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November 24, 2021
2021-6248

Report on recent US international tax developments 24 November 2021

The United States (US) and Turkey issued a joint statement on 22 November announcing that the same terms in the Unilateral Measures Compromise reached in October 2021 among the US and five European countries with respect to digital services taxes (DSTs) and US trade actions, would also apply in the US-Turkey context.

On 21 October 2021, a Joint Statement from Austria, France, Italy, Spain, the United Kingdom and the US was released describing a compromise reached by the countries on a transitional approach to the treatment of existing DSTs and other relevant similar measures during the interim period before new BEPS1 Pillar One rules come into effect. The interim period is the period beginning on 1 January 2022 and ending on the earlier of the date that the Pillar One multilateral convention comes into force or 31 December 2023.

Under the October compromise, the five European countries – and now Turkey, while not required to withdraw their existing DST regimes until Pillar One takes effect, have agreed to allow a portion of taxes accrued by a multinational enterprise under their DSTs or any other unilateral measures before Pillar One takes effect to be credited against the portion of the corporate tax liability associated with Amount A as computed under Pillar One.

The US Government, in turn, agreed to terminate its proposed trade actions against the countries with respect to the existing DSTs and committed not to impose further trade actions with respect to such countries and their DSTs during this interim period.

G20 leaders’ endorsement at the end of October 2021 of the Inclusive Framework agreement on key parameters of the BEPS 2.0 project is requiring swift action to ensure that the new rules come into effect globally as soon as possible. Grace Perez-Navarro, deputy director of the OECD's2 Center for Tax Policy and Administration, on 18 November was quoted as saying the OECD is committed to having both BEPS Pillars in effect by the end of 2023. The OECD official said this will require the Pillar One multilateral convention to be completed by mid-2022.

Earlier, officials said model rules on the BEPS Pillar Two 15% global minimum tax framework were expected to be released by the end of November. Global minimum tax legislation is already pending in in the US Congress in the proposed Build Back Better Act, and work has begun on a European Union directive on global minimum tax rules.

The US House and Senate are out of session this week for the Thanksgiving holiday. The Senate is expected to turn to the proposed House-passed Build Back Better Act sometime after it reconvenes following the holiday.

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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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Endnotes

  1. Base Erosion and Profit Shifting.

  2. Organisation for Economic Co-operation and Development.

 
 

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