August 2, 2019
Report on recent US international tax developments – 2 August 2019
The United States (US) President, Donald Trump, weighed in this week on France’s recently enacted 3% Digital Services Tax (DST), posting a threatening US retaliation for the new French tax. “We will announce a substantial reciprocal action on [French President] Macron’s foolishness shortly,” the President tweeted. The press quoted President Trump as saying his Administration was working on a new potential tax on French wine. A White House official later called France’s enactment of the DST an indication of France’s “lack of commitment to the ongoing OECD negotiations” on digital taxation. In response to the possible US tax on French wine, France’s Finance Minister said the new DST would be withdrawn “as soon as there will be an international solution on the taxation of digital activities.”
The US President’s ire follows reports in mid-July that Europe had won a concession from the US that changes to tax rules should address “highly digitalized business models.” At a G7 Finance Ministers and Central Bank Governors meeting in Chantilly on 17-18 July, the parties agreed that “it is urgent to address the tax challenges raised by the digitalization of the economy and the shortcomings of the current transfer pricing system” and supported the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting two-pillar solution. The Chair’s Summary of the meeting described the pillars of the OECD/Inclusive Framework work plan, saying that under Pillar I, new nexus rules should be developed to address new business models, such as highly digitalized business models, allowing companies to do business in a territory without any physical presence.1
The Internal Revenue Service (IRS) this week announced that it has begun sending letters to virtual currency owners that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. The letters advise the virtual currency owners to pay back taxes and file amended returns. IRS Commissioner Charles Rettig warned that “taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties.” The Commissioner indicated the IRS is expanding its efforts involving virtual currency, including the increased use of data analytics. According to the IRS, over 10,000 letters will be sent before the end of August.
IRS provides that virtual currency is considered property for federal tax purposes and instructs that general federal tax principles apply to virtual currency transactions. Additional IRS guidance is expected in the near future.
1. For background, see EY Global Tax Alert, G7 Finance Ministers support OECD two-pillar project to develop new rules for taxing multinational businesses, dated 18 July 2019.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP, International Tax Services, Washington, DC