November 3, 2023
Report on recent US international tax developments - 3 November 2023
A senior IRS official this week said follow-up guidance to the temporary relief granted in regard to the final foreign tax credit (FTC) regulations is not an active project. In July 2023, the IRS had 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. This week, the official said "We're not actively working on what to do substantively in respect to the notice, but the basic policy concerns that we have reflected in the FTC 2022 regs are still valid." An official earlier indicated the government anticipated extending the temporary moratorium on the FTC rules past the end of this year.
The IRS also reportedly still plans to issue a notice on the US foreign tax credit implications of BEPS Pillar Two before the end of the year, but it will only address the income inclusion rule (IIR) and the qualified domestic minimum top-up tax (QDMTT). That notice will not cover the UTPR, however, which will be included in later guidance. The official also indicated that this notice would address certain issues under the dual consolidated loss (DCL) rules that arise because of Pillar Two implementation around the world. It has been suggested that QDMTTs and, potentially, IIRs could give rise to "foreign use" that requires the recapture of previously deducted DCLs. The official indicated that the IRS did not believe that recapture was intended and that the notice would address this issue.
A senior Treasury official this week reiterated the Biden Administration's commitment to the Two Pillar BEPS project, arguing it is the best way to address instability in the global international tax system, despite strong opposition to the project by certain members of Congress. In regard to Pillar Two, the official said the treatment of nonrefundable research credits in the context of the global anti-base erosion (GloBE) rules is a major priority for the US government and is being raised in multilateral discussions. "We're continuing to work with our Inclusive Framework partners to collaborate on consensus multilateral guidance that clarifies the application of Pillar Two in the context and interaction with the U.S. system."
In regard to Pillar One, another senior official said extending the current BEPS moratorium on unilateral digital services taxes (DST) that is set to expire at the end of 2023 is a "key issue" for the US. In particular, the official was quoted as saying the US is engaged "at all levels" with the Canadian government regarding its announced plans to implement a DST in 2024.
A government official also commented on the recently released draft Multilateral Convention to Implement Amount A of Pillar One, characterizing it as "significant progress." The Multilateral Convention would update the global international tax framework to "coordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes." But according to a Treasury official, open issues remain that need to be resolved. "We want and need the mechanics of this to work," she said. Treasury opened a comment period on the MLI that extends until 11 December. The Senate Finance Committee this week voted 16 to 11 to confirm Marjorie Rollinson to be the next IRS Chief Counsel, with two Republicans joining all Committee Democrats. The Committee held a hearing on her nomination on 28 September. Rollinson spent most of her career at EY, retiring as EY Deputy Director of National Tax, and has held several senior positions at the IRS including Associate Chief Counsel (International).
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