International Tax Implications of the "One Big Beautiful Bill"

Here we go. Which provision of Section 8 99 are you most interested in learning about? So please go ahead and as a straight note earlier, you can just click one of these and the answers will come up in about 20 seconds. We're looking at each of these. The most important of which so far and the most hotly contested is section 8 99, which my colleague Daniel Mak is going to discuss next. After that, max is going to discuss a number of the other tax provisions, the international tax provisions contained within the one big beautiful Bill act, and then I'll close us out with tariffs. Along the way, I think you're able to ask questions in the chat. If we're not able to get to your questions, please make sure you leave an email address and we will address those separately. So at this point, I'm going to turn it over to Daniel Mack, who is going to be discussing Section 8 99.

Daniel Mak: Thanks, Dean. As mentioned, I'm a senior manager here at the International Group. I'm based out of the Philadelphia office, and happy to discuss with you all on proposed section 8 99. So what 8 99 does. It grants the US Treasury Secretary a broad authority to implement this retaliatory tax measure against foreign taxpayers from certain countries that have levied these discriminatory or extra extraterritorial taxes. We'll mention these three that were mentioned between the House of Senate bills later. An applicable person can be defined as any government of a discriminatory foreign country, an individual tax resident of a discriminatory foreign country other than a US resident or citizen. So that means if you're a dual resident of, say the US and the UK, if you're a US citizen, this doesn't apply to you. So really think of non-US parties. This could also mean a foreign corporation, and then other than a US owned foreign corporation in our international tax lingo, this would exclude CFCs controlled foreign corporations owned by US companies because they're subject to our US guilty rules. Anyway, a private foundation created or organized in one of these discriminatory foreign countries or any corporation if owned directly or indirectly by an applicable person and any trust partnership flow through entity that's designated by the Treasury Secretary as residing in this discriminatory country. So really a broad interpretation of what constitutes an applicable person.

These three were, well, the first two digital services tax and under tax profits rule were included as part of the Senate revisions to the House bill. The diverted profits tax was only included in the house bill and wasn't explicitly mentioned in the Senate revisions. So these three are the type of discriminatory taxes that a certain country would levy on its residence. A digital service tax basically is a tax on the gross revenue of large digital companies operating in a specific jurisdiction. So for example, the UK levies 2% tax on revenues above 25 million pounds for certain digital businesses when they make revenue from online search engines, social media platforms, online marketplaces, and within these digital services taxes, there's exemptions and reductions in the calculation. The idea is that the rationale that this administration believes is that the certain countries are unfairly targeting US, multinational enterprises, the big tech giants, Facebook, meta, Google with making business in certain countries without a fair taxable presence there.

I see this as analogous to the Wayfair case that for some of the state and local and federal folks who have dealt with this, where economic nexus in a certain US state can be defined as having a presence in the US state without a physical presence. This is kind of analogous to that, but on a global scale. The second is an undertaxed profits rule, the UTPR, and this is part of the pillar two legislation. So not to get too far deep into pillar two, but a high level explanation is that pillar two is part of the OECD's. This is the organization of economic Development and Cooperation and Development countries, of which the majority of the world's advanced economies are a part of the US European Union China countries like that where they will try to achieve a 15% global minimum tax for multinational enterprises that have revenue over 750 million euros or whatever the equivalent is in the country's functional currency. So the way pillar two at least works is that there's three levels of initial taxes that a country can implement using the OECD's drafts legislation. The OCD is a nonprofit organization, think of as a think tank that suggests legislations for the member countries to consider adopting.

So first, a local country can adopt a called A-Q-D-M-T-T-A domestic minimum top up tax where they'll determine if the resident corporation or ND within that certain country levies more than 15% tax, if that's still not the case. The second piece comes in with the income inclusion rule where a parent company of the subsidiary is allocated 15% tax if that specific law is enacted by that company to achieve 15% globally. And if the parent company does not get to 15%, this UTPR rule is a backstop to try to allocate to get up to 15% tax on a global scale. So for example, in Korea, the UTPR was one, it was one of the earliest adopters of Pillar two legislation and the UTPR can allocate more taxes to the South Korean entity of a multinational company if the 15% effective tax rate isn't achieved globally for the enterprise.

