Tax Update (June 22)
On Wednesday (Jun. 17), United States Trade Representative (USTR) Robert Lighthizer confirmed the U.S. had pulled out of Organization for Economic Cooperation and Development (OECD) negotiations on an international digital services tax. In a letter sent June 12, Treasury Secretary Steve Mnuchin informed a group of European finance ministers that discussions had reached an “impasse” and the U.S. was taking a step back.
“I don’t think what happened at the OECD was the end of a process of trying to work out a solution. We still have to do that,” Lighthizer told senators on Wednesday afternoon.
“We strongly encourage OECD member countries to abandon plans for digital services taxes on U.S. businesses and to continue working toward an agreement on a more realistic timeline given the COVID-19 crisis. We support Treasury continuing to negotiate on these important issues and urge the Inclusive Framework to find areas of consensus that do not unfairly target and discriminate against U.S. companies,” said Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) in a joint statement on Thursday (Jun. 18).
In response to the U.S. decision to withdraw from discussions, French Finance Minister Bruno Le Maire and European Economy Commissioner Paolo Gentiloni signaled their support for national or EU-wide digital levies. U.K. officials signaled their intent to move forward with a digital services tax last week.
“We need an understanding in the global negotiations. If the American stop makes it impossible, a new European proposal will be put on the Commission’s table,” Gentiloni said in a tweet.
On Monday (Jun. 15), the Office of Information and Regulatory Affairs (OIRA) reported that it received final and proposed regulations concerning the limitation on the deduction of business interest under Section 163(j). The office will have 90 days to review the regulations.
On Thursday (Jun. 18), Douglas O’Donnell, head of the Large Business and International Division at the IRS, said the agency plans to examine “several hundred” individuals with business entities to understand how their tax planning has changed since the Tax Cuts and Jobs Act (TCJA). The effort will begin after the July 15 tax filing deadline.
“This campaign is very different from campaigns in the past where we’ve focused on a specific transaction. This is looking at the entirety of a return, giving examiners the authority to look beyond any specific issue,” O’Donnell said on a webcast.
On Wednesday (Jun. 17), the Small Business Administration (SBA) released a shorter application for loan forgiveness under the Paycheck Protection Program. The new form, titled the “EZ” form, was created in consultation with the Treasury Department.
The EZ version of the forgiveness application applies to borrowers that:
- Are self-employed and have no employees; or
- Did not reduce the salaries or wages of their employees by more than 25 percent, and did not reduce the number or hours of their employees; or
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25 percent.
House Appropriations Chairwoman Nita Lowey (D-NY) announced that subcommittee markups on FY21 spending bills will occur July 6 – July 8. Full committee markups will start on July 9 and the full House is expected to vote on the bills the last two weeks of July. Democrats are expected to use the spending bills to offer more coronavirus relief and address police reform.
Spending markups for FY21 were sidelined in the Senate on Wednesday (Jun. 17). Republicans criticized Democrats for causing delays by focusing on topics that they said threaten bipartisan support. Democrats focused on amendments for police reform and additional coronavirus relief.
“Funding the government is a serious responsibility, and I will not allow the appropriations process to be hijacked and turned into a partisan sideshow,” Senate Appropriations Committee Chairman Richard Shelby (R-AL) said in a statement on the issue.
“When my Democratic colleagues decide to return to the Shelby-Leahy framework that produced so much broad bipartisan success in the past, the committee will move forward expeditiously in considering appropriations bills,” he added.
On Thursday (Jun. 18), House Speaker Nancy Pelosi (D-CA) and other committee leaders announced a $1.5 trillion infrastructure package that would provide significant new funding for roads, bridges, highways, transit, clean energy, drinking water, and other priorities.
House Ways and Means Chairman Richard Neal (D-MA) said the package is, “the largest tax investment in combating climate change that Congress has ever made on the renewable front.” Although there is not information available on what those investments are, aides have indicated the renewable provisions will mirror the broad clean energy package known as the “GREEN Act.”
The “GREEN Act” would revisit the terms of the 2015 law that phased down the Production Tax Credit and the Investment Tax Credit, revive energy efficiency credits, and credits for purchasing electric vehicles. The discussion draft from November 2019 would extend the carbon capture and sequestration 45Q credit and extend the master limited partnership tax treatment from fossil fuels to renewables.
Neal said the legislation could be paid for with bonding and deficit spending.
Rodriguez, Sabrina. “U.S. steps away from OECD digital services tax talks.” Politico Pro, 17 Jun. 2020.
The Office of Senator Chuck Grassley, U.S. Senate, “Grassley, Wyden Joint Statement on OECD Digital Economy Tax Negotiations” Press Release, 18 Jun. 2020
“Threat of EU-U.S. trade war grows amid digital tax stand-off.” Politico Pro, 18 Jun. 2020. https://link.edgepilot.com/s/5ed8f10d/VDC2RtN2ek2uPZxMazEt8g?u=https://subscriber.politicopro.com/article/2020/06/threat-of-eu-us-trade-war-grows-amid-digital-tax-stand-off-1953815
Schliep, Theresa. “OMB Reviewing Proposed, Final Biz Interest Expense Rules.” Law360, 16 Jun. 2020.
Faler, Brian. “IRS upping scrutiny of wealthy in wake of TCJA, official says.” Politico Pro, 18 Jun. 2020.
Jagoda, Naomi. “Trump administration releases new PPP loan forgiveness forms.” The Hill, 17 Jun. 2020.
Emma, Caitlin. “Lowey outlines markup schedule for fiscal 2021 spending bills.” Politico Pro, 19 Jun. 2020.
Emma, Caitlin. “Senate spending markups paused amid disputes over pandemic aid, police reform.” Politico Pro, 17 Jun. 2020.
Wolf, Kathryn. “House Readies $1.5T ‘infrastructure’ plan including education, broadband, housing.” Politico Pro, 18 Jun. 2020.