United States: Tax Policy Update - June 2, 2014

Last Updated: June 5 2014
Article by Russell W. Sullivan and Danielle R. Dellerson

NUMBER OF THE WEEK: $600 billion

The approximate amount of revenue lost over 10 years, according to the Joint Committee on Taxation, from permanently extending "bonus depreciation" and the research and development tax credit — both of which have passed in the House without offsets, while the Senate's efforts to pass a two-year extension of nearly all of the expired extender tax breaks have stalled.


House: Ways & Means Reports Out Permanent Bonus Depreciation, Charitable Extenders.

The House Ways & Means Committee on May 29 marked up and favorably reported out six tax bills, including a nearly $300 billion proposal to permanently extend the currently expired "bonus depreciation" provision, which allows businesses to write off 50 percent of certain capital investments right away.

The committee also voted to permanently extend three currently expired "extender" provisions related to charitable contributions. All of the bills passed along party lines, with Democrats voting against the measures due to their lack of offsets and disagreement with Chairman Dave Camp's approach. Democrats unsuccessfully sought to offer amendments limiting the provisions to two years and offsetting the costs associated with some of the provisions. The amendments were ruled nongermane and were thus not considered. The results of the markup are available here.

The committee's next extenders-related markup has not yet been announced, but we expect to see the House's piecemeal approach to extenders continue into the summer.

Senate: No Progress on Amendment Negotiations for Extenders Package

After the Senate failed to overcome a procedural hurdle to a vote on its extenders package, some held out hope that negotiations between Democrats and Republicans could nevertheless produce agreement on a set of amendments to attach to the bill. Republicans, upset that they were not given a chance to introduce and debate amendments on the Senate floor, voted against a measure to end debate on the bill that would have allowed a vote on the package itself. Senate Finance Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) are reportedly still negotiating over amendments, but talks appear to be languishing. Republicans seem unwilling to give up on an amendment that would repeal the medical device tax enacted under the Affordable Care Act, a nonstarter for Democrats. Read more here. We expect to see some attempt to revive discussions this week as the Senate returns from a weeklong recess.

Murphy Calls For Gas Tax Increase in Highway Funding Bill. Sen. Chris Murphy (D-CT) used last week's recess to promote a two-step gas tax increase over the next two years in an effort to keep the Highway Trust Fund from going broke. Murphy said the gas tax should be increased and indexed to inflation, citing "political cowardice" in the House and Senate for failing to raise the tax since 1993. The current funding bill expires after September but the Highway Trust Fund could reach the point of insolvency sooner, possibly in August, according to a report from Bloomberg BNA.


Treasury Official Gives Insurance Industry a 'Heads Up.' The U.S. insurance industry is on notice that the international base erosion and profit shifting (BEPS) project recommendations, due out this fall, could have some harmful impacts on the industry, according to Deputy Assistant Treasury Secretary for International Tax Affairs Robert Stack. Stack told the Federal Bar Association's annual insurance tax seminar on May 30 that insurance companies should be thinking about the tax profile in their industry and how some of the BEPS concepts "can rear their head" in the insurance area, according to a report by Bloomberg BNA. The BEPS project is an initiative of the Organisation for Economic Co-operation and Development (OECD) with a goal of establishing global standards on tax treaty abuses, treatment of intangibles and country-by-country reporting by September 2015.

OECD Comes to Washington. Officials from the OECD will meet in Washington, D.C., today and tomorrow for its annual international tax conference. Panels will focus on the organization's BEPS project and other initiatives and will include speakers from business, the OECD and the U.S. government. Key topics will include transfer pricing of intangibles, country-by-country reporting and the Foreign Account Tax Compliance Act (FATCA), among others. A full agenda is included below in the "Looking Ahead" section. Ahead of the conference, the Business Roundtable submitted a letter to U.S. Treasury Secretary Jack Lew airing its concerns over the OECD's BEPS project and its potential interference with U.S. tax reform efforts.

FASB and IASB Release New Revenue Recognition Standards. The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) issued sweeping new rules on May 28 on how companies and nonprofit entities should recognize revenue. Public companies will start to apply the new rules in January 2017. Nonpublic entities will have a year longer to shift to the fresh standard. Commercial sectors that IASB and FASB believe are to see the most change in how revenue is reported include asset management, computer software, telecommunications, construction and real estate. The updates to the accounting standards can be viewed here.


Companies Not Fazed by Anti-Inversion Legislation. Despite recent legislative efforts by Democrats in Congress, companies are continuing to plan so-called inversions, cutting their tax bills by moving their legal tax headquarters outside the U.S. through mergers with companies in lower-tax countries, according to a report by Bloomberg. Without any Republican support, companies are not taking the anti-inversion legislation seriously, according to the Bloomberg story. Read more about the anti-inversion legislation introduced in May in the Senate here, and in the House here.

High Court to Hear Tax Dispute. The U.S. Supreme Court agreed on May 27 to decide the scope of a state's power to tax residents' income when those earnings have already been taxed by another state. States generally allow residents to take tax credits on income earned in and taxed by other states. The case, Maryland Comptroller v. Wynne, however, involves tax rules in Maryland requiring the state to collect taxes on residents' income for use at the county level, even if that income has been taxed elsewhere. A state court ruled Maryland's income tax law was an unconstitutional burden on interstate commerce.


House and Senate. House members have a district work period this week as the Senate returns from a weeklong recess. Much of the Senate's floor time will be taken up with debates and votes on nominations. There are no tax-related hearings on the Hill this week.

OECD International Tax Conference. The conference begins today and continues through tomorrow, June 3. The full conference agenda is available here, and some highlights are included below.

  • Key Topics:

    • Base Erosion and Profit Shifting including:
    • Transfer Pricing – Intangibles
    • Country-by-Country Reporting
    • Digital Economy
    • Treaty Abuse
    • Hybrids
    • FATCA and the Common Standard for Automatic Exchange of Information
  • Featured Speakers:

    • Keynote Speech by John Koskinen - Commissioner of the Internal Revenue Service
    • Mr. Masatsugu Asakawa - Chair of the OECD Committee on Fiscal Affairs, Deputy Vice Minister for Policy Planning and Co-ordination, Ministry of Finance, Japan
    • Pascal Saint-Amans - Director of the Center for Tax Policy & Administration, OECD
    • Grace Perez-Navarro - Deputy Director of the CTPA, OECD
    • Marlies de Ruiter - Head of Tax Treaty, Transfer Pricing, and Financial Transactions Division, OECD
    • Achim Pross - Head of International Cooperation and Tax Administration, OECD
    • Joseph Andrus - Head of Transfer Pricing Unit, OECD
    • Jesse Eggert - Senior Advisor, BEPS Project, OECD
    • Senior Treasury and Foreign Tax Policy Officials

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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