US House Ways and Means Committee Chairman Kevin Brady on 18 July said that an outline of proposals for a "phase 2" tax reform bill will be released the week of 23 July. Closed-door meetings among committee Republicans to gauge tax priorities is also planned the same week. The Chairman was quoted as saying that he expects a House vote on the tax reform 2.0 bill to take place sometime in September, with the Senate also taking action. Final passage of any tax legislation this fall will require the cooperation of Senate Democrats, however, a difficult proposition before the mid-term elections in November.

Chairman Brady has indicated that while making permanent the temporary individual tax cuts in the Tax Cuts and Jobs Act (TCJA) remains the top priority, the planned tax bill may also address the tax treatment of capital gains, retirement savings, and private activity bonds. The House tax leader reiterated earlier comments that tax technical corrections legislation on the TCJA will not be part of a phase 2 tax reform bill.

The Office of Management and Budget (OMB) this week confirmed that it has received for review proposed regulations under the Internal Revenue Code¹ Section 965 repatriation transition tax, moving the highly-anticipated guidance closer to release. The website of the OMB's Office of Information and Regulatory Affairs indicates that the proposed Section 965 regulations were received on 13 July and are now under review. According to the OMB website, the proposed rules have been deemed to be not economically significant.

A Treasury official also recently provided some detail as to the soon-to-be-released proposed Section 965 regulations, as well as other upcoming international guidance. Regarding the proposed transition rules, the Treasury official confirmed that the various Section 965 notices that have been released since enactment of the provision will be rolled into the proposed regulations.

Guidance covering the TCJA's global intangible low-taxed income (GILTI) provision, foreign derived intangible income (FDII), and base erosion and anti-abuse tax (BEAT) are all expected to be released in the fall, the official said. Regarding GILTI, the official said the coming proposed regulations will be comprehensive. He further said Treasury is "leaning toward applying GILTI on a consolidated basis and treating the group as a single US shareholder." Treasury is interested in receiving comments on that approach. The GILTI guidance reportedly will cover foreign tax credits and baskets, the effect of a Section 962 election by an individual US shareholder and the composition of the GILTI base. How to treat GILTI inclusions when domestic partnerships are US shareholders is still under review, the official said.

As for FDII, which has come under some criticism by certain European Union (EU) countries, the Treasury official said the Administration is confident about defending the measure in the Organisation for Economic Co-operation and Development (OECD) next fall. Treasury believes the provision is fully consistent with the standards of the OECD Forum on Harmful Tax Practices. The EU last spring requested that the OECD Forum on Harmful Tax Practices conduct a "fast track" review of certain of the TCJA's provisions, including FDII, suggesting that some of the measures are discriminatory or in violation of World Trade Organization rules.

The official added that BEAT will also likely be determined on a consolidated basis in the proposed regulations.

An Internal Revenue Service (IRS) Large Business and International Division official this week said that many countries are still trying to figure out what do with the information gleaned from country-by-country (CbC) reports. The official said that global revenue authorities are experimenting with uses for the data, including how to sort and manage the information, as well as its role in risk analysis. He downplayed its future usefulness for US purposes because of the IRS's experience in data analytics in moving to its compliance campaigns, suggesting that CbC reporting data will ultimately be just another data point in the overall risk analysis process.

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ENDNOTES

¹ All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, International Tax Services, Washington, DC

• Arlene Fitzpatrick
  arlene.fitzpatrick@ey.com
• Joshua Ruland
  joshua.ruland@ey.com

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