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July 29, 2022

Report on recent US international tax developments 29 July 2022

In a development that caught many by surprise, Senate Majority Leader Chuck Schumer, Senator Joe Manchin and President Joe Biden on 27 July announced a deal on a US$740 billion1 reconciliation bill that includes climate/energy, health and tax components and achieves $300 billion in deficit reduction. The announcement followed Senator Manchin apparently backing away from talks over a broader bill two weeks ago. The plan is for the Senate to vote on the bill next week.

A joint release from Senators Schumer and Manchin said the bill, the Inflation Reduction Act of 2022, includes $369.75 billion in Energy Security and Climate Change programs and “will be fully paid for by closing tax loopholes on wealthy individuals and corporations.” According to a separate Manchin release, tax increase proposals include “a domestic corporate minimum tax of 15 percent [to] be applied only to billion-dollar companies or larger ensuring that America’s largest businesses are no longer able to operate for free in our economy.” The agreement does not include proposed international tax changes.

A summary focused on “tax loopholes” said: “The corporate alternative minimum tax (AMT) proposal would impose a 15 percent minimum tax on adjusted financial statement income for corporations with profits in excess of $1 billion. Corporations would generally be eligible to claim net operating losses and tax credits against the AMT, and would be eligible to claim a tax credit against the regular corporate tax for AMT paid in prior years, to the extent the regular tax liability in any year exceeds 15 percent of the corporation’s adjusted financial statement income.” The 15% corporate minimum tax would be effective for taxable years beginning after 31 December 2022.

The Schumer-Manchin release said the revised legislative text has been submitted to the Parliamentarian for review and the full Senate will consider it next week. Health components have already been under the Parliamentarian’s review. House Speaker Nancy Pelosi announced support for the proposal and the expectation is that the House, which is scheduled to leave for the August recess at the end of this week, would reconvene to approve a Senate-passed bill.

The Senate (on 27 July) and the House (on 28 July) passed the CHIPS and Science Act (HR 4346), a $280 billion bill that aims to build a domestic United States (US) supply chain for semiconductor chips in the face of foreign competition, while also spending billions on scientific and technological research to keep US industries competitive with China and other rivals. The bill now goes to the President for signature.

The legislation includes $52.7 billion in funding for semiconductor manufacturing subsidies, grants and loans. The bill includes a 25% investment tax credit for investments in semiconductor manufacturing and incentives for the manufacturing of semiconductors, as well as for manufacturing of specialized tooling equipment required in the semiconductor manufacturing process, with taxpayers allowed to treat the credit as a payment against tax (direct pay).

The Internal Revenue Service this week made substantive corrections to the final foreign tax credit regulations (TD 9959) that were published on 3 January 2022, retroactively changing the analysis on certain key issues of creditability. The corrected regulations: (i) provide relief from the "cost recovery" requirement; (ii) change the rules for allocating and apportioning foreign tax imposed on disregarded sales of property; and (iii) make several other technical changes to the foreign tax credit and GILTI (Global Intangible Low-Taxed Income) high-tax exception regulations. The text of the corrections is available here and here.

Many companies had sought changes to the final regulations, as well as members of Congress, citing the possibility of double taxation. The press is reporting that the Biden Administration plans to provide examples of relief from the cost recovery requirement and ease rules to claim a credit for certain withholding taxes imposed on royalty payments.


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. Currency references in this Alert are to the US$.

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