is scheduled to leave for the August recess at the end of this week, would reconvene to approve a Senate-passed bill.
The Senate (on 27 July) and the House (on 28 July) passed the CHIPS and Science Act (HR 4346), a $280 billion bill that aims to build a domestic US supply chain for semiconductor chips in the face of foreign competition, while also spending billions on scientific and technological research to keep US industries competitive with China and other rivals. The bill now goes to the President for signature.
The legislation includes $52.7 billion in funding for semiconductor manufacturing subsidies, grants and loans. The bill includes a 25% investment tax credit for investments in semiconductor manufacturing and incentives for the manufacturing of semiconductors, as well as for manufacturing of specialized tooling equipment required in the semiconductor manufacturing process, with taxpayers allowed to treat the credit as a payment against tax (direct pay).
The Internal Revenue Service this week made substantive corrections to the final foreign tax credit regulations (TD 9959) that were published on 3 January 2022, retroactively changing the analysis on certain key issues of creditability. The corrected regulations: (i) provide relief from the "cost recovery" requirement; (ii) change the rules for allocating and apportioning foreign tax imposed on disregarded sales of property; and (iii) make several other technical changes to the foreign tax credit and GILTI (Global Intangible Low-Taxed Income) high-tax exception regulations. The text of the corrections is available here and here.
Many companies had sought changes to the final regulations, as well as members of Congress, citing the possibility of double taxation. The press is reporting that the Biden Administration plans to provide examples of relief from the cost recovery requirement and ease rules to claim a credit for certain withholding taxes imposed on royalty payments.
Private equity and private capital — navigating transformative global and US legislative change (August 18)
During this EY Webcast, Ernst & Young professionals will discuss recent private equity and private capital industry trends and the outlook for US and international legislative and regulatory changes relevant to PE and alternative funds, transactions and portfolio companies.
Recent Tax Alerts
— Jul 27: USCIS extends COVID-19 related flexibilities and permanently allows for electronic signatures (Tax Alert 2022-1136)
— Jul 26: Kenya introduces Country-by-Country reporting requirements (Tax Alert 2022-1130)
— Jul 26: Indian Government amends Special Economic Zone rules to permit employees of certain Special Economic Zone units to work from home (Tax Alert 2022-1128)
— Jul 26: Hong Kong enacts new legislation providing tax incentives for shipping commercial principals (Tax Alert 2022-1127)
— Jul 25: Thailand gazettes income tax exemption for gains from disposal of shares in companies engaged in target industries, venture capital companies and trusts (Tax Alert 2022-1120)
— Jul 27: Latvia implements new Digital Nomad Visa (Tax Alert 2022-1135)
— Jul 27: Turkey increases ratio for time spent outside of Technology Development Zones and R&D centers (Tax Alert 2022-1133)
— Jul 26: UK publishes draft legislation on new transfer pricing documentation requirements (Tax Alert 2022-1131)
— Jul 25: German Federal Ministry of Finance publishes draft DAC7 implementation bill (Tax Alert 2022-1125)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2022-31||Internal Revenue Bulletin of August 1, 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.