Report on recent US international tax developments — 28 June 2024

The US Supreme Court today, in Loper Bright Enterprises v. Raimondo, No. 22-451 (pdf) (U.S. June 28, 2024), held that federal law does not require federal courts to defer to agency interpretations of ambiguous statutory provisions, overturning the 40-year precedent in Chevron U.S.A. Inc v. Natural Resources Defense Council, Inc. In a 6-3 ruling, the Court held that federal courts must "exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires."

Writing for the majority, Chief Justice Roberts said that Chevron was "a judicial invention that required judges to disregard their statutory duties" and the precedent's presumption that statutory ambiguities are implicitly delegated to agencies could not be squared with the APA's requirement that courts decide all relevant questions of law.

The Court's ruling applies to all agency decisions, including those of the IRS and Treasury Department.

The leader of the House Ways and Means Committee's Republican Tax Team on global competitiveness, one of the 10 groups established by House Republican leadership to address the TCJA tax cliffs, this week said the group will hold its first field meeting with stakeholders on 8 August. Rep. Kevin Hern (R-OK) said the global competitiveness team will issue a White Paper with recommendations sometime after the meeting and then wait until the November elections before further action.

He also reiterated Republican concerns regarding the BEPS 2.0 project and the need for congressional input, suggesting there are Democrats in Congress who are also wary of the global tax deal.

An IRS official this week was quoted as saying the government is working on a notice of proposed rule-making that will address the application of the dual consolidated loss (DCL) income allocation rules in the context of BEPS Pillar Two global minimum tax jurisdictional tax blending. The IRS released Notice 2023-80 (pdf) in December 2023, with guidance on the interaction of the foreign tax credit and DCL rules with top-up taxes imposed via an Income Inclusion Rule (IIR) or a Qualified Domestic Minimum Top-Up Tax (QDMTT) under the global anti-base erosion (GloBE) Rules. The 2023 notice indicated that the Treasury Department and the IRS were studying the extent to which the GloBE Rules should trigger application of the DCL rules, including whether the GloBE Rules' jurisdictional-blending approach should result in a "foreign use" of a DCL.

The US and Switzerland signed a new FATCA Model 1 agreement on 27 June, according to a press release issued by the Swiss government. The new Model 1 agreement will replace an existing Model 2 agreement and is "expected to apply from 2027."

US Treasury and OECD officials offered insights this week on various issues related to the BEPS 2.0 Pillar One and Pillar Two project. Speaking at the annual OECD/US Council for International Business meeting in Washington, US Treasury officials continued to insist that Pillar One Amount B must be mandatory and linked to Amount A. Amount B is meant to simplify and streamline the application of the arm's-length principle to in-country baseline and marketing and distribution activities. According to a senior Treasury official, an optional version of Amount B is understandable as part of an initial phased approach, but Pillar One tax certainty ultimately will require Amount B to apply broadly and without optionality.

Another Treasury official said that, from the US perspective, the primary deliverables for Pillar One are the removal of digital services taxes in response to Amount A and the mandatory application of Amount B.

Although a majority of Inclusive Framework jurisdictions are in agreement regarding Amount B pricing rules and ranges, a Treasury official indicated a small number of countries contend that application of Amount B will not result in an arm's-length price within their countries. This, the official said, has caused the delay in reaching consensus on mandatory application of Amount B.

An OECD official at the conference also was quoted as saying the organization is finalizing a framework for the exchange of Pillar Two GloBE information returns (GIRs) among tax administrations that in-scope taxpayers will be required to file. The GIR is intended to contain the information that tax administrations will need to perform a risk assessment and to evaluate the correctness of a Constituent Entity's Top-up Tax liability under the GloBE Rules. A template for GloBE information returns was released in July 2023. (For details on the conference, see this Global Tax Alert.)