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March 25, 2022

Report on recent US international tax developments 25 March 2022

The White House announced that the Biden Administration will release the FY 2023 budget on 28 March 2022. There has been no indication what will be included in the budget or if President Joe Biden will refocus on tax proposals included in the stalled Build Back Better Act or the FY 2022 budget. Both the US House and Senate will be in session next week.

In the meantime, Senator Joe Manchin reportedly has restarted discussions with colleagues in regard to developing a limited reconciliation bill that would focus on climate change, prescription drugs, reducing the debt and tax changes. According to multiple reports, Senator Manchin wants to negotiate a compromise and believes that a vote should take place before the August congressional recess. Senator Manchin reportedly would support approximately $500 billion for climate change and $1 trillion in new revenue. There is no mention that the Senator would support new or enhanced social spending programs in the pared down bill.

Addressing how the US can bring the global intangible low-taxed income (GILTI) provision into conformity with the Organisation for Economic Co-operation and Development’s (OECD’s) proposed Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two rules given the failure to enact the Build Back Better Act, a Treasury official this week said GILTI reform will happen. “Even though the proposed [US] framework didn't pass in 2021, we can do GILTI reform before that agreed-upon [OECD] implementation date, so we don't see anything that needs to be changed in the global tax framework.”

A US Treasury official this week was quoted as saying the government will consider whether US foreign tax credits would be available for qualified domestic minimum top-up taxes related to the OECD BEPS 2.0 Pillar Two rules once more guidance becomes available. The official noted that the recently released final foreign tax credit regulations do not explicitly address Pillar One or Pillar Two. But “as the pillars are getting implemented, we will have to reopen those regs,” he said.

While the Pillar Two commentary released in March 2022 is explicit that countries should not provide foreign tax credits for taxes paid under the Income Inclusion Rule and the Undertaxed Payment Rule, the issue is less clear for qualified domestic minimum top-up taxes. The Treasury official elaborated that “it’s something that we're going to have to study and look at, whether there should be a credit for qualified domestic minimum top-up tax, and it will depend on how they're implemented.”

There was some movement in regard to the long-delayed US-Chile income tax treaty this week. The Senate Foreign Relations Committee put the proposed treaty on the agenda of a business meeting scheduled for 29 March. The Senate Foreign Relations Committee was considering holding a vote on the treaty in 2019, under Republican leadership, but it never materialized.

US and Croatian officials met in Washington on 17 March for a “strategic dialog.” In a joint statement, the two governments expressed satisfaction with reaching a final stage of tax treaty negotiations and affirmed their commitment for a “swift conclusion of a treaty.”

The OECD on 22 March initiated a public consultation titled “Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard” (CRS). The public consultation will run through 29 April. The OECD is developing a global tax transparency framework that would provide for standardization of automatic exchange of information regarding crypto-asset transactions. The OECD is also proposing amendments to the Common Reporting Standard to bring crypto-assets into scope. Finally, the OECD announced plans to launch a comprehensive review of the CRS to improve its operation.


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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