Tax News & Views International Weekly: Reconciliation and International Taxes

With the threat of a government shutdown out of the way – at least for now – Congress is turning its focus to the budgetary process under reconciliation, including potential legislation to extend expiring provisions in the Tax Cuts and Jobs Act. If enacted, it would be the most sweeping tax legislation in nearly a decade. But it won’t actually affect the international tax code as much as other parts, because most of that was made to be permanent, and it has proven to be a durable framework that most lawmakers don’t want to scramble.

But there are many ways it could make some substantial changes in that area, which multinational taxpayers should pay attention to.

Among the biggest possible new provisions are retaliatory measures against foreign taxes enacted under the Organization for Economic Cooperation and Development's Pillar Two 15% global minimum tax. The Trump administration has already threatened to use existing laws to retaliate against taxpayers from countries which use Pillar Two taxes to target U.S. companies, and many Republicans in Congress have proposed legislation to target the OECD plan more formally. These wouldn’t raise much new revenue, but they could be included to make a statement, and would potentially put more companies in the crossfire.

While the TCJA’s international provisions won’t go away at the end of 2025, many of them are set to increase their tax rates. The deductions for global intangible low-taxed income and foreign-derived intangible income will both shrink, and the rate of the base erosion and anti-abuse tax will rise. The new GILTI rate of 13.125% would still be lower than the 15% global minimum tax mandated by the OECD, but it’s still a hike.

There are other areas where the international aspects are in the details. Take amortization. The TCJA temporarily gave businesses the ability to immediately realize R&D costs, but switched to an amortization schedule in 2022. That included a 5-year schedule for domestic costs, and a 15-year schedule for foreign R&D costs – the first time the treatment of R&D was split across country lines. A bipartisan tax agreement passed by the House of Representatives would have temporarily restored immediate R&D expensing for domestic costs, but not foreign. That bill died in the Senate, but if lawmakers are pressed to cut costs from the final package, a slower schedule for foreign R&D might be something they consider. And if it’s made permanent, this bifurcation could become a major new aspect of the federal tax code.

Pillar Two Optimism?

While Republicans in the U.S. are eager to bury Pillar Two once and for all, across the pond officials still see a future for the project.

EU Tax Commissioner Against Throwing Pillar 2 ‘in the Dustbin’ – Elodie Lamer, Tax Notes ($):

As some EU member states and businesses ratchet up the pressure to put pillar 2 on pause amid global tax and trade tensions, EU Tax Commissioner Wopke Hoekstra said the bloc should stand its ground.

OECD Chief 'Confident' of Resolution to Minimum Tax Deal Impasse – Saim Saeed, Bloomberg Tax ($):

Speaking at the EU Tax Symposium at the European Parliament on Tuesday, OECD chief Mathias Cormann said “I’m quietly confident that there is scope for a pragmatic and constructive resolution of the issues at hand.”

More Tariff Analysis

Canadian Tariffs and Cross-Border Taxes: Opportunity for a Reset – Mindy Herzfeld, Tax Notes ($):

But while the stated justification for the now-delayed tariffs — Canada’s failure to curtail exports of fentanyl to the United States — has been subject to much skepticism, many international tax practitioners and U.S. companies with operations in Canada might disagree with Trudeau’s characterization of Canadians as reasonable and polite, at least regarding cross-border tax. For over a decade, Department of Finance Canada and the Canada Revenue Agency have taken aggressive and extraterritorial positions in their efforts to extract more revenue for the Canadian treasury from U.S. multinationals. Some of those efforts have been public; others less so.

OECD Report Highlights Slow Growth Due To Tariff Impact – Josh White, Law360 Tax Authority ($):

The OECD said it expects global economic growth to stall and fall from 3.2% to 3% by 2026, as a result of the trade wars between the U.S. and its two closest neighbors. At the same time, the OECD report made the case for fiscal discipline, including a greater focus on indirect taxes, to curtail the rise of government debt around the world.

Liberty Global Case

Liberty Global Met With Skepticism in Foreign Tax Credit Appeal – John Woolley, Bloomberg Tax ($):

A Tenth Circuit judge expressed wariness Monday of Liberty Global Inc.'s arguments for revival of its disallowed foreign tax credit claim on gains from a Japanese stock sale.

Judges Grill Liberty Global on Sourcing Limit in FTC Dispute – Michael Smith, Tax Notes ($):

McHugh agreed that the situation “makes no sense” and asked Hagley how section 904 interacts with LGI’s request to the court to “put our blinders on and look at the plain language of the regulations.”

Other noteworthy items from last week —

Latin America and the Caribbean’s Rise in Tax Cooperation – Nana Ama Sarfo, Tax Notes ($):

Tax progressivity is an important topic for LAC countries, considering that governments across the region largely rely on consumption taxes for revenue, which are generally regressive. In the region, about 48 percent of total taxes are derived from indirect measures, according to the most recent Latin America Economic Outlook report. This is starkly different from the tax breakdown in OECD countries, where income taxes predominate (note that some of the OECD’s 38 member states are classified as LAC countries).

US Rebuffs Claim of Sharing Tax Data With Immigration Officials –Tristan Navera, Bloomberg Tax ($):

Two Chicago-based immigrant aid nonprofits haven’t justified their request for a court order preventing the US government from leveraging taxpayer information for deportations, lawyers for the Justice Department said.

The IRS hasn’t received any requests for tax return information as part of stepped-up immigrant enforcement efforts under the Trump administration, lawyers from the department’s tax division said in a legal filing March 17. The federal tax agency also hasn’t released any information to the Department of Homeland Security, the filing said.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Lady Luck

Lady Luck

Debut Year:1940

Creators: Will Eisner, Dick French and Chuck Mazoujian

Debut Publication: The Spirit Section newspaper comic strip

Origin Story: A bored socialite and debutante who decided to become a masked crime-fighting vigilante in the mold of Robin Hood.

Superpowers: No superpowers but plenty of wit, resources, moxie, and—one assumes—luck.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: Reconciliation and International Taxes

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