May 14, 2023
U.S. International Tax This Week for May 12
Ernst & Young's U.S. International Tax This Week newsletter for the week ending May 12 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.
President Biden and congressional leaders from both parties met earlier this week for a debt-limit meeting at the White House, but it did not result in any breakthrough, according to House Speaker Kevin McCarthy (R-CA). A second meeting planned for 12 May has been postponed until next week, with staff-level talks taking place in the interim.
The Senate Finance Committee on 11 May held a hearing on "Cross-border Rx: Pharmaceutical Manufacturers and U.S. International Tax Policy." Democratic members and some witnesses criticized perceived profit shifting by the pharmaceutical industry even after enactment of the 2017 TCJA's guardrails. The Finance Committee Democratic majority released a report ahead of the hearing finding that large pharmaceutical companies report a collective 75% of taxable income in foreign subsidiaries, including for some drugs that are household names in the United States.
Republican committee members instead focused their concern on the effect of the OECD-led Pillar Two global minimum tax on US MNCs, particularly the undertaxed profits rule (UTPR) and treatment of US tax credits including the R&D tax credit. The UTPR "backstop" rule has been a particular target of Congressional Republicans in recent hearings, including during a 16 March Finance hearing with Secretary Yellen, during which minority committee members argued that the UTPR could have the impact of diminishing the value of US tax incentives like the R&D tax credit.
Treasury and IRS officials recently offered insights on several pressing topics at the American Bar Association's Section of Taxation meeting. With regard to the new corporate alternative minimum tax (CAMT), an IRS official said that there will be at least one more notice; there had been speculation whether taxpayers would next see proposed regulations or additional interim guidance. The official was quoted as saying the notice will address depreciation issues and the situation where the tax and financial accounting rules on dispositions diverge.
In regard to other CAMT issues that have cropped up, including in regard to consolidated groups, IRS officials suggested that taxpayers "do what's reasonable" during the period in which the government develops further guidance. An IRS official indicated the agency is currently working on proposed rules that would address treating a consolidated group as a single entity for purposes of the CAMT, as noted in Notice 2023-7. Another official highlighted the fact that Notice 2023-7 calls for single-entity treatment for status computations and computations of CAMT tax liability, adding, "It does not say for all [CAMT] purposes."
The expected Joint Committee on Taxation's (JCT) Technical Explanation (Blue Book) to the Inflation Reduction Act, which enacted the CAMT, is not likely to provide many answers in regard to the provision, according to a senior Senate Finance Committee staffer. The official said the Blue Book will not provide much insight into the new tax given the broad legislative text and the expansive grant of regulatory authority. The official was quoted as saying that both the corporate AMT and the stock buyback excise tax provisions were relatively clear and likely will not require much in terms of technical corrections. Earlier this year, the JCT Chief of Staff was quoted as saying the Blue Book would be out before the end of June.
US and Israeli tax treaty negotiations are moving in the direction of a new tax treaty, rather than a protocol to the existing treaty, according to a Treasury official. The current US-Israel tax convention was signed in 1973 and amended in 1980 and 1993, and does not reflect current US tax treaty policy, the official said.
Tax treaty negotiations with Switzerland are ongoing, according to the official, and are expected to result in a new protocol, rather than a new treaty. Productive negotiations have been progressing over recent months although several issues reportedly remain outstanding.
Tax in a time of transition: Legislative, economic, regulatory and IRS developments (May 19)
During this EY Webcast, Ernst & Young professionals will discuss 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; and (iii) breaking developments.
Private equity and private capital quarterly tax webcast (June 8)
During this EY Webcast, Ernst & Young professionals will discuss recent global private equity (PE) industry trends and the outlook for changes relevant to PE and alternative funds, transactions, fund professionals, and portfolio companies.
Recent Tax Alerts
— May 11: U.S employers must ensure compliance with Form I-9 physical inspection requirements by 30 August 2023 (Tax Alert 2023-0862)
— May 09: United States | Proposed regulations would turn off IRC Section 367(d) following certain repatriations of IP (Tax Alert 2023-0843)
— May 09: Egypt introduces VAT guidelines for nonresident providers of remote digital and electronic services (Tax Alert 2023-0848)
— May 08: South Africa | New reporting requirements for trusts (Tax Alert 2023-0842)
— May 04: South Africa's Department of Home Affairs invites comments on the upcoming Trusted Employers Scheme pilot (Tax Alert 2023-0813)
— May 09: Hong Kong launches consultation to revise foreign-sourced disposal gain rule (Tax Alert 2023-0851)
Canada & Latin America
— May 09: Costa Rica establishes new inspection procedures for goods at Nicaragua border (Tax Alert 2023-0850)
— May 08: Costa Rica Independent Worker Law published in the Official Gazette (Tax Alert 2023-0844)
— May 05: Panama introduces further changes to work permit regulations (Tax Alert 2023-0826)
— May 04: Panama's Tax Authority issues new guidance on obtaining installments arrangements due to the State of National Emergency (Tax Alert 2023-0817)
— May 12: Greece's new immigration law to go into effect on 1 January 2024 (Tax Alert 2023-0873)
— May 11: Sweden announces minimum salary threshold increase for work permit applicants (Tax Alert 2023-0865)
— May 11: Danish Government proposes to allow eligible third-country nationals to conduct short-term work in Denmark without work permits (Tax Alert 2023-0863)
— May 10: Deadline extended for UK nationals to apply for right to reside in Denmark (Tax Alert 2023-0858)
— May 08: Poland's implementation of the Single-Use-Plastics Directive getting closer (Tax Alert 2023-0841)
— May 08: Danish Supreme Court issues rulings on beneficial ownership of interest and abuse of EU law (Tax Alert 2023-0835)
— May 05: Netherlands updates guidance on mandatory disclosure regime (Tax Alert 2023-0827)
— May 04: Dutch Finance Ministry proposes changes to Tax Arrangement between the Netherlands and Curaçao (Tax Alert 2023-0818)
— May 04: Cyprus implements major changes to immigration regulations for investors (Tax Alert 2023-0815)
— May 04: UK updates sponsor and compliance duties regarding remote and hybrid working reporting requirements (Tax Alert 2023-0812)
— May 04: Poland to lift COVID-19 suspension for MDR deadlines by end of June 2023 (Tax Alert 2023-0811)
— May 08: Saudi Arabia issues amendments to the Zakat Implementing Regulations (Tax Alert 2023-0834)
— May 11: Australia to adopt the 15% Global Minimum Tax (Pillar Two) measures (Tax Alert 2023-0868)
— May 10: Australia delivers 2023/24 Federal Budget (Tax Alert 2023-0860)
Highlights of this edition include:
- House Republicans pass debt ceiling, spending bill; impasse continues
- IRS provides transition period for documentation requirements for FTC ‘single country exception’
- IRS updates crypto notice, virtual currency remains unavailable to generate FX gain or loss
- IRS addresses micro-captive transactions as listed transactions
- IRS releases general plan for spending $80 million over the next 10 years
- IRS interim guidance on APA submissions fundamentally changes early stages of process
- US Tax Court rules IRS cannot assess penalties under Section 6038(b) for willfully failing to report foreign income
- OECD releases fifth annual peer review report on BEPS Action 6 on prevention of treaty abuse
IRS Weekly Wrap-Up
Internal Revenue Bulletin
|Internal Revenue Bulletin of May 15, 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.