November 22, 2023
Report on recent US international tax developments — 22 November 2023
Both Houses of Congress return from the US Thanksgiving holiday recess next week, with prospects for a tax bill still uncertain.
The recent approval of a two-step continuing resolution to extend federal government funding into early 2024 — separate deadlines in January and February — means there will not be a must-pass year-end appropriations bill to which such tax packages are typically appended. It remains to be seen whether tax provisions can be added to spending bills either in January or February, or possibly to other legislation sometime between now and then.
A business tax package would likely center around Tax Cuts and Jobs Act (TCJA) pre-cliffs that relate to the five- or 15-year amortization for R&D expenses, rather than expensing under Section 174 and the Section 163(j) interest deduction limitation based on earnings before interest and taxes (EBIT) rather than earnings before interest, taxes, depreciation and amortization (EBITDA), both of which took effect in 2022, and 100% expensing, which is phased down after 2022. Any deal would likely require achieving some parity between the cost of addressing those provisions and an expansion of the child tax credit, which is backed by Democrats.
The Canadian government presented its 2023 Fall Economic Statement on 21 November, confirming its intention to proceed with plans to enact a 3% Digital Services Tax (DST) in 2024, setting the stage for a possible showdown with the US government. The proposed Canadian DST would be effective 1 January 2024 and apply retroactively to 1 January 2022. Bipartisan members of Congress have warned that the United States "would examine all options, including under our trade agreements and domestic statutes," if Canada introduces the DST.
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