Int'l Tax News

An IRS proposal denying foreign tax credits for companies hit by digital taxes outside the U.S. is too broadlywritten, business groupswarned. The 2020 proposed rules (REG-101657-20; RIN: 1545-BP70)would prevent companies from getting U.S. tax credits on many taxes onwhich they've historically been able to do soÔøΩsuch aswithholding taxesÔøΩand could lead to double taxation, they told the IRS during a virtual hearingwednesday.

The Biden administration has floated a compromise proposal to counterparts around theworld thatwould apply a new international tax code to, at most, 100 global corporate giants. The U.S. planwould consider a company's profitability in determiningwhether more of its income should be taxed by the countrieswhere it does business -- something the Biden administration argueswill resolve long-standing disputes aboutwhich companies should be targeted by new global tax rules -- according to a document obtained by Bloomberg News.

Multinational companies have long used creative -- and legal --ways to shrink their tax bills. One is to book profits from customers in places like Boston and Berlin as if they came from, say, Bermuda,which has no corporate income tax. Long-stalled efforts to revamp the global tax system are getting a new push, thanks to the pandemic and a policy U-turn from the U.S. The complex proposals boil down to two basic notions: setting a minimum corporate tax rate across theworld (think of this as making a bigger revenue pie), and rewriting the rules for allocating that revenue among countries (cutting the pie up differently).

A surprise U.S. drive to overhaul international corporate taxation promises a new era for governments to capture a bigger tax take from some of the most successful global businesses -- if only the rest of theworld can agree.

Martin Sullivan developsa checklist of proposed statutory changes to theGILTIrules, including allowing carryover of FTCs in the GILTI basket, providing for equal treatment of tested loss CFCs, removing the income limitations of the section 250 deduction, and discontinuing expense allocation for the GILTI FTC basket.

A trio of Senate Democrats unveiled a proposal Monday to raise taxes on multinational corporations as lawmakers begin to refine their plans to pay for President Joe Biden's infrastructure package.

The framework released by Finance Committee Chair Ronwyden (Ore.) and fellow taxwriters Sherrod Brown (Ohio) and Markwarner (Va.) generally agreeswithwhat the administration proposed lastweekwhen it called for a host of tax hikes on corporations, though it differs on several points and includes additional details.

The Biden administration is calling for theworld's biggest multinational companies to pay levies to national governments based on their sales in each country, as part of an ambitious proposal for a global minimum tax. The planwould apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country. The US Treasury laid out its proposal in documents obtained by the Financial Times,which had been sent to the 135 countries negotiating international taxation at the OECD in Paris.

Senate Democrats unveiled an international tax framework short on numbers as theyworkwith the Biden administration on corporate tax reform.

While Germany and France cheered U.S. Treasury Secretary Janet Yellen's reaffirmation of support for global minimum corporate taxation, business groupswarned that the movewould dampen American competitiveness unless other countries follow suit.

Fueled by a recent show of U.S. support for global minimum taxation, G-20 finance ministers remain optimistic about getting a multilateral corporate tax reform agreement over the finish line by their July meeting. In a communiqué published at the end of their April 7 virtual meeting, G-20 finance ministers and central bank governors said theywould continue cooperating for a "globally fair, sustainable, and modern international tax system."

The Biden administration's new tax plan proposes that the controversial base erosion and antiabuse tax be replacedwith a new measure targeting cross-border related-party transactions, the stopping harmful inversions and ending low-tax developments (SHIELD) proposal. Citing the flaws and unintended effects of the BEAT, the Treasury Department's April 7 report on the administration's Made in America Tax Plan argues that its SHIELD proposalwould be a more effective and targeted check on profit shifting by multinationals. (Related coverage.) In explicitly proposing elimination of the BEAT, the report confirms that ÔøΩ as expected ÔøΩ the BEAT is the unspecified "ineffective provision" thatwas slated for repeal in Treasury's March 31 fact sheet on the plan.

President Biden's "Made in America" tax planwould raise the corporate tax rate to 28 percent, modify the global minimum tax, implement a 15 percent minimum tax on corporate book income, and extend and enhance tax credits for clean energy production, among other measures, according to a report released April 7 by Treasury.

Aspects of the OECD's digitalization tax project "include significant departures from accepted international tax principles" and could reduce U.S. tax revenues and allow other countries to attack the U.S. tax base, Republican members of the Houseways and Means Committee said in an April 8 letter to Treasury Secretary Janet Yellen.

