February 5, 2023
U.S. International Tax This Week for February 3
Ernst & Young's U.S. International Tax This Week newsletter for the week ending February 3 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.
The Organisation for Economic Co-operation and Development (OECD) on 2 February released a long-awaited package of additional administrative guidance under BEPS 2.0 Pillar Two; the latest package will be incorporated into a revised version of the Commentary to be issued later this year, replacing the original Commentary released in March 2022. The guidance was adopted by the 142-member OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
The additional guidance — together with the December 2022 releases (i.e., safe harbors, penalty relief, information return and tax certainty) — finalizes the Implementation Framework set out in October 2021. The Executive Summary acknowledges that further guidance will be needed, on an ongoing basis, as countries implement the Pillar Two rules and issues arise after the rules are legislated into their domestic laws. The release explains that the items addressed are those most in need of immediate clarification and simplification.
Among the areas in the new guidance that may be most significant are: (i) the treatment of certain non-refundable tax credits that flow through a tax transparent entity and that arise from an equity method investment, including the low income housing tax credit and many renewable energy tax credit investments; (ii) allocation of taxes arising under the US global intangible low-taxed income (GILTI) and other blended controlled foreign company (CFC) regimes; and (iii) the design elements for Qualified Domestic Minimum Top-up Taxes (QDMTTs) that will be used for assessment of whether a domestic minimum tax meets the requirements for qualified status, and specific rules relating to the QDMTT.
The guidance sets out minimum standards for the QDMTT and makes clear that the tax base and the rate for QDMTTs can be different than under the rules governing Income Inclusion Rules (IIRs). QDMTTs can deviate from the global anti-base erosion (GloBE) rules but generally must produce a tax rate that equals or exceeds the GloBE's 15% Minimum Rate. As expected, a QDMTT must exclude tax paid or accrued by domestic Constituent Entities with respect to the income of foreign Constituent Entities under its own CFC or taxable branch regimes. Therefore, GILTI and subpart F taxes cannot be pushed down to impact the effective tax rate in the case of QDMTTs.
Treasury praised the release, with a senior Treasury official describing the guidance as providing "certainty for green energy tax incentives, support [for] coordinated outcomes and provide[s] additional clarity that stakeholders have asked for." A Treasury statement said certainty was also provided on "clear and administrable treatment of taxes paid under the existing GILTI global minimum tax regime" and refers to a consensus statement by all Inclusive Framework members that Pillar Two "was intentionally designed so that top-up tax imposed in accordance with those rules will be compatible with common tax treaty provisions."
The OECD Forum on Tax Administration on 1 February 2023 released the "Manual on the Handling of Multilateral Mutual Agreement Procedures and Advance Pricing Agreements." The manual is meant to act as a "guide to multilateral MAP and APA processes from both a legal and procedural perspective." The OECD on 24 January also published a package on tax dispute resolution.
What India’s 2023-24 Budget could mean for its economy (February 9)
During this EY Webcast, Ernst & Young professionals will help explain the fine print of the 2023-24 India Budget, covering the macroeconomic and policy announcements, direct tax proposals and indirect tax proposals.
Tax in a time of transition: legislative, economic, regulatory and IRS developments (February 17)
During this EY Webcast, Ernst & Young professionals will provide an overview of recent tax and economic developments designed to help you stay on top of changes in today’s shifting economic, legislative and regulatory environment. In this regularly occurring webcast series, panelists will provide updates on: (i) the US economy and tax policy; (ii) what’s happening at the IRS; (iii) breaking developments.
Recent Tax Alerts
— Jan 27: Updated US list of foreign currency futures contracts - starting point for IRC Section 1256 (Tax Alert 2023-0167)
— Jan 27: Updated 2022 US IRC Section 1256 qualified board or exchange list (Tax Alert 2023-0166)
— Feb 01: Korea's National Assembly passes significant 2022 tax reform bills (Tax Alert 2023-0189)
— Feb 01: Cambodia implements new online application procedure for Type E Visa (Tax Alert 2023-0185)
Canada & Latin America
— Feb 02: Costa Rican Tax Authority publishes Institutional Criterion regarding tax treatment of foreign exchange in financial investment instruments (Tax Alert 2023-0200)
— Feb 02: EY Canada's Tax Matters @ EY for February 2023 (Tax Alert 2023-0197)
— Feb 02: Argentine Government updates list of non-cooperating jurisdictions for income tax (Tax Alert 2023-0193)
— Feb 01: Chile postpones increase in the amounts of mining patents (Tax Alert 2023-0188)
— Feb 01: Panama’s Ministry of Economy and Finance extends term for implementation of electronic invoicing system (Tax Alert 2023-0186)
— Feb 01: Costa Rican Tax Authority publishes new update to Catalogue of Goods and Services (Tax Alert 2023-0183)
— Jan 31: Peru extends tax incentives applicable for Real Estate Investment Funds (Tax Alert 2023-0181)
— Jan 31: Costa Rican General Directorate of Treasury establishes new procedure to request tax exemptions through Exonet system (Tax Alert 2023-0177)
— Jan 31: Dominican Republic’s Executive Branch publishes General Regulations to new Customs Law (Tax Alert 2023-0176)
— Jan 27: Uruguay’s Executive Branch increases income limit to apply for simplified regime for Personal Income Tax (Tax Alert 2023-0160)
— Feb 01: Portugal publishes guidance regarding contribution on single-use packaging made of plastic or aluminum (or multi-material) for ready-to-eat meals (Tax Alert 2023-0187)
— Jan 31: Lithuania allows submission of Blue Card and Temporary Residence Permit applications from the applicant's home country (Tax Alert 2023-0179)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2023-05||Internal Revenue Bulletin of January 30, 2023|
| ||2023-06||Internal Revenue Bulletin of February 6, 2023|
EY’s Tax News Update, 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’s Tax and Law Guides. — Tax and Law Guides | EY - Global 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.