March 2021 / United States

The White House has released a Fact Sheet, dated 31 March 2021, which outlines President Biden's plan for US corporate tax reform. President Biden intends his corporate tax reform to incentivize job creation and investment within the United States, stop unfair and wasteful profit shifting to tax havens, and ensure that large corporations pay their fair share of tax.

Specifically, President Biden proposes the following corporate tax changes:

• increasing the corporate tax rate from 21% to 28%;
• reinforcing the global minimum tax for US multinational corporations (i.e. the global intangible low-taxed income, or GILTI) by:
  • setting the tax rate at 21%;
  • calculating the tax on a country-by-country basis; and
  • eliminating the exemption for the first 10% of return on investments in foreign countries (i.e. the qualified business asset investment, or QBAI);
• encouraging other countries to adopt strong minimum taxes on corporations and seeking a global agreement on it through multilateral negotiations;
• replacing the base erosion and anti-abuse tax (BEAT) with a new regime that denies deductions to foreign corporations on payments that could permit them to strip profits out of the United States if they are based in a country that does not adopt a strong minimum tax;
• making it more difficult for US corporations to invert (i.e. acquire or merge with a foreign company to avoid US taxes by claiming to be a foreign company although their place of management and operations remains in the United States);
• denying deductions for expenses incurred in offshoring jobs and providing tax credits for expenses incurred in onshoring jobs;
• repealing the foreign-derived intangible income (FDII) rules, which may give corporations a tax break for shifting assets abroad and be ineffective at encouraging corporations to invest in research and development (R&D) in the United States;
• enacting a 15% minimum tax on large corporations' book income (i.e. the type of income that corporations use in reporting their profits to investors);
• eliminating special tax preferences for the fossil fuel industry to put the country on a path to net-zero greenhouse gas emissions by 2050; and
• providing the US Internal Revenue Service (IRS) with the resources it needs to effectively audit, and enforce the tax laws against, corporations.

The Office of the US Trade Representative (USTR) has announced the next steps in its investigations of the Digital Services Taxes (DSTs) adopted or under consideration by 10 jurisdictions. Specifically, the USTR proposed to impose additional tariffs against Austria, India, Italy, Spain, Turkey and the United Kingdom (UK). The USTR also terminated its DST investigations into Brazil, the Czech Republic, the European Union (EU) and Indonesia.

The USTR issued a Press Release of 26 March 2021 to make the announcement.

According to the Press Release, the USTR proposed the imposition of, and requested public comments on, additional tariffs of up to 25% ad valorem (i.e. according to the value) that would collect duties on goods of the following six jurisdictions approximately in the amount of the DST that the jurisdiction is expected to collect from US companies:

• Austria (up to approximately USD 45 million per year);
• India (up to approximately USD 55 million per year);
• Italy (up to approximately USD 140 million per year);
• Spain (up to approximately USD 155 million per year);
• Turkey (up to approximately USD 160 million per year); and
• the UK (up to approximately USD 325 million per year).

In addition, the USTR terminated its investigations into the four jurisdictions (Brazil, the Czech Republic, the EU and Indonesia) based on its finding that the four jurisdictions have not adopted or implemented the DSTs that were under consideration when the USTR initiated the investigations. The Press Release notes, however, that the USTR may initiate new investigations if any of those jurisdictions proceeds to adopt or implement a DST.

The USTR previously issued a Status Update, dated 13 January 2021, discussing the status of those four jurisdictions' consideration of a possible DST and expressing US concerns that DSTs may be adopted in the future.

The American Petroleum Institute (API) has announced that it endorses a carbon tax or other types of a carbon pricing policy (such as a cap-and-trade system) that the Biden administration is expected to unveil shortly.

The API made that announcement in its Climate Action Framework and Executive Summary, as well as API Policy Principles on Carbon Pricing to Evaluate Government Policy Proposals.

The API urges the carbon pricing policy to be:

• intended to achieve greenhouse gas (GHG) emissions reductions at the least cost to society;
• applied US economy-wide;
• designed to provide transparent invectives based on actual GHG emissions to reduce GHG emissions efficiently;
• non-duplicative to minimize the burden of duplicative regulations;
• aimed to meet the dual challenges of continued US economic growth and global competitiveness, while addressing the risks of climate change;
• globally integrated so that US entities have the incentive to reduce their carbon footprint on a worldwide basis without being competitively disadvantaged and to avoid carbon leakage (i.e. the movement of industry or trade, or offshoring or outsourcing of GHG emissions, from the United States to countries with less strict climate policies); and
• focused on GHG emissions such that the trading and use of applicable credits and offsets are allowed.

Note 1: The API is a US national trade association that represents all segments of the US oil and natural gas industry. The API's mission is to promote safety across the industry globally and to influence public policy related to the industry.

Note 2: A carbon tax is imposed on carbon or other types of GHG emissions (such as methane) and thus increases the price of goods created through a GHG-intensive production process. Revenue raised by a carbon tax could be spent on GHG mitigation efforts, but merely "pricing" carbon emissions establishes a market mechanism that incentivizes manufacturers to reduce GHG emissions.

Note 3: In a cap-and-trade system, the government sets a cap on GHG emissions that drive global warming, and issues emission allowances consistent with that cap to companies. Companies may buy and sell emission allowances that let them emit only a certain amount. Such trade establishes an emissions price, which generates a strong incentive to reduce GHG emissions in the most cost-effective ways.

The US Internal Revenue Service (IRS) has released the updated Frequently Asked Questions on Virtual Currency Transactions (FAQs). The FAQs provide guidance for taxpayers who hold virtual currency as a capital asset.

The IRS updated the FAQs by adding Q5 to explain the question on virtual currency on page 1 of IRS Form 1040 (US Individual Income Tax Return) for 2020, which asks: "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

The FAQs clarify that a taxpayer is not required to answer yes to the question if the taxpayer's only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency.

The Joint Committee on Taxation (JCT) of the US Congress has released a report describing present-law and prior-law tax incentives for domestic manufacturing.

The JCT report is titled "Tax Incentives for Domestic Manufacturing." The report, designated JCX-15-21, is dated 12 March 2021.

The JCT report provides descriptions of:

• present-law income tax rates;
• rules relating to depreciation, including certain first-year expensing provisions, along with associated recapture provisions;
• domestic research incentives and the tax credit for certain advanced energy projects that re-equip, expand or establish a manufacturing facility for certain energy-related property;
• the prior-law deduction for income attributable to domestic production activities under the former section 199 of the US Internal Revenue Code (IRC), which was repealed as part of the Tax Cuts and Jobs Act (TCJA) for taxable years after 31 December 2017; and
• economic analysis relating to tax incentives for domestic manufacturing.

Note: The JCT is a non-partisan committee of the US Congress that assists members of the majority and minority parties in both chambers on tax legislation. The Chairman of the Senate Finance Committee and the Chairman of the House Ways and Means Committee chair the JCT on a rotating basis.