House ways and means tasked with funding highway bill; Treasury moves forward with BEPS implementation
House Lawmakers Schedule Markup of Transportation Bill Without Revenue Provisions
Last week, on Friday, October 16, the House Transportation and Infrastructure Committee released a six-year, $325 billion highway funding bill (the Surface Transportation Reauthorization and Reform Act of 2015); a markup of the legislation is scheduled for Thursday, October 22. Notably, while the legislation would “unlock” funding for three years – a provision aimed at preventing another authorization debate – the House Ways and Means Committee will now be tasked with drafting legislation to find approximately $35 billion in new offsets over the first three years to help cover the cost ($157.8 billion) of transportation funding during that same period. The Ways and Means Committee has yet to schedule a markup of its bill.
As highlighted previously, House Ways and Means Committee Chairman Paul Ryan (R-WI) and senior Senate Finance Committee Member Chuck Schumer (D-NY) have been hard at work trying to reach agreement on a way to combine international tax reform legislation with highway funding – a task the has yet to bear fruit. While the two continue discussions in hopes of reaching agreement, it is likely that tax-writers will be forced to find alternative revenue-raisers to fund the House bill. In doing so, it is quite possible that House tax-writers will look at the provisions included in the Senate’s long-term highway funding bill – H.R. 22, the Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act of 2015, which provides approximately $47 billion in offsets – which the Chamber approved by a 65-34 vote prior to adjourning for August recess.
Still, challenges remain. In addition to the lack of agreement on how to fund the bill, the current uncertainty surrounding whether Chairman Ryan will run for Speaker of the House – thus resulting in changes to House Ways and Means Committee leadership – further reduces the likelihood that lawmakers will be able to come to an agreement before highway spending authority expires at the end of the month. As such, while Democratic lawmakers have praised the House Transportation Committee’s work in putting together a long-term bill and stand ready to go to conference and resolve the differences in the bills, it is likely that Congress will be forced to pass yet another sort-term extension before spending authority expires on October 29.
House May Mark-Up Reconciliation Legislation
This week, the House may vote on a budget reconciliation bill, which consists of proposals submitted by the Ways and Means, Energy and Commerce, and Education and the Workforce Committees. Pursuant to the FY 2016 Budget Resolution, these Committees were required to submit to the House Budget Committee proposals identifying at least $1 billion in savings; the Committee marked-up this package of proposals earlier this month. Included in the bill are provisions to repeal the healthcare tax provisions called for under the Affordable Care Act (ACA) – including the individual and employer mandates, the “Cadillac” Tax, and the medical device tax. According to the Joint Committee on Taxation (JCT), this would save an estimated $44.2 billion over the 10-year scoring window.
Treasury to Move Forward with Country-By-Country Reporting Regulations, Participate in Multilateral Instrument Talks
Following the Organisation for Economic Co-operation and Development’s (OECD) release earlier this month of many of its long-awaited final proposals to counter corporate tax avoidance as part of more than two years of work on the Base Erosion and Profit Shifting (BEPS) Project, the U.S. Treasury has reaffirmed its commitment to implement several of these proposals.
For example, the U.S. Treasury has expressed its support for implementing Action 13 domestically, which proposes that companies with consolidated group revenue equal to or exceeding EUR 750 million will need to prepare a country-by-country report to summarize by jurisdiction revenue, pre-tax income, income tax paid and accrued, employees, stated capital, retained earnings, and tangible assets. While tax-writers have pushed back against this proposal and questioned Treasury’s authority to implement country-by-country reporting via regulations, Robert Stack, U.S. Deputy Assistant Treasury Secretary for International Tax Affairs and leader of the U.S. BEPS efforts, has reiterated that “[he does not] think there’s really any doubt the IRS has authority…to collect the kind of information” required by Action 13. As such, according to Mr. Stack, Treasury and the Internal Revenue Service (IRS) plan to move forward and implement regulations to be in compliance with the country-by-country reporting rules.
Mr. Stack also recently announced that the U.S. has agreed to participate in discussions regarding the development of a multilateral instrument under Action 15 of the BEPS Project “because it is the best way for the United States to advance its interests in mandatory binding arbitration as the optimal method for resolving disputes and improving tax administration.” While he went on to emphasize that this decision “by no means foreshadows any decision about whether to eventually join in signing such an instrument,” he nevertheless acknowledged that the Administration will consult with Congress as appropriate “as the process moves along,” an about face from previous remarks suggesting that the U.S. would not expend resources on such discussions.
Importantly, while the U.S. Treasury has expressed its support for the OECD BEPS proposals generally, it nevertheless has indicated areas in which it believes work is needed. For example, Henry Louie, Treasury Deputy International Tax Counsel, recently expressed concern with regard to the proposed treaty abuse provisions, including language addressing the limitation on benefits (LOB) in the model treaty. According to Mr. Louie, the LOB provisions in the model treaties included in BEPS Action 6 will be subject to review once the U.S. finalizes revisions to its model treaty.
On October 9, G20 Finance Ministers expressed their full support for the final BEPS proposals, which were presented at the G20 Finance Ministers meeting in Lima, Peru. The proposals will now be considered during the G20 Summit in Antalya, Turkey, which is scheduled to take place November 15-16. Presently, it is expected that more than 50 countries will agree to adopt these proposals.
Treasury Delays Embedded Loan Rule Regulations
On October 9, the Treasury Department issued a correcting amendment to its temporary embedded loan regulations (T.D. 9719, which was published in May of this year) to provide broker-dealers and other covered entities with additional time (the later of January 1, 2017, or 180 days after final regulations are published) to comply with the proposed changes to the rule. Pursuant to these proposes changes, certain non-contingent swaps with non-periodic, upfront market adjustment payments will be deemed – irrespective of size – to be two separate transactions (a swap and a loan), which may result in withholding implications for the involved parties.