United States: Tax Policy Update - June 09, 2015

NUMBER OF THE WEEK: 61. The number of countries that have signed on to implement the OECD’s multilateral agreement for the automatic exchange of tax information, in conjunction with the ongoing Base Erosion and Profit Shifting (BEPS) project. Although the U.S. has committed to implement the standard, it has not yet signed onto the formal agreement (the “multilateral competent authority agreement”), which lays out in detail what information will be exchanged, the timing and method of exchange, and how signatories will work together to ensure compliance. Signatories to the agreement will begin exchanging information as early as 2017. Additionally, the OECD released on June 8 its “Country-by-Country Reporting Implementation Package” developed under the BEPS Action Plan. Under the plan, which the Treasury Department has said it will implement for the 2016 fiscal year, multinational companies are required to aggregate and report information annually regarding where they do business, the global allocation of income, and amount of taxes paid, along with other information that will allow taxing authorities to more closely examine multinationals’ tax practices. The release of the package coincides with the 2015 OECD International Tax Conference in Washington, D.C., this week where OECD representatives are expected to review and discuss key initiatives under BEPS.

LEGISLATIVE LANDSCAPE

House to Vote on Permanent Internet Tax Ban. A bill to permanently prohibit state and local governments from taxing access to the internet is up for consideration in the House today, where it is expected to easily pass. But the bipartisan support for the Permanent Internet Tax Freedom Act (H.R. 235), introduced by Congressman Bob Goodlatte (R-VA), will soon turn to bipartisan bickering over a related internet tax bill simmering on the backburner that would allow states to require remote internet retailers to collect state sales taxes for online purchases. Rep. Jason Chaffetz (R-UT), is expected to soon introduce legislation to that effect, despite opposition from his party’s leader in the House, Speaker John Boehner (R-OH). In the Senate, a similar bill, the Marketplace Fairness Act, was attached to the ban on internet access taxes last year and passed, but was never taken up by the House. We expect to see efforts again this year to link the two internet tax bills in the Senate before the current ban on internet access taxes expires Oct. 1.

SPOILER ALERT: Comprehensive Tax Reform Unlikely in 2015. In an interview last week, Senate Majority Leader Mitch McConnell (R-KY) outlined a busy legislative agenda between June and August recess: passing a highway bill, cybersecurity legislation, No Child Left Behind, and the Toxic Substances Control Act. Tax reform, however, is conspicuously missing from the list. “We’re certainly not going to be able to be doing big, comprehensive tax reform with this president,” McConnell said. Tax reform optimists have been eyeing the highway reauthorization bill as a potential vehicle to move a limited set of tax reform measures, but according to McConnell, the bill might instead be better suited to pick up a different legislative passenger—the reauthorization of the Export-Import Bank. McConnell believes the highway bill would provide the best opportunity to reauthorize the bank, which is set to expire June 30.

The inability of the Senate Finance Committee Tax Reform Working Groups to meet their original May 31 deadline to report recommendations to Chairman Orrin Hatch (R-UT) and ranking member Ron Wyden (D-OR) only adds to the general pessimism. The international tax working group may offer the only glimmer of hope, with reports that it has made the most progress in hammering out detailed recommendations. The working groups are now aiming to deliver their reports before Congress departs for the July 4th recess.

Interest Reporting Provision Sneaks into Trade Bill. A provision that would require financial firms to report interest earned on all accounts has caught the banking industry by surprise after it was included as an offset in the Senate’s version of the Trade Preferences Extension Act of 2015. The provision would remove the $10 reporting threshold under Section 6049 of the tax code and would raise a scant $90 million over 10 years. In a letter to House Speaker John Boehner and Senate Majority Leader Mitch McConnell, the Securities Industry and Financial Markets Association (SIFMA) estimates that it would cost the financial sector $700 million in administration expenses to comply with the additional reporting requirement. The House has not yet taken up the Senate’s version of the trade bill.

REGULATORY WORLD

EU Plows Ahead With Tax Probes. The European Union is continuing to ramp up its investigations into tax agreements its member nations have made with multinational corporations, looking for possible violations of its prohibition against “state aid.” The Wall Street Journal reported June 8 that the investigations “could lead to sizable demands for back-tax payments.” In addition to specific tax rulings issued by EU member nations, the European Commission recently announced it is seeking public comments on its investigation of Belgium’s “excess profits” tax system, which the EC has indicated could amount to illegal state aid.

IRS Expands Preapproved Retirement Plan Program. The Internal Revenue Service announced June 8 it is opening up opinion and advisory letters for preapproved plans to include hybrid defined benefit plans and employee stock ownership plans. Revenue Procedure 2015-36 also delineates additional requirements hybrid and ESOP plans.

LOOKING AHEAD

Tuesday, 6/9

Retirement Security Summit: The Evolving Social Contract
The Center for State and Local Government Excellence hosts the Retirement Security Summit – topics include retirement income trends, pension reforms, retirement savings, and the new social contract with employees. Read more here.

Wednesday, 6/10

House Ways and Means Committee
The full committee holds a hearing on the implementation of Obamacare and the FY 2016 budget request from the Department of Health and Human Services.

2015 OECD International Tax Conference – Washington, DC
This conference provides a unique opportunity for the U.S. business community to interact with key representatives from the OECD Centre for Tax Policy and Administration and senior tax officials from the U.S. and other key countries involved in the OECD/G-20 BEPS project. Read more here.

Hudson Institute
The Hudson Institute holds a discussion on “The Health Care Excise Tax.” Read more here.

American Enterprise Institute
AEI holds a discussion on “To Tax or Not to Tax,” focusing on the American Opportunity Carbon Fee Act – with special guest Senator Sheldon Whitehouse (D-RI). Read more here.

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