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Times of Oman
a day ago
- Business
- Times of Oman
G7 back new 'side-by-side' tax proposal exempting American, UK firms from global tax rules
New Delhi: US-parented companies will be exempted from certain elements of an existing global tax agreement according to a statement released by the Group of Seven countires which detailed the new proposal signed by the United States and its G7 partners. The agreement will see US companies benefit from a "side-by-side" solution under which they will only be taxed at home, on both domestic and foreign profits, the G-7 said, in a statement released by Canada, which holds the group's rotating presidency. Earlier this year the US Secretary of the Treasury outlined the United States' concerns regarding the Pillar 2 rules agreed by the OECD/G20 Inclusive Framework on BEPS and set out a proposed 'side-by-side' solution under which US parented groups would be exempt from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) in recognition of the existing US minimum tax rules to which they are subject. The side-by-side system could "provide greater stability and certainty in the international tax system moving forward, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries, the statement read. The US Treasury Department noted that with Section 899 removed from the Senate version of the bill, there is now a shared understanding that the side-by-side system could help maintain progress made by jurisdictions within the Inclusive Framework in combating base erosion and profit shifting. "Following the removal of section 899 from the Senate version of the One, Big, Beautiful Bill, and consideration of the success of Qualified Domestic Minimum Top-up Tax implementation and its impact - there is a shared understanding that a side-by-side system could preserve important gains made by jurisdictions inside the Inclusive Framework in tackling base erosion and profit shifting and provide greater stability and certainty in the international tax system moving forward, the G7 announced. We look forward to discussing and developing this understanding within the Inclusive Framework," the Treasury said in a post on X. The removal of Section 899 has also been welcomed by the United Kingdom. British businesses, which had recently voiced concerns about potentially facing higher taxes due to the measure, will no longer be subject to those risks. G7 officials echoed the importance of collaboration, expressing their commitment to pursuing a solution that is "acceptable and implementable to all." Earlier this year, through an executive order, Donald Trump declared that the 2021 global corporate minimum tax agreement--negotiated by the Biden administration and supported by nearly 140 countries--would not apply in the United States. He also threatened to impose a retaliatory tax on nations implementing the global tax rules against US firms, a move viewed as harmful to many foreign companies operating within the US.
Yahoo
16-06-2025
- Business
- Yahoo
Senate Delays and Scales Back ‘Revenge Tax' in Trump Bill
(Bloomberg) -- Senate Republicans plan to delay and make less onerous a levy targeting foreign companies and investors from countries that the US determines have been unfairly taxing US companies. As Part of a $45 Billion Push, ICE Prepares for a Vast Expansion of Detention Space As American Architects Gather in Boston, Retrofits Are All the Rage The provision, officially known as Section 899 and informally known as the 'revenge tax,' was drafted by House Republicans and supported by the White House to counter several European countries, Canada, Australia and more nations from taxing US firms in a way those lawmakers argue is discriminatory. The Senate's version of the bill released late Monday would delay that new tax until 2027 for calendar-year filers and raise it by 5 percentage points a year until it hit a 15% cap. The House version of the tax would take affect sooner and rise to 20% over four years on individuals and firms from targeted countries, raising an estimated $116 billion over 10 years help offset the rest of the President Donald Trump's massive tax and spending package. The tax has sparked fears on Wall Street that it could make it much harder for foreign individuals and companies to invest in the US. The levy targets allies that have digital services taxes on US tech companies, as well as countries imposing a global minimum tax on corporations. Defenders of the tax, including Republican Representative Ron Estes of Kansas, have said the provision is simply intended to address foreign countries seeking to 'pilfer our tax base' by unfairly taxing US companies. 'Section 899 is a tax and a tool that will only be used if foreign countries willfully disregard US tax sovereignty in their efforts to inflate their treasuries,' he wrote. Estes urged people unhappy with the tax to lobby their governments to repeal discriminatory taxes. Treasury Secretary Scott Bessent has also defended the proposal, testifying to Congress that it's designed to prevent foreign countries from draining US multinational companies with hundreds of billions of dollars in extra taxes. Market reaction has so far been limited, in part due to uncertainties over how the provision will ultimately take shape. There is little sign that foreign investors are retreating from US bond markets, and the S&P 500 is not far from the record high set in February. But investors are concerned about the unintended consequences and the signaling effect of Section 899. Some bond holders have been spooked by a lack of clarity