October 20, 2023
Report on recent US international tax developments - 20 October 2023
US Treasury Secretary Janet Yellen this week said that the recently released BEPS 2.0 Multilateral Convention to Implement Amount A of Pillar One (MLC) will require further negotiation before signing and that it will not take place this year. The Treasury Secretary was quoted as saying that while the MLC reached considerable consensus and there was substantial progress in its negotiation, outstanding issues remain that will require countries to continue to work into 2024. The MLC, which provides taxing rights to market jurisdictions, was released on 11 October and Treasury immediately announced a public comment period on the convention.
"There are some matters that are important to the United States and other countries that remain unresolved, open issues that still must be resolved before the treaty can be signed. So [these] processes will take into next year," the Treasury Secretary said. She added that it is very important for businesses and other stakeholders, as well as Congress, to be apprised about the MLC and ensure there is support for the convention.
Treasury and IRS officials this week offered insights regarding expected international tax guidance at a virtual American Bar Association meeting.
Addressing the government's temporary suspension of final foreign tax credit (FTC) regulations issued in December 2021, an IRS official warned taxpayers that the temporary suspension is just that, and they should not assume Treasury ultimately will make any change to the regulations. The official also said the government anticipates extending the temporary moratorium on the FTC rules past the end of this year. The IRS in July 2023 released Notice 2023-55, announcing temporary relief for taxpayers seeking a foreign tax credit by deferring key components of Reg. Sections 1.901-2 and 1.903-1.
The IRS official reiterated prior statements by officials that the Service plans to issue foreign tax regulations before the end of the year that will address how FTCs will apply in the context of coming global minimum taxes.
Also, in regard to the coming global minimum tax, Treasury reportedly is looking at developing anti-abuse rules that will address the BEPS Pillar Two transitional safe harbor for country-by-country reporting. In particular, the US government has concerns that there may be inappropriate use of the safe harbor by taxpayers, specifically in the context of hybrid instruments. Another issue under review by Treasury is the difference between how US rules and Pillar Two rules would treat asset transfers between two entities under common control. The Treasury official said there is no timeframe on when this guidance would be released.
A Treasury official was quoted as saying that the government will also issue proposed corporate alternative minimum tax (CAMT) guidance before the end of 2023 and that taxpayers will not see another notice until that time. CAMT topics that the proposed rules reportedly may address include controlled foreign corporation income double counting, definitions and determinations related to foreign parents of multinational groups and mark-to-market considerations.
According to press reports, the Office of the IRS Associate Chief Counsel (Corporate) will "significantly broaden" the scope of the type of private letter rulings that it is willing to consider. The new head of the IRS's corporate division was quoted as saying the majority of subchapter C transactions — including Section 351 transactions, acquisitive reorganizations and Section 332 liquidations — will become eligible for PLR requests. The official added that he also envisions the IRS issuing PLRs on CAMT issues in the context of corporate reorganizations.
The U.S.-Taiwan Expedited Double Tax Relief Act that was passed unanimously by the Senate Finance Committee in September was formally introduced in the Senate (S. 3084) on 19 October by Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) and in the House (H.R. 5988) by Ways and Means Committee Chairman Jason Smith (R-MO) and Ranking Member Richard Neal (D-MA). The updated text reflects the Finance Committee's amendment to prevent double taxation on payments to entertainers and athletes in certain circumstances, as well as some other changes.
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