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July 23, 2023

Americas Tax Policy: This Week in Tax Policy for July 21

This Week (July 24 - 28)

Congress: The Senate will next convene at 3 p.m. on Tuesday, July 25, with two votes at 5:30 p.m. in relation to S. 2226, the FY2024 National Defense Authorization Act. The House is also out after passing the FAA reauthorization bill (H.R. 3935, the Securing Growth and Robust Leadership in American Aviation Act) by a 351-69 vote. The Senate Commerce Committee has yet to mark up its FAA bill. Issues for the legislation include, as the Wall Street Journal reported, "how best to fix a pilot supply crunch, expand access to a popular but overcrowded D.C.-area airport, and bolster protections for consumers at a time when surging travel demand is straining capacity."

Meanwhile, House business next week is expected to include consideration of the Agriculture and Veterans Affairs appropriations bills, which are less controversial than some of the other dozen annual spending bills but expected to expose demands among conservatives to cut spending even further than the FY2022 levels House GOP leaders agreed to adhere to (conservatives were unsatisfied with the debt limit agreement to keep spending at FY 2023 levels). In the opposite direction of the House, Senate Appropriations Committee Chair Patty Murray (D-WA) announced July 20 upon marking up three spending bills, "In order to take these concerns regarding our defense and nondefense needs seriously, and to ensure we deliver the strongest bills possible with the broadest bipartisan support possible — Vice Chair Collins and I agreed to add $13.7 billion in additional emergency appropriations, including $8 billion for defense, and $5.7 billion for non-defense."

The wide range of spending number targets and priority among conservatives to achieve deeper spending cuts has created expectations of an impasse that could result in a short-term funding patch through the end of the year, when a backstop enforcement mechanism enacted in the debt limit bill looms: if all 12 appropriations bills are not enacted by January 1, discretionary spending will operate at a maximum of 99% of current levels (with the technical sequester enforcement mechanism related to the funding reduction taking effect on April 30). Punchbowl News observed, "Come September when government funding runs dry, it will be Speaker Kevin McCarthy who wants to deeply cut spending, versus House Democrats, Senate Democrats, Senate Republicans and the White House, all of whom think the spending deal was far too skimpy on a variety of fronts — mostly on defense spending."

There won't be a lot of floor time between now and the September 30 expiration of current funding. After next week, the current Senate and House schedules have the Senate out for five straight weeks and the House out for six straight weeks.

ERTC hearing: The House Ways and Means Oversight Subcommittee will hold a hearing on the backlog of the Employee Retention Tax Credit (ERTC) processing, Internal Revenue Service response to inquiries about ERTC credits, and the impact of fraud on those legitimately trying to claim the credit on Thursday, July 27, 2023 (2 p.m.).

Last Week (July 17 - 21)

Global tax: On July 17, the OECD released additional Administrative Guidance implementing the Pillar Two global minimum tax regime and the revised GloBE Information Return (GIR). The administrative guidance on Pillar Two of the OECD BEPS 2.0 project, among other things, provides a safe harbor rule that will temporarily prevent countries that adopt the Undertaxed Profits Rule (UTPR) from applying the UTPR top-up tax to Ultimate Parent Entities (UPEs) if the nominal or statutory tax rate in the UPE jurisdiction is above 20%. The Administrative Guidance also provides favorable treatment for transferable tax credits under the Inflation Reduction Act and detailed guidance on the QDMTT safe harbor, as well as guidance on the substance-based income exclusion and currency conversion rules. Under the guidance, the UTPR Top-up Tax Amount calculated for the UPE Jurisdiction shall be deemed to be zero for each Fiscal Year during the Transition Period if the UPE Jurisdiction has a corporate income tax that applies at a rate of at least 20%, with the Transition Period spanning Fiscal Years that run no longer than 12 months that begin on or before December 31, 2025, and end before December 31, 2026. The rule would eliminate the threat of the application of the UTPR to the domestic earnings of US-headquartered companies for the transitional period. OECD said, "The short transition period is designed to ensure that the safe harbour does not serve as a disincentive for jurisdictions to adopt the GloBE Rules or as an incentive for MNE Groups to invert into a jurisdiction that has not yet adopted a QDMTT or to shift profits into UPE jurisdictions that have lower effective tax rates. Accordingly, the transition period cannot be extended."

