Tax Update (July 20)
Director of the Tax Policy and Administration Center at the Organization for Economic Cooperation and Development (OECD), Pascal Saint-Amans, said he plans to have blueprints for Pillar One and Pillar Two of a global tax agreement by this October. Additionally, Saint-Amans was hopeful for a potential deal on Pillar Two before the end of this year.
“Politically we hope that if there is no agreement this year on Pillar One, there could be an agreement on Pillar Two,” Pascal Saint-Amans said.
Previously, the OECD aimed to have a deal done by July. In June, Treasury Secretary Steven Mnuchin said he wanted to pause negotiations at the OECD.
On Monday (Jul. 13), a senior European Commission official said the Commission is ready to wait to release a digital services tax plan until after the OECD reaches an agreement. Previously, the Commission indicated it would release a plan if the OECD did not reach an agreement on a digital services tax by the end of the year. Director of the Commission’s Tax Department, Benjamin Angel, explained due to COVID-19 and the U.S.’s hesitation to reach a deal before the 2020 election, negotiations have slowed.
“The Commission prefers a global agreement with two pillars, as the EU moving ahead alone will lead to technical difficulties and renewed trade tensions,” Angel said in a hearing with the European Parliament’s Economic Affairs Committee.
Apple Tax Case
On Wednesday (Jul. 15), the EU General Court overturned the landmark decision from 2016 that said Ireland would have to recoup €13 billion in unpaid taxes, plus interest, from Apple. The EU’s competition czar Margrethe Vestager has led the Union’s crackdown on tax avoidance in countries offering tax breaks to international corporations. Currently, both France and Germany are increasing their attacks on the EU’s competition enforcement. The two countries hope to level the playing field for EU-based countries to rival U.S. and Chinese companies.
At this point, Vestager now faces the decision of whether or not to appeal the ruling. On Thursday (Jul. 16), she said, “we will decide on next steps once we have concluded our assessment of the judgment.”
The Competition Commission hSALTas two months to file an appeal that would block the billions and force them into an escrow account until a final decision.
Prior to the court’s overturning, Irish Minister for Enterprise Leo Varadkar predicted, “no matter what the judgment is, this case will almost certainly be appealed by one party or another to the European Court of Justice.”
Senate Republicans will likely release their COVID-19 relief proposal next week. The legislation is expected to cost around $1 trillion as opposed to the $3 trillion Democratic stimulus bill, the HEROES Act, passed back in May. Senate Majority Leader Mitch McConnell (R-KY) said he will prioritize liability protection for employers, school reopening, jobs, and healthcare in the next stimulus bill.
House Speaker Nancy Pelosi (D-CA) emphasized that $1 trillion will not be enough for the next stimulus package and that more spending is needed to help with the impact of COVID-19. A key point of disagreement between Republicans and Democrats is on the extension of unemployment insurance, and Republicans have argued that it has disincentivized people from going back to work.
On Tuesday (Jul. 14), Senate Minority Leader Chuck Schumer (D-NY) said in a press conference he is pushing McConnell to lift the cap on state and local tax (SALT) deductions in the next COVID-19 stimulus package. The HEROES Act included a provision that lifted the SALT cap for two years, however, it is unlikely Republicans will include a similar provision.
Payroll Tax Cut
President Trump has signaled to Republicans on the Hill he will not sign another COVID-19 stimulus package unless it includes a payroll tax cut, according to three sources familiar with the issue. Additionally, Vice President Mike Pence has also been pushing Republican lawmakers for a payroll tax cut. Trump has advocated for a payroll tax cut the last few months.
On Thursday (Jul. 16), Rep. Tom Rice (R-SC) introduced legislation that offers tax credits to help businesses with costs related to safely reopening. Rice’s legislation, the Healthy Workplace Tax Credit, would provide a refundable tax credit against payroll taxes for 50 percent of the cost related to COVID-19 tests, personal protective equipment (PPE), cleaning, and workspace reconfiguration. The bill was introduced in addition to Rep. Darin LaHood (R-IL) legislation that provides tax credits to help with cleaning costs.
“It’s important we reconnect workers to jobs and prevent more business closures. Our healthy workplace tax credit will support businesses as they reopen by incentivizing them to take extra precautions to protect the health of patrons and employees,” Rice said in a statement.
