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May 6, 2022
Report on recent US international tax developments – 6 May 2022
United States (US) Treasury Secretary Janet Yellen this week urged Congress to include a corporate minimum tax provision akin to the global minimum corporate tax proposal in BEPS 2.0 Pillar Two in any future budget reconciliation package. The Treasury Secretary reportedly said during a streamed interview that the Administration expects such a provision to be included as a revenue raiser in a future version of the stalled Build Back Better bill.
In regard to the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project, a senior Treasury official this week said the US is working with the OECD on the Implementation Framework to clarify the treatment of US business credits for purposes of the OECD global minimum tax rules in Pillar Two. More specifically, the official was quoted as saying that Treasury is seeking some certainty as to how US incentives would be treated under the global anti-base erosion (GloBE) rules and the related Pillar Two commentary. “We're confident that the value of many of our general business credits is preserved under the OECD rules,” she said.
Another Treasury official said the US Government wants additional public consultation on the draft package of Pillar One rules after the ongoing Pillar One public consultations on the major components of Pillar One end. The official said the US wants stakeholders to be able to comment on the “whole picture and provide full input.” The Treasury official added that Pillar One is about stabilizing the global tax system, and “stabilization is not just about eliminating digital services taxes but also addressing the rise in transfer pricing and business profits disputes.”
The Internal Revenue Service (IRS) on 3 May issued Notice 2022-23, publishing changes to the qualified intermediary (QI) withholding agreement rules that will allow a QI to assume withholding and reporting responsibilities for purposes of Internal Revenue Code Sections 1446(a) and (f). These changes generally would apply to a QI that transferred an interest in a publicly traded partnership (PTP) or received a distribution from a PTP on behalf of a QI account holder. According to the notice, the proposed changes will be included in the final QI agreement, with further amendments based on public comments the IRS receives; the deadline for those comments is 31 May. The final QI agreement will apply to QIs in effect on 1 January 2023, according to the notice.
An IRS official this week was quoted as saying that no decision has yet been made as to the scope of the financial transaction transfer pricing regulation project, notwithstanding there are less than two months left for this year’s priority guidance plan. “It’s too soon to tell what the full scope of the project will be — whether it’s revisions that are more small tweaks or whether it is a more robust set of changes,” the official said. He added that there is no timeline for completion of the regulation project.
Ten members of the House Ways and Means Committee on 29 April 2022 wrote to Treasury Secretary Yellen asking the Administration to delay implementation of the final foreign tax credit regulations that were issued in January 2022. The committee members wrote: “In light of the clear and ongoing challenges taxpayers are facing in compiling their financial earnings statements this quarter, for those elements where Treasury is unable to provide further administrative guidance to clarify the application of these regulations, we respectfully request that Treasury extend the implementation window for the final regulations.”
A Treasury official this week confirmed that a first-ever US-Croatia income tax treaty is under review at the US State Department. The official confirmed that the proposed treaty will be ready for signature following certification of the translation.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC