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June 4, 2021
2021-5632

Report on recent US international tax developments 4 June 2021

The United States (US) Treasury on 28 May released its FY 2022 explanation of the Biden Administration's revenue proposals (the Green Book), offering new details on the various proposals included in the President's "Made in America" tax plan.

The Made in America tax plan was first released in March 2021 and was followed by a Treasury report detailing the Administration's corporate tax proposals, including increasing the corporate tax rate from 21% to 28% and significant changes to international tax provisions.

The significant international tax proposals include:

  • Increased tax rates and other changes to the regime for Global Intangible Low-taxed Income (GILTI)
  • Country-by-country limitations on foreign tax credits
  • Repeal of the deduction for Foreign-derived Intangible Income (FDII)
  • Replacement of the Base Erosion and Anti-abuse Tax (BEAT) with a newly proposed "SHIELD" (Stopping Harmful Inversions and Ending Low-tax Developments)
  • Expanded rules targeting inversions
  • A new minimum tax on book income
  • Limits on interest deductions for disproportionate borrowing in the US
  • Treatment of dispositions of "specified hybrid entities" as stock sales for certain purposes

Most of the proposals would be effective for tax years beginning after 31 December 2021, though several are proposed to be effective for transactions completed after the date of enactment. The proposal to repeal BEAT and introduce SHIELD would be effective for tax years beginning after 31 December 2022. See EY Global Tax Alert, US Treasury Green Book offers new details on international tax proposals, dated 1 June 2021 for details.

President Joe Biden and Senate Environment & Public Works Ranking Member Shelley Moore Capito met this week without an announced breakthrough on bipartisan infrastructure talks, and will meet again on 4 June. At this point, Senate Republicans, led by Senator Capito, have offered a US$928 billion infrastructure counterproposal to President Biden’s US$1.7 trillion proposal, with disagreement continuing as to the size, scope and how to pay for a possible infrastructure deal. The President reportedly is floating a smaller infrastructure package although details are limited at this time.

White House press secretary Jen Psaki confirmed that President Biden is focusing on proposals like a 15% minimum tax on corporate book income to pay for infrastructure to generate bipartisan support. The President’s proposal to pay for infrastructure includes increased Internal Revenue Service enforcement of and compliance by wealthy individuals and corporations. The Administration is also signaling they will not wait much longer for a deal and want progress by the time Congress returns on 7 June from this week’s recess.

The US Trade Representative (USTR) on 2 June announced additional tariffs on goods from Austria, India, Italy, Spain, Turkey, and the United Kingdom (UK) stemming from Section 301 investigations of Digital Services Taxes (DSTs) from those countries. The USTR suspended the tariffs for up to 180 days, however, “to provide additional time to complete the ongoing multilateral negotiations on international taxation at the Organisation for Economic Co-operation and Development (OECD) and in the G20 process.“ For details, see EY Global Tax Alert, USTR announces 25% punitive tariffs on six specific countries in response to their Digital Services Taxes; Suspends tariffs for 180 days, dated 4 June 2021.

Officials from the Group of 7 (G-7) are meeting in London on 4-5 June, during which they are expected to pledge support for the Base Erosion and Profit Shifting (BEPS) 2.0 talks, including possibly a global minimum tax. A draft communique by the G-7, which consists of the US, Canada, France, Germany, Italy, Japan and the UK, is being reported in the press. The draft statement reportedly says: "We commit to reaching an equitable solution on the allocation of taxing rights and to a high level of ambition on the rate for a global minimum tax." The Biden Administration in April floated a 15% corporate minimum tax to the OECD/G20 Steering Group of the Inclusive Framework on BEPS.

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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

 
 

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