So just to circle back to in terms of the scale of how digital services taxes and pillar two is adopted digital services taxes, we've seen in a lot of European Union countries, a few African and South American countries, Columbia, Kenya, Nepal, Nigeria, Tanzania, Tunisia, Vietnam, and any countries who are modifying their value added tax systems to accommodate taxing digital services. Pillar two UTPR is also a similar wide net. The European Union, the European Union, let's see, Australia, Canada, Indonesia, South Korea, Thailand, Turkey, the UK and Japan. So in terms of why this is important is that considering that these countries have enacted a digital service tax and A-U-T-P-R rules, the US Treasury Secretary can designate foreign individuals or foreign applicable parties of these countries as part of being caught into the section 8 99 proposed section 8 99 retaliatory tax regime. And the last one is a diverted profits tax, which again was included in the house.

Bill was left out the Senate revisions where certain countries such as the UK, Australia, India has a version of this called the equalization levy Poland, where they'll levy attacks applied on what that tax authority deems improperly diverted out of that country's orders through artificial tax arrangements. That tax authority themes contrived or artificial like a base erosion. This is I guess analogous to our base erosion tax, the beat tax. So depending on how each country does it, it's a little different in terms of mechanisms. So those are some examples of why Section 8 99 is proposed, and I think it's a kind of a punch for punch tax measure. In terms of the tax rate increases, the Senate bill and the house bill both have an increase of 5% each year. The Senate bill would start for taxers beginning after 1 1 27 up to 15%. So it's spread out over three years.

The house bill conversely would've been enacted as of 1 1 26 and would've been capped at 20% with that same 5% increase. And so what that really effectively means is that on this type of US source income, this is a table of the various payments from a US person or applicable person that pays to an applicable person and what that would mean in terms of an increase in a tax rate. So the first one is your F dap, your determinable fixed annual periodic payments, think dividends interest royalties pay by US company to a non-US parent. And normally these kind of payments are levy to 30% US withholding tax. This can be reduced to 0% depending on the type of income it is. We usually see treaties reduce interest withholding tax down to zero for various reasons to make debt lending easy between countries. And what the 8 99 increase does is in the Senate bill increases 15%, so a maximum 45% and it was 50% for the house bill.

So you're just adding on 15 to 20% on top of the tax rate. And this could be as low as 20% under treaty rates, 15 to 20% on a 0% withholding tax. Item ECI is effectively connected income. So this is where you have a non-US person, could be an entity, an individual, it's not incorporated in the us but has some kind of presence in the US because of US trade or business. And the US tax rules describe what ECI income entails. That's taxed at a current rate of 21% and the corresponding increases is 36% in the Senate version and 41% in the house bill. The branch profits tax on dividend equivalent amount is similar to the F DAP regime where if you have a non-US corporation, you have a US branch, not an incorporated entity in the US and the branch Repatriates funds to the foreign corporate entity.

It's also taxed at 30%. It's similar to the withholding tax rate and the similar increase there as well, 45% and 50%. And then the next one is the income that you make from dispositions of US real property interest. So if you're a foreign company that has an ownership in either US Real Property Holding Corporation or US Property real property, which means if you're a US real property holding corporation, you have more than 50% of your assets made up of US real estate assets. So when you sell that US real property as a foreign person, you'll be assessed 15% of Ferta tax on that gain and it's 10%. If the US real property interest is sold for less than a million dollars or used as a permanent residence and correspondingly the 15% becomes 30% under the Senate bill and then 25% if it's less than $1 million and you see the house number as well. And the last one is gross investment income, where if a non-US private foundation receives US F DAP income up in the first row with respect to securities and loans that the private foundation holds, there's a 4% tax rate currently and then that could be increased to 19% in the Senate version 24% version in the house bill.

And taking a step back from the type of F DAP income, it would be a good refresher to remind that the sourcing of income are under US tax rules. For example, this table shows that if a US person is paying F DAP income, personal services are sourced where the services are physically performed. So in order to be US sourced income, it has to be performed physically in the us dividends would be sourced to the payer interest of tax residents. The rental would be the location sourced to the location of the rental property royalties for patents and copyrights. IP and intellectual property is the jurisdiction where it's exploited. So the royalties is for exploiting patents in the us, it's US source. If it's for territories outside the US, then it's foreign source and that's subject to these rules of royalties for natural resources where the physical resources are located. And then prizes and awards would be again, whoever the payer is, if it's a US payer, US Foundation, US school and software gets a little dicey just because how the software is packaged. Is it on a server? Is it licensed as a rental, a royalty shrink rack package? There's a little bit of nuance at that point as well. And the real property, we discussed that before where the US property is located in the us. That's US source.

