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July 30, 2021

Report on recent US international tax developments 30 July 2021

The White House and bipartisan Senate negotiators on 28 July announced that they had reached agreement on a US$1.2 trillion1 infrastructure package, after talks had stalled earlier in the week. The Senate later that same day held a procedural vote (67-32) to move forward on a bipartisan infrastructure bill (HR 3684); 17 Republicans voted in favor.

The deal, which has the backing of President Joe Biden, includes $550 billion in new federal spending, compared with the $578 billion figure initially agreed upon last month. Based on a fact sheet released by the White House, pay-fors would include repurposing COVID relief funds, drug rebate rule delay, and a cryptocurrency tax compliance measure, among other items.

Senate Majority Leader Chuck Schumer indicated that his goal remains to pass both the bipartisan infrastructure bill and a budget resolution before the Senate adjourns for the August recess. The Senate could vote on passage of the infrastructure bill this weekend or next week.

The Majority Leader on 29 July was also quoted as saying that Senate Democrats have the necessary 50 votes to move forward with a budget resolution, the first step in getting to a budget reconciliation bill this fall. Senate Budget Committee Chairman Bernie Sanders said: "As I understand it, next week we're going to have 50 votes in order to pass a $3.5 trillion budget resolution." The budget resolution would lay the groundwork for a much larger “human infrastructure” budget reconciliation bill in the fall that would be paid for with corporate tax increases and major international tax changes, among other areas. Although it appears Democrats have the votes to pass the budget resolution, a group of moderate Senators, including Kyrsten Sinema, have not committed to the size of the proposed package.

On 26 July, the United States (US) and United Kingdom (UK) competent authorities signed two arrangements regarding the interpretation of the terms “North American Free Trade Agreement (NAFTA)” and “resident of a Member State of the European Community” for purposes of the Limitation on Benefits (LOB) provision in the US-UK tax treaty. The first arrangement clarifies that the references to NAFTA in the LOB provision of the US-UK Treaty will be understood as references to the Protocol Replacing the North American Free Trade Agreement with the Agreement between the United States of America, the United Mexican States, and Canada (USMCA). The second arrangement clarifies that a “resident of a Member State of the European Community” continues to include a resident of the UK for purposes of the derivative benefits test in the LOB provision of the US-UK treaty.

The competent authorities of Switzerland and the US entered into a similar arrangement in June 2020 regarding the interpretation of the term NAFTA in the US-Switzerland Treaty.

A Treasury official this week was quoted as saying that final foreign tax credit regulations that will finalize proposed rules issued in the fall of 2020 will be released in two parts, with the first section expected to be released this year. The proposed regulations (REG-101657-20) on foreign tax credits provided rules that would fundamentally revamp how to determine the creditability of a foreign tax under Internal Revenue Code2 Section 901 by requiring a foreign tax to meet a jurisdictional-nexus requirement (which would generally deny a credit for certain extra-jurisdictional taxes). The initial release of the coming final regulations will contain the jurisdictional-nexus requirement, with certain other issues carved out for the second release.

Treasury and the Internal Revenue Service also reportedly will finalize this fall proposed regulations (REG-101828-19) under Sections 951, 951A, and 958 that were issued in June 2019. The proposed regulations provided new guidance on the treatment of Global Intangible Low-taxed income (GILTI) and subpart F inclusions incurred through pass-through entities, as well as a GILTI high-tax exclusion.

The Treasury official was also quoted as saying that long-delayed previously taxed earnings and profits (PTEP) regulations are still at least several months from release. He again confirmed that the regulations will be issued in several separate packages.

On 26 July, the OECD3 released the sixth batch of Stage 2 peer review reports on the implementation by Argentina, Chile, Colombia, Croatia, India, Latvia, Lithuania, South Africa of the BEPS4 Action 14 minimum standard on dispute resolution. The outcomes of the Stage 2 peer review process demonstrate overall positive changes across most of the assessed jurisdictions. For details, see EY Global Tax Alert, OECD releases sixth batch of Stage 2 peer review reports on dispute resolution, dated 28 July 2021.


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$.
  2. All “Section” references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder.
  3. Organisation for Economic Co-operation and Development.
  4. Base Erosion and Profit Shifting.

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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