October 6, 2023
Report on recent US international tax developments - 6 October 2023
Congress on 30 September passed a continuing resolution (CR) to prevent a government shutdown and fund the government, along with health and other programs, through 17 November. President Biden signed the bill into law several hours before the midnight deadline, setting spending at FY 2023 levels for the duration of the CR.
That success was followed by the ouster of House Speaker Kevin McCarthy (R-CA) from the leadership post on 3 October. The House voted 216-210, with a handful of conservative House Republicans joined by all House Democrats present. The House soon adjourned until 10 October. It is widely recognized that the House is now in a holding pattern — including in regard to appropriations bills and other legislative priorities — at least until another Speaker is elected. Rep. Patrick McHenry (R-NC), the current Financial Services Committee Chairman, was named as acting speaker.
The IRS and Treasury on 5 October released long-anticipated proposed regulations (REG-117614-14) that would modify the rules under IRC Section 367(b) applicable to cross-border triangular reorganizations. Specifically, the proposed regulations provide rules described in Notice 2014-32 and Notice 2016-73, with modifications. In a triangular reorganization that is the focus of the proposed regulations, a subsidiary purchases stock or securities of its parent corporation in exchange for property and exchanges the purchased stock or securities for that of a target.
The proposed rules expand the definition of "property" for purposes of certain regulations under IRC Section 367(b), address how to treat the property used to acquire the parent stock or securities, explain the consequences of receiving the stock and provide for the treatment of certain subsequent inbound nonrecognition transactions following the reorganization. A Tax Alert is pending.
The US and Israel signed a competent authority agreement (CA) on 16 August 2023 on the exchange of country-by-country (CbC) reports, operative on the same date. The exchange of CbC information is based on the information exchange provision in the 1975 US-Israel tax treaty. Under the terms of the CA, CbC reports are first to be exchanged for fiscal years (FYs) of multinational groups beginning on or after 1 January 2021, "as soon as possible and no later than 18 months after the last day of the Fiscal Year of the MNE Group to which the CbC Report relates." CbC reports for FYs beginning on or after 1 January 2022 are to be exchanged as soon as possible but not later than 15 months after the close of the FY of the multinational group to which the report relates.
The OECD/G20 Inclusive Framework on 3 October adopted a new Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule that is meant to implement the BEPS 2.0 Pillar Two Subject to Tax Rule (STTR). The OECD describes the STTR as enabling "developing countries to tax certain intra-group payments, in instances where these payments are subject to a nominal corporate income tax rate below 9%." The STTR provides source income jurisdictions the ability to impose tax that otherwise would not be available under the existing provisions of tax treaties.
The OECD in July 2023 released a document under Pillar Two containing the model treaty provision of the STTR, together with an accompanying commentary explaining the purpose and operation of the rule. The STTR is a core element of Pillar Two (see details here).
The OECD will act as the depositary of the multilateral instrument "and will support governments in the process of its signature and ratification." A comprehensive action plan is also planned to support rapid implementation of Pillar Two, with additional support and technical assistance for developing countries.
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