The U.N. subcommittee on taxation of the digital economy released the final draft of a new treaty article thatwould allow source-country taxation of revenue from automated digital services. On April 6 the subcommittee published an updated draft of itswork on a new article 12B (income from automated digital services),which is on track to be presented for approval at the next session of the Committee of Experts on International Cooperation in Tax Matters for inclusion in the U.N. model tax treaty. Article 12Bwould allow countries to tax income earned by a beneficial owner residing in another country that arises from automated digital services in the taxing country, even if the owner does not have a fixed place of business in the taxing country. The virtual meetings take place April 19-23 and April 26-28.

An agreement at the OECD level on pillars 1 and 2 of the digital economywork programwill be complicated by EU countries' electoral processes after this summer, French Finance Minister Bruno Le Maire said. "We have to be fast.we have an opportunity for the summer 2021.we have to conclude now; tomorrow might be too late," Le Maire told reporters April 8. He said the upcoming elections, particularly in Germany and in France,would make it difficult for an agreement to be reached after the summer. Le Maire called on OECD countries to meet in the next fewweeks and said that any agreement must include both pillars. "Wewon't adopt pillar 1without pillar 2" and vice versa, he said.

The U.S. Treasury is floating a "comprehensive scoping" idea tied to revenue and profitability to identify a narrow set of multinational enterprises subject to potential new tax rules under an OECD-led global tax reform project. According to a slide deck prepared by Treasury, the Biden administration set out its position on pillar 1 of the two-pillar project,which seeks to overhaul the global corporate tax rules for the digital age. The slideswere prepared as part of Treasury's April 8 presentation to the steering group of the OECD inclusive framework on base erosion and profit shifting, the group of 139 jurisdictions responsible for further standard setting under the OECD/G-20 BEPS project and for reaching agreement on the plan by the summer.

Treasury Secretary Janet Yellen argued for a global minimum corporate tax rate Monday, seeking international cooperation that is crucial to funding the administration's $2.3 trillion infrastructure proposal.

Corporations had amplewarningÔøΩan entire presidential campaignÔøΩthat tax increaseswere coming. But that doesn't take the sting out of President Biden's proposal to raise the corporate tax rate to 28% from 21%.

Senate Democrats offered proposals Monday to increase the tax burden on U.S. companies' foreign profits and move the system in the same general direction as the Biden administration's plan.

President Biden and the Democrats are making a big bet that the politics of taxation have changed. In their view, the American public ÔøΩ frustrated by the economic impact of COVID-19 and years of stagnation for the middle class ÔøΩ iswilling to countenance higher taxes, at least on corporations and thewealthy.

President Joe Biden is proposing to unwind many of the corporate tax changes in President Donald Trump's 2017 tax law. Companies could end up collectively paying hundreds of billions of dollars more in taxes in the coming years. Key to the Biden proposal is the imposition of a new global minimum tax to address a longstanding issue -- the ability of multinational corporations to greatly reducewhat they owe the U.S. government.

The Biden administration's proposal to replace a much-criticized anti-abuse taxwith an internationally standardized rule could help allay a point of contention in global digital tax negotiations. In the $2.25 trillion infrastructure proposal releasedwednesday, the administration appeared to put the base erosion anti-abuse tax, or BEAT, on the chopping blockÔøΩa provision from the 2017 tax law that both companies and other countries view as problematic, according to practitioners. The proposal suggests the U.S. could put in its place an anti-abuse measureÔøΩknown as the under-taxed payments ruleÔøΩthat's part of the "Pillar Two" plan being developed by the OECD to help strengthen its own proposed global minimum tax regime.

The U.S. is pressing aheadwith plans to hit six nations that tax Internet-based companieswith retaliatory tariffs that could total almost $1 billion annually. Goods entering the U.S. -- ranging from Austrian grand pianos and British merry-go-rounds to Turkish Kilim rugs and Italian anchovies -- could face tariffs of as much as 25% annually, documents published by the U.S. Trade Representative show. The duties are in response to countries that are imposing taxes on technology firms that operate internationally such as Amazon.com Inc. and Facebook Inc.

