United States (US) Treasury Secretary Janet Yellen on 16 March testified before the Senate Finance Committee during a hearing ostensibly on the President’s Fiscal Year 2024 Budget but that focused on the current banking crisis as well as the Organisation for Economic Co-operation and Development (OECD)-led global tax agreement. Committee Republicans expressed concern about various aspects of the BEPS 2.0 negotiations, with Ranking Member Mike Crapo saying he opposed the OECD agreement. Members of both parties also expressed concern about Secretary Yellen’s recent comments that future limited free trade agreements focused on battery minerals with the European Union (EU) and other allies would not need approval from Congress.
The US and the EU reportedly are negotiating a deal that would permit European companies to qualify for some of the available clean vehicle tax credits enacted by the Inflation Reduction Act (IRA). President Joe Biden and the EU Commissioner on 10 March issued a joint statement that describes the talks as aimed at allowing EU companies to meet the mineral requirements for the Section 30D electric vehicle tax subsidy. The agreement is being coordinated by an EU-US task force on the IRA.
The recent determination of hyperinflationary status for the Turkish Lira has federal income tax implications for US multinationals. Inflation data published by the International Monetary Fund (IMF) confirms that the cumulative inflation rate for the Turkish Lira (TRY) exceeded 100% for the 36 calendar months ended 31 December 2022.
Given that the TRY now qualifies as hyperinflationary under Reg. Section 1.985-1, taxpayers and qualified business units (QBUs) that use the TRY as their functional currency must adjust their taxable income and/or earnings and profits for their 2023 tax year. Adjustments for the TRY's hyperinflationary status could trigger gains and losses for these taxpayers and affect previously calculated deemed inclusions for US shareholders of controlled foreign corporations.
The TRY's hyperinflationary status could require certain taxpayers and QBUs with TRY nonfunctional currency-denominated transactions to mark those transactions to market for their 2022 tax year, while also affecting their eligibility for potential exceptions and elections under US federal income tax regulations.
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.