So poll question three is are you familiar with some of the exceptions to section 8 99? Yes. Or, and we'll leave that on for a few seconds.

All right. Do you want to show the results or am I doing that? Okay, I see. No. Okay. Okay. Well that's the majority of us. Those of us who are not familiar with the exceptions of proposed section 8 99. So several exceptions to Section 8 99 exists. Think about income, this will be relegated to income taxes. So certain exceptions here are foreign income taxes imposed on non-US persons. So that's excluded certain retaliatory and discriminatory taxes. These are not those withholding taxes on certain passive income VAT value added tax goods and services, tax sales and other consumption taxes, personal property, estate gift taxes or taxes imposed on a per unit or per transaction basis. So the key theme here is that if these certain taxes are not related to generation of income or losses and how that tax calculation works in a foreign country, they're excluded from this list of being considered an extraterritorial or territorial unfair tax and current exemptions in the Senate bill, but not the house bill are the original, the OID exemption rules under 8 71.

Portfolio exemption rules bank deposit interest exemption for interest related dividends paid by regulated investment companies bricks. So these exemptions are part of the original F DAP withholding tax regime that you wouldn't have a US withholding tax supplied anyway. And this section 8 99 Senate version still preserves those exceptions. So that's depending on how the final regulations come out. If they are enacted, we'll see how the exceptions work. Current exceptions that are not explicitly addressed by either the center or house versions are how the taxes that apply to 5 0 1 C organizations apply that to non-US entities. And then the EB exemption for qualified foreign pension funds under section 8 97. That's just because it's not explicitly mentioned doesn't mean it's not going to be preserved. We just don't know at this time what's going to happen. The second, maybe a little smaller tooth of section 8 99 is this modification of beat.

So for those of you who are familiar with BEAT under current law, US taxpayers with more than $500 million of gross receipt for the proceeding three-year tax period are subject to analysis under beat. And if you're an applicable taxpayer under beat, then you have to analyze what your base erosion percentage is. Base erosion percentage is any payments that the US group related group of companies makes a payment to a related foreign party related, meaning there's some connection within the corporate organizations. You see this a lot with big multinationals and you have to analyze whether those base erosion payments to the foreign parties exceed 3% of your total deductions for the US group. And this isn't applicable to bricks regulated investment companies, REITs, real estate investment trusts and S Corps. So I believe the flow throughs are exempt from this law. The B tax rate is 10% and 12 point a half percent for years after 12 31 26. So when you calculate the B calculation, you calculate a modified taxable income in parallel to your US taxable income and based on that modified taxable income, you apply the B tax rate of 10% at any excess of that B tax over your regular tax liability. That's what you have to pay in terms of your B tax.

Also, the capitalized portion is where you can elect to have certain payments that are capitalized and you don't deduct them a hundred percent in that year. You can choose to, that can lower a beat payment percentage. And then a services cost method is where I've seen a few of my past clients use where there are certain exemptions from where there's certain services if the US pays, say in India or a Philippines back office operation that they have for certain services that are considered low or no markup and low value services. These are under the 4 82 regulations that there's a specific set of services that are considered services cost method eligible and those can also be accepted from being considered as a B payment. What proposed Section 8 99 does is that it removes that $500 million gross receipts test. It winds the net to not just US taxpayers, it could also be US subsidiaries owned 50% or more by these applicable persons from the various countries, the secretary, the treasury secretary deems as unfair or discriminatory.

So you could have a lot of foreign owned US companies that are caught in this beat net when they normally wouldn't be and establishes a 0.5% base erosion percentage test 2% of the house bill. So it significantly lowers that 3% threshold to 0.5% and the B tax rate, you increase it to 0.5% and I think it just accelerates the 1212 0.5% B percentage from the TCJA 2017 act. And then this was kind of surprising that capitalized payments, they would disallow this, they would, I guess for the B purpose would recharacterize these capitalized payments as their original deductible form. So what it does is, so at the end of the day and the services cost exception doesn't apply. So it's lowering the beat payment threshold, getting rid of the gross receipts, applicable taxpayer threshold and then taking away two of the main exceptions to beat and just really making it more, making beat more draconian and having some more teeth.

