September 24, 2021
Report on recent US international tax developments – 24 September 2021
The White House and House and Senate Democratic leaders this week tried to navigate a path forward on the massive House-passed budget reconciliation bill that must be whittled down to address the concerns of Democratic moderates. In a letter to House Democrats on 20 September, House Speaker Nancy Pelosi wrote that they “must be prepared for adjustments” to the package. House Majority Leader Steny Hoyer on 21 September was quoted as saying, “If the Senate can’t do $3.5 trillion, we’ve got to see what they can do.”
In an attempt to bring the parties together, President Joe Biden met on 22 September with Congressional Democratic leaders and others, including Senator Joe Manchin, who said the President asked that moderates come up with a top line budget reconciliation number that they could support. The next day, Senate Majority Leader Chuck Schumer announced during a press conference with Speaker Pelosi that, “The White House, the House, and the Senate have reached an agreement on a framework that will pay for any final negotiated agreement. So, the revenue side of this, we have an agreement on.” The framework reportedly will use the Ways and Means Committee’s tax proposal reported out of committee, including international tax provisions, along with select Senate proposals that were not included in the House package.
Senator Schumer later called the deal a “menu of options.” A top line spending number has not been agreed to, and that will determine how much tax revenue is needed and which options are included in a compromise bill. The spending and tax plans are still under discussion with moderate Democrats, whose support will greatly influence the final package.
In the background is Speaker Pelosi’s commitment to moderate House Democrats to hold a vote on the Senate-passed US$1 trillion infrastructure package on 27 September. Progressive Democrats continue to say they want a final deal on reconciliation before they will vote for the infrastructure bill.
The Director of the Internal Revenue Service Advance Pricing and Mutual Agreement (APMA) this week warned taxpayers from accepting unilateral relief by treaty partner jurisdictions, and said that taxpayers should instead stick with bilateral mutual agreement procedures. The Director was quoted as saying that companies accepting unilateral deals may not end up with full relief from double taxation, suggesting it may be considered a failure to exhaust all available remedies and result in denial of creditability of foreign taxes paid in the jurisdiction.
The Director also reiterated earlier comments that taxpayers need to cite more than general economic trends related to COVID to justify a change in the terms in an advance pricing agreement (APA). He said that the APMA program and their foreign counterparts have been able to come to mutually agreeable results when the taxpayer has shown that the pandemic has indeed changed the circumstances affecting the terms of an APA.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC