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June 10, 2022

Report on recent US international tax developments 10 June 2022

United States (US) Senator Joe Manchin told a national news organization on 6 June that a deal on a slimmed-down reconciliation bill that he has been discussing with Senate Majority Leader Chuck Schumer is not close at hand. Senator Manchin was quoted as saying that climate and energy issues are far from being resolved, adding “there’s no deal.” Senator Manchin suggested “the administration is having a hard time and the climate people are having a hard time coming to agreement” on energy and climate provisions, and repeated earlier comments that Medicare prescription drug negotiation and price caps are an “easy one for us to do.”

US Treasury Secretary Janet Yellen touched on the BEPS1 2.0 Pillar One project during a 7 June Senate Finance Committee budget hearing. Asked about the implementation and magnitude of Pillar One, Secretary Yellen said it would have a small revenue impact, positive or negative, depending on details that still must be worked out. In regard to the multilateral agreement to implement Pillar One, the Treasury Secretary said, “the ratification requires Congress’s approval, I think there’s no doubt about it, but the form that that needs to take is still to be determined.” 

A senior Treasury official this week also addressed the various allocation options that could be applied for Controlled Foreign Corporation taxes if the US global intangible low-taxed income (GILTI) regime is deemed to be a qualified regime under BEPS 2.0 Pillar Two: the issue being how to determine where the foreign taxes are attributed for purposes of computing a minimum tax rate. The official was quoted as saying there are two basic options that could be applied -- a tracing method to determine income, expenses, and taxes for each entity per country, or the use of safe harbors. He suggested that the final approach is more likely to be a hybrid approach of those two methods. 

The official said: “… it's probably going to turn on what the other jurisdictions that are implementing the GLOBE rules need to be able to verify the allocation . . . to get comfortable that the minimum tax rate is being paid in each jurisdiction. So that would probably suggest this can be a hybrid of the two [approaches].”

Secretary Yellen also discussed the final foreign tax credit (FTC) regulations that were released in December 2021 at this week’s Senate Finance Committee budget hearing. The Treasury Secretary said that she would be willing to work with Congress in regard to concerns about the final FTC rules, but said that she did not think the effective date of the regulations will be delayed, as requested by a number of companies. Addressing whether a one-year delay in the regulations was warranted, Secretary Yellen said the regulations are very important to protect critical interests of the US, and the fundamental principle is that the US should allow a credit for foreign taxes only where the foreign taxing jurisdiction has the primary right to tax the income. A senator on the committee noted that Treasury is poised to make changes to the cost recovery and royalty withholding parts of the rules, but not as to creditability regarding withholding taxes on services. Changes to the final regulations could apply retroactively, Secretary Yellen said. 

An Internal Revenue Service official this week also confirmed the US Government’s inclination against delaying the effective date of the FTC regulations. He added that there are no plans to issue a white list of countries with permissible regimes. 

And in a letter to the Treasury Secretary dated 3 June, a group of 28 Chief Financial Officers wrote in regard to the final FTC regulations: “foreign withholding taxes for many service payments and royalties are not creditable under the Final Regulations. The inability to claim a tax credit for these withholding taxes provides a tax incentive for U.S. companies to provide services and develop patents and other intellectual property in a foreign country rather than in the United States to avoid double taxation. This could result in the loss of valuable U.S. jobs...”


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. Base Erosion and Profit Shifting.

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