July 23, 2023
U.S. International Tax This Week for July 21
Ernst & Young's U.S. International Tax This Week newsletter for the week ending July 21 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 OECD on 17 July released several technical documents on BEPS 2.0 Pillars One and Two, as well as additional documents covering a range of international tax topics, including developments with respect to tax transparency. The package was prepared for a meeting of the G20 Finance Ministers and Central Bank Governors in Gandhinagar, India on 17-18 July. The documents released on Pillar Two have been approved by the Inclusive Framework on BEPS and build upon prior guidance. The latest release follows the issuance of an OECD Outcome Statement on 12 July that detailed progress on the BEPS project, including new timelines.
Among the newly released documents is Administrative Guidance on the Global Anti-Base Erosion (GloBE) Model Rules, which provides additional information on a series of technical issues and includes two new safe harbors. This is the second set of Administrative Guidance items released by the Inclusive Framework, following release of the first set in February 2023.
The July Administrative Guidance includes details on currency conversion rules for GloBE calculations, tax credits and the application of the Substance-based Income Exclusion (SBIE). The treatment of tax credits under the GloBE Rules is important because whether credits are treated as GloBE Income or a reduction to Covered Taxes can have a significant impact on the jurisdictional effective tax rate calculation.
The July Guidance also includes further details on the design of a Qualified Domestic Minimum Top-up Tax (QDMTT) and provides a QDMTT Safe Harbour and Transitional Undertaxed Profits Rule (UTPR) Safe Harbour. The July Guidance will be incorporated into a revised version of the Commentary that will be released later this year.
The Inclusive Framework will consider Administrative Guidance priorities on an ongoing basis where more clarity is required, with the aim of releasing guidance as soon as it is agreed upon so that the Inclusive Framework member jurisdictions can meet their implementation schedule.
The GloBE Information Return was also finalized and includes a transitional framework for simplified reporting on a jurisdictional, rather than entity, basis, in addition to specifying how the information is to be shared among jurisdictions that implement the GloBE Rules.
A report on the Subject to Tax Rule (STTR) provides model tax treaty provisions and related commentary that jurisdictions can use to incorporate the STTR in their bilateral tax treaties.
In regard to Pillar One, the OECD released a public consultation document on Amount B, reflecting further developments since the earlier consultation on this topic and seeking input from stakeholders. It provides for fixed returns for certain baseline marketing and distribution activities. The consultation document does not reflect consensus, as there are remaining open issues.
An EY Tax Alert provides an overview of the latest OECD guidance; detailed Tax Alerts on each of the released OECD documents will follow soon.
Senate Finance Committee Ranking Member Mike Crapo (R-ID) and House Ways and Means Committee Chairman Jason Smith (R-MI) were not satisfied with the OECD’s 17 July Administrative Guidance on Pillar Two. Senator Crapo and Chairman Smith said in a joint statement: “Once again, the Biden Administration neglected to consult Congress before cheerleading the OECD’s latest global tax code rewrite. Today’s [17 July] ‘administrative guidance’ acknowledges what Republicans have warned for more than two years: the UTPR surtax is unworkable and unlawful.… Moreover, the OECD’s nonsensical treatment of investment incentives remains, which will send U.S. R&D jobs and tax revenues overseas.”
The House Ways & Means Tax Subcommittee held a hearing on 19 July that centered on the BEPS 2.0 project. Republicans challenged the Treasury witness, Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, specifically questioning the constitutionality of allowing other nations a potential share of US taxes through the UTPR. They also criticized a global legal system under which they claimed the US research and development (R&D) credit is not treated the same way as refundable R&D credits provided by other countries. Democrats on the committee in most cases sought to defend the BEPS project and the Administration.
Plowgian testified that Treasury in the future would work with Congress, saying: “We hope to have a complete Pillar One package soon and intend to continue to seek input. Similarly, with respect to Pillar Two, we stand ready to work with Congress to enact the reforms proposed in the President’s Budget to implement Pillar Two, which would increase U.S. revenue and strengthen our tax system. We will also continue to work with Congress to prioritize issues for interpretive guidance.”
An IRS official last week confirmed that proposed previously taxed earnings and profits (PTEP) regulations remain on track for release later this year. The official was quoted as saying that the first tranche of regulations would address foreign exchange rules in the PTEP context – specifically, when a controlled foreign corporation (CFC) receives a PTEP distribution from a lower-tier CFC in a different functional currency. The official also reportedly said the coming rules would address guidance regarding basis and mid-year distributions from CFCs.