So if section 8 99 is included in the final legislation after the Senate Finance Committee scores it under the Senate bill, it would be enacted later of one year after the enactment of 8 9 9. So that's January 1st, 2027, the later of or 180 days after the enactment of a new unfair non-US tax that causes that country to be a discriminatory foreign country or the first date that the country's unfair non-US tax begins to apply. All that being said is that the way as described earlier, similar to the tariffs, a lot of the US historically the historical allies of the us, the European Union, Mexico, Canada, these countries can be caught up in this net of a discriminatory or unfair taxing country. And whether politically it further chills relations between the US and its allies remains to be seen what the effect of it is. But with this administration, we know that all things are on the table and there might be some fear from the foreign countries with respect to their residents investing in the US or otherwise participating materially in their US activities. So more to come. There are some commentary from the treasury department recently, but we will wait and see how this appears to meet that July deadline. Alright, I'll move on to that final polling question. What do you think the final version of the tax bill would look like? House version, center version or somewhere in between.

And then after I'll show the polling answers, I will pass it to Max to discuss the rest of the international provisions.

Max Markel: All right, thank you very much Daniel. As Dean noted earlier, my name's Max Markel and I'm a senior manager here in the international tax group at Eisner Amper. Thank you very much for joining us on today's webinar and hopefully gain some useful information and get some CPE in the process. Just a reminder, since we only have one hour today on today's webinar and we're covering the information at a high level, please feel free to reach out to any one of us, Dean, Daniel, or myself as we have a very robust international tax practice here at EisnerAmper and we'll be happy to assist you. Just to take a step back on proposed section 8 99, it appears at least to me to be used more as a negotiating tactic with other countries. As Daniel alluded to when he was covering the proposed section 8 99, just last night, there was an alert issued as some of you may have seen, where the number two person at the IRS basically said that when all is said and done, section 8 99 may be irrelevant, but stay tuned as things stand now, both in the House and Senate versions of the bills it's in there.

So it's important to understand how this provision is going to possibly affect each client's fact pattern Anyways, moving on to some other noteworthy international provisions in both the House and Senate bills, they include guilty FDI changes to downward attribution. We'll cover proposed section 4 4 7 5 which is the 3.5% remittance excise tax on payments from the US abroad and other provisions which we're going to go into on the next few slides. But for now we could start with Gil. So Gilt, which is your global intangible low tax income, the house bill proposes that the section two 50 deduction against gilt, which is currently at 50%, is going to be reduced to 49.2% effective for tax beginning on January 1st, 2026. That's in the house bill in the Senate version, they reduced the section two 50 deduction against gilt from 50% to 40%. So it's a more significant reduction. And just a reminder, this deduction against guilty is generally available to corporate shareholders of CFCs with some exceptions.

Notably, when you have an individual, they can make a 9 62 election to avail themselves of this deduction against guilty. And of course, just to keep in mind if there's an ordering rule, if you are a corporation that basically wants to take this two 50 deduction against guilty, you have to be in taxable in composition. So if you have NOLs first, those need to be utilized first before you tap into section two 50 deduction against a guilty. Another key distinction in the Senate bill is the repeal of QBAI, which stands for Qualified Business Asset Investment. And of course QBI is a key component in computing gilt, as many of you know, this was instituted as part of TCJA back in 2017, and we're going to go through the formulas of how Gil is computed in the next few slides. But I just wanted to know that this is a very big deal in the Senate version because it would effectively increase your Gil inclusion of CFCs that have tested income, which have CI currently the Senate version also renames guilty global intangible low tax income to be called net CFC tested income, which is essentially you're guilty without the QBI component.

