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March 12, 2021

Report on recent US international tax developments 12 March 2021

United States (US) President Joe Biden on 11 March signed into law the US$1.9 trillion1 American Rescue Plan Act of 2021 (H.R. 1319) COVID-19 stimulus/relief package. The Senate passed the bill on 6 March and the House approved the Senate-amended version of the legislation on 10 March.

The legislation includes provisions on taxes, health care, unemployment benefits, direct payments, state and local funding and other issues. About half of the $1.9 trillion bill comprises revenue provisions that fall under jurisdiction of the congressional tax-writing committees, and over half of that is attributable to direct payments of $1,400 and an advanceable child tax credit expansion that takes the form of periodic payments from the Internal Revenue Service (IRS). The final bill also includes repeal of the Internal Revenue Code Section 864(f) worldwide interest expense allocation election.

The IRS Office of Fraud Enforcement has begun a new initiative focused on financial crime and fraud that involves virtual currency. The initiative, Operation Hidden Treasure, “is basically an umbrella operation for all of our virtual currency omitted-income cases,” according to the director of the Office. Another IRS official explained that Operation Hidden Treasure “is all about finding, tracing, and attributing crypto to U.S. taxpayer[s].” She added that taxpayers should be aware that virtual currency transactions are not anonymous.

The IRS Advance Pricing and Mutual Agreement Program (APMA) is seeing "questionable treatment of COVID-related costs," according to the APMA director. He told a recent Federal Bar Association virtual conference that APMA is seeing taxpayers classifying costs as nonoperating items to improve the controlled party's operating profitability for purposes of a comparable profits method or transactional net margin method analysis, which may result in a compensating adjustment. He also said taxpayers with an advance pricing agreement nearing the end of its term are raising COVID-related issues prematurely, which may complicate bilateral competent authority negotiations.

Another IRS official said the Government is also seeing taxpayers invoking force majeure to terminate arrangements. "If there is reason to believe that unrelated parties in the same circumstances would not invoke force majeure, it raises questions," the official said.

Taxpayers should be cautious when taking non-conventional transfer pricing positions as a result of COVID-19. Although many of these issues have not yet been challenged, the recent comments by the APMA director make it clear that they are on the IRS's radar.2

An Organisation for Economic Co-operation and Development (OECD) official this week was quoted as saying there is a possibility for two simplification measures to be adopted as part of a future BEPS 2.0 Pillar Two agreement, targeted for mid-2021. Pillar Two calls for the introduction of global minimum tax rules which include income inclusion rules and an undertaxed payments rule (referred to collectively as the Global Anti-Base Erosion (GloBE) rules) and a subject-to-tax rule.

According to the official, one proposed simplification would allow in-scope multinational enterprises to use their country-by-country report data to compute their jurisdictional effective tax rates for purposes of the global minimum rules. The second proposal would provide a de minimis profit exclusion, under which a jurisdiction would be excluded if the multinational has less than 2.5%, or €100,000 of an in-scope multinational enterprise’s profits.

A third administrative guidance option has also been proposed -- which is favored by many taxpayers – that would create a so-called “angel list” of jurisdictions identified as low-risk jurisdictions with appropriate tax bases and tax rates. An in-scope multinational enterprise operating in a listed jurisdiction would be assumed to have an effective tax rate higher than the minimum threshold. The OECD official noted that this third simplification proposal has received a mixed reaction in Working Party 11 (Aggressive Tax Planning), however, because of the political issues surrounding the proposal.

The Platform for Collaboration on Tax (PCT) – a joint initiative of the International Monetary Fund, OECD, United Nations and World Bank Group – this week issued the final version of their Toolkit on Tax Treaty Negotiations. The toolkit is aimed at helping developing countries in regard to their tax treaty negotiations. Five other PCT toolkits are available here.


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

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



  1. Currency references in this Alert are to the US$.

  2. See EY Global Tax Alert, US IRS's advance pricing and mutual agreement program director discusses taxpayers' treatment of COVID-related costs, dated 9 March 2021.


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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