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March 19, 2021

Report on recent US international tax developments 19 March 2021

United States (US) President Joe Biden in an interview this week offered some thoughts on future US tax policy, saying he supports raising the corporate tax rate from 21% to 28%, and suggesting it would raise US$800 billion1 over 10 years. The President said he also favored raising the top individual tax rate to 39.6%. The press this week quoted unnamed Administration sources as saying that a broad infrastructure and jobs package could include repeal of portions of the 2017 Tax Cuts and Jobs Act (TCJA) that benefitted corporations and wealthy individuals. Besides raising the corporate tax rate, the Administration reportedly is discussing reducing tax preferences for pass-through businesses, including limited liability companies and partnerships, as well as a higher capital gains tax rate for individuals earning more than $1 million annually.

President Biden is now expected to roll out his Build Back Better plan in an address to Congress sometime in mid-April. The President’s fiscal year 2022 Budget proposal may be released at the end of April or in May, and likely with a Treasury green book detailing tax proposals. There are reports the Administration is considering various options for the forthcoming Build Back Better infrastructure-plus plan, including breaking it up into as many as three bills, with some moving in a bipartisan manner and others through budget reconciliation (requiring a simple majority in the Senate).

The Senate Finance Committee is holding hearings on various aspects of the Tax Code. The Committee held a hearing on 16 March titled, “Made in America: Effect of the U.S. Tax Code on Domestic Manufacturing,” that focused largely on manufacturing incentives and TCJA changes scheduled to take effect beginning next year: for taxable years after 31 December 2021, research and development expenditures are required to be capitalized and amortized ratably over a five-year period; beginning in 2022, the Internal Revenue Code2 Section 163(j) business interest deduction limit is calculated without depreciation and amortization (EBIT vs. EBITDA); and 100% expensing is phased down after 2022. The Finance Committee next will hold a hearing on 23 March to address the impact of US international tax policy on American jobs.

On 11 March, Rep. Lloyd Doggett and Senators Sheldon Whitehouse, Elizabeth Warren, et al., introduced the No Tax Breaks for Outsourcing Act (H.R. 1785/S. 714). Among other things, the bills would eliminate the deductions for Global Intangible Low-taxed Income (GILTI) and Foreign-derived Intangible Income (FDII); exclude certain high-taxed income from the GILTI computation (thereby denying excess foreign tax credits on that income); and eliminate the exclusion equal to 10% of certain qualified tangible property (the QBAI exclusion).

Rep. Doggett and Senator Whitehouse also introduced the Stop Tax Haven Abuse Act (H.R. 1786/S. 725) that includes changes to the Base Erosion and Anti-Abuse Tax (BEAT) to lower the applicability threshold to $100 million in gross receipts (as opposed to the current $500 million); include certain capitalized amounts as base erosion payments; and eliminate the 3% base erosion percentage gating threshold. 

While the bills are not expected to pass in their current form, individual provisions are an indicator of current thinking by some House and Senate Democrats and could be included in some form in future legislation.

An Internal Revenue Service (IRS) official this week was quoted as saying that guidance on general dividends received deduction rules under Section 245A will not be released in the “near term,” saying there is a “substantial amount of work that still needs to be done on the project.”

There is progress on proposed regulations governing previously taxed earnings and profits (PTEP), and rules are expected to be released “in the near future” although reportedly are not imminent. The official added that the Biden Administration is currently establishing its guidance priorities, and therefore predicting release is difficult at this time. The PTEP regulations reportedly are expected to address timing of basis adjustments on mid-year distributions, tiered controlled foreign corporation transactions, and stock redemptions and partnership issues. The official also said the proposed PTEP regulations will cover interplay with the GILTI rules.

The IRS has updated its frequently asked questions (FAQs) for the Foreign Account Tax Compliance Act (FATCA). Specifically, updated FAQ 23 under General Compliance extends penalty relief for the 2020 and 2021 calendar years for withholding agents that withhold and report on Form 1042 and 1042-S by 15 September 2021 (for 2020) or 15 September 2022 (for 2021) a dividend-equivalent payment made with respect to a derivative referencing a partnership.


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


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