about whether US government bonds could be taxed. The interest earned by non-US holders of US Treasuries isn't taxable by the US under what's known as the portfolio interest exemption. The Senate bill would exempt portfolio interest, per a summary released by the Senate Finance Committee. A footnote in a House report related to the bill states that Section 899 'does not apply to portfolio interest,' but that isn't mentioned in the House's version of Section 899 itself. Some investors say it amounts to a weaponization of US capital markets into law. The tax 'challenges the open nature of US capital markets by explicitly using taxation on foreign holdings of US assets as leverage to further US economic goals,' George Saravelos, head of currency research at Deutsche Bank AG, wrote in a report last month. JPMorgan Chase & Co.'s strategists expect the provision may weigh on high-dividend stocks, such as financial services and utilities, and compound the 'lingering concerns around investors' willingness to hold dollars.' --With assistance from Melissa Shin and Lauren Vella. American Mid: Hampton Inn's Good-Enough Formula for World Domination How a Tiny Middleman Could Access Two-Factor Login Codes From Tech Giants The Spying Scandal Rocking the World of HR Software US Allies and Adversaries Are Dodging Trump's Tariff Threats As Companies Abandon Climate Pledges, Is There a Silver Lining? ©2025 Bloomberg L.P. Sign in to access your portfolio
Bloomberg
16-06-2025
- Business
- Bloomberg
Senate Delays and Scales Back ‘Revenge Tax' in Trump Bill
By and Ye Xie Save Senate Republicans plan to delay and make less onerous a levy targeting foreign companies and investors from countries that the US determines have been unfairly taxing US companies. The provision, officially known as Section 899 and informally known as the 'revenge tax,' was drafted by House Republicans and supported by the White House to counter several European countries, Canada, Australia and more nations from taxing US firms in a way those lawmakers argue is discriminatory.
CBC
05-06-2025
- Business
- CBC
Trump's 'big, beautiful' tax reform bill could cost Canadians billions
Social Sharing A small, obscure section buried in U.S. President Donald Trump's One Big Beautiful Bill Act could cost Canadians and Canadian companies billions of dollars, CBC News has learned. Moreover, it could hand Prime Minister Mark Carney's government yet another political hot potato from south of the border — forcing it to choose between scrapping Canada's digital services tax (DST) or risk the U.S. imposing a new withholding tax on the income Canadians, Canadian companies and pension plans receive from investments in U.S. securities. While it still has steps to go before becoming law, the provision has Canadian experts worried. "This is building a nuclear option into a tax treaty that has lasted for 80 years between Canada and the U.S," said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. "Just like the U.S. is totally willing to blow up the international trade order, they're totally willing to blow up international tax rules." The concern centres on Section 899 of Trump's One Big Beautiful Bill — more than 1,000 pages of proposed legislation that Trump says will make good on his domestic campaign promises, including tax cuts for Americans. The bill passed the House of Representatives on May 22 by one vote and now has to be approved by the Senate. Section 899, entitled Enforcement of Remedies Against Unfair Foreign Taxes, would increase withholding taxes for non-resident individuals and companies from countries that the U.S. believes have imposed discriminatory or unfair taxes. Experts believe Canada is likely to be one of the countries targeted by the measure because of U.S. government criticism of the DST. The tax applies to all large businesses, foreign and domestic, that earn revenues from certain online business models in Canada. Global minimum tax measures adopted by Canada could also put it in the Trump administration's crosshairs. Up to 20% withholding tax The timeline for the legislation is in flux and Section 899 could still get dropped from the bill or be amended. If, however, Section 899 becomes law, it could hit Canadians in different ways. For example, the U.S. currently imposes a 15 per cent withholding tax on dividends Canadians receive from U.S. companies. Under tax treaties, however, an equivalent tax credit from the Canadian government generally offsets the withholding tax. If the measure becomes law and the Trump administration designates Canada as a country with discriminatory taxes, a new five per cent withholding tax would go into effect. That tax would increase by five percentage points per year to a maximum of 20 per cent. It is not known if Canada would adjust its tax credits to offset such a tax. Max Reed, a cross-border tax lawyer with Polaris Tax Counsel, said the potential impact could be wide ranging. "It's definitely going to be in the billions, maybe tens of billions," he said. Kim Moody, founder of Moodys Private Client and Moodys Tax, agrees. "Billions, absolutely billions, for sure, would be the impact," he said. "If Canada and the United States allows this to take hold, the result will be chaos. Absolute chaos." Experts say it is not clear exactly how the tax would be applied. For example, would the new withholding tax be imposed on top of existing withholding taxes? Would it also apply to securities held within registered accounts such as RRSPs or only to dividends from shares held directly by Canadians? WATCH | The 'Big, Beautiful Bill' and your wallet: What Trump's 