April 23, 2021
Report on recent US international tax developments – 23 April 2021
United States (US) President Joe Biden will address a joint session of Congress on 28 April, where he is likely to make the case for Congress to act on his proposed US$2.2 trillion1 infrastructure plan which includes significant changes to the US international taxation regime. The President reportedly will also unveil details of his American Families Plan proposal to address health care, childcare, education, family leave and other issues. The “Families Plan” reportedly will include roughly $1 trillion in spending and $500 billion in new tax credits, with the cost generally paid for with new tax increases on higher income US taxpayers and investors. According to press reports, the President will propose raising the top individual tax rate and tax rate on capital gains to 39.6%.
Senate Finance Committee Chairman Ron Wyden on 21 April reintroduced the Clean Energy for America Act, which proposes to eliminate fossil fuel tax incentives and replace the dozens of energy tax incentives currently in the Internal Revenue Code with a simpler set of provisions that encourage clean electricity and transportation and energy efficiency. The bill would provide an emissions-based, technology-neutral tax credit for clean electricity production and investments in grid improvements like stand-alone energy storage and high-capacity transmission lines qualifying for the full-value investment tax credit.
For fossil fuels, the bill reinstates the current taxation of multinational oil companies’ non-extraction income and “ensures multinational oil companies are not specially exempted from the 2017 tax law’s global minimum tax.”
The United Nations (UN) Committee of Experts on International Cooperation in Tax Matters on 20 April approved the final text of a new digital taxation article for the UN Model Treaty that would allow for source country taxation of revenue from certain automated digital services. New Article 12B (Income from Automated Digital Services) would allow a contracting state to tax gross automated digital services income earned by a beneficial owner that is resident in the other contracting state. The new provision would also provide an option to be taxed on a net basis. Automated digital services is defined as “any service provided on the Internet or another electronic network, in either case requiring minimal human involvement from the service provider” and includes online advertising services, online search engines, digital content services, online gaming, and cloud computing services. New Article 12B does not specify specific tax rates, which would be established through bilateral negotiations.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC