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July 23, 2021

Report on recent US international tax developments 23 July 2021

The United States (US) Senate this week failed to meet Majority Leader Chuck Schumer’s initial deadlines for action on the US$1.2 trillion1 bipartisan infrastructure proposal and a framework for a $3.5 trillion budget reconciliation bill. Senate Republicans on 21 July voted down an initial procedural vote on the yet-to-be-finalized bipartisan infrastructure bill, saying it was premature as details had not been resolved. The group of Senators negotiating the infrastructure bill sent a letter to the Senate Majority Leader saying they expect to be able to move forward on an infrastructure bill early next week.

Senate Democrats also did not have the support of all 50 members needed to pass a budget resolution allowing for a $3.5 trillion budget reconciliation bill that the Majority Leader hoped to nail down this week, according to Budget Committee Chairman Bernie Sanders. Senator Sanders said that a budget resolution vote could take place “by early August.” Congressional Democrats plan to use budget reconciliation to pass a “human infrastructure” bill that will center on health care, climate, and caregiving, generally to be paid for by corporate tax increases, taxes on capital income, and taxes on the wealthy.

The Internal Revenue Service (IRS) Office of Chief Counsel recently released a generic legal advice memorandum (GLAM) that addresses cost sharing agreements (CSAs) and the inclusion of stock-based compensation (SBC) costs. More specifically, the GLAM (AM 2021-004) provides the IRS’s views on the treatment of SBC costs in cost sharing agreements that include a "reverse claw-back" provision, but do not share SBC costs (non-SBC CS agreements). The IRS asserted that it can make certain allocations to make the cost sharing transactions consistent with an arm's-length result. The IRS discussed how to treat those allocations for SBC costs and the timing of the adjustments.

This GLAM is the second significant IRS administrative guidance concerning CSAs with SBC since the 2019 Ninth Circuit decision overturning the Tax Court in Altera v. Commissioner. The GLAM highlights the IRS's approach to CSAs that do not share SBC costs, and contain a reverse claw-back provision. The IRS's positions in the GLAM suggest that the IRS will likely continue to strongly pursue SBC inclusions under the 2003 SBC regulation. In addition, the GLAM shows that the IRS intends to make SBC adjustments in the years in which the intangible development costs were incurred, regardless of the language contained in taxpayers' reverse claw-back provisions, and will revert to enforcing the terms of a reverse claw-back provision only if a year-by-year adjustment is unavailable.

While the GLAM may be relevant in evaluating the likelihood the IRS may challenge a taxpayer's treatment of SBCs, it is not precedential authority for determining the level of comfort supporting a taxpayer's inclusion of SBC costs based on its facts and circumstances.

The Organisation for Economic Co-operation and Development (OECD) reportedly plans to complete work on a multilateral convention and model domestic legislation by the close of 2021 or early next year in order for countries to begin to implement BEPS 2.0 Pillar One and Pillar Two in 2023. Pascal Saint-Amans, Director of the OECD’s Centre for Tax Policy, made the comment during an OECD podcast on 16 July. Saint-Amans said that the G20 Finance Ministers made clear that action must be taken quickly on implementation while there is political momentum.

He said during the podcast that Pillar One will shift $100 billion of profit from low-tax jurisdictions to jurisdictions “where the clients are,” whereas Pillar Two (global corporate minimum tax) will generate $150 billion in revenue per year.


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

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



  1. Currency references in this Alert are to the US$.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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