'Big Beautiful Bill' means for Canadians' wallets 4 days ago Duration 4:49 U.S. President Donald Trump indicated that he would increase government spending and loosen some fiscal restraints with a new spending bill dubbed the "big beautiful bill" last week. Mark Ting, a partner with Foundation Wealth and On The Coast's personal finance columnist, says that markets have already responded positively to the bill. Finance Minister François-Philippe Champagne's office declined an interview request from CBC News. "Analysis of the implications of the U.S. tax reform bill is ongoing and we await the final version of the bill," wrote spokeswoman Audrey Milette. The U.S. embassy also declined to comment on Section 899 or how it would work. "We are unable to comment at this time as the legislation is still pending final approval," responded an embassy official. U.S. Internal Revenue Service figures show that in 2022, the U.S. withheld $2.9 billion US in tax on $108.5 billion US worth of income from a variety of U.S. sources for Canadian residents and companies. The IRS said $261.4 million US was withheld from individual Canadian residents while $1.22 billion was withheld from companies and $1.24 billion US under the category of Canadian "withholding rate pools (general)." Of the sources of U.S. income received by Canadians, the IRS said $31 billion US was from dividends — half of which went to Canadian corporations. Impact on pensions and beyond David Pierce, vice-president of government relations for the Canadian Chamber of Commerce, said the chamber began getting worried messages from Canadian businesses once Trump's tax reform bill passed the House of Representatives. "I think the attention and the awareness of it really grew from what was a small subset of companies, now right across the economy — from financial to pensions to, you name it," Pierce said. "They're all very concerned at what this means for average Canadians in your retirement savings and how this would be applied should, of course, it become law." Pierce said the potential cost of Section 899 far outweighs revenue the Canadian government collects from the DST, a tax his group has opposed from the outset. He said the Canadian government should pause the next DST payment scheduled for June 30 and consider getting rid of the tax in negotiations with the U.S. "The concern is that when the U.S. administration makes allegations of Canada's trade practices, they can cite the DST and that's a talking point that rings true not just for Republicans, but also Democrats, in the United States," said Pierce. "That strengthens their hand. It's not strengthening our hand at the bargaining table." Macdonald says the proposed withholding tax would hit hard. "It would have major impacts on Canadian companies, Canadian investors in the U.S — they'd be downright punitive," said Macdonald. "That would probably end up shutting down Canadian businesses in the U.S. and kicking Canadian investors out of the U.S." And the DST isn't the only Canadian tax the U.S. could consider unfair now, or in the future, said Macdonald. "I think this is the tip of the iceberg in terms of threats against Canadian corporate taxation that attempts to level the playing field between American transnationals and Canadian domestic companies that are paying corporate income taxes," he said. Macdonald said the proposed tax could also hit Canadians who don't have direct investments in U.S. securities. "This isn't only for folks with an RRSP," Macdonald said. "I mean, this could extend to the Canada Pension Plan, which is the major means by which people retire in Canada. They could potentially pay dramatically more."
Forbes
02-06-2025
- Business
- Forbes
The American Pope And Citizenship-Based Taxation
To read this article with full citations, please visit Last week, Tax Notes International ran an insightful piece by Lewis J. Greenwald and Eric J. Rietveld, two attorneys with Sullivan & Worcester. The authors detail how the election of Pope Leo XIV, the first pope to hold U.S. citizenship, raises some novel concerns. The issues relate to the payment of U.S. federal income tax and compliance with U.S. information reporting requirements. Beyond the saving of souls, the new pope might need to worry about saving his receipts — in the event the IRS audits him. Their article argues, quite persuasively, that the pope should renounce his U.S. citizenship — not only to protect his own personal interests, but those of the Vatican itself. This column offers a contrary view. The pope should renounce absolutely nothing — even if that means leaning into a high-profile controversy with U.S. tax authorities. Such a conflict, were it to materialize, would shine public attention (and likely much criticism) on the U.S. policy of citizenship-based taxation. To be clear, I don't mean to suggest that the pope go out of his way to undertake an overtly political act. He's already a U.S. citizen, so he need not do anything special — other than go about his daily business as Bishop of Rome and leader of the Roman Catholic Church. If his retention of U.S. citizenship happens to instigate a generational reform in federal tax policy, so be it. Not to conflate the secular with the sacred, but last year President Trump pledged to address the 'double taxation' of U.S. citizens residing abroad. The LaHood Bill suddenly takes on new relevance. Greenwald and Rietveld lay out the various issues raised by the pope's status as a U.S. taxpayer. A preliminary question arises over the treatment of his papal salary. We don't know exactly how much the pope earns, although