On The Hill

Digital Tax

France has approved a tax on the revenues from some of the US’ largest tech companies, including Facebook and Amazon. The Office of the U.S. Trade Representative (USTR) will investigate France’s plan to impose a 3 percent tax on the revenue, which could ultimately lead to tariffs against the French. The USTR has set an August 12 deadline for submissions and an August 19 hearing. From that hearing, the USTR will have a year to decide on the issue but is expected to expedite the decision.  Administration officials and a bipartisan group of lawmakers have repeatedly urged France to halt the tax. The investigation centers around the French digital tax but seeks to warn other countries from considering similar measures. The investigation could lead to new duties or other trade restrictions against France; the Trump administration used a similar Section 301 investigation to impose tariffs on Chinese imports.

Tax Treaties

Senate Majority Leader Mitch McConnell (R-KY) is set to bring forth four bilateral tax treaties between the US and the following countries: Spain, Switzerland, Japan, and Luxembourg. The tax treaties could head to the chamber floor for a final vote as early as next week, according to McConnell’s staff. The treaties have been blocked from expedited passage through unanimous consent by Sen. Rand Paul (R-KY) due to his concerns that the treaties violate citizens’ privacy rights. Paul has blocked unanimous consent of the treaties since 2011.^[1]  The Senate Committee on Foreign Relations, which advanced the four treaties last week, is working to finalize similar tax treaties with Chile, Hungary, and Poland.

Opportunity Zones

At the Internal Revenue Service’s (IRS) second public hearing on regulations for the tax incentive program, investors and tax planners expressed the need for additional support from the agency to successfully invest in opportunity zones. Several speakers at the hearing noted that while the two proposed rules are mostly in line with one another, there are consistency issues relating to compliance. The Treasury Department has yet to decide how to combine the two proposals. Shay Hawkins, President and CEO of the Opportunity Funds Association and former Tax Counsel for Sen. Tim Scott (R-SC), spoke at the hearing about how Treasury can clarify the rules to ensure they are accessible for entrepreneurs and governments throughout the US. Hawkins discussed rules relating to safe harbors, and was quoted by Bloomberg Government, saying “Right now, 50 percent of the revenue has to be derived from within the zone, Treasury laid out three safe harbors that allow people to accomplish that in different ways. Further clarification around that just to make sure the comfort level is as high as possible” would be helpful.^[2] Other speakers said the tax treatment of the sale of underlying assets was the chief concern of stakeholders.

Regulations

This week, the IRS released proposed regulations under sections 1291, 1297, and 1298 of the Internal Revenue Code regarding the determination of ownership in a passive foreign investment company within the meaning of section 1297(a) (PFIC) and the treatment of certain income received or accrued by a foreign corporation and assets held by a foreign corporation for purposes of section 1297. The regulations also clarify the application and scope of certain rules that determine whether a United States person that directly or indirectly holds stock in a PFIC is treated as a shareholder of the PFIC, and whether a foreign corporation is a PFIC.^[3] 

Debt Ceiling

Treasury Secretary Steve Mnuchin is urging congressional leaders to find a way to increase the debt limit in the next few weeks before Congress recesses in August. Mnuchin met with House Speaker Nancy Pelosi (D-CA) and Republican leaders this week, where Pelosi said she wants an increase in the federal debt limit to be included as part of a wider-encompassing two-year budget deal. Pelosi echoed Mncuchin’s sentiment on Thursday that she too hopes to have a vote on the deal before Congress leaves for its August recess. There had been discussions that Pelosi would attach the vote to the National Defense Authorization Act (NDAA), but the House passed the legislation on Friday (July 12) without doing so.  The shortfall is due to individual receipts, not corporate, and Mnuchin has been tasked, along with acting White House Chief of Staff Mick Mulvaney, to reach a budget deal by President Trump. The pair view early September as the new budget deal deadline. There’s been discussions about not extending the debt limit before FY 2019. It looks as if they would like to find a deal on the cap limit now and find a solution for the debt ceiling in December.  

‘Cadillac Tax’ Repeal

Next week, the House is set to discuss H.R. 748, which would repeal the Affordable Care Act (ACA) provision, known as the Cadillac Tax, which places a 40 percent excise tax and was designed to penalize employers for providing expansive benefits to their employees.^[4] While the repeal effort has bipartisan support, previous attempts have been stalled by an inability to replace the billions of dollars of revenue collected by the tax.

Butch-Lewis Act

H.R. 397, the Butch Lewis Act, was marked up in Ways and Means on Wednesday (July 10). The bill, which would provide $32 billion in loans to ailing Multi-Employer Pension Plans, passed out of committee along party lines. The Department of Treasury opposes the legislation, as it does not believe the loans will be repaid.

References

^[1] Aaron Lorenzo, “Tax treaties to get Senate vote next week, Foreign Relations chairman says” Politico Pro, 07/11/2019

^[2] Kaustuv Basu “Opportunity Zone Stakeholders Ask IRS for More Clarification” Bloomberg Government, 07/9/2019 https://news.bloombergtax.com/daily-tax-report/opportunity-zone-stakeholders-ask-irs-for-more-clarity?utm_source=rss&utm_medium=DTNW&utm_campaign=0000016b-d882-db54-af7b-ffe657ba0002

^[3] Department of the Treasury “Guidance on Passive Foreign Investment Companies” 07/12/2019 https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-12030.pdf

^[4] Adam Cancryn “House tees up July 17 vote to scrap ‘Cadillac tax’” Politico Pro, 07/12/2019 https://subscriber.politicopro.com/article/2019/07/house-tees-up-july-17-vote-to-scrap-cadillac-tax-3572834