The United States (US) Treasury late this week sent proposed regulations under Internal Revenue Code Section 163(j) arising from the Tax Cuts and Jobs Act (TCJA) to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) for review. OIRA review is generally expected to take 10 business days, although in certain circumstances it may take as long as 45 business days. After the OIRA review is complete, US Treasury is expected to move quickly to send the proposed regulations to the Federal Register.

Treasury Secretary Steven Mnuchin issued a statement on 25 October, reiterating the US Government’s opposition to any unilateral action taken by countries in the area of digital taxation, instead supporting a common solution agreed to within the Organisation for Economic Co-operation and Development (OECD). The Secretary’s statement said the US opposes “unilateral and unfair gross sales tax that targets our technology and internet companies.” The US supports a digital taxation framework that is “based on income, not sales, and should not single out a specific industry for taxation under a different standard.”

The Treasury statement follows a letter sent by US Senate Finance Committee Chairman Orrin Hatch, and Ranking Member Senator Ron Wyden on 18 October to the Presidents of the European Council and the European Commission, respectively, expressing their concern over the EC proposal to introduce a 3% digital services tax (DST) on revenues resulting from the supply of certain digital services. The US officials pointed to information that a European Union (EU) agreement in principle on the DST proposal could occur in the coming weeks. The Finance Committee leaders wrote that the EU DST proposal “discriminates against US companies and undermines the international tax treaty system.” They urged the EU to abandon the DST proposal and delay any unilateral action, and instead focus their efforts on reaching a consensus on a digital tax framework within the OECD.

Treasury Secretary Mnuchin and his Israeli counterpart this week reportedly agreed to appoint a joint task force to review the existing US-Israel tax treaty with the goal of updating the convention. The two officials earlier were said to have agreed on the need to amend the existing treaty’s withholding rates as well as to remove certain barriers to investment.

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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