Report on recent US international tax developments – 17 June 2022

United States (US) President Joe Biden expressed confidence this week that Congress can pass a reconciliation bill that addresses prescription drug pricing and clean energy tax credits, and there were meetings this week suggesting movement toward such a bill. “I believe I have the votes to do a number of things. One, prescription drugs. Reduce utility bills… I think we’ll be able to get the ability to have a tax incentive for winterization,” the President said in a 16 June interview. He also said, “we’re going to be able to have a fair tax system” and will have the votes “to have a minimum tax on corporations of 15%” and “tax increases on [the] super wealthy.”

Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi met with the President this week to discuss “plans for fighting inflation” including reducing prescription drug and energy costs. The Majority Leader also reportedly met with Senator Joe Manchin, and there was a report of Democratic meetings with the Senate Parliamentarian over a possible reconciliation bill.

Meanwhile, Republican Senate Finance Committee members released the Middle-Class Savings and Investment Act on 14 June, proposing to address US inflation with tax cuts that would be paid for by extension of the State And Local Tax cap deduction. The proposal would raise the threshold for the net investment income tax for joint filers, raise the zero percent threshold for capital gains taxes, exclude the first US$300 of interest income (US$600 for joint filers) and increase the savers credit. The legislation, immediately panned by Democrats, was introduced by former Finance Committee Chairman Chuck Grassley and Senators John Barrasso, Steve Daines and James Lankford.

On the House side, Ways & Means Committee Republicans are advocating their own anti-inflationary measures, including repurposing unspent COVID relief funds, making Tax Cuts and Jobs Act provisions permanent, negotiating better trade agreements along the lines of the USMCA,¹ and increasing American energy production.

Democrats in Washington are not only up against the challenge of defending their economic proposals as inflation-fighting, including those being discussed by Senator Manchin and Senate Majority Leader Chuck Schumer for a reconciliation package, but are now competing with inflation proposals by Republicans eyeing a potential takeover of one or both chambers of Congress after the midterm elections.

Republican members of the House Ways and Means Committee sent a letter to Treasury Secretary Janet Yellen on 16 June, urging the Biden Administration to push back the effective date of the final foreign tax credit regulations issued in December 2021 to 1 January 2023. The committee members pointed to the “significant delays in providing necessary clarifying guidance” as the main impetus for requesting the delay.

Pascal Saint-Amans, Director of the OECD² Centre of Tax Policy and Administration, this week urged “first-movers” on BEPS³ 2.0 Pillar Two, saying “a first mover [is needed] to start the domino effect.” He said he was optimistic the European Union would act on Pillar Two soon, perhaps during the 17 June Economic and Financial Council meeting in Luxembourg. Addressing Pillar One, Saint-Amans said it was not delayed, but rather subject to an “extremely intensive negotiation.”

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.