it's rumored to be in the vicinity of $400,000 per year. It's unclear whether the pontiff has chosen to accept or decline the salary, or to accept and donate the funds to charity. For U.S. tax purposes, a decision to decline salary may not be sufficient to prevent the earnings from being treated as gross income. The complexity doesn't end there. Additional concerns involve the application of section 107 (rental value of parsonages), section 119 (meals and lodging furnished for the convenience of employers), section 170(b) (percentage limitations on charitable deductions), section 911 (the foreign earned income exclusion), and section 6039F (the duty to report gifts from non-U.S. persons). Another batch of issues include compliance with the Foreign Account Tax Compliance Act, the Foreign Bank and Financial Accounts Report regime, and Form 3520 ('Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts'). Regarding these requirements, it matters little that the pope is a nonresident. That's because he's a citizen of the lone developed country that relies on citizenship-based taxation. Most of the rest of the world relies on residence-based taxation. As it turns out, Pope Leo XIV has been a nonresident for many years: first during his missionary work in Peru in the 1980s and 1990s; later while serving as the Bishop of Chiclayo, Peru (between 2015 and 2023); and most recently while serving as a cardinal in Vatican City. In fact, the clergyman formerly known as Robert Prevost spent much of his adult life residing outside the United States. He acquired dual citizenship along the way, becoming a naturalized Peruvian citizen in 2015. None of that changes the requirement to file a U.S. return and to comply with the foreign bank account report and FATCA regimes. That's a point that acting IRS Commissioner Michael Faulkender failed to squarely acknowledge when quizzed on the topic during a recent television interview. While appearing on NewsNation, Faulkender was asked whether the new pope would need to pay U.S. income tax, to which he responded (in part) as follows: 'It's based upon where the income is generated so, I believe, I don't know enough about Pope Leo, but I believe he's going to generate that income in the United States. I don't know enough about his citizenship to know whether or not there would be a tax on him.' Pardon my nitpicking, but that's not how most Tax Notes readers would have answered the question. He referenced the source concept (where the income is generated), which is primarily relevant to foreign nationals residing outside U.S. territory. The response seemed to be geared toward the notion that Pope Leo XIV is a nonresident alien. It came across as awkward. Once we take it as a given that the pope is a U.S. citizen, the source of his income is mostly irrelevant. To give Faulkender the benefit of the doubt, perhaps he purposely declined to assume that the pope remains a U.S. citizen or intends to retain his U.S. citizenship. The odd thing, though, is that virtually everyone in the world has been reflecting on the pope's Americanness. In light of these unmissable headlines, to contemplate that the pope is a nonresident alien is a peculiar take. A commentator on the NewsNation broadcast, professor Caroline Bruckner of the Kogod School of Business at American University, offered an alternate explanation. She suggested that Faulkender might have been thinking of supplemental earnings (speakers fees) the pope could earn during the rest of his life — some of which might constitute U.S.-source income, depending on where the remarks were delivered. At any rate, if you've engaged in enough media interviews you'll appreciate how easily one can get wires crossed between the question posed and the question answered. The point is not to critique the extemporaneous remarks of an IRS official, but to observe that the acting commissioner was presented with the perfect opportunity to fume about citizenship-based taxation and declined to go there. Allow me to take the bait. The election of Pope Leo XIV is an ideal platform for opining on the merits of residence-based taxation. In the spirit of never allowing a good crisis to go to waste, a papal tax controversy might suit the U.S. expatriate population just fine. This is how you build critical mass for reform — if not a full-blown repeal of citizenship-based taxation, perhaps the enactment of a same-country exemption for FATCA and a general rethinking of FBAR penalties. International taxation is complicated enough when the individual in question is an ordinary U.S. citizen who happens to reside abroad. The situation is made more challenging by the fact that our taxpayer also functions as the head a foreign sovereign — the Holy See. The United States lacks a tax treaty with the Holy See, but the two jurisdictions have had a FATCA intergovernmental agreement in place since June 2015. In times past, the Vatican Bank had a subpar reputation for voluntary compliance with financial transparency initiatives. Pope Francis (Pope Leo XIV's predecessor) made it a priority to normalize the Vatican Bank's business practices, conforming them to international norms on tax evasion and money laundering. On multiple occasions, Pope Francis urged world leaders to 'reimagine' the global financial system as tougher against illicit cash flows. At the time of the U.S.