The United States (US) Congress returns to Washington the week of 12 November for a lame-duck session after the mid-term elections. Voters recalibrated the make-up of the upcoming 116th Congress, giving Democrats control of the House and retaining Republication control of the Senate. The election results will impact the lame-duck session prior to the transfer of power in the House, and in 2019 when the new Congress convenes. The Republican dominated lame-duck Congress’ tax agenda remains unclear, but may include Tax Cuts and Jobs Act (TCJA) technical corrections legislation (as Internal Revenue Service (IRS) guidance continues to be released), the Tax Reform 2.0 package, especially retirement incentives (already passed in the House), and/or tax extenders.

Congressional tax staff, led by the staff of the Joint Committee on Taxation (JCT), are working on a Blue Book general explanation of the new law that is expected before year end, and are examining potential technical corrections that will be identified when the Blue Book is published. A technical corrections legislative draft could be circulated during the lame-duck session, but it is unlikely more than a few true technical corrections would be addressed in the lame duck. Meanwhile, House Ways and Means Committee Chairman Kevin Brady has said members have been compiling a “punch list” of more substantial corrections and that members wanted to see how provisions were interpreted in Treasury regulations before taking those forward.

The US Treasury is moving proposed regulations on the international tax provisions in the TCJA at a faster pace. This week, proposed Base Erosion and Anti-abuse Tax (BEAT) regulations under Internal Revenue Code¹ Section 59A and proposed foreign tax credit (FTC) regulations were submitted to the Office of Management and Budget (OMB) Office of Information and Regulatory Affairs (OIRA) for review. Among other things, the latter are expected to include expense allocation rules for the Global Intangible Low-taxed Income (GILTI) basket. Treasury released proposed regulations on the GILTI regime on 13 September 2018, but those regulations did not address a number of issues regarding the interplay between the GILTI rules and other Code sections.

Proposed rules regarding the limitation on the deductibility of business interest under Section 163(j) have also been under review by OMB since 25 October. While it is possible one or more of the regulation projects could be released prior to the Thanksgiving holiday, the timeline could spill over beyond that. Regulations under OMB review are listed at https://www.reginfo.gov/public/. A senior Treasury official earlier said he expects all the proposed regulations issued in connection with the TCJA will receive expedited OIRA review. Under Executive Order 12866, expedited review means 10 business days.

European Union (EU) Finance Ministers met on 6 November to provide their positions on the scope of taxable services and an expiration date (sunset clause in the EU Directive) related to the proposed EU Digital Services Tax (DST). According to official notes issued at the conclusion of the ECOFIN meeting, all EU Member States agreed that the “directive should expire once there is a comprehensive solution to taxing (the) digital economy at (the) OECD level.” There was no unanimity on the scope of taxable services. Further work is planned at the technical level in order for agreement to be reached at an EU Economic and Financial Affairs Council (ECOFIN) meeting scheduled for 4 December.

Endnote

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

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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