Report on recent US international tax developments — 22 March 2024

Congressional leaders and the White House this week reached a deal on the final set of full-year government funding bills, therefore presumably avoiding a partial government shutdown. In the meantime, Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) expansion bill remains in limbo, as Congress moves toward the two-week Spring recess.

The tax bill appears unlikely to be attached to appropriations legislation, though it still could come up as a standalone bill or with other must-pass legislation. Senate Finance Committee Democrats and Republicans have traded offers to modify the CTC provisions, to no avail.

A Treasury official was quoted as saying proposed regulations on the 1% stock buyback excise tax will be released in the next several weeks. The package of proposed rules reportedly is in the final stages of review. Recall that President Biden's proposed FY 2025 Budget has called for quadrupling the stock buyback tax to 4%.

Eagerly anticipated proposed regulations on the corporate alternative minimum tax (CAMT) reportedly may be months away from release, although they could also be released sooner. According to a Treasury official, the proposed CAMT package will address mark-to-market adjustments for unrealized gains and losses and will include a "relatively straightforward" safe harbor for periods both before and after the regulations' release.

An IRS official recently reiterated that mandatory binding arbitration remains US tax treaty policy. Mandatory binding arbitration is included in the 2016 US model tax treaty and the bilateral US income tax treaties with Belgium, Canada, Croatia (pending), France, Germany, Japan, Spain and Switzerland. Mutual agreement procedure (MAP) disputes can be brought to an arbitration panel if the parties agree to arbitration and fulfill certain requirements.

Mandatory arbitration in MAP is final-offer arbitration, meaning that each party puts forth its final position and the arbitration panel chooses one position. The successful party in arbitration is generally the one that submits the more reasonable offer. Arbitration therefore can help to more efficiently reach a MAP settlement because the parties might be more willing to negotiate before arbitration to avoid an all-or-nothing settlement.

A Treasury official this week was quoted as saying the US is "working to protect the benefits of the research credit under the [BEPS 2.0] Pillar 2 global minimum tax, possibly through OECD administrative guidance." According to the official, the US is working to identify a "range of potential fixes." Speaking at a Washington tax conference, the Treasury official said the immediate goal for the US is to address the issue through administrative guidance. If that fails, he said, "we'll go to plan B."

For additional information concerning this Alert, please contact:

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.