Now the Senate proposal also increases the deemed paid foreign taxes for purposes of the foreign tax credit against Gilt, which is currently at 80% and it increases that amount to 90% effective starting January 1st, 2026. And that's a positive change. So if you have CFCs that pay taxes locally and they're generating guilty, all else being equal, you would be able to take a larger foreign tax credit under guilty income. Obviously subject to section 9 0 4 limitation on foreign tax credit, it's important to note that the house version does not have this per provision. So the house does not repeal QBAI and the house does not change the foreign tax credit against guilty.

Alright, so let's move on to FDII, which is your foreign derived intangible income and the deduction related to that. So in the house bill, there is no change to the computation of how FDI is computed, but the deduction itself on FDI is reduced from 37.5% to 36.5% starting in tax years January 1st, 2026. I just wanted to point out the applicability dates again, a lot of them are going to be starting January 1st, 2026 because a lot of the provisions that were enacted as part of TCJA are going to sunset at the end of this year, December 31st, 2025. So it's a common theme. The Senate version reduces the percentage from 37.5% to 33.34%, so it limits the deduction even further than the house does. Also, the Senate makes modifications in how FDI is computed it renames, FDI basically to F-D-D-E-I, which stands for Foreign Derived Deduction eligible income. Some of the modifications that the Senate proposes include the repeal of QBAI, which we mentioned and which is a big component in FDII and guilty computations.

But the Senate also puts restrictions on what qualifies as deduction eligible income. So thereby it limits the scope of the deduction, not just from a percentage standpoint, but what actually qualifies for deduction eligible income. For instance, DEI would exclude any income or gain from the sale or other disposition of property which gives rise to renter royalties. This would be effective for sales or other dispositions occurring after June 16th, 2025, which is when the Senate released their version of the bill deduction. Eligible income would also exclude certain types of passive income and it would reduce directly related expenses and deductions instead of the current law under which DEI is reduced by eligible deductions. So those are some of the ways that the Senate would change the FDI computation, which would be effective for tax years beginning after December 31st, 2025. Again, the house does not change the computation itself.

All right, so let's turn our attention to another key provision now which should not be overlooked, and that is downward attribution as part of TCJA. Section 9 58 B four was repealed. This repeal for downward attribution of stock from US persons to foreign entities was crucial. It resulted in onerous reporting and compliance for US taxpayers. The Senate bill actually limits downward attribution for purposes of determining CFC status and it also introduces a new section 9 51 cab B, which retains downward attribution, but it also defines new terms such as foreign controlled US shareholder and foreign controlled foreign corporation when applying subpart F and guilty inclusion rules. So the Senate provides some relief on this downward attribution issue whereas the bill does not even mention anything about it.

Alright, so let's see here, next slide. Alrighty, so let's look at some other noteworthy international provisions such as the CFC look through rule, which is currently set to expire at the end of this year. So what is the CCFC look through rule? It is a provision on the section 9 54 C six that provides an exception to Subpart F income treatment for certain payments that are made between related controlled foreign corporations such as intercompany dividends, interest rent, royalties the Senate provides for a permanent extension of this rule, again, which is set to expire at the end of this year. The house version does not do that, so just keep that in mind and stay tuned as to how these things develop because there are key differences.

So we're going to take a look at some other key provisions on the next few slides. Most notably here we have section 1 63 J, which is a domestic provision, but however it applies to CFCs that also have interest expense, which is why we want to talk about it. So keep in mind that 1 63 J interest expense limitation purposes, we have to consider interest expense on A CFC by CFC basis, not on the aggregate basis unless you make a CFC group election to treat it on an aggregate basis. Both the house and the Senate bills provides a much needed relief and they both reinstate depreciation and amortization. When determining your adjusted taxable income currently, you can deduct interest expense of up to 30% of your EBIT only your earning before interest taxes, but both the house and Senate would allow the depreciation amortization and depletion add-backs which expired in 2022.

So the key takeaway here is this is ultimately favorable for US taxpayers who would otherwise be in a limited position on their interest expense deduction because it will allow them a higher cap higher ceiling on a TI with depreciation and amortization added back into the formula. With respect to applicability dates in the Senate, it would start after tax years 2024 and it may be retroactively elected to apply for 2022 and 2023, which is when the depreciation and amortization piece expired. The house applicability date is different for 1 63 J so that it covers 2025 through 2029. So it's not permanent. And also one other thing to point out here on 1 63 J, the Senate excludes capitalized interest from the deduction cap and it excludes subpart and guilty items from the A TI base. Alright, moving on to another important provision which is section 4 4 7 5. And this is a newly proposed section in both the House and Senate bills.

