On The Hill

Tax Treaties

On Tuesday (July 16), the Senate ratified a tax protocol that would amend a tax treaty with Spain, the first success after years of stalled efforts between the two countries. The protocol passed on a vote of 94-2, with Sen. Rand Paul (R-KY) and Sen. Mike Lee (R-UT) voting no. The Senate also approved tax treaties with Switzerland, Japan, and Luxembourg. Each protocol received overwhelming support: the treaties with Switzerland and Japan passed 95-2, respectively, and the treaty with Luxembourg passed 95-3. Speaking on the measures, Senate Majority Leader Mitch McConnell (R-KY) said: “Foreign trade and international investment are key cornerstones of the U.S. economy. Major parts of proud American businesses and hundreds of thousands of hardworking Americans’ jobs are oriented around trade with these four nations. So their governments and our government sit down and negotiate which country will tax which kinds of activities. The result is more clarity, more certainty, and a lot less unfair double taxation that has cost American businesses millions and millions of dollars.” 

International Regulations

The Internal Revenue Service (IRS) is on track to release guidance on most of the international provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) by year’s end, Peg O’Connor, Deputy Associate Chief Counsel of Operations and International Programs at the Office of Associate Chief Counsel, said at a National Association for Business Economics event in Washington, DC.

Tax Extenders

The House repealed the Affordable Care Act’s (ACA) “Cadillac” tax on Wednesday (July 17), with all but six members voting to repeal. Full repeal of the tax provision, which comes at a nearly $200 billion price tag, is a long-sought goal of organized labor and business groups who claim the 40 percent excise tax is a tax on working families. However, health care economists, like Benedic Ippolito of the American Enterprise Institute, argue the Cadillac tax is the strongest existing policy mechanism for lowering health care costs.^[1] Additionally, fiscal hawks have expressed concerns that the repeal of the tax will substantially increase budget deficits. The House passed the repeal measure under suspension of the rules, circumventing the need to offset costs of a tax cut. It is unclear how the Senate will proceed. Senate Finance Committee Chairman Chuck Grassley (R-IA) said he has seen “little bit of progress” on the tax extenders without offsets for the lost revenue.

IRS Guidance

Revenue Ruling 2019-17 provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274 and can be found here.

Digital Tax

Spurred by the advances of France’s proposed digital services tax, finance ministers at the G-7 summit agreed that new international tax standards should not discriminate against American companies, Treasury Secretary Steven Mnuchin said on Thursday (July 18).^[2] However, he said the U.S. has no intentions of halting its trade investigation into the new French tax. The United Kingdom (UK) has begun consideration of a tax similar to the French tax. Although he has expressed concern with the respective digital tax proposals, Mnuchin said he is “pleased” that both countries are committed to replacing their unilateral taxes should an international solution be found. The G-7 Finance Ministers are planning to build a framework for an international digital tax and set a global minimum corporate rate. The finance ministers will work in cooperation with the Organization for Economic Co-operation and Development (OECD), who hope to have the framework completed by the end of 2020.

References

^[1] Yasmeen Abutaleb, “House Democrats join Republicans to repeal Obamacare’s ‘Cadillac tax’” The Washington Post, 07/17/2019 https://www.washingtonpost.com/health/house-democrats-join-republicans-to-repeal-obamacares-cadillac-tax/2019/07/17/f8acb86e-a8cc-11e9-a3a6-ab670962db05_story.html?utm_term=.93bdc103112a

^[2] Aaron Lorenzo, Bjarke Smith-Meyer “Mnuchin says U.S. firms won’t be targeted in any digital tax agreement” Politico Pro, 07/18/2019 https://subscriber.politicopro.com/article/2019/07/mnuchin-says-us-firms-wont-be-targeted-in-any-digital-tax-agreement-1601440