TAX TAKE: Step by Step: International Tax Developments Continue As the House Stagnates
While the Speaker drama unfolds and we find ourselves in the middle of the third week of a paralyzed House, Tax Take turns its attention to some noteworthy international tax developments.
First, the much-anticipated draft multilateral convention (MLC) animating Amount A of the Organisation for Economic Cooperation and Development's (OECD) Pillar One initiative was recently released. The MLC and accompanying documents, including a voluminous explanatory statement, are quite detailed, and the Treasury Department has opened a public consultation period through December 11, 2023. During this time, stakeholders are invited to submit comments on technical aspects of the proposed rules, an important step as the work progresses. Key issues that will surely merit further discussion include the treatment of withholding taxes in the Amount A calculations, the refinements made to the marketing and distribution safe harbor concept, and issues related to certainty and dispute resolution.
The transparency of the process by which Treasury and the administration seek to gather input and what they surely hope will be eventual support of the draft MLC stands in stark contrast to the Pillar Two effort. There remains some tension as Secretary Yellen stated the obvious when she said the U.S. would not be able to ratify the treaty by the end of 2023.
In fact, no member of the Inclusive Framework will be in a position to ratify the draft MLC by the end of this year, so what does that mean for the standstill agreement that was reaffirmed in this summer's Outcome Statement? The U.S. is actively engaged with Canada on the issue of its digital services tax (DST), which is slated to come online in January. So far, Canada isn't backing down, particularly in light of the significant revenue the DST is estimated to raise. Remember, Canada never agreed to the standstill arrangement set forth in the Outcome Statement.
In other developments, the IRS gave good news with bad when one of the principal drafters of the final foreign tax credit regulations affirmed that this summer's much-touted Notice offering temporary relief from some of the most egregious provisions of that package would be extended. However, that good news is tempered by a note of caution that the Notice should not be read to indicate that the IRS will scrap those provisions or withdraw the entire package. While no timeline was given for the extension, the masses are restless, and many fiscal year taxpayers have already begun a new tax year, putting them beyond the safe harbor period prescribed in the notice.
Finally, a bipartisan, bicameral bill for the Taiwan tax agreement was formally introduced by the chairmen and ranking members of the House Ways and Means and Senate Finance Committees. The United States-Taiwan Expedited Double-Tax Relief Act reflects the contents of the bill that was the subject of a conceptual markup and reported by the of Senate Finance Committee last month. It enjoys widespread support and is meant to relieve the burden associated with doing business in the U.S. and Taiwan in the absence of a formal double tax treaty. Undoubtedly, its introduction will stoke hopes for floor action on the bill this calendar year and that it might also serve as a vehicle for research and experimentation (R&E) expense amortization repeal and other business extenders.
Moving forward, the duration of the Speaker conundrum in the House will dramatically impact Congress's ability to move any significant legislation for the remainder of the year. While we love all things tax, larger items such as government funding and potential aid packages for Ukraine and Israel, including humanitarian assistance for the Gaza region, will take center stage. Next week, tune in as we take stock of where things stand and what the outlook is for the remaining two months of 2023. #TaxTake
Upcoming Speaking Engagements and Events
Today, Loren will moderate the "My Tax Journey: Navigating Roadblocks, Finding Work-life Balance, and Achieving Success" panel at TEI's Annual Conference. Miller & Chevalier Members Layla Asali and Rob Kovacev are also speaking at the conference.
On October 30, Loren will speak at the IBA Annual Conference on a panel titled, "How Do the OECD and the U.N. Address International Tax Issues (Past, Present, and Future)?"
Also on October 30, Marc will present a tax legislative outlook at the 58th Annual Southern Federal Tax Institute. George Hani and Rob Kovacev will also present.
Fellow Tax Member Rob Kovacev will interview Loren during the keynote luncheon at the TEI-SJSU High Tech Tax Institute on November 7.
Loren and Tax Department Chair Layla Asali are speaking at the ABA 34th Annual Philadelphia Tax Conference on November 14 and 15.
Loren will present a legislative update and outlook at The Tax Council's Annual Meeting on November 16.
Marc will present at the 2023 Blue Cross Blue Shield National Tax Conference in Austin on November 29.
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