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June 11, 2023

Americas Tax Policy: This Week in Tax Policy for June 9

This week (June 12 - 16)

Congress: Committee business scheduled for next week includes:

  • On Wednesday, June 14, the Senate Committee on Finance will hold a hearing on "Anti-Poverty and Family Support Provisions in the Tax Code."
  • On Tuesday, June 13, the House Ways and Means Committee will markup the following: The Tax Cuts for Working Families Act; the Small Business Jobs Act; the Build it in America Act; and the United States-Taiwan Initiative on the 21st-Century Trade First Agreement Implementation Act.

Last week (June 5 - 9)

On June 9, House Ways and Means Committee Chairman Jason Smith (R-MO) and other Republicans on the Committee introduced three bills that the committee plans to mark up on Tuesday, June 13. In a statement, Smith said the bills "are being combined as part of a new legislative tax relief and jobs package." Below is a summary of the three bills:

  • The Tax Cuts and Working Families Act (HR 3936), which would increase the standard deduction for two years, and rename it the "Guaranteed Deduction."
  • The Small Business Jobs Act (HR 3937), aimed at providing information reporting relief for small businesses and increasing the reporting threshold for Venmo and Paypal type payments, encouraging investment in new equipment and production capacity for small businesses, and expanding the Opportunity Zone program to rural communities.
  • The Build It in America Act (HR 3938), which would retroactively restore expensing of R&D costs, retroactively extend preferable rules for interest expense deductibility under section 163(j), allowing for 100% expensing of manufacturing equipment, overriding in part the final foreign tax credit regulations, repealing the Superfund tax on petroleum, tightening existing rules relating to real estate sales by foreign companies and investors, and repealing several of the energy incentives in last year's Inflation Reduction Act.

Legislation introduced a week ago by Chairman Smith and committee Republicans relating to retaliation against countries that adopt certain aspects of the OECD's global minimum tax regime including a 15% global minimum tax was not included in the package released today and it remains unclear when that bill will be addressed by the Committee.

Taiwan: On June 9, the chairs and ranking members of the Senate Finance Committee and the House Ways and Means Committee announced bipartisan, bicameral legislation to approve the first trade agreement arising from the U.S.-Taiwan Initiative on 21st Century Trade, and Chairman Smith announced that this bill will be marked up by the Ways and Means Committee on June 13 as well. Regarding subsequent agreements that may develop from this initiative, the legislation also places congressional consultation and transparency requirements on the Administration. Upon release, Chairman Ron Wyden (D- OR) stated, "My colleagues and I want to ensure these agreements have the support and durability of a bipartisan approval process behind them." While Ways and Means Chair Smith said, "it is imperative that we act now in a bipartisan manner to support this early agreement with Taiwan, require that Congress be consulted on and approve any future trade steps with Taiwan."

On June 8, the Senate Foreign Relations Committee Chairman Robert Menendez (D-NJ) had scheduled a markup on the Taiwan Tax Agreement Act (S. 1457), which is not a treaty but would authorize the Biden administration to negotiate and conclude a tax agreement with Taiwan. Objections from Sen. Rand Paul (R-KY), however, led the chairman to remove the bill from the agenda. Menendez said he would bring up the bill at the committee's June 21 markup. In his prepared statement before the bill was pulled, Menendez said S. 1457 would "authorize a tax agreement with Taiwan that will facilitate investment in key strategic industries such as semiconductors, support U.S. businesses active in Taiwan, and deepen our economic engagement with Taiwan … It is something that U.S. businesses support."

IRS corporate AMT notice: Treasury and the IRS issued Notice 2023-42 on June 7 granting penalty relief for corporations that do not pay estimated tax in connection with the new corporate alternative minimum tax (CAMT). "Considering the challenges associated with determining the amount of a corporation's CAMT liability and whether a corporation is an applicable corporation subject to the CAMT, the IRS will waive the penalty for a corporation's failure to pay estimated income tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2022, and before Jan. 1, 2024," the Notice said. The CAMT, which relies on financial accounting rules, has proved complex for Treasury and the IRS to implement and write guidance for.

IRS Chief Counsel: On June 2 President Biden announced his intent to nominate Marjorie Rollinson as Chief Counsel for the Internal Revenue Service. Senate Finance Committee Chairman Ron Wyden said in a statement, "I'm pleased the president has put forward a nominee for IRS chief counsel. This is a challenging job leading the legal team at an agency faced with a lot of demands and a lot of pressure from Congress. I look forward to processing Ms. Rollinson's nomination after the Finance Committee receives all the necessary paperwork, and my hope is the committee will be able to move quickly."

Global tax: There were competing editorial/opinion pieces in major newspapers June 6 regarding the OECD initiative. In a Washington Post op-ed, "Implement the global minimum tax and don't undermine it," Rebecca Kysar, former counselor to the assistant secretary for tax policy at Treasury, and former NEC official David Kamin said Chairman Smith and other Republican tax-writers are wrong to oppose Pillar Two of the OECD-led global tax agreement and to propose legislation designed to punish individuals or companies from countries that enforce the global minimum tax, making points that included:

  • TCJA supporters (Republicans) argued that a much lower corporate tax rate would dissuade companies from shifting profits abroad, but a better way is ending the "race to the bottom" pay imposing a minimum rate of 15% tax on corporate earnings around the world.
  • The undertaxed profits rule (UTPR), which is the focus of the Ways & Means GOP bill, is necessary to ensure tax havens can't undermine the agreement and the U.S. tax base by continuing to offer extremely low tax rates and attracting profits from other countries.
  • The OECD deal builds on the global intangible low-taxed income (GILTI) regime, which "was set at a rate that was too low and allows gamesmanship across countries that needs to be addressed."
  • With roughly $350 billion per year in individual income and estate tax cuts expiring at the end of 2025, "It's a political reality that leaders will be searching for ways to pay for any extension, and implementing the global minimum tax deal can help."

The Wall Street Journal Editorial Page took the opposite view, and backed the warning being sent by the House Republican Pillar Two retaliation bill. "The Republican bill aims to short-circuit all of this by discouraging other countries from pressing ahead with the OECD plan. The enforcement mechanism would be a retaliatory surtax, starting at 5% and rising to 20%, on corporate and capital income earned in the U.S. by companies and wealthy individuals from countries that impose versions of the pillar-one and pillar-two taxes on U.S. firms," said the top editorial in the June 6 Wall Street Journal. "A tax war could be as bad as the problem it's trying to solve, but the bill won't become law given a Democratic Senate and President Biden's veto pen — and it doesn't need to pass to work. The point is to warn other governments that Ms. Yellen wasn't speaking on behalf of America's tax writers when she approved the OECD deal."

Bloomberg reported on June 8 that the Biden administration is proposing to trade allies that they extend a coordinated freeze on new digital services taxes beyond its planned expiration on December 31. Under the "standstill agreement," countries considering new digital taxes would only move forward if the broader agreement is not in force by Jan. 1, 2024. The freeze was included in the OECD's October 2021 global tax agreement, which has not yet been implemented with regard to Pillar 1. A Treasury official told Bloomberg that the administration is seeking the extension because it expects ratification and implementation of Pillar 1 of the global tax deal will go beyond the year-end deadline.


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