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January 28, 2022

Report on recent US international tax developments 28 January 2022

United States (US) Senator Joe Manchin said during an interview on 27 January that he is in discussions with Democrats regarding a new version of the Build Back Better Act (BBBA). He said: “There's a lot of conversation going on now. They've been reaching out.” The Senator said that while he is open to negotiations, he also pointed to inflation in saying he “wants to be realistic.” Senator Manchin’s comments came amid rising concerns of double taxation if Congress fails to enact changes to the global intangible low-taxed income (GILTI) rules and countries adopt the rules under the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two.

A senior Treasury official this week indirectly addressed the point, saying that the Administration remains “confident that many of the top priorities will ultimately be enacted,” noting in particular reform of the GILTI regime and boosting Internal Revenue Service (IRS) funding by US$80 billion over 10 years. Speaking at a virtual meeting of the New York State Bar Association Tax Section on 25 January, the official said the BBBA’s international tax proposals would allow the US to conform to the OECD BEPS 2.0 Pillar Two agreement, which she described as “one of the biggest accomplishments of the entire Treasury Department and the administration to date.” The official added there is no backup plan to meet US obligations under Pillar Two if the BBBA international provisions are not enacted. “We are really confident Build Back Better will move forward . . . and this is a very key portion of that agenda,” the official said.

In regard to the BEPS 2.0 project, 17 Republican members of the House Ways and Means Committee on 19 January wrote to Treasury Secretary Janet Yellen warning that Congressional consent is necessary in order for Pillar One and Pillar Two to have US domestic effect. The committee members wrote that both pillars implicate “core Congressional revenue-raising powers” and therefore “implementing legislation is required for either pillar to have domestic legal effect.” The letter goes on to say: “It is extremely troubling that the Administration has made promises to the world without sufficient bipartisan, bicameral consultation.”

Treasury on the 24 January finalized regulations (TD 9960) that require an aggregate approach to determine the subpart F inclusion for a controlled foreign corporation (CFC) owned by a domestic partnership. Under this approach, a partner of a domestic partnership would have a subpart F inclusion from the indirectly-owned CFC if the partner itself were a US shareholder of the underlying CFC. This aggregate approach is consistent with the treatment of a domestic partnership for GILTI inclusion purposes. The aggregate approach does not, however, apply for Internal Revenue Code1 Section 1248 purposes or when determining whether: (i) a US person is a US shareholder; or (ii) a foreign corporation is a CFC.

The Government also issued accompanying proposed regulations (REG-118250-20) that would extend the aggregate approach to domestic partnerships that own an interest in a passive foreign investment company (PFIC). The proposed extension would have the following consequences:

  • A domestic partnership would no longer be treated as a PFIC shareholder for purposes of making qualified electing fund (QEF) or mark-to-market (MTM) elections, recognizing QEF inclusions or MTM amounts, or filing Forms 8621.
  • A partner of a domestic partnership, rather than the domestic partnership, would be required to make a QEF election, and the partner would have to notify its partnership to assist it with information reporting and basis tracking in the QEF stock.
  • Domestic partnerships would be treated as aggregates for purposes of applying the CFC-PFIC overlap rule under Section 1297(d).

The final regulations generally apply to tax years of a foreign corporation beginning on or after the date that the regulations are filed with the Federal Register (e.g., 2023 for calendar-year taxpayers). Domestic partnerships may apply the final rules in their entirety to tax years of a foreign corporation beginning after 2017, subject to certain consistency requirements. The proposed regulations generally would apply prospectively to tax years beginning on or after the date the rules are adopted as final regulations.

An OECD official on 25 January was quoted as saying that the organization is developing a BEPS 2.0 Pillar Two corporate minimum tax implementation framework that would utilize the peer review process to determine if a country’s existing tax provisions are compliant with the new BEPS rules. The official indicated the implementation framework would address administration, compliance and coordination in regard to topics associated with Pillar Two, including identifying the existence of a qualified income inclusion rule (IIR) and undertaxed payments rule (UTPR) as well as minimum domestic taxes.

The official said: “We could envisage that that process will take place through some kind of peer review process whereby those countries that were involved in implementing these rules would assess the legislation of others to determine whether they are comfortable that these rules do, in fact, meet the criteria that they have agreed.” According to the official, the results would be forwarded to tax administrations and multinational groups to determine those countries that have qualified global anti-base erosion (GLOBE) rules. The implementation framework is expected to be released sometime in 2022, the official said.


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. 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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