June 16, 2023
Report on recent US international tax developments - 16 June 2023
The US House Ways and Means Committee on 13 June approved three separate tax packages: the Tax Cuts for Working Families Act, Small Business Jobs Act, and Build It in America Act, following a 10-hour markup. The three bills, combined into the American Families and Jobs Act, fulfill Chairman Jason Smith's (R-MO) commitment to develop a tax-based economic package. According to some press reports, House Republicans are looking to bring the tax package to the House floor for a vote as early as the week of 19 June, although there are obstacles. If that does not happen, the package will come before the House sometime after the 4 July holiday.
The bills are not expected to be enacted in their current form, given that the Tax Creation and Jobs Act "pre-cliffs" relating to expensing of R&D costs, interest deduction limitations under IRC Section 163(j), and 100% expensing of manufacturing equipment remain stalled as Democrats insist on expanding the Child Tax Credit. Democrats also strongly oppose rolling back clean energy provisions from the Inflation Reduction Act that Republicans hope to use as revenue offsets for the released tax package.
There is some speculation that this week's proposed tax legislation could represent the House GOP's starting position for talks later this year aimed at putting together a year-end tax extenders package.
The proposed US-Chile income tax treaty may come to the Senate floor for a final vote as early as 21 June, according to reports. The long-stalled 2010 tax convention was reported out of the Senate Foreign Relations Committee on 6 June. If a Senate vote does not take place next week, it is expected to come before the Senate the following week.
Treasury this week announced in a Memorandum of Agreement (MOA) that tax regulations would no longer be reviewed by the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs, a practice established under the Trump Administration. In April 2018, a prior MOA created a new framework for the review of certain tax regulations (above $100 million annual non-revenue economic impact) that was intended to increase economic analysis and review of tax rules. That added level of review established a new layer of input (and delay, according to critics) in the regulatory process.
In OECD news, the co-chair of the Inclusive Framework (IF) this week was quoted as saying the IF is committed to finalizing the Multilateral Convention (MLC) within the earlier-announced timeline of concluding negotiations before the end of July to open the agreement for signature. The OECD in December 2022 released draft MLC provisions on Digital Services Taxes and other relevant similar measures in connection with Amount A of BEPS 2.0 Pillar One.
According to the official, negotiators are still grappling with the treatment of withholding taxes in Amount A, with the issue being whether withholding taxes should be considered in the marketing and distribution safe harbor. Developing countries are suggesting that including withholding taxes in the safe harbor computation could adversely affect them.
Another OECD official, Achim Pross, deputy director of the Centre for Tax Policy and Administration's international cooperation and tax administration division, this week said that as countries implement global minimum tax rules, it may be time to consider amending or eliminating certain duplicative anti-avoidance rules, such as certain CFC regimes.
For additional information with respect to this Alert, please contact the following:
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