March 2023 / United States

On 21 March 2023, the Department of Treasury and the Internal Revenue Service (IRS) proposed regulations to implement the advanced manufacturing investment credit created by the Chips and Science Act of 2022, which aims to boost the semiconductor manufacturing industry in the US. The proposed regulations will appear in the 23 March 2023 issue of the Federal Register.

The tax credit is generally equal to 25% of an eligible taxpayer's qualified investment in a facility with the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. In general, it is available for qualified property that began construction after 9 August 2022 and placed in service after 31 December 2022. The CHIPS Act, however, prohibits foreign entities of concern from claiming the tax credit.

The proposed regulations seek to address the following:

1. eligibility for the credits;
2. an election to be treated as making a payment of tax (including overpayment of tax) or to receive an elective payment (for eligible partnerships or S corporations), rather than claiming a credit; and
3. a special recapture rule that applies if there is a significant transaction involving the material expansion of semiconductor manufacturing capacity in a foreign country of concern.

The Department and the IRS request public comments on the proposed regulations, including the definition of the term "semiconductor" by 22 May 2023.

WASHINGTON – The Office of the United States Trade Representative released President Biden’s 2023 Trade Policy Agenda and 2022 Annual Report to Congress.  This report details USTR’s work to advance President Biden’s trade agenda over the last two years, as well as its priorities for 2023 and beyond.

“USTR’s worker-centered trade agenda is realizing President Biden’s vision to grow the American economy from the bottom up and the middle out,” Ambassador Katherine Tai said.  “The 2023 Trade Policy Agenda and 2022 Annual Report details the key accomplishments from the first two years of the Biden Administration and our priorities for the year ahead.  From enforcing the USMCA to creating innovative trade arrangements with our allies and partners, we will continue to pursue an agenda that will deliver sustainable and inclusive economic prosperity for all.”

In 2022, USTR put the Biden Administration’s vision into practice by launching and negotiating historic trade arrangements with our partners in the European Union and Kenya, as well as:

• The Indo-Pacific Economic Framework for Prosperity: USTR and the Department of Commerce are negotiating an innovative trade framework with 13 countries in the Indo-Pacific region that, combined with the United States, represent 40% of global GDP.  The IPEF will tackle 21^st century challenges, particularly those exposed during the COVID-19 pandemic and Russia’s invasion of Ukraine.
• U.S.-Taiwan 21^st Century Trade Initiative: The United States and Taiwan, under the auspices of the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO), are negotiating an ambitious new trade framework that will deepen our longstanding economic and cultural ties.
• Americas Partnership for Economic Prosperity: Announced in June 2022, the Americas Partnership includes 11 other countries that represent about 90% of the Western Hemisphere’s GDP and nearly two-thirds of its people.  This initiative will drive the region’s economic growth and broadly shared prosperity, tackle the core issues that will define the coming decades, and galvanize greater economic cooperation in our hemisphere.

Under Ambassador Tai’s leadership, USTR delivered important wins for domestic agricultural stakeholders, including farmers, producers, and processors, as U.S. agricultural exports expanded to a record $202 billion.

The United States – Mexico – Canada Agreement (USMCA) brought concrete outcomes that leveled the playing field for workers and defended the interests of U.S. energy and agricultural producers.  In particular, Ambassador Tai worked with labor representatives in Mexico to invoke the Agreement’s Rapid Response Mechanism to resolve multiple violations of workers’ rights, which included securing reinstatement and backpay to workers who were allegedly terminated for participating in union activity.  Strong cooperation with Mexico and Canada to enforce the USMCA will raise labor standards across North America and drive a race to the top.

In keeping with President Biden’s promise that America will once again lead on the world stage, USTR strengthened and deepened existing partnerships with our allies, while forging new relationships in key regions and emphasizing the United States’ commitment to multilateral institutions.  In 2022, Ambassador Tai helped achieve the first concrete outcomes from a WTO ministerial in nine years, including a modification of intellectual property protections for COVID vaccines to facilitate getting more safe and effective vaccines to those in need; an extension of the moratorium on customs duties on electronic transmissions that reduces trade costs and provides opportunities for small- and medium-sized businesses; a multilateral agreement that, for fishing overfished stocks, prohibits subsidies to those engaged in illegal, unreported, and unregulated fishing; and a Ministerial Declaration on food insecurity.

In 2023, USTR will deliver for U.S. workers and businesses, and for a global trading system that is more resilient, sustainable and equitable.  We expect progress on our ongoing trade negotiations, and we look forward to hosting the Asia-Pacific Economic Cooperation (APEC) Ministers Responsible for Trade meetings in Detroit, Michigan in May 2023 as part of the United States’ APEC host year.

