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August 4, 2023

Report on recent US international tax developments 4 August 2023

Congress has begun its August recess, with the Senate scheduled to return to Washington on 5 September and the House returning on 12 September. Much of September is expected to be taken up by passage and subsequent reconciliation of appropriation bills that must be enacted before the end of the government's fiscal year on 30 September.

The Ways & Means Committee-passed American Families and Jobs Act from June — which addresses the TCJA "pre-cliffs" on IRC Section 174 R&D expensing, IRC Section 163(j) interest deduction limitations, and 100% expensing — was not brought to the House floor for a vote before the August recess. The Ways & Means bill is considered to be House Republicans' negotiating position for talks later this year regarding a possible year-end tax extenders package, should an opportunity emerge to attach it to a government spending or other must-pass legislative vehicle.

In the Senate, Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) announced before the recess that the committee will meet in September to mark up tax legislation to strengthen the US economic relationship with Taiwan. Recall that Senator Wyden and Senator Crapo, along with House Ways & Means Committee Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA) on 12 July released a discussion draft of legislation for a US-Taiwan tax agreement. According to the press release, the bill would significantly reduce withholding taxes on dividends, interest and royalties paid on these cross-border investments, among other measures. The Senate Foreign Relations Committee on 13 July also approved the Taiwan Tax Agreement Act (S. 1457), which authorizes the President to negotiate and enter into a tax agreement. The two proposals are not necessarily mutually exclusive.

The IRS, on 4 August, released proposed consolidated return regulations under IRC Sections 1502, 1503, 1552, and 1563 that aim to modify and update existing regulations to reflect more than 50 years of statutory changes and remove regulations that have no current applicability to taxpayers. The IRS notes that the government is currently developing separate guidance to implement the new corporate alternative minimum tax (CAMT), including the application of the CAMT to consolidated groups. Nonetheless, the proposed regulations would offer guidance on computing consolidated estimated taxes that take into account the CAMT liability of a consolidated group.

The proposed regulations would further revise Treas. Reg. Section 1.1502-9 to account for changes made by final foreign tax credit regulations (TD 9882) that were published in December 2019 and that provided guidance in regard to TCJA statutory changes. A Global Tax Alert is pending.

An OECD official this week said that work will begin in September to address arbitrage tax planning that reportedly aims to "leverage" BEPS 2.0 Pillar Two safe harbors "beyond what was anticipated or expected." According to press reports, a Treasury official further elaborated that the OECD Working Party No. 11 is well aware of planning, and will be issuing anti-arbitrage guidance "as soon as possible." Working Party No. 11 was established with responsibility under the BEPS project for developing recommendations against aggressive tax planning.

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


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