Legislative Activity

With Tax Extenders (Mostly) Behind Them, Tax-Writers Likely to Focus on International Tax Reform

With Congress (somewhat unexpectedly) having enacted permanent tax extender legislation prior to adjourning the first session of the 114th Congress, tax-writers are now expected to move forward with their efforts on international tax reform – though the substance and approach to such reforms have not yet been determined.

On the House side, Ways and Means Committee Republicans are scheduled to hold their retreat on January 25, during which time they will determine whether to move forward with a draft of comprehensive tax reform this year. According to Chairman Brady, “[w]e’re advancing tax reform, one or more ways, in 2016… good tax policy is going to blossom, and we’re going to have a chance to give [tax reform] oxygen over 2016 and 2017.” Moreover, with Speaker Paul Ryan’s (R-WI) support for international tax reform, the Ways and Means Committee will likely – at a minimum – hold hearings on the issue, potentially releasing draft legislation later this year. Nevertheless, while Speaker Ryan has suggested that he wants to “go big on ideas” this year, aides have suggested that with the 2016 Election in the offing, there is a high likelihood that the lack of legislative days may impede a vote on any legislation that is ultimately released.

In the Senate, Majority Leader Mitch McConnell (R-KY) continues to express his preference that Congress pursue comprehensive tax reform, rather than taking a piecemeal approach and tackling international tax reform separately. “My own view,” Leader McConnell noted, “is we need to do comprehensive tax reform.” Nevertheless, others in the Senate – namely Senate Finance Committee members Chuck Schumer (D-NY) and Rob Portman (R-OH) – have helped lay the framework for international tax reform. And, as Chairman Brady mentioned when discussing the prospects for reform, “[t] hose who were at the table, stayed at the table, trying to find constructive common ground.”

Congress Takes on BEPS Reporting Requirements

Following the release last month by Treasury of regulations implementing country-by-country (CbC) reporting requirements as outlined in the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project, Representative Charles Boustany (R-LA) has introduced H.R. 4297, the BEPS Act, which would:

  • Delay CbC reporting of U.S. companies from the Treasury Department to any foreign jurisdiction until 2017;
  • Establish that if a foreign jurisdiction abuses master file documentation requirements or fails to safeguard the confidentiality of information in the master file, Treasury will suspend further reporting to that nation; and
  • Clarify that abuse of master file documentation requirements means instances where a foreign jurisdiction requests information deemed “inappropriate” by Congress to request

While the Obama Administration is “fully committed to implementing the [BEPS] Project” – of which the proposed CbC reporting requirements are an “important step” – Congress remains opposed to the regulations and are challenging Treasury’s authority to require the reporting. According to Chairman Brady, “[n]ew country-by-country reporting requirements on U.S. companies must be limited and should not make it even harder for our companies to compete.”  While Chairman Brady has promised to “closely review” the CbC regulations in particular, it is expected that the BEPS Project will continue to receive growing attention in Washington in the coming months, especially as Republican tax-writers determine their next steps for international tax reform.

Regulatory Activity

IRS to Hold Hearing on Section 871(m) Rules, Withdraws Charity Reporting Rules

The Internal Revenue Service (IRS) will hold a meeting on Friday, January 15, to discuss rules for determining when a payment made pursuant to certain financial products will be treated as a dividend equivalent for purposes of section 871(m).

Separately, last Friday, January 8, the IRS announced that it is withdrawing proposed regulations that would have required charities to request additional information from donors, including Social Security numbers, to substantiate contributions of $250 or more.

Treasury Still Focused on Inversions

With Congress having failed to move forward with international tax reform in 2015, the Treasury Department recently announced that it is continuing to examine various ways to curb the practice of corporate tax inversions. Specifically, officials are seeking to put out guidance related to earnings stripping – something the Treasury initially suggested it would do when issuing the first round of anti-inversion guidance in September 2014. While the exact timing of additional guidance is uncertain, Treasury is expected to issue regulations implementing its previous anti-inversion guidance (September 2014 and November 2015) in the early part of this year.