Report on recent US international tax developments — 3 May 2024

The US House Ways and Means Committee held a hearing on 30 April at which Treasury Secretary Janet Yellen testified on the expiration of the Tax Cuts and Job Act (TJCA) at the end of 2025 and the OECD BEPS 2.0 two-pillar global tax agreement. Ways and Means Committee Chairman Jason Smith's (R-MO) opening statement lauded the positive economic results of the 2017 TCJA, underscoring his view the legislation "reversed the decades-long trend of American companies picking up and moving their jobs, factories, and money overseas." Secretary Yellen suggested that the TCJA, including the corporate tax rate cut, disproportionately benefited the wealthy and large corporations and enriched corporate shareholders.

Addressing the BEPS 2.0 project, the W&M Chairman said: "The OECD global tax deal the Administration is trying to negotiate would surrender America's tax revenue and jobs to foreign countries. Congress writes the laws, not bureaucrats negotiating behind closed doors. This deal has no path forward in Congress."

Committee Republicans expressed concern about process issues regarding the global tax agreement and the projected cost to the US, citing the June 2023 Joint Committee on Taxation (JCT) estimate that, under one scenario and set of assumptions, the cost would be $122b over 10 years if the rest of the world enacts Pillar Two in 2025 and the US does not. A March 2024 JCT estimate found that Pillar One could result in a revenue loss of between $100m and $4.4b.

Chairman Smith asked if Treasury would "commit to reject any OECD profit reallocation plan that disproportionately impacts American companies or allows US tax revenues to be stolen away by foreign governments." Secretary Yellen responded that the Biden Administration had "worked very closely with Congress to inform and get input on Congress's priorities to guide these negotiations over the last three-and-a-half years and will continue to do that."

Chairman Smith also repeated concerns about the nonrefundable R&D tax credit not being exempted from determining a company's US effective tax rate under the OECD Pillar Two agreement. The Treasury Secretary reiterated earlier comments by government officials that the US is currently negotiating with other countries to "to try to get favorable treatment to the R&D tax credit."

On Pillar One, Secretary Yellen said Treasury agrees with concerns that certainty over Amount B is important, as well as the need to establish clear definitions regarding Digital Services Taxes. The Treasury Secretary said these are redlines the Biden Administration is focused on resolving in the final months of negotiations. Pillar One Amount B is intended to simplify and streamline the application of the arm's-length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.

The IRS released Revenue Procedure 2024-24 (pdf) on 1 May, providing updated procedures for taxpayers requesting private letter rulings (PLRs) on IRC Section 355 transactions. The latest guidance modifies Revenue Procedure 2017-52, the general revenue procedure on requesting IRC Section 355 PLRs and supersedes Revenue Procedure 2018-53 on procedures for requesting IRC Section 355 PLRs relating to the assumption or satisfaction of debt of a distributing corporation.

The changes to the prior revenue procedures significantly modify prior IRS ruling policy regarding retentions and delayed dispositions of stock of a controlled corporation. Revenue Procedure 2024-24 also imposes new standards on the assumption of distributing corporation liabilities by the controlled corporation as part of an IRC Section 355 transaction.

Revenue Procedure 2024-24 requires more substantiation of the representations required to be submitted and offers less flexibility to deviate from the standard representations. Revenue Procedure 2024-24 was also accompanied by Notice 2024-38 (pdf), which describes Treasury's and the IRS's views and concerns relating to the matters addressed in Revenue Procedure 2024-24.