Business groups and large corporations reacted negatively onwednesday to President Biden's expected proposal to fund his $2 trillion package of infrastructure spendingwith a substantial increase in corporate taxes.The scale of the infrastructure program ÔøΩ the details ofwhich Mr. Biden is expected to unveil later onwednesday ÔøΩ is so big that is that itwould require 15 years of higher taxes on corporations to pay for eight years of spending. The plans include raising the corporate tax rate to 28 percent from 21 percent. The corporate tax rate had been cut from 35 percent under former President Donald J. Trump.

Democrats have spent the last several years clamoring to raise taxes on corporations and the rich, seeing that as a necessary antidote towidening economic inequality and a rebuke of President Donald J. Trump's signature tax cuts. Now, under President Biden, they have a shot at ushering in the largest federal tax increase since 1942. It could help pay for a host of spending programs that liberal economists predictwould bolster the economy's performance and repair a tax code that Democrats say encourageswealthy people to hoard assets and big companies to ship jobs and book profits overseas.

The European Unionwould have "no hesitation" in using a carbon border tax adjustment to protect its industries if the bloc's trading partners put companies in the region at a disadvantage over climate targets, the EU climate tsar has said. This is despite the frosty reception for the idea from allies led by John Kerry, US president Joe Biden's climate envoy. Kerrywarned this month in an interviewwith the FT that such a tax should be a "last resort". A tax on imports from countries thatwere not committed to reaching climate neutrality by mid-century is being drawn up by the EU.

Joe Biden unveiled his plan to plough $2tn in government spending into US infrastructure alongside $2tn in higher corporate taxes, as the first stage of a multitrillion-dollar effort to reshape theworld's largest economy. The US president made the announcement in Pittsburgh, Pennsylvania onwednesday, calling it the biggest public investment programme since the creation of the interstate highway system and the Space Race of the 1960s.

U.S. President Joe Biden reportedly told EU leaders during a virtual summit on March 25 that he is "keen" toworkwith the EU on tax issues to avoid a "race to the bottom." After the meeting, Italian Prime Minister Mario Draghi told reporters that "the previous U.S. administration, on the issue of taxing digital multinationals,was in total closure, but now the new administration has opened to international accords for the taxation of digital companies." He said Biden "brought new air, fresh air, in U.S.-EU relations."

The United Kingdom and EUwill keepworkingwith the United States and others to resolve the thorny issue of digital taxation, even amid a new round of U.S. tariff threats over digital services taxes. A U.K. government spokesperson on March 29 defended the U.K. DST after the Office of the U.S. Trade Representative (USTR) announced March 26 that it might impose extra 25 percent tariffs on millions of dollars'worth of imports from the United Kingdom, India, Turkey, Spain, Italy, and Austria, after finding their digital taxes discriminate against American businesses.

Thewhite House in a March 31 fact sheet outlined a tax plan thatwould raise the corporate tax rate to 28 percent, increase the global minimum tax on corporations, enact a minimum tax on corporate book income, and eliminate some tax preferences for fossil fuels, among other measures.

Luxembourg, Switzerland, and Norway have received top rankings for their carbon prices, and more countries are on track to improve, according to a new OECD report. On March 30 the OECD published a summary of its findings on carbon pricing data measured by the effective carbon rates of 44 OECD and G-20 countries that account for about 80 percent of global emissions. The final report is scheduled for publication April 28. The effective carbon rate is the sum of fuel excise taxes, carbon taxes, and the prices of tradable emissions permits,which reduce emissions by giving low- and zero-carbon energy options a competitive edge over high-carbon alternatives. The countries studied are also given a carbon pricing score,which indicates how much of a country's energy-related carbon emissions face carbon pricing at or above the benchmark rates of ÔøΩ30, ÔøΩ60, or ÔøΩ120 per metric ton.

There is no more effectiveway for President Biden to meet his aggressive climategoals than a carbon tax. The timing seems ripe: his Treasury Secretary, Janet Yellen, has been a prominent advocate. Big business has flipped from opponent to proponent. Republican opposition is no longer monolithic. But a carbon tax lacks supportwhere it matters most:with Mr. Biden and the Democratic base. Progressive Democrats claim a carbon tax and its close cousin, cap-and-trade, are unfair to the poor and racial minorities. And a carbon tax appears to conflictwith Mr. Biden's promise not to raise taxes on any household earning less than $400,000 a year.

