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Tax Update (July 13)

Jul 13, 2020 | SHARE  
Regulations
 
On Thursday (Jul. 9), the Internal Revenue Service (IRS) and the Treasury Department issued final regulations on global intangible low-taxed income (GILTI) deductions and foreign-derived intangible income (FDII). The finalized regulations allow individuals to elect for corporate treatment and receive 50 percent deductions on income determined to be GILTI.
 
The regulations will go into effect 60 days after they are printed in the Federal Register.[1]
 
On Thursday (Jul. 2), the IRS issued new temporary regulations related to net operating losses in the CARES Act. Additionally, the IRS released proposed regulations on net operating losses in the Tax Cuts and Jobs Act.[2]
 
 
U.S. Announces Tariffs on France 
 
On Friday (Jul. 10), the Trump Administration announced 25 percent tariffs on a series of French goods worth about $1.3 billion. The move is in retaliation for a French digital services tax that would largely impact American technology companies.
 
The Office of the U.S. Trade Representative (USTR) said it would delay implementation of the levies for up to 180 days because France has not yet started collecting its digital services tax.
 
The administration is also allowing more time for discussions on a global deal at the Organization for Economic Cooperation and Development (OECD). 
 
Item’s targeted by the new tariffs include French cosmetics, soaps, and handbags. Notably absent from the list are French wines, cheeses, and cookware.[3]
 
To view USTR’s Notice of Action, click here.
 
On Friday (Jul. 10), the European Union (EU) urged the U.S. to return to negotiations at the OECD, but said it was ready to make a new proposal at the EU if talks failed.[4]
 
 
Digital Tax
 
European Council President Charles Michel presented the latest budget proposal for the European Union (EU). The budget proposal indicates that the European Commission will outline a digital services tax proposal by early 2021. The goal would be to introduce the tax no later than January 1, 2023. The budget will be discussed by EU leaders at a July 17-18 summit in Brussels.[5]
 
 
Tax Credit Proposals
 
This week, lawmakers indicated bipartisan support for various proposals to offer businesses tax credits to help acquire supplies to be able to safely reopen.
 
Senators Kevin Cramer (R-ND) and Kyrsten Sinema (D-AZ) announced a proposal which would offer a two-year credit against payroll taxes. Sinema said she would like to see their bill included in the next COVID-19 stimulus package.[6]
 
Senator Ted Cruz (R-TX) proposed legislation, S. 3966, that would provide a tax credit for biweekly health screening tests for businesses.
 
Representative Brenda Lawrence’s (D-MI) proposed bill, H.R. 7216, would provide tax credits for personal protective equipment (PPE) for small businesses. Her legislation currently has 28 Democratic cosponsors and six Republican.[7]
 
House Ways and Means Republicans have introduced multiple bills that provide tax incentives to encourage development of new therapies and cures and strengthen the domestic supply chain. Representative Mike Kelly (R-PA) introduced the “Infectious Disease Therapies Research and Innovation Act” which amends the current passive loss rules in the tax code to help create earlier investment and strengthen research in critical therapies and vaccines.
 
 
Stimulus
 
On Thursday (Jul. 9), House Speaker Nancy Pelosi (D-CA) said the Trump administration’s idea to limit the next COVID-19 stimulus package to $1 trillion would “not be enough.”
 
“We need a trillion dollars for state and local. We need another trillion dollars for unemployment insurance, and direct payments,” Pelosi said.
 
On Monday (Jul. 6), Senate Majority Leader Mitch McConnell (R-KY) indicated he would support another round of stimulus checks going to individuals earning $40,000 or less a year. Pelosi said the decision to limit checks to those individuals will need to be “explained and justified.”
 
Treasury Secretary Steven Mnuchin said on Thursday (Jul. 9) the White House is supportive of another round of stimulus checks and said they will discuss with the Senate “the level and criteria.”
 
“As soon as the Senate gets back, we’re going to sit down on a bipartisan basis with the Republicans and the Democrats and it will be our priority to make sure between the 20th and the end of the month that we pass the next legislation,” Mnuchin said.[8]
 
 
IRS
 
House Democrats published their spending proposal for the IRS on Tuesday (Jul. 7) that would provide the agency with $12.1 billion for FY 2021. The proposal includes an extra $100 million on top of the $12 billion the White House requested. The total amount includes additional funds for the primary IRS categories; including $5.2 billion for enforcement and $4.1 billion for operations support. Taxpayer services would get $2.6 billion, and $250 million would be reserved for business systems modernization.[9]
 
 
References
 
[1] Parker, Alex. “Treasury Eases Export Deduction Documentation Rules.” Law360 Tax Authority, 9 Jul. 2020.
 
[2] Lorenzo, Aaron. “IRS releases updated rules on net operating losses.” Politico Pro, 2 Jul. 2020.
 
[3] Tankersley, Jim. “U.S. Will Impose Tariffs on French Goods in Response to Tech Tax.” New York Times 10 Jul. 2020.
 
[4] Shalal, Andrea. “EU urges U.S. to return to negotiations at OECD on digital taxes.” Reuters, 10 Jul. 2020.
 
[5] Heikkila, Melissa & Braun, Elisa. “EU looks to introduce digital tax by 2023.” Politico Pro, 10 Jul. 2020.
 
 
[7] Ota, Alan. “Biz Backers Plan Push For Tax Aid On Virus Tests, Upgrades.” Law360 Tax Authority 25 Jun. 2020.
 
[8] Ferris, Sarah. “Pelosi rejects White House’s $1T price tag for pandemic relief.” Politico Pro, 9 Jul. 2020.
 
[9] Lorenzo, Aaron. “Uptick in IRS funding for fiscal 2021 clears subcommittee.” Politico Pro, 8 Jul. 2020.
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