April 2021 / United States

The US Internal Revenue Service (IRS) has released a Fact Sheet (FS-2021-07, April 2021) with information for US persons to report foreign bank and other financial accounts. The Fact Sheet indicates a last reviewed or updated date of 9 April 2021.

The Bank Secrecy Act (BSA) requires US persons to file a Report of Foreign Bank and Financial Accounts (FBAR) if the total value of their foreign financial accounts exceeds USD 10,000 at any time during the calendar year. Taxpayers required to report their foreign accounts should file the FBAR electronically using the BSA E-Filing System.

The FBAR for calendar year 2020 is due 15 April 2021. FBAR Filers missing the 15 April deadline, however, will receive an automatic extension until 15 October 2021.

On 12 April 2021 Florida sent legislation targeting online sales by out-of-state vendors and marketplace providers to the Governor with veto-proof margins. If signed (or if vetoed, sent back to the legislature and passed with a veto override vote), Florida will join the ranks of the many US states (i.e. over 40 states) that impose clear economic nexus laws to tax remote sales rather than rely on the now antiquated physical presence nexus standard (which left such sales untaxable). The new legislation would allow the state to require the collection and remittance of Florida's sales tax on sales of taxable items delivered to purchasers in the state by retailers and providers that lack a physical presence in the state.

Effective 1 July 2021, Florida's post-Wayfairrules (once passed) will require that remote retailers and marketplace providers making direct sales to in-state customers, as well as marketplace providers facilitating such sales, to collect and remit sales tax if they make a "substantial number of remote sales" into Florida.

A "substantial number of remote sales" is defined as remote sales exceeding USD 100,000 in the previous calendar year.

The US Treasury Department (Treasury) has updated its list of the countries that require cooperation with, or participation in, an international boycott as a condition of doing business. The Treasury published the updated list in the Federal Register on 8 April 2021.

The countries listed are Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria and the Republic of Yemen. The United Arab Emirates (UAE) is removed from the previous list that the Treasury published in the Federal Register on 13 October 2020.

The Treasury has removed the UAE from the list because the UAE repealed its law mandating a boycott of Israel and it subsequently has taken actions to implement the new policy.

The listed countries are identified pursuant to section 999 of the US Internal Revenue Code (IRC), which requires US taxpayers to file reports with the Treasury concerning operations in the boycotting countries. Such taxpayers incur adverse consequences under the IRC, including denial of US foreign tax credits (FTCs) for taxes paid to those countries and income inclusion under subpart F of the IRC in the case of US shareholders of controlled foreign corporations (CFCs) that conduct operations in those countries.

In a sweeping proposal to provide relief to workers and families, the White House has unveiled President Biden's plan for US individual tax reform. In its Fact Sheet: The American Families Plan, and press briefing "Background Press Call by Senior Administration Officials on the American Families Plan", dated 28 April 2021, President Biden laid out an ambitious proposal that includes raising taxes on the wealthiest Americans.

In particular, President Biden proposes the following individual income tax changes:

• permanently extending the expansion of the Affordable Care Act (ACA) premium tax credits in the American Rescue Plan Act of 2021;
• extending the child tax credit increases in the American Rescue Plan Act through 2050, and making the child tax credit permanently fully refundable;
• permanently extending the expansion of the child and dependent care tax credit in the American Rescue Plan Act;
• permanently extending the earned income tax credit expansion in the American Rescue Plan Act for childless workers;
• granting the US Internal Revenue Service (IRS) authority to regulate paid tax preparers;
• restoring the individual top tax rate to 39.6%;
• ending the preferential tax rates on investment returns (capital gains and dividends) for households earning over USD 1 million per year;
• ending the practice of "stepping-up," which allows accumulated gains to be passed down across generations untaxed:
  • for gains over USD 1 million (USD 2.5 million per couple when combined with existing real estate exemptions);
  • if the property is not donated to charity; and
  • with an exemption applicable to family-owned businesses and farms when given to heirs who continue to run the business;
• permanently eliminating the carried interest so that private equity managers will be taxed on their income at the ordinary income tax rates;
• limiting the amount of capital gains from the exchange of real property that can be deferred under the like-kind exchange rule to USD 500,000;
• permanently extending the limitation that restricts deductions for excessive business losses; and
• (the Net Investment Income Tax) consistently to those making over USD 400,000.

As the clock ticks down to a July deadline to reach consensus on digital taxation, the Biden administration has circulated a ground-breaking plan to break the current stalemate over the OECD's digital tax proposals. In a document leaked to the press earlier this week, the US Treasury laid out for the 139 members of the BEPS inclusive framework its proposals on Pillars 1 and 2. As to the former, the United States proposes to narrow the scope of Pillar 1 to cover just those international businesses with annual global revenues of at least USD 20 billion – targeting the largest companies in the world. And as to Pillar 2, the United States proposes a simplified, but robust, global minimum tax system. Finally, the Biden plan calls on countries that now impose a digital services tax to replace that tax with the new regime.