Negotiatorsworking on a global rewrite of corporate tax rules are debating how to force a rollback of domestic measures aimed at tech giants' revenue. Countries are deciding how to definewhich unilateral measureswill be replaced by the OECD-led effort, officials said Thursday at the American Bar Association European conference.

The U.S. is considering up to 25% tariffs on goods from Austria, India, Italy, Spain, Turkey, and the U.K. over digital taxes in each of those countries. The U.S. Trade Representative's office on Friday said it is seeking feedback this spring on potential trade responses to the six countries' measures "to preserve procedural options"while negotiations continue for a global digital tax solution.

President Joe Biden and congressional Democrats arewarning they may get tough on taxing U.S. companies abroad to raise more revenue andwalk back some policies they see as being too corporate-friendly. Their plans include raising the corporate tax rate and increasing taxes on U.S. companies' foreign income. They might also revise or reverse still-pending regulations to implement foreign-tax provisions of the 2017 tax lawÔøΩwith the aim of getting multinationals to pay more in U.S. taxes.

Given that Brazil, EU, Czech Republic and Indonesia haven't instituted digital taxes, the U.S. Trade Representative has ended its investigations on these countries and the bloc.

The U.K.will consider all options to defend its interests should the U.S. decide to impose tariffs on its businesses, the government said Monday. The U.S. announced Friday that itwould push aheadwith the its Section 301 probes into six digital services taxes from around theworld including the U.K. The U.S Trade Representative has argued in the past that these taxes unfairly discriminate against U.S. tech giants.

U.S. Treasury Secretary Janet Yellen and French Finance Minister Bruno Le Maire have reiterated their support for international efforts to rewrite how the digital economy is taxed. The Organization for Economic Cooperation and Development is currentlyworkingwith nearly 140 countries to rewrite international tax rules that govern how tech companies are taxed.

The minimum tax rate under pillar 2 of the OECD's global tax reform plan could curb the need for tax incentives that negatively affect developing countries, an OECD official says. "On tax incentives,we're very much hoping that pillar 2will delete much of the current chaos on granting tax incentives that do not deliver investment. So I think that [this] is a game changer. In the meantime, the transparency agenda is theway forward," Ben Dickinson of the OECD's Centre for Tax Policy and Administration told attendees during a March 23 Center for Global Developmentwebinar. Dickinsonwas among several panelistswho explained the need for transparency and scrutiny to address inequalities resulting from tax incentives. Susana Ruiz of Oxfam said transparency and oversight are a good start, but global reform is needed. According to Ruiz, some incentives are in place evenwhen they have little impact because of "political capture,"which Oxfam defines as "'the exercise of abusive influence by one or more extractive elite(s) to favor their interests and priorities to the detriment of the general good."

The European Commission isworking to develop a digital levy that does not interferewith the OECD process to modernize global corporate tax rules, is not discriminatory, and does not fuel trade tensions, the EU's competition chief said. Margrethe Vestager, the commission's executive vice president of competition policy, told members of the European Parliament (MEPs) during a March 23 meeting of the subcommittee on taxation (FISC) that the EU is "pushing forward"with its intent to propose an EU-wide digital levy by June thatwould go into effect by 2023while simultaneously supporting an international tax agreement at the OECD level. The 139-member OECD inclusive framework on base erosion and profit shifting aims to reach agreement by June on a two-pillar approach for modernizing the international corporate tax system. Pillar 1would revise profit allocation and nexus rules,while pillar 2 calls for global minimum taxation.

The EU's plans to introduce a carbon border adjustment mechanism (CBAM) run the risk of being misunderstood. During a March 23webinar organized by the French finance ministry, Vangelis Vitalis, deputy secretary for trade and economic affairs at New Zealand's Ministry of Foreign Affairs and Trade, said that the risks "were real" regarding the interpretation or perception of this future mechanism,which might be seen by the EU's international partners as a "protectionist measure." He said he feared retaliation and that an ill-conceived measure might lead to a tradewar. Vitalis called on the European Commission to take all the time needed to make sure it comes upwith the right proposal.

A pair of bills introduced by Democratic members of the Houseways and Means and Senate Finance committeeswould dramatically upend the corporate international tax environment, but their path forward is unclear. On March 11 several Democratic senators, including Finance Committee member Sheldonwhitehouse, D-R.I., andways and Means Committee member Lloyd Doggett, D-Texas, introduced the No Tax Breaks for Outsourcing Act (S. 714). That same day,whitehouse and Doggett also introduced the Stop Tax Haven Abuse Act (H.R. 1786).

