June 30, 2023
Report on recent US international tax developments — 30 June 2023
The US Supreme Court on 26 June granted certiorari on an appeal from the Ninth Circuit in Charles G. Moore v. United States. In Moore, the taxpayer argues that the transition tax under Section 965 is unconstitutional, violating the Apportionment Clause of the Fourteenth Amendment and the Due Process Clause of the Fifth Amendment, because it is a direct tax on unrealized income. Shareholders of foreign corporations that have been subject to the transition tax under Section 965 should monitor the Moore case and consider whether action is necessary to preserve their ability to take a position similar to the taxpayer in Moore. The Ninth Circuit in June 2022 affirmed a lower court in rejecting the taxpayer's argument.
The House and Senate are out of session for two weeks for the Fourth of July recess, returning the week of 10 July. Recall that the House Ways and Means Committee, on 13 June, approved three tax packages: the Tax Cuts for Working Families Act, Small Business Jobs Act, and Build It in America Act. 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. The tax package is expected to 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 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.
In the meantime, the Biden Administration this week released statistics that show a major increase in construction spending for manufacturing facilities resulting from the Infrastructure Investment and Jobs Act, Inflation Reduction Act, and CHIPS Act. According to the 27 June analysis, they "each provided direct funding and tax incentives for public and private manufacturing construction."
The IRS released Announcement 2023-18 on 29 June, confirming that taxpayers are not required to report the new excise tax imposed under Section 4501 on repurchases of corporate stock during a covered corporation's taxable year on any returns filed with the IRS. Taxpayers also are not required to make any payments of such tax before the time specified in forthcoming regulations. The stock repurchase excise tax applies to repurchases made after 31 December 2022.
An OECD official this week was quoted as saying that rules for simplifying Amount B in Pillar One for routine distribution transactions will be released soon. The official said the Amount B rules were "now in the approval phase." Amount B is aimed at simplifying and streamlining the transfer pricing of in-country baseline marketing and distribution activities, while ensuring outputs consistent with the arm's-length principle. The OECD on 8 December 2022 released a public consultation on Amount B under Pillar One.
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