International reactions were generally positive. Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy and Administration, welcomed the US proposal, tweeting that the proposal "reboots the negotiation of a comprehensive solution to address a comprehensive issue: digitalisation and globalisation. Very interesting and positive dynamic. Good prospect of a simplified but meaningful P1 and robust minimum tax." The Netherlands welcomed the US proposal, as "fully in line" with its efforts to modernize the international tax system. Italian Prime Minister Mario Draghi welcomed the US proposal, particularly on the global minimum tax. Other world leaders, including French Finance Minister Bruno LeMaire, were more circumspect, promising to study the US proposal, but withholding full endorsement for now.

Some industry analysts reacted negatively, noting that the plan would disproportionately affect US-based tech companies.

And leaders in the US Congress, which will eventually have to approve any deal the US makes, have asked to be briefed on Treasury's proposals, and how they would affect US businesses.

More details will be reported as they emerge.

Note 1: The OECD is attempting to reach a global deal with the 139 nations of the BEPS inclusive framework on two initiatives (Pillar 1 and Pillar 2) addressing profit allocation and creating a global minimum tax by the end of June. These initiatives, years in the making, target the practice of base erosion and profit shifting (BEPS) by multinationals, and seek to create a system where profits are taxed in the location where the economic activities occur and the value is created. Addressing tax challenges resulting from an increasingly digital economy remains a top priority.

Note 2: Pillar 1 seeks to reallocate certain taxing rights over so-called "residual profits" from producer nations to consumer nations.

Pillar 2 seeks to establish some form of global minimum tax.

The US Treasury Department (Treasury) has issued a report describing President Biden's US tax reform plan, referred to as the Made in American Tax Plan. The report is focused on corporate tax reform and clean energy incentives. The Treasury also issued an accompanying Press Release, dated 7 April 2021.

The Treasury's report outlines the following tax reform proposals:

• increasing the corporate tax rate from 21% to 28%;
• strengthening the global minimum tax, i.e. GILTI (global intangible low-taxed income) by:
  • eliminating the tax exemption for the first 10% return on foreign tangible assets (i.e. the QBAI—qualified business asset investment);
  • calculating the GILTI on a per-country basis; and
  • increasing the GILTI rate to 21% (i.e. two thirds of the proposed new 28% corporate tax rate, as opposed to the current one-half ratio, which has resulted in the 10.5% GILTI rate);
• replacing the BEAT (base erosion and anti-abuse tax) with the SHIELD (stopping harmful inversions and ending low-tax developments), which would deny multinational corporations US tax deductions for payments made to related parties that are subject to a low effective rate of tax, i.e. a tax rate equal to:
  • the rate agreed upon in the multilateral agreement; or
  • the new GILTI rate (i.e. 21%) if the SHIELD is in effect before such an agreement has been reached;
• reinforcing the anti-inversion rules by generally treating a foreign acquiring corporation as a US company:
  • based on a reduced 50% continuing ownership threshold; or
  • if a foreign acquiring corporation is managed and controlled in the United States;
• repealing the FDII (foreign-derived intangible income);
• imposing a minimum tax on large corporations in an amount equal to 15% of their book income (i.e. the type of income that corporations use in reporting their profits to investors) while allowing corporations credits for:
  • taxes paid above the minimum book tax threshold in prior years;
  • general business tax credits (including research and development (R&D), clean energy and housing tax credits); and
  • foreign tax credits (FTCs);
• replacing tax preferences and subsidies for fossil fuel companies in the oil and gas industry with incentives for clean energy production, including:
  • a 10-year extension of the production tax credit and investment tax credit for clean energy generation and storage, and making those credits direct pay (i.e. refundable);
  • a new tax incentive for long-distance transmission lines to ensure that clean energy can be carried to cities, homes and businesses;
  • an expansion of the tax incentives available for electricity storage projects;
  • tax incentives for state-of-the-art carbon capture and sequestration projects;
  • supports for clean energy manufacturing, including an extension of the qualifying advanced energy project credit under section 48C of the US Internal Revenue Code (IRC);
  • a tax credit for sustainable aviation fuel;
  • incentives to encourage people to switch to electric vehicles and efficient electric appliances; and
  • a restored tax on polluters to pay for the US Environmental Protection Agency's (EPA's) clean-up costs associated with Superfund sites (i.e. toxic waste dumps); and
• increasing the enforcement budget for the US Internal Revenue Service (IRS).