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September 8, 2023

Report on recent US international tax developments - 08 September 2023

US House Ways and Means Committee Chairman Jason Smith (R-MO) last week told OECD Secretary-General Mathias Cormann in Paris that there are serious concerns with respect to the BEPS 2.0 project in the US Congress. The Ways and Means Chairman led a delegation of committee members to Europe to explain those concerns directly to OECD officials.

Chairman Smith pointed out that the US already has a global minimum tax — the Global Intangible Low-taxed income (GILTI) regime — and does "not object to others implementing their own GILTI-type taxes." However, the Chairman warned that the US "will not suddenly repeal our proven system in favor of an untested regime with substantial complexity and uncertainty." The Ways and Means delegation also told OECD officials of their strong objection to "discriminatory digital services taxes that countries have targeted at U.S. companies."

The chairman singled out the Pillar Two Undertaxed Profits Rule (UTPR) as particularly problematic, saying: "If countries move forward with the UTPR surtax, we will continue to aggressively pursue tax and trade countermeasures." Last May, Chairman Smith, along with all committee Republicans, introduced the Defending American Jobs and Investment Act, which, if enacted, would impose reciprocal tax measures on multinational companies from countries that "try to use the UTPR to tax U.S. workers and productivity for their own gain."

According to a Ways and Means committee press release, there is also a concern that the global tax system is "headed for more, not fewer, disputes among countries."

The House returns to Washington on 12 September; the Senate returned from the August recess on 5 September.

The IRS's Large Business and International division (LB&I) this week announced (IR-2023-164) that it will accept, between 6 September and 31 October 2023, new applications for its Compliance Assurance Process (CAP) program for tax year 2024. CAP, a cooperative pre-filing program available to certain large taxpayers, is intended to allow the IRS and taxpayers to reach agreement on the treatment of various tax issues before a return is filed. To be eligible, new applicants must: (1) have $10m or more in assets; (2) be a US publicly traded corporation legally required to submit SEC Forms 10-K, 10-Q and 8-K; and (3) not be under investigation by, or involved in litigation with, any government agency that would limit the IRS's access to current tax records. (See the IRS's CAP webpage for more information.)

Modifications for the 2024 tax year include providing a new draft form for international issues. A Tax Alert provides details.

The IRS on 8 September announced a major new compliance initiative that will focus increased scrutiny on large partnerships, corporations, high-income taxpayers and "promoters abusing tax rules on the books." The IRS will expand its existing Large Partnership Compliance (LPC) program to additional large partnerships with the help of artificial intelligence. By the end of the month, the IRS indicated it will open exams on 75 of the largest partnerships in the US across industries with assets of more than $10 billion, on average.

According to the IRS, there will also be expanded focus on partnership issues through compliance letters. The IRS is citing "ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance" — specifically, discrepancies between year-end balances and beginning balances the following year. Consequently, the IRS plans to focus on "high-risk partnerships" and, beginning in early October, will begin mailing letters to approximately 500 partnerships to address the issue.

The IRS also indicated it will expand its focus on digital assets.


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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