A Bloomberg Daily Tax Report analysis by EY's Barbara Angus and Jason Yen said, "The guidance contains a transitional safe harbor, which deems any ultimate parent entity's UTPR liability to be zero for fiscal years beginning before 2026 if the entity's jurisdiction has a statutory corporate tax rate of at least 20%. This effectively serves to delay application of the UTPR on the US profits of a US multinational enterprise until 2026 at the earliest." Further, the analysis stated, "The new rules on tax credits relate specifically to transferable tax credits — a priority for the current US administration … The guidance effectively treats these credits, whether transferred or retained, like qualified refundable tax credits — regardless of the company's financial accounting treatment. It also provides additional favorable guidance for entities that participate in tax equity investments, including tax equity investments that generate transferable credits." OECD released a report on the Subject to Tax Rule (STTR) that provides model tax treaty provisions and related commentary that can be used by jurisdictions to incorporate the STTR in their bilateral tax treaties. On 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. This document does not yet reflect consensus as there are remaining open issues. An EY Alert has details.

Reaction: 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 release on Pillar Two, even with the transitional safe harbor on the UTPR, which has been a topic of keen interest to Republicans on the tax writing committees. They 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 'administrative guidance' acknowledges what Republicans have warned for more than two years: the UTPR surtax is unworkable and unlawful. By exposing the UTPR's fundamental flaws, congressional Republicans created an opportunity for the OECD to reconsider this illegal extraterritorial tax which violates U.S. sovereignty. Shockingly, the Biden Administration failed to follow through, surrendering to foreign country demands to allow the UTPR to hit U.S. workers and businesses starting in 2026. Moreover, the OECD's nonsensical treatment of investment incentives remains, which will send U.S. R&D jobs and tax revenues overseas. If other countries move forward to attack U.S. jobs and tax revenues through the UTPR, Congress will be forced to pursue additional remedial measures to protect American interests."

Tax Notes reported some as suggesting "the 2026 deadline for the transitional safe harbor could indicate that the OECD expects the United States to pass legislation on pillar 2 in 2025 after elections are held."

Ways & Means hearing: At the July 19 Ways & Means Tax Subcommittee hearing, "Biden's Global Tax Surrender Harms American Workers and Our Economy," Republican members challenged Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, to defend the OECD-led BEPS 2.0 global minimum tax project, US support for the project, and how the government has negotiated various aspects of the global minimum tax rules. Members also criticized the Biden Administration for not regularly consulting with Congress and, specifically, the Committee, as the negotiations have moved forward. They questioned the constitutionality and global legal framework for allowing other nations a potential share of US taxes through the Undertaxed Profits Rule (UTPR) and why the US R&D credit isn't treated under the global system in the same way as refundable R&D credits provided by other countries.

Republicans took particular aim at the Joint Committee on Taxation analysis suggesting the United States stands to lose over $120 billion in tax revenues if the rest of the world adopts Pillar Two in 2025 as clear evidence that the Treasury has failed in negotiating a good deal for the United States. While Plowgian did not dispute the estimate, he did note several times that the JCT analysis provided a range of estimates based on several different scenarios, and that the US may actually see an increase in revenue through implementation of Pillar Two.

Rep. Jodey Arrington (R-TX) said Democrats had full control of the Congress and White House last year and were not able to increase GILTI and make the calculation country-by-country, and criticized the general nature of the deal. "What you are doing is a backdoor coercive strategy to force Congress to raise taxes" or risk other countries taxing US companies, he said. Rep. Arrington expressed concern that the US tax base will be ceded to foreign nations to subsidize their policies; the US will also undermine its sovereignty; and, if a company reduces their liability lower than 15% through the use of US tax credits, they are penalized because of the top-up tax. "This thing is completely off the rails and upside down," he said.

Plowgian cited as policy wins by Treasury the fact that "US provisions, including accelerated depreciation, are specifically identified in the model rules as book tax differences that do not give rise to adjustments to the effective tax rate and do not give rise to top-up tax under Pillar Two … a GILTI coordination rule that reduces the burden for US businesses in allocating taxes paid under GILTI for purposes of Pillar Two," and the UTPR safe harbor. He acknowledged that "Pillar One cannot be approved without congressional support," and consistently said that Congress was consulted and agreed to respond to further requests in writing. Plowgian said requests for Administration revenue estimates have been stymied by concerns that they wouldn't provide Congress a complete picture because aspects of Pillar One have not been finalized.

Democrats emphasized that the agreement would proceed, and US companies would be affected, with or without US approval. Subcommittee Ranking Member Mike Thompson (D-CA) asserted that the OECD is going to forge ahead, and the US cannot put its head in the sand and pretend this isn't happening. Asked by Rep. John Larson (D-CT) whether Pillar Two would go away as a result of inaction by the US, Plowgian said no: South Korea and Japan have already taken steps to implement Pillar Two; all EU states are obligated to implement Pillar Two this year under the EU directive; and the UK, Canada, Australia are all moving forward.

