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September 15, 2023
2023-5623

Report on recent US international tax developments 15 September 2023

An Executive Session of the Senate Finance Committee was held on 14 September to consider the US-Taiwan Expedited Double Taxation Relief Act, which the committee then approved by a unanimous 27-0 vote. Under the bill, income from US sources earned or received by qualified residents of Taiwan would be entitled to certain benefits. Benefits include: reduced tax rates for income otherwise subject to 30% gross basis withholding tax; taxation of income effectively connected with a US permanent establishment; and certain preferential treatment of wages earned by qualified residents.

Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) released a discussion draft in July with leaders of the House Ways & Means Committee, which may consider a bill on the issue but has not announced plans. With no announced plans for consideration by the Ways and Means Committee, it is unclear when a bill on the issue could be considered by the full House. Both the House and Senate would need to pass the same bill for it to become law with the President's signature. Moreover, the proposed rules become applicable only if reciprocal provisions apply to US persons with respect to income sourced in Taiwan.

Separately, the Senate Foreign Relations Committee on 13 July approved the Taiwan Tax Agreement Act (S. 1457), a bill to authorize the President to negotiate and enter into a tax agreement with Taiwan to relieve double taxation. At the Executive Session on 14 September, Senator Crapo said he is confident there will be an appropriate path forward for each committee, a point that was echoed by Chairman Wyden. Foreign Relations Chairman Bob Menendez (D-NJ), while voting to advance the bill, said that bill alone is insufficient. However, Senator Menendez did not push for a vote on his amendment to sunset the bill after two years unless there is a US-Taiwan tax agreement.

Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, confirmed that a tax information exchange agreement with Taiwan is currently being negotiated.

Treasury and the IRS issued Notice 2023-64 on 12 September, providing additional interim guidance to clarify the application of the new corporate alternative minimum tax (CAMT) that was enacted under the Inflation Reduction Act of 2022. Notice 2023-64 describes rules the IRS intends to include in proposed regulations, which generally pertain to:

  • The determination of a taxpayer's applicable financial statement
  • The determination of adjusted financial statement income (AFSI) for members of a consolidated financial statement group
  • AFSI adjustments to prevent certain duplications and omissions
  • Tax consolidated groups
  • The application of Section 56A(c) to certain foreign corporations
  • AFSI adjustments for certain income taxes, Qualified Wireless Spectrum Property and property to which Section 168 applies

The Notice also includes rules on determining whether a corporation is an applicable corporation subject to the CAMT, as well as rules on aggregation under Section 52, foreign-parented multinational groups, the treatment of investments in partnerships and the CAMT foreign tax credit.

The forthcoming proposed regulations would apply for tax years beginning on or after 1 January 2024. Taxpayers, however, may rely on the interim guidance for tax years ending on or before the forthcoming proposed regulations are published, as well as any tax year that begins before 1 January 2024 (regardless of when proposed regulations are published). A Tax Alert on Notice 2023-64 is pending.

An IRS official this week indicated that the government is considering extending the temporary foreign tax credit relief provided in Notice 2023-55 to assist fiscal-year taxpayers. Notice 2023-55, released in July 2023, announced temporary relief for taxpayers seeking a foreign tax credit by deferring key components of Reg. Sections 1.901-2 and 1.903-1, which were issued in December 2021 (TD 9959, 87 FR 276).

And a Treasury official was quoted as saying the government also plans to issue foreign tax credit guidance this year to address taxes paid under the BEPS 2.0 Pillar Two. Specifically, Treasury hopes to issue rules on the Pillar Two income inclusion rule, undertaxed profits rule and qualified domestic minimum top-up taxes before year-end.

An IRS official this week provided an update on the status of various international tax guidance. The official said proposed previously taxed earnings and profits (PTEP) regulations were "highly unlikely" to be released in 2023. The long-awaited proposed PTEP rules have had several delays over the years.

IRS guidance modifying the rules under Section 367 applicable to cross-border triangular reorganizations "should be out anytime," the official said. The IRS has been actively working on regulations consistent with the guidance in Notice 2016-73 and Notice 2014-32. And a major project on foreign currency gain or loss under Section 987 is still expected to be released in 2023.

Other projects that the IRS reportedly is moving forward include finalizing Section 897(h)(4) regulations on disposition of investments in US real property interests by qualified investment entities. And work is continuing on software and cloud computing regulations, the official said. IRS guidance on Section 892 is not expected until sometime in 2024.

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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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