In its annual IRS funding bill, the House Appropriations Committee included a report asking the Treasury Department for more information on companies and individuals that relocate to Puerto Rico to avoid taxes.
Democrats on the committee hope to quantify the amount individuals save in taxes by moving to the island in hopes of making it a domestic jurisdiction for tax purposes. Some Democratic lawmakers have expressed concern over Puerto Rico serving as a tax haven inside the U.S. Currently, Puerto Rico has its own tax laws and residents do not pay U.S. federal taxes. Democrats requested some of the same information last year, but a report has yet to be released.
 Gottlieb, Isabel & Gardner, Stephen. “OECD Hoping for ‘Blueprints’ of Digital Tax Plan by October” Bloomberg Tax, 13 Jul. 2020. https://link.edgepilot.com/s/e1519ca0/LvS57UAZHUKOCtpI828SGA?u=https://news.bloombergtax.com/daily-tax-report/oecd-hoping-for-blueprints-of-digital-tax-plan-by-october
 Heikkila, Melissa. “EU to wait until after 2020 to roll out digital tax to avoid trade tensions.” Politico Pro, 13 Jul. 2020. https://link.edgepilot.com/s/cc051867/mwEZ0MiUBUCjv7AzOALLUA?u=https://subscriber.politicopro.com/article/2020/07/eu-to-wait-until-after-2020-to-roll-out-digital-tax-to-avoid-trade-tensions-3982442
 Van Dorpe, Simon & Oliver, Christian. “Defeat on €13B Apple tax bill delivers big blow to EU’s Vestager.” Politico Pro, 15 Jul. 2020. https://link.edgepilot.com/s/4723eb57/6gmHdS0ZIkSnfd9mdYLiHg?u=https://subscriber.politicopro.com/article/2020/07/defeat-on-13b-apple-tax-bill-delivers-big-blow-to-eus-vestager-1965409
 Van Dorpe, Simon. “Europe’s Apple dilemma: To appeal or not to appeal.” Politico Pro, 16 Jul. 2020. https://link.edgepilot.com/s/f5737fff/IXnYnhvyh0OA92-yIi4JvQ?u=https://subscriber.politicopro.com/article/2020/07/europes-apple-dilemma-to-appeal-or-not-to-appeal-1965747
 Levine, Marianne, Caygle, Heather, & Bresnahan, John. “Pelosi and McConnell hurtling toward coronavirus relief showdown.” Politico Pro, 15 Jul. 2020. https://link.edgepilot.com/s/ea99ae11/S_798qxtCkGG9MivrWWnVw?u=https://subscriber.politicopro.com/article/2020/07/pelosi-and-mcconnell-hurtling-toward-coronavirus-relief-showdown-1965654
 Jagoda, Naomi. “Schumer pushes for elimination of SALT deduction cap in next coronavirus relief bill.” The Hill, 14 Jul. 2020. https://link.edgepilot.com/s/4c14e7d0/P2r1VwGCSUWdwSfBqjaZog?u=https://thehill.com/policy/finance/507382-schumer-pushes-for-elimination-of-salt-deduction-cap-in-next-coronavirus
 Bresnahan, John & Sherman, Jake. “Trump demands payroll tax cut in next Covid relief bill.” Politico Pro, 16 Jul. 2020. https://link.edgepilot.com/s/f46b89f8/95xXvBmCj0izRSYDTaugiw?u=https://subscriber.politicopro.com/article/2020/07/trump-demands-payroll-tax-cut-in-next-covid-relief-bill-1966186
 Gangitano, Alex. “House Republican introduces bill to provide tax credit to businesses for PPE.” The Hill, 16 Jul. 2020. https://link.edgepilot.com/s/0a3844b1/6_iCOhi-AEitmgCe5aMHeQ?u=https://thehill.com/homenews/house/507570-house-republican-introduces-bill-to-provide-tax-credit-to-businesses-for-ppe
 Faler, Brian. “House appropriators step up scrutiny of Puerto Rico’s tax system.” Politico Pro, 15 Jul. 2020. https://link.edgepilot.com/s/fbeb7487/OKOyBKxNWU_8pGnv4HA2DA?u=https://subscriber.politicopro.com/article/2020/07/appropriators-step-up-scrutiny-of-puerto-ricos-tax-system-3982542