This is the remittance excise tax of 3.5% on transfers of money from individuals in the US to recipients abroad via remittance transfer providers or RTPs. There are some notable exceptions which include US citizens, US nationals who use qualified RTPs as those may be excluded. There are also some provisions within the 44 75 proposed section that deal with anti-abuse and anti conduit provisions as they relate to this remittance excise tax. And with respect to 44 75, the Senate bill largely mirrors the house bill with some minor exceptions, but we can probably do a separate webinar just on each one of these provisions, each one of these sections. But in the interest of time, let's move along to some other international provisions that we wanted to cover today. So changing gears a bit into another direction. So this next slide here talks about QBI, which we previously touched upon again, the Senate repeals qbi, which significantly would impact the guilty and FDI computations as we discussed. The house bill does not repeal QI and it leaves it intact. So that that's a very big difference for FDII. Purposes 10% of QBI is basically a reduction to your deduction eligible income and it isolates income that's attributable to intangibles and it excludes routine returns of tangible assets. So repeal of QBI actually would be beneficial for FDII computation purposes, but it would be detrimental for gilt inclusion purposes.

And on this slide we can also see the current statutory formula for computing both FDI and Gilt, which is basically just to illustrate that QBI is a critical component of both computations as they stand today. Alright, let's look also at section 1 74. And of course this relates to the treatment of research and development expenses. Currently domestic r and d has to be capitalized and amortized over five-year life. Foreign r and d has to be capitalized and amortized over a 15 year life. The house incentive bills both provide relief but only for the domestic r and d by allowing it to be expensed immediately for tax return purposes. So keep this in mind because it's not permanent. However, the house allows for this to be extended for 2025 through 2029 tax years. The Senate applicability date is still up in the air. But the key takeaway here on section 1 74 with respect to r and d treatment is that the House and Senate both provide relief for the tax treatment of your domestic r and d, but that relief is not extended to US taxpayers that have foreign r and d, which still has to be capitalized and amortized over 15 years.

So in both the House and Senate versions that is the same, essentially Congress wants to onshore more r and d to be done in the US and that's why they're doing that. And with that, let's go to our next polling question poll question number five, has this webinar been informative so far? Please make sure to answer the polling questions so that you can get your CPE credit.

And while you guys are answering the polling question, I just wanted to know that we're also in the process of rolling out some important articles on our Eisner website, which are related to all of these international tax provisions that we're covering on today's webinar. So just be on the lookout for that and all the recent latest developments. While you guys are wrapping up the polling question, I'm going to kick it off to Dean who's going to cover the current state of where things stand with tariffs. Looks like most people have found us helpful. That's fantastic, Dean, take it away.

Dean Peterson: Thanks very much Max. And thanks Daniel. And before we get into talking about a topic that's been out, there are a lot tariffs. I'd just like to note that yeah, the tax law or the proposed tax rules are changing all the time, even within the last 24 hours. There have been some potential changes here, which max noted earlier that there's the possibility that 8 99 may be irrelevant or non-existent. One thing that we believe is not going to change is that remittance tax. So the remittance tax originally began in the house as 5%, which is viewed as punitive in many circles. The Senate has toned that down to 3.5%, but we'll see where it ends up. Our sources indicate that the three and a half percent is probably where it's going to end. And we also believe that whomever is remitting the tax to the government is going to have to issue a quarterly report stating how often they had to make this remittance tax.

And they'll have to prove if they did not make a remittance payment from one of their clients, they'll have to show the government why. So there are potential penalties not only for those who don't pay the remittance tax, the individuals, but also for the institutions who facilitate the transactions. So they're going to have to be very careful with this remittance tax going forward. All right. As you can see, tax law proposed tax rules are changing all the time. But let's go back to talk about an old friend. Tariffs. Tariffs. Tariffs starting after President Trump was inaugurated, became something that was back in the spotlight. And in February he instituted a couple of tariffs in the manufacturing and steel industries and auto industries, I believe that really caused people to stand up and take notice. Then came April 2nd, which he deemed liberation day, where he showed a large list of countries and the new tariffs that would be imposed upon those countries should there not be any negotiations trying to bring the US to a more fair position in relation to their trading partners.

