Report on recent US international tax developments – 10 February 2023

President Joe Biden gave his second State of the Union address to Congress on 7 February, striking a mostly optimistic tone, pointing to the country’s recovery from the COVID-19 pandemic and the creation of 12 million new jobs, among other developments. The President proposed reducing the budget deficit by US$2 trillion with help from revenue raisers, including the 15% corporate minimum tax enacted in the 2022 Inflation Reduction Act, quadrupling the current one percent tax on corporate stock buybacks and enacting a “billionaire surtax.” The President also proposed closing unspecified tax loopholes and "cracking down on wealthy tax cheats." According to some commentators, increasing the stock buyback excise tax and passage of a billionaire surtax may have little chance of passing Congress this year. The President is expected to release his proposed FY 2024 budget on 9 March.

The Senate Finance Committee this week announced it will hold a hearing to consider the nomination of Daniel Werfel to be the next Internal Revenue Service (IRS) Commissioner, for the term expiring in November 2027. The hearing will take place on 15 February. Confirmation will require a simple majority vote in the Senate.

Addressing the Organisation for Economic Co-operation and Development (OECD)-led Base Erosion and Profit Shifting (BEPS) 2.0 global tax agreement, House Ways and Means Committee Chairman Jason Smith sent a letter (pdf) to OECD Secretary-General Mathias Cormann on 10 February, in which he defended the United States (US) global intangible low-taxed income (GILTI) regime and said other countries are considering a minimum tax only if they can impose the “fundamentally flawed” Undertaxed Profits Rule (UTPR) on US companies. The chairman warned that the UTPR would target US tax incentives like the research and development credit “as well as the operations of American companies in third-party jurisdictions.” Chairman Smith said House Republicans “will aggressively pursue tax and trade countermeasures to protect American jobs, sovereignty, and tax revenues.”

And for the fourth consecutive Congress, Ways and Means Committee Member Lloyd Doggett and Senate Finance Committee Member Sheldon Whitehouse introduced the No Tax Breaks for Outsourcing Act. Among other things, the bill would eliminate GILTI and foreign-derived intangible income (FDII) deductions and apply GILTI on a per-country basis, repeal the 10% exemption for tangible investments, and treat corporations managed and controlled in the US as domestic corporations.

An IRS official recently was quoted as saying that the IRS is in the process of drafting updated guidance on Advance Pricing Agreements (APAs) and requests for competent authority assistance. The official said the IRS is revising the guidance to reflect its recent case experience and is still deciding whether to seek public comments on the revised guidance.

Consistent with other IRS officials' previous statements, the official confirmed that the IRS is also reviewing the selection process for cases included in the APA program.

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.