May 25, 2023
Report on recent US international tax developments — 25 May 2023
Congressional Republicans reportedly will shortly introduce legislation that is aimed at countries that apply the OECD BEPS Pillar Two undertaxed profits rule (UTPR), with House Ways and Means Committee Chairman Jason Smith (R-MO) quoted as saying the intent will be to "not implement Pillar Two." Chairman Smith characterized the coming proposal as a "first step," saying: "We're serious about pushing back against countries that want to raise our taxes." A House Republican delegation is scheduled to travel to France and Germany during the Memorial Day recess to meet with officials there to express dissatisfaction with the UTPR and to discuss possible alternatives.
In the meantime, the G7 Finance Ministers and Central Bank Governors met in Japan on 11-13 May 2023, after which the G7 Presidency issued a communiqué summarizing the key topics discussed. The Finance Ministers reaffirmed their strong political commitment to the swift global implementation of BEPS Pillars One and Two. The communiqué acknowledged significant progress in the negotiation of the Pillar One Multilateral Convention (MLC) and reaffirmed the Finance Ministers' commitment to swift completion of the negotiations so that the MLC is ready for signature within the agreed timeline.
The communiqué welcomed the progress in implementing Pillar Two into domestic legislation and called on the Inclusive Framework to work on further administrative guidance for globally consistent implementation. The communiqué also indicated the G-7's support for developing countries to strengthen their tax capacity to build sustainable tax revenue sources and highlighted the importance of providing assistance for the implementation of Pillars One and Two.
The OECD on 11 May 2023 published a Progress Report for the G7 Finance Ministers and Central Bank Governors' May meeting, which followed up on the OECD's May 2022 report by outlining progress on tax cooperation and identifying new areas for potential consideration.
A senior IRS official recently said at a West Coast conference that transfer pricing "fits squarely within the goals" of the IRS's strategic operating plan for funding from the Inflation Reduction Act. According to the official, this will require hiring and training additional staff for the Service's transfer pricing practice and competent authority program.
According to the official, the IRS Large Business and International Division (LB&I) plans to expand and improve its Compliance Assurance Process (CAP), Advance Pricing Agreement (APA) and prefiling agreement programs now that additional funding is available. Conceding there were some restrictions in eligibility for some of the programs in recent years due to resource constraints, the IRS official said LB&I is now considering what can be done differently.
Another IRS official addressed recently released interim guidance that indicated the agency plans to be more selective in its acceptance of APA cases. The official clarified that the IRS does not plan to restrict complex transactions from the APA program. The official also added that the interim guidance does not imply that "all complex transactions are good candidates for joint audits." Instead, the IRS believes that, in some instances, joint audits may be a quicker solution for taxpayers, depending on the treaty partner.
Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor