Report on recent US international tax developments – 23 December 2022

The United States (US) Congress passed a US$1.7 trillion omnibus spending bill on 22 December, sending the 4,155-page bill to the President for signature. After much negotiation, the final bill did not include business tax provisions such as modifications to Internal Revenue Code1 Section 163(j) or relief from the Section 174 research and development amortization requirement – both of the Tax Cuts and Jobs Act cliffs that took hold this year – nor tax extenders or an expanded Child Tax Credit.

Treasury this week announced a timeline for providing additional information on key tax provisions of the Inflation Reduction Act to be completed by the end of the year. Importantly, Treasury indicated that it plans to provide initial guidance on the corporate alternative minimum tax as well as on the stock buyback excise tax, among other information, all before 31 December.

The Internal Revenue Service (IRS) on 21 December released Notice 2023-08 (pdf), offering additional guidance for brokers to comply with the Section 1446(f) final regulations that relate to withholding on the transfer of an interest in a publicly traded partnership (PTP). Specifically, Treasury and the IRS announced their intention to issue proposed regulations that would amend the final regulations to implement this additional guidance.

According to the tax press, a senior Treasury official this week said that the existing global intangible low-taxed income (GILTI) regime needs to be reformed to conform better with the Base Erosion and Profit Shifting (BEPS) global anti-base erosion (GloBE) rules. In the meantime, Congressional Republican lawmakers are continuing to voice concerns regarding the BEPS Pillar Two rules. In a 14 December 2022 letter to Treasury Secretary Janet Yellen, all Republican members of the Senate Finance Committee and House Ways and Means Committee as well as the ranking member of the Senate Foreign Relations Committee addressed the Pillar Two undertaxed profits rule (UTPR): “Despite the United States being the only country to implement a global minimum tax, this Administration has agreed to allow foreign countries to impose additional tax on U.S. companies’ U.S. profits under the UTPR.” The letter goes on to say that the Biden Administration “has routinely made commitments in the OECD negotiations it has no authority to fulfill …. . The Administration cannot continue to ignore the fundamental problems with the [BEPS] Pillar Two Agreement. … While the Administration may treat these Rules as final, we do not.”

On 20 December, the Organisation for Economic Co-operation and Development (OECD) released a new consultation document (pdf) titled, Pillar One – Amount A: Draft Multilateral Convention Provisions on Digital Services Taxes and other Relevant Similar Measures. The draft multilateral convention provisions reflect the commitment to remove all existing Digital Services Taxes and other similar relevant measures and to refrain from enacting such provisions in the future. According to an OECD press release, the latest consultation document, which follows the recent release of the consultation document on Amount B, completes the consultation on “all the building blocks of BEPS Pillar One.”

On the same day, the OECD issued several Pillar Two documents, including a consultation document (pdf) on the Pillar Two GloBE Information Return and two additional documents related to the implementation package for Pillar Two: guidance on safe harbors and penalty relief (pdf) and another public consultation (pdf) document on tax certainty for the GloBE rules.

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.