Tax in a time of transition: Legislative, economic, regulatory and IRS developments (July 28)
Please join us for a fast-paced 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 EY 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.
EY Guides and Publications
The Latest on BEPS and Beyond | July 2023
EY’s Latest on BEPS and Beyond (July 2023 edition) highlights (1) OECD releases statement on the progress on Pillars One and Two; (2) Commission BEPS 2.0 Progress Report announces upcoming OECD releases; and (3) OECD releases 2023 report on tax transparency in Latin America.
Global Tax Policy and Controversy Watch | July 2023 edition
This edition of EY’s Global Tax Policy and Controversy Watch highlights (1) OECD’s outcome statement on progress on BEPS 2.0 Pillars One and Two; (2) the US IRS’s prescreening process for taxpayers seeking advance pricing agreements; and (3) transfer pricing developments from Brazil.
Recent Tax Alerts
— Jul 20: Kenya enacts tax changes under Finance Act, 2023 (Tax Alert 2023-1274)
— Jul 18: Nigeria | Current development on taxation of nonresident companies engaged in shipping business (Tax Alert 2023-1262)
— Jul 17: South Africa | New 'beneficial ownership' reporting requirements for companies (Tax Alert 2023-1255)
— Jul 14: OECD releases 2023 report on tax transparency in Africa (Tax Alert 2023-1247)
— Jul 18: Hong Kong introduces new tax treatments for insurers upon adoption of a risk-based capital regime (Tax Alert 2023-1260)
Canada & Latin America
— Jul 20: Peruvian Tax Authority establishes guidelines for gains or losses derived from exchange-rate differences from foreign currency loans (Tax Alert 2023-1275)
— Jul 17: Panamanian Tax Authority extends deadline for resident agents to file affidavit on accounting records of offshore entities (Tax Alert 2023-1257)
— Jul 14: Uruguay’s Executive Power submits accountability bill with tax provisions to Parliament (Tax Alert 2023-1241)
— Jul 20: Spanish Supreme Court issues judgment on the probative value of foreign tax-residence certificates (Tax Alert 2023-1280)
— Jul 20: UK adds Dominica, Honduras, Namibia, Timor-Leste and Vanuatu to its list of visa nationals (Tax Alert 2023-1276)
— Jul 19: Cyprus introduces 3% VAT rate and adds goods to 0% VAT list (Tax Alert 2023-1270)
— Jul 18: German Federal Ministry of Finance publishes draft decree regarding the application of anti-hybrid rules (Tax Alert 2023-1265)
— Jul 18: German Ministry of Finance surprises with draft bill for biggest corporate tax reform since 2008 (Tax Alert 2023-1264)
— Jul 18: UK publishes Statement of Changes to Immigration Rules (Tax Alert 2023-1263)
— Jul 18: OECD/G20 Inclusive Framework releases documents on Pillars One and Two: First Impressions (Tax Alert 2023-1259)
— Jul 17: Estonia | Significant tax changes in 2024 and 2025 (Tax Alert 2023-1256)
— Jul 17: Cyprus tax authorities issue transfer pricing guidance on the pricing of 'back-to-back' financing transactions (Tax Alert 2023-1254)
— Jul 17: UK announces upcoming increase in Visa fees and Immigration Health Surcharge (Tax Alert 2023-1253)
— Jul 17: Luxembourg introduces new online application processes for EU citizens and third-country nationals (Tax Alert 2023-1252)
— Jul 14: Update on Switzerland/France cross border tax and social security agreements (Tax Alert 2023-1245)
— Jul 14: UK passes Finance (No.2) Act 2023 introducing OECD Pillar Two measures (Tax Alert 2023-1243)
— Jul 14: Ireland launches consultation on new taxation measures to apply to certain outbound payments — comment period closes on 8 August (Tax Alert 2023-1242)
— Jul 14: Italy expedites work authorization process for eligible third-country nationals (Tax Alert 2023-1237)
— Jul 18: Turkiye's new law increasing the corporation tax rates enters into force (Tax Alert 2023-1266)
— Jul 14: UAE MoHRE announces new requirement for certain companies to hire UAE nationals (Tax Alert 2023-1239)
IRS Weekly Wrap-Up
Internal Revenue Bulletin
| ||2023-30||Internal Revenue Bulletin of July 24, 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.