-Vatican FATCA agreement, Gerald Posner, author of God's Bankers: A History of Money and Power at the Vatican, told Tax Notes: 'This tax sharing agreement with the U.S. is further evidence that Pope Francis is intent on taking the necessary steps to ensure that the Vatican Bank is compliant with internationally accepted financial norms, helping the bank to shed its past offshore reputation.' To that end, Francis took the further step of requiring that the church's many financial investments be formally structured through accounts of record at the Vatican Bank. A certain U.S. citizen now exercises practical control over each of those financial accounts, making them presumptively reportable. That could be the mother of all FBAR problems. The control issue won't go away by modifying the accounts so that another Vatican official or third-party fiduciary is inserted as the nominal account holder. As the sole head of the church, the pope is effectively an absolute monarch. Whoever is managing the Vatican Bank is ultimately answerable to a U.S. citizen. That might not equate to beneficial ownership, but it is supervisory control. Does the IRS really need to know the details of the Catholic Church's investment portfolio? You'd think not. Seeing how the IRS is currently in the habit of sharing confidential taxpayer data with the Department of Government Efficiency, should we be worried that the department's employees and operatives — or Elon Musk himself — will soon know as much about the church's internal finances as the Bishop of Rome? I wouldn't think so, but stranger things have happened. All this is uncharted territory. It's extremely rare for a U.S. citizen to become a foreign monarch. The only other example that comes to mind is that of Bhumibol Adulyadej, who was born in Massachusetts and later reigned as king of Thailand (Rama IX) for 70 years. That's just two individuals over the course of the United States' 249-year history; not much in the way of direct precedent. Along those lines, I've always wondered how the U.S. and Thai governments dealt with the U.S. policy of citizenship-based taxation. As far as I know, King Rama IX never filed a U.S. tax return, yet he also never formally renounced the U.S. citizenship he acquired at birth. That might be the closest proxy we have for the current situation involving the pope. What would transpire if the pope simply declined to file a U.S. tax return and neglected to file an FBAR? Would the IRS dare to issue a statutory notice of deficiency? Would it slap the pope with extensive FBAR penalties, claiming a willful violation? Would the U.S. government apply punitive withholding terms against the Vatican Bank, as authorized under FATCA? Immunity is one way around all of that. Heads of state are presumably covered by ratione materiae (functional immunity) or ratione personae (personal immunity), recognized as facets of international law under the 1961 Vienna Convention on Diplomatic Relations. That said, the track record on invocations of immunity is spotty at best. We've seen a French court refuse to prosecute U.S. Secretary of Defense Donald Rumsfeld for alleged crimes committed in the aftermath of the invasion of Iraq, at Guantanamo Bay and the Abu Ghraib prison. The court cited Rumsfeld's (derivative) immunity as a member of President George W. Bush's cabinet. Former Liberian President Charles Taylor wasn't so lucky regarding his immunity claim. Neither was former Chilean President Augusto Pinochet. I offer no insight about how the IRS or the Justice Department Tax Division would approach the invocation of such immunity if it were raised by the head of one of the world's major religions. It seems an outlandish possibility, after all — but we tax professionals are in the business of asking 'What if?' You're probably thinking that things would never get to that point, and you're almost certainly correct. As Greenwald and Rietveld note, Treasury or the IRS could take steps to deflate any burgeoning tax controversy with the pope. That could occur through the issuance of informal guidance. One imagines the White House would not look favorably on the IRS instigating a tax controversy with the pope — even if the two sides happened to disagree on, say, the ethical treatment of immigrants. On the other hand, the White House probably knows that the tax code endows the executive branch with transaction leverage (if that's the correct term) over any U.S. citizen residing overseas. It most likely doesn't matter that Cardinal Prevost, before becoming pope, took to social media to publicly disagree with U.S. Vice President JD Vance, calling his interpretation of Christian doctrine 'wrong.' It's not my role to provide tax advice. That said, I hope the pope retains his U.S. citizenship — notwithstanding the astute analysis of other commentators in these pages. U.S. citizenship is a precious thing, not to be given away lightly. Further, I'm hoping the pope invokes sovereign immunity as a legal basis for not filing a U.S. tax return with the IRS and for not filing an FBAR with Treasury's Financial Crimes Enforcement Network. That's no endorsement of belligerence. Nor am I advocating for intentional noncompliance with U.S. tax and regulatory laws. I'm merely saying that in the case of Pope Leo XIV, the burden should be on the U.S. government to justify its assertion of extraterritorial taxation — which deviates from international norms. That justification might be found to be lacking. Ordinary people who seldom think about tax policy will then ask: If residence-based taxation is a fair solution to the pope's unique circumstances, why wouldn't it also be a sound principle for everyone else? The real issue is not how the U.S. government chooses to tax the pope but how it taxes the scores of other U.S. citizens living overseas who are unable to rely on diplomatic immunity.