Source: ustr.gov

On 8 March 2023, the Internal Revenue Service (IRS) issued an updated Treasury Decision correcting its Temporary Regulations (TD 9953 (Corrected)) authorizing the assessment of erroneous refunds of certain COVID-19-related employment tax credits under Internal Revenue Code (IRC) sections 3131, 3132, and 3134 added by the American Rescue Plan Act of 2001 (ARP).

The ARP added sections 3131 through 3133 to the IRC extending the refundable payroll tax credits for paid leave to non-governmental employers with fewer than 500 employees, and certain governmental entities without regard to the number of employees, that provide paid sick and family leave for specified reasons related to COVID-19 with respect to periods of leave beginning on 1 April 2021 through 30 September 2021.

The ARP further established IRC section 3134 to provide a COVID-19 employee retention credit for qualified wages paid after 30 June 2021 and before 1 January 2022, available to any employer carrying on a trade or business during a calendar quarter that meets the requirements to be an eligible employer under the statute.

As originally issued, TD 9953 addressed how the agency would recapture erroneous refunds of tax credits issued, treating them as underpayments of taxes subject to assessment and collection. These temporary regulations authorize the IRS to assess any credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were taxes imposed under the relevant code sections, subject to assessment and administrative collection procedures.

The corrections to Treasury Regulation sections 31.3131-1T(c), 31.3132-1T(c), and 31.3134-1T(c) replace references to IRC section 3121(a) which incorrectly define wages for purposes of the credit, and replace it with 3221(a), addressing the applied payroll tax rate in effect used to calculate the taxes as intended in the regulations.

The corrections are effective on 9 March 2023 and applicable retroactively to the original issuance of T.D. 9953 on 10 September 2021.

The Financial Action Task Force (FATF) (see Note 1) has suspended Russia's membership and updated its list of jurisdictions with strategic Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Countering the Financing of Proliferation of Weapons of Mass Destruction (CPF) deficiencies, according to a news release issued by the Financial Crimes Enforcement Network (FinCEN) of the US Department of Treasury last week.

In addition, the FinCEN announced that on 24 February 2023, the FATF removed Cambodia and Morocco from its list of Jurisdictions under Increased Monitoring and added South Africa and Nigeria to the list. Meanwhile, the FATF's list of High-Risk Jurisdictions Subject to a Call for Action remains the same, with:

• Iran and the Democratic People's Republic of Korea (DPRK) still subject to FATF's countermeasures; and
• Myanmar still subject to enhanced due diligence, not countermeasures.

"Jurisdictions under Increased Monitoring" refers to jurisdictions with strategic deficiencies that have committed to address those deficiencies in an agreed upon timeline. "High-Risk Jurisdictions Subject to a Call for Action" refers to the most serious cases needing countermeasures to protect the international financial system.

The FinCEN reminded US financial institutions to consider the "FATF's stance toward these jurisdictions when reviewing their obligations and risk-based policies, procedures, and practices" and to comply with the extensive US restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, for North Korean or Iranian financial institutions.

Note 1: The Financial Action Task Force (FATF) is an intergovernmental body that establishes international standards for:

• enhancing anti-money laundering procedures;
• countering the financing of terrorism; and
• countering the financing of proliferation of weapons of mass destruction.

Note 2: The FinCEN's mission is to safeguard the financial system from:

• illicit use;
• combatting money laundering and its related crimes including terrorism; and
• promoting national security through the strategic use of financial authorities and the collection, analysis and dissemination of financial intelligence.

The Internal Revenue Service (IRS) will now require shareholders of controlled foreign corporations (CFCs) that report a CFC's income, deductions, taxes and assets by "CFC income groups" for purposes of sections 960(a) and (d) of the Internal Revenue Code (IRC) to report loss allocation when filing Schedule Q. The IRS issued updated instructions highlighting changes for filing the Information Return of US Persons with Respect to Certain Foreign Corporations (Form 5471) and its accompanying schedules.

Beginning tax year 2020, taxpayers use Schedule Q to report the CFC's income in each CFC income group to the US shareholders of the CFC. Previously, the IRS did not require shareholders to report loss allocation on Schedule Q.

According to the updated instructions, the IRS added columns for reporting of loss allocations to reflect Treasury Regulations section 1.861-20(e), which provide that in determining foreign taxable income in each statutory grouping, or the residual grouping, foreign gross income in each grouping is reduced by deducting any expenses, losses or other amounts that are deductible under foreign law that are specifically allocable to the items of foreign gross income in the grouping under the laws of that foreign country.

In addition, the IRS added a new question pertaining to the US person's pro rata share of subpart F income or tested items from a CFC and revised certain wordings for clarity. More specifically, the IRS amended the wording of questions pertaining to claiming a foreign-derived intangible income deduction with respect to any transactions with the foreign corporation to reflect the final regulations under IRC section 250 (T.D. 9901, 85 FR 43042, 15 July 2020, as amended by 85 FR 68249, 28 October 2020 and T.D. 9956, 86 FR 52971, 24 September 2021).