January 12, 2024
Report on recent US international tax developments — 12 January 2024
The US Congress returned to Washington from its winter break this week, with a necessary government funding bill taking center stage but a possible tax package also garnering discussion. In regard to government funding, there are two looming deadlines by which the President must sign separate spending bills to avoid a government shutdown: 19 January and 2 February. An additional short-term continuing resolution (CR) may be necessary to patch funding beyond the 19 January deadline, however.
Release of details of a reported $70 billion tax package negotiated by House Ways & Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) appears imminent. It reportedly will address Section 174 research and development, Section 163(j) interest deductibility, expensing, the Child Tax Credit and maybe other provisions. Chairman Wyden was quoted as saying "there is no deal" and more work is needed.
Lawmakers earlier have said they want any tax changes in place before the start of the tax filing season, which the IRS said this week will begin on 29 January, when the agency will begin accepting and processing 2023 tax returns. Whether a tax package can be agreed upon is uncertain, as well as the timeline. Chairman Smith said he is "not going to put a timeline on anything."
A Treasury official this week was quoted as saying a corporate alternative minimum tax (CAMT) package will be released "shortly." According to the official, the government had hoped to release the proposed guidance before the end of last year, but the package was delayed. Since December 2022, the government has released five notices related to the CAMT, most recently Notice 2024-10, which provided interim guidance clarifying the impact of certain distributions from a controlled foreign corporation (Covered CFC Distributions) in a taxpayer's applicable financial statement income (AFSI).
In OECD news, a Treasury official this week provided further insights on the US position with regard to BEPS 2.0 Pillar One. The official was quoted as saying the US has three requirements in order to sign the Multilateral Convention (MLC). Specifically, the US needs to have Puerto Rico treated as part of the United States for purposes of the Pillar One Amount A rule and there needs to be agreement among all countries on the technical issues, including withholding, and adoption by countries of a draft MLC text.
The last condition is that the US needs for the Pillar One Amount B "to be robust." The official said it needs to "clearly apply to real taxpayers that have real transactions, and it needs to provide meaningful tax certainty." Amount B is aimed at simplifying and streamlining the transfer pricing of in-country baseline marketing and distribution activities, while ensuring outputs consistent with the arm's-length principle.
The OECD also this week issued a working paper titled "The Global Minimum Tax and the taxation of MNE profit," on the impact of the global minimum tax (GMT) on multinational enterprise (MNE) activity and taxation. Among the report's findings, the GMT is estimated to raise corporate income tax revenues "by USD155-192 billion per year, or between 6.5-8.1% of current global CIT revenues." According to the report, the GMT will reduce incentives to shift global profits by approximately half. The authors also found that the GMT will reduce low-taxed profit worldwide as a result of reduced profit shifting and top-up taxation, with global MNE profit taxed below the 15% minimum effective rate expected to fall by more than two-thirds.
EY this week launched its 2024 International Tax and Transfer Pricing Survey, with an overwhelming majority of respondents saying they face a moderate or significant risk of double taxation as a result of the OECD Inclusive Framework on BEPS project. According to the survey, 84% of respondents said they face a moderate or significant risk of double taxation due to BEPS Pillar One and Pillar Two initiatives, and 82% said tax rate stability will have a moderate or significant impact on their global transfer pricing (TP) policy over the next three years. In addition, 71% of survey respondents said global minimum taxes will have a moderate or significant impact on their TP policy.
As a result, respondents expressed more interest in advance pricing agreements (APAs) and similar controversy programs than at any other time in the 30-year history of the survey. For instance, 61% said bilateral APAs and 59% said multilateral APAs will be "very useful," up from 34% and 30%, respectively, in 2021. Interestingly, 59% indicated that unilateral advance pricing agreements will be "very useful" in managing TP-related controversy over the next three years, more than double the 2021 proportion of 29%. Taxpayers will also be looking at mutual agreement procedure (MAP), according to the survey, with 46% saying MAP will be "very useful," up from 33%. Finally, 41% of respondents said the International Compliance Assurance Program (ICAP) will be "very useful," up from 27%.