The United States reclaims the spotlight...
Kitty Miv, Editor
20 February, 2020
With all that's been going on in Europe since the start of the year, the United States has been woefully neglected in this column, beyond our fleeting looks at the battles being fought on many fronts regarding the planned introduction of national taxes on the digital revenue of international (read: mostly US) digital service providers.
This week, I intend to address that omission, with a closer look at various recent tax developments that have taken place in the US recently, beginning early in the month, on February 11, 2020, when the United States Treasury Department and the Internal Revenue Service issued proposed regulations updating the federal income tax withholding rules to reflect changes made by the Tax Cuts and Jobs Act (TCJA) and other legislation.
In general, the proposed regulations are designed to accommodate the redesigned Form W-4, Employee's Withholding Certificate, to be used starting in 2020. Due to changes brought about by the TCJA, employees can no longer claim personal exemptions. Instead, income tax withholding using the redesigned Form W-4 will generally be based on the employee's expected filing status and standard deduction for the year.
Then on February 12, Democrats in the Senate introduced a bill that would block proposals to introduce a "high-tax exemption" to the Global Intangible Low-Tax Income (GILTI) regime.
The GILTI rules, included in Section 250 of the Internal Revenue Code, are intended to discourage US corporations from shifting high-yielding intangible assets such as intellectual property rights to low-tax jurisdictions. GILTI is defined as the portion of the income of a controlled foreign corporation owned by US shareholders that exceeds a notional 10 percent return – a rate that is intended to reflect the normal rate of return on tangible assets. After a 50 percent deduction, GILTI is subject to an effective corporate tax rate of 10.5 percent.
In June 2019, the Treasury Department and the Internal Revenue Service released proposed regulations providing taxpayers with an election to exclude certain income that would otherwise be subject to the GILTI regime if that income was subject to foreign income tax at an effective rate greater than 90 percent of the full US corporate tax rate – 18.9 percent based on the current 21 percent US corporate tax.
The bill, known as the Blocking New Corporate Tax Giveaways Act, was introduced on February 12, 2020, by Senate Finance Committee Ranking Member Ron Wyden (D-OR) and Sherrod Brown (D-OH).
On Valentine's Day, meanwhile, AmCham EU, the representative body for American business in the European Union, wrote the opposite of a love-letter to the European Commission, requesting greater transparency on the progress of the 2021 VAT e-commerce package and its implementation.
The reforms, agreed by EU member states on March 12, 2019, are intended to simplify VAT rules for goods sold online and introduce new obligations on online marketplaces to require them to contribute in the fight against tax fraud.
Under the changes, due to be implemented on January 1, 2021, online marketplaces will be considered to act as the seller when they facilitate sales of goods with a value up to EUR150 (USD162) to customers in the EU by non-EU businesses using their platform. The same rules will apply when non-EU businesses use online platforms to sell goods from "fulfillment centers" in the EU, irrespective of their value, allowing tax authorities to claim the VAT due on those sales. Online platforms will also be expected to keep records of sales of goods or services made by businesses using their platform.
The member states also agreed implementing rules for the definitive VAT system that will be implemented from 2021, requiring the collection of tax based on the location of the consumer, rather than the supplier, in a bid to prevent VAT fraud. In particular, the rules deal with the extension of the one-stop shop system, which enables businesses to undertake all VAT administrative obligations with a single member state tax authority for all of their EU VAT operations.
AmCham EU also highlighted that shipments imported into the EU with a value below EUR22 will be subject to VAT as of January 1, 2021, and will require individual customs declarations. To facilitate these changes, a new optional simplification measure, the Import One Stop System (IOSS) for low-value shipments between EUR0-150 would allow "deemed suppliers" to collect and remit VAT at the point of sale, moving the collection process away from the border.
In a statement accompanying the publication of its letter to Stephen Quest, Director General of DG TAXUD, AmCham EU argued that there is a lack of transparency about member states' readiness to implement the reforms.
"Throughout its development, AmCham EU members have closely followed and contributed to the discussions on this piece of legislation and now with a deployment window of less than 11 months, it is vital that the business community is provided with a clear communication of the state of implementation," AmCham EU stated.
The organization added: "AmCham EU regrets that member states are not transparently sharing their readiness to deploy the required comprehensive processes and IT solutions for the upcoming VAT and customs changes, since this prevents businesses and relevant stakeholders from developing properly designed IT and other tools that will ensure a smooth transition of the new rules. A harmonized approach at the EU level would ensure that businesses are not faced with different implementation solutions in different member states."
In particular, AmCham EU called for clarity on the following issues:
- The readiness of EU member states to implement the Super Reduced Data Set (SRDS);
- The implementation design for IOSS and special arrangement procedures and capacity readiness;
- The functioning of an interface between Express and Postal Services and customs authorities; and
- Practical information and options on VAT postponed accounting in the member states.
"The US business community stands ready to discuss these issues in more detail and we look forward to helping to deliver a successful implementation of the new rules and to ensure the best possible outcome for all stakeholders," AmCham EU's statement concluded.
Finally, and continuing with the tit-for-tat theme that has threaded through the US' recently fractious trade policy discussions with other countries, the USTR recently announced that the United States will increase the rate of additional import duties on EU aircraft in March 2020.
The announcement follows a ruling from a World Trade Organization arbitrator on October 2, 2019, that the level of countermeasures the US may request in relation to its 15-year-long case over subsidies received by Airbus amounts to USD7.5bn a year.
Following that ruling, the US imposed tariffs on a range of EU products, mainly affecting the four countries involved in the manufacture of Airbus aircraft (France, Germany, Spain, and the United Kingdom). These included a 10 percent tax on large civil aircraft, which took effect from October 18, 2019.
According to a notice to be published in the Federal Register, the US now intends to increase the import duty on EU aircraft to 15 percent, effective March 18, 2020.
Until next week!
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