Estes bill: Rep. Ron Estes (R-KS), who has been vocal on global tax issues, July 18 introduced a bill to amend the Base-Erosion and Anti-Abuse tax (BEAT) calculation for specified Foreign-Owned Extraterritorial Tax Regime Entities, another reciprocal tax measure for countries that target the US under the OECD-led agreement. Under the bill, the term "tax" includes any increase in tax whether effectuated by an increase in the rate or base of a tax, by a denial of deductions or credits, or otherwise, which is intended to include any UTPR. A release said, "the Unfair Tax Prevention Act [is intended] to discourage foreign countries from attacking U.S. jobs and tax revenues through the Organization for Economic Co-operation and Development's (OECD) Pillar 2 so-called Under Taxed Profit Rule (UTPR) surtax."

FTC guidance: IRS Notice 2023-55 announces temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under sections 901 and 903. The Notice allows taxpayers to claim a foreign tax credit for many foreign taxes that may not have been creditable under the FTC Creditability Regulations. For foreign taxes paid during tax years 2022 and 2023, taxpayers may apply: (1) former§1.901-2(a) and (b), before it was amended by Treasury Decision 9959 (the 2022 FTC final regulations), but subject to a modification to the nonconfiscatory gross basis tax rule as described in the notice, and (2) existing §1.903-1 without the attribution requirement. The notice also announces that the Treasury Department and the IRS are considering amendments to the 2022 FTC final regulations and whether, and under what conditions, to extend the relief to tax years following the 2023 tax year.

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.

Date — Guidance


Link for more information

11/29/22 — Notice 2022-61, prevailing wage and apprenticeship requirements; started clock for construction 60 days+ after guidance

Applicable to advanced energy projects (IRC Section 48C), alternative fuel vehicle refueling (IRC Section 30C), carbon oxide sequestration (IRC Section 45Q), clean fuel production (IRC Section 45Z), clean hydrogen production (IRC Section 45V), energy efficient commercial buildings deduction (IRC Section 179D), renewable electricity production (IRC Section 45), energy investment (IRC Section 48) credits. Wage requirements also apply to new energy efficient home (IRC Section 45l) and zero-emission nuclear (IRC Section 45U) credits.

See Tax Alert 2022-1832

12/12/22 — Revenue Procedure 2022-42, IRC Section 30D(d)(3)

agreements between qualified vehicle manufacturers and Treasury regarding the production of automobiles eligible for a clean vehicle credit

12/19/22 — Notice 2023-06 provides guidance on the new sustainable aviation fuel (SAF) credits

primarily addresses the SAF credit requirements applicable to a qualified mixture

12/22/22 — Fact Sheet (FS-2022-40) on energy efficient home improvements and residential clean energy property credits

lists improvements eligible for credits, credit amounts, information on labor costs

12/27/22 — Notice 2023-2, corporate stock repurchase excise tax

rules and procedures for the 1% excise tax on the aggregate fair market value of stock repurchased by certain corporations

12/27/22 — Notice 2023-7, corporate alternative minimum tax (CAMT)

clarifies which corporations the CAMT applies to and how the alternative minimum tax is calculated

See Tax Alert 2023-0091

12/29/22 — FAQs on clean vehicle credits (FS-2022-42)

address how the credit applies to purchases of clean vehicles that are new, previously owned or commercial

12/29/22 — Notice 2023-1, definitions for IRC Section 30D credit for vehicles PIS after 12/31/2022

2/3/23 — Notice 2023-16 modifies Notice 2023-01

announcement that Treasury and the IRS intend to propose regulations on the definitions of the relevant terms under IRC Section 30D for new clean vehicles placed in service after December 31, 2022, and the critical mineral and battery component requirements under IRC Section 30D(e)

changing the vehicle classification standard by which vans, sport utility vehicles, pickup trucks and other vehicles are defined

See Tax Alert 2023-0076

12/29/22 — White Paper on

critical mineral requirements - % of value of minerals in battery extracted or processed in the US, FTA w/US, recycled in N. Amer.

= or >40% for a vehicle PIS in 2023 after the date of guidance. Increases annually to 50% in 2024, 60 % in 2025, 70% in 2026, and 80% after.