So where are we with the trade negotiations and the timeline? So right now with a lot of countries, we're in a place where there's a 90 day tariff pause so other countries could negotiate with the us. So some of our primary trading partners, the EU, UK, and China, are engaged in these good faith talks. You saw China in May actually did sign a new trading agreement. However, China is not resting. As you'll see later in my presentation. They're going to file a complaint against the US with the World Trade Organization, I believe so we'll see where that goes. Right now, China is, we do have a tariff, US has an agreement with China, and we have some agreements with the UK as well, particularly related to their auto manufacturing, the UK's auto manufacturing industry. But again, that could change. So the one we're looking at right now is the pause that expires on July 9th, and that is most closely associated with the EU negotiations.

So the EU and the US have a 1.6 billion Euro trading between the EU and the us. So it's the largest bilateral trading relationship in the even bigger than the US and China. So it's very significant. So without any deal, the tariffs on a number of those products could raise up to 50%, including manufacturing, technology, automobile parts, perfume, cosmetics, wine, food products, et cetera, stuff that Americans have been purchasing from Europe for years. So what we're hoping for is some of these negotiations that we'll be able to reach some bilateral deals where everybody can walk away feeling like a winner. One of the things as section 8 99 noted earlier, the digital service or our conversation about Section 8 99 referred to the digital services tax is something that the US is very upset about, this administration in particular, and they feel that that is a anti discriminatory tax against the us along with some of the pieces of pillar two, as Daniel noted earlier.

So we're looking at other things like non tariff barriers like food safety standards. Traditionally, some of the European food standards have been a little higher and have posed a bit of a barrier to some US food products going over to the EU. And then of course, export restrictions and subsidies, which is sort of a wide ranging raft of items that could be negotiated upon. So where are we in the legislative landscape? Trade Review Act 1272 with limited executive authority to impose or maintain tariffs without congressional approval. So if you're watching the news, you know that a lot of these tariffs have been implemented by the executive pen without congressional approval, and that is happening because we are in a state of what's considered a state of emergency right now in the us. And so in those circumstances, the president can describe or determine and write executive orders that will impose tariffs without having to consult Congress.

So Congress, even if they agree with the tariffs, are not happy with being removed from some of the decision making on the negotiation. So we'll see if that really goes anywhere. And another the Chair of Transparency Act requires the US International Trade Commission to assess an economic impact or tariffs quarterly. So parties from both, sorry, members of both parties, Republican and Democrat want to see this. They want to see what the impact is because these representatives and senators have to go back to their constituencies and tell them why some of these tariffs are happening, how they're going to affect the local businesses. I mean, we've seen some notable ones in Kentucky and Tennessee related to liquor. So that's been hotly contested within the tariff discussion world. So some of the tariffs were or ruled illegal, and these reciprocal tariffs were said to exceed statutory limits for what was acceptable. There were some cases brought by importers and exporters and trade associations claiming unconstitutional use of presidential power, and we're going to continue to see cases like this, whether they're brought by trade groups, certain industry groups, certain lobbyists are going to all advocate on behalf of their own clients, whether it's auto parts, pharmaceuticals, or hard cheeses. They're out there trying to see if they can have some exemptions made within these tariff discussions.

A lot of these legal agreements hinge upon whether there is an actual national emergency, which I mentioned earlier. I think right now the national emergency is considered something to do with immigration as well as the increased movement of fentanyl across US borders coming in from foreign countries. So they're taking a closer look at that right now to see how accurate that actually is and if that can still be considered a national emergency. So right now, of course, the international community is up in arms about this. The EU is right now considering tariffs retaliatory tariffs of 95 billion or more dollars, but that's currently paused until July 9th. And China is preparing, like I said, a World Trade Organization complaint and will probably increase their export restrictions on rare earth minerals, which are critical to so many of our industries, including the production of electric cars, the UK and Japan. Two of our other major trading partners in the US are seeking exemptions via fast track negotiations. Canada and Mexico are threatening arbitration over the fentanyl related tariffs because they don't feel that they should be held solely responsible along with China for having the finger points at them for the fentanyl coming across US border. So this leads to lots of supply chain disruption because for instance, in the auto industry, so many pieces go into making in automobile, so many of them from overseas pharmaceuticals, the same thing, and agriculture as well.

