The United States (US) Congress was mostly out this week and the current focus in Washington is whether a bipartisan compromise can be struck between President Joe Biden’s US$2 trillion-plus infrastructure proposal and the US$568 billion alternative proposed by senators including Environment & Public Works Ranking Member Shelley Moore Capito, who is expected to lead a group to the White House when the Senate is back in session the week of 10 May. A WCEY Alert breaks down the various possibilities.

The debate is also focused on how to pay for the various proposed plans – infrastructure and family plans – that will go before the Congress. Treasury Secretary Janet Yellen this week indicated that the Administration’s ambitious spending proposals may not have to be fully offset by increasing taxes on corporations and wealthy individuals. The Treasury Secretary was quoted as saying on 4 May: “We can run deficits, but they need to be relatively contained over time to have a sustainable fiscal path,” She added that the US has the “fiscal space” for increased deficits due to continuing low interest rates. The next day, President Biden appeared to stick with his tax proposals, stating during a news conference on 5 May, “I’m willing to compromise, but I’m not willing to not pay for what we’re talking about. I’m not willing to deficit-spend.” The President indicated during a speech on 6 May that a corporate tax rate of between 25% and 28% might be acceptable to the Administration.

Treasury and the Internal Revenue Service (IRS) on 30 April released updated early drafts of new Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). The schedules are meant to provide greater clarity for partners and shareholders to compute their US income tax liability with regard to items of international tax relevance, including deductions and credits. The early release drafts of Schedules K-2 and K-3 provide a preview of what is coming in the final versions; early draft of instructions are expected this summer.

An IRS release indicated that the Treasury Department and the IRS took into account comments received with respect to prior drafts of Schedules K-2 and K-3 for Form 1065, (released in July 2020), and changes were made as appropriate.

The Organisation for Economic Co-operation and Development (OECD) is considering how to roll back various unilateral digital taxes as the summer deadline for reaching a deal on the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar One and Pillar Two proposals moves closer. Pascal Saint-Amans, the Director of the OECD's Centre for Tax Policy and Administration, this week was quoted as saying the organization will provide a framework of objective criteria by October 2021 to identify unilateral measures that are incompatible with Pillar One.

Saint-Amans said “we are confident that this is not too difficult a task,” suggesting that there may be a list of offending regimes, although the framework will also ensure that countries do not introduce new digital taxes in the future. The framework is also reported to include a peer review mechanism to ensure that countries fulfill their commitments to withdraw relevant measures.

Saint-Amans further said that he expected there will be “significant agreement” reached on the BEPS 2.0 project at the G-20 and Central Bank Governors meeting on 8-9 July. But he cautioned that a final package that includes certain technical details, including an implementation plan that includes removal of unilateral digital services taxes – “and maybe some others” – also may not be completely ready until October.

On the topic of cryptocurrency, Saint-Amans indicated that the OECD will publish updated common reporting standard (CRS) rules that address cryptoassets sometime in early 2022. Officials earlier had said an implementation package for a new cryptoasset framework would be delivered to the G20 later in 2021. Saint-Amans said the project, which is being delayed due to the focus on BEPS 2.0, is critical to avoid a “new black hole[s] emerging.”

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

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

• Arlene Fitzpatrick | arlene.fitzpatrick@ey.com
• Joshua Ruland | joshua.ruland@ey.com