The Consolidated Appropriations Act, 2021 (CAA) and OIRA have advanced interesting developments for early 2021.
New Section 163(j) interest regulations have not yet been posted on the IRS website, thereby this fact is significant for calendar-year taxpayers as they will not have to diligently read, and strategize, such information for year-end 2020, dependent upon the approach to evaluation of new legislation and timing.
Additionally, the exceptions to related party payments for Section 954(c)(6) have been extended for 5 years in the CAA. This is a new, and welcome, certainty provision for multinationals. Most importantly, this provision may also add in scheduling future taxable income to evaluate positive and negative evidence for affixing a Valuation Allowance on deferred tax assets that will reverse in the future.
The Employee Retention Tax Credit has also been extended, and liberalized, for the first two quarters of 2021.
As of 1/1/2021, the TP Master File and Local File are required to be submitted to the tax authorities within 60 days after filing the tax return, with daily penalties imposed for not meeting the timeline.
The permanent establishment (PE) rules are also being modified: the PE definition will be conformed to the 2017 OECD definition, with deviations for a building site becoming a PE from day 1, and a trading activity is required for a PE resulting from investments in shares, receivables and financial instruments.
Additionally, the Court of Justice of the European Union (CJEU) on 12 June 2018 (case C-650/16, Bevola) held that Danish law was incompatible with European Union law because a Danish company could not claim a tax deduction for a final loss in a foreign PE. Denmark’s revised guidance will be effective from 2019, providing opportunities to claim such losses.
As the media organizations called the election over the weekend, notwithstanding legal challenges, US President-elect Joseph Biden is scheduled to officially commence his duties on January 20, 2021.
The Senate, currently a Republican majority, will have January 2021 runoffs in Georgia, that will determine the majority. This majority is key as to how much, or little, tax legislation will be passed the next four years.
It is anticipated that Joseph Biden will strive to increase the US federal income tax rate, and reverse part of the US TCJA provisions.
This new legislative agenda will be both interesting and exciting, as well as the DST push by OECD and UN for their separate proposals.
The attached Tax Foundation is an excellent place to start, for an overview.
The Toolkit on Tax Treaty Negotiation (the “Toolkit”), has been prepared in the framework of the Platform for Collaboration on Tax (the “PCT”) by the IMF, the OECD, the UN and the WBG (the “PCT Partners”).
Date and time:
Wednesday, November 4, 2020 9:00 am Eastern Standard Time (New York, GMT-05:00) Change time zone
2 hours 30 minutes
Please join The Platform for Collaboration on Tax (PCT) for the public consultation webinar of its draft Toolkit on Tax Treaty Negotiations. The toolkit authors and expert speakers will discuss how the toolkit can help developing countries, followed by a demo of the interactive, web-based version of the toolkit and a feedback roundtable with experienced negotiators.
PCT’s draft Toolkit on Tax Treaty Negotiations is a joint effort to provide capacity-building support to developing countries on tax treaty negotiations, building on existing guidance, particularly from the UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (the “UN Manual”). The Toolkit provides tax officials with:
***Information on the steps involved in tax treaty negotiations ***Practical tips for treaty negotiators on the conduct of negotiations and negotiation styles ***Easy access to already publicly available resources that treaty negotiators will find useful
The design of the Toolkit also allows regular updates and improvements based on the feedback from users and experienced negotiators.
The PCT released the draft toolkit for public feedback from June 29th to September 24th, 2020 through its website and the KSP-TA hub. In addition to written comments, this virtual workshop aims to gather further feedback from stakeholders, particularly treaty negotiating teams.
The Toolkit represents a joint effort to provide capacity-building support to developing countries on tax treaty negotiation, building on previous contributions and reducing duplication and inconsistencies.
As the OECD is studying the Pillar One blueprint, and the UN is contemplating its own Digital Services Tax (DST) proposal, attached is a useful reference for unilateral DST initiatives.
France has also determined that it will collect its DST payments in December this year, notwithstanding trade/tariffimplications.
The DST regimes will, inexplicably, involve more complexity, differing tax systems globally and the possibility for more disputes to arise, although such disputes may hopefully have efficient arbitration remedies.
Sweden may have, as of 1/1/2021 new economic employer rules vs. the current rules of legal employer. If the legislation is passed as proposed, there will be an increased governance role, and complexity, for employees visiting Sweden for which the local business may derive benefits therefrom.
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