Legislative Activity

Congressional Tax-Writers Press on With Tax Reform Proposals

This week, the House Ways and Means Subcommittee on Tax Policy, chaired by Representative Charles Boustany (R-LA), will hold a hearing to examine Member proposals to improve the current U.S. tax system. This hearing is part of a series of hearings on tax reform and follows the Subcommittee’s most-recent hearing examining cash-flow and consumption-based tax reform proposals. As of now, House Ways and Means Committee Kevin Brady (R-TX), in conjunction with Speaker Paul Ryan’s (R-WI) Tax Reform Task Force, still plans to release a comprehensive tax reform “blueprint” by June. While it is presently unclear the extent to which details from Representative Boustany’s international tax reform proposal will be included in the “blueprint,” it is clear that he has put forth significant effort to prepare his measure and likely has his detailed proposal at the ready, should that level of detail ultimately be appropriate to include in the broader tax reform proposal.

On the Senate side, following a Senate Finance Committee hearing two weeks ago on business tax reform, Senate Finance Committee Chairman Orrin Hatch (R-UT) remains committed to moving forward with his “corporate integration” proposal by the end of June. As Chairman Hatch pushes forward with his efforts (which appear to be delayed – at least in part – as the Chairman awaits a score from the Joint Committee on Taxation (JCT)), it expected that the Senate Finance Committee will soon hold hearings to discuss the concept of corporate integration in greater detail. Senate Finance Committee Ranking Member Ron Wyden (D-OR), however, is focused on rolling out a draft bill dealing with the tax treatment of financial products, while Democrats more broadly are working to address a variety of issues that would make it easier for individuals to navigate the tax Code. Note too, while the Committee continues working toward tax reform, much of Senate tax-writers’ immediate focus will be on resolving the debate over how to address the solvency concerns related to the United Mine Workers of America’s pension plan.

This Week’s Hearings:

• May 12: The House Ways and Means Subcommittee on Tax Policy will hold a hearing to examine Member proposals to improve the U.S. tax system

Regulatory Activity

Administration Focuses on International Tax Policy Issues

On Friday, May 13, the Internal Revenue Service (IRS) will hold a public hearing on proposed regulations that would require annual country-by-country (CbyCR) reporting by U.S. companies that are the ultimate parent entity of a multinational enterprise group with annual revenue for the preceding annual accounting period of $850,000,000 or more. The IRS is currently expected to finalize the proposed regulations by the end of June. From a legislative perspective, Congress continues to examine domestic CbyCR implementation. Leading the charge is Representative Boustany, whose legislation (BEPS Act) to delay U.S. implementation of CbyCR reporting may well require certain revisions in light of the IRS’ proposed rules.

Separately, surrounding the annual meeting of the American Bar Association’s Section of Taxation, the IRS has made several announcements related to international tax regulations. First, as the IRS moves to finalize recently-proposed “earnings stripping” regulations, regulators are looking into providing an exception for cash pooling arrangements that involve routine, daily “sweeps” of cash; there is also debate whether debt issued by a partnership to a consolidated group would be subject to the substantiation requirements in the proposed rules. Separately, the IRS has issued proposed regulations to treat a domestic disregarded entity wholly owned by a foreign person as a domestic corporation separate from its owner for “limited purposes.” According to the IRS, these changes “are intended to provide the IRS with improved access to information that it needs to satisfy its obligations under U.S. tax treaties, tax information exchange agreements and similar international agreements, as well as to strengthen the enforcement of U.S. tax laws.”

Finally, on Friday, May 6, President Obama urged Senator Rand Paul (R-KY) “to stop blocking the implementation of tax treaties that have been pending for years.” Senator Paul, who is currently blocking eight tax treaties that were approved in late 2015 by the Senate Foreign Relations Committee over privacy concerns, has yet to give any public indication that he will allow remove his objections to the treaties.