With the success of its first big legislative initiative, the American Rescue Plan Act of 2021 (P.L. 117-2), the Biden administration has moved on to the next item on its agenda: infrastructure. Long discussed but highly elusive, the need for additional spending on the country's infrastructure has broad bipartisan support. The problem is how to pay for a measure that's expected to cost more than $2 trillion. The first of a series on various alternatives for funding infrastructure, this article considers how corporate tax increases might be used. Imposing more taxes on profitable corporationswas high on President Biden's campaign list,which includedways to both reverse and fix some of the legislative changes enacted by the Tax Cuts and Jobs Act. Progressive Democrats also have made higher taxes on corporations a key part of their platform.

A U.S. proposal to increase the rate of the global intangible low-taxed income provision of the Tax Cuts and Jobs Act may influence OECD global tax reform discussions, a top German official said. "We are of course aware there's a plan to raise the GILTI rate; of course, this plays a role in our discussions, given that the U.S. is theworld's largest economy," Martin Kreienbaum, director general of international taxation at the German Federal Ministry of Finance and chair of the OECD Committee on Fiscal Affairs, said. Hewas speaking during a March 25 panel at the American Bar Association U.S. and Europe Tax Practice Trends virtual conference. "If theworld's largest economy thinks that the rate currently laid down in the GILTI should be higher in [the] future, then I think thatwould also have an impact on our discussions," Kreienbaum added.

The global intangible low-taxed income provisionwas a primary target of criticism from Democrats andwitnesses at a Senate Finance Committee hearing, although most critiques focused on reforming GILTI rather than advocating a complete rewrite. The criticism at the March 25 hearing appeared to coalesce around three aspects of GILTI ÔøΩ its exemption from tax for qualified business asset investment income, its reduced rate, and its inapplicability on a per-country basis. These critiques come as Finance Committee Chair Ronwyden, D-Ore., announced that hewill release a new international tax framework "in the coming days" in cooperationwith committee members Sherrod Brown, D-Ohio, and Mark R.warner, D-Va.

Since 2018, the UK government, the European Commission, and several European national governments have advanced bold proposals for a new "digital services tax" (DST),with the aim of capturing profits earned by multinationals that reflect value contributed by users of digital platforms. The author offers a novel set of arguments in support of the DST,which appeal to both efficiency and fairness considerations. In particular, the DSTwould allow location-specific rent (LSR) earned by digital platforms to be captured by the countries inwhich such rent arises. The author argues that platform LSR is often hidden from view under the traditional international income taxation paradigm, due to that paradigm's focus on physical presence, source of payment, and profit allocation among related entities. Moreover, that paradigm ignores a basic intuition about how rent accruing to mobile intangible assets should be assigned:when the deployment of a technology is non-rivalwith respect to multiple locations, it is both efficient and fair to assign any rent earned from the technology's deploymentwith respect to a given location to that location.

The European Union is advancing sweeping new tax transparency rules this spring thatwill require companies to disclose publicly how andwhere they pay taxes. The proposal has been heralded by advocates as a victory for corporate transparency and the fight to end tax dodging. Companies, meanwhile,warn the planwill create compliance burdens and expose sensitive company informationÔøΩsuch aswhere they make investmentsÔøΩthatwill put them at a competitive disadvantage.

The international tax system "isn't fit for purpose," U.K. Chancellor of the Exchequer Rishi Sunak says on Tuesday at Bloomberg event on G-7, G-20 priorities.

The European Unionwants to press aheadwith a digital tax from Jan. 1, 2023ÔøΩeven if OECD talks succeed in redefining how online companies are taxed, the bloc's top digital policy official said Tuesday. Even in the "optimistic scenario" of an agreement at the Organization for Economic Cooperation and Development on a new system of digital taxing rights, "itwill take time before it is ratified and implemented all over," Margrethe Vestager, European Commission executive vice president for the digital age, told a European Parliament's tax subcommittee

Digitalization of everything is the motto of 2021.with Covid-19, there has been a significant acceleration in the growth of onlineworld. All eyes are on the Biden Administration as more and more countries join the digital tax bandwagon, and the OECD struggles to find consensus for digital service taxes (DST). As an important trade partner for theworld, and the countrywith the most companies impacted by the DSTwave, the U.S.'s actions nowwill have large ramifications.