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April 30, 2021
Report on recent US international tax developments – 30 April 2021
United States (US) President Joe Biden on 28 April addressed a joint session of Congress, making the case for enactment of his multi-trillion dollar American Jobs Plan and American Families Plan to Congress and the public. The President called the 2017 Tax Cuts and Jobs Act a “a huge windfall for corporate America and those at the very top,” and said: Corporations “benefit from tax loopholes and deductions that allow for offshoring jobs and shifting profits overseas. That’s not right. We’re going to reform corporate taxes so they pay their fair share – and help pay for the public investments their businesses will benefit from.”
Earlier that day, the White House outlined the US$1.8 trillion1 American Families Plan, which calls for $1 trillion in investments and $800 billion in tax cuts directed at American families and workers, as well as tax code reforms focused on high-income Americans, estimated to raise about $1.5 trillion over a decade. More specifically, the plan proposes raising the top individual tax rate to 39.6% and raising the capital gains rate from 20% to 39.6% for taxpayers making over $1 million. According to the Families Plan Fact Sheet, when combined with the American Jobs Plan, all of the investments would be fully paid for over the next 15 years.
The President’s message came as some centrist Democrats are indicating concern with the enormous cost of the dual packages, now proposed to cost nearly $6 trillion.
The US Treasury on 28 April issued a press release detailing the Government’s plan to increase resources to the Internal Revenue Service (IRS) in order to improve tax compliance. According to the release, President Biden proposes to direct $80 billion to the IRS over the next 10 years to: (i) improve technology; (ii) increase the hiring and training of auditors to focus on complex investigations of large corporations, partnerships and global high-wealth individuals; and (iii) increase enforcement against high-income individuals. “The IRS requires more resources to conduct investigations into underreported income and to pursue high-income taxpayers who evade their tax liability through complex schemes,” according to the release.
Treasury expects these changes to result in $700 billion in tax revenue over the next 10 years. Treasury also said it wants the IRS to implement a mechanism for cross-checking the accuracy of tax filings from “opaque sources,” such as partnerships and proprietorships. Treasury said it will leverage “the information that financial institutions already know about account holders, simply requiring that they add to their regular, annual reports information about aggregate account outflows and inflows.”
Long-delayed previously-taxed earnings and profits (PTEP) proposed regulations are now expected to be released in multiple packages, according to a senior Treasury official this week, with the first piece not expected to be issued before summer or early fall. The official reportedly said the initial guidance is far along but requires additional work with regard to the implementation of Internal Revenue Code Section 961(c), and its application. Sometime later, the second installment of PTEP guidance will address partnerships.
The United Nations (UN) on 27 April released the third edition of the UN Transfer Pricing Manual aimed at developing countries. The new third edition includes a major revision of the section on profit splits and contains new guidance on financial transactions, centralized procurement functions and comparability issues. It also includes a new country specific section on Kenya.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC