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12 February 2023

U.S. International Tax This Week for February 10

Ernst & Young's U.S. International Tax This Week newsletter for the week ending February 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.

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Spotlight

President Biden gave his second State of the Union address to Congress on 7 February, striking a mostly optimistic tone, pointing to the country's recovery from the COVID-19 pandemic and the creation of 12 million new jobs, among other developments. The President proposed reducing the budget deficit by $2 trillion with help from revenue raisers, including the 15% corporate minimum tax enacted in the 2022 Inflation Reduction Act, quadrupling the current one percent tax on corporate stock buybacks and enacting a "billionaire surtax." The President also proposed closing unspecified tax loopholes and "cracking down on wealthy tax cheats." According to some commentators, increasing the stock buyback excise tax and passage of a billionaire surtax may have little chance of passing Congress this year. The President is expected to release his proposed FY 2024 budget on 9 March.

The Senate Finance Committee this week announced it will hold a hearing to consider the nomination of Daniel Werfel to be the next Internal Revenue Service (IRS) Commissioner, for the term expiring in November 2027. The hearing will take place on 15 February. Confirmation will require a simple majority vote in the Senate.

Addressing the Organisation for Economic Co-operation and Development (OECD)-led Base Erosion and Profit Shifting (BEPS) 2.0 global tax agreement, House Ways and Means Committee Chairman Jason Smith sent a letter to OECD Secretary-General Mathias Cormann on 10 February, in which he defended the US global intangible low-taxed income (GILTI) regime and said other countries are considering a minimum tax only if they can impose the "fundamentally flawed" Undertaxed Profits Rule (UTPR) on US companies. The chairman warned that the UTPR would target US tax incentives like the research and development credit "as well as the operations of American companies in third-party jurisdictions." Chairman Smith said House Republicans "will aggressively pursue tax and trade countermeasures to protect American jobs, sovereignty, and tax revenues."

And for the fourth consecutive Congress, Ways and Means Committee Member Lloyd Doggett and Senate Finance Committee Member Sheldon Whitehouse introduced the No Tax Breaks for Outsourcing Act. Among other things, the bill would eliminate GILTI and foreign-derived intangible income (FDII) deductions and apply GILTI on a per-country basis, repeal the 10% exemption for tangible investments, and treat corporations managed and controlled in the US as domestic corporations.

An IRS official recently was quoted as saying that the IRS is in the process of drafting updated guidance on Advance Pricing Agreements (APAs) and requests for competent authority assistance. The official said the IRS is revising the guidance to reflect its recent case experience and is still deciding whether to seek public comments on the revised guidance.

Consistent with other IRS officials' previous statements, the official confirmed that the IRS is also reviewing the selection process for cases included in the APA program.

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Upcoming Webcasts

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.

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Recent Tax Alerts

United States

Asia

Canada & Latin America

Europe

Middle East

Multinational

— Feb 08: PE Watch | 2022 in review (Tax Alert 2023-0234)

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Recent Newsletters

ITS/Washington Dispatch
   Highlights of this edition include:

US Congress

  • Kevin McCarthy new House Speaker, Rep. Smith chairs Ways and Means Committee
  • JCT will release 'Blue Book' by end of June

Treasury and IRS news

  • Final regulations issued for qualified foreign pension funds contain some favorable clarifications
  • IRS proposed regulations would make major changes to domestically controlled QIE rules under Section 897, and certain controlled commercial entity rules under Section 892
  • IRS addresses deductions involving cryptocurrency in two CCA memos
  • Acting IRS Commissioner affirms continued participation in ICAP

Transfer pricing

  • IRS examiners must consult IRS Counsel before applying economic substance doctrine in transfer pricing audits

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IRS Weekly Wrap-Up

Internal Revenue Bulletin

 2023-06Internal Revenue Bulletin of February 6, 2023
 2023-07Internal Revenue Bulletin of February 13, 2023

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Additional Resources

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.

Document ID: 2023-0259

 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

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