The Biden administration and some Senate Finance Committee members have proposed significant changes to the international tax regimes under the Tax Cuts an...
Key insights
- The proposal for higher corporate income tax rates, as well as significant changes to existing international tax rules, would directly impact corporate taxpayers, particularly those with foreign subsidiaries.
- Additional incentives have been proposed to spur clean energy, onshoring, and community-based investments.
Need help understanding the potential impacts of new proposals on your global tax structure?
On March 31, 2021, the White House released a summary factsheet of the “Made in America Tax Plan,” a tax proposal that would generate revenue to pay for the recent “American Jobs Plan” spending proposal. The White House estimates that the Made in America Tax Plan would raise $2 trillion in tax revenue over the next 15 years.
In addition, Democratic members of the Senate Finance Committee — including Sens. Wyden, Brown, and Warner — have introduced a separate proposal titled “Overhauling International Taxation.”
A comparison: Made in America and Wyden Tax Plan
Review some key differences between the Wyden plan and the White House plan.
| “Made in America” Tax Plan | Wyden Tax Plan | |
|---|---|---|
| Federal Corporate Income Tax Rate | • Increase the federal corporate income tax rate from 21% to 28%. | • Not addressed. |
| Global Intangible Low-Taxed (GILTI) Income | • Increase in the effective federal income tax rate on GILTI from 10.5% to 21%.
• Determine GILTI on a country-by-country basis to prevent “blending” of foreign tax credits. • Removal of the “deemed tangible income return” (generally 10% of depreciable fixed assets) from the GILTI calculation. |
• Increase in the effective federal income tax rate on GILTI (rate unspecified).
• Determine GILTI on a country-by-country (or other basketing) basis to prevent “blending” of foreign tax credits. • Removal of the “deemed tangible income return” (generally 10% of depreciable fixed assets) from the GILTI calculation. • Exempt domestic R&D expenses from expense apportionment for foreign tax credit limitation purposes. |
| Foreign Derived Intangible Income (FDII) Deduction | • Complete removal. | • Equalize effective tax rate on FDII with GILTI effective rate.
• Replace income base that applies on FDII to “innovation income” rather than “intangible income” to incentivize U.S. R&D and worker training activities. |
| Base Erosion and Anti-Abuse (BEAT) Tax |
• Complete removal. | • Enable certain tax credits to offset BEAT liability.
• Increase the BEAT rate on base erosion payments and expand BEAT to non-base erosion payments. |
| Minimum Tax | • Multi-lateral development of a global minimum tax regime. • Introduction of a domestic minimum tax regime based on “book” income. |
• Not addressed. |
| Strengthening of Anti-Inversion Rules |
• Expansion of current anti-inversion rules to apply to currently exempted cross-border transactions. | • Not addressed. |
| Additional IRS Funding | • Provides for additional IRS funding for enforcement against corporations. | • Not addressed. |
| Tax Credit Incentives | • Introduction of a number of new tax credits aimed at clean energy, onshoring activities, and community investment. | • Not addressed. |
Assess the extent to which the above proposals may impact your specific income tax situations. In particular, if you have operations or subsidiaries in low-tax jurisdictions, you may want to consider restructuring opportunities in light of additional GILTI tax that might apply on such income. In addition, if you’re currently contemplating onshoring or offshoring business activities, consider the after-tax costs of these strategies with the above proposals. While the Tax Cuts and Jobs Act of 2017 added significant reforms to cross-border activity, these latest proposals are even more significant — and in conjunction with tax rate changes, they likely would significantly impact U.S. taxpayers’ cash flow.
How we can help
CLA’s Global Tax Services and industry-specialized teams are modeling these different proposals and the impacts to taxpayers’ business operations and supply chains. We are continuing to monitor these developments and are here to help you navigate these changes.