June 23, 2023
Report on recent US international tax developments — 23 June 2023
The US Senate on 22 June gave its advice and consent to the 2010 US-Chile Income Tax Treaty in a 95-2 vote. Once the Treaty enters into force, the withholding provisions would become effective for amounts paid or credited on or after the first day of the second month following the date of entry into force. For all other taxes, the provisions will take effect for tax periods beginning on or after the first day of January following the date the treaty enters into force. The Treaty includes two reservations and two declarations; the reservations concern the Base Erosion and Anti-abuse Tax (BEAT) and Article 23 (Relief from Double Taxation). The government of Chile undertook all the steps necessary to approve the Treaty in 2015. It is anticipated that the reservations added since then would need to be reviewed and ratified by Chile's Senate so the Treaty could take effect in Chile. A Global Tax Alert is pending.
Congressional Republicans this week released a Joint Committee on Taxation (JCT) analysis of five possible scenarios regarding adoption of the OECD Pillar Two global minimum tax by the US and globally. The JCT report concludes that depending on the scenario — the US adopts and/or the rest of the world adopts Pillar Two with various combinations — the US could lose as much $120 billion in revenue over 10 years (if the US does not adopt Pillar Two, but the rest of the world adopts) or gain $236 billion over the period (in the unlikely situation the US adopts Pillar Two in 2025, but the rest of the world does not adopt). A WCEY Alert provides details.
Significant developments are anticipated in the next few weeks on both BEPS Pillar One and Pillar Two. While a multilateral convention to implement Pillar One is targeted for finalization by July 2023, it is not clear whether policy makers will solve all outstanding technical and political issues in the time that remains. In any case, the Inclusive Framework will meet shortly before the G20 Finance Ministers meet in Gandhinagar on 14-15 July. This is expected to be a key meeting to reach an important milestone in the Pillar One project.
The meeting may also be an opportunity to formalize agreement on a number of outstanding issues and workstreams in relation to Pillar Two. For example, the Inclusive Framework members have been negotiating for some time on the method and criteria for Pillar Two peer reviews. Additional administrative guidance for Pillar Two is also expected.
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