January 26, 2024
Report on recent US international tax developments — 26 January 2024
The proposed $78b Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), passed by the House Ways and Means Committee last week, may get a floor vote the week of 29 January. House leadership listed the bill under "Items that may be considered" by the chamber next week. The legislation would restore IRC Section 174 expensing for domestic R&D (but not foreign R&D) and the prior IRC Section 163(j) interest deductibility parameters retroactive to 2022 and extended through 2025. The proposal also includes an extension of 100% bonus depreciation. It would further address the Child Tax Credit (CTC) plus the add-ons that were expected, including the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 5988), disaster relief and affordable housing provisions.
The bill faces a number of hurdles in the House, including objections by some Republican members to enhancements to the CTC and the omission of relief from the $10,000 state and local tax deduction cap. The future of the tax package is also uncertain in the Senate, where Republicans are pushing for a Finance Committee markup and putting the bill on the floor as a standalone measure would be more difficult than attaching it to a large, fast-moving appropriations bill or other measure. There is also some Republican opposition in the Senate to some of the bill's provisions, including changes to the CTC and the Employee Retention Credit (ERC) offset.
Treasury and IRS officials at an American Bar Association Tax Section meeting in San Francisco last week provided an update on some pending regulatory projects. Government officials continued to say that proposed regulations on the 1% stock buy-back excise tax and the corporate alternative minimum tax (CAMT) are close to release, in that order. In regard to the pending CAMT package, a Treasury official was quoted as saying the proposed regulations would address a controlled foreign corporation's disposition of stock in the context of CAMT computations.
The government also hopes to issue final cloud computing regulations in 2024, although no timeline was given. Proposed cloud computing regulations were released in 2019. A Treasury official said the government is also considering releasing a companion notice to the final regulations addressing the issue of cloud computing sourcing.
Addressing the long-awaited previously tax earnings and profits (PTEP) regulations, an official was reported as saying the first portion of the project will include the "nature and general structure" of the PTEP rules, including accounting rules for both the foreign corporation and the US shareholder. Taxpayers can also expect the first tranche of PTEP regulations to cover foreign currency gains and losses, the treatment of credits under IRC Section 960(b), IRC Section 961(c) basis, as well as some partnership issues. The second tranche of PTEP guidance reportedly will include further partnership issues and nonrecognition transactions.
Finally, Treasury hopes to finalize the proposed regulations on currency gains or losses for qualified business units (QBUs) in 2024. Treasury and the IRS issued proposed regulations on 9 November 2023. According to a Treasury official, finalization of the regulations in 2024 would mean their application to calendar-year taxpayers in 2025.
The OECD recently released a working paper titled ""The Global Minimum Tax and the taxation of MNE profit." The working paper estimates the economic impact of the global minimum tax using new data on worldwide activity of multinational enterprises (MNEs) and building on new OECD estimates of global low-taxed profit.
The working paper concludes that the global minimum tax is estimated to reduce tax-rate differentials across jurisdictions. Profit shifting is estimated to be reduced by approximately half as a result of the global minimum tax, and the global amount of MNE profit taxed below the 15% minimum effective tax rate will fall by approximately 80%. Finally, the working paper authors estimate that the global minimum tax will increase corporate income tax (CIT) revenues by US$155b-192b on average per year, which represents between 6.5%-8.1% of current global CIT revenues. A Global Tax Alert provides details.