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September 10, 2021

Report on recent US international tax developments 10 September 2021

The United States (US) House Ways and Means Committee began the initial markup of the US$3.5 trillion1 budget reconciliation package on 9-10 September. Recent reports suggest the tax portions of the plan are likely to be released sometime in the next few days, ahead of a continued committee markup on 14-15 September. This week’s markup measures include universal paid family and medical leave, access to child care, strengthening retirement savings, and trade programs.

House Democrats are moving forward as Senate Democratic moderate Joe Manchin is strongly hinting he will only support a substantially pared down version of the bill. The press this week reported that Senator Manchin is indicating he will only support a reconciliation bill that costs upwards of $1.5 trillion; the Senator had earlier said he would support a reconciliation package in the one to two trillion dollar range. Senate Majority Leader Chuck Schumer meanwhile rejected Senator Manchin’s earlier suggestion that Congress should take a “strategic pause” before enacting a major reconciliation bill. The Majority Leader said on 9 September, “We are moving forward on this bill.”

Treasury on 7 September also continued to press for a 21% minimum corporate tax on foreign earnings, posting on its website an “opinion piece” by senior Treasury officials titled Why the United States Needs a 21% Minimum Tax on Corporate Foreign Earnings.

Senate Finance Committee Chairman Ron Wyden on 10 September released draft partnership tax legislation that addresses “partnership tax complexity.” The major proposal reportedly would raise $172 billion and is described as being on the “revenue menu” for budget reconciliation. A press release accompanying the draft legislation describes the proposals as closing “loopholes that allow wealthy investors and mega-corporations to use pass-through entities, primarily partnerships, to avoid paying their fair share of taxes.”

A senior Treasury official this week confirmed that while the coming final foreign tax credit (FTC) regulations will maintain the jurisdictional nexus requirement in the proposed regulations, they will clarify and “maybe make a little more flexible” the requirement that the foreign law be similar to US law. The proposed FTC regulations (REG-101657-20), issued in the fall of 2020, 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 official was quoted as saying that the first tranche of the final regulations will be released toward the end of 2021 and will contain the original “core” ideas of the proposed regulations. Besides the jurisdictional nexus requirement, the first installment of the final regulations will include rules on foreign taxes subject to disallowance under Section 245A(d) as well as rules related to foreign taxes paid on disregarded payments. The second tranche of final rules, to be released sometime later, reportedly will include elections to capitalize certain expenses for determining tax book value of assets, a rule for directly allocating interest to foreign bank branches, and definitions of financial services income.

Treasury and the Internal Revenue Service (IRS) on 9 September issued the 2021–2022 Priority Guidance Plan in Notice 2021-28, which contains a total of 193 projects that are priorities for allocating resources during the plan year. The IRS indicated that this year’s plan periodically will be updated to reflect new priorities and legislative initiatives.

In a recently released private letter ruling (PLR 202135006), the IRS permitted a taxpayer effectively to undo planning undertaken during a so-called gap period. (The gap period refers to the period: (i) beginning after 31 December 2017 (the second E&P measurement date for purposes of the Section 965 transition tax) and (ii) ending on the last day of the CFC's last tax year beginning before 1 January 2018 (the last year to which the Global Intangible Low-Taxed Income regime did not apply).)

After many taxpayers implemented gap period strategies in 2018, Treasury and the IRS in 2019 issued regulations (the extraordinary disposition regulations) under Sections 245A and 954(c)(6) that retroactively neutralized, and in some cases penalized, gap period strategies. In the newly released PLR, the IRS granted the taxpayer's request to make a late entity-classification election (i.e., a check-the-box election) that would cause the relevant transaction to become disregarded. The PLR is unique insofar as the taxpayer's stated motivation for requesting relief was to mitigate the "negative tax consequences" attributable to the extraordinary disposition regulations. Before PLR 202135006 was issued, it was not clear whether the IRS would permit taxpayers to "unwind" gap period transactions. See EY Global Tax Alert, US IRS allows taxpayer to reverse "gap period" transaction through late check-the-box election, dated 9 September 2021 for details.


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.

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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