So right now let's focus on the EU because that's the one that's still in negotiations. So right now there's a 10% baseline reciprocal tariff on most EU imports effective as of a couple of days after Liberation Day. It covers pretty much everything. It's covering food, consumer goods, pharmaceuticals, steel and aluminum, automobile and related parts. These are significant tariffs and they have been, again, temporarily paused until July 9th. And we're hearing that the July 9th deadline may be extended, but there's no guarantee that the US is willing to extend that or the EU would be willing to do it either. So it's sort of a wait and see approach is we're at about that two week mark before July 9th. So we'll see. The negotiations are going on right now. I'm not sure how they're progressing, but I'm sure we'll be hearing more in the news shortly.

The EU has maintained a unified negotiation front on this. There is some question about which states prefer or are willing to compromise. On the tariff front. We're hearing that the more manufacturing oriented countries of the EU north, such as Germany, the Scandinavian countries, some in France are preferring that there's some compromised REITs so that their manufactured exports can reach the us. But then we're also hearing that some of the southern economies, France, Spain, Portugal, Italy, who are exporting a lot of food products to the us, they want to discuss that further. They don't want to just sign on and resign themselves to a certain specific tariff. So right now, I'll go to point number four here. There's a UK bilateral style deal to cap auto tariffs. So I think that's being viewed as a model for other countries when they're looking at how to negotiate with the US on this, they're wondering what's going to work with the US trade negotiators, and I think it's going to be a deal that has certain caps on imports, and then after those caps, the tariffs may increase.

Yeah, as noted, the key deadline is July 9th, and we're coming upon that shortly within a couple of weeks, that would increase tariffs from the baseline EU tariff up to 50%, very, very short order. So definitely concerned about that one. And as noted earlier, there's some internal division among the EU on the northern states versus some of the southern economies, and that's going to be negotiated in the country or by all those factors that have to be considered when the EU and the US trade negotiations take place. So for us, what are we thinking and how are we advising our clients? We're waiting right now for more policy announcements by July 9th. We're hoping to get something substantive from them. However, in the meantime, what are we advising our clients to do? We're advising them to conduct tariff impact assessments and take a look at your supply chain and see where you're getting your parts or your imports from.

If you're making a product where you're getting some of your supplies from, are you an importer of a product such as perfume that is sent to you and you just package it? What are the implications going to be for you? Take a look at your intercompany agreements, take a closer look again to your supply chain to find out what makes sense from a manufacturing perspective. I mean, some of these punitive tariffs are intended, bring more manufacturing back to the us and is that going to work? Time will tell. Some of our clients are considering moving some operations to the us but that's alternative because there's no certainty right now. And what our clients want to hear from the government are some rules that are final. So we can act upon those rules. And that comes down to predictability. There's going to be a lot of price pressure on EU originated consumer goods with this escalation proceeds.

So here we are at the end. So I'll make a couple of comments. Well, right now until we're modeling out a lot of scenarios for our clients based on rules that are not final yet. So we think it's extremely important to pay close attention to all these rules, whether it's 8 99, the remittance tax or tariffs, just to ensure that we're ready to act when the rules are finalized. Some of them are slated to go into effect on January 1st, 2026, which sounds like it's six or seven months away, but that's really right around the corner when it comes to planning for big rules, changes like this, the section 8 99 as it's proposed now is going into effect on January 1st, 2027 for tax years starting then and after. So that is a little bit of breathing room to plan between now and then. But in the meantime, we are paying close attention to what's going on in Washington.

We're listening to some of our in-house resources who have their ears to the ground in Washington, have contacts there. So as usual, EisnerAmper is ready to help advise on this as we go forward. We have the resources, the expertise, and some of the legislative contacts that can help to advise clients to act prudently as we see new legislation rule out. So with that, we're coming up on the end here. I'm going to throw it back to Astrid. I want to thank you very much for everything. For everybody who participated today, if you have follow up questions that I wasn't able to answer, we weren't able to answer, we'll come back to you individually. But other than that, feel free to reach out to Daniel to Max or to myself with any questions. Astrid.

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