Report on recent US international tax developments - 12 April 2024

The IRS this week released long-awaited proposed rules ( REG-115710-22) on applying the stock buyback excise tax under IRC Section 4501 that was enacted by the Inflation Reduction Act. The provision imposes a nondeductible 1% surcharge on the fair market value of repurchases of corporate stock occurring after 31 December 2022. The IRS had issued interim guidance in January 2023 in  Notice 2023-2. The new proposed rules adopt much of the interim guidance but modify, among other things, the funding rule for foreign-parented groups. A  Treasury release said the proposed regulations provide a targeted anti-abuse rule to ensure foreign-parented multinational corporations pay their fair share of the stock buyback excise tax, without inadvertently capturing ordinary course intercompany funding transactions among their corporate affiliates.

The IRS simultaneously released proposed rules (REG-118499-23) on the procedures for reporting and paying the new excise tax. A Tax Alert on the package is pending.

A Treasury official this week made the argument that US progress in implementing BEPS Pillar Two global minimum tax rules will have a positive impact on ongoing negotiations over issues of concern to the US government, notably the US research and development (R&D) tax credit. Treasury has indicated that it is in discussions to have favorable treatment of R&D in respect to the global anti-base erosion (GloBE) rules included in administrative guidance on Pillar Two. "The more movement we make towards actual adoption [of BEPS Pillar Two], the more receptive other countries will be to our request for favorable guidance," he said. The official also said the US government continues to take the position that adoption of Pillar Two is in the best interests of the United States, suggesting it would reduce compliance costs and double-taxation concerns as well as improve tax certainty.

A congressional Joint Committee on Taxation (JCT) official also said this week that the JCT is reviewing countries' implementation of global minimum tax rules as it considers how it will update its analysis of the impact of BEPS 2.0 Pillar Two on the US fisc. The JCT released an analysis of Pillar Two in June 2023, which the official said did not take into consideration global implementation of the Pillar Two minimum rules.

And an OECD official this week said the Pillar One Multilateral Convention (MLC) on Amount A is "moving forward" and the organization expects to reach agreement "in the not-too-distant future." The OECD missed a self-imposed deadline to finalize the text of the MLC by the end of March 2024. The official was quoted as saying there is ongoing discussion on the interdependence of Amount A and Amount B, both in regard to additional progress related to Amount B and in the context of the MLC.

Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC

• Arlene Fitzpatrick
  
  
• Joshua Ruland

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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