Similar for batteries: 50% in 2023 after the date of guidance, 60% in 2024-5, 70% in 2026, 80% in 2027, 90% in 2028, 100% after 2028

12/29/22 — FAQs, on clean vehicles (FS-2023-04)

Updated in March (FS-2023-08)

vehicles cannot be acquired for resale purposes; must be manufactured by a qualified manufacturer; must be powered by an electric motor with a battery capacity of 7 kilowatt hours or more and must be capable of being recharged from an external source, final assembly in North America

12/31/22 — Notice 2023-9, IRC Section 45W, safe harbor on incremental cost of commercial clean vehicles

for those placed in service in calendar year 2023 for purposes of the new credit for qualified commercial clean vehicles

2/13/23 — Notice 2023-17 Low-Income Community Bonus

applies to owners of certain solar and wind facilities placed in service in connection with low-income communities that are eligible for the IRC Section 48 energy investment credit

2/13/23 — Notice 2023-18, 48C advanced energy projects

5/31/23 — Notice 2023-44 modifies Notice 2023-18

program under IRC Section 48C(e) to allocate $10 billion in tax credits for qualified investments

See Tax Alert 2023-1012

2/17/23 — Notice 2023-20, interim guidance for insurance companies and others for the CAMT

guidance for the determination of adjusted financial statement income as it relates to (1) variable contracts and similar contracts, (2) funds withheld reinsurance and modified coinsurance agreements, and (3) the basis of assets held by certain previously tax-exempt entities with a "fresh start" basis adjustment

See Tax Alert 2023-0384

3/9/23 — Notice 2023-24, nuclear credit (45J)

(1) guidance for computing the credit, (2) the amount of unutilized NMCL, (3) the procedures for taxpayers to apply for, and the IRS to allocate, the unutilized NMCL, and (4) transfer of the IRC Section 45J credit to an "eligible project partner"

See Tax Alert 2023-0504

3/31/23 — Proposed regulations (REG-120080-22) on domestic sourcing requirements for 30D EV credit

guidance on critical minerals, battery components and other requirements for clean vehicles to qualify for the federal income tax credit under IRC Section 30D

See Tax Alert 2023-0660

4/4/23 — Notice 2023-29, "energy communities"

6/15/23 — Notice 2023-45 updates Notice 2023-29

6/15/23 — Notice 2023-47, energy community bonus

for purposes of the production tax credit (PTC) under IRC Sections 45 and 45Y and the investment tax credit (ITC) under IRC Sections 48 and 48E for electricity facilities

clarify that it applies to taxpayers that begin construction on or after Jan. 1, 2023,

clarifies requirements brownfield site definition for the clean energy ITC and PTC:

Updates on eligibility for the bonus based on updated local unemployment rate data

See Tax Alert 2023-0675

See Tax Alert 2023-1083

5/12/23 — Notice 2023-38, domestic content bonus

under IRC Sections 45, 45Y, 48, and 48E

See Tax Alert 2023-0908

5/31/23 — Proposed regs (REG-110412-23) on Low-Income Community Bonus

definitions and requirements that would be applicable for the program allocating the calendar year 2023 capacity limitation

See Tax Alert 2023-1018

5/31/23 — Notice 2023-44 on 48C(e) advanced energy project credits

information on "energy communities census tracts" and list of eligible census tracts

See Tax Alert 2023-1012

6/7/23 — Notice 2023-42, CAMT

waives addition to tax under Section 6655 for a corporation's failure to make estimated tax payments of its CAMT under IRC Section 55 for a tax year beginning after December 31, 2022, and before January 1, 2024

See Tax Alert 2023-1038

6/14/23 — Proposed regulations (REG-101610-23) on tax credit transferability

11 credits eligible: alternative fuel vehicle refueling (IRC Section 30C), renewable electricity production (IRC Section 45), carbon oxide sequestration (IRC Section 45Q), nuclear power production (IRC Section 45U), clean hydrogen production (IRC Section 45V), advanced manufacturing production (IRC Section 45X), clean electricity production (IRC Section 45Y), clean fuel production (IRC Section 45Z), energy (IRC Section 48), advanced energy projects (IRC Section 48C), and clean electricity investment (IRC Section 48E)

See Tax Alert 2023-1103

6/14/23 — Proposed regulations (REG-101607-23) on direct pay

allows entities like tax-exempt organizations, State and local governments, and rural electric cooperatives to treat certain credits as a payment against federal income tax liabilities, rather than as a nonrefundable credit. (Payment will first offset tax liability, excess will be refundable.) Applicable credits are the same as for transferability, plus credit for commercial vehicles (IRC Section 45W)

See Tax Alert 2023-1102

6/14/23 — Elective Pay and Transferability FAQs

who is eligible, how to make an elective payment election and receive an elective payment

6/15/23 — FAQs on energy communities

detail on how areas may qualify as an energy community, how to determine whether a project is located in an energy community and brownfield sites for purposes of the Energy Community Bonus Credit

6/29/23 — Announcement 2023-18

confirmed that taxpayers are not required to report or pay the IRC Section 4501 excise tax on stock buybacks on any tax return filed before regulations are published

See Tax Alert 2023-1166


Contact Information
For additional information concerning this Alert, please contact:
Jeff Van Hove (
Cathy Koch (
Ray Beeman (
Kurt Ritterpusch (
Bob Carroll (
James Mackie (