Report on recent US international tax developments – 15 October 2021

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EY Global

15 Oct 2021
Subject Tax Alert
Categories Corporate Tax
Jurisdictions United States

The United States (US) Congress was mostly out of session this week, though there was continuing discussion over how to shrink the US3.5 trillion-plus House reconciliation bill to win the support of moderate Senators Joe Manchin and Kyrsten Sinema. The widely cited target is $2 trillion, with the primary options being to narrow the scope of the bill or retain the broad scope of policies but reduce the duration or benefits of provisions to lower the cost.

G-20 Finance Ministers this week endorsed the Base Erosion and Profit Shifting (BEPS) 2.0 Pillar One and Pillar Two agreement approved by a majority of the members of the Inclusive Framework on 8 October 2021. A communiqué issued at the conclusion of their 13 October meeting called on the Inclusive Framework to “swiftly develop the model rules and multilateral instruments as indicated in and according to the timetable provided in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023.”

US Treasury Secretary Janet Yellen earlier had said that she was “confident that what we need to do to come into compliance with the minimum tax [in Pillar Two] will be included in a reconciliation package.” The press reported a Treasury official as saying this would consist of increasing the current global intangible low-taxed income (GILTI) rate to 15% and applying it on a country-by-country basis. It is the minimum tax part of the deal under Pillar Two that requires changing GILTI, as Democrats plan to do in the reconciliation bill.

Secretary Yellen said during a recent US Senate Banking Committee hearing that Congress’ implementation of Pillar One could be accomplished in “a number of ways” with Senate treaty approval being just one of those approaches. In response to Secretary Yellen’s statement, the Ranking Members of the Senate Finance Committee, Senate Foreign Relations Committee, and Senate Banking Committee sent a letter to the Treasury Secretary dated 8 October 2021 saying “we are extremely concerned with the Administration's recent suggestions it is considering circumventing the Senate's constitutional treaty authority” in regard to implementation of Pillar One.”

The press is also quoting senior Treasury officials as saying that the US government is in discussions with various countries to roll back their digital services taxes as part of the BEPS 2.0 agreement. Details regarding those arrangements reportedly will be made available before the G-20 leaders’ summit meeting in Rome on 30-31 October 2021.

The Internal Revenue Service (IRS) this week announced in Notice 2021-59 (pdf) its intention to defer by one additional year the applicability date of final regulations under Internal Revenue Code1 Section 987 and certain related final regulations. The affected regulations will be amended to apply to tax years beginning after 7 December 2022.

The Cypriot Tax Department on 7 October 2021 publicly announced (pdf) that the US-Cyprus bilateral Competent Authority Agreement (CAA) for the exchange of Country-by-Country (CbC) reports, which is still under negotiation, is expected to be effective for Reporting Fiscal Years (RFYs) starting on or after 1 January 2021.

According to the release from the Cypriot Tax Department, "in the case where the Ultimate Parent Entity of a Multinational Group of Enterprises (MNEs) is tax resident in the United States of America, the secondary filing mechanism should be triggered for Reporting Fiscal Years starting on or after 1 January 2020 and before 1 January 2021." See EY Global Tax Alert, “Cyprus Tax Authority issues clarification regarding Competent Authority Agreement with the United States for exchange of CbC reports” for details.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC
  • Arlene Fitzpatrick
  • Joshua Ruland

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.