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April 26, 2024

Report on recent US international tax developments - 26 April 2024

US tax policy is coming more into focus in the lead-up to the 2024 elections and the Tax Cuts and Jobs Act (TCJA) cliff to follow at the end of 2025.

House Ways and Means Committee (W&M) Chairman Jason Smith (R-MO) and Tax Subcommittee Chairman Mike Kelly (R-PA) on 26 April announced the formation of 10 Committee Tax Teams that will be comprised of W&M committee Republicans. The purpose will be to "study key tax provisions from the 2017 Trump tax cuts that are set to expire in 2025" and identify other legislative measures that support the Republican agenda.

Battle lines are beginning to be set: President Biden has proposed raising the corporate tax rate to 28%, increasing taxes on income, capital gains and dividends, and raising payroll taxes on high-income individuals, as well as international and other tax increases on businesses. The President is also on record favoring a billionaires' tax and increasing the Inflation Reduction Act (IRA) corporate alternative minimum tax (CAMT) from 15% to 21%. Republicans, on the other hand, want to extend TCJA provisions expiring in 2025.

Treasury and the IRS this week finalized domestically controlled qualified investment entity (QIE) rules under IRC Section 897. The final regulations (TD 9992) provide guidance for determining whether QIEs, which include real estate investment trusts (REITs), are considered domestically controlled for purposes of the Foreign Investment in Real Property Tax Act (FIRPTA).

The final regulations increase the amount of foreign ownership required to look through a nonpublic domestic C corporation from 25% or more to more than 50%. The final regulations do not address the treatment of qualified foreign pension funds (QFPFs) and qualified controlled entities (QCEs) for purposes of the US tax exemption for income of foreign governments under IRC Section 892, which the government indicated would be addressed in separate guidance. A Tax Alert is pending.

The IRS on 18 April published a draft Form 1099-DA, Digital Asset Proceeds From Broker Transactions, to collect data that the IRS said would be required under the proposed regulations (REG-1122793-19) published in August 2023. The draft form does not change any of the requirements in the proposed regulations.

Draft Form 1099-DA includes one page of instructions for taxpayers and tax preparers to use in interpreting the form when they receive it from a broker. Some of those instructions shed light on what digital-asset brokers are expected to do, but the picture is incomplete. The IRS has not yet published separate instructions on preparing the form, which would serve as a guide for brokers in building and implementing the information systems related to Form 1099-DA.

In addition to issuing draft Form 1099-DA, the IRS requested comments on the information collection requirements for digital-asset proceeds from broker transactions. Comments should be submitted by 21 June.

A senior Treasury official wrote to his Australian counterpart that Australian Draft Taxation Ruling TR 2024/D1 Income tax: royalties - character of payments in respect of software and intellectual property on the cross-border sale of certain computer software is contrary to the US-Australia income tax treaty, as well as the OECD Model Tax Treaty. In a 5 April letter, the US official urged the Australian Taxation Office "to either withdraw TR 2024/D1 or revise it as it applies to the Australia-U.S. tax treaty to bring it into conformity with the OECD Model Commentaries and maintain the reciprocal nature of the treatment of payments by local distributors of computer software."

The OECD on 25 April released a consolidated commentary document on the BEPS Pillar Two global anti-base erosion (GloBE) rules. The consolidated document includes GloBE Administrative Guidance released over the period March 2022 through December 2024. The OECD also released a revised document with illustrative examples under the GloBE rules.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor